Soccernomics 2012 Group Economics Arjen van DijkhuizenEuro Football Poland/Ukraine Tel: +31 20 628 8052 29 May 2012 • From an economic perspective, the best outcome would be a French victory: From a confidence perspective, one of the eurozone countries would ideally win Euro 2012. A victory for one of the euro opt-outs (Denmark, England or Sweden) would not be welcome, because it would only encourage the eurosceptics. That leaves the question of whether it would be better for one of the “core” countries (Germany, France, Netherlands) to win or one of the peripheral countries. The contagion has already spread to the periphery, and a range of measures have been introduced to support these countries. We feel it is essential that the contagion does not spread to the core countries. Of the participating core countries, France is closest to the firing line. On the assumption that a victory would provide a confidence boost, it would be best if France won Euro 2012. • Germany will win Euro 2012: Two years ago we accurately predicted that Spain would win the World Cup. And as they say in the world of football, “never change a winning team”. Even so, we have slightly adjusted our prediction method. Our current predictive indicators use the all-time European Championship rankings, the FIFA rankings and a “form ranking”. On the basis of these indicators, Germany and Spain are closely matched, followed at some distance by the Netherlands. Not least given the form trend, we believe that Germany will win Euro 2012. But that is not our preference: we would love to see the Netherlands repeating the 1988 success. • Emerging Europe in the spotlight: This year, the European Football Championships will be held for the first time in emerging Europe (the 1976 tournament in Yugoslavia only comprised four matches). Soccernomics 2012 grasps the opportunity to elaborate on the economic and football achievements of this region. Emerging Europe has a rich football history. After the collapse of communism, regional football achievements have been slightly less spectacular than they were in the 1960s and 1970s, due to the reduction of government support and the disbandment of national football teams. But economically, the region has become Europe’s growth market, although growth levels are not expected to return to the high levels achieved before the credit crisis. • Host countries: outperformer and underperformer: In terms of football achievement, the host countries for Euro 2012, Poland and Ukraine, have been underperforming in recent years. But in economic terms, Poland has been one of Europe’s success stories for years. For the Netherlands, Poland is the most important export destination in emerging Europe. Ukraine has been less successful in both economic and political terms. Because of its vulnerable external position, the country needs another IMF loan, but an agreement is not expected until after the elections in October. Meanwhile, the Tymoshenko case has raised serious questions about the country’s political climate. • Inverse relationship between credit rating and football success? Soccernomics 2012 presents a number of remarkable facts and relationships related to the Euro football championships. The vast majority of next tournament’s participants is (or will be) EU member. Half of the participants is eurozone member; the crisis- struck peripheral countries Greece, Ireland, Italy, Portugal and Spain have all qualified. Ten out of the thirteen championships held so far have been won by a eurozone member. Remarkably, the four last big international football tournaments since 2004 have been won by Greece, Italy and Spain, all countries whose credit ratings have slipped significantly in recent years. Some people argue that the shaky public finances of the South European countries have a socio-cultural background, which is also reflected in football. Recently UEFA has committed itself to ensuring that Spain’s football clubs pay their outstanding tax bills. It is a good thing that these clubs are thus contributing (albeit symbolically) to sorting out the country’s public finances.
2 Soccernomics 2012 - Euro Football Poland/Ukraine - 29 May 2012INTRODUCTION it were. Because, after all, football is the most important of all unimportant things.The 14th European Football Championship is due to kick offseveral weeks from now in Poland and Ukraine. The number We certainly need some light relief these days. Europe – in“14” will remind many of the greatest Dutch footballer ever, particular the eurozone – has been engulfed in a crisis for twoJohan Cruijff. Under his direction, the Dutch entranced the years now. Many necessary steps have already been taken toworld with “total football” (“La Naranja Mecánica”) in the 1970s. overcome this crisis, and there are some glimmers of hope,Let us hope that the 14th European Championship will bring but new dark clouds occasionally gather to obscure thoseOranje renewed fame. glimmers. In our economic scenarios we assume that policymakers will be able to essentially resolve the crisis byFor the first time ever, a full Euro finals tournament will take mid-2012, allowing a very modest recovery to take hold in theplace in Central and Eastern Europe (The 1976 championship second half of the year. Let us hope that Euro 2012 (held fromin Yugoslavia comprised only four matches). Back in 2007 8 June to 1 July) can indeed prove to be a turning point in thewhen UEFA awarded Euro 2012 to Poland and Ukraine, it took euro crisis and demonstrate that Europe has sufficienta calculated gamble. A huge effort would be required in these creativity to reignite economic growth.emerging countries (especially in Ukraine) to get them ready toorganise a European football championship. Of course one The Netherlands is traditionally known for its creativity, both inbenefit is that this decision gave these economies a footballing but also in economic terms, as evidenced byconsiderable boost as it paved the way for (generally) useful various macro-economic rankings. We may well have lostand sometimes even essential infrastructure investments. some of our creative reputation during the last Word Cup, butPoland was already one of the best-performing economies in we did get to the final, not least because of our robust play.Europe. However, Ukraine continues to lag far behind for a The Netherlands also has a reputation for robust publicnumber of reasons, although it does have significant growth finances. However, over the last few weeks we seem to bepotential. In any case, Euro 2012 presents these countries with losing our reputation in that sphere as well, as the fall of thea platform to show what they can offer in terms of facilities, Rutte government raised doubts about whether theorganisational ability and culture. In this respect, too, Ukraine Netherlands would be able to stick to the EU fiscal deficit limitis lagging well behind its co-host, not least because its image (3% of GDP) next year. But thanks to the ‘Spring Agreement’is being damaged by the Tymoshenko case. This starkly reached in late April between the People’s Party for Freedomunderlines the country’s problematic political climate. and Democracy (VVD), Christian Democratic Appeal (CDA), Democrats 66 (D’66), Green Left (GroenLinks) and ChristianThe European Football Championship is the third-largest Union (CU), there is now sufficient parliamentary support forsporting event in the world, after the Olympic Games and the the measures to reduce the deficit in time. This has made aFIFA World Cup. Because of the sporting and economic major contribution to the Netherlands ability to retain itssignificance of these events, ABN AMRO has published a increasingly exclusive AAA credit rating.special report entitled ‘Soccernomics’ ever since the Euro2000 tournament (hosted by the Netherlands and Belgium).1 This report starts with a short review of the last two years sinceSport science is a serious business and provides employment the 2010 World Cup. We then focus on the upcomingfor a large number of people. There are many organisations European Championship. We take a brief look at history of thethat maintain sport statistics, and many scientists who publish competition, considering the link between EU/eurozonepapers based on them. For instance, in February this year the membership, credit ratings and football success. This isEuropean Central Bank (ECB) published a report that tracked followed by a look at the economic and football performancestrading volumes on stock markets during matches at the 2010 of the emerging European countries, including the hostWorld Cup. Stock trading volumes fell by more than 50% on countries Poland and Ukraine. And finally, we answer theaverage during matches involving the national team.2 question of which country should win Euro 2012 for economic reasons, adding our prediction of which team will becomeWe do not claim that our Soccernomics reports are based on European champion.advanced mathematics or pure science. These reports arewritten by economists who are football fans for people who likeboth football and economics. We try to take a quasi-seriousapproach. Economics from a tongue-in-cheek perspective, as .1 In the last few years, ABN AMRO has also published several sport specials, such as“Sport scoort” (“Sport scores”) (2008) on the social importance of sport, and “Deolympische olifant” (“The Olympic elephant”) (2010) on the pros and cons of securingthe Olympic Games 2028 for the Netherlands.2 ECB, “The Pitch rather than the Pit – Investor Inattention during FIFA World CupMatches”, Working Paper No. 1424, February 2012.
3 Soccernomics 2012 - Euro Football Poland/Ukraine - 29 May 20121. DEVELOPMENTS SINCE THE 2010 WORLD CUP debts of these countries threatened to become unsustainable. Due in part to a range of austerity measures, the economies ofFrom the aftermath of the global credit crisis … the afflicted countries faltered. Meanwhile, a variety of otherIn ABN AMRO’s previous Soccernomics report published in effects ultimately caused the economies of the fundamentallythe run-up to the 2010 World Cup in South Africa, we argued healthier eurozone countries to suffer as well. The outcomethat, from an economic perspective, Germany should be was a range of crisis measures (bailouts for Greece, Irelandcrowned world champion. The idea behind this was that a and Portugal, debt restructuring for Greece, the creation andGerman victory would provide the strongest growth impulse to gradual expansion of emergency funds, unconventionalthe global economy, assuming that gaining the title of world liquidity support by the ECB in the form of LTROs), throughchampion would have positive confidence effects in Germany which the crisis was more or less contained and the singleand would boost spending. It would also contribute to reducing currency remained intact. But we are not there yet. Theinternational balance-of-payments imbalances, and hence to dramatic election result in Greece in early May has fuelledthe stability of the world economy. To avert any charges of fears of a Greek exit from the euro (and of potential contagionbetrayal (after all, how could a Dutch bank call for a Germany effects).victory!), we should stress that this argument was basedexclusively on economic calculations. Moreover, it should be 2. EURO FOOTBALL: EU/EUROZONE IN THE LEADplaced in context: in 2010 the global economy had only justsurvived the most serious crisis since the 1930s depression. We hope that after all the turmoil of the past two years, Europe will make different and more positive headlines during EuroOf course now, two years on, we know that Germany did not Football 2012 in Poland and Ukraine. Meanwhile, please allowbecome world champion. Die Mannschaft impressed with a us as economists to make connections to the euro crisis whenrejuvenated and dynamic team, but lost to the eventual world interpreting Euro Football 2012 in this Soccernomics report.champions in the semi-final. But in hindsight, our argument While some people may consider this frivolous, we think it ismade sense. The escalation of the euro crisis after the 2010 interesting, albeit as we said from a tongue-in-cheekWorld Cup is often traced to the fundamental imbalances perspective.between the “surplus countries” like Germany and the “deficitcountries” of Southern Europe. Hence the regular call for Euro 2012 participants and EU / euro membershipGermany to boost its consumption levels and thus help to Year of EU Eurozone Euroreduce these imbalances. The German economy has membership membership opt-outcontinued to perform reasonably well despite the euro crisis,and despite all the troubles it has still acted as a sort of a Croatia 2013*growth engine for the eurozone (and for emerging Europe). Czech Rep. 2004 Denmark 1973 xIncidentally, in the 2010 report we also predicted which team England 1973 xwould win the tournament. On the basis of a number ofsporting indicators, we argued that Spain had the best France 1957 €credentials. Of course we would not have minded if Arjen Germany 1957 €Robben had scored on one of his two excellent chances. But Greece 1981 €La Furia Roja defeated Oranje, and our prediction came true. Ireland 1973 €That was cold comfort, however; economists sometimes refer Italy 1957 €to this jokingly as an ‘emotional hedge’. Netherlands 1957 €… to the euro crisis Poland 2004We now stand on the eve of the next major football Portugal 1986 €tournament: Euro 2012 in Poland and Ukraine. As we Russia -mentioned, this year we are still in the middle of a serious debt Spain 1986 €crisis in the eurozone. In fact, this euro crisis really followed ondirectly from the previous global credit crisis, as the recession Sweden 1995 xand a range of support measures for banks and other Ukraine -organisations derailed the public finances of many eurozone * Croatia’s planned accession date: 1 July 2013 Source: ABN AMRO Group Economicscountries. The euro crisis broke out in late 2009 / early 2010 inGreece, hitting other eurozone countries as well, especially The forthcoming European Championship is above all an EUIreland, Portugal, Italy and Spain. The financial markets affair. Of the 16 finalists, 13 are European Union members.started to turn away from government bonds from these The 14th finalist, Croatia, is expected to join the EU on 1 Julycountries, which pushed up their yields. As a result, the public 2013, provided all EU member states ratify the accession
4 Soccernomics 2012 - Euro Football Poland/Ukraine - 29 May 2012treaty. This means that, including Croatia, nearly 90% of the This pattern is confirmed by the all-time Europeanfinalists are current or future EU members. This is more than Championship rankings based on matches played in all thethe EU’s share in Europe’s total population (62%) and its share tournaments. The first six places on this list are held byin Europe’s total GDP (81%). The other participating teams are eurozone countries (Germany, Netherlands, France, Spain,Russia and, of course, co-host Ukraine. We should mention Italy and Portugal, see table). The FIFA rankings, which arethat the EU and Ukraine have agreed an association treaty, updated monthly on the basis of all official internationalbut this remains unsigned because of the Tymoshenko case. matches played by FIFA members, reflect this pattern: the four highest-placed European countries on this list (Spain,Another striking feature of the championship is that half of the Germany, Netherlands and Portugal) are eurozone members.16 participating countries are eurozone members. Indeed, allfive countries that have been hardest hit by the euro crisis 3. CHAMPIONS, CREDIT RATINGS AND DEBT(Greece, Ireland, Italy, Portugal and Spain, known as the“periphery”) have qualified for the finals. The other eurozone Football victories and ratings: an inverse relationship?participants are Germany, France and the Netherlands. It is Let us take this one step further. The last four major footballalso worth noting that the three EU members that negotiated tournaments were won by Greece (Euro 2004), Italy (Worldopt-out clauses in the run-up to the currency union in the Cup 2006) and Spain (Euro 2008 and World Cup 2010). So1990s (Denmark, England and Sweden) have qualified. the countries that have dominated the football world in recent years are the very countries that have suffered the worstFootball performances of Euro 2012 finalists economic crises. The chart below shows the changes in credit All-time Partici- Semi- Wins FIFA ratings since the World Cup final in 2010. Again, of all the Euro Euro pations* finals ranking^ 2012 finalists, the credit ratings of the three recent champions ranking (and those of Portugal and Ireland) have been lowered the Germany** 1 11 7 3 2 most. In recent years, there seems to be an inverse 2 9 5 1 4 relationship between a country winning a World Cup or Netherlands European Championship and its credit rating. Among current France 3 10 4 2 16 AAA-rated countries, the last to win international tournaments Spain 4 11 3 2 1 were Germany (Euro 1996 and World Cup 1990), Denmark Italy 5 9 4 1 12 (Euro 1992) and the Netherlands (Euro 1988). Portugal 6 7 3 0 5 Czech Rep.** 7 8 5 1 26 Changes in credit ratings since 2010 World Cup Russia** 8 11 6 1 11 Change in S&P rating since 11 July 2010 (number of notches) England 9 9 2 0 7 Czech Rep. (AA-) Ukraine (B+) Denmark 10 8 3 1 10 Sweden (AAA) Russia (BBB) Croatia 11 4 0 0 8 Poland (A-) Netherlands (AAA) Sweden 12 6 1 0 17 England (AAA) Germany (AAA) Greece 13 4 1 1 14 Denmark (AAA) Croatia (BBB-) Ireland 21 3 0 0 18 France (AA+) Italy (BBB+) Poland 26 2 0 0 65 Spain (BBB+) Portugal (BB) Ukraine n.a. 0 0 0 50 Ireland (BBB+)* Including Euro Football 2012 Greece (CCC)** Germany includes West Germany, Czech Rep. includes Czechoslovakia,Russia includes Soviet Union -8 -6 -4 -2 0 2 4^ Latest update (9 May 2012)Sources: ABN AMRO Group Economics, FIFA Source: BloombergThe previous European champions are almost exclusively Could there be a deeper connection here? Do sportspeoplemembers of the eurozone. To date, 12 of the 13 champion- from countries that are struggling economically develop aships (92%) were won by countries that are now member winning mentality, and do sportspeople from prosperousstates of the EU (including their predecessors). The only countries become lazier and less motivated? Explanationsexception was the victory of the Soviet Union in 1960, the first along these lines are often given for the success of Latinyear the championship was held. What is more, no fewer than American countries, which have won the World Cup relatively10 of the 13 tournaments to date were won by countries that often even though they are less wealthy (and have smallerare currently members of the eurozone. This share is clearly populations) than their European counterparts. Brazil has wonhigher than the eurozone’s share in Europe’s total population the World Cup most often (five times), but Argentina and(41%) and total GDP (60%). Uruguay have also posted two victories apiece. In addition,
5 Soccernomics 2012 - Euro Football Poland/Ukraine - 29 May 2012Brazil (13%) and Argentina (7%) are overrepresented in the offer. Nor, in fact, does it do justice to the region’s footballingexport of football players, while Uruguay and Colombia take achievements and economic performance.fourth and fifth place on this list.3 Nevertheless, the history ofthe European Championship provides no evidence of such an Rich football historyinverse relationship. The three most prosperous ‘core Emerging Europe has a rich football history. During the firstcountries’ – Germany, the Netherlands and France – occupy World Cups in the 1930s, Czechoslovakia and Hungary werethe top three positions on the all-time Euro ranking list, losing finalists. And after the Second World War, Hungary –followed by Spain, Italy and Portugal. the Magical Magyars – continued to delight with high-quality football under the leadership of the legendary Ferenc Puskás.Leverage and Financial Fair Play Hungary lost the 1954 World Cup final to West Germany.Some argue that the shaky public finances of the South Yugoslavia was also a football power in the mid-20th century.European countries have a socio-cultural background, which is The team regularly qualified for major tournaments andalso reflected in the football world. Supporters of this claim reached the semi-finals and finals on several occasions.point to the exorbitantly high player transfer fees paid by However, like Hungary it never won a title. But the SovietSpanish and Italian clubs (but of course also English clubs). A Union captured the first European Championship in 1960.report published by UEFA in 2011 shows that between 1996 Over the following decades the Soviets reached several semi-and 2011, English, Italian and Spanish clubs were the buying finals and finals, including in 1988 (when they lost the final toparties in 90% of the 400 most expensive transfers. Among the the Netherlands). Following the collapse of the Soviet Union,selling parties, clubs from these countries also occupied the the Russian team shared third place at Euro 2008 (aftertop three places by a large margin (together accounting for beating the Netherlands in the quarter-finals). Like the Soviet62%). The same report also shows that, within Europe, clubs Union, Czechoslovakia also earned one major title (Euro 1976,from Spain, Ukraine and Turkey as well as England, Germany as discussed above) and after the countrys dissolution, theand Russia are the main importers of talent.4 Czech team performed well in the 1990s and early 2000s. It was the losing finalist at Euro 1996 and shared third placeJust as the new EU fiscal treaty has recently tightened the (with the Netherlands) at Euro 2004. Poland impressed withrules for governments, Europe’s football clubs will be obliged two third places at the 1974 and 1982 World Cups andto follow the rules of UEFA Financial Fair Play from 2013. Bulgaria came fourth at the 1994 World Cup. Croatia cameThese rules set ceilings on debt burdens, borrowing levels and third in the 1998 World Cup after defeating the Netherlands inannual losses. Clubs that fail to comply risk punishment in the the third-place playoff. Turkey performed the same feat fourform of a fine or disqualification from European competitions. years later and also came third at Euro 2008.In March of this year, UEFA and the European Commissionsigned an agreement that underlined the EU’s support for Sport and politicsFinancial Fair Play. With regard to Spanish clubs, UEFA has Many people argue that sport and politics should not mix. Butrecently explicitly committed itself to ensuring that they pay in practice they often suspiciously go hand-in-hand. Perhapstheir outstanding tax bills (amounting to a total of around EUR one of the most talked-about football performances by an East750 million). It is a good thing that these football clubs are thus European team occurred at the 1974 World Cup. Fifteen yearscontributing to sorting out Spain’s public finances. before the fall of the Berlin Wall – in the middle of the cold war – communist East Germany beat its ‘capitalist archenemy’, the4. EMERGING EUROPE IN THE SPOTLIGHT host and ultimate world champion, West Germany, during the group stage, with a goal by Jürgen Sparwasser in the 78thThis year the finals of the European Football Championship minute. Some 1,500 East German ‘fans’, carefully vetted bywill be held for the first time in Central and Eastern Europe (or the Stasi, were allowed to attend the match. This match is still‘emerging Europe’). Football fanatics will immediately point to stamped on the collective memory in both eastern and westernthe tournament held in Yugoslavia in 1976. That was the year Germany.the Czechoslovak player Antonin Panenka made history bychipping his penalty in the deciding shoot-out past the diving The collapse of communism in the late 1980s and early 1990sWest German keeper to seize the victory for his country. But brought many changes to the football world as well. For onethis tournament was still held under the old structure, which thing, the dissolution of the Soviet Union, Czechoslovakia andstarted with the semi-finals and comprised only four matches. Yugoslavia gave rise to 20 new countries (the number beingSo this year we will see the first “new-style” tournament in reduced by one with the unification of East and West Germanyemerging Europe. This region is often regarded as “drab” and in 1990). Each of these new countries joined UEFA and FIFA.“grey”, both in economic and footballing terms. But this One of the consequences was an increase in the number ofgeneralisation does not do justice to what the region has to finalists at Euro tournaments from eight to 16 from 1996. Another was the reduction of the regions public funding for3 FIFA TMS, “Global Transfer Market 2011”, 2012. sport, including football. The communist regimes had regarded4 UEFA, “Club licensing benchmarking report financial year 2010”, 2011.
6 Soccernomics 2012 - Euro Football Poland/Ukraine - 29 May 2012sporting success as a tool in the propaganda war with the because of its role in the Balkan wars. (Interestingly, itsWest. When government support was significantly reduced replacement, Denmark, went on to win the tournament.) Ofand, to a lesser extent, the Soviet and Yugoslav national course given the history of sport boycotts, it remains doubtfulteams were disbanded, football success for East European whether this boycott by politicians will be particularly effective.teams became rather more elusive than during the 1960s and Still, this may change if the ratification of the EU association1970s. But where government withdrew, private business treaty is made conditional on an improvement in the humanstepped in. Super-rich oligarchs from Russia, Ukraine and rights situation in Ukraine. Then again, some people argue thatelsewhere bought football clubs as a hobby pursuit. And of a boycott actually takes away the opportunity to exercise somecourse some oligarchs also looked beyond their national influence in the country concerned itself.boundaries (Englands Chelsea being the obvious example).Performance emerging Europe at European Emerging Europe a growth marketChampionships and World Cups We all know that the collapse of communism in 1989 triggered Performance score based on first to fourth places* a period of huge political, economic and social change in 10 emerging Europe. After a sharp economic downturn in the 1990s, economic growth in the region has been pushing up the 8 European average for years. This growth was further 6 stimulated by the EU accession process, with 10 emerging European countries entering the EU in 2004. Growth was 4 fuelled in part by substantial capital flows from Western 2 Europe. 0 Poland: economic outperformer 1930 1940 1950 1960 1970 1980 1990 2000 2010 Thanks to “shock therapy” and liberal policies, Poland has World Cups European Championships undergone a rapid transition to a market economy since the early 1990s. Over the past two decades, Poland posted growthSource: ABN AMRO Group Economics. rates above the East European average. In fact, Poland is the* World Cups: a victory yields 10 points. Second to fourth places yield 6, 4and 2 points respectively. European Championships: a victory yields 5 Netherlands’ most important export market in emergingpoints. Second to fourth places yield 3, 2 and 1 point(s) respectively. Europe thanks to its size, strong growth and proximity. InExample Euro 1960: 1. Russia, 2. Yugoslavia, 3. Czechoslovakia. Thisyields a cumulative 5 + 3 + 2 = 10 points for emerging Europe. 2010, the Netherlands exported goods worth EUR 8.5 billion to Poland, equivalent to the exports to China, Brazil and India combined. Its main exports to Poland are machinery,Boycott-nomics electronic goods and transport equipment. In political terms,The boundary between sport and politics is once again blurring Poland has proved an active and reliable partner since itsin the run-up to Euro 2012. Because of Ukraine’s less-than-fair accession to NATO in 1999 and the EU in 2004. But thejudicial system, many EU politicians and officials are country is also committed to good relations with Russia.boycotting the country. This boycott arose following theescalation of the Tymoshenko case. Yulia Tymoshenko, prime Poland was able to avoid a recession during the credit crisisminister of Ukraine in 2005-06 and 2007-10, was one of the thanks to a favourable starting position, an anti-cyclical fiscalleading lights of the Orange revolution in 2004-05. Viktor policy and a flexible exchange rate. The Polish economyYanukovych defeated her in the presidential election in early continued to post above-average growth in 2010 and 2011 at2010, but she remained a major political player. Then, she was around 4%. This growth performance relies heavily on privateconvicted late last year of abuse of office when brokering the consumption, which has remained buoyant despite the eurogas deal with Russia in 2009 and was sentenced to seven crisis. The construction industry in particular has benefitedyears in prison. Despite this development, the EU has from investments linked to Euro 2012. A study published incontinued the process of concluding an association treaty with 2010 calculated that hosting Euro 2012 would boost the PolishUkraine. But the formal signing of the treaty was postponed economy by 2.1% of GDP at 2009 prices, spread over a 13-when Tymoshenko went on hunger strike in late April and year period.5 However, we expect economic growth to slow toaccused the authorities of torture. around 3% this year, partly due to the euro crisis.The boycott is only partial, however, because no football During the global credit crisis, the export-oriented economiesteams are pulling out. That would be quite unusual in the were hit hard as export demand slumped, commodity priceshistory of the European Championship. In 1960, Spain pulledout of the competition after the Franco regime stopped theteam from travelling to the Soviet Union. And in 1992, the 5 See Raiffeisen Research, “Ukraine Special Report – Euro 2012”, Marchformer Yugoslavia had qualified for the finals but was excluded 2012, and Borowski et al., “UEFA Euro 2012 – Poland”, 2010.
7 Soccernomics 2012 - Euro Football Poland/Ukraine - 29 May 2012collapsed and capital flows dried up. Since then, emerging below the 2008 level. By contrast, Poland’s real GDP at end-Europe has managed to recover reasonably well. The region’s 2012 should be around 15% above end 2008. This illustrateslargest economies (Russia, Turkey, Poland) turned in the strength of the Polish economy, which is followed at someparticularly good performances in 2011 despite the escalation distance by Russia. In growth terms the Czech Republic findsof the euro crisis. But some growth moderation is likely in itself between Russia and Ukraine. We should say that over2012, in part owing to the euro crisis: we expect the region’s the coming years we do not expect regional economic growthgrowth to slow from 4.6% in 2011 to 3% this year. to return to the high levels achieved before the credit crisis.Ukraine: economic underperformer 5. THE CRYSTAL BALLUkraine is beset by many problems, both political andeconomic. This is evident from its credit ratings, which are the Who should win Euro 2012 for economic reasons?lowest of all Euro finalists. Structural weaknesses are From an economic perspective, our starting point is the europreventing Ukraine from fulfilling its considerable potential. crisis. In our view it would be very good for the world economy,That potential is partly related to the countrys extensive fertile for Europe and for the Netherlands as an open, export-agricultural land and huge commodity reserves, including iron oriented economy if the eurozone survives the current crisisore. The economy is recovering from a sharp (15%) and remains intact as much as possible. The euro crisis iscontraction in 2009, but is still struggling. Because of a high largely a crisis of confidence. Each time financial marketscurrent account deficit, large debt servicing obligations and worry about the sustainability of the eurozone countries’ debtlimited access to capital markets, Ukraine needs another IMF levels, it fuels doubts about the sustainability of the monetaryloan. But negotiations with the IMF foundered last year on a union in its current form. Therefore, from a confidence point ofhike in the heavily subsidised gas prices, among other factors. view, we believe it would be best if one of the eurozoneA new agreement is not expected until after the general countries won Euro 2012. A victory for one of the opt-outelection scheduled for this October. Moreover, the structural countries (Denmark, England, Sweden) would not bereforms are moving slowly due to a range of political obstacles, welcome, because it would only encourage the eurosceptics.which explain why Ukraine is lagging behind its western EU The question that immediately arises is whether one of theneighbours. The economic stimulus related to the co-hosting of peripheral eurozone countries or one of the core countriesEuro 2012 is equivalent to 2.8% of GDP, spread over the should win.period 2008-2012, according to an Austrian bank.5 The largesteffect (accounting for around 70% of the outlays) flows from Greece, Ireland, Italy, Portugal and Spain have already beeninfrastructure investments. Total Euro 2012-related spending is badly affected by the euro crisis, and a wide range ofestimated at 8% of GDP, which is clearly higher than for measures has been rolled out to support these countries. Theprevious tournaments. Due to the adverse investment climate EU and the IMF have launched rescue packages, a largein Ukraine, the public sector accounts for the bulk of these proportion of the Greek debt has been written off, the ECB hasinvestments. started buying government bonds from these countries, the LTRO programme is offering support − especially to theGrowth rates emerging European participants peripheral banks − and the emergency fund has been expended to cope with any borrowing needs from these % / percentage points countries. It is true that the probability of a Greek exit has 15 recently increased again, along with the attendant risks. And 10 perhaps a Euro 2012 victory for one of the peripheral countries would give their self-confidence a boost. But in our view it is 5 imperative that the contagion does not spread to the core 0 countries, because the eurozone is not sufficiently prepared to -5 deal with that scenario. -10 Therefore, from an economic perspective we believe it would POL RUS CZE UKR CRO be best if Germany, France or the Netherlands won Euro Real GDP growth est 2012 Avg. real GDP growth 2000-08 2012, on the assumption that a victory for one of these Real GDP size, 2012 vs 2008 countries would strengthen the conviction that the eurozone core is sufficiently robust and that the monetary union canSource: ABN AMRO Group Economics survive. Of the core countries, France is closest to the “firing line” of the periphery. It has already lost its AAA status at S&P,Incidentally, there are considerable differences within the and the markets are keeping a close eye on the direction it willregion, including among the Euro 2012 participants. Partly due take under its new socialist president François Hollande.to the sharp contraction in 2009, real GDP in Croatia andUkraine at end-2012 will probably still stand at around 5%