120529 -soccernomics_2012_eng

Soccernomics 2012Euro Football Poland/Ukraine

Group Economics

Arjen van Dijkhuizen

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 2012

INTRODUCTION

The 14th European Football Championship is due to kick off

several weeks from now in Poland and Ukraine. The number

“14” will remind many of the greatest Dutch footballer ever,

Johan Cruijff. Under his direction, the Dutch entranced the

world with “total football” (“La Naranja Mecánica”) in the 1970s.

Let us hope that the 14th European Championship will bring

Oranje renewed fame.

For the first time ever, a full Euro finals tournament will take

place in Central and Eastern Europe (The 1976 championship

in Yugoslavia comprised only four matches). Back in 2007

when UEFA awarded Euro 2012 to Poland and Ukraine, it took

a calculated gamble. A huge effort would be required in these

emerging countries (especially in Ukraine) to get them ready to

organise a European football championship. Of course one

benefit is that this decision gave these economies a

considerable boost as it paved the way for (generally) useful

and sometimes even essential infrastructure investments.

Poland was already one of the best-performing economies in

Europe. However, Ukraine continues to lag far behind for a

number of reasons, although it does have significant growth

potential. In any case, Euro 2012 presents these countries with

a platform to show what they can offer in terms of facilities,

organisational ability and culture. In this respect, too, Ukraine

is lagging well behind its co-host, not least because its image

is being damaged by the Tymoshenko case. This starkly

underlines the country’s problematic political climate.

The European Football Championship is the third-largest

sporting event in the world, after the Olympic Games and the

FIFA World Cup. Because of the sporting and economic

significance of these events, ABN AMRO has published a

special report entitled ‘Soccernomics’ ever since the Euro

2000 tournament (hosted by the Netherlands and Belgium).1

Sport science is a serious business and provides employment

for a large number of people. There are many organisations

that maintain sport statistics, and many scientists who publish

papers based on them. For instance, in February this year the

European Central Bank (ECB) published a report that tracked

trading volumes on stock markets during matches at the 2010

World Cup. Stock trading volumes fell by more than 50% on

average during matches involving the national team.2

We do not claim that our Soccernomics reports are based on

advanced mathematics or pure science. These reports are

written by economists who are football fans for people who like

both football and economics. We try to take a quasi-serious

approach. 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 “De olympische olifant” (“The Olympic elephant”) (2010) on the pros and cons of securing the Olympic Games 2028 for the Netherlands. 2 ECB, “The Pitch rather than the Pit – Investor Inattention during FIFA World Cup Matches”, Working Paper No. 1424, February 2012.

it were. Because, after all, football is the most important of all

unimportant things.

We certainly need some light relief these days. Europe – in

particular the eurozone – has been engulfed in a crisis for two

years now. Many necessary steps have already been taken to

overcome this crisis, and there are some glimmers of hope,

but new dark clouds occasionally gather to obscure those

glimmers. In our economic scenarios we assume that

policymakers will be able to essentially resolve the crisis by

mid-2012, allowing a very modest recovery to take hold in the

second half of the year. Let us hope that Euro 2012 (held from

8 June to 1 July) can indeed prove to be a turning point in the

euro crisis and demonstrate that Europe has sufficient

creativity to reignite economic growth.

The Netherlands is traditionally known for its creativity, both in

footballing but also in economic terms, as evidenced by

various macro-economic rankings. We may well have lost

some of our creative reputation during the last Word Cup, but

we did get to the final, not least because of our robust play.

The Netherlands also has a reputation for robust public

finances. However, over the last few weeks we seem to be

losing our reputation in that sphere as well, as the fall of the

Rutte government raised doubts about whether the

Netherlands would be able to stick to the EU fiscal deficit limit

(3% of GDP) next year. But thanks to the ‘Spring Agreement’

reached in late April between the People’s Party for Freedom

and Democracy (VVD), Christian Democratic Appeal (CDA),

Democrats 66 (D’66), Green Left (GroenLinks) and Christian

Union (CU), there is now sufficient parliamentary support for

the measures to reduce the deficit in time. This has made a

major contribution to the Netherlands' ability to retain its

increasingly exclusive AAA credit rating.

This report starts with a short review of the last two years since

the 2010 World Cup. We then focus on the upcoming

European Championship. We take a brief look at history of the

competition, considering the link between EU/eurozone

membership, credit ratings and football success. This is

followed by a look at the economic and football performances

of the emerging European countries, including the host

countries Poland and Ukraine. And finally, we answer the

question of which country should win Euro 2012 for economic

reasons, adding our prediction of which team will become

European champion.

.


1. DEVELOPMENTS SINCE THE 2010 WORLD CUP

From the aftermath of the global credit crisis …

In ABN AMRO’s previous Soccernomics report published in

the run-up to the 2010 World Cup in South Africa, we argued

that, from an economic perspective, Germany should be

crowned world champion. The idea behind this was that a

German victory would provide the strongest growth impulse to

the global economy, assuming that gaining the title of world

champion would have positive confidence effects in Germany

and would boost spending. It would also contribute to reducing

international balance-of-payments imbalances, and hence to

the stability of the world economy. To avert any charges of

betrayal (after all, how could a Dutch bank call for a Germany

victory!), we should stress that this argument was based

exclusively on economic calculations. Moreover, it should be

placed in context: in 2010 the global economy had only just

survived the most serious crisis since the 1930s depression.

Of course now, two years on, we know that Germany did not

become world champion. Die Mannschaft impressed with a

rejuvenated and dynamic team, but lost to the eventual world

champions in the semi-final. But in hindsight, our argument

made sense. The escalation of the euro crisis after the 2010

World Cup is often traced to the fundamental imbalances

between the “surplus countries” like Germany and the “deficit

countries” of Southern Europe. Hence the regular call for

Germany to boost its consumption levels and thus help to

reduce these imbalances. The German economy has

continued to perform reasonably well despite the euro crisis,

and despite all the troubles it has still acted as a sort of a

growth engine for the eurozone (and for emerging Europe).

Incidentally, in the 2010 report we also predicted which team

would win the tournament. On the basis of a number of

sporting indicators, we argued that Spain had the best

credentials. Of course we would not have minded if Arjen

Robben had scored on one of his two excellent chances. But

La Furia Roja defeated Oranje, and our prediction came true.

That was cold comfort, however; economists sometimes refer

to this jokingly as an ‘emotional hedge’.

… to the euro crisis

We now stand on the eve of the next major football

tournament: Euro 2012 in Poland and Ukraine. As we

mentioned, this year we are still in the middle of a serious debt

crisis in the eurozone. In fact, this euro crisis really followed on

directly from the previous global credit crisis, as the recession

and a range of support measures for banks and other

organisations derailed the public finances of many eurozone

countries. The euro crisis broke out in late 2009 / early 2010 in

Greece, hitting other eurozone countries as well, especially

Ireland, Portugal, Italy and Spain. The financial markets

started to turn away from government bonds from these

countries, which pushed up their yields. As a result, the public

debts of these countries threatened to become unsustainable.

Due in part to a range of austerity measures, the economies of

the afflicted countries faltered. Meanwhile, a variety of other

effects ultimately caused the economies of the fundamentally

healthier eurozone countries to suffer as well. The outcome

was a range of crisis measures (bailouts for Greece, Ireland

and Portugal, debt restructuring for Greece, the creation and

gradual expansion of emergency funds, unconventional

liquidity support by the ECB in the form of LTROs), through

which the crisis was more or less contained and the single

currency remained intact. But we are not there yet. The

dramatic election result in Greece in early May has fuelled

fears of a Greek exit from the euro (and of potential contagion

effects).

2. EURO FOOTBALL: EU/EUROZONE IN THE LEAD

We hope that after all the turmoil of the past two years, Europe

will make different and more positive headlines during Euro

Football 2012 in Poland and Ukraine. Meanwhile, please allow

us as economists to make connections to the euro crisis when

interpreting Euro Football 2012 in this Soccernomics report.

While some people may consider this frivolous, we think it is

interesting, albeit as we said from a tongue-in-cheek

perspective.

Euro 2012 participants and EU / euro membership

Year of EU

membership

Eurozone

membership

Euro

opt-out

Croatia 2013*

Czech Rep. 2004

Denmark 1973 x

England 1973 x

France 1957 €

Germany 1957 €

Greece 1981 €

Ireland 1973 €

Italy 1957 €

Netherlands 1957 €

Poland 2004

Portugal 1986 €

Russia -

Spain 1986 €

Sweden 1995 x

Ukraine - * Croatia’s planned accession date: 1 July 2013 Source: ABN AMRO Group Economics

The forthcoming European Championship is above all an EU

affair. Of the 16 finalists, 13 are European Union members.

The 14th finalist, Croatia, is expected to join the EU on 1 July

2013, provided all EU member states ratify the accession


treaty. This means that, including Croatia, nearly 90% of the

finalists are current or future EU members. This is more than

the EU’s share in Europe’s total population (62%) and its share

in Europe’s total GDP (81%). The other participating teams are

Russia and, of course, co-host Ukraine. We should mention

that the EU and Ukraine have agreed an association treaty,

but this remains unsigned because of the Tymoshenko case.

Another striking feature of the championship is that half of the

16 participating countries are eurozone members. Indeed, all

five countries that have been hardest hit by the euro crisis

(Greece, Ireland, Italy, Portugal and Spain, known as the

“periphery”) have qualified for the finals. The other eurozone

participants are Germany, France and the Netherlands. It is

also worth noting that the three EU members that negotiated

opt-out clauses in the run-up to the currency union in the

1990s (Denmark, England and Sweden) have qualified.

Football performances of Euro 2012 finalists

All-time

Euro

ranking

Partici-

pations*

Semi-

finals

Wins FIFA

ranking^

Germany** 1 11 7 3 2

Netherlands 2 9 5 1 4

France 3 10 4 2 16

Spain 4 11 3 2 1

Italy 5 9 4 1 12

Portugal 6 7 3 0 5

Czech Rep.** 7 8 5 1 26

Russia** 8 11 6 1 11

England 9 9 2 0 7

Denmark 10 8 3 1 10

Croatia 11 4 0 0 8

Sweden 12 6 1 0 17

Greece 13 4 1 1 14

Ireland 21 3 0 0 18

Poland 26 2 0 0 65

Ukraine n.a. 0 0 0 50 * Including Euro Football 2012 ** Germany includes West Germany, Czech Rep. includes Czechoslovakia, Russia includes Soviet Union ^ Latest update (9 May 2012) Sources: ABN AMRO Group Economics, FIFA

The previous European champions are almost exclusively

members of the eurozone. To date, 12 of the 13 champion-

ships (92%) were won by countries that are now member

states of the EU (including their predecessors). The only

exception was the victory of the Soviet Union in 1960, the first

year the championship was held. What is more, no fewer than

10 of the 13 tournaments to date were won by countries that

are currently members of the eurozone. This share is clearly

higher than the eurozone’s share in Europe’s total population

(41%) and total GDP (60%).

This pattern is confirmed by the all-time European

Championship rankings based on matches played in all the

tournaments. The first six places on this list are held by

eurozone countries (Germany, Netherlands, France, Spain,

Italy and Portugal, see table). The FIFA rankings, which are

updated monthly on the basis of all official international

matches played by FIFA members, reflect this pattern: the four

highest-placed European countries on this list (Spain,

Germany, Netherlands and Portugal) are eurozone members.

3. CHAMPIONS, CREDIT RATINGS AND DEBT

Football victories and ratings: an inverse relationship?

Let us take this one step further. The last four major football

tournaments were won by Greece (Euro 2004), Italy (World

Cup 2006) and Spain (Euro 2008 and World Cup 2010). So

the countries that have dominated the football world in recent

years are the very countries that have suffered the worst

economic crises. The chart below shows the changes in credit

ratings since the World Cup final in 2010. Again, of all the Euro

2012 finalists, the credit ratings of the three recent champions

(and those of Portugal and Ireland) have been lowered the

most. In recent years, there seems to be an inverse

relationship between a country winning a World Cup or

European Championship and its credit rating. Among current

AAA-rated countries, the last to win international tournaments

were Germany (Euro 1996 and World Cup 1990), Denmark

(Euro 1992) and the Netherlands (Euro 1988).

Changes in credit ratings since 2010 World Cup

Change in S&P rating since 11 July 2010 (number of notches)

-8 -6 -4 -2 0 2 4

Greece (CCC)Ireland (BBB+)

Portugal (BB)Spain (BBB+)

Italy (BBB+)France (AA+)

Croatia (BBB-)Denmark (AAA)Germany (AAA)England (AAA)

Netherlands (AAA)Poland (A-)

Russia (BBB)Sweden (AAA)

Ukraine (B+)Czech Rep. (AA-)

Source: Bloomberg

Could there be a deeper connection here? Do sportspeople

from countries that are struggling economically develop a

winning mentality, and do sportspeople from prosperous

countries become lazier and less motivated? Explanations

along these lines are often given for the success of Latin

American countries, which have won the World Cup relatively

often even though they are less wealthy (and have smaller

populations) than their European counterparts. Brazil has won

the World Cup most often (five times), but Argentina and

Uruguay have also posted two victories apiece. In addition,


Brazil (13%) and Argentina (7%) are overrepresented in the

export of football players, while Uruguay and Colombia take

fourth and fifth place on this list.3 Nevertheless, the history of

the European Championship provides no evidence of such an

inverse relationship. The three most prosperous ‘core

countries’ – Germany, the Netherlands and France – occupy

the top three positions on the all-time Euro ranking list,

followed by Spain, Italy and Portugal.

Leverage and Financial Fair Play

Some argue that the shaky public finances of the South

European countries have a socio-cultural background, which is

also reflected in the football world. Supporters of this claim

point to the exorbitantly high player transfer fees paid by

Spanish and Italian clubs (but of course also English clubs). A

report published by UEFA in 2011 shows that between 1996

and 2011, English, Italian and Spanish clubs were the buying

parties in 90% of the 400 most expensive transfers. Among the

selling parties, clubs from these countries also occupied the

top three places by a large margin (together accounting for

62%). The same report also shows that, within Europe, clubs

from Spain, Ukraine and Turkey as well as England, Germany

and Russia are the main importers of talent.4

Just as the new EU fiscal treaty has recently tightened the

rules for governments, Europe’s football clubs will be obliged

to follow the rules of UEFA Financial Fair Play from 2013.

These rules set ceilings on debt burdens, borrowing levels and

annual losses. Clubs that fail to comply risk punishment in the

form of a fine or disqualification from European competitions.

In March of this year, UEFA and the European Commission

signed an agreement that underlined the EU’s support for

Financial Fair Play. With regard to Spanish clubs, UEFA has

recently explicitly committed itself to ensuring that they pay

their outstanding tax bills (amounting to a total of around EUR

750 million). It is a good thing that these football clubs are thus

contributing to sorting out Spain’s public finances.

4. EMERGING EUROPE IN THE SPOTLIGHT

This year the finals of the European Football Championship

will be held for the first time in Central and Eastern Europe (or

‘emerging Europe’). Football fanatics will immediately point to

the tournament held in Yugoslavia in 1976. That was the year

the Czechoslovak player Antonin Panenka made history by

chipping his penalty in the deciding shoot-out past the diving

West German keeper to seize the victory for his country. But

this tournament was still held under the old structure, which

started with the semi-finals and comprised only four matches.

So this year we will see the first “new-style” tournament in

emerging Europe. This region is often regarded as “drab” and

“grey”, both in economic and footballing terms. But this

generalisation does not do justice to what the region has to

3 FIFA TMS, “Global Transfer Market 2011”, 2012. 4 UEFA, “Club licensing benchmarking report financial year 2010”, 2011.

offer. Nor, in fact, does it do justice to the region’s footballing

achievements and economic performance.

Rich football history

Emerging Europe has a rich football history. During the first

World Cups in the 1930s, Czechoslovakia and Hungary were

losing finalists. And after the Second World War, Hungary –

the Magical Magyars – continued to delight with high-quality

football under the leadership of the legendary Ferenc Puskás.

Hungary lost the 1954 World Cup final to West Germany.

Yugoslavia was also a football power in the mid-20th century.

The team regularly qualified for major tournaments and

reached the semi-finals and finals on several occasions.

However, like Hungary it never won a title. But the Soviet

Union captured the first European Championship in 1960.

Over the following decades the Soviets reached several semi-

finals and finals, including in 1988 (when they lost the final to

the Netherlands). Following the collapse of the Soviet Union,

the Russian team shared third place at Euro 2008 (after

beating the Netherlands in the quarter-finals). Like the Soviet

Union, Czechoslovakia also earned one major title (Euro 1976,

as discussed above) and after the country's dissolution, the

Czech team performed well in the 1990s and early 2000s. It

was the losing finalist at Euro 1996 and shared third place

(with the Netherlands) at Euro 2004. Poland impressed with

two third places at the 1974 and 1982 World Cups and

Bulgaria came fourth at the 1994 World Cup. Croatia came

third in the 1998 World Cup after defeating the Netherlands in

the third-place playoff. Turkey performed the same feat four

years later and also came third at Euro 2008.

Sport and politics

Many people argue that sport and politics should not mix. But

in practice they often suspiciously go hand-in-hand. Perhaps

one of the most talked-about football performances by an East

European team occurred at the 1974 World Cup. Fifteen years

before the fall of the Berlin Wall – in the middle of the cold war

– communist East Germany beat its ‘capitalist archenemy’, the

host and ultimate world champion, West Germany, during the

group stage, with a goal by Jürgen Sparwasser in the 78th

minute. Some 1,500 East German ‘fans’, carefully vetted by

the Stasi, were allowed to attend the match. This match is still

stamped on the collective memory in both eastern and western

Germany.

The collapse of communism in the late 1980s and early 1990s

brought many changes to the football world as well. For one

thing, the dissolution of the Soviet Union, Czechoslovakia and

Yugoslavia gave rise to 20 new countries (the number being

reduced by one with the unification of East and West Germany

in 1990). Each of these new countries joined UEFA and FIFA.

One of the consequences was an increase in the number of

finalists at Euro tournaments from eight to 16 from 1996.

Another was the reduction of the region's public funding for

sport, including football. The communist regimes had regarded


sporting success as a tool in the propaganda war with the

West. When government support was significantly reduced

and, to a lesser extent, the Soviet and Yugoslav national

teams were disbanded, football success for East European

teams became rather more elusive than during the 1960s and

1970s. But where government withdrew, private business

stepped in. Super-rich oligarchs from Russia, Ukraine and

elsewhere bought football clubs as a hobby pursuit. And of

course some oligarchs also looked beyond their national

boundaries (England's Chelsea being the obvious example).

Performance emerging Europe at European Championships and World Cups

Performance score based on first to fourth places*

0

2

4

6

8

10

1930 1940 1950 1960 1970 1980 1990 2000 2010

World Cups European Championships

Source: ABN AMRO Group Economics. * World Cups: a victory yields 10 points. Second to fourth places yield 6, 4 and 2 points respectively. European Championships: a victory yields 5 points. Second to fourth places yield 3, 2 and 1 point(s) respectively. Example Euro 1960: 1. Russia, 2. Yugoslavia, 3. Czechoslovakia. This yields a cumulative 5 + 3 + 2 = 10 points for emerging Europe.

Boycott-nomics

The boundary between sport and politics is once again blurring

in the run-up to Euro 2012. Because of Ukraine’s less-than-fair

judicial system, many EU politicians and officials are

boycotting the country. This boycott arose following the

escalation of the Tymoshenko case. Yulia Tymoshenko, prime

minister of Ukraine in 2005-06 and 2007-10, was one of the

leading lights of the Orange revolution in 2004-05. Viktor

Yanukovych defeated her in the presidential election in early

2010, but she remained a major political player. Then, she was

convicted late last year of abuse of office when brokering the

gas deal with Russia in 2009 and was sentenced to seven

years in prison. Despite this development, the EU has

continued the process of concluding an association treaty with

Ukraine. But the formal signing of the treaty was postponed

when Tymoshenko went on hunger strike in late April and

accused the authorities of torture.

The boycott is only partial, however, because no football

teams are pulling out. That would be quite unusual in the

history of the European Championship. In 1960, Spain pulled

out of the competition after the Franco regime stopped the

team from travelling to the Soviet Union. And in 1992, the

former Yugoslavia had qualified for the finals but was excluded

because of its role in the Balkan wars. (Interestingly, its

replacement, Denmark, went on to win the tournament.) Of

course given the history of sport boycotts, it remains doubtful

whether this boycott by politicians will be particularly effective.

Still, this may change if the ratification of the EU association

treaty is made conditional on an improvement in the human

rights situation in Ukraine. Then again, some people argue that

a boycott actually takes away the opportunity to exercise some

influence in the country concerned itself.

Emerging Europe a growth market

We all know that the collapse of communism in 1989 triggered

a period of huge political, economic and social change in

emerging Europe. After a sharp economic downturn in the

1990s, economic growth in the region has been pushing up the

European average for years. This growth was further

stimulated by the EU accession process, with 10 emerging

European countries entering the EU in 2004. Growth was

fuelled in part by substantial capital flows from Western

Europe.

Poland: economic outperformer

Thanks to “shock therapy” and liberal policies, Poland has

undergone a rapid transition to a market economy since the

early 1990s. Over the past two decades, Poland posted growth

rates above the East European average. In fact, Poland is the

Netherlands’ most important export market in emerging

Europe thanks to its size, strong growth and proximity. In

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,

electronic goods and transport equipment. In political terms,

Poland has proved an active and reliable partner since its

accession to NATO in 1999 and the EU in 2004. But the

country is also committed to good relations with Russia.

Poland was able to avoid a recession during the credit crisis

thanks to a favourable starting position, an anti-cyclical fiscal

policy and a flexible exchange rate. The Polish economy

continued to post above-average growth in 2010 and 2011 at

around 4%. This growth performance relies heavily on private

consumption, which has remained buoyant despite the euro

crisis. The construction industry in particular has benefited

from investments linked to Euro 2012. A study published in

2010 calculated that hosting Euro 2012 would boost the Polish

economy by 2.1% of GDP at 2009 prices, spread over a 13-

year period.5 However, we expect economic growth to slow to

around 3% this year, partly due to the euro crisis.

During the global credit crisis, the export-oriented economies

were hit hard as export demand slumped, commodity prices

5 See Raiffeisen Research, “Ukraine Special Report – Euro 2012”, March 2012, and Borowski et al., “UEFA Euro 2012 – Poland”, 2010.


collapsed and capital flows dried up. Since then, emerging

Europe has managed to recover reasonably well. The region’s

largest economies (Russia, Turkey, Poland) turned in

particularly good performances in 2011 despite the escalation

of the euro crisis. But some growth moderation is likely in

2012, in part owing to the euro crisis: we expect the region’s

growth to slow from 4.6% in 2011 to 3% this year.

Ukraine: economic underperformer

Ukraine is beset by many problems, both political and

economic. This is evident from its credit ratings, which are the

lowest of all Euro finalists. Structural weaknesses are

preventing Ukraine from fulfilling its considerable potential.

That potential is partly related to the country's extensive fertile

agricultural land and huge commodity reserves, including iron

ore. The economy is recovering from a sharp (15%)

contraction in 2009, but is still struggling. Because of a high

current account deficit, large debt servicing obligations and

limited access to capital markets, Ukraine needs another IMF

loan. But negotiations with the IMF foundered last year on a

hike in the heavily subsidised gas prices, among other factors.

A new agreement is not expected until after the general

election scheduled for this October. Moreover, the structural

reforms are moving slowly due to a range of political obstacles,

which explain why Ukraine is lagging behind its western EU

neighbours. The economic stimulus related to the co-hosting of

Euro 2012 is equivalent to 2.8% of GDP, spread over the

period 2008-2012, according to an Austrian bank.5 The largest

effect (accounting for around 70% of the outlays) flows from

infrastructure investments. Total Euro 2012-related spending is

estimated at 8% of GDP, which is clearly higher than for

previous tournaments. Due to the adverse investment climate

in Ukraine, the public sector accounts for the bulk of these

investments.

Growth rates emerging European participants

% / percentage points

-10

-5

0

5

10

15

POL RUS CZE UKR CRO

Real GDP growth est 2012 Avg. real GDP growth 2000-08

Real GDP size, 2012 vs 2008

Source: ABN AMRO Group Economics

Incidentally, there are considerable differences within the

region, including among the Euro 2012 participants. Partly due

to the sharp contraction in 2009, real GDP in Croatia and

Ukraine at end-2012 will probably still stand at around 5%

below the 2008 level. By contrast, Poland’s real GDP at end-

2012 should be around 15% above end 2008. This illustrates

the strength of the Polish economy, which is followed at some

distance by Russia. In growth terms the Czech Republic finds

itself between Russia and Ukraine. We should say that over

the coming years we do not expect regional economic growth

to return to the high levels achieved before the credit crisis.

5. THE CRYSTAL BALL

Who should win Euro 2012 for economic reasons?

From an economic perspective, our starting point is the euro

crisis. In our view it would be very good for the world economy,

for Europe and for the Netherlands as an open, export-

oriented economy if the eurozone survives the current crisis

and remains intact as much as possible. The euro crisis is

largely a crisis of confidence. Each time financial markets

worry about the sustainability of the eurozone countries’ debt

levels, it fuels doubts about the sustainability of the monetary

union in its current form. Therefore, from a confidence point of

view, we believe it would be best if one of the eurozone

countries won Euro 2012. A victory for one of the opt-out

countries (Denmark, England, Sweden) would not be

welcome, because it would only encourage the eurosceptics.

The question that immediately arises is whether one of the

peripheral eurozone countries or one of the core countries

should win.

Greece, Ireland, Italy, Portugal and Spain have already been

badly affected by the euro crisis, and a wide range of

measures has been rolled out to support these countries. The

EU and the IMF have launched rescue packages, a large

proportion of the Greek debt has been written off, the ECB has

started buying government bonds from these countries, the

LTRO programme is offering support − especially to the

peripheral banks − and the emergency fund has been

expended to cope with any borrowing needs from these

countries. It is true that the probability of a Greek exit has

recently increased again, along with the attendant risks. And

perhaps a Euro 2012 victory for one of the peripheral countries

would give their self-confidence a boost. But in our view it is

imperative that the contagion does not spread to the core

countries, because the eurozone is not sufficiently prepared to

deal with that scenario.

Therefore, from an economic perspective we believe it would

be best if Germany, France or the Netherlands won Euro

2012, on the assumption that a victory for one of these

countries would strengthen the conviction that the eurozone

core is sufficiently robust and that the monetary union can

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,

and the markets are keeping a close eye on the direction it will

take under its new socialist president François Hollande.


Therefore, continuing this line of thought, we believe it would

be best if France won Euro 2012.

But who will win?

“Never change a winning team” is a favourite saying in the

football world. Two years ago we accurately predicted that

Spain would win the World Cup. So it would seem prudent to

use the same prediction method this time. But we will not do

so, not least because the previous prediction method was

geared to a World Cup and not a European Championship. We

are therefore basing our prediction on the above-mentioned

all-time European Championship rankings and the latest FIFA

rankings. But we also include our own ‘form ranking’, which is

derived from the FIFA rankings and based on the scores since

2011. The table below shows the relevant figures and the

outcome is clear enough. Germany and Spain have the best

credentials, followed at some distance by the Netherlands.

And bearing in mind the form trend (the Spanish team is older

and seems to be nearing a saturation point; the German team

is younger, this generation has not yet won a tournament and

die Mannschaft is playing relatively close to home), we pick

Germany to win Euro 2012.

But readers should note that this prediction by no means

reflects our preference. We would love to be wrong. We would

be thrilled to see not France or Germany, but another

eurozone core country – the Netherlands of course – lifting the

European title.

Who will win Euro 2012?

All-time Euro

ranking FIFA ranking^ Form ranking*

Germany 1 2 1

Netherlands 2 4 3

France 3 16 13

Spain 4 1 2

Italy 5 12 9

Portugal 6 5 4

Czech Rep. 7 26 14

Russia 8 11 8

England 9 7 6

Denmark 10 10 5

Croatia 11 8 7

Sweden 12 17 10

Greece 13 14 11

Ireland 21 18 12

Poland 26 65 15

Ukraine n.a. 50 16 ^ Latest update (9 May 2012) * Compiled on the basis of the most recent results counting towards the FIFA ranking Sources: ABN AMRO Group Economics, FIFA

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