Italy's Victory Could Provide an Economic Kick, as Well

By Delphine Schrank
Washington Post Staff Writer
Tuesday, July 11, 2006

Italy's penalty kick victory over France in Sunday's World Cup final might have been heartbreaking for the French, but for the sake of the world economy, a Dutch banking group says this result was the best outcome of all.

In a report titled "Soccernomics 2006" released earlier this year, banking group ABN AMRO asserted that capturing the World Cup boosts economic growth for the winning country, and that the global economy would benefit most from an all-European final in which Italy played Germany -- and won.

"Our starting point was determining which country could best offset the global financial imbalance caused by the U.S.'s current account deficit," if that country's economy improved, said Ruben van Leeuwen, one of the two economists who produced the report. "With high growth in Asia and America, we turned to European economies with significant clout but most in need of a pick-me-up."

France, Germany and Italy all met the conditions, but Italy's annual growth lagged the most. According to the report, that meant a boost in the Italian economy would spill over into greater demand across Europe and provide the strongest market for U.S. goods.

When a country's national soccer team wins the World Cup, its domestic economy improves by 0.7 percent on average, the report found. Call it the "overwhelming joy" effect: Happy Italian consumers likely will spend more in the coming months, and not just on parties and victory souvenirs. But the real impact is indirect, van Leeuwen said.

"I think we will see a change in consumer confidence . . . and the new government will have an easier time pushing through reforms," he said, referring to Prime Minister Romano Prodi's center-left coalition elected in April.

France, too, could have benefited from the soul-lifting effects of a World Cup win.

"It was just so good to suddenly feel the country finally united," as the team headed to the final, said Nicolas Sobczak, of Goldman Sachs in Paris. "The irony is that it took soccer to unite us."

France has been saddled by pessimism over its future in a globalized economy and the presumed decline of its social model after a year that included a resounding defeat of a proposed European constitution in a referendum, riots and the political paralysis of President Jacques Chirac's final months in office. A massive, nationwide celebration like the one that followed France's 1998 World Cup win certainly would have helped the Gallic mood, if not the economy.

"The effects this time . . . would have been negligible. Italy needed the victory more," Sobczak said. The difference is Italy's political schedule, he said, and in France it is unlikely there will be any meaningful political or economic reforms until after elections next year.

Others agree that the World Cup windfall scatters worldwide. The British-based Center for Economics and Business Research calculated that the World Cup would provide a worldwide consumption boost worth about $24 billion, with much of it recouped by Europe.

But Simon Wallace, an economist with the CEBR, is skeptical of the long-lasting effects.

"It's really just consumerism brought forward," Wallace said. "So stores in England have already noted increases in sofa and TV sales. But no one's about to go buy themselves another."

Meanwhile, the surest economic winner was host Germany, with investments in infrastructure, 60,000 extra jobs and floods of tourists during the tournament. It also changed perceptions of its stagnant economy, encouraging further investment, Wallace said.

And what of the lost productivity from employees calling in sick during matches? British supermarket giant Asda preemptively offered its 150,000 employees up to two weeks unpaid World Cup leave. But since the games were played in the evening, most European companies were not affected.

Not so in soccer-crazy South America, where most matches were played during the workday. Final figures aren't in yet, but the CEBR projected losses of $553 million. A double whammy for a continent whose best hopes for a title, Argentina and Brazil, were eliminated in the quarterfinals.

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