May 2, 2013
What Germany's football success tells us about the eurozone crisisPosted in Euro · 158 comments ·
Last night we saw not just a football match between two great teams, but two very different cultural, social and economic models battling for supremacy. On one hand we had the frugal but brilliant Germans of Borussia Dortmund, on the other was the free-spending (and also brilliant) Real Madrid. This was a battle between the local, academy-based Dortmund, and the international, chequebook-driven, Real.
The contrast between the footballing model of Real Madrid and Barcelona or the English clubs of Manchester United, Manchester City or Chelsea, and the model of Dortmund and Bayern Munich goes to the heart of differing views about the general economy.
Germans are very proud of their Bundesliga. Nowhere is that pride more justified than in Munich, where Bayern Munich, the most successful German football club, reigns supreme. Bayern is a proper club, with a wonderful history. It won the German league at a canter. It has great players and an open, attacking and exciting approach to the game. Bayern recruits local talent, so the heroes on the pitch, from captain Philipp Lahm via playmaker Bastian Schweinsteiger, to striker Thomas Muller are all local lads from the famous Bayern youth academy.
The club is well run, its new stadium, the Allianz Arena, is an architectural gem owned by the local municipality, which rents it to Bayern and its rival, Munich 1860. The 70,000 capacity stadium cost €340m to build and is used every week. The contrast with the Aviva stadium couldn’t be greater. The Irish stadium cost €410m to build, holds fewer people and is used much more rarely.
Financially, Bayern operates well within its means, much like the German economy. Its accounts are perfect and the players are paid well – but not extravagantly. Bayern is all about tradition and continuity; planning meticulously from youth development all the way up to the professional first 11.
T-mobile, the local telecom company, is the main sponsor. The club is owned by the fans and operates like a tight co-operative. Bayern’s manager is a former German international. If it were a country, it would be running a massive current account surplus with the rest of the world, have a huge savings ratio and low inflation – not unlike Germany!
Real, in contrast, is everything Bayern is not. The club is debt-financed. It is sponsored by the mega-wealthy Emirates Airways. While the majority of fans are Madrideros, the team itself is deeply cosmopolitan. Real also carried debts of nearly a quarter of a billion euro last year.
If Real were a country, it would be running a massive current account deficit. It would borrow where it could and be prone to higher inflation – a bit like Spain!
The contrast between Real’s approach and Bayern’s is not just one of finance and economics, but is the story of the European economy.
German football, like the economy, is better managed than any other. Unlike in Spain, for example, German teams are not allowed to go into debt.
Clubs must be financially accountable. A full set of documents must be submitted each year before a playing licence is given. It is exhaustive, covering assets, receivables, cash and bank balances, liabilities and provisions, current overdraft facilities, loan commitments, projected and current profit/loss statements, and cash inflows and outflows.
These documents are judged by the German football league. All clubs must inject money into a fund to make sure that if a club does get into difficulty, even after all this scrutiny, it won’t go bust. No Bundesliga club has experienced an insolvency event since the league’s creation in 1963. By way of comparison, there have been 92 in the top five divisions of English football since 1992.
Ticket prices are kept low: around €10 a game. The fans feel real ownership. The Bundesliga is the best attended of the big football leagues in Europe, with an average attendance of 45,726 in 2010/11 – 10,000 more than the Premier League.
Germans believe this is the secret to German success. Good management and aversion to debt. Certainly not the approach of the free-spending, profligate Spaniards. When we look at the economies right now, it’s hard to disagree.
Germany is booming. Unemployment is the lowest in a generation, exports to the rest of the world are motoring, wages are rising and property prices are inflating in the big cities of Hamburg, Frankfurt and Munich. In a recent poll, 86pc of Germans said they were happy with their standard of living.
In contrast, Spain is on its knees. There are more people on the dole in Spain today than there are citizens of Denmark. House prices are collapsing, money is flooding out of the country, because local people believe Spain will experience a massive banking crisis like Cyprus.
So it looks like game, set and match to the Germans. But from the European perspective, things are not that simple. The German economy needs Spain just as much as Spain needs Germany. Similarly, the frugal German soccer clubs need free-spending Spanish clubs.
Without free-spending, debt-financed, brash Spanish giants like Real Madrid and Barcelona, Bayern would have nobody to play with. There would be no Champions League. Put simply, without the huge spending of the likes of Real, the Germans would have no competition to play in or against.
Similarly, when we look at the European economy, without the periphery buying their goods, the Germans would have no one to play economics with. They’d have to play with themselves. Every creditor country like Germany needs a debtor country like Spain. Every budget surplus needs a deficit to finance, and every current account surplus needs a current account deficit. In the same way, every Bayern Munich needs a Real or Barcelona – otherwise they’d have to content themselves with day trips to Leverkusen.
This is Germany’s dilemma: it needs Europe and the rest of the eurozone to keep spending if it is to remain economically dominant. And this is why, despite all the lecturing and hectoring, Germany will write a big cheque to bail out the periphery. It knows this, and the games Germany is playing right now are just an exercise to minimise the cheque it will ultimately have to write. Otherwise, the recent economic data that reveals the first signs of a possible slowdown in German industrial exports will become entrenched – and no one in export-led Bavaria or Dortmund wants that.