Football European Championship 2024: Economic summer fairytale for Germany?

The 2024 European Championships were supposed to trigger an economic celebration in football-mad Germany. Or are these hopes exaggerated? In the run-up to the European Championships, economists went looking for clues.

German media are currently remembering the 2006 Football World Cup in Germany with nostalgia. The national team may have “only” finished third, but it surprised the country with amazingly attractive football. Four weeks of glorious weather also contributed to the overwhelming enthusiasm. Under the motto “The world makes friends”, Germany also proved to be a good host with relaxed patriotism. The event went down in the annals as a “summer fairytale” and noticeably changed the mood in the country at the time.

«Bratwurst instead of restaurant»

Will the European Championship (EM), which began on Friday with the match between Germany and Scotland, lead to a “summer fairytale 2.0”? Could this also improve the economic picture and the disillusioned mood? It would be very welcome, because the economic situation is poor, consumer sentiment is bad and uncertainty is high in many areas. Economic output, measured by gross domestic product (GDP), shrank by 0.2 percent in 2023, and most observers expect slightly positive but anemic growth for the current year.

However, experts are skeptical that the European Championship will change much. There are areas such as the hotel and restaurant industry in the host cities that are benefiting from the influx of visitors. Hotel prices in the European Championship cities are said to have increased by between 70 and 130 percent. The German Retail Association (HDE) also expects additional sales of over 3.8 billion euros for retail, for example for fan articles such as jerseys and scarves as well as products from the electronics, toys and home and garden sectors.

Overall, however, consumer spending is not necessarily likely to increase, but rather just shift, economists estimate. “Many consumers will use the European Championship as an opportunity to buy a new television, invite people to a public viewing event or drink an extra beer while cheering. But they will save money in other ways: Bratwurst instead of a restaurant, watching TV instead of going to the cinema,” says Michael Grömling of the German Economic Institute (IW), which is close to employers.

Similarly, arriving fans would displace other tourists in case of doubt, as a hotel room can only be rented once. Revenue from the sale of television rights would go to the football association UEFA, which is based in Switzerland, explains the IW. The European Championship may give the ten cities where the games are being played a small economic boost, but this will not increase the GDP at the end of the year, Grömling concludes.

Only the prices have increased

This assessment is supported by economists from the Halle Leibniz Institute for Economic Research (IWH), who looked at the economic effects of the 2006 World Cup. The institute writes that increased construction activity was observed at the host cities in the run-up to the event, which included both the renovation and expansion of stadiums and improvements to urban infrastructure. However, since these projects often displaced other construction projects, no significant net effects on overall economic development were created.

According to an analysis by Deutsche Bank, investments in connection with Euro 2024 amounted to a measly 250 million euros, mostly for modernizing the stadiums. For the 2006 World Cup, however, Germany spent 3 billion euros on renewing the infrastructure, and for this year’s Olympic Games in Paris in July and August, 5 billion euros were invested in new infrastructure.

According to the IWH, another short-term effect in 2006 was a slightly higher turnover in the hospitality industry. The number of overnight stays in June was 34 percent higher than the previous year. At the same time, however, displacement effects were also observed, with domestic tourists and business travelers switching to other destinations to avoid overcrowding and excessive prices.

The IWH states that gross value added in the host cities in 2006 was a good 1 percent higher than the value that would have been expected without the World Cup. In real terms, however, no significant macroeconomic effects were found. This indicates that higher prices could have been enforced due to the World Cup, but that “no economic stimulus was provided.”

Good for the image

The IW and the IWH see the greatest effect in the mood: Studies have shown that the successful hosting of the 2006 World Cup improved the international perception of Germany, according to the IWH. This could have a positive impact on tourism and exports in the long term. According to the institute, the economic effects of the 2024 European Football Championship are likely to be similar: even if it will not have any relevant macroeconomic effects, depending on how it goes, it could influence the economic climate through a positive sentiment effect. In 2006, according to Deutsche Bank, consumer sentiment literally exploded over several months from around -0.5 to +1.5 points (see graphic). But this was not only due to the World Cup, but also to the overall economic environment.

The IW also assumes that a successful Euro 2024 from an organizational and sporting point of view would make the location more attractive. Especially against the background of weak direct investments, image cultivation is “an enormous gain”.

However, even these psychological effects should not be overestimated. The Munich-based Ifo Institute has examined the 2006 World Cup as well as the European Championships of the past 20 years. It came to a sobering conclusion: In the Ifo economic survey, companies assessed their situation somewhat better before the World Cup (the Ifo factored out other influences). However, during and after the World Cup there were no effects on expectations. There was no anticipation for the European Championships, but the mood rose during the tournaments, only to fall slightly again afterwards.

In another study, Ifo researchers estimate that Euro 2024 will bring Germany an additional billion euros in foreign tourists. This corresponds to around 0.1 percent of economic output in the second quarter of the year. However, the effect will only be short-lived. Deutsche Bank also comes to the conclusion that hosting a European Championship tournament is likely to bring a temporary boost of 0.1 percent of additional economic output in the quarter in question.

Winning a World Cup brings measurable effect

Economist Marco Mello from the British University of Surrey discovered an interesting effect in his study “A Kick for the GDP: The Effect of Winning the FIFA World Cup”. According to this, winning the World Cup is much more attractive than hosting. While the latter has no significant economic impact, winning a football World Cup would boost GDP by 0.48 percentage points over two quarters before the effect runs out. Does this analysis offer hope? Such an effect could possibly apply to a European Championship in a weaker form, although winning the European Championship in one’s own country might have an even stronger effect. The German team’s big opening victory certainly gives hope.

You can follow Frankfurt business correspondent Michael Rasch on the platforms X, Follow us on Linkedin and Xing. You can find the Berlin business correspondent René Höltschi on X and LinkedIn.

By Editor

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