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.
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Bullology. Savers need bankrupts? C’mon….
Hi Mcsean I think you may be getting the wrong end of the stick. It has always perplexed me why savers think they should get yield for choosing not to take risk. For savings to generate income, someone else has to use those savings to finance an invesment and thus create a going concern which yields profit and dividend for the original saver. But as you know lots of investments go bust, leading to bankruptcy. That’s the risk. So yes, savers do need bankrupts if they are to get yeild, its all part of the game of capitalism That’s my… Read more »
I disagree David, Interest on cash/money is just the time value of money.
http://en.wikipedia.org/wiki/Time_value_of_money
Reailty
Ah jaysus, wikipedia? According to wikipedia I have three kids, worked as a banker (never) not an economist (always) and believe that Milton Freidman is God!!
Regarding the substantive issue, who puts a value on that time? How is it quantified? Its just an opportunity cost concept which in itself is a derivative of present investment returns. Or at least that’s what I understand it to be.
Best
D
Good morning, “Germany will write a big cheque to bail out the periphery” I don’t think so and your article even says so. You say they are looking to minimise the cost of bailing out the periphery. If they want these clubs to keep spending they wlouldnt be bothered about minimisation of costs would they? Germany will leave the euro. “Without free-spending, debt-financed, brash Spanish giants like Real Madrid and Barcelona, Bayern would have nobody to play with” Of course they would. They play against teams like themselves regularly in germany. “Every creditor country like Germany needs a debtor country… Read more »
I know you’re only using it as an analogy but for a true rip roaring belly-laugh into football/big business gone mad and bad have a read about Ireland’s favourite football team: Rangers FC ( in liquidation)
And for even more fun, start following the fortunes of its start up/off-shoot : Rangers FC !
Just on a footballing point, Barca live well within their means, they are owned by the fans too and really should not be compared to Real Madrid / Chelsea / Man City who all live beyond their actual income. Any sign of you making any more t.v shows David ? I would love to see an in-depth look at what next for the housing market from NAMA properties to Council Housing Lists to homes in citys and rural parts of Ireland, Is Everything just left in Limbo until the debt write downs kick in ? Keep up the good work… Read more »
Your presentation of the German Psyche misses one key factor. This would be better illustrated by showing how they built the the Bayern club and made it sustainable. There was no debt or risk involved AT ALL. To suggest that a sustainable culture should somehow hitch itself keep the unsustainable cultures rolling is simply silly. The Germans want structural reform and lots and lots of it. In Ireland and the other peripheries it has hardly started AT ALL. The trick to German thinking is their profound grasp of meaning and ownership and how it relates to economic growth. They know… Read more »
If only we all had the luck that Bayern Munich has:
http://www.irishtimes.com/sport/soccer/bundesliga-%C3%BCber-alles-german-industry-bankrolls-club-success-1.1360134
Just a wee point. The worker-owned cooperatives of Spain, some very large, are the only bright spot in that economy. They have been making profits and hiring in the thousands. Modest thousands, but hiring. Worker owned do not extract excessive profits. What profits they make are saved in reserve, or distributed to the workers, or used for local improvements in services or infrastructure, or all three. In recessionary times the worker-owners have the power to adapt, even by reducing wages, if need be. But they, not absentee owners, make the decisions. A well balanced economy needs frugal family owned businesses… Read more »
Germany loves risk capitalism, so long as someone else carries the can when it goes tits up. Remember Hypo Depfa and Ireland’s near death experience? Germany accused Ireland of not being a team player gor not bending over to take one ‘for the team’, ie- the german pension funds who’d been whoting and gambling in the IFSC ehilst the Irish financial regulatory system was acting as Herman’s concubine-fluffer-cute hoor; except thry weren’t as smart-arse as they thought….now their children are to reither spend their lives as debt parons or make the same “lifestyle choice” as my mom and dad and… Read more »
Off topic but very important:
It Can only be a matter of time before the dollar hyperinflates. Tony brogan people ARE listening to your message!
http://news.yahoo.com/arizona-lawmakers-pass-bill-making-silver-gold-legal-011925729.html
One wonders what will happen the euro if the dollar goes tits up.
I stated the same sentiment as this articale in comments following your ‘end of austerity/opportunity…’ article last week.
but in writing cheques for everybody else will Germany/ECB continue to print more currency and thus devalue the currency. I know this may be good for some but continued printing of currency will bring inflation and that opens another whole host of problems. if the ECB devalues the currency too much will other central banks be reluctant to extend debt to the ECB. I am not an economist but does this not sound like trouble.
I liked the article David but I think you are behind the times in thinking “bail outs” are still the order of the day. The new “template”, to quote the European Finance Minister, for banks in distress is to be the “bail in”. In this scenario the savers will lose up to 90% of their savings in the event of a bank getting into difficulties. I don’t think either you or a lot of the posters here are fully aware that this is now central bank policy in ALL the G20 countries. Cyprus was not some isolated case but is… Read more »
so many typos! iPod touch sucks. or i need a new pair of glasses. or both. In philosophy and art German culture was set to rival Shakespeare before the Nazis destroyed it all. It’s probably the loss of Jewish Genius that’s the problem: it needed the Diaspora to potentiate and accelerate the original primeval forest culture. perhaps Turkic Kultur will liven things up on and off the pitch once the racism withers away. Loads of Germans came to Britain to join the multicultural mix-even ending up as Royals . Kraftwerk try and do “funky” but they’ll never get jiggy unless… Read more »
Relative to it’s size, france is the biggest underachiever in euro club football, 1 euro cup in 55 years ! German football is a duopoly, English sides have contributed 5 different CL finalists in the past 6 seasons. Normal service will be resumed next season,Chelsea and MU Wwill reach the semis. German sides have few fans outside their 83 million population, can anyone name 5 other German teams ?
David,
What of recent evidence and articles that the German people are getting the property bug will low interest rates not just fuel a property bubble in Germany in the short to medium term?
Best regards.
Dr Bill
Yes this is something that they should be concerned about. My journalistic mate Tom Molloy who is half German wrote a great piece in the Indo on this a few yeeks back after a trip trip to Germany.
Best
David
Yin and Yang
The energy of the flow of this article is a parallel to the art of Yin and Yang .
Who are Yin and Yang ? They have to be Germany & France who else ?
Would not disagree with the premise of David analogy BUT Da daa, the planet has 7 billion peoples of which only 317 million live in the euro-zone minus Germany 80 million = 237 million which leaves 6.75 billion potential German costumers outside of the euro-zone. The ‘brics’ are good customers of Germany! The question might be how good a neighbour is Germany; to paraphrase the Hulk or should that be David Banner ‘You wouldn’t like them when they get angry’ I don’t question that Germany is in favour of the euro but they may want to renegotiate the terms and… Read more »
http://www.sueddeutsche.de/wirtschaft/geld-im-fussball-schulden-schiessen-tore-1.1448009
That’s funny. There’s a smug article here from Süddeutsche from last year comparing Uli Hoeneß Bayern Munich manager saving with the squander of Euro clubs aand comparing it to the Euro.
That was before his current tax evasion scanday. He now protests that there is any link between his Swiss Bank Account used for Tax Evasion and the Club’s finances….and that he has had an addiction to heavy gambling.
http://www.foxsports.com.au/football/bayern-munich-president-uli-hoeness-says-he-is-going-through-hell-after-tax-evasion-arrest/story-e6frf423-1226633556315#.UYKfz7XIYfU
Look, the primary snag faced is that productivity and the need for labour and hence individual income growth has been well and truly decoupled. You can increase productivity and will a hell of a lot less people in any sphere of activity. The Germany have played the productivity game very well and exported enough efficiently enough to offset the decoupling effect which has withered a lot of other economies. Economies wither simply becasue there are no jobs. Inject money and all you do in increase productivity but no jobs. It’s as if Germany happens to be luckily enough positioned to… Read more »
So from the sound of this we should model our country on Germany .
Only problim with this is our country is corrupt to its very core.
The new way of doing things became the wrong way of doing things.
The banks run the country the same way the church use to.
Change is coming only problim is the change is working back wards.
so the EU and the euro has resulted in spain, greece etc becoming countries that are no longer productive and are acting like social welfare dependants ( i mean in economic terms from a european perspective), but how can this be, spain is a post colonial power just like britain is, so why is spain not more like britain?, maybe latin america is where spain should be looking to rather than europe. It is strange that the EU contains several post colonial powers, i dont think these countries can be contained in the EU in the long term. It is… Read more »
Half price of a half price on NAMA sale Reported on lemetroplecafe.com NAMA to sell Irish loan portfolio to Starwood consortium: The Irish Independent noted that the National Asset Management Agency (NAMA), Ireland’s bad bank, has agreed to sell its first portfolio of commercial property loans to a consortium led by private real estate investor Starwood Capital. The paper said that Starwood will purchase the loans, which have a face value of €810M, for €200M. According to Reuters, NAMA had applied an average discount of 57% when taking over €74B of risky bank loans following its creation in 2009. However,… Read more »
Australia, the FF party of Australia, and why the party is over….
http://globaleconomicanalysis.blogspot.ie/2013/05/australia-manufacturing-collapses-as.html
China does not need as much iron ore as previously, or coking (steel making) coal. Australia is highly leveraged, and streched to the limit with debt and over inflation. The Aussie politicians have once again misruled the country, and put the “feel good factor” (reminds you of Ahernism) before long term survivability of the country.
This will soon be Noonan’s biggest headach, and Irish people make a “lifestyle choice” that is contrary to the one he wanted them to make.
The British Empire’s New Concentration Camps
Youth unemployment of Europe, USA, with maps from 2008, 2012, showing the horrific development. This is the Empire’s method to destroy Nations.
Have a look at the maps and graphic. This is now, today and on a massive scale.
Draghi Announces New Derivatives Bubble May 2, 2013 (EIRNS)–ECB President Mario Draghi announced a whole series of monetary expansion steps today, described by someone as “a new economic paradigm.” First, the ECB cut the main rates of a quarter of a point, to 0.50%, Second, the rate for marginal lending was cut from 1.50 to 1%. Third, the ECB will maintain its main refinancing operations at least until July 2014. Fourth, it will explore ways to revive the ABS (asset-backed securities) market, which “is dead.” Confronted by the {Wall Street Journal} correspondent with the fact that ABS is one of… Read more »
Ooooh I am noticing improvements on the site functionality – thanks David, or Eoin.
David, I’m going to give away my true colours here. You cannot compare Man United or even Barcelona or even Real Madrid to Chelsea or Man City. The former three make PROFITS!! (See Forbes wealthiest football clubs). United spent £24m on Robin Van Persie but Bayern paid 25m for Ribery. and a further £25m for Robben. They have just secured Mario Gotze for £37m. There is nothing wrong with spending if you have it. And nothing wrong with debt if you can pay it. United have a falling debt because they can pay it. If anything the former three are… Read more »
The church was always hungry for power and power was its down fall.
When did the church ever go poor or hungry.
The church stole children and made money out of it, how many people had there lessons Bashed into them.
When I was growing up school was not a very nice place,it was hell.
I still have nightmares from 40 years ago.
in ireland the church gets blamed for everything now, it is 30 years ago since the church had any real influence over irish politicians, were bertie ahern , michael fingleton , sean fitzparick heavily influenced by the church, i dont think so. The oliver j flanagans and eamon deValeras are long gone. It is our modern political system that is to blame not the church.We are too fond of blaming demons from the past for our current problems. In the 50s when church power was at its height we blamed the british for our problems then, even though the british… Read more »
“Bayern Munich needs a Real or Barcelona – otherwise they’d have to content themselves with day trips to Leverkusen.”
I’d hazard a guess that most neutrals won’t bother watching the all German Champions League final. Be interested to see the world viewing figures compared to previous finals.
Maybe I’m being mean spirited but I can’t see Spanish, Greek, Italian, Irish etc football fans watching it because of emotional (economic) resentment. Personally I hope they both lose in the final, although I’m aware that’s logically impossible. Germany Schmermany. Actually, I am being mean spirited. Sheisse shysters.
“borrowed money from Irish banks who in turn borrowed it from German banks.”
Which begs the question, who did the German banks borrow the money from?
David,
Every euro has a corresponding debt. If you’re suggesting that countries should kerb their indebtedness, what medium of exchange will there be in the economy with which to trade?
Bonbon – don’t annoy use with Glass-Steagal.
Annoy your politicians. And lete everybody know that Slick Willy disbanded it, in one of the greatest episodes of crookery in modern history.
Sheer confusion, with a mafiosi punchline, that “Germany will bail out the periphery”. Everyone knows now that almost all the football games were rigged. The Euro is rigged from the get-go.
DMcW seems to have forgotten that the only bail-out, bail-in, is to rescue banks, which does not work. Just let that get into an election campaign.
Bringing back the DM, after of course a complete split of banking where no gambling is ever subsidized again, will work. And a Marshall Plan to liberate the periphery concentration camps is the urgently required action immediately.
An interesting article, including a graph on house prices in various countries:
http://www.testosteronepit.com/home/2013/5/4/why-it-makes-sense-to-exit-the-euro-zone-in-times-of-balance.html
Just in case some are stashing loot “south of the border” : Swiss Regulators Confirm that Bail-In Legislation Is To Prevent Glass-Steagall-Style Bank Separation May 4 (EIRNS)–The Swiss financial daily {Neue Zürcher Zeitung} (NZZ) featured today a full-page on how the new Swiss bail-in legislation works. The article, entitled “Recovery and Resolution of Systemically Relevant Banks,” by Patrick Raaflaub and Mark Branson, two officials of the Finma (Finanzmarktaufsicht), and says, among other things, that the bail-in legislation aims at preventing separation and protection of certain parts of the bank abroad. … Swiss banks represent maybe the single largest systemic risk… Read more »
Germany to be the paymaster of last resort? Only an ignoramus refuses to see the Euro is a failed experiment. But much worse, the new party, AFD, Alternative for Germany, has metamorphosed and shown its true colors. Formed by professors, none of which forecast the crisis, it is a Mont Pelerin Hayek Austrian School bunch. Their medicine will kill the patient. It is the Hamburg Appeal of 2005 for unbridled free-market and monetarist radicalism signed by AFD founder Lucke and 243 economics professors at that time. The appeal stated that “labor costs are a key to overcoming Germany’s weak economic… Read more »
In comparison to 3rd world countries is Ireland greedy and exploitative of 3rd world countries, is Ireland part of the “elite”? Are You then part of that exploitation are You the “elite?
Careful Michael
Bam bon is not Bon bon
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