Why won't Euro 2024 help the German economy?

The German economy has often been referred to as the "sick man" of Europe in recent months. However, this is not always a fair comparison and does not take into account the more cyclical nature of the German economy and, in particular, its much tighter fiscal policy. According to IMF estimates, Germany will have a deficit of 2.3% of GDP in 2023, while the euro area will have a deficit of around 3.5% of GDP and the United States a deficit of over 8% of GDP. However, with slow productivity growth in key export sectors and weak consumer confidence and spending, Germany is in trouble. Will the upcoming European football championships make a difference? Probably not. 

Past experience suggests that the investment boom associated with hosting major sporting events needs to be sufficiently large, well timed and well targeted. Unfortunately, none of these conditions apply in the case of Germany. The Germans invested relatively little in the run-up to the European Championships (EUR 250 million according to Deutsche Bank - about 0.01% of GDP), namely in the renovation of existing stadiums. By comparison, Poland managed to invest around EUR 10 billion in public infrastructure alone ahead of Euro 2012 (the long-run impact on tourism is usually relatively marginal for purely European events).

Moreover, Poland was preparing for the European Championship at a very "opportune" moment (the right timing), when the rest of Europe was struggling with the financial crisis and strong domestic investment helped the Poles compensate for weak external demand due to austerity measures across Europe. Today's "inflationary environment" is very different from that "deflationary crisis".

And thirdly, the positive spillovers from hosting sporting events are more significant for the rest of the economy if, as in Poland, investment is focused on basic infrastructure (motorways, railways). This is usually possible in less developed economies that are in the midst of a convergence process ("catching up" of productivity levels), and it is the more significant "basic investments" that can then accelerate the pace of "catching up".

Germany is in a very different position. It is a stable, rich and relatively expensive economy, at the production frontier. Basic investment would not durably contribute to productivity growth, even if Germany decided to prepare for Euro 2024 in "grand style". The path to German growth has to go the other way - through innovation in key high value-added sectors (high-tech, mid-tech). This has been less the case in recent years, and Germany is also losing ground in some traditional sectors (automotive) due to more expensive energy and global trade conflicts. Hosting the European Championship will not change this. Perhaps only a 'home win' can inject some much-needed optimism into the bloodstream.