Europe's Economic Crisis Explained Through Soccer

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As Europe suffers through a quagmire of failed policies, sky-high unemployment, and a rise in political extremism, even the region's most venerated institution, soccer, has experienced drastic change.

Whereas Spain, England, and Italy used to lead European soccer, now the mantle has passed to Germany, whose economy is ascendant.

German soccer team Bayern Munich's 7-0 rout of Spanish powerhouse Barcelona in April perfectly illustrates the new dominant role that Germany is inheriting from Spain. To a greater extent, this reflects the shift in economic power from Europe's economically-troubled south to the healthy Germany.

Within the European Union, still the heartland and financial nerve-center of the beautiful game, power has slowly shifted away from Portugal, Italy, Greece, and Spain, the proverbial PIGS, as well as France and England.

Gone are the days when Greek teams Olympiakos and Panathinaikos would spend over $20 million on a summer's worth of transfers, purchases of players from other teams. They cannot afford such luxuries. Following an exodus of the Greek league's best known players, these teams must be content with bargain buys. Bankruptcy does not allow the purchase of leading international players.

Even Italy, once the Hollywood of European football, can no longer attract the marquee signings of the past. Milan's embattled owner Silvio Berlusconi has personal and political problems that prevent him from flaunting his wealth on the transfer market. Massimo Moratti, his counterpart at cross-town rivals Internazionale, who has no such problems, is not spending either. Even the Agnelli family team Juventus, considered to be the top team in Italy, built its team off clever scouting and undervalued players rather than blockbuster purchases.

As a result, leading Italian teams are strangely devoid of top-notch players from abroad. Juventus was outclassed by German champions Bayern Munich earlier this year, reinforcing the idea that Italy is no longer one of Europe's dominant leagues.

While detractors will immediately point to Spain and Portugal as proof that sporting success need not reflect the economic environment, Portuguese teams make much of their revenue by signing up young Latin Americans and reselling these players to other European clubs. Institutional knowledge and an effective scouting network will obviously not disappear overnight.

In Spain, a 2011 players' strike over disputed compensation delayed the start of the season. Unpaid wages still cause a substantial problem for players at the 18 Spanish teams that stand in the shadow of giants Barcelona and Real Madrid. Even these two teams, which have so long dominated international soccer, have been forced to rethink their strategy after routs by German clubs.

In France, most teams are in serious trouble due to the 75 percent tax rate, which makes it difficult to retain talented players. Only Paris Saint-Germain and AS Monaco have become overnight powerhouses due to foreign takeovers. Paris Saint-Germain has been purchased by a consortium from Qatar. Russian oligarch Rybolovlev bought AS Monaco, which competes in France, because Monaco has no income or capital gains tax.

For several seasons, three out of four of the semi-finalists in the Champions League, Europe's premier soccer tournament, were from England. This year not one English team reached the last eight.

Due to the recession, richer Asian and Latin American countries have been challenging Europe's traditional soccer dominance. A strong economy means more revenues from advertising during soccer games and more lucrative TV deals for teams.

Brazil's booming economy and the rise of its Real have attracted Brazilian players home. Brazilians such as Elano, who played for Turkey's Galatasaray, and Ronaldinho, who played for Milan, have returned to Brazil.

Even China is jumping on the soccer bandwagon. The summer of 2012 saw an influx of stars to the corruption-ridden Chinese league. Though some stars quickly returned to Europe after misadventures in China, others, such as Seydou Keita and Yakubu Aiyegbeni, remain in what was once one of soccer's backwaters.

Russia has attracted big names such as Samuel Eto'o and Lassana Diarra to war-torn Dagestan while Zenit St. Petersburg put down $65 million for players Hulk and Axel Witsel. Ukrainian team Shakhtar Donetsk's meteoric rise from national to continental powerhouse would not have been possible without the financial backing of Ukrainian oligarch Rinat Akhmetov, who made billions in the energy sector.

The recession has proved that strengths of individual soccer teams are transitory and dependent on the ebb and flow of the economy. Germany with its strong economy is still dominant, despite China, Brazil, and Russia. Let us see how long this continues.

Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

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