Italy's Euro final loss blow to economic prospects

Rome - Italy’s economic prospects took a blow over the weekend, without the release of a single key economic indicator or any significant economic news. It was because Italy was soundly defeated in the European championship final on Sunday.

Ahead of Sunday’s game, economists said that an Italian victory over the defending champions Spain would have a positive impact on Italian consumer confidence, spending, and even support for the current government. It now appears that Italy’s 4-0 loss may have the opposite impact – at least in the short term, reports Xinhua.

“There is no way to have polling data so soon, but with a game as important as Sunday night’s championship a victory can make people believe that things are perhaps better than they are, and a loss can have the opposite effect,” said Maria Rossi, co-director of the Rome polling company Opinioni.

That point of view is not without precedent. Earlier in the tournament, Greece’s 1-0 win over Russia on June 16 is said to have been one of the factors behind Greek voters support of the pro-European parties in that country’s elections held the following two days.

Going back in history, many historians count West Germany’s 3-2 win over Hungary in the finals of the 1954 World Cup that year as the start of that country’s post-war economic boom that helped it rise from the rubble of World War II to become the strongest economy in Europe.

Sadly for Italy, there were already plenty of reasons for the country’s economic prospects to be dim: Italy’s economy is expected to contract 1.2 percent this year, wages are shrinking due to a rising tax burden, prices are on the rise driven by higher energy costs, and consumer confidence is near ten year’s low.

The Italian Stock Exchange in Milan has reached a new 52-week low in three of the past four weeks, and the yield on Italian bonds — the amount Italy must pay to finance its debt — stubbornly remains around 6 percent, far higher than ten-year norms.

Approval for the technocrat government of Mario Monti, working hard to push through difficult economic reforms, has dipped below 40 percent in recent polls, around half the support level it enjoyed when the government took office last September.

Rossi, the pollster, said consumer confidence levels could dip further and the Monti government’s approval levels could slide further, at least temporarily, in the wake of Sunday’s loss. But economists said other indicators are harder to measure.

“If bond yields rise and the stock market struggles this week is it because the national team lost, or because the economy is weak?” asked Javier Noriega, chief economist with investment bankers Hildebrandt and Ferrar.

“It seems reasonable to think there would have been a bump to some degree if Italy won, and our models predicted that. But I tend to think that people may just try to forget a loss as quickly as possible, which probably makes the impact smaller.”

That’s a stance taken by author Alberto Alessandri, a retired economist and statistician with Roma Tre University, who has studied the impact that major sporting events can have outside the arena. Alessandri said that wins and losses have the greatest impact on each country’s identity.

“In the European Union discussions, Germany is dictating to Italy and some of the other struggling European economies the austerity steps they must take, and that is a blow to a country’s view of itself,” he said. “But then Italy beats Germany 2-1 in the championship, and it helps heal Italy’s view of itself.

“But the loss to Spain?” he went on. “There may be a temporary effect in that over the next few days Italians will be less likely to spend money and may feel more down about the future. But it’s hard to see a lasting impact.”