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Financial hangover from Euro 2012 will last long

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July 19, 2012, 11:44 p.m. | Op-ed — by Jed Sunden

Jed Sunden is the former owner and publisher of the Kyiv Post and now runs Mamay.net
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Why were poor Ukrainians subsidizing vacations for rich Swedes, Germans and Spaniards? 

All across Kyiv, you can spot billboards paid for the Party of the Regions showing new stadiums and high-speed trains, with the tagline “championships come and go, but the achievements remain.” 

No doubt the recent 2012 Euro was a great success. Hundreds of thousands of foreign tourists came to Kyiv, Donetsk, Lviv and Kharkiv. They were met with open arms by Ukrainians. Ukrainian cities put on huge parties. Great football was played.

But as long as the Party of Regions is asking, perhaps it makes sense to ask about the real achievements of Euro 2012. 

Judging from historical evidence, one result is easy to guess. Though the official figures have yet to be released, it is clear by the historical record - as well as by the jubilation of Union of European Football Associations’ president Michel Platini - that his non-profit organization made a lot of money.

As the organizer, UEFA collects the bulk of the revenue for broadcast rights, ticket sales, sponsorship and even some on merchandise while its only expenses are payments to the teams taking part [Editor’s Note: UEFA actually spent millions of euros on other expenses in the host countries]. In 2008, UEFA showed a 235 million euro profit, almost all due to the games held that year in Austria and Switzerland. 

Additionally, the tourists who arrived are probably also winners. They were given free parties, cheap beer and a stunning concert by Elton John. Even better, for three weeks, all foreigners were untouched by the petty corruption that plagues Ukraine in normal times. No policemen were stopping foreigners on Khreshchatyk and demanding bribes for not carrying a passport.

Even better, Ukraine proved it could be efficient so long as Ukrainian laws were ignored. Normal visa procedures were halted and other basic rules were simply ignored.

But how did Ukraine do?

In one of the first post-tournament interviews, Infrastructure Minister Borys Kolesnikov stated that 1.8 million visitors came to Ukraine, spending   an average of $400 for a total of more than $1 billion.
Sadly, however, the Ukrainian government spent between $5 billion to $13 billion. 

Even if you assume all the money was spent on projects in Ukraine and not siphoned off, it still raises the question: Why is the government of one of the poorest countries in Europe spending taxpayer money for parties for tourists from some of the richest countries in Europe?

Hundreds of thousands of foreign tourists came to Kyiv, Donetsk, Lviv and Kharkiv during Euro 2012. The Ukrainian government spent at least $5 billion – and some say up to $13 billion – on preparations for the football championship from June 8 to July 1.

While 1.8 million visitors for the three-week tournament seems like a lot, it is about the same as in 2011. According to the state statistics agency, Ukraine had 21.4 million tourists in 2011. While they do not break out numbers per month – we don’t know if more tourists arrived in the summer in 2011 – this still averages out to 1.783 million each month over 12 months in 2011. 

While tourism may continue to grow after the tournament, the historical record is less clear. Portugal saw a decrease in tourism in 2005 after hosting the tournament in 2004. South Africa saw a decrease in tourists from Europe (but not from Africa) after hosting the World Cup in 2010.

According to an economic paper about the effect of the 2002 World Cup on tourism in South Korea, the ensuing “crowding out effect” indicated that there was a neutral overall visitor effect because Japanese businessmen decided to avoid the hordes of European tourists in the country. (http://edissertations.nottingham.ac.uk/2358/1/08MAlixnc3.pdf)”

No doubt some infrastructure, including roads, airports and faster trains were built. It of course begs the question of whether they simply should have been built anyway.

As the billboard campaign shows, the Party of Regions is trying to sell Ukraine on the idea that these “achievements” will remain and benefit Ukraine for years to come.

Sadly, this, too, is a dubious proposition. First off, to state the obvious, the “achievements,” such as new roads or faster trains aren’t free. Someone needs to pay for them. And that someone is the Ukrainian tax payer.

Ukrainian government debt has been increasing drastically, as spending has increased to pay for infrastructure improvements. Or as a recent headline in Reuters calmly states, “Ukraine’s $58 billion problem” (http://blogs.reuters.com/globalinvesting/2012/04/24/ukraines-58-billion-problem/) Even if Ukraine does not default on its debt payments, Ukrainians will be paying off this debt via higher taxes for years to come. 

But perhaps the increased spending and “achievements” will bring additional economic growth to Ukraine. But other countries have seen no long-term positive effect from the European championships. Or, to cite another academic paper, the host country will suffer negative economic growth “caused by differences in productivity between private and governmental investments, where private investments have been found to be of significantly higher productivity than governmental... The World Cup related investments were found to be of the lowest productivity and to a higher extent crowd out private investments” leading to a negative economic effect.” (http://pure.au.dk/portal-asb-student/files/36145859/The_Economic_Impact_of_Major_Sporting_Events.pdf). 

Sadly the achievements are higher taxes for the next few years combined with lower economic growth, while numerous government officials enriched themselves. Plus, there’s a firm conviction that Ukraine’s police will always treat foreigners better than Ukrainian citizens. 

But at least wealthy Swedes, Germans, English and Spaniards had a great summer vacation and cheap beer subsidized by Ukrainian taxpayers. I hope Ukrainians also drank a lot of cheap beer, because the economic hangover of Euro 2012 will last for years to come.

Jed Sunden is the former owner and publisher of the Kyiv Post and now runs Mamay.net

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