Euro 2012: The Cost

As the UEFA Euro 2012 tournament opens and soccer madness grips everyone in patriotic fervor, there are already calls and questions on whether the games were actually worth it to Poland and Ukraine.  (By the way, the games opened yesterday with a 1-1 tie between Poland and Greece.  Russia stomped the Czechs (think 1968 style) 4-1.)  Several articles—a couple are here and here—bring up the enormous cost of the games as well as citing precedents, namely Greece with the 2004 Athens Olympics, but also the Euro 2004 Portugal games.
First off, cost: it's widely claimed that Poland spent $25 billion dollars getting ready for the games.  That's a staggering amount, no doubt, and one should look a little more closely at it.  The real cost was in infrastructure improvements, ($15 billion on roads alone), whilst the cost of the four stadiums (construction and renovation) amounts to something around $1.5 billion.  There are also other costs, such as: security (not just providing security, but also the cost of arrests and trials.  Notably, inmates were moved from host cities to jails in other cities to make room for expected arrests.  Many judges were put on standby to handle the increase in prosecutions as well), building the strefa kibica (fan zone), clean up, etc.  But these are paltry sums compared to the overall total.  Poland spent more than Ukraine, but then again, it did have access to EU money.
The claim that Poland spent $25 billion preparing is ludicrous and wrong.  Much of that money is EU money that was flowed in Poland to help rebuild its decaying infrastructure.  All the projects were already earmarked before Poland even made its bid for the games.  Now, the tournament probably increased the priority of certain projects—the case in point being the semi-notorious A2 Berlin-Warsaw highway.  It gained notoriety for: A) Having the Chinese contractor be kicked out because it failed to pay its sub-contractors.  B) Being opened when still incomplete for the Euro 2012, and will have to be closed afterwards to finish it up (an extra layer of pavement is needed on a good-sized portion).  But the A2 highway wasn't built for the games, it was going to be built anyway, and probably on the same schedule.  The second metro line has as much to do with the Euro 2012 as do the new trams in Lodz, Krakow, and just about everywhere else (cities that are not hosting the games, but renovated their tram lines).  It has not been noticed much, but Poland has also been using EU funds to build small, rural roads (this will be covered in a future post).
That's not to say the games did cause infrastructure and other projects to be done.  There are, but not what everyone thinks.  The real cost that can be directly attributed to the games was building the stadiums, and it's quite shocking to see the main contractor file for bankruptcy protection.  There was a big push to beautify the cities before the games came, and it shows.  Renovations the rail stations, finished just in time, have turned the dank platforms and corridors into hallways of light.  Warszawa Centralna's transformation has eased travel through there and really updated it as a gateway into the city.  Speaking of gateways, it may have been planned long ago, but the recent opening of the SKM line to the airport is sure to be a boon for travelers.
Infrastructure has received much of the attention, but the stadiums themselves have attracted their fair share of criticism.  Most barbs are aimed at the National Stadium in Warsaw.  The high cost of the structure, at almost 2 billion zlotys, has dropped some jaws.  Critics say that it'll turn into a white elephant, a costly building to maintain and will be under utilized.  The Polish National team doesn't have a long schedule to ensure that paying fans will be packing the stands every week, but events have already been scheduled.  From concerts to the Polish Bowl (I think I'll attend that), the building is a prime venue.  It has to compete will the Sluzewiec racetrack (hippodrome) and the Bemowo airport for such events like concerts and music festivals.  Other stadiums have taken the fashionable thing and sold their naming rights to offset the cost of construction and operation.  (Note:  Ironically, when the Polish National Team recently played Andorra, they played at the Pepsi Arena, home Legia Warszawa, and not in the National Stadium, which was under UEFA control.)

Now that we have spent so much time harping on the cost, let's look at the gains.  Poland is betting on two things to recoup the cost of the games: an increase in tourism (not just the short-term spike, but also long term), and an increase in investment.  Tackling the second hope first, Poland is trying to show that it can execute big projects on time, plus show off its shiny new roads and rails.  An influx of foreign capital will cause the ever-growing forest of stationary cranes standing above halted construction projects to finally move once more.  The first hope is for an increase of tourism, on which Europe is increasingly becoming reliant (think Greece and Portugal).  Poland wants to show that they're not all racist anti-semites, regardless of what the BBC aired.  The increase of tourists during the games is a given, and they'll spend big, buying all sorts of bric-a-brac and crap in the form of Euro 2012 souvenirs.  As for the future, Poland hasn't showcased its crown jewels (read: Krakow), here, but the hosting cities are known to be beautiful, Wroclaw and Gdansk in particular.

While the games are costly, the cost isn't so high as is reported.  Most of the work done was financed with EU help, but there were also smaller contributions, such as the EEA and Norway grants.  The great part of the infrastructure improvements were already set forth and would have happened anyway.  What we're seeing is a developed economy rapidly modernize, closing the gap in deficiencies, and increasing its debt.  This happens all the time with developing economies, and is now going on in China (all eyes are on them).  The question is whether the EU money will continue to flow, especially as other countries are one-by-one seeking bailouts.  The spigot could be turned off and Poland could be left with a mess of half-finished projects and join the sad graveyard of countries who were too ambitious in their hopes to host major international competitions.
What will the future be and what will the games leave as their legacy?  I don't know and no one does, but they have served a purpose to strengthen national pride and open Poland to the rest of Europe.  Whether the gamble that they'll increase tourism and investment will pay off, that's something we'll just have to wait and see.

He Hath Come

As the British were quite confused and a little amazed that Royal Fever caught on in the States before the Royal Wedding, I too stood a little confused at the general excitement that President Obama was coming to visit.  I've referred to Obama several times in this blog (only in jokes, actually), but this is the first time I'll take a semi-serious crack at what it means.  In reality, it means almost nothing.  He was here for twenty-two hours, and during that time parts of the city were shut down.  Obama's visit came when Poland is holding the rotating EU presidency, and the general feeling in Europe and around the globe is that Poland really is one of the few countries in the world (in more so in Europe) that has its shit together.  Just look at the comparison between Poland and Ukraine for readiness for the EuroCup.

Granted, not all Poles were enthusiastic about Obama's visit.  To them, it meant that several important arteries were going to be blocked off for three hours at a time, making it so they couldn't get home after work.  But, to others, it meant that the most powerful man in the world was gracing Poland with his presence at long last.  (NOTE:  The Poles were snubbed when Obama failed to show at the Kaczyncy's funeral, choosing to go golfing instead (that volcano eruption was to blame.))  The Poles have long felt that the US has ignored them for a long time and not lived up to its end of the deals (Iraq, Afghanistan.)  They saw this as an opportunity for Obama to set things right.

He gave vague promises that the visa restrictions for Poland would be lifted; he praised Polish democracy (something the Germans would never do (this is a joke for those who don't get it.  Look up what a 'Polish Parliament" is.)); he pointed his finger and Byelarus, a country no one particularly cares about, and said that they muffed things up; he also said/did some other things I have not recounted on this page.

Overall, I'm pretty bummed I missed out on a chance to see the VC-25, but I did get to see a snazzy C-17 that preceded the visit (no picture, sorry.)

The Outlook for Poland for the Next Two Years

2010 has been a wild year, especially in the financial and business world.  In the beginning, the markets didn't know what to do with Greece and their pesky financial problems.  The PIIGS shook the world's faith in the EU and the euro; China surpassed Japan in terms of GDP; the US fears of a double-dip recession are ongoing; and the stock market doesn't know what the hell to do.  Most EU states have implement almost-draconian austerity measures to curb debt.  Meanwhile, Sarkozy tries to tweak France's retirement age a little (upping it from sixty to sixty-two) and that causes them to go on strike yet again.  Poland, all the while, has been growing and growing.  Its infrastructure projects and renovations have exploded into a rush to complete everything before 2012.

2012 seems to be a magic year.  Besides the "Mayan prediction" and superstitions, there's a super sun storm that might disrupt electronics on earth; there's the EuroCup 2012; the 2012 Olympics in London; and 2012 may be the year that when investors get cold feet over Poland's debt and stop buying its bonds, forcing major austerity measures.

How it works:

Right now, Poland's economy is growing (let's say, 4%.)  With a rise in its GDP, there is also a rise in its debt, this is natural.  EU money (as well as Norwegian money) is pouring into Poland in enormous amounts.  The rub is when the debt grows faster than economy does (let's say, 5%.)  With Poland's economy growing, Poland looks to be a good place to invest money (buying bonds.  In a month or two, Poland will hike rates, which will make it more attractive to buy Polish bonds.)  When more money is invested, the economy grows, which leads to more investment, which leads to further growth and so on.  This can all come to a head when investors start to doubt Poland's ability to pay back its debt (bonds).  They will pull their money out of Poland, which will cause the economy to shrink, which will cause further doubt about the Polish bonds, which will cause more investment to be pulled out, etc.  Pretty much what happened with Greece.

Now, a little birdy told me (someone who is intimate with the situation) warned that Poland has about two more years until the party is over and the government has to enact difficult-to-swallow reforms.  I should warn that the amount of time is purely circumspect and no one really knows; it could be two years, eighteen months, three years, or any amount of time in the near future.  It's like waiting for a small bomb to go off, not knowing how long the timer is.

Right now, Poland is standing in the middle of the tracks, watching the train rush towards it.  Solving the problem is not so much about knowing what to do—most people know what must be done—but about having the political will to actually do it.  Poland needs reforms in government spending, and it needs it soon.  The recent election might have given PO a stronger grip on power, but the surprisingly strong show for Kaczynski sent a message.  The cutbacks in spending that are needed will not be coming any time soon: PO can't risk it politically to make such unpopular decisions.

Members in the financial community have consulted with ministers of Poland, sharing their pessimistic outlook.  The ministers (Boni in particular.  Boni is the fourth-most powerful minister in Poland) agreed; however, told them point blank that the government cannot risk such a politically dangerous program.  Instead, Poland has resorted to accounting tricks to hide and cover its debt (not unlike Greece.)  These tricks serve as a temporary solution and will make the blowup all the more painful.  The tricks do, however, allow the politicians to make claims and be bullish about the economy and government spending.  So, Poland will stand in front on the train until either the last minute, or until the train runs them over.

When austerity measures come (and they will come), it probably won't be as bad as in Greece.  A few things to look for:

1)  The VAT will rise, but gradually.  It'll be 1% at a time in increments.

2)  The retirement age will rise.  Right now, it stands at sixty years for women and sixty-five years for men.  Expect at least two-year rises in each.  Poland's aging (and shrinking) population will have to work longer and expect less benefits when they retire.

3)  Public salaries will be frozen at the least, cut at the most.  Public-sector jobs will have their raises and benefits trimmed.  Also, layoffs probably will happen.

4)  The construction boom will wind down.  Poland's construction boom, financed with a lot of EU money, might wind down.  That's not to say that it won't go on, just at a slower pace.

5)  An increase in fees.  Fees, fees, fees.  They raise money.  Expect them all over the place, and increases in the current ones.

6)  If Poland hasn't joined the euro area by then, the zloty will be printed en masse and a de-valuation will happen.  When you need to pay debt and you exert control over your own currency: print money.

Sound bleak and depressing?  Kind of is, but it might be necessary.  The thing is, the Polish government has mastered the art of public relations.  Everything is often overstated and in an optimistic light.  Everything from the economic outlook, to foreign relations, to the shale gas that I often yap about.  The government isn't about to admit this coming problem just yet, and will probably deny it until the problem has already broken.  Call it a black swan in the coming.
The crisis probably won't be as bad as Greece's, and these reforms will be able to handle it, but it pays to be prepared.  Poland does have a few weapons to combat it and can also lean on fellow EU members for support.

I'll end this with a big  WHO KNOWS?  Why?  Because a lot can happen in this amount of time.  Poland's shale gas might be just as big as they say it (but probably won't be producing for quite a while.) Poland's economy might outpace its debt; Polish politicians might force the bitter medicine and take reforms; there might be some big global or regional event that will help Poland avoid all these problems. But, all the same, I'll remain bearish in the long-term, but bullish in the near-term.