June 10, 2010

RDQ Economics LLC

World Cup
www.rdqeconomics.com

John Ryding
Chief Economist
Special
ryding@rdqeconomics.com
(212) 584-3881

Conrad DeQuadros
Senior Economist
dequadros@rdqeconomics.com
(212) 584-3882
Forget the G-20: It’s the G-32 That Matters
Summary
ƒ On June 26-27, the G20 will hold a summit in Toronto. However, the world’s
eyes will be focused on the 32 nations that will meet over the next month in
South Africa in the World Cup. Canada is the only member of the G-7 to fail
to qualify for the tournament (though it is the reigning Olympic hockey
champion).

ƒ Success in soccer is only very weakly related to economic success. Seven of

the 32 countries to qualify for the World Cup have smaller GDPs than the
New York City budget!

ƒ The 32 teams are divided into eight groups of four teams. Group play begins
tomorrow, on June 11th. We see the most interesting group games as England
versus USA on Saturday June 12th and Brazil versus Portugal on Friday June
25th. (Full schedule at http://www.fifa.com/worldcup/matches/index.html).

ƒ Sixteen teams will advance to the knockout stage, which is like the Sweet 16
bracket in basketball (http://www.fifa.com/worldcup/matches/kostage.html).
First round key games will likely be USA versus Germany on June 27th and
Spain versus Portugal on June 29th. Mathematically, because of the draw, one
of the world’s top three ranked teams must be eliminated by the end of the
first round of knockout games.

ƒ We present key economic and soccer facts for each of the 32 nations in the
tournament and give you our round by round predictions. Also we present out
fantasy RDQ World 11 team.

ƒ We hope the World Cup provides some relief from the dreary financial news
that we are bombarded with from overseas each day. We hope even more that
Europeans forget their financial woes for the next month, put aside riots and
protests, and spend the next month watching the beautiful game.

The information herein has been obtained from sources which we believe to be reliable, but
we do not guarantee its accuracy or completeness. Copyright 2010 RDQ Economics LLC.
All rights reserved. Unauthorized duplication, distribution or public display is strictly
prohibited by federal law.
Weekly Economic Commentary

A Level Playing Field

It may be difficult for many of our U.S. clients to appreciate the passion that the soccer
FIFA World CupTM produces in the rest of the world. However, understand it or not, the
2006 World Cup final between Italy and France drew a start-to-finish audience that has
been independently estimated at 260 million (according to Initiative Sports Futures—
FIFA’s cooked figures are much higher) or roughly two-and-a-half times the global
audience for the last Super Bowl. The World Cup qualifying process, which began two
years ago, has whittled down a field of 204 teams to the 32 that will begin on Friday June
11th to compete in the World Cup finals when host nation South Africa kicks off against
Mexico. In light of all the global economic turmoil and tensions, the 2010 World Cup
will provide some welcome relief for traders and investors who have been battered by the
markets in recent months. We provide this short tour of global economics and soccer our
contribution to this magnificent event that will culminate in the World Cup Final on July
11th (and on a legal note, RDQ Economics LLC is in no way affiliated with FIFA nor is
this any kind of official guide to the World Cup—FIFA has a habit of suing people and
institutions so it is most important to stay on FIFA President Sepp Blatter’s right side!)

The 32 teams that reached the World Cup Finals have been divided into eight qualifying
groups of four teams. Each team plays one game against every other team in the group.
The top two teams on points (three for a win, one for a draw—which means that soccer is
not a zero sum game and this arrangement provides a strong incentive to win a game
rather than play for a draw) advance to the knockout stage. The second stage is simple
for followers of March Madness college basketball to understand since it is just a Sweet
Sixteen bracket (a tie is settled by two 15 minute periods of extra time—not sudden
death—and then a penalty shoot out if necessary). It is theoretically possible (although
extraordinarily unlikely) that North Korea will meet South Korea in either the semi-final
or final and be involved in a shootout that doesn’t involve torpedoes or artillery shells!
One game that will take place is a group stage game between troubled Greece and
Argentina—the country that gave the world its largest default on sovereign debt in 2001.

What Determines Success in the World Cup?

One of us had the good fortune to interview Financial Times sportswriter Simon Kuper
recently on Bloomberg Radio. Simon, along with sports economist Stefan Szymanski,
wrote the very thought-provoking Soccernomics (think Freakonomics meets Money
Ball). Anyone who is interested in soccer and is not turned off by statistics should take a
look at this book. The authors crunched a lot of numbers examining all international
games played between 1980 and 2001. First and foremost, home-field advantage was the
most dominant factor (worth about two-thirds of a goal) and the only team this applies to
in the World Cup is South Africa. Second, the amount of international experience is the
next most important factor (which is a major drawback for the U.S., which has limited
international experience). Population and GDP per capita have a slight influence on
results but the emphasis is on slight and is strongly outweighed by experience. However,
the model leaves plenty unexplained (almost three-quarters of the goal difference in
games is left unexplained by these factors). The country that outperforms most relative
to their model is Brazil, which does two-thirds of a goal better on goal difference than the
model suggests (France is second at slightly more than a third of a goal). Countries that
are closely interconnected to the core of the soccer world, which is Western Europe, tend
to do well (in the economics jargon this is called network externalities). However, the

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regional qualification process that FIFA employees ensures representation from around
the world (hence the presence of New Zealand in the tournament—think qualification by
relatively isolated countries playing each other as they do in the Oceana qualifying area).

The Groups
Group A: South Africa, France, Mexico, Uruguay

South Africa

GDP (2009) $495 billion Debt-to-GDP 27%

Population 49.1 million Deficit-to-GDP 6.1%
Unemployment 24%
FIFA Ranking 83
Star Players Benni McCarthy (West Ham), Steven Pienaar (Everton)
South Africa qualified by virtue of being the host nation. While being host nation gives it
home-field advantage and it is an improving team, this is likely not enough advantage to
get the team beyond the group stage.

France

GDP (2009) $2.11 trillion Debt-to-GDP 68%

Population 64.1 million Deficit-to-GDP 7.9%
Unemployment 9.7%
FIFA Ranking 9
Star Players Thierry Henry (Barcelona), Frank Ribery (Bayern Munich)
Having failed to qualify cleanly by finishing second in its group, France drew Ireland in a
two-leg knockout and won by virtue of a last minute goal that was set up by a handball
from Thierry Henry that was seen by everyone but the referee. Alas for Ireland, FIFA
does not use instant replay and there was no way to replay the game from that point. As a
result, Ireland became the only one of the PIGS not to qualify for the World Cup.

Mexico

GDP (2009) $1.48 trillion Debt-to-GDP 39%

Population 112.5 million Deficit-to-GDP 4.7%
Unemployment 5.6%
FIFA Ranking 17
Star Players Rafael Marquez (Barcelona), Guillermo Franco (West Ham)
Mexico went through a period of managerial turmoil and only just squeaked into the
World Cup. However, the new head coach Javier Aguirre appears to have turned things
around for the team and it should be competitive for the second spot in the group.

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Uruguay

GDP (2009) $45 billion Debt-to-GDP n.a.

Population 3.5 million Deficit-to-GDP n.a.
Unemployment 7.9%
FIFA Ranking 16
Star Players Diego Forlan (Atletico Madrid), Christian Rodriguez (FC Porto)
Remarkably for its size, Uruguay is only one of seven teams to have won at least one
World Cup. In Uruguay’s case it has won two, defeating Argentina in 1930 (as host
nation) and Brazil in 1950.

Bottom Line: France is the clear favorite to win the group and advance to the knockout
stage. The second spot is a virtual tossup between tiny Uruguay and massive Mexico.
These two teams last met in 2007, when Mexico won 3-1. We simulated five games
between the two teams on an advanced computer system using sophisticated software
(read EA Sports’ wonderful and entertaining 2010 FIFA World Cup South AfricaTM on
an Xbox 360 with no human input—our thanks go to unpaid child laborer Ian Ryding for
technical assistance with these results) and Mexico won three games and drew two. Edge
to Mexico (note that no Xbox simulations were run on RDQ time nor was the Xbox
system written off against taxes—should have thought of that one last year!)

Group B: Argentina, Greece, Nigeria, South Korea

Argentina

GDP (2009) $558 billion Debt-to-GDP 60%

Population 41.3 million Deficit-to-GDP 3.9%
Unemployment 9.6%
FIFA Ranking 7
Star Players Lionel Messi (FC Barcelona), Javier Mascherano (Liverpool)
If only Argentina’s economy had replicated the success of its national soccer team. In
1909, Argentina was the eighth most prosperous country in the world (see What
Happened to Argentina? by Ed Glaeser, Economix October 2009). Based on its standing
a century ago, Argentina has been the world’s most underperforming economy largely
due to extremely poor economic policies (Peronism, which was highly protectionist,
favored large state enterprises and heavy regulation). Argentina experienced a monetary
disaster in 2002, when it abandoned its currency board (that tied the peso to the dollar).
The currency collapsed some 75% against the greenback. This year, in something of an
Evita rerun, Argentina’s president, Cristina Kirchner, who was the former first lady,
ousted Martin Redrado, the head of the central bank, so that she could raid the foreign
exchange reserves to pay off some government debt. On the soccer field things have
gone rather better and Argentina has won two world cups (1978 and 1986—the latter
thanks in part to another famous handball incident, Maradona’s Hand-of-God goal).
Now, Maradona is Argentina’s coach and, with little managerial experience, is the team’s
greatest obstacle to winning the World Cup for a third time. Once again, a case of
exceptional promise managed by questionable leadership!

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Greece

GDP (2009) $341 billion Debt-to-GDP 115%

Population 10.7 million Deficit-to-GDP 13.6%
Unemployment 9%
FIFA Ranking 13
Star Players Sotirios Kyrgiakos (Liverpool)
If any country could do with finding a return of its 2004 form (when Greece won the
Euro—not to be confused with the euro!) and going far into the competition, it is
embattled Greece. Fortunately with a FIFA ranking of 13 (not boosted with the
assistance of Goldman’s derivatives desk!), Greece has a good chance of finishing second
in the group and meeting France in the round of 16.

Nigeria

GDP (2009) $357 billion Debt-to-GDP 9%

Population 152.2 million Deficit-to-GDP 10.1%
Unemployment n.a.
FIFA Ranking 21
Star Players Obafemi Martins (Wolfsburg), Yakubu (Everton)
Standing in the way of a second place finish for Greece is Nigeria. Nigeria will miss
John Obi Mikel, who has not recovered from knee surgery. Furthermore, Nigeria’s star
striker Yakubu struggled to find the back of the net this season with only five goals
scored in the Premiership in 21 appearances and he didn’t score in eight appearances in
European competition. If he finds his form on African soil, Nigeria could well snatch the
second spot from the more highly ranked Greek team.

South Korea

GDP (2009) $1.36 trillion Debt-to-GDP 33%

Population 48.6 million Deficit-to-GDP 0.0%
Unemployment 4.1%
FIFA Ranking 47
Star Players Park Ji-Sung (Manchester United)
Korea massively outperformed in the 2002 World Cup, showing the advantage of being a
host country, by reaching the semi-finals. However, while South Korea is a relative
economic powerhouse and has amassed foreign exchange reserves of $270 billion, it
looks a very long shot for South Korea to reach the round of 16 in what looks to be a
tough group.

Bottom Line: Despite the coach, Argentina should emerge in first place in group B.
Calling the second place is one of the most difficult calls of the group stage. If Nigeria
prevails, however—and it is likely to be close—and Greece crashes out at the group
stage, it will only add to the political difficulties of the Papandreou government (in 1970,
England’s Prime Minister Harold Wilson called an election for the day after the World

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Cup semi-finals to capitalize on patriotic fervor—unfortunately England blew a 2-0 lead

over West Germany and Harold Wilson’s Labour Party lost to Ted Heath’s Conservatives
in the election). Which way will it go? In simulations, Nigeria and Greece play each
other very evenly. However, with Mikel out, we will look for Greece to advance.

Group C: England, U.S.A., Algeria, Slovenia

England

GDP (2009)* $2.15 trillion Debt-to-GDP* 62%

Population 51.5 million Deficit-to-GDP* 10.9%
Unemployment* 8%
FIFA Ranking 8
Star Players Wayne Rooney (Manchester United), Steven Gerrard (Liverpool)
* Data for the U.K.
England has not won a World Cup since the tournament was held in England in 1966
(home field advantage again). However, under Fabio Capello, England has a winning
percentage of 79% over 24 games (compared to an average of 67.4% in 411 games
between 1970 and 2007) and hopes run high for England to reach at least the semi finals
(last achieved in 1990, when England lost to Germany). A good performance by England
would help the new Cameron-Clegg coalition government as it prepares the country for
some deep cuts in public spending.

USA

GDP (2009) $14.3 trillion Debt-to-GDP 58%

Population 310.2 million Deficit-to-GDP 12.5%
Unemployment 9.7%
FIFA Ranking 14
Star Players Tim Howard (Everton), Landon Donovan (LA Galaxy & Everton)
England has lost two major encounters with the United States over the course of history:
the Revolutionary War 1776-83 and a World Cup clash in 1950 (lost 1-0). Ranked 14 by
FIFA, the U.S. national team is improving and would be stronger if, like many countries,
it had a foreign coach would bring advanced tactical knowledge. The U.S. should have
no problems moving on to the round of 16. Unlike Europe, however, life on this side of
the pond will likely continue much as normal from June 11th to July 11th. However, we
confidently anticipate that spending in bars by foreign nationals living in New York
during the day will boost the local economy over the next month!

Algeria

GDP (2009) $240 billion Debt-to-GDP n.a.

Population 34.6 million Deficit-to-GDP n.a.
Unemployment 12.4%
FIFA Ranking 30
Star Players Karin Ziana (VFL Wolfsburg)

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Slovenia

GDP (2009) $56 billion Debt-to-GDP 30%

Population 2.0 million Deficit-to-GDP 6.1%
Unemployment 9.4%
FIFA Ranking 25
Star Players Robert Koren (West Brom)

Bottom Line: According to form, England should finish first and the U.S. second in
Group C. However, given the relatively low ranking of the other two teams, the group
could well be decided by the opening game (June 12th) between England and the U.S.
England’s recent friendly form has been poor with unconvincing wins against Mexico (3-
1) and Japan (2-1). In addition, England’s captain, Rio Ferdinand, was injured in training
and is out of the tournament. Whoever wins this game probably wins the group and a
draw might leave the ranking decided on goal difference in the other games. The winner
of the group should have an easy passage to the quarter finals while the second place
team will likely have a very difficult game against Germany in the round of 16.

Group D: Germany, Australia, Serbia, Ghana

Germany

GDP (2009) $2.81 trillion Debt-to-GDP 64%

Population 82.3 million Deficit-to-GDP 3.3%
Unemployment 8.2%
FIFA Ranking 6
Star Players Miroslav Klose (Bayern Munich)
Angela Merkel has lost her domestic popularity and her party was defeated in key
elections in North Rhine-Westphalia. Germany’s fiscal deficit has deteriorated to over
5% of GDP and Merkel is instituting €80 billion in deficit reduction over the next four
years to try to hit the target of 0.35% deficit-to-GDP. This fiscal austerity puts her at
odds again with French President Nicolas Sarkozy. It is unlikely that France and
Germany will meet in this World Cup since they would only meet in the final (unless one
of these two teams fails to win its group) but if it were to happen, it is hard to imagine
that it would help French-German relations! Germany has won three World Cups (1954,
1974, and 1990) and has been a finalist seven times (combining the record of the former
West Germany with the reunified Germany). Germany’s last appearance in a World Cup
final was in 2002, when it lost 2-0 to Brazil. Unfortunately, Germany’s chances of
reaching the final will be severely hampered by the injury to Michael Ballack (the captain
and leader of the team), which rules him out of playing in the competition. Germany is a
fit and well organized team and, according to form, will be the team the U.S. plays in the
round of 16.

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Weekly Economic Commentary

Australia

GDP (2009) $824 billion Debt-to-GDP 0.2%

Population 21.5 million Deficit-to-GDP 4.1%
Unemployment 5.7%
FIFA Ranking 20
Star Players Tim Cahill (Everton), Harry Kewell (Galatasaray)
Australia has a strong fiscal position and was the first major economy to hike rates in
October 2009, which makes the Australian dollar one of our favorite currency plays.
Australia’s soccer team has been improving too and will likely battle it out with Serbia
for the second qualifying spot in the group.

Serbia

GDP (2009) $78 billion Debt-to-GDP n.a.

Population 7.3 million Primary Deficit-to-GDP n.a.
Unemployment 16.6%
FIFA Ranking 15
Star Players Nemanja Vidic (Manchester United)
Serbia had an impressive qualification run, finishing ahead of France. However, as
Kuper and Szymanski argue, there is no strong correlation between qualification record
and progress in the tournament. Nonetheless, second place in the group should be
between Serbia and Australia.

Ghana

GDP (2009) $37 billion Debt-to-GDP n.a.

Population 24.4 million Primary Deficit-to-GDP n.a.
Unemployment 11%
FIFA Ranking 32
Star Players Sulley Montari (Inter Milan)
The African nations are on the rise in the world of soccer—thanks in large part to the
export of African players to Europe—and it is a blow to the hopes of Ghana that its
superstar player Michael Essien is out with an injury.

Bottom Line: While Germany should cruise to first place in the group, any of the other
teams could finish second in the group. Before the injury to Essien, we might have given
the nod to Ghana (especially playing in Africa). Now we see it as a close call between
Serbia and Australia. A five game simulation gave the edge to Serbia over Australia and
our call is for Serbia to advance to the round of 16. However, the contest between
Australia and Serbia will be one of the more interesting ones during the group stage.

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Group E: Netherlands, Japan, Cameroon, Denmark

Netherlands

GDP (2009) $655 billion Debt-to-GDP 41%

Population 16.8 million Deficit-to-GDP 4.9%
Unemployment 5%
FIFA Ranking 4
Star Players Robin Van Persie (Arsenal), Arjen Robben (Bayern Munich)
The Dutch have a relatively manageable fiscal situation and an impressive soccer team.
Holland revolutionized soccer in the 1970s with its tactical innovations. Although
Robben will miss the first game against Denmark due to an injury, the Netherlands
should be good for a first place finish in the group.

Japan

GDP (2009) $4.14 trillion Debt-to-GDP 112%

Population 126.8 million Deficit-to-GDP 10.3%
Unemployment 5.6%
FIFA Ranking 45
Star Players Koisuke Honda (CSKA Moscow)
Although China is moving ahead of Japan in terms of the size of its economy, Japan
remains the stronger soccer nation. Japan has a fit team but it suffers by the relative lack
of experience that players have playing in Europe and by having a Japanese coach. Japan
failed to progress beyond the group stage in the 2006 World Cup and we fear the same is
in store this year.

Cameroon

GDP (2009) $43 billion Debt-to-GDP n.a.

Population 19.3 million Primary Deficit-to-GDP n.a.
Unemployment n.a.
FIFA Ranking 19
Star Players Samuel Eto’o (Inter Milan)
Cameroon is the most fortunate African nation in this year’s World Cup by virtue of it
being in a relatively easy group as it competes against 36th ranked Denmark and 45th
ranked Japan. In economic terms, Cameroon is tiny (about the same size is Uruguay but
with over five times the population). Cameroon outpunches its economic weight on the
soccer field. Samuel Eto’o is one of the top players from Africa, who plays on
Champions League winning Inter Milan. Unlike Drogba and Essien, Eto’o is not injured
and we see his performance as key to carrying Cameroon into the round of 16.

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Denmark

GDP (2009) $199 billion Debt-to-GDP -7.3%

Population 5.5 million Deficit-to-GDP 3.0%
Unemployment 4.3%
FIFA Ranking 36
Star Players Nicklas Bendtner (Arsenal)
Denmark was the only Scandinavian country to qualify for the World Cup. This country
outperforms its economic weight on soccer field and won the 1992 European
Championships (although the tournament back then was a far more limited affair than it
is these days). Denmark is fortunate to find itself in one of the weaker groups and has a
legitimate shot of advancing to the round of 16.

Bottom Line: In the 1970s, the Dutch gave the world total football—tactically superior to
anything else—but the world has been catching up. Nonetheless, it would be a shock for
any other team to finish first in the group. Cameroon looks likely to be second in the
group, although given the small number of games played in the group stage, either
Denmark or Japan could pull off an upset and come second.

Group F: Italy, Paraguay, Slovakia, New Zealand

Italy

GDP (2009) $1.76 trillion Debt-to-GDP 113%

Population 58.1 million Deficit-to-GDP 5.3%
Unemployment 7.5%
FIFA Ranking 5
Star Players Gigi Buffon (Juventus), Andrea Pirio (AC Milan)
Defending World Champions, Italy begins its defense of its title in a relatively easy
group. Italy should go undefeated in the group and, in this case, advance easily to the
quarter finals, where it will likely meet either Portugal or Spain.

Paraguay

GDP (2009) $28 billion Debt-to-GDP n.a.

Population 6.4 million Deficit-to-GDP n.a.
Unemployment 7.9%
FIFA Ranking 31
Star Players Nelson Haedo Valdez (Borussia Dortmund)
Paraguay’s strength on the soccer field is its defense, which gave up only 16 goals in 18
qualification games. While Italy should be good for first place in the group, Paraguay
will be competing with Slovakia for second place. This contest for second place should
be one of the most interesting battles in the group stage of the World Cup.

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Slovakia

GDP (2009) $116 billion Debt-to-GDP 34%

Population 5.5 million Deficit-to-GDP 6.3%
Unemployment 12.1%
FIFA Ranking 34
Star Players Martin Skrtel (Liverpool)
This is Slovakia’s first trip to the World Cup since it emerged as a country from the
division of Czechoslovakia in 1992. The Slovakian team has experience at a high level
with every member of the team playing outside the country at club level. Slovakia
received a boost when it learned Liverpool hard man Martin Skrtel will be fit for
Slovakia’s opener against New Zealand.

New Zealand

GDP (2009) $115 billion Debt-to-GDP 26%

Population 4.3 million Deficit-to-GDP 3.6%
Unemployment 7.3%
FIFA Ranking 78
Star Players Ryan Nelson (Blackburn Rovers)
Delighted to be at the World Cup, it would take nothing short of a miracle for New
Zealand to progress to the round of 16.

Bottom Line: Defending champions Italy should have no trouble finishing first in this
group, while New Zealand will be just glad to be in the tournament. Second place is a
tough call but our gut call is an improving Slovakia team will edge out Paraguay.

Group G: Brazil, Portugal. North Korea, Cote D’Ivoire

Brazil

GDP (2009) $2.0 trillion Debt-to-GDP 44%

Population 201.1 million Deficit-to-GDP 1.5%
Unemployment 7.4%
FIFA Ranking 1
Star Players Kaka (Real Madrid), Luis Fabiano (Seville), Julio Cesar (Int Milan)
Finally Brazil is beginning to get the economy that its soccer team deserves. Five time
World Champions, Brazil has long been able to hold its head high on the soccer stage and
it enters the tournament ranked in first place. Brazil is in the toughest group and its game
against Portugal will be the biggest clash at the group stage of the competition. This
group will likely, therefore, be decided on the June 25th—the last day of the group
stage—when the two teams meet.

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Portugal

GDP (2009) $233 billion Debt-to-GDP 73%

Population 10.7 million Primary Deficit-to-GDP 9.4%
Unemployment 9.2%
FIFA Ranking 3
Star Players Christiano Ronaldo (Real Madrid), Ricardo Carvalho (Chelsea)
Along with the Greek’s, the Portuguese are in great need of a successful World Cup run
to divert attentions from the sovereign debt contagion. While the team is likely to
progress a long way through the tournament, the injury to Manchester United star Nani,
which will keep him out of the World Cup, is a severe blow.

North Korea

GDP (2009) n.a. (but guessed at around $40 billion)

Population 22.8 million
Unemployment n.a.
FIFA Ranking 105
Star Players The entire team for making it to the finals!
North Korea is the most dysfunctional economy and political system in the competition.
It also has the lowest ranked team in the competition playing in the toughest group.
There is nearly as high a chance that it will snow in New York during the competition as
there is of North Korea reaching the round of 16.

Cote D’Ivoire

GDP (2009) $36 billion Debt-to-GDP n.a.

Population 21.1 million Primary Deficit-to-GDP n.a.
Unemployment n.a. (but CIA suggests 40%-50% on account of the civil war)
FIFA Ranking 27
Star Players Didier Drogba (Chelsea), Kolo Toure (Manchester City)
It is a shame the Ivory Coast was drawn into this group and that Drogba is injured.

Bottom Line: Usually in the World Cup finals there is one so-called Group of Death and
in 2010 this is it. While we think the FIFA rankings are somewhat generous in putting
Portugal third in the world, it is nonetheless a very strong club and many of the games in
this group will be must watch and must win. Brazil ought to finish first in the group. For
the Cote D’Ivoire to have a chance of finishing second, it must beat Portugal in its
opening game on June 15th. Unfortunately for the Ivory Coast, its superstar player Didier
Drogba broke his arm in a warm up match against Japan and it is not clear whether he
will be available for that clash. On the other hand, the injury to Nani weakens an
otherwise very strong Portuguese team. We have to go with Portugal though are hearts
are rooting for the Ivory Coast.

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Group H: Spain, Chile, Honduras, Switzerland

Spain

GDP (2009) $1.37 trillion Debt-to-GDP 46%

Population 40.6 million Deficit-to-GDP 11.4%
Unemployment 18.1%
FIFA Ranking 2
Star Players Fernando Torres (Liverpool), Xavi and David Villa (Barcelona)
The Spanish will divert their attention from fiscal austerity and towards the national team
as Euro 2008 champions make a run at the final of the World Cup. This team has such an
incredible depth of talent that the Spanish government could only wish that they could
privatize it to pay off some of the national debt!

Chile

GDP (2009) $244 billion Debt-to-GDP -8.7%

Population 16.7 million Deficit-to-GDP 4.4%
Unemployment 10%
FIFA Ranking 18
Star Players Humberto Suazo (Monterrey)
Chile has an unbelievably good fiscal situation and, since it privatized social security, it
does not have a ticking demographic time bomb threatening this fiscal situation down the
road. After suffering the massive earthquake earlier in the year that killed 711 people (a
relatively small number given the 8.8 magnitude of the quake), Chile will likely get some
welcome relief with a berth in the round of 16—although one misstep could open the
door to either Honduras or Switzerland. Chile’s greatest economic advisor was Nobel
Prize Winner Milton Friedman, who can take credit for much that has gone right with the
country—just not its soccer team!

Honduras

GDP (2009) $33.2 billion Debt-to-GDP n.a.

Population 8.0 million Primary Deficit-to-GDP n.a.
Unemployment 6%
FIFA Ranking 38
Star Players David Suazo (Inter Milan)
Qualifying from the CONCACAF, Honduras has limited international experience and
will struggle to move beyond the group stage.

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Switzerland

GDP (2009) $317 billion Debt-to-GDP 38%

Population 7.6 million Primary Deficit-to-GDP -1.4%
Unemployment 4.4%
FIFA Ranking 24
Star Players Tranquillo Barnetta (Bayer Leverkusen)
Switzerland has the best fiscal situation of any major European country and also
possesses the strongest currency. Unfortunately, it also has one of Europe’s weaker
national soccer teams. Nonetheless, Switzerland has a shot at finishing second—even if
it’s an outside shoot.

Bottom Line: Spain should walk to first place in the group and second place looks likely
to go narrowly to Chile over Switzerland.

The Knockout Stage

Teams RDQ projects to reach the round of 16

Group Winners: France, Argentina, England, Germany, Netherlands, Italy, Brazil, Spain
Runner Ups: Mexico, Greece, USA, Serbia, Cameroon, Slovakia, Portugal, Chile

By the close of June 25th, half of the teams in the competition will have been eliminated
and the other half progress to the knockout phase. The winner of group A plays the
runner up of group B, while the runner up in A plays the winner of B, etc.
Geographically, we do not expect a team from Asia to advance. Furthermore, even with
the contest being hosted in Africa, we see only one team from the continent reaching the
round of 16 (such a shame that the Ivory Coast was drawn in the same group as Brazil
and Portugal). The clash of the first round of the knockout phase will likely take place on
June 29th, when the second place team from Group G (likely Portugal, but possibly
Brazil) will play Spain. Since Spain and Portugal are neighbors, this is what we call in
soccer a derby game. Spain and Portugal are also both suffering from difficult fiscal
situations and contagion from Greece. Spain has a very strong squad but Portugal has
one of the best players in the world in the form of Christiano Ronaldo. We give the edge
to Spain and expect the world’s number two ranked team to advance to the quarter finals
(although we note that in a five game simulation, the games split evenly with Spain
winning two, Portugal winning two, and one match was tied). However, this game
(depending on whether Brazil or Portugal finish first in Group G) will likely result in the
elimination of one of the top three ranked teams in the world. The United States will
likely face elimination in the round of 16 (assuming it finishes second behind England in
group C) at the feet of Germany. If, however, England finishes second, USA will likely
reach the elite eight of the quarter finals. In other interesting games, France has a high
chance of meeting Greece in the round of 16, while in a Western hemispheric clash,
Mexico will likely meet Argentina. While Mexico would trounce Argentina in a head-to-
head battle of economies, it is likely to come off the loser on the soccer field.

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Quarter Finals

While the laws of stochastic processes will likely lead to the following predictions not
coming true (bear in mind, at the knockout stage, a tied game after 90 minutes is settled
with 30 minutes of overtime and, if still tied at that point, a five penalty kick shootout—
England’s favorite way of getting eliminated from major international competitions!)
Moreover, key players on any given team could pick up an injury that forces them out of
the competition. With that said, here are our elite eight (note that mathematically, one of
the top three teams—Brazil, Spain, or Portugal—will be eliminated by the end of the
round of 16).

France, England, Netherlands, Brazil, Argentina, Germany, Italy and Spain

We have laid out our picks in such a way that we see France playing England, Holland
playing Brazil, etc. In the replay of the Battle of Waterloo (the English have a tendency
to see soccer as war), we see England edging out France, while, in what promises to be a
very entertaining game, we expect Brazil to beat the Netherlands. Perhaps the hardest
game to call is Argentina against Germany. Assuming that Messi has the World Cup that
we think he will, we see Argentina advancing to the semi finals (these two teams are
England’s arch-nemesis teams and at least of them is likely to be eliminated before the
final four semi-finals). Italy against Spain is also a very hard game to call as the current
World Champion would be playing against the current Euro champion. Both teams are
full of quality players but in key positions, we expect Spain to prevail.

Semi Finals

Stretching the laws of chained probability (note that to win the competition, not only do
you have to emerge from the group but also win four games in a row—if your chance of
winning one game is 80%—roughly England’s record under Capello—the chance of
winning all four games in a row is only 41%). With this caveat in mind, our final four is:

England, Brazil, Argentina, and Spain

Any team reaching this stage of the competition can view the tournament as a success.
At the same time, being one game away from the World Cup Final, a defeat is
heartbreaking. It will be four more years before the competition is held again. If it
comes down to a penalty shoot out, then it is the team with the calmest nerve (and more
often than not the one that wins the toss and elects to shoot first). While England have a
legitimate chance of beating Brazil (and that is where our hearts are), rational analysis
suggests that the Brazil team is just too strong. A five game simulation has Brazil
winning three games and losing two against England. This is similar to the view of the
weight of money, which puts the odds of making the final around 2-1 for Brazil but 3-1
for England (and bear in mind that the weight of money will tend to be behind England,
perhaps making the true probabilistic odds rather than the bookies’ odds somewhat
longer).

It is easier to be dispassionate about Spain versus Argentina. Argentina arguably has the
best player in the world in Messi. However, Spain matches up better in most positions
and has one of the best goalkeepers in the world in Casillas. Perhaps under a different
manager we could see Argentina besting Spain, but we expect the number two ranked
team to advance to meet the number one ranked team in the final.

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World Cup Final

Brazil vs. Spain

New World against Old World. BRICs against the EU. If this is the final, it should be a
fantastic game as Spain vies to become the eighth member of the elite club of World Cup
champions and prevent Brazil from becoming a six-time champion. This game would
appear to be too close to call. Brazil won the Confederation Cup in South Africa, coming
back in the second half to defeat the USA 3-2, as Luis Fabiano was the tournament’s top
scorer with five goals. However, Spain’s David Villa and Fernando Torres were close
behind with three goals each (amazingly, Spain lost 2-0 in the semi-finals to the U.S.)
While this game could go either way, we give the edge to Brazil. Brazil’s coach Dunga
has been changing the style of Brazilian play by raising the emphasis on defense and
shifting away from an all out attacking style.

RDQ-11

We end our tribute to the world’s most important gathering of nations with our RDQ-11
team.

Forwards: Messi Rooney

Midfielders: Gerrard Kaka Xavi Ronaldo

Defenders: A Cole Vidic Terry Maicon

Goalkeeper: Casiallas

Head Coach: Fabio Capello

Subs: Buffon, Alves, Ribbery, Iniesta, Torres

No doubt our choices will be controversial both in terms of predicted results and our
fantasy world team. However, we look forward to enjoying the tournament and obtaining
some relief from the dreary news on the global financial front. Stay tuned to the World
Cup. Enjoy!

Notes on sources
Population, GDP and unemployment comparisons were largely taken from the CIA
World Factbook, while net-debt and deficit data came from the IMF’s World Economic
Outlook. Football sources included FIFA, BBC, and numerous soccer websites. Thanks
to Microsoft and EA Sports (with whom we are completely unaffiliated) and a very
special thanks to Simon Kuper.

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