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THE CRISIS AND THE WORLD CUP METAPHOR

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Italy is not in good shape for the soccer World Cup. Already a few hours before Riccardo Montolivo was injured and Giuseppe Rossi was cut from Cesare Prandelli's team, Goldman Sachs predicted that "Italy will be out at the quarter finals, loosing 2-1 to Spain." Brazil will win the competition, beating Argentina 3-1 in an all-Latin American final.

According to calculations using one of the investment bank's mathematical models, the Brazilian team has a 48.5% chance of winning the competition.

Argentina's 'Seleccion' has a 14.1% chance, followed by Germany (11.4%) and Spain, the defending champion (9.8%). Even Holland, with a 5.6% chance winning the Cup, is ahead of Italy (1.5%). But there is actually much more than this in Goldman Sach's fun but serious publication titled "The World Cup and Economics 2014." Looking at Italy, the analysts on West Street have outlined some very interesting parallels: in politics and in economics, just as in soccer, Italy tends to surprise and is capable of a strong showing in hard times.

It happened in 1990, "when very few believed that Italy could join the European Economic and Monetary Union and, again, in the summer of 2011," when the spread between the Italian and German treasury bonds hit the roof. In both cases - states the publication - "all-star governments were able to turn the game around and avoid defeat." But what about now, in 2014? "Italy,” according to Goldman Sachs, “is slowly emerging from a severe and prolonged recession, but it is not out of the woods yet. The risk of low growth and deflation is not that remote".

Continuing with the soccer metaphor, the New York analysts ask "the new team in government, captained by Mr. Renzi, to play in attack" and to pull off "the much-needed and long-awaited structural reforms," like the Azzurri did at the 2006 World Cup.

The possibility of an Italian comeback in the rankings of total returns on bonds is left open, even though Portugal and Spain have seen higher returns than Italy so far in 2014. "But the year is not yet over and Mr. Renzi could score goals and move up the league table".

Undoubtedly, some help from Prandelli's team could be very useful indeed. Goldman Sachs notes that, historically, the returns on Italy's stock market are below average, except when the country brings home the trophy. In 1982 and in 2006, for example, returns increased. When the national team reached the semifinals, 10-year government bonds yielded higher returns. Goldman Sachs - not a sorceress - sums it up by saying that history suggests that even purchasers of Italian bonds - that is, the markets - "celebrate" when the Azzurri perform better than expected.

June 1, 2014