Blog Post

Southern Europe is suspicious: the evolution of trust in the EU

Analysis of the eurozone crisis and its consequences has started to consider its social, as well as political and economic, dimensions. Bruegel analysis, for example, has considered distributional challenges, effects on poverty levels, social security systems, and changes in confidence towards political institutions. Academic economic research into the significance of cultural values, such as trust, suggests a viable new route to consider some of these deep-rooted social consequences of Europe’s economic woes, and we seek here to sketch some stylised empirics.

By: Date: May 14, 2014 Topic: European Macroeconomics & Governance

Analysis of the eurozone crisis and its consequences has started to consider its social, as well as political and economic, dimensions. Bruegel analysis, for example, has considered distributional challenges, effects on poverty levels, social security systems, and changes in confidence towards political institutions. Academic economic research into the significance of cultural values, such as trust, suggests a viable new route to consider some of these deep-rooted social consequences of Europe’s economic woes, and we seek here to sketch some stylised empirics. If we think that such social values are both economically important and that it is very hard to change them, then the findings are worrying. Economic crisis has been associated with a striking degradation in the levels of interpersonal trust in southern Europe.

In an often cited quote from 1972, Kenneth Arrow wrote that “Virtually every commercial transaction has within itself an element of trust … It can be plausibly argued that much of the economic backwardness in the world can be explained by the lack of mutual confidence”. The recent literature investigating the economic ‘payoff’ of trust in society stretches back most notably to Knack & Keefer (1997) and La Porta et al. (1997), who used measures of generalised trust to proxy for levels of social capital and test the connection to economic performance. However, since definitions of social capital vary significantly between disciplines, here we stick to the narrow importance of trust while acknowledging the link to social capital. Much of the economic literature empirically tests the connection between trust and economic performance using data from the World Values Survey (WVS), which asks “Generally speaking, would you say that most people can be trusted or that you can’t be too careful in dealing with people?

Fehr et al. (2004)’s experiments suggest that this question does indeed measure general levels of social trust, Bloom, Sadun & Van Reenen (2012) use this data to show that higher local levels of trust increase the aggregate productivity of firms, Knack & Keefer (1997) use it cross-sectionally to illustrate that trust has large impacts on aggregate economic activity as well as to argue that increasing levels of trust is extremely difficult, and La Porta et al. (1997) show it can explain substantial variation in political and economic institutions. While there is debate on the channels through which trust (and social capital) economically operates (e.g. Tabellini, 2008, Guiso et al. (2006)), the relevant lessons are threefold:

  1. Generalised trust is significantly associated with economic performance.
  2. It can be empirically proxied using WVS data.
  3. It is slow and difficult to change.

The recent release of new waves from both the European Social Survey (ESS) in late 2013 and World Values Survey in April 2013 provides an opportunity to assess deep social consequences of the crisis. Just as trust can affect economic performance, so too can economic performance affect general levels of trust in a society and it is this reverse causality that the new data allows us to consider. Here we use here data from ESS, since it covers a wider range of European countries and asks all respondents exactly the same question as the WVS, and use WVS data as a robustness check. The only difference is that responses to the ESS question range from 0-10 whereas WVS responses are binary. We take the mean of responses across a given country, using the relevant weights, such that higher numbers indicate higher levels of generalised trust. The data used relates to waves from 2006/7, 2008/9, 2010/11 and 2012/13.

At the continental level, changes have been slightly negative: across the 10 countries out of EU-15 in the sample that have complete data – Belgium, Denmark, Finland, Germany, Ireland, Netherlands, Portugal, Spain, Sweden and the UK – trust has fallen by 0.8% between 2006/7 and 2012/13. Across the 16 countries from EU-28 with complete data – add Cyprus, Bulgaria, Estonia, Poland, Slovenia and Slovakia to the previous list – it has fallen by 1%.

However, if we disaggregate then the picture markedly changes. In particular, we create a ‘northern’ group (Belgium, Germany, Finland, Netherlands, UK), a ‘southern’ group (Cyprus, Spain, Ireland and Portugal), and an ‘eastern’ group (Bulgaria, Estonia, Poland, Slovenia and Slovakia). Some countries which would naturally fall into this group are excluded due to missing survey waves – for example, France was not included in the most recent wave (it sees a moderate fall until then), Greece lacks two of the four waves and Italy is included in none of the waves.

Below, we plot the levels of generalised trust across the three groups on the left axis using bars, and the percentage change on the right axis compared to 2006/7 using the lines.

Source: European Social Survey, Bruegel calculations

The graph is interesting for five reasons:

  1. The southern group has seen levels of trust fall by over 7% since 2006/7 – Spain has seen small losses while Portugal, Cyprus and Ireland have all seen substantial decreases, by as much as nearly 15% in Cyprus.
  2. The northern group sees an upswing in 2012/13 with very little change in the preceding two waves – Finland and the UK have very similar paths, with dips after 2006/7 before recovering in 2012/13 while Belgium, Germany and Netherlands see more consistent increases.
  3. The eastern group sees moderate gains of just over 1%, with only Slovakia seeing a fall over time.
  4. Averaging across waves, the level of trust in the northern group is 21% higher than the southern group and 29% higher than the eastern group.
  5. However, the difference in levels between the southern and eastern group has almost entirely eroded, and the eastern group could be expected to overtake if trends continue.

Cross-checking with the latest data from the World Values Survey agrees with these results. Only two countries per group are included in both the 2005-2008 and the 2010-2014 waves – Germany and Netherlands from the northern group, Spain and Cyprus from the southern group, and Slovenia and Poland from the eastern group – but even so the northern group sees an increase, the eastern group sees a weaker increase and the southern group sees a substantial decrease.

It is worth noting that all these figures are highly stylized and aggregated. Values like trust vary significantly within countries, and further work could usefully seek to explore the links between regional changes in economic circumstances and changes in social attitudes.

Nonetheless, given the high persistence of social attitudes over time as well as their economic significance, the substantial and heterogeneous changes observed across Europe in the last eight years are striking. It is also interesting how closely the trajectories of southern and eastern Europe match the patterns in convergence observed on the tenth anniversary of EU enlargement. Economic crisis has dramatically affected not only livelihoods but – at least in a group of southern eurozone countries – deep and long-lasting social values.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.


Warning: Invalid argument supplied for foreach() in /home/bruegelo/public_html/wp-content/themes/bruegel/content.php on line 449
View comments
Read about event More on this topic

Upcoming Event

Apr
25
12:30

Central banking in turbulent times

This event will look at fundamental questions about the central banking systems and how the Great Recession might have prompted a reassessment of the old central banking model.

Speakers: Maria Demertzis, Paul De Grauwe, Marianne Nessén and Francesco Papadia Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic

Upcoming Event

Apr
26
16:30

Youth UP Europe: Future of democracy in Europe

Bruegel and the European Youth Forum are teaming up to organise an event series in which young people, researchers and policy makers debate policy issues relevant to the future of Europe.

Speakers: Alice Mary Higgins, Luis Alvarado Martinez, Thodoris Georgakopoulos and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More by this author

Podcast

Podcast

Director's Cut: EU risks US tariff pain in standing by the WTO

As global trade war continues to unfold, Bruegel director Guntram Wolff is joined for this Director's Cut of 'The Sound of Economics' podcast by Bernd Lange MEP, chair of the Committee on International Trade (INTA), to discuss Europe's options.

By: The Sound of Economics Topic: European Macroeconomics & Governance, Global Economics & Governance Date: April 18, 2018
Read article More on this topic

Blog Post

The European Globalisation Adjustment Fund: Time for a reset

It is only in the last decade that the EU has had an active policy to reintegrate workers who lost their jobs as a result of globalisation, through the European Globalisation Adjustment Fund (EGF). In this blog, the authors assess the performance of the Fund and make three recommendations to improve its effectiveness. To be more successful, the Fund should improve its monitoring and widen the scope of its usage.

By: Grégory Claeys and André Sapir Topic: European Macroeconomics & Governance Date: April 11, 2018
Read article More by this author

Opinion

How Should the EU Position Itself in a Global Trade War?

It is high time for the EU to work on more than just wishful thinking in response to the US challenge to global trade. With the first cracks appearing in the multilateral system, it will be difficult for the EU to maintain a middle course between the US and China.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance, Global Economics & Governance Date: April 5, 2018
Read article More by this author

Podcast

Podcast

Director's Cut: Developing deposit insurance in Europe

In this week’s Director’s Cut of ‘The Sound of Economics’ podcast, Bruegel director Guntram Wolff talks with Nicolas Véron, senior fellow at Bruegel, about the implementation of a European Deposit Insurance Scheme (EDIS), one of the three pillars needed for the completion of banking union.

By: The Sound of Economics Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: April 3, 2018
Read article More on this topic

Blog Post

Do wide-reaching reform programmes foster growth?

With growth gathering momentum in the eurozone, some have claimed this is the proof that structural reforms implemented during the crisis are working, re-opening the long-standing debate on the extent to which reforms contribute to fostering long-term growth. This column employs a novel empirical approach – a modified version of the Synthetic Control Method – to estimate the impact of large reform waves implemented in the past 40 years worldwide.

By: Alessio Terzi and Pasquale Marco Marrazzo Topic: European Macroeconomics & Governance Date: March 28, 2018
Read article More on this topic

External Publication

Europe in a new world order

The EU is a relatively open economy and has benefited from the multilateral system. We argue that the EU should defend its strategic interests. The Singapore ruling has offered a useful clarification on trade policy. Addressing internal imbalances would also increase external credibility. Finally, strengthening Europe's social model would provide a counter-model to protectionist temptations.

By: Maria Demertzis, Guntram B. Wolff and André Sapir Topic: European Macroeconomics & Governance Date: March 26, 2018
Read article More on this topic More by this author

Blog Post

The Brexit Transition Deal

Michel Barnier, the European Union’s Brexit negotiator, and David Davis, Britain’s Brexit secretary, announced a transition deal on March 19. We review recently published opinions about the deal and its implications.

By: Silvia Merler Topic: European Macroeconomics & Governance Date: March 26, 2018
Read article More on this topic More by this author

Opinion

Greece must capitalise on its growth momentum

Better-than-expected growth performance reflects the underlying positive changes in the Greek economy – but net investment is in fact negative, while Greece has various institutional weaknesses. Further improvements must be made regarding Greece’s attractiveness to foreign direct investment. A new (at least precautionary) financial assistance programme would improve trust in continued reforms and also address eventual public debt financing difficulties.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: March 26, 2018
Read about event More on this topic

Past Event

Past Event

Could uncertainty derail the European recovery?

It is a contradictory time for Europe. The economy is recovering but the political climate is uncertain. There is excitement about common projects but also rifts and increasing nationalism and populism.

Speakers: Franco Bruni, Maria Demertzis, Zsolt Darvas and Marietje Schaake Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 22, 2018
Read article Download PDF More on this topic

Policy Contribution

The European Globalisation Adjustment Fund: Easing the pain from trade?

With the European Globalisation Adjustment Fund (EGF), the EU now has an instrument to help workers negatively affected by trade find new jobs. However, only a small proportion of EU workers affected by globalisation receive EGF financing. How to improve the EGF? Revising the eligibility criteria to qualify for EGF assistance, enlarging the scope of the programme beyond globalisation and collecting more and better data to enable a proper evaluation of the programme.

By: Grégory Claeys and André Sapir Topic: European Macroeconomics & Governance Date: March 22, 2018
Load more posts