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 article Download PDF More on this topic

Policy Brief

One size does not fit all: European integration by differentiation

The need for reform of the EU is increasingly urgent. The authors of this policy brief suggest a new governance model, combining a bare-bones EU with a 'Europe of clubs'. Such reform would offer scope for broad membership without stalling the process of integration for those that wish to pursue it.

By: Maria Demertzis, Jean Pisani-Ferry, André Sapir, Thomas Wieser and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: September 19, 2018
Read about event More on this topic

Past Event

Past Event

Crypto assets: is a regulatory framework needed?

The economic potential and risks of crypto assets: is a regulatory framework needed?

Speakers: Thierry Philipponnat and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: France Stratégie, 20 avenue de Ségur, 75007 Paris Date: September 19, 2018
Read about event More on this topic

Past Event

Past Event

Structural reforms in Europe: policy lessons from the crisis

When are structural reform efforts successful in fostering productivity and growth when and why do they fail?

Speakers: Ana Fontoura Gouveia, Paolo Manasse, Klaus Masuch and Alessio Terzi Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: September 18, 2018
Read article More on this topic More by this author

Blog Post

Reforming the EU fiscal framework

Researchers have often highlighted the problematic nature of the currently very complex EU fiscal framework. Here we review economists’ views on how it should be changed.

By: Silvia Merler Topic: European Macroeconomics & Governance Date: September 17, 2018
Read article More by this author

Podcast

Podcast

Director’s Cut: Europe’s migration policy challenge

Immigration is one of the most contentious policy matters currently facing the EU. In this Director’s Cut of ‘The Sound of Economics’ Bruegel director Guntram Wolff welcomes Ana Palacio, member of the Spanish council of state and former foreign affairs minister, as well as Bruegel visiting fellow Elina Ribakova for a constructive discussion as to which approaches will yield the best results.

By: The Sound of Economics Topic: European Macroeconomics & Governance, Global Economics & Governance Date: September 14, 2018
Read article More on this topic

Blog Post

The economic case for an expenditure rule in Europe

Proposals for reforming the euro area back on the agenda. An overhaul of the European fiscal rules should be on high on this agenda, because the current fiscal framework has not worked well. This column proposes substituting the numerous and complex present rules with a new, simple rule focused on limiting annual growth rate of expenditures.

By: Zsolt Darvas, Philippe Martin and Xavier Ragot Topic: European Macroeconomics & Governance Date: September 13, 2018
Read article Download PDF More on this topic

External Publication

The EU’s Multiannual Financial Framework and some implications for CESEE countries

Bruegel scholars Zsolt Darvas and Guntram Wolff contributed to the September 2018 edition of the OeNB's Focus on European Economic Integration.

By: Zsolt Darvas and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: September 12, 2018
Read about event More on this topic

Past Event

Past Event

Reforming Europe's fiscal framework

This event will discuss reforming Europe's fiscal framework in order to make it less complex and more effective.

Speakers: Zsolt Darvas, Lars Feld, Philippe Martin, Lucio Pench and Beatrice Pierluigi Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: September 12, 2018
Read article More on this topic More by this author

Opinion

Should central European EU members join the euro zone?

Eurozone membership (or the use of a fixed exchange rate) was not a factor determining economic success in Central Europe. There were both good and bad macroeconomic performances in both the flexible and the fixed exchange rate regimes of Central European countries. The implication is that Central European “outs” could be economically successful both with and without the euro, yet the EU is not only about economic benefits.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: September 11, 2018
Read about event More on this topic

Upcoming Event

Oct
23
12:30

Europe: Back to the future of a political project

This event will feature a discussion on different ideas for reforming European Governance.

Speakers: Ulrike Guerot, Adriaan Schout and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic

Blog Post

The higher yield on Italian government securities could soon be a burden for the real economy

The increase in the spread between Italian (BTP) and German (Bund) government securities is directly an additional burden for Italy public finance, and thus for tax payers. But it could soon also become a burden for the real economy, as the increased yield on Italian government securities could pull up the cost of bank loans for Italian firms, thus imparting a deflationary impact onto the economy.

By: Francesco Papadia and Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: September 10, 2018
Read article Download PDF

Policy Contribution

The economic potential and risks of crypto assets: is a regulatory framework needed?

What is the economic potential and the risks of crypto assets? Regulators and supervisors have taken great interest in these new markets. This Policy Contribution is a version of a paper written at the request of the Austrian Presidency of the Council of the European Union for the informal ECOFIN meeting of EU finance ministers and central bank governors.

By: Maria Demertzis and Guntram B. Wolff Topic: European Macroeconomics & Governance, Testimonies Date: September 6, 2018
Load more posts