Blog Post

Trust in the EU? The key obstacle to reform

The challenges that Europe faces both from within and from outside require immediate, concerted counter-efforts. While efforts to advance the European economic architecture are desirable and useful, can Europe realistically attempt to integrate further on the basis of such little trust?

By: Date: February 9, 2018 Topic: European Macroeconomics & Governance

Current efforts to reform and advance European integration are stalled by a ‘lack of trust’. And while the issue of trust is not necessarily seen and understood in the same way by all, I believe that this deficit in trust in Europe refers to (at least) two specific issues: lack of trust between countries, and countries’ lack of trust in European institutions.

European countries divide themselves in camps along different fault lines: north vs south, east vs west, ins vs outs and – always – them vs us. Some are seen as corrupt and unreliable. Some then feel as part of an Orwellian Union, “where we are all equal, but some are more equal than others.” What is the source of this suspicion and why does it arise?

Equally, Brussels, the collective term for all European institutions, has become synonymous with elitist, inefficient and distant. The owners of these institutions – in other words, the countries of the European Union collectively – are becoming suspicious of how Brussels serves them, or of what it stands for. This suspicion has made Brussels the source of much that goes wrong in countries domestically, at times a very convenient scapegoat.

Can Europe realistically attempt to integrate further on the basis of such little trust? Even if one imagined that the single market could continue to operate, can we sustain a common currency in the absence of trust when trust is the very basis on which currencies operate?

I believe this to be the one obstacle to the necessary reforms needed to ensure the viability of monetary union and the EU. And yet, the challenges that Europe faces both from within – indebtedness, unemployment, populism – and from the outside – security, migration, threat to multilateralism – require immediate, concerted actions. So, while efforts to advance the European architecture are desirable and useful, it is with the utmost urgency that we need to take concrete steps to improve trust.

There are no quick fixes. The only way to rebuild trust is to earn it. Here are three thoughts on a roadmap that would help advance trust, in order of importance.

1) Set clear annual targets for improving the quality of institutional governance

The deep distrust between countries arises in my view because the quality of domestic governance is simply too diverse. The EU recognises the importance of good-quality institutions. However, from its very genesis in 1957, the circle of members has included countries that were actually very different in this respect. And every time this circle expanded to include new members, it came with the hope of helping the laggards to reform. Institutional reform, and therefore convergence in governance standards, was thought to be easier once inside the circle.

Figure 1, however, shows that this hope, this promise of more effective reform from within, has proven false; the EU has failed to promote convergence in governance. Some may even say that progress is regressing, eroding trust and the willingness to work together, and by implication Europe’s standing in the world.

Contrary to governance convergence, when it comes to economic convergence the EU and euro area have explicit monitoring mechanisms in place. But while desirable and useful, economic convergence is secondary to convergence in the quality of institutions, particularly if we are interested in the EU existing in the long haul. And this is because the quality of institutions constitutes not only the basis on which good economic outcomes can arise but also, importantly, be sustained. Good economic performance, while possible in different institutional structures, is likely to be reversed in the absence of good regulations or an effective rule of law.

Yet, we have elaborate economic surveillance processes in place, like the fiscal compact and the Macroeconomic Imbalance Procedure (MIP), to monitor and help reform our economies. We have nothing equivalent for monitoring institutional quality at the EU level. For as long as there is quite such variation in the quality of governance, it will be difficult for countries to trust each other.

At the very least, therefore, we need to put in place a Governance Performance Monitor (GovPM), which will benchmark, monitor and promote convergence to established frontiers. The EU should establish indicators that can evaluate development in the main governance areas at the same frequency as the MIP. This is necessary in order to increase and sustain momentum and to be part of the broad surveillance process to raise awareness and encourage ownership. The tools used to enforce economic discipline and cooperation need to be used also with regards to institutional reform. If governance can be demonstrably improved, economic outcomes will improve and trust will follow.

2) Adopt a systemic approach to policy making

This lack of trust between countries has also led to a split in views, across one more fault line, on how to promote further (and necessary) integration: that between risk sharing and risk reduction.  Discussions on how to advance European integration are often divided between either taking action to reduce risk at the country level, or pulling resources centrally to share risk between countries.

But this is indeed a false dichotomy, as this approach to policy-making gives scant attention to the system and its ability to withstand the shocks that hit it. Given the degree of our interdependence, it is important to approach Europe as more than just the sum of its parts and any attempt to further integrate should be driven by a desire to strengthen the system. Strengthening systems, in turn, requires both reforming their parts (risk reduction), as well putting mechanisms in place to hold these parts together as a system (risk-sharing between countries and with the markets).

This is not unlike a nation’s health policy: we promote healthier lifestyles as a way of strengthening each part of the system (the individual), but we also enforce collective insurance so that the health system as a whole survives. Left to themselves, health insurance schemes would not survive, as only the unhealthy would seek to subscribe. The collective nature of agreements, effectively forcing the healthy to also subscribe, helps resolve this and recognises that the current healthy may also be its future consumers. This is what economists call resolving the problem of adverse selection. At the same time, and equally crucial to the viability of the system, is making sure that the premia paid reflect lifestyles. This in turns resolves the problem of moral hazard.

Restoring trust between countries can only begin if all of them take actions to ensure that the EU can survive in the long run

A systemic approach to further integration in Europe requires actions at both levels: targeted structural reforms at the country level to modernise and adapt economies, as well as to coordinate policies and install buffers at the European level. And they need to be done simultaneously, not sequentially.

Any attempt at risk-sharing between countries is dangerous, if at the same time countries individually do not pursue “healthier lifestyles”: improve governance, promote productivity, encourage equitable distribution of wealth created.  One cannot ask the healthy to guarantee the health of the weak. The system should do that because it has an incentive (namely a threat to its existence) to promote, if not enforce, reforms.

Similarly, the insistence on “country reform” before anything else happens, ignores the relevance of insurance in closely interconnected systems. A common currency, one banking union, one single market, are all at risk if appropriate mechanisms of monitoring (ex ante) and rescuing (ex post) are not put in place. Economic and governance monitoring, and designing ways of reducing the way the health of sovereigns can affect banks, are examples of how to achieve the former. Completing banking union and installing a system for allowing countries to have manageable and orderly defaults are examples of how one might insure the system.

But importantly, efforts at both levels simultaneously demonstrate that all countries have the same objective, which is to protect the system. And this demonstrable alignment of interests would set the path for re-establishing trust.

3) Aim to close the distance between Brussels and the national capitals

This is crucial for restoring countries’ trust in European institutions. If Brussels is indeed elitist, inefficient and distant, the owners of European institutions, the countries, should put in place motions to correct that. There is always space to modernise and become more efficient and European administration is no different.

But this will not be enough. A recent Eurobarometer run by the European Commission on the European Budget reported that “Respondents are most likely to think the EU spends most of its budget (on) administrative and personnel costs and buildings (34%), defence and security (27%) and immigration issues (27%).” This is very different to what the budget is actually spent on, with the common agricultural policy and structural funds capturing about 80% of the total, and personnel costs and buildings capturing way below 10%. The very startling misperceptions that citizens have on what the European budget does are indicative of how little effort is made to inform them.

In the long run, there cannot be such a severe disconnect between what the EU does and what people believe it does, without threatening its very existence. And here it is the countries that need to take the lead and explain to their own citizens why they are in the EU, how they benefit from it and what they contribute to its success. A domestic dialogue on Europe with historical contextualisation – what it does well and what it needs to do better – will eliminate the misperception that Brussels is here to serve anyone or anything else, other than all Europeans.

But beyond communication, the only way this distance can close is if the benefits of membership are seen and felt. It is crucial to meet citizens’ concerns and adapt as these concerns change. A concrete example would be the new seven-year EU budget (MFF), the negotiations for which are about to begin. The motivation in allocating funds needs to be what makes the EU more robust. Defence and security, investing in education, technology and the young, and the convergence of institutions and economies are items that will affect all and should take centre stage in this process of negotiation. Letting go of the juste de retour straightjacket is crucial for approaching the EU as a system, not just a collection of countries that can meet future adversities.

If the EU wants to prepare for the uncertainties of the future and all the challenges that it will bring, sustainability needs to be at the core of its objectives. Trust is at the basis of everything that makes our societies successful. If that is gone, it is difficult to build and sustain the architecture required. Restoring trust between countries can only begin if all of them take actions to ensure that the EU, as more than just the sum of its parts, can survive in the long run. Similarly, countries have a responsibility to ensure that the institutions that are there to serve and promote the EU are seen and trusted to do so. The process of restoring it cannot start soon enough.


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.

View comments
Read article More on this topic

Opinion

EU policy recommendations: A stronger legal framework is not enough to foster national compliance

In 2011, the EU introduced stricter rules to monitor the implementation of country-specific policy recommendations. Using a new dataset, this column investigates whether these new laws have increased national compliance. There is no evidence that these stricter processes matter for implementation rates, whereas macroeconomic fundamentals and market pressure are important determinants of implementation progress. These results suggest ways to improve the effectiveness of European policy coordination that go beyond stronger legal processes.

By: Konstantinos Efstathiou and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: July 23, 2019
Read article More on this topic

Blog Post

Talking about Europe: Die Zeit and Der Spiegel 1940s-2010s

An on-going research project is seeking to quantify and analyse printed media discourses about Europe over the decades since the end of the Second World War. A first snapshot screened more than 2.8 million articles in Le Monde between 1944 and 2018. In this second instalment we carry out an analogous exercise on a dataset of more the 500 thousand articles from two German weekly magazines: Die Zeit and Der Spiegel. We also report on the on-going work to refine the quantitative methodology.

By: Enrico Bergamini, Emmanuel Mourlon-Druol, Francesco Papadia and Giuseppe Porcaro Topic: European Macroeconomics & Governance Date: July 18, 2019
Read article More on this topic More by this author

Blog Post

Opening speech by Bruno Le Maire

Bruno Le Maire, minister of the economy and finance, delivered the opening speech at Bruegel's event “The Eurozone agreement – a mini revolution?”, 8 July 2019.

By: Bruno Le Maire Topic: European Macroeconomics & Governance Date: July 9, 2019
Read article Download PDF More on this topic

Policy Brief

The European Union energy transition: key priorities for the next five years

The new members of the European Parliament and European Commission who start their mandates in 2019 should put in place major policy elements to unleash the energy transition. It is becoming economically and technically feasible, with most of the necessary technologies now available and technology costs declining. The cost of the transition would be similar to that of maintaining the existing system, if appropriate policies and regulations are put in place.

By: Simone Tagliapietra, Georg Zachmann, Ottmar Edenhofer, Jean-Michel Glachant, Pedro Linares and Andreas Loeschel Topic: Energy & Climate Date: July 9, 2019
Read about event More on this topic

Past Event

Past Event

Eurozone agreement: a mini revolution?

What does the new Eurozone budget do, and what does it not do? What are its strengths and weaknesses?

Speakers: Bruno Le Maire and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: July 8, 2019
Read article More on this topic More by this author

Podcast

Podcast

Director's Cut: Priorities for the new ECB president

In this Director's Cut of 'The Sound of Economics', Guntram Wolff talks to two of the authors of Bruegel's memo to the new ECB president, Maria Demertzis and Grégory Claeys, to specify the most important issues at the beginning of this eight-year cycle and to clarify the parameters within which the new incumbent will have to work.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: July 4, 2019
Read article Download PDF

Policy Brief

The threats to the European Union’s economic sovereignty

Memo to the High Representative of the Union for Foreign Affairs and Security Policy. The authors describe the current context and the increasing interlinkages between economics and power politics and the role to play in reinforcing and defending Europe’s economic sovereignty.

By: Jean Pisani-Ferry and Guntram B. Wolff Topic: European Macroeconomics & Governance, Global Economics & Governance Date: July 4, 2019
Read article Download PDF More on this topic

Policy Brief

Preparing for uncertainty

Memo to the president of the European Central Bank. Grégory Claeys, Maria Demertzis and Francesco Papadia present the challenges that the next ECB president will face during the upcoming mandate, reinventing monetary policy in a system riddled with uncertainties.

By: Grégory Claeys, Maria Demertzis and Francesco Papadia Topic: European Macroeconomics & Governance Date: July 3, 2019
Read about event More on this topic

Past Event

Past Event

How comprehensive is the EU political realignment?

Has the left-right divide become obsolete in EU politics?

Speakers: David Amiel, Otilia Dhand, Nicolas Véron and Silke Wettach Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 25, 2019
Read article Download PDF More on this topic

Policy Contribution

Redefining Europe’s economic sovereignty

This Policy Contribution delves into the position of the EU in the current global order. China and the United States increasingly trying to gain geopolitical advantage using their economic might. The authors examine the specific problems that China and the US pose for European economic sovereignty, and consider how the EU and its member states can better protect European economic sovereignty.

By: Mark Leonard, Jean Pisani-Ferry, Elina Ribakova, Jeremy Shapiro and Guntram B. Wolff Topic: Global Economics & Governance Date: June 25, 2019
Read article More on this topic More by this author

Blog Post

The June Eurogroup meeting: Reflections on BICC

The Eurogroup met on June 13th to discuss the deepening of the economic and monetary union (EMU) and prepare the discussions for the Euro Summit. From the meeting came two main deliverables: an agreement over a budgetary instrument for competitiveness and convergence and the reform of the European Stability Mechanism (ESM) treaty texts. We review economists’ first impressions.

By: Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: June 24, 2019
Read article More on this topic More by this author

Podcast

Podcast

Deep Focus: Making a success of EU cohesion policy

Bruegel senior fellow Zsolt Darvas talks to Sean Gibson in this Deep Focus podcast about how the EU can improve its cohesion policy, citing the best examples of its implementation and stressing the methodological difficulties in measuring its effectiveness.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: June 20, 2019
Load more posts