Economic Crisis Management and Trust in the EU. A Quasi-Experimental Approach. (with Lea Heyne) Accepted by Cambridge University Press, Elements in European Politics.
Our project examines how different economic crisis management strategies implemented at different times across the European Union (EU) have affected levels of trust in the EU. In addressing this question, our proposed Element seeks to make novel contributions both at the theoretical and empirical levels.
Theoretically, our projects starts by proposing that changes in citizens' trust in the European supranational project are driven by how the management of bad economic performance affects the balance of political representation between national and supranational actors. To develop this idea, we first characterise spells of economic decline within the EU around two dimensions: the extension of the economic shock and the scope of the economic recovery policy.
Borrowing from the macroeconomic literature, extension refers to symmetric and symmetric economic shocks. The former is observed depending on country-specific factors whereas the former is used to identify adverse common economic shocks that affects all EU countries in a comparable way. The extent of a crisis is supplemented by the scope of remedial instruments. In this sense, we differentiate between ordinary and extraordinary adjustments. Economic recovery instruments resulting from previous collective negotiations which are designed to be implemented in the presence of bad economic performance are labelled as ordinary adjustments. One example is the initiation of the Excessive Deficit Procedure. There are occasions, however, when these ordinary arrangements are insufficient and new instruments are needed. These are extraordinary adjustments in the sense that they deviate from policies existing in ordinary ones. The financial facilities included in such extraordinary adjustments range from involving third-party financial institutions that typically impose policy conditionality in return of assistance, such as the IMF, to creating new supranational cooperative schemes where preferences of national governments and priorities of the EU converge.
When combining these two dimensions, a 2x2 matrix originates that characterises different approaches towards crisis management observed within the EU. Our study shows that shifts in levels of EU trust are successfully explained when this typology is considered. In the presence of ordinary adjustments, positive shifts are expected when common shocks are handled by existing ad-hoc institution, however, no attitudinal shift would take place when asymmetric shocks are managed by country-specific supranational corrective mechanisms. We test these claims by examining announcements made by the ECB in 2023 to increase interest rates to combat the cost-of-living crisis and the decisions of the European Commission to initiate EDP in 2004/5 in countries deviating from the Stability and Growth Pact criterion, respectively.
The largest shifts in levels of EU trust are, however, expected following the management of shocks that require extraordinary adjustments. Our theoretical characterisation shows that convergence adjustments are observed when shocks are symmetric, however, in the presence of asymmetric, country-specific ones imposed recovery packages are used. We argue that convergence policies should largely increase levels of EU trust while imposed recovery packages would produce the opposite effect. We use the announcement of the Recovery and Resilience Facility in 2020 and the announcement of the Portuguese financial bailout in 2011 to test these claims.
Our empirical tests use quasi-experimental techniques involving diff-in-diff modelling and exploiting key relevant events that facilitate the implementation of Unexpected Event during Survey Design (UESD). All our analysis use Eurobarometer data and cover individuals from countries that are part of the Economic Monetary Union since 1999. Our analyses robustly confirm all of our theoretical claims.