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Monday, March 12, 2012

Eichengreen: Europe’s Trust Deficit

Barry Eichengreen says lack of trust is standing in the way of European reforms:

Europe’s Trust Deficit, by Barry Eichengreen, Commentary, Project Syndicate: There is no shortage of talk nowadays about Europe’s deficits and the need to correct them. ... But ... the deficit that really matters. ... is a deficit of trust.
First, there is deficient trust between national leaders and their publics. We saw this most visibly in the person of former Italian Prime Minister Silvio Berlusconi... But even the most stalwart European leaders have lost their followers’ trust by baldly saying one thing today and the opposite tomorrow. ....
Second, there is a lack of trust among European Union member states. ...
Third, there is lack of trust among the social groups called on to make sacrifices. ...
In other words, lack of social trust blocks structural reform. The Greek version of this dilemma, in which no one pays taxes because no one else pays taxes, is particularly stark.
Survey research has revealed that societies vary greatly in their levels of trust. Economists, for their part, have shown that these different attitudes have deep historical roots. ... Evidently, attitudes are passed down through the generations. They are embedded in societies in the form of culture. Simply put, when it comes to trust, history casts a long shadow.
Historians have long emphasized the importance of such “path dependence” – that events in the distant past continue to shape outcomes in the present. Yet they also point to exceptional windows in time when it is possible for societies to shift away from their established paths. A crisis, when the viability of established arrangements is called into question, is just such a window.
The euro crisis thus offers Europe an opportunity to reestablish trust. Its national leaders need to reestablish the trust of their constituents by offering them straight talk. EU member states need to rebuild their trust in one another. And European countries facing the need for wrenching structural reforms need to restore social trust at home.
If this opportunity to rebuild trust is squandered, it will be difficult, if not impossible, for Europe to address its fiscal, economic, and institutional deficits.

    Posted by on Monday, March 12, 2012 at 12:55 PM in Economics | Permalink  Comments (21)


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