Institutional trust and economic policy Lessons from the history of the Euro 

Institutional trust and economic policy Lessons from the history of the Euro 

Dóra Győrffy
Copyright Date: 2013
Pages: 240
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  • Book Info
    Institutional trust and economic policy Lessons from the history of the Euro 
    Book Description:

    The book seeks to link theoretical debates on the relevance of trust in economic outcomes with the current arguments about the origins and lessons of the subprime crisis. By what mechanisms does trust influence economic outcomes? Under what conditions do these mechanisms prevail? How do debates about trust help our understanding of the subprime crisis in the European Union? By integrating insights from Post-Keynesian, Austrian and new institutional economics, the central proposition of the analysis is that the presence or absence of institutional trust creates virtuous and vicious cycles in law-abiding, which critically influence the possibility for economic agents to have realistic long-term plans.

    eISBN: 978-615-5225-34-5
    Subjects: Political Science

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-viii)
  3. List of Figures
    (pp. ix-x)
  4. List of Tables
    (pp. xi-xii)
  5. Preface and Acknowledgments
    (pp. xiii-xvi)
  6. Chapter 1 Introduction
    (pp. 1-12)

    When trust is present, we hardly notice it. It is only the disruption caused by its loss that makes us aware of its significance. In the economic sphere no other time has shown this more clearly than the period following the collapse of Lehman Brothers in September 2008. The normal functioning of the interbank market was suddenly suspended, and the global financial system froze. While the intervention of public authorities around the world helped to avoid the worst consequences, four years after the collapse, the system has been unable to return to pre-crisis normality.

    This book does not attempt to...

  7. Chapter 2 Institutional Trust and Individual Decision Making
    (pp. 13-34)

    The main objective of this chapter is to theorize how the process of individual planning is influenced by the presence or absence of trust in the institutional environment.¹ This is a necessary first step to understand the major question of the book: how institutional trust affects the making of economic policy.

    In order to build a theory on the role of trust in individual decision making, it is useful to start from the definition of trust given in the introductory chapter: “a psychological state comprising the intention to accept vulnerability based upon positive expectations of the intentions or behavior of...

  8. Chapter 3 Institutional Trust and Policymaking in the EMU
    (pp. 35-58)

    In the previous chapter a theoretical framework was proposed on how trust or distrust in the institutional environment affects the plans of individuals in society. It has been argued that ceteris paribus the presence or absence of trust primarily influences the time horizon of decision making: long-term orientation is realistic only in a high-trust environment, where the institutional structure is capable of fulfilling its role in reducing the uncertainty of the future.

    The major objective of this chapter is to develop hypotheses about how the time horizon of individual plans is reflected in decision making over economic policy. The focus...

  9. Chapter 4 Fiscal Developments in the EU-15, 1992–2007
    (pp. 59-94)

    In the previous chapter, several hypotheses have been formulated regarding the economic policies of different countries following the introduction of the euro. Fiscal policy has received a particular emphasis—although decision making remained in national hands, supranational rules strongly constrain governmental discretion. As fiscal policy lies at the heart of domestic politics, it was hypothesized that high-trust countries are more likely to be able to respect EMU fiscal rules than low-trust regimes, where politicians cannot remain impervious to societal pressures towards short-term decision making.

    The major objective of this chapter is to provide empirical support for the above hypotheses based...

  10. Chapter 5 The Maastricht Process in the CEE-10
    (pp. 95-146)

    Post-communist Europe is an excellent place to study the effects of distrust on economic policymaking. In this part of the world decades of communism and a painful transition process bred considerable disillusionment from the political system. Still, following the transition the region achieved considerable results in terms of convergence, which implies that the consequences of distrust on economic policy can be mitigated under certain conditions. The major objective of this chapter is to unveil these conditions and look at how a vicious cycle of low trust, populist economic policies, and low growth can be avoided or if present, how a...

  11. Chapter 6 Financial Crisis in the EU-25
    (pp. 147-176)

    Old and new EU members alike came under severe pressure as the subprime crisis swept over the world in 2008. Economic conditions were very different in the various groups, which were discussed in the previous two chapters, and the divergence persisted throughout the crisis. The major question of this chapter is whether the pre-crisis evaluation of economic performance is tenable following the crisis. Are there any unexpected causalities or successes? If so, how does it affect the argument about the relevance of trust for economic outcomes?

    In order to answer the above questions, the chapter first provides a brief account...

  12. Chapter 7 The Relevance of Trust for Economic Outcomes
    (pp. 177-198)

    In the previous chapters, I have examined how institutional trust matters in economic policymaking in the EU-15 and the CEE-10 within the context of euro-zone accession. The experiences of various members during the subprime crisis represent an important test for the sustainability of policies. As we could observe, while most countries fared according to expectations, there were also important exceptions that call for a modification of the original theoretical framework.

    The aim of this closing chapter is to integrate the findings into a coherent narrative and answer the original question of the project: how and when does trust matter in...

  13. Bibliography
    (pp. 199-216)
  14. Index
    (pp. 217-222)
  15. Back Matter
    (pp. 223-223)