Culture and European Integration

by Erik Voeten on March 19, 2013 · 4 comments

in Blogs,International Political Economy,International Relations

Gideon Rachman argues in the Financial Times that cultural differences between Northern and Southern Europe remain at the root of the problems facing the European Union:

The bigger problem remains, however, the gap in trust and political cultures between northern and southern Europe. Back before the crisis, when things were going well, it was considered politically incorrect, even xenophobic, to suggest that standards of probity in public life vary widely across Europe and that this is a problem for an organisation dedicated to “ever closer union”.

A difficulty with cultural arguments is that even if they are right, they are often quite vague. Vague arguments are easily abused by opportunists and easily rejected by hard-nosed analysts. One challenge for scholars then is to more precisely identify what work culture is doing, how cultural differences could complicate integration, and how these differences can be overcome.

An interesting attempt to do all this is a working paper by Luigi Guiso, Helios Herrera, and Massimo Morelli. The authors analyze a dynamic game in which economies can either converge to a “cheat and forgive” equilibrium or to a “responsible actions and commitment to punish otherwise” equilibrium. Greece and Germany are the prototypical examples of either. The authors use survey and experimental evidence to illustrate that Germans and Greeks indeed exhibit the behavioral traits associated with each equilibrium. So: Greeks are not just more likely to cheat but also more likely to forgive others who cheat. Germans will punish cheaters even if it is not in their self-interest to do so.

They then assume that leaders are constrained by the cultural norms of their respective societies. This allows them to analyze what happens when exogenous factors make a monetary union between heterogeneous economies  attractive. In the model, the likelihood of fiscal union (in response to an exogenous shock to the monetary union) is increasing in the degree of cultural heterogeneity. The welfare cost of excessive cheating by the Greeks and excessive punishment by the Germans cannot be addressed by retaining national sovereignty if heterogeneity (and the benefits of integration) are too large. That is: cultural heterogeneity should be an argument for increased centralization rather than against it; as is commonly posited. This is, of course, a highly stylized model but interesting nonetheless.

{ 4 comments }

genauer March 19, 2013 at 6:11 pm

The law is clear,

Maastricht , TFEU.

If reflects (social) justice and wisdom. The ESM has plugged all holes 9/7/2012.

Nobody gets a single cent credit without credible and enforcable payback.

If people want to commit economic suicide, their decision.

All this racist mongering against Germans will die out eventually.

Chaz March 20, 2013 at 6:26 am

The Greeks blame the Germans for not helping them. The Germans denounce the Greeks for demanding help they aren’t owed. Change Greeks to Cypriots or Spaniards as necessary. The real problem has nothing to do with Greek budgets or German stinginess, or national budget shortfalls at all. It is rooted in incompetently written euro treaties and ECB rules. Basically all the countries signed a treaty committing themselves to depressionary economic policies and prohibiting the ECB from guaranteeing deposits. But no one gets around to blaming the EU structure except a few fringe academics.

If one must pick a side then the Greeks are closer to the truth. The German government has a lot of influence in whether the ECB/EU move toward a real solution or not, and they seem to be pushing in the wrong direction. It’s not all Germans: he Dutch government is an extremely energetic sidekick, and the whole band of EU/ECB/IMF international technocrats is behaving very badly. But Merkel’s the heavyweight and she makes a good symbol for the austerity team. Plus you’ve got to cut the Greeks a little slack; they lost their jobs and there are neo-Nazis trying to take over the government. It’s hard to think clearly in those circumstances.

Unfortunately, whenever a German comes on to comment about this, all they see is Greek people demanding their money, so they come out of the discussion feeling even more justified than they went in. I urge you not to look at it that way.

In the short term there are really only two interventions that are needed: The ECB must guarantee all eurozone bank deposits and Germany, France, the Netherlands, etc. must adopt expansionary budgets (that is, budgets with spending far above tax intake, in order to stimulate their economies and the European economy overall). If those two things happened the banking crisis would end overnight and growth would be back within a year. That would be good for the German economy as well as for Greece, and it doesn’t require Germany to give money to anyone except Germany’s own residents.

P.S. I’m sorry for straying so far off topic, but I really wanted to address genauer’s comment.

Ronan Fitzgerald March 20, 2013 at 4:00 pm

Well Gideon Rachman would say that, breed as he is in the culure of class and race based triumphalism of the British upperclasses

Peter T March 21, 2013 at 8:55 pm

“Standards of probity in public life” vary quite noticeably within most countries – including the US. Don’t seem to be a major problem. And the definition of what is probity also seems to vary quite a lot.

That said, I think culture needs to be factored in more than it is, but that is, as a previous post pointed out, hard to do in in a discipline that is looking for wide generalisations.

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