What can Euroscepticism teach the world?

Recent successes of populist movements in Europe might seem to reflect eroded trust in the EU’s institutions. This column asks what global lessons can be drawn from recent research on Euroscepticism at the ECB and elsewhere. It argues that taking citizens’ concerns seriously and addressing salient issues, building on a sense of togetherness, and caring about public trust should inspire a course of action at the global level. Insufficient progress along these dimensions has played a key role not only in Brexit, but also in the backlash against the multilateral world order underpinning globalisation.

There has been growing interest in the economic causes and implications of the success of ‘populism’ and identity politics1 around the world in recent years (e.g. Rodrik 2018). The multilateral global order that had been underpinning the progress of globalisation after WWII has faced a backlash in the form of a desire to bring control over policies and their outcomes back to the national level. And in the recent period, the most-often cited risks to the economic outlook in advanced economies have been political uncertainties related to trade protectionism, Brexit, and geopolitical risks.

The interest in Euroscepticism was in many respects a predecessor to this literature and it might bear some interesting lessons for beyond Europe. Unsurprisingly, many of those advocating keeping sovereignty at the national level, or repatriating it, saw the single currency as a symbol of what they were fighting against. The European sovereign debt crisis seemed to give them a simple narrative – “we told you so”. But herein lies a paradox. With the crisis, trust in politics and institutions (national and European) has suffered a blow and parties traditionally identified as Eurosceptic have prospered,2 but support for the euro stands at a record high and support for EU membership has recovered to pre-crisis levels.3 What can explain this paradox? And can we infer some lessons of relevance to the global debate?

Take citizens’ concerns seriously and address salient issues

Euroscepticism can broadly be defined as sceptical or negative attitudes towards the EU and the process of European integration (Taggart 1998). The literature tends to distinguish between ‘soft’ and ‘hard’ forms of Euroscepticism, i.e. opposition to EU policies and opposition to the process of European integration itself, respectively (Taggart and Szczerbiak 2002). As generalised support for the EU has recovered in recent years, especially after the UK’s EU referendum, Eurosceptic parties have strategically moved away from hard forms of anti-EU and anti-euro sentiments (Chopin et al. 2019). Indeed, they see more potential in criticising the EU institutions’ current policies, and advocating replacing them with policies reflecting their own ideologies (Dennison and Geddes 2018). In other words, there has been a weakening of hard Euroscepticism and a strengthening of soft Euroscepticism.

In explaining the electoral successes of these parties, the key factor was the ability to leverage salient issues. For instance, during the European sovereign debt crisis the economic situation and unemployment were deemed to be the most important challenges facing European citizens. From 2015, the focus shifted toward immigration. Traditionally, Eurosceptic parties have attracted voters by offering radical alternatives on these issues that resonated with citizens’ concerns. They were in a good position to do so as the salient issues related to economic and cultural fears were also those that had previously underpinned harder forms of Euroscepticism, including the Leave campaign in the UK. The same might not apply to environmental issues, which are increasingly at the core of Europeans’ concerns and benefit environmentalist rather than Eurosceptic parties, as shown in the recent European Parliament elections.

The starting point to reengaging citizens should thus be to listen more attentively to them. Survey-based research can help in identifying salient issues and appropriate policy responses (Stantcheva 2019, Stantcheva forthcoming).

Moreover, the answer to Euroscepticism is not as simple as “less Europe”. In fact, citizens’ trust in national institutions is even lower than their trust in EU institutions on aggregate. What really matters is to provide a timely answer to citizens’ concerns, be it through national or supranational policies. It is the failure to do so – or doing too little too late – that might lead to a popular backlash at both levels. There is a trade-off in that regard. While supranational measures or delegation of competence may require difficult negotiations due to differences in national situations and preferences, they are often needed to provide effective solutions to cross-border problems. Identifying ways to deal with the heterogeneity of situations and preferences is thus essential (Jamet 2011).

Build on a sense of togetherness

Popular support depends, however, on more than just addressing citizens’ concerns. A sense of community – and the economic, political, and historical narratives on which it is based (Eichengreen 2018) – also matters. In the UK, the perception that the EU threatened the national cultural identity provided fertile ground for the vote to leave the EU.4 Symmetrically, the single currency provides an example of the positive impact of European identification. This is illustrated by the divergence between support for the euro and trust in the ECB (Figure 1). While the former remained stable at high levels, the latter declined steeply in the crisis and only slowly recovered in recent years. The literature has sought explanations for this divergence by looking at individual-level data (Bergbauer et al. 2019). Support for the euro appears to have a strong value-based component. It correlates positively with feelings of European identity and with support for the idea of European integration (Hobolt 2014, Hobolt and Wratil 2015). In contrast, trust in the ECB appears to depend more on the EU’s perceived performance. Favourable views of the European economy,5 expectations of a future economic upswing (Farvaque et al. 2012, Kaltenthaler et al. 2010) as well as satisfaction with the EU’s democratic and performance (Kaltenthaler et al. 2010), trust in other EU institutions6 (Ehrmann et al. 2013, Hayo and Neuenkirch 2014) and satisfaction with EU crisis measures (Bergbauer et al. 2019) are all positively correlated with trust in the ECB.

Figure 1 Net support for the euro and trust in the ECB, 1999-2018

The resilience of support for EU membership and the euro is thus underpinned by a strong sense of common identity, which should be unsurprising but is often underestimated. In fact, more than seven out of ten euro area and EU citizens feel that they are citizens of the EU, a record high since the beginning of the series in 2010.7 This suggests that the stability of an open economic and political system depends not primarily on its performance and trust in its institutions, but on the sense of togetherness underpinning that system. The stronger this sense of togetherness, the more a political entity can survive temporary underperformance and distrust in institutions. At the same time, it increases the likelihood of a political competition for the definition of the values of the polity – cleavages along societal values are indeed playing an increasing role in European politics (Chopin et al. 2019).

Foster public trust through accountability and engagement

It could be tempting to argue that, especially for independent institutions, low trust is unwelcome but eventually of little relevance for the execution of their mandates. Taking central banks as an example, we are not aware of any evidence that the transmission channels of monetary policy are impaired or strengthened by the level of trust, nor that central bank decisions are directly influenced by it, although there is evidence that trust does influence inflation expectations (Melina and Schmidt 2018).

Nevertheless, lower trust and legitimacy may, over time, lead to questioning key principles, with the potential to impact on policy outcomes. ‘Populist’ movements around the world indeed question ‘elite rule’ (Rodrik 2018). As a case in point, independent central banks that take policy decisions on the basis of expert analysis, and thus represent a form of technocratic governance, have increasingly moved into the focus of governments, including in India, Turkey, and also the US (The Economist 2019). Binder (2018) finds that out of a sample of 118 central banks, 10% were subject to some form of political pressure in a given year over the period 2010-2018.

In several of these instances, attempts at political influence over central banks came at a time when public trust in institutions was low. In fact, low trust in institutions appears to favour anti-establishment parties (Algan et al. 2017, Dustmann et al. 2017). Once in office, it can thus be seen as a rational choice for a ‘populist’ government to influence its central bank’s decision making, the more the population is distrustful of technocratic institutions and disgruntled with economic policy outcomes.

The answer is not to simply dismiss populism out of hand. It should first be to invest in reinforcing trust in institutions and the perception that they act in the public interest. In the case of central banks, this is unlikely to be achieved by subjecting them to political influence, which would only increase the perception that central banks are not impartial. It is more likely to be achieved by ensuring that there are effective checks and balances to their power, for instance through active parliamentary scrutiny (Fraccaroli et al. 2018)8 and the effective judicial review of central banks, while respecting their independence. This can contribute to avoiding the perception that central banks have unchecked power, which is associated with lower trust. Moreover, credibility and ethics have been shown to be key determinants of trust in the ECB (Angino and Secola 2019). Finally, central banks should ensure that they engage with the general public (Graeff 2019) – to be successful, they need to speak a language that people can understand and that connects emotionally with them, engage with critics, and make the case for an own, authentic, fact-based discourse against ‘post-truth politics’ (Graeff 2017).

Conclusions

From the Euroscepticism literature, it is possible to draw a number of key lessons that are relevant for the sustainability of economic integration: take citizens’ concerns seriously and address salient issues, build on a sense of togetherness, and care about public trust. Arguably, insufficient achievements on these fronts played a role not only in Brexit, but also in the backlash against the multilateral world order underpinning globalisation. Euroscepticism may therefore hold lessons that are useful in navigating the current political uncertainties and inspiring a course of action at global level.