Give the people what they want

Giovanni Caccavello, Research Fellow at EPICENTER // 21.11.2016

In a previous post, entitled “The changing narrative of the Euro crisis”, Diego Zuluaga argued that, while Eurozone reform was justified, European policymakers “should keep in mind that the single currency was intended as a means to widespread prosperity, not an end in itself”.

 

Indeed, we know that the euro is popular in Brussels and national treasuries. But how fond are ordinary EU citizens of the single currency?

 

According to new data from Felix Roth, Lars Jonung and Felicitas Novak-Lehmann, more than one might deduce from reading news headlines. Their research shows public support for the single currency from 1990 – the year in which Economic and Monetary Union (EMU) was launched – to the present.

 

Average net support, i.e. favourable minus unfavourable opinions, for the euro has remained relatively stable, and strong, in the 12 Member States that adopted the currency before 1st January 2002.

 

Graph 1: Average net support (in %) for the Euro in the Euro-Zone 12 Member States (1990-2016)

 

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If on the one hand, these findings highlight that net levels of public support are currently well above the majority threshold of 0% in all of the current 19 Euro-Area countries (with significant increases from 2008-2009 in nations such as Greece, Portugal, Germany, Estonia, Latvia and Lithuania); on the other hand, over the last few years, net public support for the single currency has dropped perceptibly in all the EU Member States currently outside the Eurozone

 

Graph 2: Net support (in %) for the euro in EU non-Eurozone Member States (1990-2016)

 

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While being somewhat surprising given the rise of anti-Euro movements almost everywhere around the Euro-Zone, these findings confirm the view that – despite the crisis and the ensuing slow recovery – a majority of citizens in Eurozone countries still support EMU.

 

The factors behind the apparent trend are open to speculation. There might be a status quo bias on the part of citizens at times of economic turmoil, which would help to explain both rising support for the single currency in those countries which already have it, and declining support for its adoption in non-Eurozone countries. The experience of poor monetary management – encapsulated by high and persistent rates of inflation – in Member States such as Spain and Italy could also go some way in making citizens of those countries sceptical of a return to national currencies. Finally, it may be that there is a political as well as an economic motivation for continued majority support for the euro, to the extent that EMU is perceived as the sine qua non of European integration.

 

At any rate, the data are corroborated by the latest “Spring 2016 Eurobarometer 85”, which reports that 68% of respondents within the Euro-Area support the single currency and that in several of the countries most affected by macroeconomic instability since 2008, public support for the Euro is even higher than the average.

 

Another possible explanation is that none of the alternatives promoted by anti-euro movements – which mainly advocate for a national currencies and a more interventionist monetary policy, or by academics – many of whom have talked about a two-speed euro, for example – appeal to Eurozone citizens who prize stability and certainty.

 

Thus, despite arguable flaws, the data suggest that the majority of the euro area public continue to favour the single currency. Indeed, it is unambiguous that the introduction of the euro has brought exchange rate stability and lowered transaction costs, thereby improving the conditions for a more efficient allocation of resources within Europe.

 

“All is for the best in the best of all possible worlds,” said Voltaire’s Pangloss. That is certainly not the argument here: the euro is a work in progress and much can be achieved in the way of structural improvement. But policymakers should start by enforcing the founding principles of the single currency – crucially, the limits on indebtedness and budget shortfalls in the Stability and Growth Pact, and the hard constraint of a no-bailout clause – to ensure not just continued support for EMU, but a monetary union that delivers the promised economic benefits.

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