Who trusts the ECB?

The last couple of years there’s been a lot of discussion around the role of the European Central bank. It’s very clear from casual conversation that there is a lot of concern, amongst the political commentating classes as well as amongst the general public in relation to how the ECB is perceived to have dealt with the Irish banking crisis.

Although fully accurate recent data are not available there’s an interesting paper recently which analyses trust that the European citizens in general place in the  European Central bank . The paper  is

Roth, Felix, Gros, Daniel and Nowak-Lehmann, Felicitas, Has the Financial Crisis Eroded Citizens’ Trust in the European Central Bank? – Evidence From 1999-2010 (May 20, 2011). Available at SSRN: http://ssrn.com/abstract=1847465

It’s an interesting paper as it outlines not just how, but also tries to understand why, different attitudes emerge over time to the ECB. Users the patient from the  Eurobarometer  survey , which are available at  http://ec.europa.eu/public_opinion/index_en.htm . In each of the survey series, which take place twice a year, spring and autumn, a series of questions are asked of a random sample of 1000 persons,  per country.  One of the standard questions asked is whether  people do or do not place trust in a variety of institutions of the European Union.  Since 1999 the ECB has been one of the institutions so evaluated.  The paper   looks at what they call “net trust”, which is defined very simply as the percentage of people expressing that the trust and institution minus  the percentage that say they do not.  Thus if in a  survey  50% of people say they trust  an institution, 40% say they do not, and 10% do not express an opinion  net trust is then defined as 50-40 =10.

The major takeaway from the paper is as follows:   European  citizens  are placing less and less trust  in the ECB, and the reasons for their levels of trust have changed, it appears, over the course of the years.  Prior to the economic crisis the most powerful explanatory variable for levels of trust in the ECB appears to be that of  Unemployment, more so than inflation or economic growth.  With the advent of the economic crisis however the drivers of trust seem to have become firstly economic growth, and secondly inflation.   At a country level the level of  public debt is also an important issue.  The authors conclude “We therefore conclude that European citizens seem to hold the ECB responsible for the overall employment situation at all times, for the economic downturn of growth of GDP per capita in January/February 2009 and to be concerned about inflation and public debt with the start of the Eurozone crisis.”

This is an important finding, as the ECB does not have a mandate in relation to unemployment. In fact its mandate is much more about price stability than it is about growth or employment. It is important for any organization to have trust vested in it by those for whom it is working.  body of the objective which they are pursuing is not one which is likely to engender trust in them they are fighting an uphill battle. We’ve seen the last number of weeks that communication is not a strong point of the ECB. Perhaps this is more evidence of same.

One issue which is not touched on in the paper is the potential differences in levels of net trust between various countries. I went to the Eurobarometer data site and download information on trust levels in the ECB for Portugal, Ireland, Greece, Germany, and the EU as a whole.

The graph below shows some interesting findings.

First, Greece seems to be very distrustful of the ECB. One imagines that when the survey results for Spring 2011 the marriage next trust will have further eroded. Second, and this is worrying given that it is in effect the paymaster for Europe, German trust in the ECB has now dipped to negative net trust. It is striking that Ireland, at least as of November 2011, still retains significant, if small, netted trust in the ECB. However the trajectory of all countries is downwards. People are losing faith, or at least trust, in the ECB.

No organization can continue indefinitely without the active trust of the citizens. It might be a good idea for the ECB to consider a more nuanced and more effective medication strategy. At the very least it would be appropriate that they would consider these results, and one would hope, act upon them.

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One thought on “Who trusts the ECB?

  1. Pingback: Planning for the post euro Irish economy…. | Brian M. Lucey

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