Description
Book SynopsisBy 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. In a low-trust environment the uncertainty surrounding the functioning of institutions leads to short-term decisions. Political business cycles, lax regulations on credit and boom-bust cycles are typical of such an environment. While empirical evidence from the EU largely supports these propositions, important exceptions are also identified and the conditions for the theory noted - including financial market influences, fashions in economic theory as well as political leadership
Table of ContentsContents 1. Introduction 1.1. The controversy over trust 1.2. Research questions 1.3. Methodology and research design 1.4. The concept and measurement of trust 1.5. The argument in a nutshell 1.6. Summary of chapters 2. Institutional Trust and Individual Decision-making 2.1. Theories of expectations 2.2. The concept of uncertainty 2.3. The role of institutions in reducing uncertainty 2.4. Compliance and legitimacy 2.5. Institutional trust and individual planning 3. Institutional Trust and Policy-making in the EU 3.1. Unique and recurrent decisions: the rationality of policy-makers 3.2. The de-politicization of money in the EMU 3.3. Policy choices within the euro-zone: the role of trust 3.4. Prospects after the euro - hypotheses 4. Fiscal Developments in the EU-15 1992-2007 4.1. The EMS crisis - the start of the convergence period 4.2. The working of the EMU fiscal rules 4.3. Motives for change: internal commitment vs. external anchor 4.4. Institutional quality in the EU-15 4.5. Approaches to fiscal consolidation 4.6. Virtuous and vicious cycles at work: Sweden vs. Portugal 5. The Maastricht Process in the CEE-10 5.1. An environment of distrust 5.2. The role of external constraints in an environment of distrust 5.3. Institutional quality and exchange rate choice 5.4. The impact of distrust on economic policy in the CEE-10 5.5. Reforms without trust: Hungary vs Slovakia 6. Financial Crisis in the EU-25 6.1. The origins of the subprime crisis 6.2. The crisis in the EU 6.3. Consequences of the crisis in the EU-25 6.4. Surprising cases: Ireland vs Poland 7. The Relevance of Trust for Economic Outcomes 7.1. Summary of findings 7.2. Differences between East and West 7.3. Institutional trust and economic consequences 7.4. Factors modifying the influence of trust 7.5. Implications for policy 7.6. Conclusions Bibliography Index
