Abstract
The institutional and policy features of Eurozone represent a field of special interest to analyse the process of integration. The aim of this study is to investigate on the existence of a trade-off between the compliance to fiscal rules and trust as a proxy of institutional legitimacy in Eurozone. At this scope, the relation between trust in the European Central Bank (ECB) and structural adjustment, together with unemployment and inflation in 11 Eurozone countries from 1999 to 2013, is tested. The empirical results showed that: (i) discretionary policy measures have an opposite sign impact on trust; (ii) in peripheral countries, the structural adjustment is the main variable affecting trust in ECB; (iii) unemployment plays a key role; and (iv) deviation from the objective of 2% of inflation is not significant. These outcomes prove the existence of a trade-off between the fiscal rules commitments and the European institutional consolidation process.
Highlights
The aim of this paper is to evaluate up to what extent does the compliance to fiscal rules has an autonomous capacity in affecting trust in the European Central Bank (ECB) in addition to the usual macroeconomic indicators such as unemployment and inflation
The case of the Greek referendum in July 2015 is emblematic: despite the fact that majority of the population voted “no” to the reforms and structural adjustment programs proposed by the “Troyka”, the government was bound to avoid the departure from the Economic and Monetary Union (EMU) (Armigeon, Guthmann, and Weisstanner 2016)
NT or net trust in ECB is measured using the NTP indicator or the NEDK indicator, wherein UN refers to unemployment, INF refers to inflation, SA refers to structural adjustment, and εi,t represents the error term
Summary
The prevailing literature analyses on trust through the “vote and popularity” function, according to the soundness of an institution, are examined on the basis of both economic and political determinants.
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