Cultural Differences and Institutional Integration

Abstract

If citizens of di¤erent countries belonging to an economic union adhere to di¤erent and deeply rooted cultural norms, when these countries interact they may …nd it impossible to agree on e¢ cient policies, especially in hard times. Political leaders are bound to follow policies that do not violate their country's cultural norms. This paper provides a simple positive theory and a compelling case study of the Euro area crisis to highlight the importance of cultural clashes when economies integrate. We also provide a normative argument about the desirability of institutional integration: a political union, with a common enforcement agency, is the more bene…cial the greater is cultural diversity in an economic union.Keywords: Cultural Norms, Institutions, Euro Area, Crisis Mismanagement. JEL classi…cation numbers: D72This paper previously circulated under the title "A Cultural Clash View of the Euro Crisis." We thank two anonymous referees as well as Sascha Becker, Alberto Bisin, Serra Boranbay, Francesco Giavazzi, Gilat Levy, Assar Lindbeck, Elias Papaioannou, John Patty, Giacomo Ponzetto, Andrei Shleifer, Enrico Spolaore, Francesco Squintani, Livio Stracca, Sebastian Turban, Philippe Weil and participants at various workshops for great suggestions and comments. The usual disclaimer applies.

United in diversity? The convergence of cultural values among EU member states and candidates

“…With regard to the EU's democratic legitimation crisis resulting from the lack of a European demos (Weiler 1995), as well as the challenges inherent in cultural value differences over the course of integration (e.g., Gerhards 2007, Guiso et al 2016, Hien 2017, this study provides an optimistic account of recent cultural processes concerning EU integration. The European demos is not provided per se but is created through integrational efforts in other spheres and the intensified interactions between European public actors and common citizens.…”

“…To successfully respond to these problems and achieve further integration, the congruence of cultural values may be essential (Guiso et al 2016). To successfully respond to these problems and achieve further integration, the congruence of cultural values may be essential (Guiso et al 2016).…”

“…Such cross-national cultural differences are associated with a wide range of social differences -most significantly the quality of democracy, effective governance, civic activism and generalised trust (Welzel 2013). Cultural distances between nations are important for the EU's institutional integration (Guiso et al 2016) and serve as predictors of economic exchange (Guiso et al 2009;Tadesse & White 2010), interstate conflict (Bove & Gokmen 2016) and interstate mobility (Belot & Ederveen 2012). Indeed, the large cultural differences between old, new and candidate states have been described as a barrier to European integration (Gerhards 2007).…”

Is Europe an Optimal Political Area?

“…On this point, Guiso, Sapienza, and Zingales (2016) argue that the EU is stuck in the "middle of the river": gone far enough to be very costly to abandon, but subject to too many forces pulling in a centrifugal direction. Guiso, Morelli, and Herrera (2016) emphasize the German-Greek cultural divide during the sovereign debt crisis. Our more systematic evidence provides a different view, in terms of similarity of "cultural fundamentals".…”

European Monetary Union Reform Preferences of French and German Parliamentarians

“…This is familiar from left-right controversies within countries (Wendler, 2016). Hence, our elite survey of national MPs contributes to recent evidence that European heterogeneity in cultural beliefs and values may be an impediment to significant reforms for the Union (Alesina et al, 2017;Guiso et al, 2016). Our study shows that political values and ideology do represent significant drivers of individual MPs' elicited preferences on EMU and national reforms.…”