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Global and Eurozone imbalances: A question of civic capital?

Bützer, S., Jordan, C. and Stracca, L., (2013), “Global and Eurozone imbalances: A question of civic capital?”, VoxEU, 23 November.

Since the advent of the Eurozone sovereign-debt crisis, economic commentators have drawn attention to macroeconomic imbalances within the Eurozone. This column presents evidence on the link between macroeconomic imbalances and differences in culture – or more specifically, interpersonal trust. A conservative estimatation suggests that a one standard-deviation increase in trust reduces macroeconomic imbalances by about a quarter of a standard deviation. Moreover, differences in interpersonal trust can explain a fifth of the variation in intra-Eurozone imbalances.

Macroeconomic imbalances have been the subject of much debate in recent years, and are still in the spotlight. Before and during the financial crisis, a lot of attention was devoted to global imbalances – in particular to the persistent current-account deficits of some countries (such as the US) and the persistent surpluses of others (such as China). With the advent of the Eurozone sovereign-debt crisis, the attention has shifted to imbalances within the Eurozone. Simply speaking, a distinction has often been made between the supposedly thrifty Northern countries (such as Germany) and the supposedly profligate Southern countries (such as Greece). In this debate, the question has emerged whether macroeconomic imbalances across countries can partly be traced back to persistent ‘cultural’ differences (Greenspan 2011).

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