Strategic Interdependence and Preferences for Debt Mutualization in the Eurozone

Abstract

Existing research suggests that a “democratic constraint” blocks progress towards debt mutualization in the eurozone: voters in creditor countries fiercely oppose debt sharing, while voters in debtor countries strongly support remaining in the euro, which limits their governments’ bargaining power. However, this literature neglects that preferences depend on expectations about what other countries will do. We document this strategic interdependence with a novel survey experiment in Germany and Italy, conducted at a crucial moment during the COVID-19 pandemic. Italian voters vastly discount the costs of a disorderly exit, while they strongly reduce their support for the euro if austerity is a condition for continued euro membership. Faced with the possibility of Italexit, German voters weigh the costs of a possible breakup of the euro more heavily than the costs of debt mutualization. A majority thus accepts debt mutualization. These results suggest that voters take strategic interdependence into account when formulating their preferences and that public opinion is not (or no longer) a binding constrain for increasing fiscal risk-sharing in the eurozone. Moreover, we reconstruct the debate about the pandemic recovery fund in Germany and Italy and show that the German change of position was aimed at defusing a threat to the integrity of the eurozone.

NextGenerationEU and the Future of the European Monetary Union: Shifting Interests and New Fractures in the German Power Bloc

“…However, the fact that a majority of the German population was in favour of the EU recovery fund (Hassenkamp 2020) suggests that public sentiment in Germany is far less entrenched than often assumed (cf. Baccaro et al 2020).…”

What difference does the framing of a crisis make to European Union solidarity?

“…We assume that voters take their cues from such public communications (Chong and Druckman, 2007). The effect of framing on attitudes of voters has been shown for government expenditure (Jacoby, 2000), trade preferences (Ardanaz et al, 2013), redistribution (Harrel et al, 2016), attitudes towards austerity (Barnes and Hicks, 2018), macroeconomic imbalances (Ferrara et al, 2021) and support for the euro (Baccaro et al, 2021). Our analysis takes such framing effects therefore as well-established and goes a step further: whether, and if so which, features of a crisis that policymakers portray in public affect solidaristic attitudes of those who listen.…”

“…Our study is part of recent research efforts to identify the sources of public support for risk sharing in the EU (e.g., Baccaro et al, 2021; Bechtel et al, 2014; Daniele and Geys, 2015; Vasilopoulou and Talving, 2020). Research has also found that, in times of crisis, citizens’ support for European fiscal integration is conditional on the specifics of risk-sharing instruments (Beetsma et al, 2022; Bremer et al, 2021; Vandenbroucke et al, 2018).…”

Analysing how crises shape mass and elite preferences and behaviour in the European Union

“…This raises the question of the extent to which political elites shape voters’ preferences over European solidarity through the process of information provision and persuasion or the reverse. Recent evidence by Baccaro et al (2020, 2021) for example suggests considerable effects on information provision on public opinion towards the Euro or debt mutualisation within the EU.…”