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Economic Insecurity and Support for the Euro

Economic Insecurity and Support for the Euro. Sara Hobolt University of Oxford Patrick Leblond University of Ottawa. IPES 2009 Conference College Station, TX * November 13-14, 2009. The Financial Crisis and Support for the € uro.

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Economic Insecurity and Support for the Euro

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  1. Economic Insecurity andSupport for the Euro Sara Hobolt University of Oxford Patrick Leblond University of Ottawa IPES 2009 Conference College Station, TX * November 13-14, 2009

  2. The Financial Crisis and Support for the €uro • The financial crisis did not teach the Europeans to love the euro! • The popular view of the euro as a safe haven in times of crisis does not hold across Europe

  3. Percentage of respondents in the eurozone who think that the national currency would have offered better protection against the recent economic crisis Source: European Commission (2009), Question QD6a, pp. 35-36.

  4. Percentage of respondents outside the eurozone who think that the euro would have offered better protection against the recent economic crisis Source: European Commission (2009), Question QD6b, pp. 37-38.

  5. Questions • What are the factors that influence people’s opinion about the euro? • How does economic insecurity shape support for the euro, both inside and outside the eurozone?

  6. Support for the euro, 1999-2008(in %) Note: Eurozone 12: original 11 Eurozone members + Greece; Newcomers: Cyprus, Malta, Slovakia, Slovenia; Euro outsiders: Denmark, Sweden, UK; Euro hopefuls: remaining non-Eurozone member states + Turkey.

  7. Hypotheses:Eurozone vs. Non-eurozone • H1: Public support for the euro in non-eurozone countries increases as economic conditions worsen. • H2: Public support for the euro in eurozone countries decreases as economic conditions worsen. • H3: Lower interest rates increase support for the euro in eurozone countries.

  8. Support for the euro inside and outside the eurozone (1999-2008) Note: The fixed-effects models were estimated using a Prais-Winsten regression, allowing for autocorrelation in the error terms over one period (AR1), and the reported standard errors are panel-corrected (PCSE). ***p<0.01; **p<0.05; *p<0.1

  9. Hypotheses Regarding the X-Rate:Services vs. Manufacturing • H4: Public support for the euro in countries where the economy is dominated by the manufacturing industry declines as the euro appreciates. • H6: Public support for the euro in eurozone countries where the economy is dominated by the services industry increases as the euro appreciates against the dollar.

  10. Euro Support and Economic Structure(1999-2008) Note: The fixed-effects models were estimated using a Prais-Winsten regression, allowing for autocorrelation in the error terms over one period (AR1), and the reported standard errors are panel-corrected (PCSE). ***p<0.01; **p<0.05; *p<0.1

  11. Hypotheses Regarding the X-Rate:Services vs. Manufacturing • H5: Public support for the euro in non-eurozone countries increases as the national currency depreciates against the euro.

  12. Euro Support and Strength of the National Currency Outside the Eurozone (1999-2008)

  13. Economic Insecurity Matters for Euro Support • Consumer confidence • Eurozone: CC  + euro support • Non-eurozone: CC  - euro support • Exchange rate • A strong euro relative to the dollar reduces support for the euro in countries whose economies are dependent on manufacturing, outside the eurozone (but also inside, if one excludes Slovenia) • Jobs are at risk in manufacturing industries that become less competitive vis-à-vis producers in emerging East Asia

  14. Currency as a Symbol of Identity • National currency vs. the euro • Currency symbolism (of national identity) matters in non-eurozone countries • US dollar vs. euro • Currency symbolism also matters services-dominated economies in the eurozone

  15. Back to the Financial Crisis • No recent survey data to compare with the past • Effect of the crisis on euro support is not clear cut • Decrease in consumer confidence should: • Decrease support in eurozone countries • Increase support in non-eurozone countries • Strengthening of the euro vis-à-vis the dollar should: • Increase euro support in eurozone countries with economies dominated by services • Decrease euro support in non-eurozone countries with economies dominated by manufacturing • Weaker national currency should favour euro support in those non-eurozone countries whose currencies are not pegged to the euro

  16. For EU Policy-Makers • If they want to increase euro support in poorer, manufacturing-reliant EU economies • They should push to fix the problem of global imbalances • They should not push, however, for the euro to replace the dollar as the new global reserve currency may not be such a good idea

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