Sunday

26th Sep 2021

Opinion

EU cultural differences - and the next euro crisis

  • The introduction of the euro in 1999 did not reduce the imbalances within the EU, as many official bodies promised us at the time, but increased them (Photo: EUobserver)

We all make choices every day. What is sensible in this situation, what is reasonable, what is not?

In Denmark buses turn up on time while in Italy it is not unusual for them to be 15 minutes late. Danish passengers get worked up if the bus is five minutes late while Italians are barely perturbed by much longer delays. These differing reactions are due to different notions regarding agreements in general.

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In Denmark and other northern European countries, agreements are interpreted literally - while an agreement in southern Europe is seen as a 'best effort' obligation.

Hence the bus driver will do his best to arrive on time but there may always be a reason why he is unable to stick to the schedule.

Goethe already noted this when he pointed out the difference between a German 'versprechung' and a French 'promesse': the former is kept but the latter is not.

Differences in basic values, about right and wrong, provide the basis for these cultural differences.

In western Europe the level of acceptance of power differences between people is particularly important. Southern Europe scores considerably higher than northern Europe on the basic value of power distance.

In other words Latins view their society as a power pyramid, while Germanics proceed from the notion that all people are equal.

This gives the Italian bus driver more scope to interpret his timetable than his Danish colleague. After all, he is in charge of his bus. His passengers simply have to accept this.

In principle the Danish driver has the same power but, like his passengers, is of the opinion that he should not wield it; the interests of his passengers must not be made subordinate to his own. After all, everyone is equal, aren't they?

No wonder that the trust in both government bodies and other people in general tends to be higher in the Germanic cultural region than in the Latin one.

Differences in basic values and the emotional and behavioural differences arising from these have been causing problems for the EU since it was first established in 1952.

Research by the World Economic Forum into the competitiveness of individual countries shows interesting results.

Corruption among government employees is universal but the degree to which this undesirable behaviour prevails differs enormously: on a scale of 1 (= customary) to 10 (= never) the Scandinavian countries score around 9 while Spain and Italy score around 5.

This puts the latter countries on a par with Mexico and Indonesia.

Similar results can be seen for indicators such as independence of the judiciary, relations between employers and employees and the willingness to delegate authority.

In all these respects countries with a high level of trust in others scored higher than countries where the level of trust in others, both individuals and institutions, is low.

Manufacturers from a more competitive country will generally be able to gain market share in less efficient countries.

That is why car makers in Mexico and Indonesia defend themselves against German competition by imposing various import restrictions and devaluing their national currency. But what options do Italian and Spanish manufacturers have?

Since the completion of the internal market for goods in the European Union in 1992 they can no longer hide behind a raft of requirements that imported cars must comply with.

Moreover, the creation of the euro means that it is no longer possible to devalue the lira and the peseta against the Deutschmark.

No wonder that the northern European business sector is enthusiastic about the EU: companies gain access to large new markets without having to feel threatened in their home markets.

Even the mozzarella nowadays sold in many European countries no longer comes from Italy.

2008 crisis revealed euro's flaws

The introduction of the euro in 1999 did not reduce the imbalances within the EU, as many official bodies promised us at the time, but increased them.

In the first decade of the single currency the negative impact of the difference in competitiveness between the northern and southern member states was not too bad.

While the respective trade surpluses and deficits grew, this was offset by the free movement of capital. Many northern European banks and investors were willing to invest in the South now that the exchange risk had disappeared.

However, the sentiment changed drastically during the credit crisis of 2008-9. The banks wrote off their loans to southern European countries and investors sold their bonds and shares. The result was that the South's trade deficit was exacerbated by a deficit in its capital account.

The reason why this deterioration in the financial balance between the euro countries was not more obvious to the outside world is because the central banks of the participating countries had followed the US example and agreed on a payment system for settling balances between the countries.

In the US regional branches of the Fed (in New York, San Francisco, St Louis, etc) that are running a deficit actually make an annual repayment of the amount due to their colleagues that have surpluses.

But in the euro system this simply does not happen.

As a result the liabilities of the central banks of Italy and Spain have risen to many hundreds of billions of euros over the years, as have the claims of their opposite numbers in northern Europe.

It is only a matter of time until something triggers the next euro crisis.

Author bio

Ewoud van Laer is the author of The Desperate Union: What is going wrong in the European Union (2020), and a former banker and Dutch finance ministry official.

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

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