INTERECONOMICS, Vol 44, No.4 July/August 2009

The Effect of the Financial Crisis on Systemic Trust

INTERECONOMICS, Vol 44, No 4, July/August 2009

Selected articles contributed by CEPS free in PDF; others may be purchased individually (or the entire contents of the journal) from

The Effect of the Financial Crisis on Systemic Trust

by Felix Roth

Policymakers throughout Europe are faced with the challenge of re-establishing trust, especially systemic or institutional trust, that has been lost in the wake of the financial crisis. This paper looks at recent empirical evidence concerning the reaction to the crisis in terms of citizens’ diminished levels of systemic trust. Special attention is paid to the confidence invested in political institutions at the European and the national level, on the one hand, and in the free market economy, on the other.

Why Europe Will Suffer More

By Daniel Gros and Cinzia Alcidi

Europeans have a tendency to call the financial crisis a US problem, or a crisis precipitated by the “Anglo-Saxon” model. The data suggest otherwise. Moreover, the corporate sector in Europe has a much lower capacity to finance investment from internal sources of funds, which implies that a recovery of investment in Europe will be much more difficult than in the USA, as long as the banking sector remains weakened by excessive levels of leverage. The cost of the crisis could thus be much larger in Europe than in the USA.

Editorial: Lisbon Treaty – Karlsruhe Rules

by Edward Best

The German Constitutional Court’s decision on the Lisbon Treaty was a resounding “yes, but …”. Germany can ratify but only if the Law governing the role of the Bundestag and Bundesrat in EU affairs is modified. This has stirred up exaggerated hopes and fears about limits being placed on the development of the EU, which obscure the important points actually raised.

Trust, Confidence and Economic Crisis

by Fran Tonkiss

This article explores the role of trust and confidence in economiclife, and their relevance to the current financial crisis. It outlines a recent history of research and debate on the relationship between social trust and economic prosperity, before introducing more recent data on trust against the backdrop of the financial downturn. It goes on to distinguish the informal and social bases of trust from three key formal mechanisms of economic confidence (information, contract, regulation), linking this distinction to Akerlof and Shiller’s revival of Keynes’ discussion of the “animal spirits” that animate economic behaviour. Finally the policy dimensions are considered

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