EconPol Europe Survey Reveals Euro Reform Preferences of Central and Eastern European Countries

A survey of economists from Central and Eastern Europe (CEE) has revealed a lack of support for the euro, EU centralization and coordination of tax policy, but that poorer countries are in favour of redistributive transfers.

The study, conducted for EconPol by ZEW - Leibniz Centre for European Economic Research in collaboration with the Strube Foundation, was carried out to balance the dominance of Western European politicians and academics in the euro area reform debate. It explored the positions of 1800 economic experts from Central and Eastern European member states on a range of European Monetary Union reform topics, which were compared to benchmarks of surveyed experts in France, Germany and Italy. The results provide the first database to map expert communities in all CEE EU member states relative to the three reference countries.

“The popularity of the euro has strongly declined over the last decade in non-Euro CEE countries,” say authors Sebastian Blesse (EconPol Europe, ZEW Mannheim), Annika Havlik (EconPol Europe, ZEW Mannheim and University of Mannheim) and Friedrich Heinemann (EconPol Europe, ZEW Mannheim and University of Heidelberg). “To make Europe’s currency more attractive for the CEE countries, it is important to know what the preferences are of these countries.”

Key findings of the survey include:

• CEE economists outside the euro area are less enthusiastic about the benefits of the euro than experts from euro countries.
• CEE countries are less supportive than France and Italy on more EU competencies in taxation.
• CEE experts are receptive towards new stabilization tools such as a European unemployment insurance scheme.
• Eastern Economists back both the European deposit insurance scheme and the European Central Bank’s asset purchases.
• Economists from poorer CEE countries are more in favor of cross-country redistribution and Euro bonds than those from more advanced countries.

Overall, say authors, the results suggest that economists’ support for euro area reforms corresponds to their countries’ interests given the economic and fiscal situation of the respective country. The acceptance of the euro among economic experts is generally higher in euro Member States than in non-euro Member States.

“Experts in CEE countries are in general more cautious with respect to more EU centralization and coordination,” say authors. “Economic experts in CEE countries are much less supportive of a larger EU role in corporate taxation than their western colleagues – a finding clearly consistent with national interests given low tax rates in CEE countries, which use their national tax policy autonomy to make their locations more competitive for corporate investment. Tax harmonization that would cut back national autonomy within the EU or within the euro area will be seen very critically in the region as this would be perceived as limiting a legitimate and important freedom in national economic policy.

“Preferences regarding redistributive transfers across Member States does not follow East-West divisions but is well in line with the income levels of the respective country. Specifically, poorer countries show higher support of more redistributive transfers in the EU.”

To attract the support of Central and Eastern European economists, the study’s authors say reform packages should include a viable insolvency procedure for insolvent euro countries to safeguard against the likelihood of future bail-outs, along with new stabilization tools to help euro members to cope with transitory negative growth and unemployment shocks. However, tax centralization should be a ‘no-go’ area, as this would be seen as limiting a legitimate and important freedom in national economic policy.

“Our cautious prediction is that a one-sided mix of reforms could also cement the derogation status of the more advanced CEE countries outside of the euro,” say authors. “A reform that, in an unbalanced way, prioritizes fiscal solidarity without improving the incentives for a prudent growth and budgetary policy will hardly be met with large applause in most parts of the CEE region. Only comprehensive and balanced package deals are likely to increase the euro appeal for these countries.”

Read the full survey: https://www.econpol.eu/publications/working_paper_37