Of Sinners and Saints: Why Psychology Might be the Biggest Obstacle to the Resolution of the European Crisis

Before debating technical solutions to the current economic and monetary crisis of the European Union, taking a look at the psychology of the underlying narratives shows us that having the right solutions might not suffice to tackle this crisis.

Judged from how often the words appear in global media, the euro crisis is over. Is it? Far from it: None of the fundamental problems underlying the euro crisis have been solved. We still have a banking crisis. Banks are sitting on bad loans, lending to the private sector is throttled, banking reforms are piecemeal, at best. We still have a sovereign debt crisis. National debt is on the rise in most European countries. We still have a competitiveness crisis. Current account imbalances persist, crisis countries cannot “adapt to the German model”.

In addition, new problems are emerging: We are running into a social crisis, as a generation of young Europeans in Greece, Spain and Italy is being deprived of its livelihoods and opportunities, inequality is deepening and liberal structural reforms disrupt the social fabric. Furthermore, the latest European elections revealed a severe political crisis. Eurosceptic right-wing parties gained substantial support, particularly in France, Great Britain, and Austria, but also in Scandinavia. Apparently, Europeans are loosing their willingness to find common rather than national solutions. The belief in the EU as an instrument of participation seems to be on the wane. In Greece, Portugal, Spain and Italy more than 70% of the population do not believe that their voice counts in the EU (Eurobarometer, November 2013).

Thus, it stands to reason that Europe is confronted with structural problems that require structural solutions, on the economic, the political and the social level. However, as I will argue in the following, the challenge to develop and implement these solutions is not only an economic and political one but also a fundamentally psychological one.

The question if Europe is going to overcome the problems outlined above is very much linked to the narratives of how the crisis came about – and who is to blame for it. The successful implementation of reforms is highly unlikely if they contradict the prevalent narratives, particularly in Europe’s core.

In Germany, there is a very peculiar narrative. A narrative about the virtuousness of Europe’s core and the viciousness of its periphery. This German interpretation of the current state of Europe reflects a psychological mechanism well know to social psychologists, so called attributional biases. Attributional biases are one of the most important findings in social psychology. They refer to the systematic errors made when people try to find reasons for their own and others‘ behaviors.

You will probably remember these biases from school. When we earned a good grade on an exam we usually attributed the outcome to our own intelligence, but when we earned a poor grade we attributed the outcome to unfair test questions or the teacher’s poor teaching abilities. That’s the self-serving bias.

But what about this guy sitting next to you in the fifth grade, who eventually dropped out of school? Well,he must have been lazy, right? You are very likely to think his personality is flawed. That he is to blame for the trouble he got himself into since it is intrinsic to his character. That’s the fundamental attribution error. We tend to place an undue emphasis on internal characteristics to explain someone else’s behavior in a given situation, rather than considering external factors.

Both attributional biases are reflected in the German narrative of vice and virtue in Europe (1). According to the German narrative, Germany’s A on the exam (i.e. high exports, solid post-crisis growth and low rates of unemployment) can be attributed to one’s own virtuousness. “We have been working hard and this is our reward”, the story goes – despite the fact that Germany’s current “success” is to a large extent the result of external circumstances, namely the European Monetary Union (EMU). Across partisan lines there is consensus that Germany has been benefitting substantially from the EMU, particularly from an increasingly undervalued currency and credit-financed demand in Southern Europe (2). German exports to Greece, Italy and Spain skyrocketed after the introduction of the common currency (see figure ).

Bild MaxWhen credit-financed demand from the South stopped due to the debt crisis, Germans did not question the riskiness of their strategy of constant current account imbalances (i.e. themselves) but rather pointed at the “debt epidemic” cascading from South to North (i.e. the context).

However, when talking about why countries in Southern Europe got Cs and Ds on the exams (i.e. a downgrading by rating agencies), context did not matter. Instead, the talk about the viciousness of the tanned pupils of the European classroom took of. A very simple but dominant story about crime and punishment, about sin and repentance. It is no coincidence that the acronym PIGS (Portugal, Italy, Greece, Spain) has been revived in 2010. With the effect that, as David Graeber puts it, “German voters really do believe that Greek [and Spanish] citizens are all, collectively, as they put it, ‘debt sinners’, and vow support for politicians willing to punish them“. In 2011 a German baker in his 50s has been quoted as follows: “The Greeks keep causing us problems. They should never have been let into the euro and it’s time they were kicked out!” In a recent poll 39% of Germans support the notion that Greeks are not working hard enough to overcome the crisis.

Despite the fact that due to the very design of the EMU countries in the southern periphery had no effective instrument to counteract domestic booms that were driven by the cheap-money effect of uniform ECB interest rates (3), talking about the flawed character of Greeks, Italians or Spaniards became highly popular in Germany.

But how did this German narrative develop? Most people tend to forget that this narrative has been framed by Chancellor Merkel (and former French president Nicolas Sarkozy) in the early stage of the crisis in 2007 (4). Confronted with rating agencies betting against the EMU Merkel stood at a discursive crossroad. She had to decide between the structural story (“Some member states got into severe trouble and cannot fulfill their treaty obligations because they became victims of structural defects in the design of the EMU”) and the moral story (“Some member states got into severe trouble and cannot fulfill their treaty obligations because they have constantly lived beyond their means and blew up their welfare states, endangering the virtuous rest of the EMU”). She chose the moral one.

The problem with this story is not only that its kernel of truth is rather small, but that it is extremely difficult to revoke, since it appeals to and is amplified by the basic psychological mechanisms described above.

So whereas the technical answers to the ongoing crisis of the EMU (and Europe) seem to be rather clear-cut (consolidation in the short run and structural changes in the long run), the far bigger challenge for policymakers will be to justify and propagate further integration (which is vital if the euro is to survive) while the moral narrative is still highly prevalent in the electorate, particularly in Germany.

Thus, the progressive forces in Europe’s core and periphery are called upon to work together not only on alternative policies but also on plausible counter narratives which can be accepted by “sinners” and “saints” alike.

(1) These biases are also discussed on the level of groups as “group-serving biases”. For the European context Hobolt & Tilley (2014) showed that EU enthusiasts are more likely to attribute responsibility to the EU (their “in-group”) when conditions are improving, whereas Euroskeptics tend to deny the EU (their “out-group”) any responsibility for positive outcomes. See Hobolt, S. B., & Tilley, J. (2014). Who’s in charge? How voters attribute responsibility in the european union. Comparative Political Studies, 47(6), 795-819.
(2) Scharpf, F. W. (2013). Monetary union, fiscal crisis and the disabling of democratic accountability. In W. Streeck & A. Schafer (Eds.), Politics in the Age of Austerity. Cambridge: Polity (pp. 108-142). Cambridge: Polity Press.
(3) Scharpf, 2013.
(4) For a detailed account see Tsoukala, P. (2013). Narratives of the European Crisis and the Future of (Social) Europe. Texas International Law Journal, 48(2), 241-266.

Fotocredit: JD Hancock CC BY-ND 2.0

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