Does the Euro adoption entail psychological costs?
Olga Popova (Regensburg)
The United Kingdom’s European Union membership referendum (“Brexit”) has demonstrated that anchoring policy decisions by the popular vote requires a deeper understanding of how individual perceptions in different demographic groups confound objective information. The new paper by the IOS economist Olga Popova, co-authored with Vladimir Otrachshenko and José Tavares (both from Nova School of Business and Economics, Lisbon, Portugal), forthcoming in the European Journal of Political Economy, contributes in that direction. The paper assesses the perceived individual psychological costs of adhering to the Euro across different population groups.
The authors compare individual levels of satisfaction with the economy in Slovakia immediately before and after the introduction of the Euro, with similar individuals in neighboring Czech Republic, which did not adopt the Euro. Both countries were economically and politically integrated for decades, and display similar macroeconomic behavior before and after the currency change in Slovakia. There is evidence of substantial psychological costs associated with currency transition, especially for the old, the unemployed, the poorly educated and households with children. These results may help policy-makers understand the resistance to the Euro adoption, especially in countries that have recently gained accession to the European Union. Particularly interesting cases are the Czech Republic and Poland.
Otrachshenko, V., Popova, O., and Tavares, J., Psychological costs of currency transition: Evidence from the Euro adoption. European Journal of Political Economy, forthcoming.