Religion and the European Union

In “Religion and the European Union,” we point out that the recent literature on cultural differences across euro member states fails to address cultural differences between Protestants and Catholics, which are likely a major underlying reason for cross-country differences. We argue that confessional culture explains why Catholic countries tend to have weaker institutions but are more open to economic and political integration. EU policies after the economic crisis looked clumsy and failed to address all concerns, but were viable, caused only a manageable amount of serious backlash and tied in well with Europe’s cultural diversity, also providing scope for learning and adaption.

Discussion and outlook

Catholic societies appear more willing to give up national sovereignty in favor of European integration, whereas Protestant countries tend to have national institutions that have higher quality. This suggests an institutions-integration tradeoff that is resolved differently by Catholics and by Protestants. We have developed an argument, according to which these different approaches are in line with different confessional cultures. But Europe can transform its cultural heterogeneity from a weakness into a strength. Protestant values reduce moral hazard and improvidence and improve public goods provision. Catholic values, on the other hand, balance against exceeding austerity and, possibly, against nationalism. Whether fiscal centralization is economically beneficial for all involved parties is not immediately obvious. People in Protestant countries fear that fiscal transfers would only flow from the Protestant north to the Catholic south. But the currency union is not prepared to deal with the challenges of the future and may not survive without joint unemployment insurance, a banking union and commonly issued bonds that serve as a cushion against idiosyncratic regional shocks. Without further centralization, Protestant countries would risk forgoing the benefits of integration. It may, however, be a mistake to rush such reforms too quickly. Many authors, like, e.g., Guiso et al. (2016a) suggest that centralization may not only be optimal from a purely economic but also from a cultural point of view. At least in the medium term, however, ignoring national identities may trigger serious conflicts and a risk of disintegration. Recent policies adopted by the EU may, therefore, have been more appropriate than drastic centralization. These policies also accounted for moral hazard by punishing Greece more severely than Spain. They may not have been fully satisfactory to anyone, but provided a compromise between tough Protestant and lenient Catholic positions. In fact, this compromise may have been representative of median values and therefore most widely accepted in countries like Germany and the Netherlands, which traditionally have a mix of Protestant and Catholic populations.

Source: Arruñada, Benito and Krapf, Matthias (2019), “Religion and the European Union,” in Sriya Iyer, Jared Rubin and Jean-Paul Carvalho (eds.), Advances in the Economics of Religion, pp. 295-308, IEA Series 158, Palgrave Macmillan, Cham, Switzerland. WP Available at SSRN: https://ssrn.com/abstract=3131883.

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