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The book seeks to link theoretical debates on the relevance of trust in economic outcomes with the current arguments about the origins and lessons of the subprime crisis. By what mechanisms does trust influence economic outcomes? Under what conditions do these mechanisms prevail? How do debates about trust help our understanding of the subprime crisis in the European Union? By integrating insights from Post-Keynesian, Austrian and new institutional economics, the central proposition of the analysis is that the presence or absence of institutional trust creates virtuous and vicious cycles in law-abiding, which critically influence the possibility for economic agents to have realistic long-term plans

Intro -- Preface -- Contents -- List of Figures -- List of Tables -- 1: Understanding Success and Failure in Financial Crisis Management -- 1.1 Divergence After Crisis in the EU Program Countries -- 1.2 Narratives on Crisis Management -- 1.2.1 Fundamental Factors -- 1.2.2 Exchange Rate Devaluation -- 1.2.3 Austerity -- 1.2.4 Domestic Institutions -- 1.3 Institutions and Trust: The Theory in a Nutshell -- 1.4 Methodology -- 1.5 The Structure of the Book -- References -- 2: A Bird's-Eye View of Crisis Management in the Euro-Zone -- 2.1 The Road to the Crisis -- 2.1.1 Monetary Expansion: The Unintended Consequences of the Euro -- 2.1.2 Emergence of Vulnerabilities: Competitiveness Problems in the Periphery -- 2.1.3 The Eruption of the Crisis -- 2.2 Crisis Management in the EU -- 2.2.1 Establishment of Emergency Funds -- 2.2.2 The Interventions by the ECB -- 2.2.3 Institutional Reforms -- 2.3 Rejected Measures of Crisis Management -- 2.3.1 Exit from the Euro-Zone -- 2.3.2 Eurobonds -- 2.3.3 Transfer Union -- 2.4 Dilemmas of Moral Hazard and Solidarity -- References -- 3: Trust and Crisis Management -- 3.1 What Is Trust? -- 3.2 Interpersonal Trust -- 3.2.1 Particular Trust -- 3.2.2 Trust Within the Elite -- 3.2.3 Generalized Trust -- 3.3 Institutional Trust -- 3.3.1 The Roots of Institutional Trust -- 3.3.2 The Consequences of Institutional Trust -- 3.3.3 Market Confidence -- 3.4 The Ethical Assessment of Trust -- 3.5 Trust and Crisis Management: The Negotiation of Program Conditionality16 -- 3.5.1 The Establishment of the Troika -- 3.5.2 The IMF Practice of Lending -- 3.5.3 The Significance of Trust During the Negotiations of Financial Assistance Programs -- 3.6 Public Attitudes and Implementing the Financial Assistance Program -- 3.7 The Market Reception of the Financial Assistance Program

This book seeks to link theoretical debates on the relevance of trust in economic outcomes with arguments about the origins and lessons of the subprime crisis. By what mechanisms does trust influence economic outcomes? Under what conditions do these mechanisms prevail? How do debates about trust help our understanding of the subprime crisis in the European Union? By integrating insights from Post-Keynesian, Austrian and new institutional economics, the central proposition of the analysis is that the presence or absence of institutional trust creates virtuous and vicious cycles in law-abiding, which critically influence the possibility for economic agents to have realistic long-term plans.

AbstractIn the context of an increasingly ambitious European Union (EU) industrial policy and the transition to electromobility, the main objective of the article is to uncover the interaction between the supranational level and domestic policies through examining the buildup of the electric vehicle (EV) battery value chain in illiberal Hungary and liberal Sweden. The study analyses these diverse cases through the lenses of comparative political economy. How do European industrial policy objectives translate into national policies under widely different political conditions? How do the different translations impact on the original objectives of EU policy? Through using a structured-focused comparison, the paper argues that the building of the EV battery industry implies the entrenchment of existing models of capitalism in both cases. Liberal democracy is only compatible with the coordinated market economy model of Sweden, while in Hungary the illiberal regime and the dependent market economy model reinforce one another in face of growing public recognition of the disadvantages of dependency—misallocation of resources, environmental damage, and limits to upgrading. EU strategic objectives are served only by the Swedish model, while the Hungarian model leads to deepening institutional cleavages within the EU and implies growing dependence on Russia and China.

AbstractThe paper evaluates the convergence paths of Central and Eastern European member states of the EU during the 2010s, when the main task for these countries was avoiding the middle-income trap—when wages are not so low anymore to compete with less developed countries, while innovation is not developed enough yet to compete with developed countries. Using various statistical indicators, the paper shows that while most countries in the region have been on a convergence path during the decade under analysis, not all succeeded in avoiding the trap. While some countries successfully implemented policies to step on the path of productivity- and innovation-led growth (Czechia, Slovenia, Estonia, and Lithuania), in several other states, growth was supported mainly by low costs and loose monetary conditions including significant transfers from the EU. The comparative analysis of Estonia and Hungary illustrates the different growth models and shows how the institutional system plays a key role in exiting the trap.

The paper evaluates the convergence paths of Central and Eastern European member states of the EU during the 2010s, when the main task for these countries was avoiding the middle-income trap—when wages are not so low anymore to compete with less developed countries, while innovation is not developed enough yet to compete with developed countries. Using various statistical indicators, the paper shows that while most countries in the region have been on a convergence path during the decade under analysis, not all succeeded in avoiding the trap. While some countries successfully implemented policies to step on the path of productivity- and innovation-led growth (Czechia, Slovenia, Estonia, and Lithuania), in several other states, growth was supported mainly by low costs and loose monetary conditions including significant transfers from the EU. The comparative analysis of Estonia and Hungary illustrates the different growth models and shows how the institutional system plays a key role in exiting the trap.

The paper surveys the challenges of researching soft concepts in economics through focusing on trust. Although there is increasing evidence about its importance for macroeconomic outcomes, tensions with the homo oeconomicus model as well as the difficulties of conceptualization and measurement imply significant difficulties for research. The paper argues that comparative economics with its systemic analysis and traditional openness to interdisciplinary approaches is particularly well-suited for resolving these challenges, and it could also provide a contribution to trust research through integrating macro-, meso- and micro-level analysis.

Market failure and the need for stronger state involvement in the economy has become the dominant perspective in the interpretation of the subprime crisis. After providing a brief description of the various stages of the crisis, the paper challenges this view by showing how monetary, fiscal and regulatory policy in the United States contributed to the crisis through giving rise to false perceptions regarding the magnitude of investment risks among market actors. Furthermore it is also shown that these policies are not due to random mistakes, but rather reflect illusions about technological progress and the possibilities of risk management. The paper's main claim is that whether these beliefs were genuine or served to conceal identifiable political purposes, they should make us equally careful about advocating greater state involvement in the economy.