Skip to main content Accessibility help

Corruption, Reform and the Euro

  • Paul Caruana-Galizia (a1)


Most policymakers and academics predicted that the European monetary union would lead to economic and institutional modernizaon in its least productive members – Greece, Ireland, Italy, Portugal and Spain. In fact, apart from Ireland, these countries became even more corrupt and their governments even less effective. This paper suggests an explanation that links the reluctance of peripheral countries to reform with the increase in their corruption levels. It also argues that their societies were stuck in a collective action problem: individuals have understood that corruption is antithetical to institutional quality and reform, but, as they cannot trust each other to refrain from corrupt practices, they stand to lose individually from not being corrupt themselves. Monetary union was seen as an external authority that would resolve this problem. Yet weak EU and eurozone monitoring and sanctioning discouraged the formation of social norms while making it attractive for formerly non-corrupt actors to engage in corruption, given the low risk of being caught. Survey evidence supports growth in perceptions of corruption and bribery, along with the weakening of social trust, trust in the police and in politicians across the periphery after the euro’s introduction.



Hide All
1. Fernandez-Villaverde, J., Garicano, L. and Santos, T. (2013) Political credit cycles: the case of the Eurozone. Journal of Economic Perspectives, 27(3), pp. 145166, pp. 145–146.
2. Bean, C. (1998) Monetary policy under EMU. Oxford Review of Economic Policy, 14(3), pp. 4153.
3. Saint-Paul, G. and Bentolila, S. (2000) Will EMU increase Eurosclerosis? CEMFI Working Paper No. 0004, March 2000 (CEMFI: Madrid), 3.
4. Kaufmann, D., Kraay, A. and Mastruzzi, M (2010) The worldwide governance indicators: methodology and analytical issues. World Bank Policy Research Working Paper No. 5430, September 2010 (Washington, DC: World Bank).
5.2001 Chairman’s Letter – Berkshire Hathaway Chairman’s Letters to Shareholders.
6.See Rothstein, B. (2005) Social Traps and the Problem of Trust (New York: Cambridge University Press); A. Mungiu-Pippidi (2013) Controlling corruption through collective action. Journal of Democracy, 24(1), pp. 101–115; A. Persson, B. Rothstein and J. Teorell (2013) Why anticorruption reforms fail—systemic corruption as a collective action problem. Governance, 26(3), pp. 449–471.
7. Rothstein, B. (2005) Social Traps and the Problem of Trust (New York: Cambridge University Press).
8. Ostrom, E. (1998) A behavioral approach to the rational choice theory of collective action. American Political Science Review, 92(1), pp. 122.
9. Rothstein, B. (2011) The Quality of Government: Corruption, Social Trust, and Inequality in International Perspective (Chicago: University of Chicago Press).
10. Persson, A., Rothstein, B. and Teorell, J. (2013) Why anticorruption reforms fail—systemic corruption as a collective action problem. Governance, 26(3), pp. 449471.
11. Papaioannou, E. (2015) Nominal rather than institutional convergence in the Eurozone. In: R. Baldwin and F. Giavazzi (Eds), The Eurozone Crisis: A Consensus View of the Causes and a Few Possible Solutions (
12. Felipe, J. and Kumar, U. (2011) Unit labor costs in the eurozone: the competitiveness debate again. Levy Economics Institute of Bard College. Working Paper No. 651 (Annandale-on-Hudson, NY); O. Blanchard, M. Griffiths and B. Gruss (2013) Boom, bust, recovery: forensics of the Latvia crisis. Bookings Papers on Economic Activity, Fall 2013.
13. Chari, V. and Kehoe, P. (2008) Time inconsistency and free-riding in a monetary union. Journal of Money, Credit and Banking, 40(7), pp. 13291356.
14. Alesina, A. and Drazen, A (1991) Why are stabilisations delayed? American Economic Review, 81(5), pp. 11701188.
15. Casella, A. and Eichengreen, B. (1996) Can foreign aid accelerate stabilisation? Economic Journal, 106(436), pp. 605619.
16. Vamvakidis, A. (2007) External debt and economic reform: does a pain reliever delay the necessary treatment? International Monetary Fund. Working Paper No. WP/07/50 (Washington, DC).
17. Isham, J., Pritchett, L., Woolcock, M. and Busby, G. (2003) The Varieties of the Resource Experience: How Natural Resource Export Structures Affect the Political Economy of Economic Growth. Mimeo (Washington, DC: World Bank).
18. Sala-i-Martin, X. and Subramanian, A. (2013) Addressing the natural resource curse: an illustration from Nigeria. Journal of African Economies, 22(4), pp. 570615.
19. Corsetti, G. (2015) Roots of the EZ crisis: incomplete development and imperfect credibility of institutions. In: R Baldwin and F Giavazzi (Eds), The Eurozone Crisis: A Consensus View of the Causes and a Few Possible Solutions (
20. Sapir, A. and Wolf, G. (2015) Euro area governance: what to reform and how to do it. Bruegel Policy Briefs, February 2015.
21. Arkolakis, C., Doxiades, A. and Galenianos, M. (2016) The challenge of trade adjustment in Greece. In: C. Meghir, C. Pissarudes, D. Vayanos and N. Vettas (Eds), Reforming the Greek Economy (Cambridge, MA: MIT Press).
22. Transparency International (TI) (2015) Corruption Perceptions Index (Berlin: Transparency International).
23. Ederveen, S., de Groot, L.F. and Nahuis, R. (2006) Fertile soil for structural funds? A panel data analysis of the conditional effectiveness of European cohesion policy. Kyklos, 59(1), pp. 1742.
24. Osborne, G. (2014) Extracts from the Chancellor’s speech to the Open Europe Conference, 15 January 2014. Open Europe Conference, One Birdcage Walk, London.
25. Linz, J.J. and Stepan, A. (1996) Problems of Democratic Consolidation (Baltimore, MD: Johns Hopkins University Press).
26. Mungiu-Pippidi, A. (2006) Corruption: diagnosis and treatment. Journal of Democracy, 17(3), pp. 8699.
27. Root, H.L. (1996) Small Countries, Big Lessons: Governance and the Rise of East Asia (Hong Kong: Oxford University Press).


Altmetric attention score

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed