For a central bank to succeed, it needs public trust in its monetary policy and support for its currency. Yet as In Do Hwang and Thomas Lustenberger demonstrate, there is evidence the public perceives trust in the European Central Bank and support for the euro as two distinct concepts.
Public support for the euro and trust in the European Central Bank (ECB) hit a low point during the Eurozone crisis. Both measures have since improved, however there has been a clear difference between them. As Figure 1 shows, support for the euro has been high and stable, reaching its peak in 2022.
By contrast, the level of trust put in the ECB has stagnated since 2010 and has hovered below support for the euro throughout. The gap between support for the euro and trust in the ECB is much wider than before the global financial crisis. Interestingly, support for the euro and trust in the ECB appear to have remained resilient despite the inflation rise over the last few years.
Figure 1: Support for the euro and trust in the ECB
Note: Chart compiled using Eurobarometer data. For more information, see the authors’ accompanying paper.
Previous studies on public support for the euro have examined the topic from various perspectives, but no research has investigated the effect of central bank speeches. This is surprising as good communication may be instrumental in gaining citizens’ support for their central bank’s currency and trust in their central banks. However, communication with a general audience is fraught with difficulties. Indeed, we find evidence that Eurozone citizens may react to Eurosystem speeches by lowering their trust in the ECB.
In a recent paper we examine the effect these speeches exert on citizens’ support for the euro, which is a vital ingredient for its viability. Previous work in large country panels has also documented negative consequences from an increasing quantity of central bank speeches on experts’ forecasts, and on business managers’ assessments of the impact of central banks on the economy.
Central bank speeches and support for the euro
We know that a speaker’s identity makes a difference. This is why we divide Eurosystem speeches that we compiled from the BIS central bankers’ speeches database into four groups: i) the total, ii) those of the ECB’s Executive Board, iii) those of national central banks, and iv) the number of national central bank speeches for each country.
The first panel of Figure 2 shows total Eurosystem speeches, with Executive Board and national central bank breakdowns. Speeches peaked around 400 in 2017, dipped below 300 during the COVID-19 pandemic in 2020, and have since rebounded, though not to previous highs. The second panel of Figure 2 shows the evolution of national central bank speeches per country, revealing significant variations in frequency among national central banks.
Figure 2: Number of Eurosystem speeches per year by groups of speakers
Note: Chart compiled using BIS central bankers’ speeches data. For more information, see the authors’ accompanying paper.
We also know that the public has a clear interest in economic policy. While experts gather information directly from central banks, the public relies on media coverage of monetary policy. News outlets often report on ECB speeches, as shown in Figure 3, where an increase in Executive Board speeches correlates with a rise in newswire reports. We also find a rise in Executive Board speeches is linked to increased coverage in mainstream media.
Figure 3: Executive Board speeches and related newswire reports
Note: Chart compiled using BIS central bankers’ speeches data. For more information, see the authors’ accompanying paper.
To gauge public perception of central bank media presence, we analysed panel data using Eurobarometer survey responses (628,000 interviews) and 5,771 speeches from 1999 to 2023. Panel regressions revealed that more speeches by national central banks (especially individual national central banks) boost public support for the euro. Conversely, speeches by the Executive Board have no significant impact on support for the euro.
Our analysis also confirms that macroeconomic conditions and sociodemographic factors shape support for the euro. Educated respondents, those knowledgeable about the EU, or those with positive EU views tend to back the euro. Interestingly, women and politically right-leaning respondents show less support.
Trust in the ECB
Central bank independence and effective monetary policy hinge on public trust in a central bank and support for its currency. While one might expect similar responses to central bank speeches regarding euro support and ECB trust, the data tell a different story. Three notable differences emerge.
First, Eurosystem speeches generally boost support for the euro but diminish trust in the ECB. Second, Executive Board speeches specifically reduce trust in the ECB without influencing euro support. Third, national central bank speeches enhance support for the euro but do not significantly impact trust in the ECB. In essence, more speeches appear to bolster euro support while simultaneously undermining trust in the ECB.
Why do the same speeches trigger different reactions? In a previous article, we conjectured that the negative impact of speeches on trust in the ECB may stem from information overload, low financial literacy leading to high processing costs, or overly complex language. Additionally, media distortion and incoherent communication among policymakers could further explain this effect.
How can we reconcile the diverging evidence of central bank speeches on trust in the central bank and support for the central bank’s currency? Psychological factors may be at play. Support for the euro is linked to attitudes toward European integration, whereas trust in the ECB hinges on perceptions of economic performance.
This may explain why support for the euro remained stable, even as trust in the ECB fell post-financial crisis. The euro symbolises unity, while trust in the ECB is influenced by immediate issues such as inflation and monetary policy. Future research should explore these differences further.
For more information, see the authors’ accompanying paper.
Note: This article gives the views of the authors, not the position of EUROPP – European Politics and Policy or the London School of Economics. The views, opinions, findings, and conclusions or recommendations expressed in this column are strictly those of the authors. They do not necessarily reflect the views of the Bank of Korea or the Swiss Financial Market Supervisory Authority FINMA. The Bank of Korea and FINMA take no responsibility for any errors or omissions in, or for the correctness of, the information contained in this column. Featured image credit: Alexandros Michailidis / Shutterstock.com
