What Drives Support for Financial Regulation in European Populations

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What Drives Support for Financial Regulation in

European Populations

Financial regulatory policies by the EU gained support after the European debt crisis. This

thesis tries determine by what this support is driven by looking at ideology and support for

European economic governance. Looking at 27 EU member states shows that differences exist

between countries. Financial regulation is commonly seen as leftist reactions to crises.

However, testing for the effect of ideology on support for financial regulation shows that this

effect is weak and depends on national contexts. Support for European economic governance

has a stronger effect, but other measures of EU support do not. These results suggest that

political gains can be made on the issue of financial regulation by the EU.

Master Thesis Political Science By: Falco Hermans, 6132278 Specialization: Political Economy Course: Identity Politics in the European Union Professor: dr. Theresa Kuhn 2nd_{reader: dr. Brian Burgoon}

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1. Introduction

The financial crisis of 2007 was an impactful and shocking event, which led to many scholars debating how to prevent such a crisis in the future. One reoccurring option is implementing more financial regulation, although arguments against more regulation are made as well. Attention was paid to scholars such as Minsky (1982) who had already written about financial cycles and crises decades ago, and who predicted that re-regulation of financial markets follows after a crisis. In order for this re-regulation to occur, governments that pursue these policies need to be elected, and the election of these governments is what Broz (2013) calls: partisan financial cycles. However, due to the global character of financial markets, attention needs to be paid to the role of transnational institutions such as the EU, and the people who support it, as well.

When discussing crises and financial stability, financial regulation is not the only issue that needs to be discussed. Scholars have debated the effects of other types of policies such as bail-outs, re-financing highly indebted nations and the effect of a shared currency (Lane 2012), however, this thesis focusses on financial regulation only. Although it can take on many forms, in essence it can be said that financial regulation subjects financial institutions to certain requirements and is supposed to increase financial stability and integrity. Regulation restricts agents in financial markets and controls which financial products are available, while deregulation tends to increase their liberties. Governmental or non-governmental organizations may be involved at various levels from the local to the transnational, and financial interests lobby at these different levels as well. The advantage they possess in pressuring policy-makers to create beneficial regulation was pointed out by various scholars (Baker 2013, Helleiner 2014, Pagliari 2016).

The financial crisis of 2007 could be seen as a ‘Minsky moment’, which means that there was a push for more financial regulation as a reaction to the crisis. The purpose of this thesis is to

investigate whether such a push was present in European populations and where we can expect such a push to come from. Although the crisis was global, this thesis specifically focusses on Europe, which is an interesting case due to the national and transnational dynamics that exist

simultaneously. The crisis could have been used by the EU to take a leading role as a problem solver and show its responsiveness to voters, which possibly could have strengthened unification and the European identity (Schmidt 2015). This could have been important since the crisis was severe, with bank bankruptcies and fears of government defaults. Especially highly indebted countries suffered as they could not finance the necessary measures such as bail-outs and refinancing their debts. This European version of the crisis is often called the 2009 European Sovereign Debt Crisis.

The central question of the thesis is the following: after the European debt crisis, was there popular support for financial regulation by the EU and what drove it? More specifically, does a leftist

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2 ideology and support for European economic governance lead to support for financial regulation at the EU level? It is important to mention however that the answer to this question could differ across countries. Therefore, this thesis will pay attention to contextual differences, and specifically divide between advanced democracies, new democracies and countries that were severely hit by the crisis. This is done for two reasons: firstly, as various scholars (Lisi 2014, Gunther 2001) argue, the

anchoring of ideology differs among countries, especially between advanced and new democracies. Secondly, the effects of the crisis were more severe for the so called PIIGS countries (who in this thesis will be called ‘southern democracies’), which could lead to a different effect between support for European economic governance (EEG) and financial regulation, perhaps out of national economic despair. To avoid generalization and group-thinking, we will look at effects for individual countries as well in order to get a more detailed picture.

The results of this thesis show that ideology has an effect on financial regulation, although it is weak and it depends on country level context. There is a much stronger effect for EEG on financial regulation, especially in countries that were severely hit, however, other types of EU support do not show this effect. Furthermore, there is a generational effect and an effect of basic economic

knowledge. These results could be relevant for policy-makers at the EU level, and encourage cooperation between EU member states. But also for political parties and politicians at the national level who want to use financial regulation as an issue in their electoral campaigns.

As far as the scholarly debate goes, most scholars focus on explaining financial regulation related to lobbying (Pagliari 2016), or related to international political dynamics (Helleiner 2014, Stellinga and Mügge 2017, Baker 2013, Bieling 2014). A few have focused on the causes and consequences of financial regulation for voting behavior by looking at election outcomes (Broz 2013), but very little has been written about financial regulation in regard to Europeans at the individual and the country simultaneously. Most scholar who write about financial regulation by the EU focus on political interests, regulatory proposals and institutional dynamics (Bieling 2014), and therefore this thesis adds to the debate by focusing on the populational drivers of financial regulation, which are often overlooked. Since most scholars agree that very restrictive measures were not implemented after the European debt crisis, this thesis could also stay relevant when a possible future crisis brings about a new ‘Minsky moment’ and re-regulation will be considered once more.

2. Theoretical framework

2.1 Financial regulation

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3 regulation will be looked at. The first two are taxing bank profits and taxing financial transactions. Taxation could offset some of the social costs that are associated with the financial system. When financial markets were booming, new financial products and deregulation made it possible for them to become more competitive and increase their profits (Tooze 2018). But hidden underneath these profits, the risk had increased as well, something also banks were involved in. The volume of

financial transactions increased, because actors focused on earning fees while often disregarding the risk. MacKenzie (2011: 1821) showed how risk was underestimated in official ratings and turned out to be much higher in actuality when the crisis hit. Now huge bail-out packages were necessary to save certain financial institutions. This has been called: ´privatized gains and socialized losses´ and a tax on bank profits and financial transactions therefore, could funnel some resources back to the European public pool and increase cautiousness of financial agents. Also, it could decrease the incentive to chase fees while disregarding risk.

For the third type, we look at the regulation of wages and bonusses in the financial sector. The high profits that were being made in the financial sector allowed for increased bonusses, and indeed before the financial crisis, bonusses had tripled in financial markets (Mikolayczyk 2013: 142). As mentioned, collecting fees on trades caused traders to trade in high volume while often

disregarding the risk. This creates incentives for the financial sector to focus on short-term profits while ignoring the long-term health of the firm. This is especially problematic when it comes to banks who store money for depositors who can be long-term oriented as they may want to save their income for the future. A regulation of wages and bonusses therefore can take away some of these incentives and create more financial stability.

Fourthly, we look at a closer supervision of so-called ´hedge funds´. Hedge funds are financial institutions that accept limited amounts of investors but are allowed to apply more investment strategies. ´Hedging´ is supposed to reduce risk, but ironically hedge funds also added risk to the banking system, which in turn increasingly competed with hedge funds for profits and were ultimately allowed to use similar investment strategies. Hedge funds can contribute positively to the stock market, but when their capital dries up, this can have devastating negative effects because they are highly leveraged (Cao 2018). They often rely heavily on short-term funding and are largely unregulated. A closer supervision of hedge funds therefore, could increase financial stability.

Fifthly, we look at increasing the transparency of financial markets. A lack of transparency means a lack of information. Therefore, when people are ill-informed about the extent of actual risk, as MacKenzie (2011) showed, they can assume the worst when they discover that something is wrong and rush for the exits. This causes herd behavior which was visible in the financial crisis as well. Bank runs, stock market crashes, or a halt to interbank lending can occur during financial crises.

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4 If financial firms control the information while the press cannot report on it correctly, this could undermine the functioning of financial markets. Since these financial firms can afford the highest salaries, they hire the best ´quants´ who engineer complicated but beneficial financial instruments for them. So enormous secrecy still exists in financial markets and therefore, increased transparency of financial markets could lead to more financial stability.

Conceptualizing financial regulation based on these five types, does not mean that it is complete. However, only these five items were mentioned in Eurobarometer 74.2 (European Commission 2010). Financial regulation is much broader and has many, often complex aspects to it. Other important types of regulation are for example, regulation of bank capital ratios, which function as a reserve in case a crisis hits. Also, regulation of credit rating agencies is important as they are responsible for estimating risk of financial products, while at the same time they are being paid by financial markets. However, as Stellinga and Mügge (2017) stated, it is difficult for policy-makers to implement effective regulation, since the financial sector deals with an unforeseeable future, and regulation therefore can have unforeseen effects on financial markets, which can cause serious short-term problems. Thus, without tested alternative regulation that is certain to function well, negative short-term effects of regulation can discourage policy-makers.

2.2 Financial cycles

The crisis led to a renewed interest in Minky’s (1982) theory, which expects that after a crisis re-regulation of financial markets occurs. It is argued that the behavior of agents in the financial system and populations in general, is often shaped by their expectations. When societies are in long periods of prosperity, this leads to optimism and increased risk-taking to obtain higher returns on

investment. This cycle of prosperity often goes along with liberalization of financial markets and credit expansion leading to higher levels of debt spread throughout the whole society. However, after a crash the opposite happens: agents are more pessimistic and we see a decline in lending, credit supply and profits, which in turn causes bankruptcies and can affect labor markets as well. As people become more cautious, governments start to re-regulate the financial markets.

For example, in 1933 during the Great Depression in the US, the Glass-Steagall Act was implemented. This was restrictive regulation which separated commercial – and investment banking and can be seen as a reaction to the prosperous and deregulated 1920s and the crisis that followed. After the financial crisis of 2007, some expected similar restrictive regulation to be put in place. But it has to be taken into account that financial markets are much more complex now, which makes it harder to regulate them. Nonetheless various scholars agreed on what type regulation could have provided more long-term financial stability. A macroprudential perspective appeared in the policy discourse, which stepped away from the idea that self-interested efficient market investment

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5 strategies produce financial stability, and recognized cyclical tendencies of financial markets and herd behavior (Baker 2015).

Bordo (2001) shows the effects of these financial cycles. When regulation was stricter, and financial markets much more nationally oriented during the Bretton Woods system which was based on international capital controls (Cohen 1982), banking crises and other types of financial crises were much less common. But Bretton Woods ended and deregulation and innovation of financial markets increased, partly made possible due to neoliberal governments and a belief in efficient markets (Davis 2017). In this new era Bordo (2001) observed crises becoming more frequent worldwide and ultimately, 2007 brought the global financial crisis. Some scholars argued that this was a time for a new type of Bretton Woods system or Glass-Steagall type regulation (Helleiner 2014), and perhaps this was in line with what people wanted as well. Therefore, in line with Minsky’s theory, hypothesis one will test the issue salience of financial regulation after the financial crisis.

H1: The financial crisis led to issue salience of financial regulation by the EU among European populations.

2.3 Financial regulation and ideology

When people vote, there is an old idea in political science that the main issue that determines election outcomes is the economy. This ‘economic voting’ means that political parties with good economic performance are rewarded and re-elected, while political parties with a bad performance are punished and replaced, causing an ideological shift in election outcomes. However, this theory has been shown to be problematic because although it is often proven correct, there is also a lot of evidence that it is not (Paldam 1991). Voters stick to certain parties due to their ideologies, or they vote based on the assets they own, meaning that owning more assets makes it more beneficial for the individual to vote center-right. However, voting out of self-interest instead of looking at what is best for the common good undermines economic voting (Hellwig 2019). Other issues with this theory are that information could be distorted and cognitive levels differ among individuals. This causes systemic errors that compromise the connection between the economy and voting. Also, on the institutional level, politicians often shift blame away from themselves or third parties which they protect, making it harder to punish those who are to blame. And since liberal democracies are not direct democracies, politicians have some freedom when they govern (Anderson 2007).

A financial crisis hurts the economy, so therefore the theory of economic voting would predict a reaction from voters to punish governments that are held responsible. Broz (2013)

proposed a more specific theory which was called: the partisan financial cycle. Here it is argued that a financial crisis can cause ideological shifts in the electorate. The partisan financial cycle is as follows: right-wing pro-market governments preside over financial booms, funding credit expansion

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6 and asset-price appreciation with large current account deficits (i.e. foreign borrowing) and

deregulate financial activities. When a crisis hits, voters tend to shift to the left causing more leftist governments to take their place who then re-regulate financial activities and limit credit expansion. Therefore, partisanship shifts are a cause and a consequence of crises.

Thus, the partisan financial cycle theory states that financial regulation is a leftist measure, and that crises cause some leftist measures to become more popular. Indeed, since the left tends to want more government intervention, stricter regulation and to protect social groups against market externalities, this should make sense. Broz (2013) looks at election outcomes at the national level before and after different crises and is able to show evidence that governments tend to move to the left, especially when crises are severe. Also, the ideological self-identification of a population tends to shift to the left after a crisis. However, while the data shows support for the partisan financial cycle theory, it is explorative in nature and cannot determine a causal mechanism to explain how this relationship works.

Thus, ideology could play an important role for financial regulation, however, ideological left-right voting has been slowly weakening since the 1990s (van der Brug 2010). Political parties mobilized popular support on new issues such as environmentalism and anti-immigrant sentiment. Also, the predictive power of socioeconomic variables was found to decline in advanced

democracies, as well as in southern democracies (Franklin 1992). This erosion of economic ideological voting and the class basis of politics could weaken the effect that ideology has on financial regulation.

Furthermore, the role of ideology differs among countries (Gunther 2001, Lisi 2014). In advanced democracies young voters inherit partisan loyalties from their parents or from their environment, while in newly established democracies young voters lack this learning experience. This limited experience, combined with lower levels of political trust, causes the ideological divide to be weakly anchored in new democracies. ‘New democracies’ refers to southern democracies, but also to some post-Communist countries where a blurring of ideological divisions took place (Tavits 2009). Building partisanship takes time, possibly even a whole generation (Converse 1979), and this process is difficult if the relationship between parties and voters is problematic. Gunther (2001) shows that weakly anchored partisanship can lead to volatile and unpredictable election outcomes. Which could also mean that an issue like financial regulation is more randomly distributed among the left and right.

Also, there are different reasons why people identify with the left or the right. For example, culture or religion could influence left-right self-placement. Therefore, it is useful to look at other types of left-right divisions besides only the economical divide. Fukuyama (2018) observed the rise

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7 of identity politics in the last decade. He expected liberal democratic practices to spread, but instead saw how the financial crisis contributed to a slowdown of the open and liberal world order, as populist nationalism rose in durable liberal democracies. The left started to focus on promoting the interests of a wide variety of marginalized groups, while the right started to focus on protecting a national identity which is often connected to race, religion or ethnicity. This contrasts the 20th

century, where the left-right divide was based more on economic issues.

In the end, all these issues could diminish the effect of ideology on financial regulation. However, the effect will still be tested. And even if the hypothesis cannot be accepted, which would mean that support is evenly distributed among the left and the right, this would be in line with the partisan financial cycle theory. Because a traditionally leftist measure would be popular with right-wing voters as well, which may cause a shift to the left in election outcomes.

H2: Leftist ideology leads to support for financial regulation by the EU, especially in advanced democracies.

2.4 EEG, EU support and other effects

Because financial markets are highly globalized, policy-makers have to consider at what level financial regulation should be implemented. After the crisis the G20 and the EU tried to address financial regulatory issues, but results were disappointing (Helleiner 2014, Bieling 2014). Some incremental regulatory change was implemented in the Basel II & III Accords which focused on increasing capital requirements for financial institutions (Masera 2013). The US implemented the Dodd-Frank Act in 2010 which among other things increased the oversight and monitoring of financial markets. Thus, financial regulation was implemented at many levels, however, because international coordination lacked and national interests differed, radical change was absent.

Still, the global character of financial markets shows the importance of international

institutions to be involved. A crisis could increase support for regulatory cooperation at the EU level and therefore, there could be an effect of support for the EU on financial regulation by the EU. Overall, the impact of the Euro crisis lowered support for the EU (Braun 2014), however, EU support can take on different forms (Kuhn 2014). Support for economic governance focusses on member state cooperation, regulation and increased supranational oversight, but this differs from earlier EU integration which focused more on market liberalization. Individuals may score high on support for EEG, while scoring low on support for EU integration. Support for EEG is expected to be stronger in states that struggle economically and for individuals who depend on welfare.

Financial regulation at the EU level however is complicated, in part because the EU has some legitimacy issues (Schmidt 2015). An important challenge for the EU is to achieve output and input legitimacy, meaning policy effectiveness which serves the common good and is constrained by

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8 norms of the community, implemented by actors who govern with democratic legitimacy. To achieve this, a shift from a more administrative state to a regulatory state with more independent bodies is necessary. However, this could become a threat to national sovereignty and democracy. Financial regulation clearly shows this dilemma since finance is global, while democracy remains local. The role that the EU should play is still being disputed, while in the meantime nationalism is rising and polarization increasing.

Therefore, people who want the EU to increase economic governance may also support specific financial regulation by the EU, while people who oppose it may not. Others may not care at which level financial regulation is implemented, which could undermine the effect. As Risse (2015) showed, national and European identities can coexist, thus some may view these as separate issues. In countries that were severely hit, the effect could be stronger. They may possibly have lost faith in their national governments, and thus look to the EU instead. However, this effect has to be

compared to other types of EU support as well.

H3: Support for EEG enhances support for financial regulation by the EU, especially in severely affected countries.

Another important effect to control for is age, which is however not a conclusive effect. Some studies show that older people have stronger partisan identities because they are less flexible to change than younger people who have faster learning processes (Lisi 2014). In the US and the UK, data shows that older people tend to vote more conservative, while younger people vote more liberal (website Pew Research Center). Assuming that financial regulations are leftist measures, this would mean that younger people want more financial regulation compared to older people. Also, older people could be better informed due to having more experience. This is in line with scholars who argue that political knowledge can accumulate with age (Lau 2008). Financial regulation is a complex topic that not all the young people can be expected to be passionate about. However, it is not clear whether this leads to more or less support for financial regulation. Besides this, there could also be a generational effect, because people who are born around the same time and grew up in similar circumstances, tend to have similar political attitudes. This creates different voting outcomes among age groups (van der Brug 2010). Also, these age effects could differ in new democracies compared to advanced democracies, as advanced democracies have more significant age group differences and partisan identities tend to be stronger (Lisi 2014). Therefore, age is an important effect to control for, but the theory is not conclusive whether it would enhance or weaken support for financial regulation.

Another effect to control for is education. Many scholars point at the complexity of financial regulation and it is argued that this creates an information asymmetry (Pagliari 2016). People that

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9 are more highly educated therefore are more likely to be well informed about the topic and this could have an effect. Some scholars expect that education pushes people ideologically to the right, mostly out of self-interest (Meyer 2017). However, receiving more years of education still does not mean that a topic as specific as financial regulation is likely to be fully understood. As Erturk (2007) argued, financial literacy tends to be very low. People often lack knowledge on basic concepts such as the interest rate. Also, people tend to focus on the rewards of financial activities instead of focusing on the risk. However, Erturk (2007) used data from before the financial crisis, and therefore it is possible that general knowledge on the topic has risen. But the effect of education and

economic knowledge on support for financial regulation specifically is not conclusive.

3. Research design

In order to answer the research question and test the hypotheses, an empirical analysis of data from the Eurobarometer survey 74.2 will be presented (European Commission 2010). This survey was conducted in November and December of 2010, not too long after the beginning of the European debt crisis and therefore the crisis and its immediate effects on people should be measurable. The research design is a multilevel regression analysis, which means that the units of analysis in this thesis are individuals and the 27 member states that were part of the EU in 2010. A quantitative method is useful because it allows for testing the theories that were mentioned. It allows for finding certain patterns at the individual level, as well as on the country level. A disadvantage of the large n approach is that specific causal mechanisms will be harder to determine. We can accept or rule out explanations by looking at context and using theory. However, more in dept research could add more clarity, and therefore, the results of this thesis could encourage more research that uses different designs or more extensive surveys to be done.

The multilevel analysis is justified since it is expected that testing the hypotheses will give different results in different countries. Different cultural and political circumstances and different historical backgrounds are likely to influence outcomes across countries. Therefore, individuals in the survey are not independent from each other but they tend to be nested in countries. We can apply a multilevel analysis, since the survey is made up out of different samples which come from different countries. All of these samples have enough respondents to create representative results. The multilevel approach allows for proper error estimation and avoids making unfunded

assumptions about country-level explanations while only using individual-level data. It also avoids sub-level regression analysis, which would disaggregate the data.

In order to look at effects for specific groups of countries, two dummy variables are created. For the first hypothesis, a dummy variable for advanced democracies is made, which includes

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10 France, Germany, the UK, Sweden, the Netherlands, Belgium and Denmark. Besides France and Germany, these countries have been democracies for over a hundred years. France and Germany started their democracies soon after World War II just as Italy, but both are labelled as ‘full democracies’ in the Democracy Index of the Economist Intelligence Unit, while Italy is labelled as a ‘flawed democracy’ (website EIU). For the second hypothesis, a dummy variable for southern

democracies is made, which includes Portugal, Italy, Ireland, Greece and Spain. These countries were hit relatively hard by the crisis and except for Ireland, their democracies were relatively new. To understand the measured effects, this thesis will compare mostly between the advanced and southern democracies. But in order to avoid generalization and group-thinking, individual countries will be looked at as well if relevant.

3.1 Dependent variable

The dependent variable of this thesis is financial regulation, and in order to operationalize this concept we use five items from the survey. Individuals can select one option to react to the

following measures to be taken by the EU: (1) the introduction of a tax on profits made by banks (2) the introduction of a tax of financial transactions (3) the regulation of wages in the financial sector (i.e. traders bonusses) (4) a closer supervision of so-called ‘hedge funds’ (5) increasing transparency of financial markets. Respondents got five options: strongly in favor/fairly in favor/fairly

opposed/strongly opposed/don’t know. These five items measure financial regulation appropriately, although the concept is not necessarily complete since a wider range of regulatory proposals are being debated by scholars, as was discussed in the theoretical framework. Other types of financial regulation however were not included in the survey.

As these questions were posed in a similar way, they are likely to reflect people’s preference for more or less financial regulation at the EU level. Therefore, a reliability test was done for these questions and the Cronbach’s Alpha was measured at 0,76 and the Kaiser – Meyer – Olkin was measured at 0,8, which is a reliable scale. This allows for grouping the questions together, which was done by taking the common factor, and a single dependent variable called ‘financial regulation’ was created. This allows for interpreting results more efficiently. The scale of the dependent variable runs from 1 to 4, it has a mean of 1,7 and a standard deviation of 0,58.

But before looking at the regression effects, hypothesis one will be tested by looking at financial regulation in two ways. Firstly, the issue salience of financial regulation will be determined by comparing it to other issues. Respondents were asked ‘Which three initiatives could most improve the performance of the European economy?´, and they got 12 options of which ‘financial regulation’ was one. Secondly, looking at the distribution of the five items that are used to make the dependent variable – the conceptualization of financial regulation – will further determine the issue

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11 salience. Unfortunately, before the crisis financial regulation as an issue was usually not measured in surveys. Therefore, there is a lack of longitudinal data to compare these outcomes with. However, looking at these distributions still gives an indication of how strong support for financial regulation is.

3.2 Independent variables

For the independent variables regarding the second hypothesis, we will look at how people place themselves on the political left-right spectrum. They have ten options scaling from left to center to right, or they can choose ‘don’t know’. This variable is recoded into three categories:

left/center/right. This scale might have some issues with the difference between economic versus the cultural left-right divide and this will be addressed by using control variables. However, left-right self-identification is still the best variable available to measure the relationship between ideology and financial regulation.

To test the third hypothesis, three EEG measures will be used. Originally, EEG is made up of five items: (1) a more important role for the EU in regulating financial services (2) a closer

supervision by the EU of the activities of large financial groups/most important international financial groups (3) a stronger coordination of economic policy among all EU member states (4) a closer supervision by the EU when public money is used to rescue banks and financial institutions (5) a stronger coordination of economic and financial policies among countries of the euro area.

Respondent could choose between very effective/fairly effective/not very effective/not effective at all/don’t know. However, to avoid the independent variable from looking too much like the

dependent variable, items 1 and 2 are disregarded. The Cronbach’s Alpha is measured for the remaining three items and this results in 0,80 and the Kaiser – Meyer – Olkin is measured at 0,70, which is a reliable scale. The three items were grouped by taking the common factor.

There could still be an autocorrelation issue with this variable, since it measures similar attitudes related to post-crisis financial issues. However, supporting economic governance and stronger coordination among EU member states, does not automatically mean that someone also supports the specific financial regulatory policies. Possibly people that do not support cooperation and economic governance, do support financial regulation and vice versa. To account for the issue of autocorrelation a Durbin-Watson test was done, which resulted in a value of 1,54. This is an

acceptable value and thus there is no worrisome level of correlation between the residuals of the independent and dependent variable.

As Kuhn (2014) showed, support for EEG is very different from support for EU integration. But unfortunately, the item that is commonly used to measure support for EU integration (i.e. membership of the EU is a good/bad thing) has too many missing values. And grouping four

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12 independent items that measure support for EU integration was not possible due to a low reliability scale. Therefore, instead, the second variable that will be used asks whether people have a positive or negative image of the EU. Answers range from very positive/fairly positive/neutral/fairly

negative/very negative/don’t know. Although it is not specifically support for EU integration, this item measures a more sentimental type of EU support. Also, a dummy variable was created out of the question: ‘which of the following is the best placed to regulate and reform the global financial market?’, where 1 stands for the EU and 0 for the other options.

Between the different independent variables a multicollinearity test was done. However, VIF results of around 1 indicate that there is no multicollinearity between the different independent and control variables.

3.3 Control variables

In order to differentiate between the economic and cultural left-right divide, four indicators are used. The first two measure whether people feel that the EU means a loss of cultural identity or whether it means cultural diversity. To answer respondents can either mention or not mention this option, compared to 12 other options. These items represent the cultural left-right divide. The economic left-right divide is made by selecting equality or individual freedom as important personal values compared to 10 other options. These variables function as controls, but are however not conclusive left-right measures since people were not directly asked to respond to these questions, but instead, they could choose them compared to other options. This significantly influences the outcomes, which means that at best they can only give an indication of the economic versus the cultural left-right divide.

Other variables that can add explanatory power to the model are age and education. Age will be measured with a recoded variable which divides people in six age groups: 15 – 24 years/25 – 34 years/35 – 44 years/45 – 54 years/55 – 64 years/65 years and older. This allows for measuring a possible generational effect. Education will be measured by looking at the age people stopped full-time education, using a recoded variable that offers 9 options ranging from 14 years to 22 years and older. Secondly, we will look at whether people heard about the Central European Bank, which can be answered with yes/no. While the first variable allows for observing effects of education in general, the latter allows for measuring basic economic knowledge, although perhaps not very accurate. However, more specific items are not included in the survey.

Another control is added to the model of support for EEG, which is how people rate the performance of their national governments in combatting the crisis. Answers ranged from very effective/fairly effective/not very effective/not effective at all/don’t know. Then the distributions of items will also be looked at in order to possibly explain why effects differ across countries. We will

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13 look at the distribution of ‘performance of national governments after the crisis’, the distribution of ‘left-right self-identification’, and ‘who is the best placed actor to implement financial regulation’. Optional answers for the latter are: the national government/the EU/the US/the IMF/G20/don’t know.

4. Results

4.1 Issue salience

After the financial crisis, financial regulation became a salient issue among scholars. The policy discourse underwent a paradigm shift, there was talk of radical change and radical intellectual ideas about macroprudential policies spread rapidly (Baker 2013). The media covered the crisis frequently and therefore the public became better informed about what had happened in financial markets as well. Therefore, support for measures that are supposed to fix the errors in the system and prevent future crises, was likely to have risen. Figure 1 shows the issue salience of financial regulation compared to other issues, when respondents were asked what should be improved in European economies.

Figure 1

As figure 1 shows, financial regulation is somewhere in the middle, slightly above the average. As mentioned, there is a lack of longitudinal data to compare this outcome with. However, it is safe to assume that after the financial crisis issue salience has increased, just as it did among scholars and in the media. Just the fact that it is often mentioned in Eurobarometer surveys after the crisis, while before it was not, shows that it has become more salient. Despite this, financial regulation is still seen as less important than issues like education, research and innovation, easing rules for company

0% 10% 20% 30% 40% 50% N = 26.918

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14 creation and reducing public deficits. However, the latter can be seen as another leftist measure which belongs to the partisan financial cycle (Broz 2013). Decreasing public deficits – such as the current account deficit, decreasing credit expansion and public debt – and regulating financial markets are simultaneous reactions to a crisis. Therefore, both measures taken together, there is strong support for changing the cycle.

However, figure 1 also shows how an issue like financial regulation may not be the deciding factor when people cast their vote. When people choose a political party, other issues might be more salient and therefore more of a deciding factor. The data in this thesis does not allow for a precise determination of how the issue salience of financial regulation influences a vote, and neither how political parties used this issue to gain votes. While these causal mechanisms cannot be

determined, we can observe that financial regulation may lose in issue salience to other issues. Perhaps the complexity of financial regulation contributes somewhat to this outcome, as scholars have shown that there are gains to be made in financial literacy (Erturk 2007).

Figure 2

However, if we take a closer look at the specific indicators of financial regulation, we see a slightly different picture. Figure 2 shows that when people are confronted directly with measures to regulate financial markets, they tend to be widely supported. Except for ‘tax on transactions’, opposition is relatively weak at just above or just below 10%, while those in favor tend to be strongly in favor instead of fairly in favor. Therefore, based on these outcomes, support for financial

regulation by the EU seems stronger than figure 1 suggests, especially since there are very few

0% 10% 20% 30% 40% 50% 60% Tax on bank profits Tax on transactions Regulation of wages Hedge fund supervision Increasing transparency N = 26.918

Support for financial regulation

Strongly in favor Fairly in favor Fairly opposed Strongly opposed Don't know

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15 people who strongly oppose these policies. This would be in line with Minsky (1982) who suggested that after a crisis people demand restrictive measures and their behavior becomes more cautionary. Furthermore, is it interesting to note that for ‘hedge fund supervision’, respondents who chose ‘don’t know’ are 20%, which is more or less double compared to the other indicators. This again shows the complexity of financial regulation, because the lack of financial literacy becomes more apparent as topics become slightly more specialistic.

This means that hypothesis one can be accepted. Despite the lack of pre-crisis data, high levels of support are shown, especially in figure 2, while pre-crisis these indicators were often overlooked in surveys. Although as an issue financial regulation can still lose out to other issues, very few actually oppose these measures. This means that politicians who pursue these policies can count on popular support. However, since financial regulation by the EU was not deemed successful, the opposition was likely to be located with financial lobbyists (Pagliari 2016) and politicians who defended national interests (Bieling 2014). However, some measures, such as increasing transparency, have been improved by increasing oversight of financial markets by the EU.

4.2 Ideology

Support for financial regulation can come simply from agreeing with the measures, and as shown, the crisis was likely to enhance this support. People may have placed some blame for the crisis on financial markets and supporting these measures expresses that. However, some might not support these issues since they go against their ideology. Ideology provides an information short-cut for people who are often not well informed about concrete positions of political parties on substantive issues. For example, conservatives on the right tend to be against regulations and government intervention and expect the free market to solve problems efficiently. Thus, ideology can be

expected to influence support for financial regulation, at the national level as well as at the EU level. However, the type of ideological divides that people are used to at the national political level, may vary (Gunther 2001, Lisi 2014). Therefore, it is useful to test for this effect across countries.

As figure 2 shows, support for financial regulation is generally high, however, the crisis had a different impact on different EU countries which could affect this support. Therefore, in table 1 model 1 we look at the ‘null model’ of financial regulation and determine if support is nested within countries. Indeed, significant evidence of clustering is found, as the intercept varies significantly across countries and variance is significantly greater than zero at both level 1 and 2, meaning that individuals are clustered in countries. However, the interclass correlation (ICC) is relatively weak at 5,8%, and therefore, support for financial regulation differs significantly across countries, but variance is not exceptionally high.

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16 Table 1:

DepVar: FinReg Model 1 Model 2 Model 3 Model 4 Model 5

Ideology 0,044*** (0,011) 0,029** (0,025) 0,030** (0,010) 0,028* (0,011) Ideology * Ad.Democracies 0,009*** (0,043) 0,008*** (0,002) 0,010*** (0,003) Age -0,030*** (0,005) Age * Ad.Democracies -0,003* (0,001) Education 0,002 (0,002) Know European Central Bank 0,146*** (0,017) Cultural diversity -0,041** (0,012) -0,044*** (0,011) Individual freedom 0,027 (0,019) 0,022 (0,018) Equality 0,030** (0,011) 0,008 (0,011) Loss of culture -0,007 (0,014) 0,001 (0,013) Intercept 1,724*** (0,027) 1,635*** (0,030) 1,653*** (0,031) 1,639*** (0,030) 1,590*** (0,037) Variance L1 0,319*** (0,003) 0,306*** (0,003) 0,306*** (0,003) 0,303*** (0,003) 0,292*** (0,008) Variance L2 0,019*** (0,005) 0,020** (0,007) 0,019** (0,006) 0,020** (0,006) 0,019* (0,008) Var. L2 slope ideology 0,003** (0,001) ICC 5,8% 6,9% 6,1% 6,3% 6,1% -2*loglikelihood 43952,068 35148,400 35135,342 35041,190 31173,507

Multilevel random intercept, random slope model with maximum likelihood estimates * p < 0,05, ** p < 0,01, *** p < 0,001, two-tailed test N L1 / L2 = 26918 / 27. Estimates: Coef. (SE)

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17 Next, in model 2, ideology is added and a significant effect is measured, which means that people who self-identify on the left are more likely to support financial regulation. Overall, this is a relatively weak effect, but as the L2 variance shows, slopes differ significantly depending on the country. Level 2 variance is significant which justifies the use of using a multilevel model. In order to explain why the slopes vary, in model 3 the advanced democracies dummy is added as an interaction effect. The interaction is significant, which means that the relationship between ideology and financial

regulation varies depending on whether a country is classified as ‘advanced democracy’ or not. This effect brings down the ICC slightly, but also weakens the general effect of ideology in model 3. This means that ideology has a weak but significant effect on financial regulation, but the effect becomes stronger in advanced democracies (appendix a).

Then in model 4 the controls for the cultural and economic left are added, but the results do not allow for distinguishing between them. People who associate the EU with cultural diversity – interpreted as the cultural left – support financial regulation significantly more, but associating the EU with loss of culture, does not have a significant effect. Equality – interpreted as the economic left – leads to slightly less support which is counterintuitive, but the effect disappears in model 5. Individual freedom has no significant effect. Therefore, it cannot be said that the economic left supports regulation more than the cultural left. This could be partly due to the year in which the data was measured. In 2010, the role of identity politics as described by Fukuyama (2018) was perhaps not yet as impactful as it became later on. However, the effect of general ideology remains robust in model 4.

Finally, in model 5 more controls are added, which show a generational effect and an effect for basic economic knowledge. These controls add explanatory power to the model, as the

-2*loglikelihood is lower, which means that the model is a better fit. Firstly, older people show more support, an effect which is slightly stronger in advanced democracies. And secondly, people who know the European Central Bank show more support as well. The latter indicator is perhaps a very incomplete measure of ‘basic economic knowledge’, but it does show that people who lack this knowledge and who are thus also less likely to be well informed on the topic of financial regulation, are less likely to support these measures. This means that there are gains to be made by increasing financial literacy. Lastly, education was not significant. The ideological effect is weakened slightly, but remains significant. Explaining the effects of these controls will be done in the next part.

These results can be considered to be in line with Gunther (2001) who argues that in newly established democracies, the effect of ideology is weaker. New democracies missed out on the experience that advanced democracies gained in the decades before the 1990s, when ideological voting was a more stable predictor of election outcomes than it is now (van der Brug 2010). In these

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18 decades, new democracies still had to adjust to a democratic regime and these generational changes tend to occur slowly. This could also explain why the generational effect is slightly stronger in

advanced democracies. Older people in most advanced democracies were born in already stable democratic regimes (Lisi 2014).

This theory also holds if we look at countries individually, which is important since each country has its own political history. Out of the new democracies, the only countries where ideology is a significant predictor, are Spain, Romania and Hungary (appendix a). In the case of Spain, this result can possibly be explained, because the Spanish revolution had been fought over social-cleavage issues. This means that social-social-cleavages were deeply embedded within their society which eventually led to relatively stable election outcomes once democracy was established. Gunther (2001) shows that southern countries such as Greece, Portugal and Italy scored the highest on volatility of election outcomes. Spain was initially part of this group as well, however, it showed how partisanship can grow over time as levels of volatility decreased and became remarkably stable. In other cases, there was an increase in volatility, like in Greece and Portugal, or even a collapse of the party system after decades of relative stability, like in Italy in the 1990s. This means that voters frequently switched their vote, and that the role of ideology was less consistent. However, different social characteristics and structures failed to clearly explain the weak anchoring of partisanship. Agency of autonomous actors such as party elites and institutions plays a more important role. Within changing social contexts, they give out stimuli that voters react to, and this partly determines how ideology within democracies develops.

To give some examples of such developments: in Portugal, politics was dominated by the left after the Portuguese revolution in 1974, which hindered a fair development of conservative parties, and this eventually led to parties blurring the line between left and right. In Greece, political conflict cut right through some social-cleavages, undermining the more traditional left-right divide. Also, elites chose to blur the traditional left-right lines, perhaps focusing on a catch-all type strategy. Italy’s democracy started in 1946, but the old partisan political order changed profoundly in the 1990s and political cleavages such as religion started to weaken, creating a new political order. To this day Italy has to deal with a high degree of fragmentation and instability and often had short-lived coalition governments. When we look at post-Communist Europe, we also see a blurring of the left-right divide, as left-wing parties often implemented right-wing policies and vice versa (Tavits 2009). This was done because there was an incentive for leftist parties to show their disassociation from socialism and their ability to operate in a market economy, while on the other hand the right was much more fragmented. On top of that, anti-party feelings, abstention of voting and declining party membership are often growing issues in these countries. Thus, historical factors and the

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19 agency of political elites can undermine the traditional ideological divide, which undermines the importance that ideology has in these societies. This weak ideological anchoring is likely to have an effect on ideology and support for financial regulation as well. In such cases, support for financial regulation could be high, but it is much more evenly distributed among the left and right.

On the other hand, in advanced democracies more significant and stronger effects are measurable, however, the effects remain weak overall. This is perhaps not surprising since the effects of ideology are said to be declining compared to earlier decades (van der Brug 2010) and the left-right divide has become less about economical issues (Fukuyama 2018). Looking at countries individually shows that there is a significant and relatively strong effect for countries with a long democratic history who also tend to score higher on the democracy index of the EIU (website). Although notably, France and Germany do not show a significant effect. In the Netherlands the effect is strongest (appendix a). This could possibly be explained due to the high levels of party identification and low barriers to entry for new political parties. The latter leads to incremental and regular change of political party options over time (Gunther 2001). Party conflicts on salient issues are often clearly structured by ideology. This creates a dynamic left-right divide which is identifiable for voters. In Sweden the effect is strong as well. Swedish voters are said to be highly ideologically motivated and thus ideology is a strong determinant of political change (Oscarsson 2016). Thus, despite new issues emerging, the traditional left-right divide keeps structuring party competition and voting behavior in these countries.

Still, for most European countries support for financial regulation is evenly distributed between the left and the right, and therefore, both political sides could have potentially pursued these policies or cooperated with the opposition, since enough popular support was present. But, if political parties view financial regulation as strictly a leftist measure, cooperation and sufficient political support for reform remains difficult. This would imply that right-wing support of financial regulation is being ignored by political parties. Figure 3 is made by Finance Watch – a European NGO involved with financial regulation (website) – and it shows that in Europe indeed only left-wing political parties promote these types of financial regulatory changes. Although these scores were made up in 2020, ten years after the data presented here, this division exists for a much longer time (Broz 2013). Leftist parties seem to own this issue and only they tend to use it to promote their electoral campaigns. However, usually it is not their main issue, as for example the Greens are more famous for their stance on climate change and equality rather than financial regulation.

Agency of political elites could play a role here as well. Political parties tend to promote certain issues, while downplaying others (Klüver 2015). They can choose to ride the wave of a salient issue, or they can focus on issues where they traditionally have more ownership. As was shown in

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20 Figure 3: Political parties in Europe that pursue financial stability

Source: Finance Watch

figure 1, financial regulation can lose out to other more salient issues and thus parties can choose to not ride its wave. If the issue is not promoted heavily, voters would not know how to vote in order to obtain financial regulation. This could also contribute to the explanation of why the effect tends to be weak.

Figure 4 shows how the left-right cleavage is divided between advanced and southern democracies. In advanced democracies people tend to be more on the left, however, this should not affect the relationship between ideology and financial regulation. Broz (2013) showed that a shift to the left in self-identification was observable after the crisis, especially in countries that were severely

Figure 4 0% 5% 10% 15% 20% 25% 30% 35% 40%

Left Center Right Don't know/refusal

Left-right self-placement

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21 hit, therefore this longitudinal approach does not need to be replicated here. What we also see in figure 4 is that people who chose ‘don’t know’ or refuse to answer are more than double in southern democracies compared to advanced democracies, suggesting that political disinterest is much higher here. This further supports scholars who state that weak ideological anchoring is more common in countries with more political disinterest. Possibly it is harder for people in southern democracies to identify themselves ideologically, because the left-right divide is blurred in their political systems. These national contexts matter, and thus when people are asked about specific regulation at the EU level, ideology plays a less determining role.

Overall, hypothesis two can only be partly accepted. There is evidence to support the

hypothesis, however it is weak and only significant in a minority of the 27 countries that were looked at. It seems that a strong anchoring of ideological voting and clear left-right divisions in party politics are important for this relationship to be significant. It is interesting to speculate what this means for countries with no significant ideological effect, because support for financial regulation could be lost in the institutional barriers of the democratic systems, especially if the issue is unpopular with politicians, but popular with populations. It means that the supply and demand for financial

regulation is somewhat skewed, if the right and center support financial regulation just like the left, but only the left tends to offer it, and possibly even choses to focus on other salient issues instead. However, high levels of support for financial regulation show that a leftist measure can be popular with the right as well, which can be interpreted as evidence for the partisan financial cycle theory. In the end however, under the right circumstances, ideology can be a significant driver of financial regulation by the EU.

4.3 EEG and controls

One of the issues mentioned in the previous part was how the experience of ideology can depend on national circumstances. However, financial markets go beyond national borders while ideology is usually expressed more strongly in national elections compared to European elections. In 2009, voter turnout for the EU Parliament was at 43% (website Statista) and therefore, it is important to look at the role of EEG support as well. The EU is often seen as an institution lacking democratic legitimacy, and when it proposed to increase economic governance, some scholars worried that decisions would be made without going through public deliberation or parliamentary discussion (Degryse 2012). However, if people support EEG, and this in turn enhances support for specific regulation by the EU, economic governance policies would at least be backed by some form of popular support.

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22 EEG can be seen as a reaction to the crisis, trying to fix many of the issues that exist in Europe, and especially in the Eurozone. A single monetary policy, fixed exchange rates and the lack of an enhanced political union turned out to be problematic in times of crisis (Degryse 2012, Lane 2012). Before the crisis, European countries had easy credit conditions and high-risk lending and borrowing. The political context was one of deregulation and limited economic governance. Then, when the crisis spread to the whole of Europe, rescue plans and bank recapitalizations turned it into a public debt crisis, especially in the already highly indebted countries. Therefore, to reinforce stability after the crisis, more political union and cooperation in economic governance was seen as necessary. But what is the effect of support for general economic governance on specific regulation for financial markets?

Since the null model was already discussed, model 1 in table 2 shows the effect of EEG on financial regulation, which is significant. Just as with ideology, the intercepts and slopes vary significantly across countries which justifies the multilevel approach. But unlike ideology, the effect of EEG is quite stronger and the ICC of 14,9% is quite bigger as well. This means that there is more variation across countries to be explained. In model 2 a dummy for southern democracies is added as an explanatory predictor, which decreases the ICC. Firstly, the model shows that the dummy in itself is a significant predictor, meaning that these populations score slightly higher on support for financial regulation, probably since the effects of the crisis were more severe. Secondly, the interaction effect of the dummy with EEG is significant as well although it becomes weaker in the models that follow. This means that the relationship between EEG and financial regulation varies depending on whether a country is classified as southern democracy or not. Thus, the effect of EEG on financial regulation tends to be slightly stronger in southern democracies, and their intercepts slightly closer to 1 (appendix b).

Model 3 shows that having a negative image of the EU leads to more support for financial regulation by the EU. Although this is a weak effect and it loses significance in model 4, it is also counterintuitive. It possibly captures the effect of people who are discontented with the EU, but who still support financial reform, even if it is done by the EU. The effect of EEG however remains robust. Also, model 3 shows that a negative rating of the performance of the national government after the crisis leads to more support for financial regulation by the EU. This effect could be explained in two ways: firstly, people that rate the performance negatively tend to be in countries that were severely hit. Secondly, disappointment in their national governments may cause them to look at the EU for help.

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23 Table 2:

DepVar: FinReg Model 1 Model 2 Model 3 Model 4

EEG 0,321*** (0,020) 0,301*** (0,020) 0,305*** (0,019) 0,303*** (0,019) Southern democracies -0,029** (0,008) -0,026* (0,010) -0,022* (0,010) EEG * southern democracies 0,011* (0,004) 0,010* (0,004) 0,008+ (0,004) EU image -0,021* (0,008) -0,011 (0,015)

Perf. nat. gov. -0,030***

(0,008) -0,026** (0,009) Age -0,034*** (0,004) Education -0,002 (0,002) Know European Central Bank 0,105*** (0,012) Best placed actor 0,037* (0,014) Ideology 0,044*** (0,011) Intercept 1,124*** (0,040) 1,178*** (0,037) 1,313*** (0,044) 1,178*** (0,049) Variance L1 0,275*** (0,003) 0,275*** (0,003) 0,269*** (0,003) 0,252*** (0,003) Variance L2 0,039*** (0,011) 0,026*** (0,008) 0,035** (0,011) 0,027* (0,012) Var. L2 slope EEG 0,009*** (0,003) ICC 14,9% 10,7% 11,5% 5,2% -2*loglikelihood 38789,514 38774,725 36714,821 26875,269

Multilevel random intercept, random slope model with maximum likelihood estimates +_{p < 0,1, * p < 0,05, ** p < 0,01, *** p < 0,001, two-tailed test} N L1 / L2 = 26918 / 27. Estimates: Coef. (SE)

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24 but the model also becomes a better fit. Age, ideology and knowing the European Central Bank are still significant, just as education is not. What is new is this model is a dummy variable of what people consider to be the best placed actor to implement regulation. Surprisingly, people who elect the EU as the best placed actor show slightly less support for financial regulation by the EU. Although it is a weak effect, it is also counterintuitive. That means that just as with the EU image effect, we cannot assume that all types of EU support lead to support for financial regulation by the EU. Support for EEG does, however this could be a measure that people consider necessary due to the effects of the crisis.

These results show that the severity of a crisis does impact people’s opinion and causes them to support change, more so than countries with less financial problems, which provides more evidence for the partisan financial cycle theory. Also, there are differences in the effect of EEG across countries, as in southern democracies such as Italy, Portugal and Spain the effect is slightly stronger and the intercepts are slightly lower (appendix b). A possible explanation for this could be that because these countries were severely hit, EEG support becomes an all-or-nothing issue,

meaning either you support EEG and specific regulations by the EU as well, or you support neither. In other countries this effect is significant as well, but just weaker. Therefore, people tend to weigh both indicators slightly more separate from each other, perhaps because of lower levels of urgency.

Explaining the slightly stronger effect of southern democracies is complex, but some indicators may give an idea. Figure 5 shows that that people in advanced democracies rate their government’s reaction to the crisis much better than the people in southern democracies. In the latter, more than 70% of people think that the government was ineffective, while in advanced democracies this is only 40%. When we look at levels of trust in national governments, we see that southern democracies have higher scores on this indicator as well (appendix c). Perhaps people in these countries do not trust their governments to implement financial regulation and thus hope that instead the EU will take care of these issues. Negative ratings were indeed shown to enhance support for financial regulation by the EU. Therefore, the all-or-nothing effect could be stronger, since there are still people who completely oppose the EU as well. However, this is a causal mechanism that is not proven by the data as shown here. Nevertheless, this theory is further supported when looking at figure 6. People who see the EU as the best placed actor to implement financial regulation are almost double in southern democracies compared to advanced democracies. Although measured for all countries together, this did not have an effect on financial regulation. But perhaps severely hit countries put more hope in the EU to fix some of issues they have. In advanced democracies, people tend to look away from the EU and expect more from the G20 and the IMF, which are more globally oriented institutions.

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25 Figure 5

Figure 6

Due to high proportions of missing values, the effect of support for EU integration was not included. However, EU image was included but surprisingly it had a weak but significant effect in the opposite direction, although the effect disappeared in model 4. As mentioned, this could capture a type of discontent, where people do not view the EU as positive but still support specific reforms by the EU. It also shows that looking at the EU negatively does not mean that people do not want it to act and implement regulation. Perhaps it shows some type of wishful thinking, meaning that people support reform, despite not necessarily feeling positive about the EU, and possibly not really expecting it to happen. If the EU implemented effective regulation, this could possibly improve their image of the EU. Or perhaps they also understand that even though they view the EU negatively, financial regulation needs to be implemented at a transnational level, due to the globalized character of the

Very effective Fairly effective Not very effective Not effective at all Don't know 0% 10% 20% 30% 40% 50%

Crisis performance of national government

Southern democracies (N = 5144) Advanced democracies (N = 8071)

National government

European Union

United States G20 IMF Don't know 0% 5% 10% 15% 20% 25% 30% 35%

Financial regulation: best placed actor

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26 financial markets. Also, it was shown that selecting the EU as the best placed actor to implement financial regulation, does not lead to the expected effect. Instead, it predicts slightly less support for financial regulation. Therefore, we cannot conclude that just any type of EU support predicts support for financial regulation, although more research could be done on this topic.

Overall, hypothesis three can be accepted. Clearly support for EEG leads to support for specific financial regulation by the EU as well. This relationship is significant for all countries, but slightly stronger in especially southern democracies, who were severely hit by the crisis. However, this effect was expected to be slightly stronger, which means that other EU member states, possibly eastern or western, offset this effect somewhat. In countries where the effect is stronger, there is possibly a clearer distinction between being for or against EEG and also, out of national economic despair people may expect more from the EU. However, accepting this hypothesis does not mean that any kind of EU support leads to supporting financial regulation. Having a positive image of the EU and selecting the EU as the best placed actor to implement financial regulation, do not lead to the same result. For example, people can score high on support for EEG and financial regulation, but still have a negative image of the EU. Perhaps these people support reform, but do not necessarily expect it to be implemented successfully. This distinction shows that support for EEG is different from other types of EU support, with is in line with the scholarly debate (Kuhn 2014). Perhaps people see EEG as necessary because of the crisis, but are despite that not yet convinced about other types of EU support.

Then what is left to discuss are the controls, for which the theory could not conclusively predict what the effect on financial regulation would be. When looking at the controls, one interesting effect which was shown to be significant, is age. The age effect could be explained in three possible ways. Firstly, there could be a generational effect, meaning that people from the same generation have similar political views. Secondly, the accumulation of political knowledge throughout the years could lead to being better informed about financial regulation (Lau 2008). And thirdly, in some countries like the US a shift towards becoming more conservative is observable once people grow older, which would mean they want less government intervention and thus less

financial regulation (website Pew Research Center). The results show that older people have more support for financial regulation, especially in advanced democracies. As Lisi (2014) warned, age effects differ in new – versus advanced democracies, and this holds up in these results as well. Advanced democracies tend to have more significant age group differences, while due to political and historical reasons, this effect is weaker in new democracies. Therefore, the generational effect is the most likely explanation, because it is in line with the scholarly debate. The theory about

What Drives Support for Financial Regulation in European Populations