05/09/2011: Euro area governance indicators: evolution or decline?

In recent years, the EU has embarked on a set of institutional reforms and unveiled a number of institutional platforms for reforming the core principles of governance, transparency and accountability. These reforms are rooted in 2000-2005 processes that accompanied direct evolution of the Euro area and the EU enlargement.

In this light, it would be instructive to take a closer look at the dynamics of EU governance evolution, focusing on the specifically more integrated group of countries – the Euro area. Using data from the World Bank Governance Indicators for 1996-2009 (latest available) we can draw some interesting conclusions on the topic.

Before we begin, however, note that WB data is lagged in some cases up to 2 years. In addition, many variables are "sticky" - in a sense that they do not change dramatically year on year as institutional reforms take time to feed through to actual delivery on metrics. Hence, the period from 1996 through 2002 is really covering a period of data closer to 1985 through 2001, on average. Thus, I separate the data into 2 periods: the period prior to the Euro area creation (1996-2002) and post Euro area creation (2003-2009). In addition, note the following two facts: that help support this division:

1. I tested the results for the period split 1996-2001 against 2002-2009, for split 1996-2000 vs 2001-2009 and for split 1996-2003 vs 2004-2009. All came back with very similar, qualitatively, results.
2. A number of Euro area states were in a mode of EU accession prior to 2004, thus splitting the sample at 2002-2003 makes some logical sense to capture better the average effects of governance reforms coincident with the euro period.

Now to the results: charts below plot changes across two periods for the countries members of the euro area, plus euro area as whole (simple average), the new accession states and the old (core) euro area member states. The plots capture all 6 core components of the World Bank Governance Indicators in terms of change in each indicator score (higher score implies better ranking in the league tables).

So to summarize - a table

What the above clearly shows is that Governance scores improvements across the euro area were driven primarily by improvements in the Accession States. In 4 out of 6 criteria, Core euro area member states have, on average, posted deterioration in the scores. Thus, overall euro area scores improved in 3 out of 6 criteria, remained unchanged in 2 criteria and deteriorated in 1 criteria.

Pretty poor performance for the group of states that set out as their core agenda to achieve transparency, good governance, government effectiveness, etc. And even worse for the idea that more integration yields better policy outcomes. Clearly, in the case of governance at least, it does not.