How Does Holding Foreign Denominated Debt Going Into A Financial Crisis Affect The Level Of Domestic Political Trust?
Lim, Ruo Shuang
In the aftermath of the recent financial crisis, many transition countries' politics have moved increasingly towards the extreme right. Elections held after 2008 have seen the rise of ultranationalist parties, such as Svoboda in Ukraine and Jobbik in Hungary, both of whom have been accused of being anti-Semitic and fascist. This thesis seeks to explain this trend through analyzing the mechanism by which financial crises affect an individual's level of political trust. Current literature largely explains the relationship between financial crises and political trust via poor economic growth and the accompanying economic suffering imposed on individuals. Arguing that economic suffering alone is insufficient to lead to a rejection of mainstream politics, this thesis goes a step further in refining the definition of economic suffering by adding disappointed individual expectations that lead to a subsequent loss of confidence in the entire political and economic system. Using post-crisis cross-national survey data from Eastern European transition countries, I examine how individual levels of political trust have changed in the course of the financial crisis. The concept of "individual expectations" is operationalized through the presence or absence of foreign currency loans, the former which reflects confidence in future macroeconomic conditions. I expect individuals, who are overly optimistic about the future before the financial crisis, to be the ones most likely to lose trust in political institutions in the course of the financial crisis. Bearing in mind the dangers of political disengagement and radicalization, governments might factor this finding into the design and allocation of aid packages in future financial crises.
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