In a recent working paper, co-authored with Stefanie Kleimeier and Sylvia Heuchemer, we provide new evidence on the “resurgence of cultural borders in international finance during the financial crisis”. We show that cultural differences across countries act as invisible borders that limit financial integration in European cross-border depositing. This limiting effect has become weaker during the first years after the Euro notes went into circulation, most likely indicating some “Europhoria”. However, the financial crisis, and in particular the Euro crisis, has led to a strong resurgence of the limiting role of cultural differences.

Our results suggest that integrating cultural variables into theoretical and empirical research can enhance our understanding of financial retrenchment during financial crises and the often-observed over-optimism during stable periods. With respect to political implications, the study suggests that policymakers should acknowledge that cultural barriers have the potential to limit the effectiveness of integration policies. Nevertheless, the paper also indicates that they have effective instruments at their disposal: building confidence in institutions to overcome cultural borders.