Evidently, policymaking in Europe is highly interconnected on the backdrop of
economic and monetary cooperation between EU member states.
Uncertainty surrounding economic policies in individual countries can therefore foster
contagion. Despite the large number of actors, though, transmissions are most
likely from larger EU countries to other member states.
Charting presents the BBD index for the largest EU economies separately. 10 For
Germany, France and the UK, there are significant overlaps in index trends
throughout the entire observation period.
For example, EPU was largely flat
across the board before the financial crisis and surged exponentially afterwards.
Following a short correction around 2014, EPU reached all-time highs in 2017
following the Brexit referendum. Compared to the more stable economies, EPU
in the crisis-hit southern countries of Italy and Spain showed similar trends
before the financial crisis.
In the run up to the sovereign crisis, there was a slight
uptick in EPU in southern countries. It has been very moderate though, which is
In Germany and France, it is difficult to determine whether the
surges in EPU in 2016-17 are entirely due to local policy uncertainty or partly
due to international news coverage in local newspapers about Brexit, a caveat
of BBD index measurement explored.