I am pleased to return to a still topical issue, that affects us now and in the future, on which I have focused ever since the mid nineteen seventies and resumed on the occasion of the recent 60th anniversary of the signing of the Treaty of Rome. I shall start to address this issue by raising two questions. 1) Has Europe been built on the foundations of shared values? 2) Is it still worth staying in the European Union, in political and, more importantly, in financial terms?
The answer to the first question is certainly no. When I first discussed this issue in Florence back in 1978, the lack of a recognised common identity and determination of the founding states to build a united Europe, possibly even a political union, and the difficulty in coordinating the national policies appeared to me to be warnings of the risk that the European Economic Community (EEC) would be reduced to a mere free trade area. At the time, I wondered if we were actually moving in the direction indicated by the founding fathers.
Today the question could be rephrased as, “To what extent is the European Union reflecting the original objectives?” I believe the answer is rather disheartening. Today’s Europe has little to do with the founding fathers’ dream: Spinelli, Adenauer, De Gasperi, Monnet. Citizens feel a profound unease when they examine the institutional architecture that proves that this is not the People’s Europe. This is the Europe of markets and intrusive and suffocating bureaucracy, it is so incapable of governing common crises and other issues that many citizens are rightfully tempted to leave.
The painful truth is that we have missed the great opportunity to create a political union of nations, founded on the awareness of their common origins and the will to stand together regardless of differences. Today we must acknowledge that the original project is almost unrecognisable.
We are still very far from a People’s Europe because there is obviously a huge gap between the EU’s institutions and its citizens, who have no say in matters that affect them such as managing the refugee and migrant flows and even the European Parliament still carries little weight in regard to the Participatory Democracy with universal suffrage model. Decisions are actually made by unaccountable offices, which work according to a bureaucratic and lobby rationale.
The European Union appears to be a tentacular, gigantic and expensive apparatus, with a strong propensity to severely and pervasively regulate limited aspects, mainly of a commercial nature, that is incapable of governing the financial crises and formulate common policies. Since the EU has continued to insist on budgetary rigour and austerity, many Member States, especially those in the South, are unable to recover from the crisis.
I believe the answer to the second question, “Is it worth staying in the European Union?” is likewise disheartening. From a political point of view, I am still convinced that belonging to a united and stable organisation that is aware of the role it could play at a global level, is per se an added value, especially for Italy. Localism or nationalism clearly contrast with a globalised world and risk being totally uninfluential.
The problem is that the current European Union is far from the above mentioned united and stable organisation, and even further from becoming the Federal Multi-State that I believe would be the most suitable form, since it would enhance rather than cancel the history and traditions of each Member State.
As for the economy and its social consequences, we must note that this is exactly where the European Project has most evidently and dramatically failed.
Persistent austerity has been an unforgivable mistake, since it has only produced recession and has not helped growth, or even to see the light at the end of the crisis tunnel.
The constant hardships imposed on citizens of the EUs weakest economies have sparked deep-rooted public outrage that several political forces have joined, even in Italy, more or less aware that the European Union and the entire EU Project was at stake.
I would like to mention that the austerity myth was invented by the German Minister of Finance and is uncorroborated, considering that the median public debt /GDP ratio in the 17 euro-zone countries at the end of 2007 was 66% and rose to over 85% in 2010. In 2007 Italy posted a budget deficit well below the absurd 1.5% limit set by the Maastricht treaty and its deficit/GDP ratio was at 103% whereas it is now over 132%.
Moreover, austerity policies have triggered a social tsunami, brought the middle class to its knees and moved wealth to the upper classes, resulting in a considerable increase of those living on the threshold of poverty. The Weimar Complex, or rather Germany’s terror of inflation, led to the belief that the only way to resolve all of the EU’s problems was to raise taxes. This was another enormous mistake, which Italy ineptly made too. Germany has behaved without scruples, breaking the various rules she wishes to impose on other Member States. German Banks, for example, followed a policy abroad that was exactly the opposite of the one they implement domestically. These banks lent money for sub-prime mortgages in the U.S.A., financed the Irish property bubble, granted liquidity to Icelandic bankers, whose speculations were so risky that the country’s economy collapsed, and did the same in Greece, Spain and Italy. Furthermore, the most important German Banks have billions of euros in derivatives on their books, which are a ticking time bomb that could disrupt financial stability in the entire European credit system.
Besides, the famous German export miracle was not achieved through a more efficient system since it was due to the wage and domestic demand repression policy implemented in 2000, which other countries did not follow. The balance of payments was indeed adjusted, mainly due to reduced incomes and the slump in domestic demand, especially in the periphery countries that reduced their deficit, whereas the core countries maintained their surplus.
The European Central Bank is another sore point of the EUs institutional structure, the primary objective of which is to control inflation. Although this bank has important powers (as proved by its decision to implement quantitative easing) they are actually limited and not comparable to those of the Bank of England, the Bank of Japan or the Federal Reserve. Therefore, the problem is further upstream, since it has a single currency, 19 different public debts and 19 different tax, welfare and employment systems.
Shall we discuss the single currency? First and foremost, the timing was obviously wrong. The euro was launched before a political Europe had been created. The euro is an anomaly since it is the only currency in the world to have been issued without a common monetary, financial and tax policy in the Eurozone. The euro is the child of a currency that was too strong for the overall weak economy.
The present EU is not based on common values, its economy, suffering from a long crisis, fails to take off and the rate of growth is not competitive with the Asian giants, the USA and other emerging economies. The EU must reconsider its institutional structure and the common economic policy that, consistent with the crises and potential of each Member State, must be strictly and transparently implemented. The crisis in Italy is obviously exacerbated by long-term structural inefficiencies, which may have been intensified by joining the Euro.
Italy adopted the euro in the worst possible way. Convinced it had to be amongst the first to join, in 1992 the Bank of Italy depreciated the lira by 30%, albeit to no effect. We subsequently negotiated a large loan, which likewise increased our national debt. Moreover, when negotiating the conversion rate, we failed to lay our true wealth on the table, namely our vast artistic, cultural and landscape heritage, and forgot to mention that for over 110 out of 150 years of Italy’s history, our government debt to GDP ratio averaged 60%.
Unjustified mistakes have also been made in the economic policy. Instead of reducing the tax burden on families and companies according to the Laffer curve, as I have preached for years, the government preferred to increase it yet failed to cut unproductive public spending. Conversely, new property taxes have been introduced (Tares, Tasi and Tari, which are actually a wealth tax), and a local tax for services, which in most cases are not even provided. VAT has been raised to 22%, the stamp duty on current accounts and securities has increased, which are other hidden wealth taxes, the excise duty on fuel has risen as likewise motorway tolls and so forth, all of which have reduced consumer spending and brought the middle and the poorer classes to their knees.
The flaunted promises to reduce the cost of politics and misspending and to abolish provincial governments have not, as yet, been fulfilled. Although the Constitutional Reform, drafted by the Renzi Cabinet and defeated in the Referendum held of the 4th of December 2016, was chaotic, unquestionably improvable and had not been adequately examined from a technical and legislative point of view, it addressed the need to streamline the decision making process, abolish perfect bicameralism, reduce the state apparatus and consequently slightly diminish the cost of politics.
The constitutional reform was actually badly written, failed to explain how it would be implemented in the former institutional structure and contained unjustifiable mistakes from a legal and financial point of view. So, we are back to square one and who knows when the necessary reform of this undeniably incomplete Constitution, will be readdressed.
Aside from the results of the referendum, we should have reduced the huge cost of Italian bureaucracy and moved towards deregulation, streamlining administrative procedures, increasing public and private investments in infrastructure, town planning modernisation and land protection, fostering the global market, competition and free enterprise. The State’s involvement should have been drastically reduced since it is a source of inefficiency, unaccountability and political patronage and the public sector should have started to perform according to managerial criteria. We should have reinforced the third sector, whereas Article 118 of the Constitution and the principle of subsidiarity provided for therein has become a dead letter – a book of unfulfilled dreams.
Today, Italy has a double digit unemployment rate that rose to 11.6% in September 2016 (source ISTAT), and although the alarming level of youth unemployment fell slightly, it was still over 37% in the same quarter and reached almost 40% at the beginning of 2017.
The government debt is still enormous and, according to the Bank of Italy, reached € 2.224 billion in October 2016, almost 132% of GDP, which grows at a modest rate (+0.8% in 2017 according to the FMI forecast). The banking system is collapsing due to the industrial and commercial overlapping crises in Italy. In this scenario, there appears to be little hope for a substantial political or economic change. The European Union could avoid disintegration of its ambitious project, the original purpose of which was reasonable and advisable, only by applying a joint remedy aware of the mistakes that have been made to date.
In my opinion the remedy should include a series of important measures. First and foremost, the structure of the European political model should be revised, moving towards a federal model. Second, it should adopt a more careful and balanced allocation of community funds to Member States, considering that as attested by the Corte dei Conti (Court of Auditors) the Italian coffers had a current account deficit of € 39 billion between 2008 and in 2014 alone Italy paid € 5.4 billion more than it received in funding, as it continued to pay, together with other Member States, the UK correction of budgetary imbalances (which in 2014 increased by 29% compared to 2013 and amounted to € 1.2 billion). The UK has acknowledged the rebates by voting leave.
Third, the EU should focus on social issues such as unemployment, the rise in poverty and social inequality as well as the public finance parameters. Then, common economic and budget policies must be adopted; the central bank should be vested with other powers besides controlling inflation; new laws should be introduced as likewise a merit based recruitment of new professionals and a new form of EU governance not driven by Germany. A new Treaty on the European Union must be negotiated to create a political union that will subsequently change the regulations on public debt and provide for common public debt.
Moreover, the adoption of efficient measures to reduce the burden of the EU’s bureaucratic apparatus, is highly advisable as a tangible indication that the EU budget will be cut, as likewise a gradual adoption of a common foreign and security policy, a common immigration and asylum policy and new strategies and stances to turn the mainly North-centric EU into a union that focuses on growth in the southern and Mediterranean member states. This region should be used as trade route between the Old Continent and the Far East.
This is obviously a complex and challenging recipe and I honestly doubt that even a fraction will be implemented, even by means of an ‘inevitable’ compromise.
Since there is no sign of change in the this direction, we instinctively support Britain’s decision to leave the EU, formalised on the 29th March with a letter that triggered article 50 of the Lisbon Treaty. Contrary to forecasts of the same old Solons, Brexit had no major impact on the economy, since many entrepreneurs are vying to delocalise to the City. Therefore, we should consider as many future scenarios as possible. The consequences and impact of Brexit on the markets have indeed been cushioned and many economists no longer believe that there will be a recession in the UK and now think the economy will benefit. Should this forecast prove correct in the next two years, the UK’s decision could rekindle similar dreams in other EU countries.
Resuming the issue of Italy’s stance on the EU, I close by commenting that in case of failure to reach consensus on the suggestions in the aforementioned platform, even with any necessary compromises, we shall draw the necessary conclusions. The first of which is that we should reintroduce our currency for domestic trade, which is perfectly feasible as demonstrated by the United Kingdom, Denmark, Sweden and countries in Eastern Europe such as Bulgaria, Romania, Poland and the Czech Republic. This should be done without leaving the Monetary Union, which in time would become increasingly burdensome and impracticable, and retaining the euro. In practice, Italy would move to the euro/lira dual circulation, that I postulated some time ago. Several political leaders now claim to share this view. Moreover, the proposed solution would protect Italy from the alleged inflation crisis, feared by many, improve the relationship between the members of our economic system, enable the economy to recover and improve the overall social conditions of our fellow citizens like those of the aforementioned countries.