Reform the EU and overcome the “darkest hour”. A manual

The rebound in inflation gives doves wings and today the ECB is expected to raise interest rates again. But there is now a widespread awareness that the tightening cannot go too far and the conviction that monetary policy must go hand in hand with budgetary policy has gained ground. For this reason too, the dispute over the new Stability Pact has nothing to do with the famous eighteenth-century controversy over Italian music. The reform of the pillar on which the single currency and the European economy are based determines the future of the entire EU. There were the pioneers, the architects and the builders, now is the time for the reformers. Now is the time for the reformers.

The first three protagonists marked the European Union from its inception up to the two major crises that upset it, but did not overwhelm it: the financial crash of 2008-2010 and the pandemic. The others are those who roll up their sleeves to face an even more serious crisis: the war unleashed by Russia against Ukraine, a conflict that becomes existential because it calls into question the very pillars of being together in a Union that goes from economic to institutional , political, military, ideal. Among the reformers he must undoubtedly be placed Marco Buti, who met the architects and worked with the builders as a senior official in Brussels, director general for economic affairs and now right-hand man of the economy commissioner, Paolo Gentiloni. His book is now being published in Italian by Bocconi with the title “Was Jean Monnet right? Building Europe in times of crisis”.

Perfect choice of timing, given that an important reform was announced just a few days ago and has already become a terrain not only for theoretical debate, but for political confrontation between countries, between parties, even within them. Italy proves it, but it is no exception. Let’s talk about the new Stability and Growth Pact, the Maastricht pillars that prepared and accompanied the introduction of the euro, the most important step taken to seal with a single currency and a central bank what should become a full-fledged union. Those rules, he writes in the introduction Ignatius Visco, governor of the Bank of Italy, “have proved largely insufficient. On the one hand, they have not been able to prevent the emergence of real and perceived situations of imbalance in the public finances, with risks, even serious ones, for financial stability. On the other hand, they did not provide adequate room for maneuver so that budgetary policy could accompany monetary policy in an anti-cyclical key, as well as ensure the level of infrastructure (‘public goods’) necessary for balanced and sustainable growth, not compromised by tensions social issues and lack of political consensus”. We will see if the new rules will be able to correct these defects, but it is important that the reformers are at work. This is the link between current political events and the story of how we got to this point, as Buti does by mixing personal stories and reflections with the stages of the unitary journey. The basic inspiration seems to us to prepare for a restart after the economic crises, in order to be ready to overcome even the “darkest hour”, the one that struck on February 24, 2022.

If Europe will once again be “forged in crises”, as Jean Monnet argued, shouldn’t today’s “compatibility test” reverse the traditional sequence and complete it? Buti writes: “The EU did not fully satisfy this test when it managed the 2008 financial crisis, while it was successful when it had to deal with the pandemic. A new test began with the outbreak of war and the ensuing energy crisis.” The EU is facing three dilemmas. The first concerns macroeconomic balances, the second sustainability in its three aspects: fiscal, environmental, social. The third is the trade-off between efficiency and autonomy, the most worrying one: “long” international value chains lead to efficiency gains, allowing production factors to be allocated respecting comparative advantages; however, as the experience of vaccine production during the pandemic has already shown, these chains are subject to technical and strategic vulnerabilities. Shorter value chains could ensure greater security, but at the price of efficiency losses, with a negative impact also on the green transition, given the dependence on materials not available in Europe or in friendly countries. “Answers must satisfy Monnet’s Compatibility Test which spans economic coherence, institutional coherence and policy coherence. The first passes through prudent fiscal policies in the short term, associated with a reform of European fiscal rules that allow for placing high public debts on a gradual but credible downward trajectory and improving the quality of public finances. Institutional coherence requires that opportunities are made to the fullest Next Generation Eu and REPower Eu, also to pave the way for a debate on the centralized supply of European public goods in the field of energy and defence. Finally, political coherence requires examining the European and national domestic agenda in the light of geopolitical priorities”.

In the afterword Mario Monti he dwells on another important test: “The European strategy for competitiveness”, what some define as the answer to “stars and stripes protectionism” or rather to the new American challenge. The risk is that “each for himself” will prevail, but then there won’t be a “god for all”. And yet the starting point is no longer the economy, but “geopolitical priorities” or rather the values ​​that hold us together from Dnipro to the Atlantic, those that Putin tramples on, the same ones that today are been placed in the refrigerator. Do you remember the debate on the European Constitution? The same division between federation and confederation is obsolete: one can accept the pluralist theory according to which the Old Continent is and will remain an archipelago of countries and cultures and support the United States of Europe. The USA has paved the way and it must not be said that there is an ethnic, linguistic and religious homogeneity there; if it was only partially true for the pilgrim fathers, it hasn’t been the case since 1865 with the end of the civil war and the emancipation of slaves and the great migrations. For this we need to think big and without blinkers.