My translation of my today’s op-ed in the Sole 24 ore.
At the last Trento Economics Festival, the economist Lars Feld, a member of the German Council of Economic Experts, expressed his opinion on the Italian situation: “if Italy does not abandon part of its fiscal sovereignty, it will never get the solidarity it wants from Europe”.
It was a significant statement, which highlighted a typical stereotype about the Italian position regarding fiscal rules in the face of our ongoing and intense crisis that has been dragging on for years.
I found myself at the table of the debate arguing that there was certainly a misunderstanding, because Italy is not asking for solidarity; it is asking for greater fiscal autonomy, which is quite different.
Italy does not ask for solidarity for two different reasons. The first is because it knows it will not be granted. And not because Germany is not capable of giving solidarity: the greatest exercise of it from the post-war period onwards in Europe was precisely what the West Germans carried out in favor of the brothers (or at most cousins) of the Eastern side, following the fall of the Berlin Wall. The problem is that today Italians (or Greeks) do not have a similar degree of kinship: they are at most distant fourth-grade cousins. Of course, the European Union was created precisely in order to bring these degrees of kinship closer; it ideally evolves in fact exactly to the reverse of a family nucleus, with the children of the children of my children who will become brothers of the children of the children of the children of my fellow German economist. That this is not yet a time of mutual solidarity in Europe (as it was not in the states of the nineteenth-century «not so United» States of America) is proved by the total European political disinterest that generally accompanies what are fundamentally solidarity proposals such as: the Eurobonds or a European subsidy for unemployment, which (today) are nothing more than a transfer from German tax payers to Italian (or Greek) citizens.
The second reason, more subtle, has to do with the fact that – especially in the absence of explicit brotherhood – solidarity, even when granted, has something paternalistic and condescending embedded in it, and Italians would hardly bend to request it.
When Italy does not obey the European fiscal rules (as this Government did, presenting now twice already economic and financial documents which explicitly do not converge toward a balanced budget in the following three years), it rather manifests another request: to get rid of those rules that do not allow it to exercise an autonomous policy in support of its economy.
At a time when European rules have been questioned even by the very orthodox European Fiscal Board (an institution generated by the Fiscal Compact itself) in its latest report, and in which certainly a reform of these will soon land on the table of reforms of the new European Parliament and of the new European Commission, Italy must not feel a pariah in pushing for its own reform proposals. This is all the more true if we consider that the Fiscal Compact has clearly failed only for the countries (like Italy and Greece) most in difficulty and that therefore a reform is nowadays more urgent and indispensable precisely to help countries like Italy and Greece to get out of a crisis in which the current austere rules have done nothing but enmesh them even more, putting Europe at risk.
Now, if we look at the history of the nineteenth-century American and its path as far as fiscal rules are concerned, we find fitting analogies with today’s Europe (after all, one could venture, the United States states of that time were as different from one another as are the member states of the European Union today): in particular, we note how individual states were responsible for their spending levels, taxes, deficits and debt; in short, they had fiscal policy sovereignty. But that flexibility was no free-ride: when in the mid-nineteenth century Tennessee, having badly spent the money borrowed from the markets to make unnecessary spending on pharaonic projects, asked Washington DC to be helped to repay the banks, it heard a ringing “no way, no bail-out ”. It ended up that Tennessee decided to default, with reckless banks and local citizens who paid the price. It was only when America became truly united and solidaristic across states, in the 1930s, that the balanced budget fiscal rules were imposed in the individual states. But this was only possible because there was a new actor, the centralized federal state, which operated itself in deficit when necessary, for the good of those who needed it in times of crisis.
A union of different people, this is the lesson of the past, cannot be left without the possibility of using deficits in moments of difficulty: either these are done centrally (but in Europe it is too early today, we will have to wait for the much-needed brotherhood in a single federal political community, which only time can hopefully generate) or they msut be left at the local (sovereign) level. But on one condition: that the bail-outs of national governments by the European Union are to be strictly prohibited. It will be then up to the various Italian governments on duty to convince the markets of the goodness of their deficits (and it would not surprise us if they would succeed in convincing them only if they abandoned useless projects such as the recent mere transfers like pensions and unemployment subsidy, in favor instead of massive doses of public investments) and i twill be up to the German and French banks to convince themselves that the bailouts obtained during the early Greek crisis will never be repeated again.
It is evident that in the negotiation phase this position could find a final compromise in the much-coveted golden rule that allows for balanced budget for current expenditures and space for public investments financed in deficit up to a maximum of 3% of GDP. An Italian negotiating position of this kind could have much more attention than the follies of the recently proposed Mini-Tbills (mini Bot) that are akin to the creation of a parallele currency. It would also have the merit of restoring vital oxygen for the continued construction of a United States of Europe space.