The value of union. An opinion by Gianni Toniolo

March 20, 2017
Editorial Europe
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This essay is excerpted from the book Europa sfida per l’Italia (Europe: a challenge for Italy), published by LUISS University Press.

“If the European Union does not change, it is better to get out.” There’s quite a few people today that think along these lines. And there is no doubt that the EU has reached its sixty years with a few knocks, not in its best shape. A large minority (23 %) of Union citizens have a negative image of it. Even those who positively or neutrally assess it (37 and 38 %, respectively) think that some urgent reforms, quite urgent ones, are needed (but then they disagree on what to do). The feelings of Italians are very similar to those of the European average, with a slight majority of neutral assessments. It is perhaps this majority that needs to be addressed by saying that, of course, reforms are crucial, but also dispelling the idea that, should nothing change, Italy would be more prosperous, more civil and safer, free from the “constraints” of belonging to EU itself. The idea, in short, is that either something changes – the way we want it – or it’s Itexit time.

Italian unification had huge flaws, too. Despite plebiscitary unanimity, many were unhappy about it, and a lot more were those who felt indifferent. In the South, beside the irreducible ones feeling nostalgic about the Bourbon dynasty, those existed who used to say, “Long live Italy, but not this one, we’re much better off it.” Many thought that, by regaining the freedom to autonomously choose their own economic policy, old regional states could thrive better in the tumultuous globalized world that began to attain the second industrial revolution. It was a dangerous illusion. In 1860, the weight of the biggest pre-Unity of Italian states, the Kingdom of the Two Sicilies, did not exceed 1% of the world economy. It was lower than the weight of Belgium. The second economy of the Boot, the Kingdom of Sardinia, had an economic size slightly above Portugal’s. What kind of growth strategy could these little states have if the Franco-Piedmontese turned out defeated in Solferino and San Martino or if Garibaldi did not leave from Quarto? The mandatory choice would have to be to organize themselves as small, open economies able to efficiently exploit their comparative advantages. Monetary, fiscal, and tariff policies, however, should have been adapted to those of their big neighboring countries. So did Belgium with France and Portugal with England, in which case Lisbon first adopted the gold standard in continental Europe (a kind of Euro of its time).

Even small Italian regional states would have had little room for a self-sufficient economic policy, having to adapt to the ones of their closest neighbors, but without having the power to influence them. Instead, once united, the Italian peninsula, and especially – but not only – its demographic force, had an economic dimension close to 4% of worldwide GDP and 11% when considering Western Europe alone; it immediately entered the G-10 of the time. Therefore it was able to exploit more effectively the comparative advantages of its various regions, in an internal market that was sufficiently wide to generate and use the much-needed scale economies for making major investments in the Second Industrial Revolution. With all its shortcomings, united Italy acquired various degrees of freedom in customs policy – which was denied to small open economies – and in managing monetary policy and exchange rates. It didn’t always exploit to its advantage the benefits of unification. In particular, in the 19th century and throughout the following one, it couldn’t spur growth that went above the national average in the Mezzogiorno area, the kind of grown that could have produced the expected regional convergence of per capita income. Hence the partly understandable discomfort. Hence the independence urges that followed. But in the newly united Italy, the South achieved a good economic growth nonetheless, although lower than expected and maybe possible. Would it have also obtained such a growth, with the economic conditions of the 19th century, as a peripheral open economy specialized in exporting vegetables, fruit and sulfur? Some believe so, but there is reason to be doubtful; the Portuguese example indicates the opposite. At any rate, an independent Mezzogiorno area could have only grown by accepting the economic policy constraints deriving from its small size, in the tumultuous “first globalization” that saw many more “losers” than it saw “winners”. That said, if the unlikely set of circumstances that produced the political unification of our peninsula had not been achieved, the Italian states would soon have been driven to form a customs union and merge the labor and capital markets because of their development and defense requirements. The German model might, then, have indicated the way to the creation of a federal state.

Furthermore, if we look at 18th-century Western Europe, many scholars attribute its slower growth as opposed to that of the US to the fact that the fragmentation in many autonomous states created difficulties in exploiting, for the benefit of all countries, all individual regions’ comparative advantages. This was due to customs tariffs, the inefficiencies of rail networks designed more for defense needs than trade necessities, the distrust that fueled international tensions. Already in that era a European Customs Union would have allowed a faster growth for all countries. The “evidence”, should history allow the use of this word, is in the fact that one could cite the negative economic impact that, after 1919, had by the dissolution of that vast customs and monetary union the Austro-Hungarian Empire represented. Its end did not help the growth of the small economies that resulted from it. The monetary and tariff cacophony of the 1920s, the inefficient use of resources, the inconstant capital flows, also driven by uncoordinated tax policies are all among the causes of the Great Depression of the Thirties. Steven Zweig’s lucid nostalgia for the “world of yesterday” was more than founded. And the fact that the world had committed suicide did not make the tragedies that followed any less dramatic.

History has to be handled with care because it never repeats itself mechanically. However, it often serves the purpose of asking a few questions about the future, taking well into account how the circumstances have changed. In the century and a half since the unification of Italy, world economy grew about forty times (population grew some 7 times, per capita income about 6). Italy, which has made progress that Cavour and Giolitti wouldn’t have even dreamed of, with an income per inhabitant that has grown 8 times since their time, now sports a relative economic weight far below the one it had in 1870 (its GDP constitutes 2.5% of the world market, measured at nominal exchange rates, and 1.8% at purchasing power parities, comparable to 3.8% in 1870). Meanwhile, the “big divergence” in income per inhabitant among Europe, with its overseas projections on one side and the rest of the world on the other, is no more. Two major countries, China and the United States, occupy the economic and trade scene: together, according to the International Monetary Fund, they will produce 32% of world income during 2017. The economic size of Italy, which has been slow in growth over the last twenty years, is not such as to allow it to have successful independe policies, not just of the economic kind, outside of the EU, much less currently, due to its huge public debt in a world characterized by a capital mobility that is higher now than at the end of the 19th century.

There is, then, some not too marginal analogy between the position of a small state in the Italian peninsula in mid-19th-century and that of Italy in today’s Europe. Of course, then as now, it is possible for a small country to thrive in the unpredictable and unstable dynamic of the current phase known as “second globalization”. Switzerland and Singapore can. The United Kingdom will manage, in spite of everything. However, it is legitimate to doubt that, once set free from Europe, even from the very imperfect Europe of today, Italy could produce greater prosperity for its citizens. The most dynamic among its manufacturing and agricultural businesses cleverly benefit from being in large single market. Unsatisfied workers by home conditions can easily look for better ones beyond the old borders, without strong constraints and expenses. The size of Europe allows it to negotiate trade with an unimaginable political burden on individual states and to protect competition from large international monopolies far better than a small or medium-sized independent country could. If these are the long-term structural reasons why Italy continues without hesitation its way into Europe, contingent reasons are, if possible, even stronger. They spring from the immediate risks that the country is running due to a contained, but unresolved, banking crisis and a public debt in relation to GDP that’s never been as high (except in 1920-21 because of allied, war-related debt that was later solved by diplomacy).  The public opinion should be more aware that today’s Italy is financially fragile, risking a declining enthusiasm from those still investing in its government bonds. The EU, despite the sluggishness that doesn’t make for cooperative solutions, and the single currency are today the anchor that keeps Italy from drifting towards stormy and unknown waters.

No one is under any illusion that these examinations may change the minds of those who have already decided, emotionally or because of biased and short-term thinking, that this kind of Europe does not deserve the presence of Italy, which could very well prosper by itself, without constraints, without tules, without having to co-determine its own destiny along with others. On the other hand, these are remarks that any possibile reader of these pages knows very well. Why, then, go back them? Why preach to the choir of those who are already converted? Because that choir is still the majority of those who believe that, in spite of everything, Italy gets far greater benefits than the costs it incurs from this Europe.

In the early 1950s, the opposition to the birth of the European Community was an extraordinary one. Twenty years of autarchy had cemented enormous political and economic interests that had everything to lose from a new course. But those who took up the legacy of elites who had been delegitimized by the Great Crisis and WWII knew that without promising security and economic development in a believable way, they could not have hoped  be democratically legitimized in their leadership. In order to re-establish the democratic regime, the elites of that time risked their political capital by renouncing part of sovereignty to hope for peace and prosperity in exchange. Today, confidence in the elites is again shaken by the economic uncertainty inherited from the crisis and the threat to security represented by immigration. This situation would require a reaction similar to that of the 1950s. But today’s political elites are upset; They cannot find the same strength that their grandparents had sixty years ago when they needed to react. Today, the EU holds a greater consensus than it did in the early 1950s with the Treaty of Rome, yet it struggles to enter the political discourse in a positive way. Whoever considers Europe – even the unsatisfying one of today – as indispensable to the future of Italy is hypnotized by an assertive minority that occupies the media arena. Even those leaders known as being more pro-Europe feed their speeches with categorizations and differentiations, and they cannot resist the temptation to attribute to European institutions with blames and responsibilities that mostly are Italy’s fault. So this creates a “narration” of our way in Europe, culturally short-sighted and politically sterile, because on the one hand it is incapable to admit the benefits – not just economic ones – we have gained from belonging in the Community and then in the Union, and on the other it doesn’t understand the views of others or the intrinsic complexity of European politics.

To escape from a gridlock that becomes more dangerous every day, what’s needed is leaders that are able of employing political capital in convincing Italians not only that the road to their future only travels to a more solid, united and sympathetic Europe, but also that this very road starts in Italy. Our country is perceived as an increasing risk by partners, with the indispensable solidarity limited by mutual mistrust. The political impasse must be broken and the first step can only be taken by Italy, if nothing else because at this time it is the country that needs the support of others the most. A believable program of small but steady debt reductions would be an important step to reduce the aforementioned mistrust. It is anyhow necessary to encourage those who invest in Italian government bonds but, if presented to Europe as an acknowledgment that solidarity, always invoked, is based on mutual commitments, it would induce cooperative responses that could trigger a virtuous circle: the EU itself would feel safer, less threatened by the Italian risk, and therefore more willing to support it in its current state of weakness. However, there’s a need for someone to invests political capital in this first step towards the recovery of Italy’s European path.

"Europa sfida per l'Italia"