Searching for the Idea of EuropeECONOMIC IDEAS HAVE A ROLE IN DEFINING THE EUROPEAN PROJECT, BECAUSE THE FUTURE OF POLITICAL INTEGRATION DEPENDS IN PART ON THE ANSWERS PROVIDED BY ECONOMIC RESEARCH
by Guido Tabellini, Dept. of Economics, Bocconi
Translated by Alex Foti
Although it is a political project, European integration has been deeply influenced by prevailing economic ideas. The Single Market, the free mobility of capital and people, and the the euro are perhaps the most important and symbolic aspects of European integration. All these projects were guided by the ideas of economists, both in the initial design stage and in their practical implementation. Of course, economists' ideas are not born out of nothing, but are the result of economic research. For this reason, it is not an exaggeration to claim that economic research has played a crucial role in European integration, and is likely to continue to do so.
The predominant influence of economists has not always been an unmitigated good for Europe. This is not because the economic ideas that led to integration have turned out to be wrong – even though mistakes have certainly been made – but for the reason that sometimes economic integration was a distraction that may have prevented more decisive steps towards integration in areas other than the economy. Today, Europe needs a greater supply of "global" public goods, in particular with respect to a common defense and anti-terrorism policy, a common foreign policy, a shared policy on immigration and border controls, and a European energy policy. These needs are felt by the vast majority of European citizens who, according to opinion polls, would like to see Europe play a greater role in these domains. But national politicians and national bureaucracies are reluctant to give up their prerogatives, perhaps because they have been less influenced by research ideas in these areas.
Today, European economic integration is once again at a turning point. On the one hand, the financial crisis has revealed that the institutional foundations of the euro are fragile and should be strengthened. On the other hand, a window of political opportunity has now opened up: after the German elections, Angela Merkel and Emmanuel Macron are set to give a new impetus to European integration. Whether the opportunity is actually seized will depend not only on the balance of national interests, but also on the quality of ideas that are put on the table.
➜ Fiscal union: two visions
In this regard, two views are clashing on how to reform the foundations of the single currency. The first vision, largely shared in Northern Europe, starts from the idea that the role of financial markets should be strengthened to impose budgetary discipline on eurozone governments. To achieve this goal, various proposals have been put forward, including: (i) making sovereign debt restructuring automatic for countries seeking the assistance of the European Stability Mechanism; (ii) oblige banks to diversify their assets to prevent excessive concentration of national government bonds in their portfolios; (iii) impose a common European jurisdiction valid for all countries concerning the issue of sovereign debt, subtracting the supervision of government bonds from national jurisdiction, in order to reduce uncertainties and disparities of treatment in the event of debt restructuring. This vision is based on a fundamental misconception. One of the major lessons drawn from the financial crisis is that markets are unable to effectively regulate sovereign debtors; they are too accommodating when things go smoothly, and change their mind too suddenly when things go wrong. If these proposals were to be implemented, high-debt countries would be left exposed to a volatile and presumably reduced demand for government bonds, without any policy tool at the their disposal to deal with the emergency.
An alternative vision, more in line with the interests of economically weaker countries, suggests instead to provide the Eurozone with its own (small) tax base. This would allow fiscal policies to stabilize aggregate demand without overburdening monetary policy when interest rates have fallen close to zero. In addition, there would be more resources to deal with the next financial crisis. Achieving such 'fiscal union', although limited in scale, would however require accelerating on the path of political integration (as well as necessitating a revision of treaties, and for some countries, even constitutional reform). And all of this seems politically premature today.
➜ The main obstacle is nationalism
What are the main obstacles to greater political integration in Europe, at least for a subset of EU countries? In a recent work with Alberto Alesina and Francesco Trebbi, I suggest that the answer does not depend on alleged differences between attitudes, beliefs or values of European citizens. From a cultural point of view, the differences between a French or an Italian or a German citizen are not much greater than those observed within each country, and are similar to the cultural differences existing between American citizens. The real obstacle to European political integration is the sentiment of national identity. Due to their historical legacy, Europeans tend to identify with their our own national communities rather than with Europe as a whole. But how persistent is the legacy of nationalism, and what can conversely be done to strengthen identification with Europe? And what effect would greater political integration have on feelings of identification? Would it bring Europeans closer to each other, or could it have the opposite effect, namely increase the opportunities for discord and conflict between countries? On these and many other issues that are key for the future of Europe, the question is still open, and economic research can give an important contribution in answering it.
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