N. 26 December 2002 | The impact of the economic crisis on the European institutions

Competition rules preventing state aids and the deflationary policies imposed by the Stability and Growth Pact are hindering development, and they prove disastrous during a recession. It's also true that violating those rules would provoke a crisis for both the euro and the Union itself. The real issue here is that we must create a true european government with a true european industrial policy.

The industrialised world is currently undergoing its worst economic crisis since the 1929 Depression. While the present crisis was (as is often the case) triggered by the bursting of a speculative bubble, it is now beginning to impact on the real economy, and is looking far more serious in Europe than in the United States. It has already left victims in its wake in several European countries – one need only recall the closure of Sabena and the problems facing Vivendi Universal. Most serious of all, however, has been the crisis that has hit FIAT Auto, which, according to the company’s restructuring plan, could result in the closure of two plants and the loss of around eight thousand jobs. FIAT is the driving force of Italian industry. It has an enormous number of suppliers and it is heavily indebted to the leading Italian banks. It is therefore crucial that the extent and the repercussions of its crisis be limited and prevented from having a domino effect that, given the close interdependence of the economies of the EU countries, would certainly not be felt within Italy alone.

Ultimately, the FIAT crisis must be attributed to the failure of Europe’s automobile industry to organise itself into a few vast industrial groups, a policy that would inevitably require the nation-states to relinquish their control of what is certainly a strategic industrial sector. In the case of the national airlines, their refusal to do this has had serious consequences: companies less equipped to take on the international competition have been forced out of the market, and the way has been left clear for a strengthening of the American presence within the sector.

Today, it is not a question of guaranteeing an impossible solution to the crisis, but rather of managing it so that the damage to families, including the families of workers in supporting industries, is limited and the crisis is prevented from spreading to a growing number of other areas of European finance and industry.

Prior to the Maastricht Treaty, the problem would have been tackled through the adoption of a Keynesian policy, that is to say through hefty public intervention, both direct and indirect (focusing on measures designed to soften the blow: incentives for early retirement, increases in unemployment benefits, redundancy packages, recapitalisation by the state or direct state grants, and so on). This approach was indeed used in various other sectors at the end of the war. The result would have been increases in Italy’s budget deficit and inflation rate and then devaluation of the lira. The cost of the restructuring plan would have been borne exclusively by the Italian taxpayer, who would probably have accepted it as the price to be paid for safeguarding, as far as possible, the standard of living of many thousands of families. While this crisis would certainly not have been painless, and would have left Italy worse off than before, its unfolding would have been a gradual process that left the country’s manufacturing industry time to absorb part, if not all, of the excess workforce, thereby limiting the damage. oday, such a policy is no longer possible. The introduction of the euro marked the end of the Italian economy as a relatively independent system. As a result, it is left to the European automobile industry as a whole, and to the European taxpayer, to foot the bill, indirectly, for any hefty public intervention opted for. Such intervention would be entirely incompatible with the EU policy on competition, which does not allow, openly or through stealth measures, the industry of one country to be subsidised and thus favoured over that of another country. Were it to take the form of much more extensive recourse to the kind of social measures mentioned above, it would still be incompatible with the rules of the Stability Pact, itself the condition on which the very survival of the euro, and thus the single market, depends.

In short, while national industrial policy is a thing of the past, there still exists no European industrial policy to take its place. This is a situation that is to be attributed both to the inadequacy of the EU budget and to the fact that the Union is, as a result of the conflicting national interests of its member-states, incapable of reaching decisions (especially difficult decisions and ones likely to be unpopular). Europe today lags far behind its major competitors – the United States and Japan – as regards investment both in infrastructures and in research and development, which are fragmentary and woefully inadequate. It offers  nothing more than the application (necessarily mechanical and bureaucratic) of  the EU competition regulations and the deflationary policy imposed by the Stability Pact, both of which constitute permanent obstacles to growth and both of which have catastrophic implications in times of recession.

Intergovernmental  cooperation,  whose  total  inefficiency  has  been  widely demonstrated, does not represent a way out of this situation. As time goes by, and with enlargement of the EU drawing closer and closer, national interests are increasingly prevailing over European ones. The very urgency of the need to reform the European institutions can be seen as a demonstration of the glaringly obvious incapacity of governments  to  deal  with  important  problems  through  the  instrument  of intergovernmental cooperation. It is hence ridiculous to imagine that this same method might be deemed a sufficient basis on which to tackle a serious crisis that is impinging to different degrees on the different national economies. At the same time, widespread violation both of the EU competition regulations and of the terms of the Stability Pact cannot fail to result in the demise of both the euro and the European Union.

Clearly, what is needed is a European government that is founded on the democratic consensus of the citizens, and that has the capacity to develop and carry forward a true European industrial policy. But this cannot come about without the creation of an out-and-out federal state. This pressing need can no longer be masked by some institutional expedient. Neither is it conceivable that a federal state might emerge in the framework of the present fifteen or future twenty-five member-states. It is high time Europe’s most clear-sighted and responsible politicians found the courage to pose unequivocally the question of European statehood and of the framework within which a European federal state might be founded.


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