Year XLIV, 2002, Number 3, Page 190
A European Economic Constitution
TOMMASO PADOA-SCHIOPPA
Introduction.
I would like to begin by thanking the organisers of this meeting for inviting me to speak. However, I would like to start by saying that it should be my brother Antonio standing before you now to deliver a speech in memory of Mario Albertini. For it was his acquaintance with Albertini over many years that instilled in me and in my family an interest in, and commitment to the European cause, explaining my presence here today.
The sense of me being the speaker here today is to testify just how strong and far-reaching Albertini’s influence has been, an influence that has affected many distant people, well beyond the circle of those directly involved in the political advocacy of the European Federalist Movement or its intellectual work. Many people, like myself, feel that the course of their active life and their careers in European affairs would not have been the same without this important influence.
The extent of his influence can be illustrated by a personal recollection of a discussion of the idea of re-launching monetary union as apriority for the pro-European agenda in the late 1970s. I remember debating this issue with Alfonso Jozzo and Alberto Majocchi who came to see me in the research department at the Bank of Italy, suggesting that an initiative should be taken in the monetary field to re-launch the process of European integration. They spoke on behalf of Albertini. My initial reaction was something like, “forget it; we have already tried fixed rate exchange systems, which don’t work, and I cannot see how the currency can possibly act as a starting point for reviving European integration”. At this point Roy Jenkins, then President of the European Commission, was still to make his famous Florence speech, which called for a fresh attempt to start economic and monetary union.
The idea, inspired by Albertini, and which I discussed that day with my two visitors, appeared outmoded, was discredited among experts and was regarded as doomed to failure. However, experts, admittedly myself included, were characteristically presumptuous by insisting it could not take off. Indeed, within less than a year the whole picture changed. Following a political rather than an economic logic, and demonstrating a prophetic ability, Albertini had gone beyond the narrow logic of the experts in this highly technical sphere of currency and exchange, with a much clearer view.
On a personal level, this event marked the start of a merging of pro-European convictions nurtured within me since adolescence with my professional activity in the monetary field. As a Commission official less than two years later, I was to find myself involved in the launch of the European Monetary System, and in close to a quarter of a century since then, my work has revolved around the process that has culminated in the European currency.
The re-launch of monetary union also served as a lesson. If there were really such things as definitive lessons in humility (and there are not, since the adjective “definitive” does not sit well with the expression “lesson in humility”) then this would certainly have been one. Showing that politics — and I mean politics in the high sense of the word — is more far-sighted than technical expertise, these events taught me not to trust my own specialisation too much. Indeed, had the politicians not been more prescient than the technicians, we would not have monetary union today; just as if Adenauer had listened to his minister of finance Erhardt, we would never have had the Treaty of Rome.
Indirectly, the fundamental thoughts and concepts that originate from the European Federalist Movement and Albertini continue to be the conceptual instruments I use in approaching European questions, just as my “handbook for action” draws on Jean Monnet’s memoirs, and to an extent on the memoirs of Altiero Spinelli. It is interesting to note that my source of reflection is the writings of Albertini, which are theoretical and certainly not autobiographical in nature, whereas my guide for action comes from memoirs, in this case of Spinelli and Monnet.
Discussing the Endpoint.
For a long time Europe proceeded “with its face masked”. I remember Jacques Delors using this image (l’Europe avance le visage masqué) in the conversations accompanying work leading to the famous Delors Report on Economic and Monetary Union: “Here, we can no longer hide. If we create a single currency there is only one way of doing it, and that is to create a new currency with its own Central Bank.” But why this reference to a masked face? It is because the real achievements with regard to Europe have almost always been the result of a playing down of their importance, of that clever dissembling that constitutes one of the fundamental instruments of politics. The simple explanation for this is that leaving aside public opinion (which is no small thing), Europe’s opponents were, and still are, stronger than its supporters; hence the need to play down advances in European integration.
In Rome, in October 1990, I witnessed in person a classic example of this when the Italian Presidency (the Prime Minister at the time was Giulio Andreotti) managed to get the entire substance of the Delors Report built into the Conclusions of the European Council. The morning of the day on which the Conclusions were due to be approved by the heads of state or government, in a meeting of the Italian delegation, Andreotti reopened a question that had seemed firmly closed. There was a passage that used the term “common currency”. Discussions had gone on for weeks over whether to use the term “common currency” or “single currency”, and though we had done our utmost to ensure that the latter was used, it had been impossible to convince the other countries. Andreotti said, “What does common currency mean? Let’s put single currency — you say you’ve already tried, but not managed to? That doesn’t matter, I’ll have a word with Kohl about it”, and shortly afterwards he did just that. Later, in the formal meeting, he read out the Conclusions, sentence by sentence, summarising the consensus of his colleagues. When he got to the word “single”, one attentive prime minister remarked, “Why ‘single’, hadn’t we opted for ‘common’?” Andreotti said nothing; he just made a small gesture, spreading his hands and tightening his lips as if to say: “What does it matter? Let’s not waste time here discussing minor details”. The text was approved.
Advancing with a masked face or, in other words, proceeding with relatively modest projects of apparently limited importance(like managing together the coal and steel industries), but which are nevertheless a great design, is part of a European line that we might term Monnettian-Functionalist. It is a much different line from that adopted by Spinelli, Albertini and the European Federalist Movement, which constantly advocates the great design. In fact, these two lines of thought often clashed, not fully understanding each other, a misunderstanding that can still be seen today. Let us not forget that many federalists actually opposed the Treaty of Rome, another lesson in humility because political idealists too can become trapped by their own method or approach.
However, now we have entered a phase in which it is no longer possible to advance with a masked face. Perhaps we entered it with the arrival of the euro or perhaps when the Convention on the future of the European Union began its work. In my view, it was the speech given by German foreign minister Fischer at the Humboldt University that marked the really important change, because in his speech Fischer raised the question of the point of destination. This was a real novelty, since proceeding step by step without specifying a final goal had been a typical characteristic of the functionalist method employed until then. There had been a tendency to say, “Let’s do this, because it is useful, because it has ingredients that will improve the system, and let’s not worry about where, ultimately, we are heading”. Fischer committed the “crime”, scandalous in a foreign minister (but not in a federalist) of saying, “Here we need to talk about the point of destination, the end of the road”.
It is hardly surprising that, by committing this scandalous deed, Fischer inflamed the whole debate, and rendered it in some regards more difficult and more confusing. The tendency to conceal intentions, which so often accompanies action on important issues, spread to all aspects of the debate, distorting the terminology to such an extent that it is no longer clear exactly what is meant by expressions such as “state”, “federation”, and “federation of nation-states”. As a result, except where very concrete terms are used, the vocabulary of this debate confuses rather than clarifies the issues.
The first word that needs to be clarified, one that is now used with considerable ease in reference to European questions, is “constitution”. It is perhaps true that the people who used it first and now use it most frequently are those who actually want to see less, or only a bare minimum, of European integration. Curiously, while the term “constitution” like “subsidiarity” is given minimalist connotations, the term “federation” that really does signify a minimum level of government, is regarded as synonymous with the idea of a centralised and Jacobinic state, which is the complete opposite of its true meaning.
It is probable that the Convention, chaired by Giscard d’Estaing, is working towards a constitution and it is from this perspective that I set forth my observations. One way or another, Europe’s future order will be decided over the coming twelve months. Should the Convention fail in the task that has been assigned to it, I personally do not see how the process of integration that has now been advancing for 50 years can avoid being thrown into crisis. The Convention may indeed fail, but it is also perfectly possible that its work will underpin the Union’s ultimate transformation into a federation.
Five Wishes for the Convention.
Today, monetary policy, which is the domain of my profession, is no longer a part of Europe’s “work in progress”. Instead, it is a part of Europe that has already been constructed. As a result, I observe the work of the Convention from a distance, which differs from the last twenty years, during which I witnessed first-hand many of the steps to construct a united Europe. As a removed observer, I have several wishes or hopes in relation to the work of the Convention, which I will now briefly explain, before returning to the theme of the economic constitution.
My first wish is to see the Convention concentrating on what is important, leaving aside all questions that, while important in the day-today business of government, are not crucial to the task of giving birth to a European constitution. In other words, I want the Convention to deal with fundamental questions of an institutional and constitutional nature, important questions that reflect the extraordinary nature of its composition and mandate. Let me give two examples. It is often said, in reference to the Convention and to European issues, that the Convention ought to adjust the voting modalities of the Governing Council of the European Central Bank, or modify the Growth and Stability Pact. Personally, I would urge the Convention not to deal with such matters, but to concentrate instead on those questions that are normally dealt with in a constitution. Of course, we do not know how the Convention will proceed, and it may not actually get down to the business of writing a constitution. In fact, there is certainly a risk that the Convention may “fly at low altitude” so to speak, never raising from the level of ordinary legislative questions to the level of constitutional law. Deciding on the appropriate level for action is in fact one of the fundamental tests faced by nearly all decision-making bodies. Often, the quality of decision-making is not so much a question of making good decisions on a particular issue as a question of choosing the right issues on which to deliberate and decide.
Second, I hope that the Convention builds on what already exists, and does not seek to invent a Europe that is entirely different from the one we have today, built over half a century; in other words, I do not want the Convention to start building Europe from scratch. Those who have been concerned with European questions for any length of time see it as essential to preserve what is in Euro-speak termed the acquis, that is to say the progress already made. To others, however, the value of the acquis is far from obvious. There are indeed newcomers taking up positions in national governments or European institutions who feel a legitimate impulse to rethink Europe anew and without preconceptions, an impulse often accompanied by a certain intolerance of the complexity and slowness of the European machine. Sometimes the absence of preconceived opinion is accompanied by the absence of basic information. Indeed, even the hundred members of the Convention probably include many individuals who, due to their age, geographical origins, or political background, actually know very little about Europe.
Third, I wish the Convention to propose a unitary institutional structure for the European Union, the unitary structure that Europe used to have until Maastricht, where unfortunately it was destroyed. The Maastricht Treaty accomplished the most positive achievement of introducing the single currency, but it also committed the misdeed of creating a three-pillar structure that is both contradictory and dangerous. Contradictory, because whilst economic and monetary union (the first pillar) was built on the basis of a combination of supranational and intergovernmental elements, the foundation of the second and third pillars was entirely intergovernmental. Dangerous, because the strong pillar may not prove able to transmit its strength to the weaker ones; indeed, it is quite possible that the opposite could occur. Although it is no easy task to develop a unitary structure, it is imperative that efforts are made now.
Fourth, I hope that the Convention will scrap the national veto. The difference between union and division is the capacity to remain united even in disagreement. The whole difference between creating a united Europe and remaining trapped in the empty rhetoric of pro-Europeanism boils down to precisely this. It is no coincidence that this is an issue on which de Gaulle stalled or that the United Kingdom feels unable to accept the abolition of its veto right. The difference between the state of being united and not being united, between the existence and the absence of a Union, lies in the ability to accept some form of majority-based decision-making principle. Indeed, only acceptance of such a principle substantiates a readiness to accept unitary decisions, even when the latter are not the decisions that one would have preferred to see taken. It is this acceptance that constitutes, in my view, the very essence of a Union.
My fifth wish (and perhaps, if the Convention successfully meets the challenge it faces, the secret of success will lie in its achievement) is to see the Convention generating a spirit of assembly, rather than remaining bogged down in the mentality of intergovernmental negotiations. The members of the Convention need to feel bound solely by the Laeken declaration and they need to be answerable to no one; it is crucial that they do not allow themselves to be conditioned by national, party, or institutional considerations. Be they parliamentarians or government representatives, members of the opposition or of the majority, I hope that the members of the Convention will prove able to behave like free individuals reasoning solely on the basis of their own judgement, and to propose something valid for Europe. The few early indications suggest that they may. But a spirit of assembly needs to be kindled, this is a crucial condition. Indeed, the Philadelphia Convention’s transition to Constituent Assembly of the United States of America, like the transformation of the French Estates General into Etats Généraux, coincided with the early stirrings of just such a spirit: and this spirit is stirred when a group of people, entrusted with a political task, becomes merely an assembly of people, rather than an assembly of representatives of states.
Four Propositions on the Economic Constitution.
Let me turn now to the question of Europe’s economic “constitution”, a question that in my view illustrates the importance of the first of my five wishes; to see the Convention concentrating on the right issues. If it does so, the Convention will conclude that, for the most part, Europe already has an economic constitution, and therefore economic questions are not the ones on which it should be most focused. However, another view is often expressed, even by authoritative sources, which argues that having achieved monetary governance at European level we now need economic governance. In other words, there may be a tendency to make the economy a priority, stemming from a belief that this is the terrain on which Europe should continue to be built. I would now like to expand on four points in this respect.
Firstly, Europe already has an economic constitution. Indeed, as far as the economy is concerned, including the currency, the European constitution-making process is virtually complete. I think that it is legitimate, in terms of substance, to use the term constitution. In the economic field there is a set of European rules and regulations that are stronger than national laws and powers. The latter are subject to European rules, not only those written in the Treaty, but also those contained within the Union’s directives and other sources of legislation. This is particularly true in the case of Italy. It is a known fact that many ill-defined points in the economic part of our Constitution were left deliberately unspecified by the constituent assembly, in order to leave them open to different, even diametrically opposite, interpretations and thus compatible with different economic systems, from a market economy to a Soviet-type system of economic planning. The European constitution has served to resolve or clarify these ambiguities and uncertainties. Today, a combined reading of the Italian and the European constitutions reveals an economically unequivocal structure.
Let us look at how the European economic constitution is constructed. The task of any constitution is to institute and regulate public powers. Basically, the European economic constitution can be thought of as a matrix within which four major policy areas are combined with four different levels of government. The constitution assigns competence for each of these areas (monetary, budgetary, labour and market policy) to one or more levels of government. These levels of government are European, national and sub-national (in most countries the latter is broken down into regional and municipal, though the Treaty does not make this distinction).
Monetary governance is a European function. Budgetary policy is subject to a European rule (set out in the Treaty itself and in the Stability and Growth Pact), but remains otherwise a national function. Indeed, if we look at total public spending in Europe (meaning European, national, regional and municipal), we find that over 95 per cent is national. Labour and employment policy is not, or is only marginally, an area that comes within Europe’s sphere of competence. In this field, responsibility is mainly national and even delegated to the various social interests, though some changes would not be incompatible with the European constitution. Finally, market policy is a prevalently European task. Europe guarantees the single market but, provided this is respected, leaves the states free to do practically anything they please (only, they cannot take action that would harm other countries).
What I have briefly described here represents a constitution, not only because of the legal and institutional strength of the framework it establishes, but also because of its completeness. Prior to the Maastricht Treaty, the European Community did not have a coherent economic policy structure. Competence for monetary governance was attributed, as Luigi Einaudi remarked as far back as 1944, to the “wrong” level of government. It can be said that the single currency came about when it was recognised that the distribution of the other economic policy functions within the matrix was incompatible with the conservation of national power in monetary matters. The Maastricht Treaty indeed removed a fundamental contradiction that had emerged in the Community system at the start of the Seventies. It did so by introducing a more radical solution than that which had been implicitly in the minds of the authors of the Treaty of Rome, for whom a fixed exchange rate system served as background to, and as support for, a common market.
The road from Rome to Maastricht, viewed from a monetary perspective, appears as a road from the dollar to the euro. In the 1950s, all the currencies were tied to the dollar and as a result Washington decided Europe’s monetary policy. With Maastricht, Europe acquired a currency and a central bank of its own. In between, Europe went through a long period — about 25 years — during which the de facto common currency was the German mark.
In more general terms, the same road traces the transition from a constitution based on an international model of economic, trade and monetary relations to a national, or domestic-type, constitution. The Union gradually equipped itself with regulations, laws, institutions, and finally a monetary system, of the kind typically associated with the domestic economy of a sovereign country. These observations lead me to affirm that, as far as the economy is concerned, the European constituent process can be regarded as virtually complete.
My second assertion is that Europe’s economic constitution is original. If we were to compare this European Union matrix with the structures in place in the United States of America or in Germany prior to the euro, or to the structures of other federal systems such as Canada and Australia, we would not find the same dispersion of functions among various levels of government. In contrast to Europe, where there is such big dispersion, other federations have strongly centralised economic policy tasks.
In particular, we do not find other federations where monetary and budgetary power is held at two different levels. On budgetary matters, Europe has no power other than to issue rules, like those contained in Article 104 of the Treaty and in the Stability Pact, rules that forbid the states from straying outside fiscal and financial orthodoxy. Europe’s budgetary rules do not allow member countries to violate budgetary discipline, but they leave all other faculties intact: the states are free to adopt large or very small budgets, to decide how public money should be spent, and to decide the structure of their own fiscal systems. We might say that, as regards budgetary policy, the Rome-Maastricht constitution merely prevents states from adopting unbalanced macroeconomic policies, while taking away from them none of their other fundamental choices in this area. Neither does it prevent them from adopting policies that may even be damaging to them, for example policies that impede rather than encourage growth.
This constitution is therefore original, which is in my view significant and valuable; it might be said that it distributes the functions of economic governance in what is potentially a very effective manner. For example, it leaves plenty of scope for competition between policies and between national systems, allowing the best to be rewarded, encouraging experimentation, and preparing the way for useful forms of emulation. From an economic point of view, it is not necessarily a good thing to concentrate the major items of income and spending in the budget of the central government. One of the qualities of Europe’s economic constitution is that it complies with the principle of subsidiarity.
My third point: The fact that the process resulting in Europe’s economic constitution is substantially complete does not mean that economic union is already a reality. Neither does it exclude the need for important structural work in order to create a European economic policy and European public powers. It certainly does not mean that economic and monetary union has already borne all its fruits.
A good constitution is only the start, or the basis, for effective action in the sphere of economic policy. Once adopted, a constitution has to be implemented; we have to learn to live and work with it, to appreciate and exploit its potential. The writing of Europe’s economic constitution ended in 1992, it was ratified a year later and it has been in force since 1994. Since then, a great deal has been done. The single currency, which was written in the Treaty, has been created, in spite of the fact that in the 1990s (well after the Treaty fixed a date for its introduction) doubt was cast on the project a number of times. The implementation of a constitution is neither automatic nor immediate.
Even the Italian Constitution was created little by little, and some of its provisions either took many years to be implemented or still remain to be implemented. To cite an example, the Constitutional Court, which can hardly be regarded as insignificant within the Italian constitutional system, took until the mid-fifties to be created.
I have argued that the process that has led to Europe’s economic constitution is substantially complete, not that it is one hundred per cent complete, because in truth there remain important fields, such as taxation, in which the unanimity rule is still an obstacle to decision making. Furthermore, Europe’s economic constitution could certainly be refined. But if one is thinking about the Convention, and about what should concern it most, then I think that the Convention would be failing in its mission if it were to seek, first and foremost, further improvements to the economic part.
There can be no doubt that it would be a good thing, for the Union, to have more room for manoeuvre in the area of budgetary policy. But it is also my belief that this can only come as a natural consequence of political union. No country has ever adopted a large budget just in an effort to obtain more instruments for economic policy. Historically, the size of budgets grew because the functions attributed to the Union grew. The Union is certainly not going to increase its capacity in the area of fiscal policy — something that I would like it to do — through discussion of economic policy. If there is a need for European public goods, these must be produced because of their intrinsic usefulness. If there are more goods recognised as European public goods, European public spending will as a result increase; and increased European public spending will result in a budget big enough, from a macroeconomic point of view, to affect the European economy, at which point we will have a European fiscal policy.
It could take a long time for the fruits — hopefully healthy ones — of Europe’s existing economic constitution to ripen. However, the experience of recent years does permit, in my view, a measure of optimism. The single currency was created in spite of the fact that there were times when all the central banks, all the governments, and all the finance ministers were saying that it could wait. At one point, there was only one person in Europe, the German Chancellor Kohl, who insisted that the launch date could not be put back; the extraordinary resoluteness of a single individual proved to be all that was needed in order to resist the temptation to prevaricate.
Similarly, we are now seeing a coming to fruition of other consequences of the European economic constitution. The so-called Barcelona process (previously called the Lisbon process) through which the European Council seeks to strengthen European co-operation in the field of economic policies, is a consequence of monetary union. The Union proceeds through loose forms of co-operation that, to individuals with a federalist background, can seem unsatisfactory. Minorities are never bound by any decision taken. Yet, in my view this is, for the fields in which it is applied, the appropriate system. A meeting of the Union’s finance ministers, where the majority decides to increase the budget, obliging the one of their number who is against the move to go along with the decision, is a most unlikely and undesirable scenario. The same is true of binding decisions in the field of labour policy. The process we see unfolding today in the economic field is one of organised emulation, a multiplication, by force of example, of the best results achieved. Its strength is not to be underestimated. Similarly, in the Italian setting, the conference of regional administrations, a consultative-type decision-making body, plays a very important role, even though it is still hard for the majority of the regions to impose its will on the minority.
There is a fourth point that I would like, briefly, to illustrate: the economic constitution is a fundamental component of political union. Without doubt, the latter is grossly incomplete, but a start has been made. We often hear it said: We have created economic and monetary union, now it is time for political union. In some ways this is true, but it is also true that, for at least two reasons, economic union can actually be seen as inherent in political union.
First, because of its content: in all the state systems familiar to us, the economic questions that currently fall within the sphere of competence of the European Union are very much bound up with the political process, are indeed political questions. So, does this not make the European Union (which has been attributed these competences) political?
Second, because the European institutions to which these tasks are assigned are eminently political institutions. Is the European Parliament, an institution elected directly by the people, not political? Is the Commission not a government formed — despite the lack of acknowledgement by some — as the result of a procedure that is practically identical to the one used to form any government within a democratic parliamentary system: election, assignment of a task, a vote of confidence, possibly a vote of no-confidence?
Conclusion.
I wish to close by returning to the second of the five wishes that I expressed earlier in reference to the Convention: the wish to see it building on what already exists. I believe that the process of European integration faces two great dangers, or risks, today.
The first is the risk of ignoring what has already been built; the second is the risk of believing that the building work is already complete. Too often Europe is discussed as if we were only at the beginning of the whole story; also, too often it is treated as a finished entity, to which nothing else needs to be added and from which, indeed, elements ought to be taken away. Let us not forget that the word constitution was injected into the debate by those who wanted to take something away from Europe, not by those who wanted to add to Europe. The design for a European constitution developed months ago by The Economist provides a startling demonstration of the second of the two dangers I have indicated.
If these are indeed the two risks faced by Europe, it is important to appreciate that the direction taken by the Convention must be one that will lead to the completion of a political union that, to a considerable degree, has already been built, and whose economic component is already practically complete.
