It is time for the EU to become geopolitical
The drama of the war in Ukraine represents a watershed for the history of the European Union. Already during the pandemic, a new narrative of the European project had begun to take hold, not limited to the monetary and financial economy but oriented towards the definition of strategic autonomy in the geopolitical arena.
A monetary system for peace
The founding fathers of Europe were convinced that countries had to unite economically and politically in order to avoid a new world conflict. With this spirit, the European Payments Union was established in 1950, the European Coal and Steel Community in 1951, the European Atomic Energy Community and the European Economic Community in 1957. The goal was to liberalize trade and, in brutal terms, to make it economically inconvenient to resort to armed warfare in the heart of Europe.
Subsequently, in the second half of the 1980s, the idea spread among European policy makers that an economic-political union would not have fully expressed its potential in the absence of a single currency. The latter would have better protected the purchasing power of households and businesses, eliminated exchange rate risks and reduced transaction costs. Furthermore, not surprisingly, the currency, together with the army, historically materializes the authority of political power and is the unit of measurement of its credibility.
With the Single European Act of 1986, the foundations were laid for the construction of the Economic and Monetary Union and the Delors Report of 1989 put in black and white the road map for the construction of European monetary policy, which then merged into the Maastricht Treaty of 1992 , which was followed in 1997 by the adoption of the Stability and Growth Pact which binds the Member States to respect the convergence criteria set out in the Masstricht Treaty; here we mention two by way of example: deficit/GDP ratio no higher than 3% and debt/GDP ratio no higher than 60%. This last parameter was integrated by the Fiscal compact of 2012, which forbids the theoretical deficit of full employment to exceed 0.5% of GDP during an economic cycle and establishes that the debt/GDP ratio, if higher than 60 %, should fall each year by one twentieth of the distance between its actual level and the 60% threshold.
The financial crisis and the sovereign debt crisis
In 2007, the collapse of the American real estate market, closely linked to the boom in securitization and financial derivatives on the balance sheets of the largest investment banks in the world, ended up infecting European banks as well and, in cascade, the European economy and the public finances of the Member States, triggering the Great Recession of 2008–2009.
Starting from this two-year period there has been a progressive deterioration of the Maastricht parameters and a sharp reduction in GDP and employment, especially in Greece, Spain and Ireland, culminating in the explosion of spreads in 2011 with the involvement also of Portugal and Italy. These countries were forced to adopt restrictive fiscal policies to contain public debt and preserve access to financial markets, prolonging the crisis until 2013.
In those years, the narrative of European politics was influenced by the images of protests in Greek squares against the euro and the Troika, laying the foundations for the birth and rooting of populist and Eurosceptic movements in the main EU countries affected by the collapse of the GDP and the increase in unemployment. The EU split into two factions. On the one hand, the economically stronger and politically stable countries, such as Germany, Austria and the Netherlands. On the other hand, the countries of southern Europe, such as Spain, Greece and Italy.
The electoral campaigns of those years, in fact, were all focused on whether or not to join the euro and the EU, on the reform of the Stability Pact and on the Treaties, up to the point of rejecting economic globalization and the return of nationalism. The European establishment, identified as a technocratic assembly devoid of any empathy and detached from society, has been accused by a part of public opinion.
The result was an apparently regressive phase in the process of building a political Europe, affected in its foundations.
The pandemic, the Next Generation EU and strategic autonomy
From 2013 to 2019, the European economy experienced a phase of stagnation, characterized by German hegemony and inflation well below 2%. Despite the adoption of a restrictive fiscal policy, Italy has failed to implement the structural reforms requested by the European Commission. Public debt increased and unemployment, especially among young people, remained at unsatisfactory levels.
Despite the flexibility granted in terms of containing the public deficit, the absence of a common integrated fiscal policy weakened the effects on the real economy of the expansive monetary policy of the ECB led by Mario Draghi, decisive for the survival of the Eurozone from the “whatever it takes” onwards. In 2020 the pandemic overwhelmed all the countries of the European Union, triggering a new even more serious recession, with a negative shock on both supply and demand. But this time the EU has responded with effective measures, such as the suspension of the Stability Pact and the discipline on state aid, and has introduced for the first time in its history a common fiscal policy instrument capable of adequately accompanying the monetary policy of the ECB, the Next Generation EU.
The latter not only aims to support the recovery of the countries economically most affected by the pandemic, but aims to redesign the European economy, allowing Member States to borrow at low interest rates to finance investments in infrastructure, ecological and energy transition, transformation digital and scientific research, social mobility and the fight against inequalities. We will know in the next five years whether the Next Gen will be truly effective, but if so, it will lay the foundations for the construction of a permanent European tax policy. Much will depend on the political will of the individual states to achieve the set objectives and comply with the conditions imposed by the European Commission on reforms.
The return to geopolitics and the war in Ukraine
If 2020 was the year of the relaunch of European fiscal policy, 2021–2022 could prove to be the decisive two-year period for the relaunch of the EU as a geopolitical actor. The war in Ukraine has hastened a shift in EU posture that was already underway. The race for vaccines, the freezing of the supply chain on a global scale, the shortage of semiconductors, the expensive energy are all factors that have led European leaders to put the strategic autonomy and international projection of the EU back on top of the agenda. replacing it with the economic and self-referential debate of the last decade.
“I believe that Europe must speak louder and more united on the world stage, and must act quickly. For this reason we must have the courage to take foreign policy decisions by qualified majority and to stand united in defending them. The cornerstone of our collective defense will always be NATO. We will remain transatlantic and we must become more European. And that is why we created the European Defense Union. Our efforts to build our European Security and Defense Union is an integral part of global security. Stabilization cannot do without diplomacy, reconciliation and reconstruction”.
These were the words of Ursula von der Leyen in her inaugural speech as head of the European Commission in July 2019. According to many analysts, von der Leyen on that occasion wanted to lay the foundations for a change of pace of the EU in the strategic and geopolitical. Loyalty to the USA, cooling of relations with China (stop to the investment agreement and sanctions for violation of human rights in Xinjiang), caution towards Russia and greater autonomy in the energy (Green Deal) and industrial (European Chips Act) fields . There was and still is no shortage of ambiguities.
Above all, the energy dependence of Germany and Italy on Russia. But the drama of the war in Ukraine can determine the definitive paradigm shift.
After some hesitation, Germany has suspended the approval of the Nord Stream 2 gas pipeline and Italy is actively participating in the operation of political and financial isolation of the Russian Federation (subject to the exclusion from SWIFT of the sale of hydrocarbons) and of sending of armaments for the defense of Ukraine. Meanwhile, the under attack Ukraine has formally applied for EU membership. Beyond the concrete possibility of implementing this path, we are at a juncture in history that can determine the definitive leap in quality of the EU, from Economic and Monetary Union to Geopolitical Union.
