The contribution of the Italian liberal thought to the European Union: Einaudi and his heritage from Leoni to Alesina.
The Italian classical liberal economic thought has given prominent contributions to the construction of Europe. Starting with Luigi Einaudi, who received the heritage of Carlo Cattaneo, this tradition continues with Giovanni Malagodi, Giovanni Demaria, and Bruno Leoni, to mention the liberals of Einaudi's times. Alberto Alesina is a prominent personality among the very few scholars who can be considered as Einaudi's full heirs. They share both Einaudi's economic logic and his belief in the European federation as a means to construct an area of peace, freedom, justice, and economic prosperity. Today's liberals are, to a great extent, euro-sceptical or openly against the European Union.
The European writings of Luigi Einaudi are today mostly unknown, in Italy as well as in the rest of the EU and in the world. It arouses a sense bitterness to realise this. His European writings are distributed over two centuries and over almost sixty years. A record! Their foresight is very impressive. It is clear the impression that the authors of the Treaty of Rome, and indeed, those of Maastricht and Lisbon, not to forget the European Defence Community, have read with attention and taken a great deal from pages, given that the contribution of Einaudi can be found throughout them. Also, the Project for a Treaty instituting the European Union of Altiero Spinelli reveals the influence of Einaudi. However, the most important contribution of Spinelli to the European federation, the Manifesto of Ventotene Spinelli and Rossi (2001), a text impregnated with socialist ideology, is far from the Einaudian liberalism. Einaudi's European writings represent the framework on which the European treaties from Paris to Rome and from Maastricht to Lisbon have been built.
The Liberal Design of Luigi Einaudi (1)
The Single European Market
In August of 1944, Luigi Einaudi, exiled in Switzerland, wrote the essay: The economic problems of the European Federation, a precious contribution to the formation of the federal State and a brilliant explanation of the economic rationality of a European market widened to a continental dimension, similar to the one that would be created with the European Economic Community (EEC) in 1957.
Einaudi draws from the liberal tradition to explain the motives for which the European Federation would have to assure freedom "... to the interstate traffic of people and things within the single federal territory." (12) The purpose of the federation is preventing wars among its member states, because the various forms of autarchy are the main cause of them. Einaudi was fully aware of the difficulties to realize these freedoms of circulation, and he considered them as the most relevant economic obstacle toward federation.
However, it was an obstacle to overcome, because it would not have been possible to imagine a federated Europe without a single customs territory, freely opened. The extension of the market is determinant for the economic prosperity of a country. Einaudi looked at the experience of Switzerland. A small country, but its market is wide, because the country is open to the world with which it traded. The country can thus afford the most specific division of labour and productions, such as clocks and electric machineries. Accordingly, the limit to productivity of capital and labour in Europe derives from the fact that its territory is divided into about twenty states. The European unification would obviate this situation.
"If instead of barriers and customs at every corner, of stops at the borders, of complicated documents for export, the whole Europe would be a single market, how much easier to sell, how much greater demand would be born. A demand that today is latent and that cannot be satisfied." (p. 19)
The expression "single market" is used by Einaudi in the same meaning as today's expression. Not only is it a market without custom duties, but also without any form of custom formalities. Both tariff and non-tariff barriers have to be removed in order to guarantee the free circulation of goods.
The width of the market allows it to adopt the best technologies, not only leading to a more elevated quality of the products, but improving the labor conditions. In small states (and all European countries fill this dimension), it is easier for the entrepreneurs to enforce market conducts leading to the restriction of competition and to invoke successful protectionist measures. The innovating entrepreneur generates profits, but when the innovation is old and profits evaporate, or they are sharply reduced, there is then the need for another innovation. All of this has a cost. Therefore, there is the tendency of preserving the profits without being forced to create continuous innovations.
"To such purposes [the entrepreneurs] replace services with no-services; instead of increasing production they tend to limit it, [...] instead of decreasing prices they increase them." (p.21)
In the small state, it is relatively easier for entrepreneurs to get protectionist provisions.
"They use the rhetoric of the defense of national industry against the flood of foreign products, which with their low prices threaten the destruction of the national economy." (pp. 22-23)
Written about 70 years ago, these words are still modern. Today's political class often uses the same expressions when speaking about globalization and about the commercial effects of opening trade towards China or India. It is the destiny of free trade. History provides only evidence of its positive economic and political effects, and at the same time provides evidence that protectionism is always and unequivocally associated with impoverishment and conflict. Economic theory shows, since the times of Ricardo, and even before him, that free trade increases economic prosperity while the opposite happens with autarchy. However, free trade has always needed to open its road against those hindering it. It has to fight a daily battle, to swim against the tide. In spite of these tendencies, the liberal thought on free trade today is the patrimony of a vast political range that, at least as far as the creation of the European single market is concerned, has seen Catholics, socialists, and communists using the same economic reasoning as liberals. Einaudi provides a shining synthesis of these principles.
Protectionist entrepreneurs after transforming the traders into an enemy, shielding themselves from foreign competition through customs, quotas, or even the total limitation of the imports, are still not yet satisfied. They want to create further guarantees for themselves. And it is so that "... they stipulate among themselves price agreements or they share, as the ancient feudal lords, the markets and practice their protectionist policies to increase prices and for the diminution of the production." (p.23) Einaudi does not use any caution towards protectionist entrepreneurs, ready to tighten competition through cartel agreements, comparing them to the feudal lords. The position of Einaudi is the usual one of liberal economists.
The entrepreneurs-feudal lords do not possess any of the characteristics of the liberal entrepreneur: they never stop asking for privileges. They do not have any brake. Firstly, they depict foreign entrepreneurs and traders as enemies and then they stipulate secret agreements with other entrepreneurs of the same kind to increase their profits. These agreements always produce losses for the consumers.
"They pity the legislative organs and they induce them to vote laws in virtue of which no entrepreneur can build new or widen old plants without a government authorization." (p.24)
It is clear the logic of this type of pressure on the political class: distorting the operation of market mechanisms to one's own benefit and to the advantage of the political class. In short, to the advantage of bribers and corruptors. In such a way, the intervention of the state, solicited by the entrepreneur-feudal lord, dismantles the remnants of the market economy, transforming it into a surreptitious system of a planned centralized economy. A system in which corruption, speculation, and inefficiency proliferate. All this leads to exorbitant prices draining the pockets of the consumers. To what extent the single market, widened to the whole Europe, the market of the European Federation, as Einaudi conceived it, represents a remedy to mercantilist economies? It is the dimension of the market which makes the difference.
"The sentimental, rhetorical and nationalistic topics--holding today so much weight to persuade the majority of electors to submit themselves to the vexations of the national monopolists for the good and the defense of the Italian, French, German or Hungarian homeland--would lose a great deal of their ability to persuade when the entity to be defended would be Europe in its integrity from the Bolshevik, yellow or American danger." (p.26)
In a small state, it is easier to get protectionist measures. Indeed, its limited dimension makes the action of the mercantilist entrepreneurs more incisive in respect to the political class. Besides, the small size of the market and the consequent low number of producers of any particular good acts in such a market facilitates agreements among manufacturers. Nevertheless, all these things are bound to change in a big country, as the European federation would be.
In short, the dimension of the market in the European Federation allows full working of the competition within the single market. For this reason, the economic system is naturally outward looking. Competition forces bring the price level toward the international one, therefore protection is no longer needed. The implementation and development since 1969 of the single market of manufactured goods and of the (few) raw materials has indeed produced the set of effects that Einaudi had foreseen.
The fact that the European single market for services is still in the doldrums is a net loss for Europe. Services are nowadays (2011) the most important sector on the European economy: 75 % of GDP, 45 % of GDP if only non-financial services are considered. Einaudi would not be satisfied of the present situation from two points of view:
The Agricultural Sector Has Been Strongly Protected As a liberal economist Einaudi would have been critic of the common agricultural policy (CAP) and its interventionist character. It is sufficient to think that Einaudi's example against the protection, explained in his essay on Federal Europe, is taken from agriculture.
As long as EU policy on a single market is based on market principles, rather than on liberal principles, effects on prices and on commercial openings have been positive. Whereas, on the contrary, Community policies have diverted from these principles, adopting a strong interventionist attitude, therefore perverse effects on prices, investments, and other variables have appeared. This is true for the agricultural sector, but above all for manufactured goods such as steel.
The Making of the Federation Einaudi links the single market to the birth of the European Federation. He also links the economic union to the political union, first the latter. Things have gone and are going in a different way. The European Federation is not there and will not be there in the near future. Nevertheless, besides a single market, we have a single currency, with a single monetary policy. Indeed the economic union and the forms of economic governance accompanying it are already a form of political union. We are often suited to underestimate the progress made since the adoption of the euro. The sovereign debt crisis (2011-12) has put into evidence how the behavior of Member States affect each other and how no Member State can disregard its own public finances without affecting the others. Public finance problems, until a few years ago, were considered domestic. Today they are objects of joint discussions among Members States. Economic sovereignty is more and more shared in the eurozone and EMU Member States. The European economic governance is a form of political unity, a form of federal government. Actually, we have more Europe than we usually think.
The Single Currency
In the essay The economic problems of the European Federation, Einaudi traces the profile of the European monetary union:
"The present monetary disorder in all countries of the world, the difficulties in exchanging goods and services deriving from the uncertainty of exchange rates, has made evident all advantage that would derive from the adoption of a single monetary unity in the whole territory of the Federation. [...] The right of any federate State to mint its own currency would be abolished [...]. Only the mint or the central Bank acting through local branches, could mint coins with different imprints for each State but with the same denomination, weight and title.
"The advantages of the system would not only be those of calculation and of convenience in payments and in interstate transactions. However big this advantage, it would be small in comparison to another, which is the abolition of the sovereignty of individual states in monetary matters. Who remembers the bad use that many states had done and they make of the right to mint money cannot have any doubt about the urgency to remove such a right. (2) [...] If the European Federation takes away the possibility to face public works by groaning the press of the banknotes from Member States, and forces them to cover these expenditures with the taxes and with the voluntary loans, it will have finished great work. The work of healthy and effective democracy, because the rulers of the federate states cannot deceive the people anymore with the mirage of finished works without cost, thanks to the miracles of the banknotes, but they will owe, in order to get consent to new taxes or credit for new loans, to show to make real services to the citizens." (pp.5-6)
A few things must be underlined:
Member States give up the option of printing money. This is the consequence of a precise choice on how to build the monetary union. Einaudi indicated a single currency, not a common one. The difference is fundamental. The common currency is, in fact, a parallel currency, leaving untouched the right of Member States to print money and to make bad use of this right.
Einaudi conceived what we call today the national side of euro coins.
Today's monetary union is the expression "of a healthy and effective democracy" as it was in the mind of Einaudi. This is because it compels the political class to face its responsibilities in terms of management of public resources. The sovereign debt crisis of 2010-2012 has put the problem of public debt at the centre of the concerns of EU leaders, leading to the signature (by 25 member states) of the fiscal compact treaty. (3)
When Einaudi wrote about the need to avoid "groaning the press of the banknotes", he was clearly thinking to the function of lender of last resort of a central bank, a function he never admitted.
Between 25 June 1946 and 22 December 1947, Einaudi was member of the Constituent Assembly writing and approving the Italian Constitution that was to be promulgated on 27th December of that year. He was the author of various articles of the Constitution, and he frequently intervened in the Assembly. (4) On the theme of economic constitutionalism, he was the inspiration behind Article 81 and in particular the final clause:
"Every year, Parliament shall pass the budget and the financial statements introduced by the Government. [...]. The Budget may not introduce new taxes and new expenditures. Any other law involving new or increased spending shall detail the means there for." (5)
More than 60 years of Republican history have not been enough, in the Italian case, to act on this last clause of Article 81. The non-application of Einaudi's principle, however sound it is, has had much greater consequences. There is no clear trace of it (with the exception of Germany) in the constitutions of parliamentary democracies. Consequently, democracies continue to run deficits. (6) There is, however, a partial exception (until 2007, the last normal year before the crisis), as is with the case of a sui generis parliamentary democracy. This is the EU and the European monetary union, created with the Treaty of Maastricht in 1992 and today incorporated into the Treaty on the Functioning of the European Union. However, let us first look at Einaudi's principle.
On 13 December 1948, Einaudi, who had been elected President of the Republic a few months before, in a letter to the Treasury Minister Pella, commented on a report sent by the Presidents of the Senate and the Chamber giving a clear interpretation of Article 81: (7)
"Without explicit indication from the constitution, we cannot consider that it is forbidden to raise new taxes for new spending, before elimination of the budget deficit". (p.202)
Immediately afterwards, he stated and asked himself:
"Does this juridical consideration supersede the principle that we should carefully consider the opportunity to make more spending before the deficit is eliminated or reduced? Can this principle be ignored by the government and the parliament when applying the law?" (p.202)
And so he replies:
"It would seem first of all difficult to understand what could be the meaning of equilibrium between revenue and spending which this speaker talks about, when spending is more (either by a small or great amount). Furthermore, the speaker is right when he indicates that the problem is not the size, given that the small size of a deficit does not legitimize the violation of the constitution. Could we call a situation in equilibrium when the two plates of the balance are at different height to each other?" (p.203)
Even if he expresses himself prudently and mildly, the only language that the President could use, in consideration of his constitutional powers, Einaudi's reply is negative.
"The report seems to indicate a theoretical equilibrium that would arise when the deficit was formally determined in the budget, but it cannot easily be defined what a 'theoretical equilibrium' could be in the issue concerning state revenue and spending. Surely (...), when article 81 declares that the Chamber approves the budget each year. Is this not implying that a document is approved balancing revenue with spending? Can a budget that does not balance revenue with spending be considered a true budget?" (p. 203)
Einaudi had good reason to be worried.
"If we assume that the last clause of article 81 cannot be separated from the concept of balance, we can deduce the consequences that the legislator would want confirm the obligation of governments and parliaments to make any effort to balance the budget. So, when there is a deficit, the constituents would have obliged parliaments and governments all their effort to increase revenue and reduce spending or both so that the budget is balanced." (p. 203)
Luigi Einaudi, Bruno Leoni and Giovanni Demaria on the European Coal and Steel Community
When Robert Schuman read his famous Declaration (9 May 1950), Luigi Einaudi was President of the Italian Republic. However, the charge and the related commitments did not prevent him from continuing to write on major national and international events. (8)
In a note dated 27 June 1950, Einaudi reflects on the Schuman plan. He firstly provides indications on the institutional structure and the decision-making mechanisms of the future European Coal and Steel Community (ECSC). We find clear traces of these reflections in the articles of the Treaty of Paris of 1951. Once again, we remain impressed by his vision.
The reflection of Einaudi turns then on the making of the common market, which will lead to the "....establishment in Europe of a large single market in which coal, iron and steel in all their various qualities run freely without paying any duty moving from one State to another." (p. 186)
Then he adds, touching a point of controversy:
"The plan should ensure increased production due to maximum rationalization of production facilities. Losses running mines should be shut down, plants working with too high costs in comparison to the single price determined by the market, should be dismantled. Reducing costs and lowering prices, therefore, would give the greatest impetus to consumption and thereby imitating the United States. This process would determine the maximum employment in coal mines, in iron and steel plants and in those, far more numerous, which use in various branches of economic activity of mining and the steel industry." (p. 186)
Essentially, the single market should lead to a rationalization in the number of existing business through the mechanism of competition and prices determined by supply and demand, in which the most efficient will survive due to their ability to be competitive by themselves without any subsidies from member states.
"In this way the plan would not have established a colossal steel mining cartel, but would instead achieve a maximum economic production, a minimum price and a maximum boost at all secondary production based on coal and steel." (pp. 186-187)
After saying this, he manifested his concern for how the plan would be understood "... by the great mass of industrialists and workers supported by their political representatives [groups in which] alive hiddenly the hope that the plan could have been made so as to work like a beautiful cartel, oriented to determine the production and the prices in Europe." (p. 187) To avoid all of this, it is necessary, he suggested, "... to clearly define what is meant when is affirmed that all the European consumers should have the equal right of acceding to raw materials like coal, iron and steel." (p. 188) This does not mean that the consumers of the member countries would "... have the right to a coal assignment of iron and of steel in relationship to their own demand and each manufacturing country of coal, iron and steel has the right of participating to the sale in determined proportions on the European market." (p. 188) In such a case, we would revert to the case of the cartels.
There does not exist a right to have raw materials, Einaudi says.
"If we want to avoid wars in the future it is necessary banishing from the dictionary the idea of the right to the raw materials. [...] To the wicked idea of the right to the raw materials it is necessary to oppose the idea of the good sense. All, whatever the nation they belong to, in our case the countries participating in the Schuman Plan, must be placed by the legislator in condition to be able to purchase coal, iron and steel paying for the purchase the price that the middle age theologians defined as the correct price.
"But what is the correct price? Just one is known and it is the market price: the market price for good of the same quality. [...] If these rules will be observed, substantially the observance of the market price in the whole territory of the plan, a result politically apt to save Europe will be reached, a result such as to give a big push to the production of the consumptions in the continental European nations. Otherwise we will find us in front to one of the usual international cartels well known before the two last wars." (p. 188)
Einaudi feared that the common market was going to be submitted not to the laws of the market, but to political decisions and compromises. His concern was not excessive, but based on the tendencies emerging in those years. Einaudi was aware of the potential dangers. In the following years, an ample debate developed on the modus agendi of the ECSC. Indeed, the High Authority ambitions concerning the orientation of investments were rather elevated. In 1955, according to the "Premier memorandum sur la definition des objectifs generaux", the ECSC should have been considered as a "lighthouse to direct the investments" because:
"La fameuse mail invisible ne guide jamais bien loin." (9)
A few days before the ECSC Treaty entered into force, Bruno Leoni, in an article that appeared on Il Sole (10) (today Il Sole240re, the newspaper of the Confindustria, the entrepreneur association) developed a reflection in which he compared two models of European federation: a stateliest one, reflecting socialist-Keynesian view, and a liberal one, the genuine product of the federalist thought. Leoni feared that in the future, ECSC would have "... the power to command some fundamental resources (the fear of Einaudi before the Treaty in Paris took shape. Author's note). It is in reality a gigantic power that interferes, like it or not, with an innumerable series of activities, directly or indirectly connected to production, distribution and consumption of those resources." (p. 102)
The solution proposed by Leoni is not different from that of Einaudi and coincides with that of Giovanni Demaria that we will see in a short while.
"It exists a clever system to make compatible the demands, at least the economic ones, of the most different people; a system that rigorously excludes the politicians from the elaboration of tables of "priorities" for the economic goods, or of regulations assigning to someone the resources that deny to others. [...] This system, old perhaps how much the world [...] is knows as market economy [...] The misunderstanding with many Europeanists lies in the fact that they don't say if they want to build the United Europe through the market economy or the socialist type planning." (p. 104)
The problem for Leoni was not whether or not the unification of Europe is desirable, but whether a socialist Europe or a liberal Europe is desired.
The considerations of Demaria came a few years later, (11) following the discussions held in Stresa, in June 1957, in a lecture devoted to the future of the ECSC. Demaria departed from the consideration that the first five years of the ECSC had been fruitful, a thing that as we will also see in the next paragraph, Giovanni Malagodi would have underlined a few days later, because the common market of coal and steel had been developing under favourable conditions of increasing production and high incomes. Nevertheless, Demaria emphasized, in line with Einaudi and Leoni, the danger of so many interventions by politics, "... which would like to push the ECSC policy to estrange from full economic liberty pursued in this first period of existence." (p. 81)
On the base of a consolidated thesis emerged in that occasion, "... both Member States and the operators should be indiscriminately submitted to the 'controlled economy' regime of the ECSC. Then, little by little, this should create all the juridical and economic conditions under which Member States, enterprises and private citizens should conduct any activity concerning coal and steel." (p.81)
If this was the thesis, the antithesis consisted in returning to national policies in the sector, giving back member states the possibility "... to issue laws and administrative rules, also contrary to the letter and to the spirit of the ECSC Treaty." (p.82)
In conclusion, on one side a form of super-national control was proposed for the economy, and on the other side forms of planning at national level were advanced. Both solutions were decidedly very distant from liberal thought. The conclusion of Demaria was that the
"... vacuum between thesis and antithesis indicates the Treaty is not perfect yet. The interest of Italy--he continued--is however that the actual sketch of the ECSC should be modified as little as possible, that is that all the countries would be subordinates to the policies followed until now. The capital problem is not to innovate, on the contrary to preserve the present characters of the organization; it is therefore necessary to oppose any possible change of the Treaty, out of those bound to strengthen the full economic competition among all private or public producers." (82)
Einaudi, Leoni, and Demaria, three common visions on the ECSC. The idea of a socialist federation would never become concrete, at least in the form conceived by those who sustained it. Nevertheless, those fears were not out of place, with the sixties starting to blow an ugly wind for the supporters of the market economy, both in Italy and in Europe. The winners were the supporters of the antithesis of the 1957 Stresa Conference. The history of State steel is propped up by wastes and damages that affected the Europeans as workers, citizens, and consumers. It was the ideological triumph of economic nationalism, ending in a defeat of which Europe is still paying the price. The European Community was first a spectator incapable to intervening, then in front of the disaster it started a rescue plan, expensive, but which allowed the return to the market laws and with it to the efficiency.
Certainly it is true that if the messages of Einaudi and the liberals of his time had been listened to, Europe would have been spared many years of waste and missed growth.
Giovanni Malagodi: the Ratification of the Treaty of Rome
In June and July of 1957 at the Italian Chamber of Deputies, Montecitorio, the debate on the ratification of the EEC and EURATOM Treaties took place. This debate was dominated by the contrast between the visions of liberals and the Christian-democrats on one side and that of the communists and socialists on the other. The intervention of Giovanni Malagodi, (12) secretary general of the Italian Liberal Party, took place 20 July.
Malagodi underlined how the opening of the European economic systems had been accompanied by an increase in trade, production, and consequently, in economic prosperity, a thing that did not happen after WWI. Italy, according to Malagodi, was well inserted into this general European course. (13) It was not just the case of steel, a protected sector and whose protection was called for by communists and by the most reactionary sectors of entrepreneurs (the middle-age entrepreneurs, according to Einaudi), and in which, thanks to liberalization introduced with the ECSC, Italy has reached unthinkable levels of production, but also of new sectors such as the mechanical and the chemical ones. In short:
"Italy freed from autarchy and on the road to free trade has developed in the post-war period its exports, bringing them to unprecedented levels". [...] the immense scientific and technical advance that is in progress in the free world which [...] makes it possible to face sector restructurings with a concern a great deal smaller than the one that would have probably occurred in other times. [...] The treaties of Rome represent by now the logical apex of the process of re-integration which has been in progress in the last 10 years." (p.34176)
It is worth remembering that, faced by this vision replacing narrow and separated markets with a single wide market, the minority report of the Italian Communist Party (PCI) proposed national autarchy. On July 10, in a speech as member of the Special Committee for the examination of the Treaties a deputy of the PCI, Giorgio Napolitano, later President of the Republic (2006-2013), claimed that the Treaty under examination constituted:
"... only an attempt of the European capitalistic groups to consolidate and to extend their positions. The Treaty is addressed to an indiscriminate liberalization and it is therefore contrary to development politics of each participating country [...] the Treaty will have the only result to arrest the economic progress and the social reforms of any adherent country." (14)
Faced with these positions, expressed also by other exponents of the Italian Communist Party, Malagodi hoped:
"That our communist colleagues, in front of this contagion of liberty, could politically die, not certain personally; rather--it added--personally I desire that they will live and have the possibility to enjoy the benefits of the new and free European Economic Community." (pp.34180)
A prophetic sentence!
According to Malagodi, a crisis of the balance of payments in a member State, leading to monetary restrictions would be ruinous for the Community as the sine qua non condition for its existence was the maintenance of free monetary relationships. Once the single market was liberalized, the Community will have to be made irreversible. To guarantee this result ...
"...there is only a way called common currency and the pooling of monetary reserves [...]. But all this in today's world means a common minister of the finances and a governor of the common central bank. In conclusion a common government. There can be no common currency without a common government." (p. 34183)
About the European minister of the finances, it is worth remembering that 54 years later the then president of the ECB, Jean-Claude Trichet, had affirmed: (15)
"In this Union of tomorrow, or of the day after tomorrow, would it be too bold, in the economic field, with a single market, a single currency and a single central bank, to envisage a ministry of finance of the Union?"
Once more, the liberal vision has anticipated the events of history.
Bruno Leoni on Federalism
Concluding, in March 1958, the prolusion to the First Seminar of American Studies, Bruno Leoni said:
"Young people have, in comparison to the old ones, an undisputed privilege: Those to be able to do, if possible, what to the old ones have not succeeded yet. It is therefore, from the young people that the deputies to the European convention may come out, and it is from the young people that the president of the United States of Europe can raise." (16) (p. 115)
The young people of that time are today's elderly people. Have they succeeded in doing since that time what the old ones have not? This is a question to which a positive answer can substantially be given. But what would be the judgment of Leoni on the European Union today? As a federalist, his judgment could in some aspects be positive. However, as a liberal, he would judge negatively more than one of the policies of Bruxelles, probably on the lines of the article on the ECSC we have seen above. To go over would be a hazard.
"Attualita del Federalismo" [Topicality of Federalism] is, first of all, a comparison among the topicality of the federal formula in the United States and in Europe. Divergent trends among the two shores of the Atlantic.
"It is much discussed today, and certainly debatable, whether Federalism is still a fundamental characteristic of the United States of America." (p.98)
This is a problem that was not even new in that moment. Now, after almost 20 years, as Leoni writes, various American political science researchers have reported the aging of federalism. What was fading out was the equilibrium between states and federal government. As Leoni remembers, that equilibrium was a problem since 1787, when the federal constitution was ratified. Later, beginning in 1916, the grants and aid system, or rather, the conditioned loans from the federal government to states, have contributed to the movement of the sovereignty from the federate states to the federal one.
Nevertheless, Europeans are realizing that America is able to provide a political theory that could be used with great benefit. In Europe, the loss of relative importance is perceived, both in terms of political and economic weight, not like an irreversible decline of her culture, but to the fact of being divided. We are suffering a lack of political technique. The one we have is obsolete; our interest for the federal solution stems from this perception. It is worth remembering that for Leoni, federalism is not a political theory, and as such, can be adopted by different political systems: liberal, socialist, and communist.
"Federal idea is topical in Europe--is the conclusion of Leoni--as could have been the classical liberal idea in the first decades of the past century or the socialist idea in the first decades of ours. It possesses the fascinating attractiveness of the ideas not yet enforced, but whose realisation is desired by many people and mainly by the young." (p. 115)
It is true that the young people of the 1950s and 1960s have succeeded in advancing the design of the founding Fathers; nevertheless, that idea is still incomplete. This explains why the charm of that time has partially become lost. Leoni explains how essential it is to advance toward a greater sharing of the sovereignty among member states. However, the equilibrium between central power and local power has to be respected, as this is the soul of federalism.
Alberto Alesina: A Liberal and a Europeanist
Federalism is one of the most important and promising products of liberal thought. It is the goal of liberalism, and is so strictly connected with liberalism, that a liberal cannot be anti-federalist. Conversely, a federalist is not unavoidably a liberal. In reality, today most federalist thinkers are anti-liberals and blame the neo-liberal stance of the EU integration process. Curiously, so many liberals criticize the EU on the ground that it is a stateliest process, implying state interventionist policies, and that these policies negatively affect economic freedoms. At least as far as Italy is concerned, Europeanist liberalism died with Einaudi and with the Italian liberals of his time. At best, Europeanist liberals represent today what could be defined as an active minority. Alberto Alesina is among the most prominent members of this active minority, which can be viewed as an heir of the Founding fathers.
We are going to develop this point in the present section. Our considerations are based on his book The Future of Europe, (written with Francesco Giavazzi) . More precisely, in line with what we have seen in the previous sections, we will try to verify to what extent his thought is in line with that of Einaudi and how much Alesina can be considered as a full heir of this great tradition.
Einaudi's basic reason in favor of the creation of what we call now the European Single Market, as we have seen in a previous section, is that the elimination of borders would have enhanced competition with the consequent elimination of monopolies. Einaudi's doctrine is deeply rooted in anti-trust culture.
Alesina, in Chapter 7 of his book , moving from George Stigler's theory on "captured agencies" examines the benefits of liberalizations and the difficulties in implementing them. The basic problem, he writes, is that in Europe we suffer from a lack of a serious anti-trust culture. Europeans still have to understand that deregulation is a policy to reduce and eliminate monopolistic rents and redistribute them to the citizens. Drawing from the American experience, Alesina's proposal is that of a "Bing Bang", liberalizing all markets at a single stroke. Only by guaranteeing to the whole society, including all interest groups, an advantage out of a liberalization process, can the resistance of politics (defending specific group of interests) be defeated. This approach has been widely used by the European Commission. Besides the possibility of capturing a supra-national agency such as the Commission's Directorate General for Competition Policy, it is much more difficult than in the case of national politicians. Alesina recognizes that the defense of competition and the prohibition of state aids are the two fields in which Europe has obtained its most relevant successes. More controversial, however, is the judgment on the Commission's merger policy. Too much zeal has characterized Brussels' intervention to forbid mergers among enterprises.
We should not have to waste too many words to explain how much this consideration on competition and competition policy is in line with Einaudi's liberal thought. His liberalism can be labeled as liberalism of rules, according to which frame laws and regulations delimitate a level playing field in which each competitor is free to compete without any advantage or any privilege. This leads us to a second point that should be emphasized: prohibition of state aides. A field in which, as Alesina writes, the EU Competition policy has been successful.
We must add that prohibition of state aid and subsidies, which is a unique feature of the EU competition policy, is not present in any national legislation. An example to be imitated. A further point to be underlined is connected with Alesina's remarks on EU merger policy. He criticises the strict application, by the Commission, of the principle of dominant firm. Indeed, we may add, the Commission has been influenced too much by the neo-classical vision of competition (numbers of competitors and consequent dimension of the firms) and is too separated from the more far reaching concept of the Austrian School, focusing not on the number of competitors but on entry barriers. According to the Austrian view, potential competition (absence of entry barriers) makes competition independent with respect to the number of competitors acting in the market.
The chapter dedicated to the United States of Europe is where the Einaudian heritage is even more evident. In his essay The economic problems of the European federation, Einaudi lists its main tasks: single market, transport and communications, external trade, common European army, foreign policy, monetary union with a single currency, and a European central bank. The rationale for selecting these fields is that the corresponding policies can be better dealt with at federal level than at the national one, an application of the well-known subsidiarity principle: Mutatis mutandis, changing what has been to change. This approach has been adopted by Alesina when answering the question of what the EU should do and should not do. Public activities, he writes, generating economies of scale should be attributed to the EU, while member states should concentrate on what economists define as heterogeneity of preferences. A somehow different approach in respect to the one by Einaudi but leading to the same results as the list of exclusive competences of the EU. Einaudi does not indicate the task not to be attributed to the federation, but surely educational policies, indicated by Alesina as an example where the heterogeneity of preferences is dominating, would have been included in such a hypothetical list. In his writings on education, the hostility to state monopoly in education and the preferences for heterogeneity of educational programs (what he called freedom to teach) is clearly expressed.
Alesina points out that the debate on the EU is dominated by the dichotomy between the communitarian method and the intergovernmental method. The first being an expression of federalism and the second, the usual UN style, cooperation among governments, implying negotiations and consensus. However, he notices, there is another and more important dichotomy, the one between a dirigist Europe and a liberist Europe. This was also the concern of Einaudi when commenting the Schuman Plan for the implementation of the ECSC and of Bruno. The pretention for allocating resources according to a plan would have caused a huge waste of resources and friction among the member states. On a more general and theoretical plan, we find these considerations in an article by Hayek written in 1939 with the title: The Economic Conditions of Interstate Federalism. (17)
The main conflict dividing Europe is not the one between intergovernmental and federal methods, but the one between the French approach for a dirigist and protectionist policy in the economy and a foreign policy out of the North Atlantic Treaty Organization (NATO), and the liberal conception for a Europe economically opened and market-based and politically anchored to NATO.
On the dirigist-liberist dichotomy, we add that where EU policies have adopted a liberal stance they have been successful (for example: single market, commercial policy, single currency), but where they have adopted a dirigist approach, the costs have been quite superior to the benefits, the main example being the common agricultural policy.
Einaudi was an advocate of balanced state budgets and rigorous management of public expenditures; we have seen this issue earlier in the paper. Dealing with the problem of European public finance, Alesina insists on the need for structural reforms in order to generate a structural reduction of public expenditures. This is the only road to sustainable equilibrium of public budgets and sustainable levels of public debts. Among the most urgent structural reforms, he indicates the one concerning pensions systems. Einaudi, during his presidency of the Italian Republic, was quite concerned with public deficit (debt in that moment was low enough not to be a matter of concern). In a note written during his presidency, he urged the need for reforming the Italian retirement system and in particular on the need of extending retirement age from 65 to 70 for public servants. Using the powers held by the Presidency in those years, he implemented this reform among the employees of the Quirinale, the official residence of the president of Italy.
Finally, Alesina launches an appeal to European citizens, putting forward six priorities: liberalizations for products and services markets; liberalization of labor market; immigration; university and research; judicial systems; and public finance. We have good reasons for believing that Einaudi and the liberals of his time would have agreed with these reforms.
Even if so much of what was pointed out by Einaudi and by the Italian liberals of his time has been achieved, the jump toward the European Federation has been missed. In order to search for the reason for this, it is essential to depart from the consideration that federalism is a genuine liberal theory. Federalism is intimately tied to the essence of liberalism. Individuals and their freedom of expression and of action are the fulcrum of liberalism. Regarding the liberal system, Carlo Cattaneo (18) wrote in the midst of the 19th Century:
"Each individual has to preserve his personal sovereignty or rather his free expression. By recognizing equal sovereignty and liberty to his friends, the individual has to do for them and with them all what he can do without eroding his own fights."
This means that in free society each individual cooperates with the rest of society so that his personal sovereignty can pacifically coexist with other people's sovereignty without injuring it. The same happens in a federation. The federate state enjoys its intangible sovereignty and recognizes "equal sovereignty and liberty" to others. In conclusion the individual is related to the other members of society as the federate state is related to other states of the federation. Federation, as the great economist and Austrian liberal federalist Friedrich von Hayek observed, is a realizable solution in a society, in an economic and political system of liberal mould; federalism is the goal of liberalism.
Eradicated from liberalism, federalism is a tree that cannot produce any fruit. This explains why the dream of Einaudi has only been partially realized. The vision of Einaudi has anticipated the times. The vision of the liberals of his time has excavated the foundations of Europe. The present challenge between dirigist Europe and liberal Europe, has only one solution: either we build a liberal Europe or there will be no positive advance in the European construction. The tiny active minority of Europeanist liberals has the difficult task of picking up this vision.
We are confident that they will be successful.
Published online: 3 August 2012
Alesina, A., & Giavazzi, F. (2006). The future of Europe: Reform or Decline. MIT Press.
dei Deputati, C., Sommario, R., & delle Commissioni, B. (1957). 10 July 1957.
dei Deputati, C. (1957). Atti Parlamentari, session of 20 July 1957.
Constitution of the Italian Republic, Rome, December 1947. Constitution of the Italian Republic. <http:// www.quirinale.it/qrnw/statico/costituzione/pdf/costituzione_inglese_01.pdf>
Demaria, G. (1965). Eclissi dell'Economia Borghese, Cedam, Padova.
Einaudi, L. (2004) I problemi economici della Federazione europea, Treves.
Einaudi, L. (1956). Sulla interpretazione dell'articolo 81 della Costituzione, in "Lo scrittorio del Presidente", Einaudi, Torino.
European Union, Treaty on Stability, Coordination and Governance in the European and Monetary Union, Brussels, 2012.
Mattioli, F. R. (2005). Giovanni Malagodi Banchiere (1927-1952), Edizioni di Storia e Letteratura, Roma.
Galligani, C. (2010). Cattaneo e il Federalismo. Roma: Armando Editore.
Hayek, F. (1949). The Economic Conditions of Interstate Federalism. In Individualism and Economic Order. London: Routledge.
Leboutte, Rene. (2008). Histoire economique et sociale de la construction europeenne. Bruxclles: P. I. E. Peter Lang.
Leoni, B. (2007). Collettivismo e liberta economica. Rubbettino, Soveria Mannelli, Italy.
Leoni, B. (1958). Attualita del Federalismo. Marzo: Il Politico.
Santagostino, A. (Ed.) (2011). Luigi Einaudi, una visione liberale a guida della storia. Gli scritti europei. Il Commiato. Giuseppe Laterza, Bari.
Spinelli, A., & Rossi, E. (2001). "Il Manifesto di Ventotene", Celid, Turin, Italy.
Trichet, J.-C. (2011). Building Europe, building institutions, Aachen, ECB.
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A. Santagostino ([mail])
University of Brescia, Brescia, Italy
(1) The quotations included in this sub-section and in the next one are taken from Luigi Einaudi: "The economic problems of the European Federation", Treves, Milan, Italy, 2004. Specific page numbers are indicated at the end of each quotation.
(2) Italics not of the text.
(3) Formally Treaty on Stability, Coordination and Governance in the European and Monetary Union (2012). http://www.european-council.europa.eu/media/639235/st00tscg26_en12.pdf
(4) See: Zanone (2008). pp. 109-125
(5) Constitution of the Italian Republic. http://www.quirinale.it/qmw/statico/costituzione/pdf/costituzione_ inglese_01.pdf
(6) The Fiscal compact treaty compels EU Member States to include in their national Constitutions the golden rule on balanced budget.
(7) L. Einaudi, Sulla interpretazione dell'articolo 81 della Costituzione, in: "Lo scrittoio del Presidente", Einaudi, Turin, Italy, 1956. Specific page numbers are indicated at the end of each quotation. Italics not of the text.
(8) L. Einaudi, Sul piano Schuman, in: Angelo Santagostino (Ed.), "Luigi Einaudi. Una visione liberale a guida della storia. Gli scritti europei. 11 commiato". Edizioni Giuseppe Laterza, Bari, Italy, 2011. pp. 183-196. Specific page numbers are indicated at the end of each quotation.
(9) Quoted by : Leboutte (2008), p. 150.
(10) Quale Europa vogliamo? Gli equivoci dell'europeismo, now in: Bruno Leoni, "Collettivismo e liberta economica, Rubbettino", Soveria Mannelli (Catanzaro), Italy, 2007, pp. 101-104. Specific page numbers are indicated at the end of each quotation.
(11) Demaria (1965), pp. 80-82. Specific page numbers are indicated at the end of each quotation.
(12) For a biography of Giovanni Malagodi see: Mattioli (2005)
(13) See: Camera dei Deputati (1957), pp. 34170-34185.
(14) Camera dei Deputati et al. (1957), p. 29. Italics not of the text.
(15) Speech by Jean-Claude Trichet, President of the ECB on receiving the Karlspreis 2011 in Aachen, 2 June 2011 : http://www.ecb.int/press/key/date/2011/html/sp110602.en.html
(16) "Attualita del Federalismo", Il Politico, Pavia, Italy, Mach 1958, pp. 98-115. Specific page numbers are indicated at the end of each quotation.
(17) Hayek (1949), pp. 255-272
(18) Galligani (2010), p. 127
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|Title Annotation:||Luigi Einaudi|
|Publication:||Atlantic Economic Journal|
|Date:||Dec 1, 2012|
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