IN HIS NOVEL “The Year 3000: A Dream”, from 1897, the Italian writer Paolo Mantegazza proved a deft oracle. Citizens of his imagined future enjoy air-conditioning, clean energy, credit cards and virtual-reality entertainment. A giant war in Europe has been followed by peace, the continent’s integration and a single currency. Yet here the author’s imagination overshoots today’s reality. His United States of Europe is a paragon of democratic federalism. Power and consent flow smoothly from “cosmopolitical” citizens to the level of government where they are most appropriately exercised. Subsidiarity reigns. “How easy and straightforward it is to govern”, comments the narrator, “when men, families and communes are self-governing.” The capital of Mantegazza’s united Europe is Rome. And nowhere quite sums up the gap between these lofty ideals and today’s fractured continent as well as Rome does.
On October 23rd, for the first time, the European Commission rejected a euro-zone member’s budget. Italy’s government, a coalition of the anti-establishment Five Star Movement and the right-populist League, has a mandate from voters to enact tax cuts and spending increases. Its proposals would push Italy’s deficit to 2.4% of GDP—above the level the EU considers appropriate for a country with such high debt, at around 130% of GDP. Technocratic rules agreed on in Brussels are thus in collision with a democratic national government. Supranational discipline is up against the will of the people. Mantegazza would be dismayed.
The saga points to a modern reality that the Italian novelist failed to predict: what Dani Rodrik dubs “the inescapable trilemma of the world economy”. In a globalised world, theorises the Harvard professor, a country can have economic integration, the nation-state or democratic politics, but not all three fully. It can choose integration and the nation-state but give up democratic control to technocratic, supranational institutions. It can choose integration and democracy, but give up the nation-state and disappear into supranational government. Or it can choose the nation-state and democracy by embracing impoverished autarky. The confrontation between Rome and Brussels, which could yet bring the single currency to the brink, sums up Europe’s inability to negotiate this trilemma. (Australia, though, as we report elsewhere, seems able to do it, at least for now.)
The euro zone is integrated enough to enjoy economic benefits. Italy has a trade surplus and racked up much of its current debt before it joined the euro, when the lira lurched from one devaluation to the next. But the benefits of integration are not palpable enough in a country that has experienced sluggish growth over the past two decades. This is visible everywhere in Italy. Even prosperous regions are striking for their lack of newness. From shop windows and office blocks to train stations and public squares, it often seems that little has been renovated, rebuilt or replaced for decades. A beautiful country is uglified by a stagnation that hardly illustrates the benefits of economic integration. No wonder Italians voted for parties determined to take on Brussels.
On the nation-state issue, likewise, the euro zone does not fail entirely. Governments can pursue somewhat distinct paths and set their own budgets. Even if Brussels and Rome cannot find a compromise, the most the EU can do is fine the Italian government. Yet throughout the long euro-zone crisis national sovereignty has been, if not quashed, then at least trimmed by Brussels and the markets. In 2011 European pressure helped to push out Silvio Berlusconi in Italy and George Papandreou in Greece in favour of technocratic replacements. In 2015, 61% of Greeks voted against bail-out conditions that the government then accepted. Earlier this year Italy’s president vetoed the new government’s proposal for finance minister, Paolo Savona, for his Eurosceptic views. And today “lo spread,” the large gap between Italian and German bond yields, is a major force in Italian politics.
All of which might be acceptable if voters had more democratic control. Yet here, too, Europe falls short. The EU is democratic—its executive commission is appointed by elected governments, elected governments make up the council, voters pick the parliament directly—but this democracy is flawed. Turnout in European elections is low. Germans and other northerners do not feel enough solidarity towards southerners to share their debts. Southerners do not feel enough ownership of common rules (even ones their governments helped develop), and resent them as an outside imposition. A degree of common feeling exists, but not enough.
Take your pick
The sensible thing would be for Europeans to decide, once and for all, which of the points on Mr Rodrik’s triangle they are most willing to forfeit. Different political tendencies take different positions on this, but none is honest about the trade-offs. The EU’s management of euro-zone strains acknowledges the separate existence of nation-states and seeks to preserve the benefits of economic integration, but at the expense of full democratic control. Federalist types like Emmanuel Macron want more integration and more European democracy, but are reluctant to admit that this means weakening nation-states. And Eurosceptic nationalists like the League’s Matteo Salvini flirt with leaving the euro, albeit less so now than in the past, in effect promoting democracy and the nation-state above economic integration without being honest about the cost.
For now the EU will continue to muddle on, trying and failing to have all three components of Mr Rodrik’s triangle. But eventually members may have to choose. It is unlikely, yet still imaginable, that the conflict between Brussels and Rome will blow up into a full crisis forcing Europeans to choose between integration and the nation-state, for example. Even if it does not, it would be foolish to ignore one of Mantegazza’s most pointed predictions: that European integration advances only through crisis.