Crisis of the European Union and the role of Italy

Article written by Giancarlo Elia Valori, Honorable de l’Académie des Sciences de l’Institut de France


Marco_Aurelio_bronzo As Marcus Aurelius said, “the universe is change, our life is what our thoughts make it“.
The old-fashioned thinking, the habit of tacitly accepting what does no longer work, the inertia in our judgments are the first dangers for those who are setting about to make an unbiased and careful analysis of what is happening around us.
In fact, currently the problem is Europe – Europe that we have always thought to be one of the solutions to our problems.
Hungary led by Victor Orbán is building a wall along the border with Serbia – a wall 175 kilometers long and four meter high. Bulgaria has already built fences along the 240 kilometers separating it from Turkey, the second largest NATO Turkey-EU1Member State. Turkey has at first destabilized Syria and has then used the migration flows from the Daesh/Isis Caliphate to impose its will onto the EU Member States – not to mention its struggle against the Kurds, which is much more virulent that the fight against the Syrian-Iraqi jihad.
Montenegro is collapsing.
For weeks, in the capital city of Podgorica, there have been harsh clashes between the supporters of the current Prime Minister, Milo Djukanovic, and the parties opposing him. The bone of contention is NATO membership, that Serbia and Russia oppose subtly, but not too much.
 If, after securing its Ukrainian space and monopolizing the Syrian-Iraqi one, Russia manages part of the Balkans and the maritime routes of the Shatt el Arab and the Arab regional seas, the Atlantic Alliance will turn into a regional union, deprived of a “long arm “to control the Indian Ocean and the great trade routes coming from the Asian seas, which will be the axis of the next geo-economic development.
Hence this will mean the end of European privileges, the future marginality of the Eurasian peninsula, as well as the end of the positive relationship between the US economy and the European Union. Will this also mean the end of NATO? Not yet – there will be a long phase of structural weakening, while the countries of the buffer areas will discover to what extent it is useful not to stably ally with anyone, by using the strategy that the Anglo-Saxon political scientists call “free-riding”.
Starpparlamentārā_konference_par_kopējo_ārpolitiku_un_drošības_politiku,_kā_arī_kopējo_drošības_un_aizsardzības_politiku_(16109483144) Hence where is Article 5 of the North Atlantic Treaty for Turkey? Where is now the common European policy faced with huge phenomena such as migration, capable of first upsetting and then destroying both the European mass welfare – already floundering into a crisis due to the low EU productivity rates – and its already weak labour market?
It is worth recalling that our welfare has long been built on public debt and its ever lower medium-term sustainability.
It is true that immigration can get the social security accounts back on track over a period of five years provided, however, that all immigrants find regular and stable jobs, which seems to be highly unlikely.
Italy’s recovery is very slow. The IMF’s forecasts point to a 0.8% growth rate for 2015, and 1.3% for the following year.
Hence, not even today can we recover compared to the rates recorded in late 2014, the worst period of the crisis: -10% of GDP, -8% in consumption, -35% of investment, 30% of spare capacity in the industrial sector and 13% of unemployment rate.
It is worth recalling that so far Italy’s recovery has been fueled by stocks (80% in the first half of 2015) – and indeed, the same holds true for the much more robust US recovery – and stocks are the most volatile component of demand.
Also this very timid recovery is under the threat of deflation, which no quantitative easing of the European Central Bank succeeds in averting because it stimulates demand and the Euro marginalization will even stimulate future competitive devaluations between major world currencies.
We can easily imagine what the consequences will be on our single currency countries.
We shall also take the Euro marginalization into account – and sooner than we may think.
Not to mention the “Volkswagen risk“, which is also weighing heavily on European exports. Trade wars are also fought with laws and regulations.
The Euro is still an awkward covenant currency.
Its introduction stemmed largely from Robert Mundell’s old model of “optimum currency areas”.


Schermata 2015-07-08 a 01.41.35 At that time, our experts thought that the Euro covered exactly the optimum currency area of the whole Eurasian peninsula. On the one hand there was the idea of “competing” with the US dollar, on the other there was the myth – typical of the academic neoclassical economics – that the currency supply and demand could directly control all the other economic factors.
By enlarging the Euro – which was a real folly – we enabled countries having badly damaged public finances and accounts to enter into our single currency – countries which have happily got into debt with the new Euro rates.
It is worth reiterating that the quick enlargement of the European Union and the single currency area was dangerous nonsense.
Moreover, while the US dollar means a government and a foreign policy, sometimes the Euro seems more cash in circulation than a currency – just to quote the old and never refuted theory of Luigi Einaudi.
Currencies are the mirror of real and effective power. If Europe does not implement a common and consistent foreign policy – and today it cannot do so – and if it fails to control its Near Abroad and even negotiations for the new Transatlantic Trade and Investment Partnership (TTIP), which we are drafting with the United States since 2013 behind closed doors, either the Euro is too large for today’s Europe, or too small to serve as a shield against the future financial storms, which will see it as an account currency or as a centre of short-medium term speculation.
I remember that Francesco Cossiga (former President of the Republic of Italy), who spoke German better than English, treated his old friend Chancellor Kohl very badly on the issues of the Euro enlargement and the entry, at full speed, of Eastern countries in the single currency area.
It did not take a great economist to predict what would unfailingly happen. Francesco Cossiga, however, could be a fine financial analyst, when he wanted to.


formation-of-nato-hero-H Hence all the pillars on which we have built our societies after the Second World War are bound to collapse soon: NATO will shrink and, possibly, it will remain as a shield for some defense technologies which the EU Member States cannot develop on their own, while there will be a stronger need for a common foreign and military policy, increasingly linked to a national interest potentially different from the other EU Member States’.
The Euro will be ever more a cost and ever less an opportunity, considering that global investors are no longer content with the unit data of the single currency, but – as in a poker game – they “check” the actual accounts of each indebted country.
If the Euro value remains “high”, the countries which adopt it shall reduce the cost of all the factors of production, by further reducing the domestic market size and operating, on the welfare reform, with downward competition on the factors of production compared to the other EU countries.
We can easily imagine the political and economic effects that this will have.
The Defense costs will add to the welfare costs, which will be ever less sustainable given the old-fashioned productive systems, having high intrinsic costs, and the political strategies in the Maghreb region, in the Middle East and in Central Asia will increasingly tend to diverge.
What can we do? A new crisis is just round the corner. Either we achieve a devaluation of the Euro which would enable all the countries which adopt it to have some breathing space on the market-world, or the single currency shall be redesigned radically.
Either a Euro of the South and a Euro of the North, as has been authoritatively proposed for some time, or a return to an abstract “reference currency” defining the maximum upward and downward oscillations of the various national currencies: Euro-Italy, Euro-Germany, Euro-France, etc.
Obviously, achieving a “governance” of the European single currency could still be the optimal solution, but now the reasonable time for this operation is over. The monetary governance will still be ensured by the US dollar, increasingly absent from the EU and ever less interested in pulling the chestnuts of its global competitors, namely the Europeans, out of the fire.
Incidentally, the next TTIP will probably be a new edition of the “Year of Europe” that Henry Kissinger proposed in 1973: apart from the liberalization of trade between the two shores of the Atlantic, the issue laid in shifting the North American inflation – resulting from the combination of Lyndon B. Johnson’s New Society and the huge costs of the Vietnam war – onto Europe.
The problem lies in the fact that currently no EU ruling class seems to note these great phenomena of global destabilization and all European governments take refuge in an advertising-style business as usual.
We simply exalt the granting to a social group of very small privileges which, however, have already been taken away from another electoral group at that time smaller or less powerful at political level.
assad-putin-266008As I said before, everything changes: Vladimir Vladimirovich Putin has bluntly wiped the EU away from the Greater Middle East Game – and will soon do the same with the United States.
If the Middle East is no longer “viable” for the West, the Eurasian peninsula becomes marginal and must pay for each future geoeconomic and financial activity.
And to think that our European capitalism, a feature of modernity, was born of the North European powers’ redesign of the trade policies towards the East and Asia which had ensured the success of our Maritime Republics!
Russia is turning the following countries into pawns of its game: Ukraine, which is the bridge between the ancient Rus of Varangians and the link between the Balkans and the Eastern Mediterranean basin; Syria, the gateway of the whole Mediterranean region from Central Asia; Egypt itself, although it has signed a military agreement with Russia, as well as a Memorandum for the building of a nuclear site.
Hence regionalization and marginalization of Europe, while the United States return to be permanently centered on their old Monroe Doctrine and the Pacific region – and this will happen with any President.
Furthermore, it is by no mere coincidence that a politician particularly sensitive to global geopolitics, as Benyamin Netanyahu, has fled to Moscow to manage the war in Syria bilaterally. The energy and agricultural trade between Israel and the Russian Federation amount to 3.5 billion euros a year. GAZPROM has reached an agreement for the exploitation of the natural gas field off the coast of Haifa.
Israel does no longer trust the United States and is seeking its global role, as second largest investor after China in Crimea and as stable regional power, while its Arab-Islamic enemies are all floundering into a structural crisis.
Russia, China and Israel are bound to do many things together, while Europe is asleep and does not understand the situation.
The other facts which make us think of a new dislocation of global powers are basically two: the agreement between Russia and China and the agreement between the UK and China, explicitly blessed by HM the Queen of England.
The former agreement is the seal of the EU and US exclusion from the Central Asian heartland.
The “end of sovereignty” and the creation of a polycentric power in the world – the two philosophical and strategic objectives of Russia and China – will materialize through these agreements.
As many as 32 separate agreements, signed during the military parade to celebrate the 70th anniversary of the Soviet victory against Nazism, with a specific treaty to prevent cyber war between the two countries.
Beforehand a joint agreement had already been signed to assign 38 billion cubic meters from Russia to China, in a period from 2018 to 2048.
The United States and Asia are gradually becoming less dependent on Middle East hydrocarbons – which is not the case for us. And that is saying something.
The China-UK agreement is, in some respects, equally interesting.
Together with Electricité de France, China has secured a majority stake in the new British nuclear power plant of Hinkley Point – a deal worth 37.9 billion pounds, backed by a 2 billion pound loan that the UK has already guaranteed to China prior to the visit paid by President Xi Jinping in London on October 20-23, 2015.
A step which undermines the nuclear, or rather post nuclear, equilibria of the European Union which, from now on, shall completely reconsider its reckless relinquishment of nuclear energy that has economically lamed it just when the crisis of nation-states was looming large and the redefinition of the Global Order was shaping.
Incidentally, also the myth of globalization is about to give way to a new redistribution of the world potential: we will have a multipolar world, with different characteristics for access to raw materials, markets and capital, which will have nothing to do with the universalistic myth of globalization which solves every problem.
This, indeed, has never happened.
Matteo Renzi press conference, Rome In this new Great Design, however, what is Italy’s role? It is easy to say that there is no role for Italy.
Italy is shirking any serious foreign policy commitment or responsibility, blocked by naïve and weak purely economic evaluations and an extraordinary subjection to the “old-fashioned thinking”.
I can say that the last Minister for Foreign Affairs who thought well with his head was my old friend Gianni De Michelis.
Hence where is Italy’s geopolitical project today?
We must also consider that Italy’s “brain drain” has hit its all-time high, with over 100,000 talented graduates who went abroad in 2014 alone.
Therefore with what will we rebuild our country? We are importing cheap and low-skilled labour force, and we are the top country in the world exporting highly-skilled young people, who cost us a lot and whose potentialities we should enhance.
Obviously the differential between these two flows will not get us very far.
We are reminded of the extraordinary debate held in the Giornale degli Economisti, around the 1910s, between authoritative economists such as Luigi Einaudi, Vilfredo Pareto and Alberto Beneduce.
There were those who argued that emigration had become a cost, because it took workforce away from Italy after having indirectly supported the surplus population, and those who repeated – in the wake of the old study by Franchetti and Sonnino on the South of Italy – that the only solution was the emigration of the high share of relative surplus population, the so-called “rabbit hutches of the South of Italy”, as the Neapolitan baron Francesco Compagna defined them.
Today there is no debate: we repeat over and over again – as a Vedic mantra – that we must make university studies easier and academic degrees and qualifications more widespread, as if, in this case, the Hegelian automatic relation between quantity and quality applied.
Universities which depend on the corporations, lobbies and power groups of those who already work there and close all the doors to new talents, who go abroad, thus making the economic and scientific life even more difficult.
As, indeed, happens in every sector of our country – institutions which reflect only their interests and have no ability to adapt to what is new. Like dinosaurs.
Hence what could be the solution for an Italian foreign policy and global strategy, not based on the current governments’ purely economic and accounting interest and on the “old-fashioned thinking”, which has now become rhetoric and ignorance?
The solution is before our eyes because, as Napoleon I said, “to know a nation’s geography is to know its foreign policy”.
 The solution is the Mediterranean.
Italy was born, as Roman and joint geopolitical project, after the sea victory in the Punic Wars. Rome’s land power relied on maritime control over the Mediterranean.
The same happened with the Maritime Republics, as we have previously said, and even with the united Kingdom of Italy, which shaped its well-considered policy between the Balkans, North Africa and the Eastern Mediterranean region, at least until the end of the First World War.
The project had cultural, financial, economic, military, strategic and, dare I say, philosophical relevance.
I remember that former Prime Minister Amintore Fanfani always told me: “We need to rediscover our Greek-Mediterranean origins”.
Hence the issue lies in creating a Mediterranean cooperation axis not between the North and the South of the European Union – considering that the only folly that this policy has produced is the destruction of Libya – possibly also to take ENI over and put an end to this oil champion of national independence – but between Italy and the new Great Global players.
And, before Libya, other disasters had been made in Iraq, Kuwait and are now being made with the final struggle between Sunnis and Shiites in Yemen, the United Arab Emirates, Central Asia and, soon, in Saudi Arabia itself, which is more fragile than we may think.
We have to change our mindset and think big, as Bibi Netanyahu did by going to Moscow. Benjamin_Netanyahu_on_September_14,_2010
Hence the axis will be between China – which wants to reach the Mediterranean so as to seal the United States between the two Global Seas, and because, by its very nature, it must expand its trade area outside an unfortunate national geography – Italy – which needs to autonomously enter again into the market-world and find capital, technologies and markets to renew its productive apparatus and take it away from the range of its EU competitors-opponents – the Russian Federation – which needs to stabilize its presence in the Mediterranean and discover its own global commercial vocation outside the market determined by the hydrocarbons – and finally Israel, along with the evolving Maghreb region that we must integrate into our New Mediterranean: Algeria, Morocco, Tunisia and Egypt led by President Al Sisi.
We might think of a new Pentagonal Initiative, such as the one that my friend Gianni De Michelis conceived for the Balkans at the end of the Soviet empire. We can also imagine an international Treaty which puts this new area back together, by redefining the regional powers, the openings and the non-overlapping areas.
A treaty regarding the export-friendly mutual accesses; an International Bank managing funds and investment, possibly with a high degree of autonomy in the management and creation of debt securities and credit instruments; a Strategic Balance defining military collaborations and the exclusive points of strategic projection for all signatories, with the definition of an optimal area, certainly not only for a future exchange unit, but for all the factors of production.
Differently global countries need to rebuild the strategy of the great future axis of development and world equilibria, namely the Mediterranean.
Whoever will rise up to this challenge will win the game for world power; those who will not rise up to it or will not realize that these are the real issues on the table will lose or, in the case of Italy, will disappear from History or, probably, will definitively lose its national unity.