Carlo Bastasin
Saving Europe: Anatomy of a Dream
Washington, Brookings Institution Press, 2015
The economic and financial crisis into which we all have plunged since 2008 can be described from several viewpoints. The analysis and narrative of its causes have far reaching implications on the possible strategies and foreseeable solutions. Few books, like Saving Europe by Carlo Bastasin, can combine vivid pictures of the main actors of the European comedy (often drama, sometimes farce), extensive information on official events, stories behind the scenes, a sure handling of the European and global scenario, and a passionate pro-European stance that never infringes on the rigor and objectivity of the author.
Carlo Bastasin is a leading Italian journalist and a valuable economist. He is currently editorialist of Il Sole 24 Ore, the main Italian economic newspaper. He has written extensively on European economy and the European monetary union, notably as Il Sole 24 Ore’s German Correspondent from 1989 to 1998. He also teaches at the LUISS School of European Political Economy in Rome. I am pleased to remember that from 2007 to 2009 he was Board member of the Centre for Studies on Federalism. His new book is an updated version of his Saving Europe: How National Politics Nearly Destroyed the Euro, published in 2012. He has worked on it during periods in Washington, first as visiting fellow at the Peterson Institute for International Economy and then as senior non-resident fellow at the Brookings Institution.
The conventional wisdom on the financial and economic crisis states that it all started in the United States’ financial system, with its “toxic assets”, which then affected the European banks and finally resulted in a sovereign debt crisis. But the whole story is much more complex and less one-sided than that. The sequencing, the interdependences, the mistakes and mismanagements should be reviewed much more in depth. Carlo Bastasin’s thoughtful work is an excellent compass if you wish to navigate the currents and byways of the crisis.
One of the lasting outcomes of the globalization process that started in the 1990s is the deep interconnectedness of global financial markets. Once the crisis was unleashed in the United States, multiple channels for contagion were already in place, as “the EU boasts the largest banking sector, the largest insurance industry and the largest payment system in the world”. A pan-European systemic response was needed, but instead national governments limited themselves to the rescue of failing banks on a national and uncoordinated basis, which had the effect of only deepening the crisis. Thus, the interaction between the debts of the banks and those of the states exacerbated the divergences among member states: “the euro was no longer part of the solution, but instead became a central piece of the problem”. It was a stunning illustration of how national democracies found themselves in a quandary when confronted with the functioning of a monetary union and with international markets’ priorities. With neither a fiscal union nor a common fund to act as backstop for the banks’ liabilities, the limits of a “currency without a state” were all too evident – a built-in incompleteness that federalists were (and are) well aware of.
Personal aptitudes, conflicts and idiosyncrasies played a relevant role throughout the crisis. Angela Merkel and Nicolas Sarkozy were the undisputed protagonists of the first phase, with the German Chancellor struggling to find a balance between domestic and European priorities, while protecting German taxpayers’ money from any form of “debt mutualisation”, and the French President dreaming of redesigning global capitalism by focusing on politics and Europe – actually, a design interpreted as a by-product of French domestic interests. It was a long and fierce confrontation, with some good ideas that remained on paper and some bad mistakes – like Merkel’s stubbornness on “private sector involvement” in debt restructuring – on both sides. Actually, going through the dense pages of Carlo Bastasin, the reader is often puzzled by the political leaders’ unawareness of the novel dimensions and the dramatic urgency of the crisis. It has been a long and hard learning process, which is still going on, bearing in mind that, as Carlo Bastasin reminds us at the end of the book, “behind personal confrontation there are different views on the European project”.
A special role, in the crisis and in the book, rests with the European Central Bank (ECB). Carlo Bastasin illustrates with memorable reconstructions and background news the long confrontation between national governments and the ECB, which de facto was the only truly federal institution in the eurozone, led by personalities like Jean-Claude Trichet and later Mario Draghi. The ECB, with its priority of fighting inflation and determined to defend its independence, was the only institution capable of acting for the euro area as a whole from a European perspective. It has been “the reluctant white knight” that had to intervene to help prop up the banks and alleviate the sovereign debt crisis, with Mario Draghi’s “whatever it takes” as a watershed event.
The rapid spread of the crisis, combined with the new institutional framework of the Lisbon Treaty, resulted in an overwhelming “crisis-management” role for the national governments, notably through the European Council. The lack of initiative and leadership from the European Commission badly affected the surfacing of a consistent and forward-looking strategy at the Union level. Pressure from the Obama Administration – both in bilateral meetings and in the G7-G20 framework – for a German/European fiscal stimulus went largely unheard. Divergent national interests undermined the intergovernmental approach, which was often unable to deliver a shared vision or make effective decisions. The worst and lasting consequence of mistrust among national governments was a new hierarchisation of member states, with a division between creditors/debtors, virtuous/vicious, core/periphery, Northern/Southern countries, and a delegation of powers to a Franco-German directoire, firmly under the leadership of Germany’s Chancellor.
“The Greek tragedy” obviously plays a central role in the escalation of the European crisis, and it is far from being resolved with the arrival of the Tspiras government. It represents a sort of proxy for all the problems and troubles experienced by the monetary union, starting with the violation of the “principle of sincere cooperation” by the Greek authorities. It is with Greece that “default” definitely enters the public discourse, still staying with us today. European public opinion becomes aware of the involvement of banks – notably German and French ones – in the financing of “peripheral” countries’ public debt. Brinkmanship and ultima ratio become dangerous strategies in a never-ending negotiation, and “austerity plus structural reforms” are regarded – and start to be questioned – as the sole viable medicines.
Finally, the Fiscal Compact and the European Financial Stability Facility (then European Stability Mechanism) are the pillars on which Angela Merkel has tried to redesign Europe, overcoming the distinction between Intergovernmental and Community method to edge towards a new and pragmatic “Union method”. At the European level, the most forward-looking step was the report by Herman Van Rompuy that launched the road map towards the four unions (banking, fiscal, economic, political union). Carlo Bastasin is right in pointing out that they are strongly interdependent, while opposition to “political union” is the core of the problem. Notwithstanding the fact that the whole process was slowed down (to put it mildly), the banking union has started making its way towards a single supervisory mechanism and a single resolution mechanism. Albeit imperfect, they are goals that would have been almost inconceivable just a few years ago.
One of the most original qualities of the book is Carlo Bastasin’s capacity to illustrate the complex mind-set of German society, with plenty of historical and cultural references. Arguments and issues that are too often reduced to crude caricatures or to awkward conspiracy theories find a novel and enriching in-depth analysis – for example, on the German preference for stability, the domestic dynamics of German politics and parties, and the peculiar role of the German Constitutional Court.
When it comes to the most recent events and to the foreseeable future, some of the points (not) raised by Carlo Bastasin could sound a bit strange to federalist ears: e.g. the fact that the Fiscal Compact entered into force with a qualified majority of signatory countries is not seen as a welcome break with the unanimity rule, but as a further proof of the hegemonic role of some countries. As for the 2014 election of the European Parliament (EP), the new strategy of Spitzenkandidaten, with the EP playing a more active role in supporting the new President of the European Commission, is not even mentioned. As the “depoliticization of Europe” was one of the big failures during the crisis, according to Carlo Bastasin – and rightly so –, that could be turned into a welcome “repoliticization of Europe” in the European legislature underway.
Summing up, I cannot refrain from considering this excellent book as a resounding confirmation of the famous Jean Monnet’s sentence: “Rien n’est possible sans les hommes, rien n’est durable sans les institutions” (“Nothing is possible without men and women, nothing is durable without institutions”). What Carlo Bastasin rightly and sadly calls “the first War of Interdependence of the global age” requires new leaders and news institutions. Possibly a “European Declaration of Interdependence” would be worthwhile and timely. Provided it becomes a credible and effective road map for a quantum leap towards a federal Union (at least for the eurozone) and not just lip service paid to European ideals while we avoid to tackle the urgent and dramatic tensions we are still faced with today.