Politics and Finance in the European Union - Francesco Capriglione - ebook
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The recent financial and sovereign debt crisis, while turning the spotlight into the degenerating effects of modern-day capitalism, has engendered a series of hard-to-control events that are severely testing the stability of the European institutions. The adjustments, to date, have proved unable to adequately tackle the financial turmoil that is undermining the construction of the EU. Hence the need to identify the reasons behind this situation, which is accompanied by the failure to achieve an osmosis between the member countries of the Union. The objective to be pursued is clarifying the uncertainties and contradictions within Europe, for the purpose of addressing what many see as a “systemic crisis”.

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FRANCESCO CAPRIGLIONE – ANDREA SACCO GINEVRI

POLITICS AND FINANCEIN THE EUROPEAN UNION

The Reasons for a Difficult Encounter

 

 

 

 

 

 

 

 

 

 

ALL RIGHT RESERVED

© 2016 Wolters Kluwer Italia S.r.l. Strada I, Palazzo F6 - 20090 Milanofiori Assago (MI)

ISBN: 9788813360771

This file shall be used exclusively for personal purposes. The rights of commercialization, translation, electronic storage, adaptation and partial or total reproduction by any means are reserved in all Countries. This publication is protected by DRM systems. The alteration of DRMs is prohibited by law and subject to criminal sanctions.

The drafting of the work is curate with scrupulous attention, the publisher decline therefore any liability for potential mistakes or inaccuracies.

«We think the euro is irreversible. And it’s not an empty word now, because I preceded saying exactly what actions have been made, are being made to make it irreversible».

(MARIO DRAGHI, July 26, 2012)

«The Europe I would like to live is not the one of the walls against refugees».

(JEAN CLAUDE JUNCKER, August 24, 2015)

PREFACE

1. At an enormously delicate time in the history of the EU – faced with events that are hard to govern and which can pose a serious threat to the preservation of the European institutions as a whole – we need to investigate the root causes of the obvious failings of the Union, and, more generally, question ourselves as to the reasons that have prevented it, over the decades, from achieving forms of cohesion and solidarity. Finding satisfactory replies to this question, such as to shed light on the uncertainties and contradictions that can clearly be seen in the integration process, launched over half a century ago, is an unavoidable necessity for all those who continue to believe in the «European dream» and can lead us to identify the path that needs to be undertaken to overcome what may see as nothing less than a «systemic crisis».

Against this backdrop, the survey should, first of all, envisage an assessment of the organisational model that Europe has given itself, specifying the reasons that have prevented the effective opening up – in political terms – of the process that was initiated with the establishment of the Economic Community. This model has allowed the preservation of national interests and of a certain degree of individualism by the Member States, with the effect of hindering full integration among the European countries. Therefore, it has not been possible to establish the necessary relations to build a «political union», capable of overcoming diversity and promoting the development of social and cultural affinities.

There are still large gaps between the different EU member states, and alongside the hegemonic tendencies of some of the more financially virtuous states, we have the political failings and delays of others, with obvious negative effects on the possibility of equal development within the EU. The difficulties in addressing the recent financial crisis, especially in the Mediterranean region, has been accompanied by a significant weakness in the capacity to progress in the construction of a federal union, as a result of which we seem to have lost the drive towards the achievement of a ‘substantial equality’ among the member states, while the goal of building a «common house» for the peoples of the ‘old continent’ (as dreamt by the founding fathers of European unity) is becoming increasingly evanescent.

2 The creation of the EMU at the beginning of the millennium has provided an insight into its actual benefits, initially at least, but has failed to bring the desired change towards a highly cohesive community. The persistence of different fiscal policies and the failure to achieve full economic and legal convergence have highlighted the limitations of a union built solely around a «single currency»; the characteristic peculiarity of this currency, which entails a transfer of sovereignty by the member countries, significantly innovating the concept of Nation state, has served little or no purpose. Instead, the previous relations built up within are gradually falling apart, because the member states that did not join the EMU (the United Kingdom first and foremost) will inevitably pursue different interests, compared to the Eurozone countries.

The European Union, therefore, is revealing unmistakable limitations in its pursuit of the objective of setting up a «unitary community» of States; the process of integration seems unable to go beyond the harmonisation of regulations, aimed at economic development. This state of affairs has recently been confirmed, in connection with the financial crisis: the reaction to this turmoil, in fact, has not led to the adoption of suitable instruments for combating the crisis, but primarily to the imposition (by the EU leadership) of austerity policies on those countries needing financial aid. This has further exasperated the already precarious living conditions of many citizens, who have reacted as a result of being vexed by these harsh measures, aimed at ensuring compliance with strict financial rules; hence the growing Euroscepticism and the anti-EU trends.

The identification of a sound balance between economic recovery and political action (by introducing reforms capable of stimulating growth) and the commitment of the technical elite (highlighted by the interventions of the ECB in recent years) is the new target that needs to be achieved, for the purpose of completing a process that has become a part of the collective imagination of all of us. This achievement is required by virtue of our supporting the idea of a «free and united Europe», born during the Second World War, and of the «strong decisions» that must be taken in the face of events of global relevance, such as the struggle against terrorism and the migration of people fleeing war, hunger and the dangers of death. The course of history is creating new space for the rebirth of a united Europe, which cannot and should not tackle this humanitarian emergency by raising walls or driving back in other ways those people who claim the right to be respected as human beings. We have received a clear positive signal from the German Chancellor Angela Merkel, who – displaying a sense of political responsibility and contradicting the accusation, levelled at her, of being an inflexible ‘guardian’ of the financial austerity measures – has recently opened the borders of Germany to the Syrian refugees.

Perhaps the time is ripe to to go beyond the doubt that the idea of Europe made up of peoples and nations has been replaced by one dominated by technique and finance!

3. The need to map an «escape route» from this climate of uncertainty, from the standstill in which the EU is currently mired, requires us to look in different directions all of which, however, converge towards the relationship between ‘politics and finance’. It is here that we must seek for those investigative threads that could help us find out if and how we can achieve a «breakthrough» in the process of European integration, which – as emphasised above – is increasingly studded with hurdles and is made difficult going by the substantial failure of the ideals that originally constituted the central pillar of the European Community.

In this order of ideas we think it is expedient to proceed with an analysis of the judicial, financial and socio-political events that have concerned the European Union in recent times, so as to identify a common thread linking the development of these issues to the clarification of the abovementioned ‘relationship’. We are, of course, fully aware that the results of this investigation cannot be viewed as final, being as they are necessarily limited by the flow of events, affected by economic inequality and profound cultural differences. However, this should not distract us from continuing along this path, because we are convinced that the present difficulties cannot stop the hope of achieving the goal that, many decades ago, was envisaged as the last stage of the process of economic integration.

* * *

This book is the joint effort of Francesco Capriglione, who wrote chapters 1, 2, 3, 4, 7 and 8; and Andrea Sacco Ginevri, the author of chapters 5 and 6. The authors wrote the introduction and conclusions together.

The authors wish to thank Ilaria Supino and Angela Troisi for critically reviewing the first draft of the text and for their valuable suggestions.

Rome, October 2015

FRANCESCO CAPRIGLIONE and ANDREA SACCO GINEVRI

INTRODUCTION

1. The financial crisis that has engulfed most of the EU seems to be finally waning, in some countries at least. In its wake it leaves hardship, poverty, outrage and anger. The pathological events following one after the other have highlighted significant forms of economic and social imbalance, with a profound impact on the process of European integration. As a result the halt in development – which, in some Member States, has determined a perverse recession – has raised huge doubts as to the usefulness and opportuneness of following through with a goal that seems harder and harder to achieve.

The European and national institutions have been severely tested in the process, enabling them to check the flaws in the European structure. The negative effects have emerged of the changes (or, more precisely, the adjustments) imposed by the evolutionary process of the European Community, clearly revealing the discrepancies produced by the alterations made to its original purpose, from simple economic cooperation to much broader objectives, leading to the creation first of a «single currency», and then of a «single supervisory mechanism».

The economic and legal «convergence» – implemented in connection with the construction of the EMU, joined by many European states – has failed to produce effective uniformity within the Eurozone. Hence the enduring structural (and cultural) differences, which are hindering the achievement of a «political union», frequently stated – by the competent European organisations – as the ultimate goal of the abovementioned evolutionary process.

2. To understand the EU as a whole, we need to examine the conditions of the single Member States, with the twofold intent of further investigating the specificities of this present moment in time, and assessing the ‘prospects’ of the European federal idea, based on the current complexities. To achieve this, we must not neglect the fact that the current ‘crisis’ – like the previous ones that caused so much global havoc in the early thirties of the twentieth century (1) – has opened the way to change, to a season of ‘reforms’ that are absolutely necessary to tackle the hardships it has caused and build the foundations for a possible recovery. It may, therefore, mark a turning point in the Europeanization process, engendering a ‘new spring’ in the search for solutions suited to bringing about a new way of ‘coming together’, characterized by a greater degree of sharing and cohesion and, ultimately, more mutually supportive relations.

The many regulations and measures introduced, in recent years, to contrast the effects of financial turmoil and to support countries with financial difficulties spring to mind. In particular, it should be borne in mind that the remedies adopted to pull several Member States out of the ‘shallows’ of recession, in which they were mired, primarily involved strict public budget policies, as well as farreaching structural changes to the European financial systems (mainly concerning the Eurozone), aimed at enhancing the harmonisation of the complex set of EU rules.

The need to ensure the continued smooth running of the banking intermediaries – whose activities (being viewed as essential for the purpose of maintaining the overall balance of the financial system) have been extensively supported by the monetary authorities of the crisis-struck countries (2) – has fostered the creation of a more suitable monitoring ‘model’, introduced in connection with the broadening of the operations of the ECB, which – shortly after the start of the financial turmoil – intervened to ensure adequate levels of liquidity for the banking system by means of unconventional methods. In particular, the initial redefinition of the authority framework responsible for supervising the European financial system (hence the investigation into methods of ‘collaboration’ between the supervisory authorities set up by the different countries), was followed, later on, by the introduction of technical forms of ‘banking supervision’, subject to the unitary implementation of the relevant intervention ‘mechanism’.

However, the persistent stagnation affecting several Member States is also indicative of the fact that the changes have not proved as effective as expected. The ongoing criticalities and (many) negative assessments, with regard to the implications of the austerity measures required by the EU, has raised serious concerns, which need to be addressed.

There is still a great deal of uncertainty regarding the possibility of finding a solution to the underlying problems causing the decade-long «euro-sclerosis» of the European Union. This uncertainty inspires the behaviour of the political leaders of the Member States, wavering between a certain unwillingness to accept more flexible criteria for interpreting the Treaties and the introduction of changes to the current regulations (in view of the possible renegotiation of their ‘debt’).

Hence, the identification of the conditions needed for an unavoidable «pause for reflection», aimed at carefully evaluating if any amendments to the Treaties are required. In other words, the time seems now ripe for looking into the conditions that ensure the continuity of the European integration process, the alternative being to sanction the possibility of accepting a «standstill» in the process.

Clearly, the difficulties perceived soon after the inception of the financial and sovereign debt crisis are now being replaced by the fear of much more serious events that could negatively affect the survival of the euro and, more broadly, of the EU itself. The latter is going through a decisive period in its history; turning the spotlight onto the economic and political determinants for ensuring continuity defines the common goal of all those who, today, are striving to defend the European Union.

It ensures that the capacity to understand the reasons for the delays in promoting the common interests shared by all the Member States is of key importance and has become a precondition for any analysis of the terms of the «in or out» dilemma facing the Union today.

3. On reflection, there are many factors that negatively affect the return to growth in the Eurozone countries. First of all, certain requirements set out in the EU Treaties, such as the prohibition of «State aid» and, in particular, the difficulties in complying with the rules adopted at Maastricht (i.e. the strict observance of the deficit/GDP ratio). We must also consider, in this respect, the procedures for granting financial support to the applying countries; the implementation of the so-called ‘protection mechanisms’, in fact, seems totally unrelated to any solidarity-based rationale (as opposed to the strict application of merit-based criteria).

It follows that the search for solutions to «today’s evils» should be based on verifying the conditions enabling us to go beyond the inconsistencies of a situation characterized by uncertainty as to the ‘future prospects’ of the Union. It should focus, instead, on identifying the causes that prevent the amalgamation of decision-making processes – within the European regional context – for promptly and effectively solving the criticalities caused by the financial turmoil.

With this in mind, our investigation must focus, above all, on an analysis of the «role» of politics within the EU. In particular, the aim should be to assess the extent to which the actions put into place comply with the purposes and characteristics of political action, as traditionally acknowledged by doctrine. (3)

The analysis necessarily involves the roots of Europeanism, the fundamentals of the Eurosystem, as implemented by the Maastricht Treaty, and the organisational arrangements set out in the huge mass of ensuing Community acts. To follow the signs and shed light on the process whereby democratic dialectics are developed within Europe means to seek a logical explanation, by lines of behaviour hardly consistent with the principle of participation equality (which, as we know well, is typical of any form of government that respects majority rule, a fundamental safeguard against despotism and authoritarianism).

Conversely, we need to consider that the pathological events of recent years – given the limited responsiveness of the governments concerned (probably as a result of the flaws inherent in the system of rules) – have, instead, revealed the significant responsive capacity of the financial organisations. Moreover, the role played by the latter, in certain cases, has appeared more decisive in the fulfilment (by the competent authorities) of a line of action aimed at preventing any liquidity-risk, or even default, situations in some of the Member States. Hence, a substantially technical – as opposed to political – ‘primacy’, in safeguarding the common interest in the continuity of the integration process. (4)

Against this backdrop, there is clearly the need to focus research on the interaction between politics and finance, in view of the further determination of the congruity (within the Union) of the forms of partnership. The possible identification of any such limits can help us understand the reasons for the faulty working of the remedies put into place against the crisis and, therefore, the explosion of inequalities during their implementation.

There are hardly any doubts, in fact, that the differences in relations between the Member States – by directly affecting the cornerstones of the European Union (i.e. the achievement of full cohesion, sharing and solidarity between the countries interested in its fulfilment) – will inevitably lead to a reduction in the possibility of concluding the process, launched over half a century ago by the signatories of the Treaty of Rome. Here is a risk, therefore, of failing to achieve the goal of the gradual integration of the EU member countries; a goal founded on the convergence of interests and a shared sense of belonging to a common regional entity, such as to allow the superposition of the single national identities.

It is equally obvious that the further aim of the enquiry is to determine the possible negative repercussions (on domestic policy) of reforms developed by a technocratic elite; reforms adopted without adequate support by the people, despite the allocation of huge resources for their implementation (as in the case of the Fiscal Compact), to the detriment of welfare spending. What emerges, therefore, is a complex reality prompting responsible behaviour by the EU leaders and convincing them to find more appropriate methods of combining political and economic action, in view of enhancing participation in the process of European integration.

4. In the light of the above, although judging the efforts made by the EU to overcome the difficulties caused by the financial crisis positively, we cannot conceal the fact that the Union is struggling to find the necessary balance for achieving its institutional goals.

Yet again we can see tensions brewing, as a result of the significant differences between the economic and fiscal policies of the member states, heightened by a deep cultural gap, all the more evident due to the populist influences. Faced with the emblematic situation of Greece, currently on the verge of a humanitarian emergency (a country whose drift is unquestionably due to the problems also afflicting other member states: an enormous public debt, an inadequate political system, a bureaucracy that slows down the production process, high levels of tax evasion), we can no longer rule out the possibility of destabilisation of the larger countries, with new and increased threats to the «irreversibility of the euro».

Looming up on the horizon is the possibility that this situation of great uncertainty may jeopardise the process of ironing out the tensions mentioned above. The situation appears even worse if we take into account both the winds of Euroscepticism blowing across Europe (and grounded on the reemersion of critical considerations as to the economic viability of membership of the EMU), and the limited responsiveness of the Union to the conflicts raging on its borders (from the Ukraine war to Libya and the threat posed by Isis). While striving not to succumb to a sad destiny of withdrawal, the enquiry seems to swing between the desire to identify viable future projections of the issues of convergence (which are still widely felt) and the pressures of a reality that hardly seems to change.

Given the backdrop, we need to look at the present without prejudice. Therefore, convinced that economic recovery cannot be centred on the preeminence of austerity measures (as requested by some EU countries), we believe that the coercive character of certain interventions by the EU leadership cannot restrict the decision-making freedom of the member states. Instead, the awareness that only a return to political action can remove the imbalances in the participation mechanism envisaged by the Maastricht Treaty – to which many, today, refer, in order to cast doubts on the validity of the structure built up at the time, undermining its essence, in view of a welcome return to the past – could help in the search for a solution to these problems. (5)

A careful evaluation of the role played by Germany is also of decisive importance, for the purpose of overhauling the entire system of the European Union. Germany, in fact, has kept up an attitude of strict intransigence, within the Eurosystem, with regard to the countries in dire straits and therefore requiring financial assistance by the ECB and the EU bodies responsible for ‘paying out’ the stability support funds (first and foremost, the European Stability Mechanism

CHAPTER I

THE ROLE OF POLITICS IN THE EUROPEAN CONTEXT

SUMMARY:1. The Role of Politics in the Regulation and Evolution of civil society: in general. - 2. (continued): … and in the definition of economic processes (identification of the models and tools necessary for the achievement of financial objectives). - 3. The EU reality and the primacy of the economy in the formulation of social choices. - 4. The paradigm «market, rules and democracy». - 5. (continued): … focus on the prospects for the future of Europe.

1.The Role of Politics in the Regulation and Evolution of civil society: in general.

The definition of the term politics is pivotal to modern social issues as it enables us to identify the frame in which the activities conducted by the State to govern its citizens are contained. (24) Historically speaking, in juridical-philosophical reflection, politics have been attributed to the institution which represents the maximum expression of power, identifying its essence in the absoluteness of sovereignty. (25) Hence the recognition that politics has a latitude without boundaries unless they be those which are self-imposed, (26) as well as the particular characteristic of being an expression of power with no limits, being free to determine objectives (identified in relation to the security and productive capacity of the social body).

This characteristic of politics does not exclude, however, the need for a rational justification in imposing such ‘power’, understood as the dominion of men over men. Consequently it is the responsibility of a social community’s leaders to tailor the contents of action taken to meet collective requirements. (27) This implies that, in conducting their institutional duties, those who govern must be capable of fully assessing the effects of their actions (which affect the private sphere) and, in particular, of understanding whether and to what extent, the recipients of such action can sustain the impact. Otherwise – in addition to the possible existence of a case of arbitrary action by the State – we are faced with the affirmation of a ‘dominion’ contrary to the precepts of the «social contract» which, as known, is the basis of modern models for the reconstruction of civil society. (28)

With this premise, it is understandable why the debate on political issues is identified today with the search for an ideal formula for exercising power. It is also understandable why, among the various models available, the democratic one is considered preferential by the most authoritative doctrine inasmuch as it proposes a political constitution which, more than any other, allows for an organizational structure designed to guarantee «the broadest and surest participation of the majority of citizens … in the decisions affecting the whole collectivity». (29)

It is evident that this orientation reflects the vision of a methodological rationalism (with neo-illuminist roots) on the basis of which participation in the public debate is necessary to extend the pluralistic dialectics on which democratic coexistence is founded.

From another point of view, it should be noted that the political theory of sovereignty, inherent in such logic, bases the externalization of power on the «system of general and individual norms» distinguishing the legal system of reference. There is a consequent variety of orientations available on the subject. In fact, while in Kelsen’s teaching consideration must be given to a ‘chain of command’ characterized by a strong accentuation of the role of law, (30) in Santi Romano conception a series of institutions producing laws are taken into consideration. (31)

Thus the well-known antithesis between normativity and legal realism, a dichotomy which does not, however, appear to be in contradiction with the converging conclusion according to which law becomes a «social technique» for the achievement of conduct aiming to render the system effective. Indeed, law – by means of the duty to respect laws – bestows factual concreteness to political power, enabling it to historicize the indication of the regulatory principles of civil society (in which, in a unitary perspective, remedies to the problems of coexistence considered to be ideal are represented).

Politics, therefore, offers an historical interpretation of power, not, obviously, to be considered as separate from the individuals to whom it refers and whom it overrides “in terms of pure dominion”. (32) Moreover, by means of the typical forms of communicability of its actors, it succeeds in overcoming the diversities and implements balanced points of convergence among contrasting positions, thus achieving a just compendium among the overall claims of the reference community.

Civil society experiences, therefore, a dialectic relationship with politics sometimes opposing state-centric concepts, sometimes expressing its own constituent power related «to its evolutionary progress and its complexity…(highlighting a not simple coincidence)…with ‘the social’ tout court, but with qualified forms of social life». (33) In other words, civil society – even in this historic moment which sees it thrust into a global context surpassing national barriers (34) - in pursuing the common good, is the basis of juridical emersion (whose signals are identified principally with regard to the worlds of economy and the revitalization of the old ius mercatorum). This must be considered essential for recovering a state or supra-state (normative) model established as (qualitative and dimensional) behavioural principles which link it to the social reality.

Hence the need to verify the extent of the «contributions other institutional worlds are capable of exhibiting»; (35) a verification which enables us to calculate the distance between the State and Civil Society, and, at the same time assess to what extent the interests and the requests of the social formations are elevated in the state context. We are confronted with a reality which bases the assumption for renaissance on the correction of the applicable model, essentially entrusting the possibility of change to the parties intervening and operating within the forms of political representation.

In the light of the above, it is obvious that politics are called upon primarily to plan the evolution of civil society by creating rules aiming to ensure the congruity of the evolutionary processes (the vivacity of which impacts growth of the systems). It is in fact politics which, thanks to the mechanisms of participatory democracy, allows the cultural and associative resources of the peoples to be expressed in adequate ways in the creation of ideal conditions enabling individuals to obtain answers to their fundamental needs.

The fulcrum of the constituent process, both European and national, is to be identified in the relationship developing between civil society and the sovereign power of the States. This relationship is articulated into diversified components (from the ethical-religious to the economic-financial ones), the stability of which guarantees the necessary balances in the government of the States for an agere performed to safeguard general interests.

It is obvious how, in such context, politics identify a prius in respect of the economy. The determinants of the latter - albeit representing an essential pivot of preordered designs for the development of countries moving within a logic of continuous self-reform and which intend to open up to innovative forms of cultural modernization – certainly need to occupy their natural place in the political decision-making arenas. It is in the political institutions, in fact, that choices must be made concerning economic planning by those who operate by virtue of representation functions attributed to them in democratic systems. This is the only possible way to regain the consensus of the citizens (by involving them in the preferential options adopted), solutions often loaded with serious consequences for them.

Otherwise, as an observant scholar has underlined, we will witness a «strange inversion» in which the «nude and crude logic of the economy precedes politics, thus obscuring the action of the modern actor, usually called upon to plan, through politics, his destiny free of any pressure deriving from the sacred sphere. (36) This is a reflection which assumes particular importance if we consider that such a trend has been noticeable for a while in the European reality as can be deduced from the decision-making power exercised by «powerful and efficient techno-structures» (such as the European Central Bank) or the influential «multinational corporations» and «a very powerful and invasive technocratic bureaucracy». (37)

It therefore follows that the need to assess what could be the ‘resistance’ of a democratic system faced with the burgeoning of an economy which offers itself, in a self-referential key, as a new regulatory paradigm of coexistence. This is a test in which the confrontation between the ‘sovereign power’ of the States and the ‘market’ could generate a new Leviathan, symbol of a power the roots of which, unanchored from the past logic of state legitimacy, appear to be embedded in the sacredness of a meritocratic culture which adopts ‘economic rationality’ as its epicentre.

It follows that such an assessment cannot ignore the consideration that the primary duty of politics is to guarantee the organic unity of a community (national or supranational), by implementing within adequate forms of integration among a plurality of different actors, often driven by different interests. This, without forgetting the difficulty of such a process, in which there is a confrontation among non-homogeneous entities (juridical, strategic and financial) whose boundaries establish the limit of feasible actions.

2.(continued): … and in the definition of economic processes (identification of the models and tools necessary for the achievement of financial objectives).

For a long time it has been emphasized in literature that the specific relevance to be attributed to the monitoring, coordination and organization of economic events, the impact of which on socio-political reality has been the subject of analysis above all in the area of studies on «public intervention». In fact, the identification of the components of a ‘dualistic’ paradigm and, in more general terms, the objectives which animate governments (and permit the identification of responsibilities) in the system choices are connected to the necessity of monitoring economic activities.

In the light of this premise, it should be recalled that since the early decades of the XX century, the climate of cultural maturity has been such as to consider it feasible to abandon the vision (sustained by classic economic thinking) of the total inseparability of economic issues from those of a social and political nature. (38) In particular, in the wake of the so-called neoclassical theories (which, at the turn of the century, devolved the duties of monitoring pathological events to economic policy) (39), the performance of certain activities is considered worthy of special legal protection and therefore it is considered legitimate to subject them to adequate forms of public control.

With specific regard to the financial sector, the definition of the related organizing criteria has been influenced by some ideological currents (with German roots). In fact, these sometimes underline the determining role of financial capital in identifying the data which qualify an organizational-production model (and, therefore, the process of economic development) (40), sometimes the need which finds progressive affirmation of an interventional conception in economy, such as an assumption for a systemic construction founded on the participation of all the social classes and on the presence of the State in creating economic processes (to be implemented in different ways). (41)

In this way, it is theorized that the economic development of a country cannot be entrusted solely to private initiative inasmuch as an adequate rationalization of production must be supported by forms of public and private enterprise. In the «new economy», corresponding to the canons of the Weimar culture, it is the State to promote political intervention, so as to render possible the progression of all sectors in which the private sector usually shows little interest (infrastructures, education, health, etc.). It is obvious how this theory, in its intent to surpass the limits of liberalism, sees in the socialization of capital a way out capable of granting ample room for a real democratization, which allows «modern industrial science …(to).. define the feasibility and the conditions for an efficient supra-corporate productive organization». (42)

The boundaries of a theoretic solution in which specific centrality is conferred on the presence of the State in economy are outlined: the latter can be the owner of an enterprise, assume responsibility for financial support of business initiatives and propose rules to regulate certain business areas. (43) It is in this interventional context that the possibility of linking the performance of an activity like banking and finance to the rules contained in special laws will find an opening and, therefore, to the creation of a top management policy for the credit system capable of allowing the exercise of an internal governance designed to achieve administrative planning of the sector». (44)

In this context the effects of the ’29 crisis were decisive for the acquisition (by numerous States in the West) of the awareness that only the presence of an adequate set of rules (designed to govern the banking and finance sector) would be capable of preventing similar situations to those which were tragically experienced at the time.

The negative spiral generating a climate of distrust among savers (instrumental in increasing financial turmoil) led to the idea of introducing control mechanisms destined to avoid - for the future - the «risks» connected to a widespread lack of liquidity, as well as insufficient monitoring of the actors in the sector. The rationale behind the set of norms which led, in the Thirties to the innovation of the regulatory framework of the banking systems, giving rise (in some countries) to a particular interaction between the instruments of monetary policy (involving the central banks) and the supervisory instruments typical of the credit function. The major industrialized countries witnessed the birth of banking regulations: from the reform of the Spanish banking law in 1931 to the United States Glass Steagall Act in 1933, to the German Banking Law in 1934, to the Belgian Arretè Royal n. 185 in 1935 and the Italian Banking Law in 1936 there was a widespread burgeoning of measures designing the organizational structure of the forms of control and identifying the technical measures which were to be of support to banking activities. (45)

New duties were delegated to the State following the adoption of an interventional policy related to the financial sector. The objective of stabilizing the system is, in fact to be found in the measures through which the latter is externalised. After the above-mentioned legislative reforms, central banks became policy makers in view of the major role of monetary policy used in an anti-inflationary and anti-cyclical key. As duly underlined, «price stability and banking stability became the two milestones of financial regulation from both a political and theoretical standpoint; (46) an objective ensured in some cases by assigning the banking supervisory functions to newly established institutions, in others (Great Britain and Italy) by delegating supervisory powers to the central bank.

Analysis of the modalities characterizing the forms of administrative activities introduced by the new «bureaucracies» - defined by an authoritative scholar as «parallel» to the transformation of the previous «Administrative State» (47) - has investigated the appropriateness of the regulatory models adopted for the purpose of achieving a balanced definition of the relationship between the authorities (political and technical) responsible for the productive sectors. Therefore, the duties of the banking supervisory bodies were clearly defined as well as the mechanism designed to align the activities performed by the latter to the directives indicated by the political authorities (i.e. the bridge between socio-political interests and the «strategies» adopted by the supervisory institutions). (48)

It should also be observed that the logical order in question, by introducing the presence of the State into the economy, brings out the contradictions which can arise between corporate rationality and the arbitrariness which sometimes characterizes political command. (49) There is a potential danger of interference by the State in the various sectors of the economy, possible above all in a context of dirigisme, such as that registered in some European countries until the end of the second world war. In the meantime, research became aware of the particular relevance attributed to the executive activity compared to the legislative, so much so as to induce a distinguished scholar to consider that an inversion of the competences between the two forms of power had occurred. (50)

It is evident that in the definition of the models found in Europe in the first half of the last century, the relationship between the economy and politics appeared to be centred on the interaction between the State system, understood as a set of institutions, and economic policy. In particular, the do’s and do not’s come to mind, in the past traditionally attributable to the sphere of public regulation, interventions which, with the passing of time have found expression in disciplinary forms in which ample room is given to behavioural self-determination and, therefore, to the freedom of those to whom the task of defining the mechanisms of choice has been entrusted. (51)

Hence the need to identify the principles interacting on the organizational profiles of the public institutional apparatus, above all that of ‘subsidiarity’ – the pivot of modern constructions aimed at creating forms of decentralization of powers (originally belonging to the public sphere) – which was explicitly recognized in Community law. (52) Equally, it is necessary to pay special attention to the evolutionary process of the ‘administrations’ to which, in the financial context, specific monitoring duties have been assigned. The neutrality characterizing these administrations, usually autonomous, impacts the sphere of State powers as it removes control of important sectors of the regulatory system and the markets from the authority of the State. This is the inception of the withdrawal of politics from the interventional framework as formerly known.

A season characterized by dynamics of socio-political transformation has accompanied the intensification of the Europeanization process during the last decades of the century. The prerequisites for a redefinition of the system of principles-institutions-rules, the basis of the creation of the Community regulatory system, have been identified. It will thus become possible to go ahead with innovation of the ‘organizational model’ by enhancing the financial-economic process (in ways which, for the purpose of stability, favour the profiles of a technical nature and ignoring the teachings of the past). This enquiry will attempt to demonstrate that a progressive detachment of finance from its accountability to politics is taking place with the effect of removing the choices made at a technical level from the latter’s responsibility thus giving rise to strong ambivalence in the governance of the economy.

3.The EU reality and the primacy of the economy in the formulation of social choices.

From the end of the Nineteen Seventies, the European integration process – in making a significant contribution to the regulatory system of economic relations – has been at the heart of a profound change in the institutional reality of the Member States of the Union. It has brought about the modernization of countries anchored to regulatory systems (originally founded on dirigisme as in the case of Italy) in which the presence of pervasive monitoring instruments prevented the affirmation of effective competitive forms for a long time, since the definition of the structures which connote financial organizations and specify their operating procedures was often delegated to the sector authorities.

In line with the need to implement unitary forms of regulation, the European Community carried out a careful process of normative harmonization, considered as a valid assumption for the achievement of homogeneous financial relations.  (53) Hence the particular feature of certain disciplinary options (such as free competition, the capital adequacy of «initiatives», the adoption of adequate organizational models) aimed at ensuring equal conditions on the market. Basically, the primary objective is to avoid (or at least reduce) situations of economic and financial disequilibrium (in the member countries) by the introduction of monitoring mechanisms designed to stabilize systems.

In this way, a close correlation has been created among those criteria which govern the definition of the European regulatory system and the foundations of market reality (and, more specifically, the competitive logic which is typical of its essence). Reference to a reconstructive idea ensues, based on the economic equilibrium/social equilibrium nexus, almost as if the first constitutes a necessary and unavoidable prius compared to the second which expresses its value per se, that is to say independently of political determinations. On reflection, room is given here to a kind of automatism for evolving into socio-economic processes. Due account is not given, however, to the fact that social conquests are the result of complex programmatic events generated by specific plans (prepared at a political level), the objective being to proceed with ‘forms of government’ capable of implementing adequate collective protection mechanisms to improve the standard and quality of life of members of civil society.

Consequently reflection on the validity of the construction in question is, therefore, on the effectiveness of the rules (within the regional European context) established to protect the objectives of the Treaties and cannot be separated from reference to the ‘dialectic between political and technical contexts’. The latter should, in fact, seek an appropriate reconciliation in order to create a substantial link between the system’s availability to implement requests originating from the social reality of reference and economic development. And thanks to the indications of politics (which, on the basis of the democratic method, succeeds in becoming the interpreter of the community’s requests) can reach progressive levels of cohesion among the Member States, which would acquire the possibility of planning and achieving valid growth programmes on the basis of full agreement with the operating guidelines designed for the welfare of everyone belonging to the Union.

Conversely, the current EU reality highlights a situation in which the idea of coupling social development to economic development (in line with the thinking of those who desired the creation of the Community) does not appear to have had adequate implementation. In fact, the objective of a macroeconomic equilibrium (linked to price and interest rate levels) from which to indirectly generate a ‘generalized welfare’ in the Member States (which would obviously result in benefits of a varied nature and value for the population), seems to become ever more distant (if not evanescent). (54) On careful reflection, there is a sharp contrast among some Member States tried by persisting situations of stagnation and recession, others (not following a logic based on solidarity and acting solely in their own interests) are guided prevalently by the intention of leaving domestic growth levels unaltered. More in general, the dream of a final stage in the integration process represented by a ‘political union’ appears unrealistic today - and, therefore, probably destined to be relegated to the realms of Utopia. The political union to which - in the context of the step by step approach of the founding fathers of European unity - the long march begun with the creation of the European Coal and Steel Community back in 1951 should have led. (55)

What happened? How can a change in perspective (on the future of the Union) of such a considerable extent as that found at present be explained? What are the causes of a shift so serious as to place the European project at risk?

These and similar questions require an answer which generates understanding, placates anxiety and restores serenity in the face of the sense of profound uncertainty pervading the populations of a large part of Europe. Hence the difficult task entrusted to the interpreter who – in analysing the juridical and economic processes - must contextualize his assessment by attempting to extrapolate a key to interpreting the events under observation, which is both coherent on a logical level and in conformity with the reference data.

There can be little doubt that the assessment of the reality under observation which considers the present evils to be the exclusive consequence of the recent economic crisis must be considered reductive. Certainly, the financial turbulence which began in 2007- as highlighted on another occasion (56) - acted as a catalyst in causing the emersion of Member States’ past structural shortcomings, often aggravating their extent and, therefore, raising multiple obstacles to the continuation of the march toward European integration. Moreover, it should be noted that the reasons behind the difficulties in which many European populations find themselves today have deep roots, going back to the type of constitutional ‘model’ adopted first by the Community and then by the Union. Hence the special importance attributable, for the purposes of our enquiry, to the amendments (and the characterization) of this organizational scheme impacted by the innovations generated by a complex evolutionary process (imprinting, over time, a specific structural and functional connotation on such scheme).

As will be more fully explained in the next chapter, Europe is not succeeding in creating an adequate formula during its constituent phase to allow politics the guiding role which, for the reasons stated above, certainly belongs to it. In fact, it escaped the signatories of the Treaty of Rome of 1957 (which created the EEC) that in modern States politics expresses the essence of the constituent power of civil society. For this reason, the centrality which is its due if it is to perform the function of pursuing the common good should not be taken away from it. A considerable disempowerment (in the structure of the Community system) of the political process followed. The latter was placed ‘in tow’ by the propulsive force of the economy and ended up by losing its prerogative to (at least) plot the route to be followed for attaining the objective mentioned.

This reality was probably founded on the basis of a liberal matrix, which enjoyed a significant period of affirmation in Europe in the aftermath of the war. Over and beyond the utilitarian reasons which became, in this way, the basis for self-regulation of the free market, what is important – in this enquiry - is the reference to an “order” of the latter, - free of the impact of State power; and this - with the obvious consequence of shifting the centre of applicable governance onto only one side of the economy. (57) This is a decision-making policy which reflects the obvious objective of counteracting centralised planning policies (prevalent in the ‘Soviet Block’) or the public interventional logic which, in some European countries (look at Italy, for example) had made room for an excessive increase in administrative control.

Referability to a system in which politics does not interfere (or doesn’t interfere much) with liberal economic initiative will therefore be the file rouge which will signal the institutional limit of the European integration process represented by the de-anchoring of the operating choices from the decisional will of the (political) institutions delegated to govern the economy. The alternate events which have occurred over time (at the level of individual Member States and, more in general, in the European reality) do not change the state of things; they have, on the contrary shown the incapability of the so-called juridical convergences (implemented by an intense programme of normative harmonization) to achieve (in the absence of congruous political action) the continuity of a progressive integration, a shield against moments of stasis and crisis (which have severely taxed the project pursued).

The alternation of different political orientations in the Member States, the entry of new state entities into the European regional structure (with an ever greater enlargement of the Community), some periods of tension and stalemate – which led at first to the definition of the Single Act of 1986 (with the intention of completing the internal market after the financial crises of the Seventies) and, subsequently, to the Treaty of Maastricht in 1992 (with which the ‘Single Currency’ was achieved) – identify the stages of a difficult path where the theory of an economic constitution destined to prevail over a political one incapable of giving adequate directive input, gains strength. From a practical standpoint, this has made it impossible to contain the effects of economic action within the boundaries proper to it, whence the ‘existentialist crisis’ of the political project underlying the integration process. (58)

On this question, it must be highlighted that the impact on the founding principles of the Treaty of Maastricht of the canons of the liberal tradition had widespread diffusion in Europe during the twenty years prior to the creation of the «European Monetary Union» – generated by the theories of the Austrian school and, particularly, the ideological orientations of Friedrich von Hayek and Ludwig von Mises  (59). It is no coincidence that this orientation (which finds support in the post-war Germanic trend of thought of the so-called Ordoliberalism School) is considered in literature instrumental for constructing a European Economic Constitution, an institutional assumption for the implementation of the normative provisions of the Treaty of Maastricht. (60)

In the light of this premise, it is understandable that the rationale behind the above-mentioned Treaty, in which the «single currency» became a guarantee of the economic system’s balances in a context of substantial self-regulation. Therefore, it is understandable why the identification of the rules and parameters necessary to join the Monetary Union is strictly correlated to the primary objective of competition (as shown, in fact, by the establishment of suitable mechanisms to ensure ‘price stability’). We can identify the warning signs of a predictable centrality of the institution responsible for ‘governance of the currency’ in taking initiatives and actions aimed at contrasting the recent financial crisis, initiatives which, if on the one hand reflect the need to contain the negative effects of differentiated fiscal policies, on the other they allow us to identify in such institution the pivot to which (in face of the deficiencies of politics) it must necessarily make reference for the support and continuity of the system.

As will be seen during this enquiry, on the basis of the regulatory criteria mentioned above politics end up by being relegated to a particularly circumscribed area. As far as the Eurozone is concerned, the interventions adopted, although in line with a common social development programme (for example, in the areas of agriculture, di competition, energy, etc.), are influenced by the need to support the monetary measures adopted to ensure adequate levels of stability as well as to prevent structural deficits from forming. (61)

That said, it is considered that the conclusion reached above does not appear to contradict the assumption, recently formulated in literature, according to which «the Treaty of Maastricht is probably the highest point reached by the ideology of Soziale Marktwirtschaft, or the Social Market Economy, by which the economic vision of the European Union would appear to have been inspired. (62) Indeed, the statement, supporting this theory, that «economic freedom…(is) …a right which must be respected by the State» (63), is not very convincing for the purpose of extending to the entire EU the German political-institutional methodology (which has revisited the role of state authority); a solution easily contradicted not only by the factual reality but also an incoherent identification of the Eurozone with the European Union.

But there is more. On careful reflection, it is exactly the coexistence/overlap of the two areas mentioned, institutionally separate, which creates an obstacle to the European Integration Process. This is because, compared to the original unity between the two with regard to identification of the fundamental freedoms recognized by the Community (the latter also a prerequisite for a progressive rapprochement among the Member States), the creation of the EMU generated diverging interests within the European regional areas. The result has been an increasing separation (also at an ideological level) of the countries belonging to one or other of the areas in question. This also involves the need to subject those belonging to the Euro System to a technical instrumentation which has limited their operational choices. Moreover, this generated the need to maintain the distinction mentioned above, which interacts negatively on the homogenization of the European Regulatory System and, certainly, must be listed among the causes of the future uncertainty of the latter.

4.The paradigm «market, rules and democracy».

«What is the European Union today?» The answer to this question, recently proposed in doctrine, (64) must be the objective of any enquiry which – by analysing the specificity of the European regulatory system - proposes to ascertain whether the integration process started over half a century ago can today continue in conformity with the evolutionary plans theorized at its inception.

As already mentioned, prior to any assessment, it is necessary to clear the field of the conceptual error in attributing to the recent financial crisis the situation in which the EU finds itself today. This, without wishing to belittle its importance in having highlighted the need for a structural change at the summit of the EU financial system and, in more general terms, for having focussed on the inconsistent aspects of the reality with which we are dealing. . It is not a coincidence that in the past there has been a tendency to represent a European Regional context hovering between «risks and opportunities». (65) This has generated the need for adequate organizational choices to ‘turn to advantage’ the implications of the financial turmoil which – in causing a recessive phase in many Member States – has made space for the difficulties and uncertainties mentioned, thus undermining the basis for stable and lasting relations among the Member States.

In this background, for the purpose of answering the question raised earlier, attention must be focussed on the reasons which, at present, demonstrate the fragility of the construction under examination. The latter, in fact, at the time of the financial crisis and the sovereign debt issues, revealed the limitations of a unification process founded on a technical solution confined to monetary profiles alone – adopted at the inception of the EMU -, without creating however, in the years following the Treaty of Maastricht, any form of political union capable of ensuring a common and real governance of the economy and pursuing growth objectives as well as safeguarding stability. Moreover, the existence in the Union of other countries, which have not adopted the Euro, has given rise to a ‘difficult coexistence’, in which – faced with a more attenuated relationship among the Member States (with the obvious exclusion of the constraints imposed by the ‘single currency’) – there is a growing tendency towards separation, to the adoption of different choices (compared to those of the Eurozone) which has certainly not benefited the compactness of the entire system, as underlined in the preceding paragraph.

Consequently, the differences existing within the Union have been highlighted and this has put the spotlight on the divisions and substantial diversities in orientation in the reactions adopted to fight the effects of the crisis, a cause of malaise and degradation in many countries. This caused a situation in which some States succeeded in containing the damage of such turmoil whereas others saw the loss of an equilibrium already made precarious by previous bad government, exorbitant public debt or inadequate organizational capacity. This is the scenario in which the whirlwind of speculation interacted badly with a self-referential financial market, in which the logic of profit disastrously removed it from its intended institutional role of supporting socio-economic growth.

It is in this context that political shortcomings prevented the development of conditions to jointly overcome the current difficulties (i.e. by common agreement and with a spirit of solidarity). What was missing, in fact, was a politically adhesive action at European level capable of creating appropriate convergences towards unification in view of a common project, to generate cohesion where disagreements duplicate and increase. The Union has shown its true face, proving itself to be a mere aggregate of countries, different one from another and, in any case, with little intention of backing down from selfish attitudes (attitudes which should, on the contrary, involve giving up possible profits generated by others’ adversities). The contradictions of a forced combination between the ‘single currency’ (with its logic of rigour and austerity) and the economic agreement denoting the ‘common market’ (qualified by mainly operating rather than ideological openings) have emerged. Hence the lack of any perspective view and the rise of perplexities sometimes resulting in the loss of hope to be able to continue believing in the ‘European dream’.

Faced with such a reality, it is clear that we have reached a crossroads. It is obvious that it is no longer possible to continue along a common road, regardless of a unitary political vision, unavoidable prerequisite for abandoning alternative (often diverging) approaches for achieving the European integration project (alternatives referable to the well-known theory of a ‘variable geometry’ or ‘multi-speed’ Europe, founded on the recognition of a varying participative intensity in the Member States). (66)

In this regard, the different ways that the public authorities in the various countries have intervened are noticeable even though they all converge towards the common objective of preventing financial intermediaries from being overwhelmed by market failures. The salvaging action implemented in some States in the EU in the form of nationalization, (67) saw others setting up of public funds with the objective of acquiring toxic bonds from banks and financial companies. (68)

In particular, with reference to the Eurozone it should be emphasized that the reinforcement of economic governance, common to increased surveillance on budget policies implemented with the intention of overcoming the fragility of the construction underlying the ‘single currency’. Worthy of interest are the ECB’s so-called nonstandard operations begun in 2011 and the concrete decisions of the national governments involved in implementing internal reforms and aligning their own activities to the indications of the EU institutional bodies. (69) Hence the need to dedicate attention to the matters under international discussion (i.e. balanced budget, future of the Fiscal Compact, the non-issuance of Eurobonds, (case of Greece) with the objective of outlining the composite regulatory framework which is the backdrop of the changes necessary to allow the EMU countries to proceed along the route taken.

From another standpoint, the decisions – involving the Banking Union project, correlated with mechanisms of ‘single supervision’ delegated to the ECB – adopted by the European Council at the end of June 2012, (70) followed by a Communication to the European Parliament and to the Council by the Commission on 12 September 2012, should be noted. (71)

These decisions have enabled us to place in a different light (compared to the recent past) those actions which can be implemented by structures set-up for the purpose of fulfilling the requests for aid from countries in difficulty. Reference is made, in particular, to the European Financial Stabilization Mechanism (created by Regulation EU 407/2010), to the European Financial Stability Facility (known as the Bail-Out Fund) and, lastly, the European Stability Mechanism which incorporated the two above-mentioned structures from 2012 onwards. (72) There was also a change in the activity performed by the European Central Bank (which, with the intent of offering broader liquidity margins to the system, established new operating forms: the MOTs, greeted with enthusiasm by the markets and the recent Quantitative Easing). (73) In particular, the allocation to the latter of new functions (destined to integrate those of monetary policy) appears important; agere, placed by doctrine in a border-line context compared to fiscal policy actions. (74)

It can be said, therefore, that we are in the presence of explicit recognition of the central role of technocracy in the definition of the measures necessary to counter today’s adversities successfully. Thus, the field of enquiry – faced with the effects of a progressive loss of sovereignty