The Age of the Euro

By
Mali: holding elections in July difficult but desirable, Romano Prodi tells MEPs
The Age of the Euro - Romano Prodi

Italy and the Euro

I want to say just a few words concerning the three years that it took for Italy to join the Euro. Of course, my point of view is somewhat biased, because I led the battle for Italy. But I want to show you just how important and difficult the battle was, and how many chances we had to take when we decided to enter the process on September 6, 1996. I personally wrote a letter to President Chirac and Chancellor Kohl, stating that Italy was ready to enter. At that point, we failed to meet all five of the Maastricht criteria, and so their reaction was somewhat mixed. However, they could not tell us to stay out, because I also told them that we could attain all the criteria except that of the debt requirement. This latter was, in fact, out of the reach not only of Italy but also of other countries such as Belgium. I have to say that the initial reaction on the part of the other European leaders was very warm indeed. Although President Chirac did not respond directly to my letter, he stated, in an interview a few days later, that we could not have Europe without Italy.

This message was what we needed to demonstrate to Italian public opinion that the country could succeed in reaching its goal. We decided to tackle the problem step by step, by taking on issues such as taxation and by reducing public expenditure. The other vital factor was the lowering of interest rates: when you have an enormous outstanding debt such as the one that I inherited when I took over as Prime Minister-a debt that was 123% of Italian GNP - the interest costs alone are enormous. So the decision to halve the interest rates meant that, within three years, we halved our debt. Moreover, the decision may have helped our plan to put our public finances in order, because it gave the message that we would enter the Euro.

Together with this strategy of restraining our expenditure, we also launched a special tax. When I decided to impose the so-called 'Euro-tax', I was asked if I needed a psychiatrist, because it was difficult for outsiders to understand why I would call a tax a 'Euro-tax' if I was trying to sell the idea of Europe in Italy. However, what you have to understand is that Italian public opinion was undivided. Everybody was caught up in the project, from Milan to Catania, from peasants to public servants working in the world of finance. The people of Italy were all convinced that this was good for the country. They saw it as a political challenge, and so it was in many ways quite easy to wage the battle for public opinion... We could, therefore, celebrate our entry into the EMU on May 2, 1998.

The Euro and the tasks facing Europe

This currency, the Euro, was born strong, but in a period of difficulty. Compared to the United States, the European economy is lazy: it is sleeping, but not in depression. We shall grow this year a little under two percent - but two percent growth with an unemployment rate of over ten percent is not good enough. Unemployment will not decrease, or it will decrease at a negligible rate. In my opinion, the Euro is a precondition for the fight against unemployment, but only a precondition. We might be able to develop a common economic policy, but this would be difficult, because the message during the first years of the Euro cannot be a message of easy expenditure…

We have to find ways to fight unemployment and to increase the rate of growth. There are many proposals as to how best to do this, such as that of Jacques Delors, who suggests borrowing in order to invest in infrastructure or Europe-wide research and development. Above all, though, we need a harmonisation in terms of political economy. When it comes to taxation, it is difficult to have a common policy when countries are so divergent; none of us thought, though, that member countries were identical, so we have started the large task of harmonising the different policies among countries. However, this will not be easy, since [labour] mobility in Europe is much less than in the US. Moreover, the US, which has a common currency, also has a large federal budget that can be used to compensate for different rates of development; the European federal budget, in contrast, is very low - only 1.28 % of European GNP. We will, therefore, have to create a common policy without the main instrument we need for such a policy to work...

A common philosophy for Europe

We will unify Europe, but we need some sort of culture shock to make this society act differently: to make it more prone to innovation, and awake to the joy of being a world leader. This is not the way that Europe feels at the moment... We have this fantastic idea, and this fantastic continent supported by the pillars of, at first, German and Mediterranean cultures, and now the Anglo-Saxon and Slavic cultures too. With the Euro we have put an end to nation-states without even thinking about it. States are all based on two pillars: currency and the army. For Europe, the currency question is now over - and we are all debating the future of European armies.

But we have no thinkers, no philosophers, no political scientists or visionaries to give a picture of this new unity. This is the real problem, because it is so much more important than the political issues discussed earlier… This spirit of fermentation has much to do with the problem of integrating with others within the framework of a European citizenship. We can see how our difficulties with Turkey and with the Balkans stem from our habit of launching individual policies without consultation; then we have to ask in the United States to solve the problem. It is not that we lack the weapons to carry out the task: instead, we lack the desire, and it is because we have not yet built a common philosophy that we lack the strength of the United States. At the moment, therefore, we see a Europe where nation states have come to an end, but it is up to you to create a supra-national Europe in their place.

Questions from students at the Bologna Center

Jose Gijon, Spain: What would you do if you became head of the European Commission?

Prodi: For any President, the first task is to reform the institutions of the Commission. This was my experience in two and a half years as head of the Italian government. Although there were very good relations between the heads of state, the decision-making process - in particular the system of unanimous votes - meant in practical terms that you had to lower your ambitions because the train must run at the speed of the slowest wagon. So the first thing that we need to do is tackle the problem of the weighting of votes and the system of majority voting... Second, there is the problem of relations between the Parliament and the Commission, and between the Commission and the fifteen heads of state. Step by step, the powers of the Commission must increase, but we will need a lot of time for this to occur. Third, we need to deal with the question of the number of Commissioners. With the enlargement of the Union, we cannot have the same number [per country] as we have now, so maybe countries will have to pass from having two each to having one. We have many options, but we must solve this problem.

Finally, there is the budget. This is a difficult problem, because, although there is a common agreement not to increase its size, there are also differences between countries as to their share of the burden. This has a lot to do with the Common Agricultural Policy, and it is a nightmare because, in both political and psychological terms, agriculture remains crucial even though it is numerically less and less important. It will be impossible to enlarge the EU with this system of agricultural support. The costs are simply too high when you realize that Poland has more farmers than Germany, France and Italy put together...

I wish to deal with constitutional problems, as they are fundamental: if we solve these it will be easy to solve all the organisational problems that we have. Above all, though, I want to stress the spirit and the soul of Europe because otherwise we will not solve these difficult problems.

Jason Simpson, United Kingdom: How will nation-states and the Commission provide the education and common language necessary to act as a basis for success in the information revolution?

Prodi: Education is the foundation of the soul of Europe that I was talking about, but achieving a common language is an almost impossible problem - because, for instance, even though English is gaining power step by step, it would be politically impossible to make it the European language. But the cultural mix will be difficult to attain without such a common language. The problem will perhaps be eased by the new instrument of communication, the Internet, but in any case we will have to deal with this issue for many, many generations ... I do not know how soon change will come, but we should note the contribution of these flocks of students going around Europe. Even if they do not actually study anything, they are very helpful for European unification! I should like to create a few European universities, in which we could gather together not only a lot of European students, but also a lot of non-European students.We can create unity, and have an interface with people from outside Europe.

When I studied at the London School of Economics, I had as classmates many people who went on to become leaders of South American, African and Asian states. But when I visit my colleagues in Asia and South America, the new generation of statesmen have all studied in the United States of America. So, if we want to create cultural unity we must have something that unifies the world - something to which all cultures will come. My priority here would therefore be to create some kind of institution akin to the Bologna, the Oxford or the Cambridge of the Middle Ages, to play the role that is now being performed by American universities. To unify Europe we will need quite a few of these institutions that can gather people from across the world…

Anthony DiPaola, United States: You spoke about creating a European culture. In light of the changes that need to be made to meet the economic challenges facing Europe, do you think that European culture will become more 'American' before becoming more 'European'?

Prodi: This is the question: but I cannot give you an answer. If you had asked me this seven years ago, my answer would have been very simple - that European 'continental capitalism' is essentially comparable to the American version. But the events of the last six to seven years have put into our minds the notion of some sort of American superiority. I am not convinced that there is a definite answer to your question because 'European capitalism' is not an invention. It goes back to institutions at the heart of our history and, in my opinion, if we simply translate American philosophy into a European context without digesting it, I do not think that the performance of the European economy will improve. It is a different story, because the minds of the people are different... In my opinion we will reach a point where we look again at our history and shall find a 'European' idea of capitalism, based on market rules, but with some strong European differences. I am not convinced that we will adopt a different philosophy without trying to promote some sort of new 'European' culture ... I know that the American philosophy is dominant at the moment, but when I studied this problem ten years ago, the idea was that the strength of European capitalism would dominate the world and so I am not sure that this American victory is definite.

Maria Luisa Panzica la Manna, Italy: Do you think that enlargement of the EU to the East could shift attention from the problems of the Mediterranean?

Prodi: The Mediterranean area was my first preoccupation, and it remains my preoccupation. But we have created expectations [regarding enlargement], and in politics you have to deliver; and I am very worried. I can see how cold some new politicians are towards the idea of enlargement, but while we can delay the process considerably, we cannot tell the countries concerned that they will be let into the EU and then cheat them, when we have already told them this. But the terms of entry will be difficult: it will increase our land area by fifty percent and our population by twenty percent - but all the countries that have applied for enlargement when put together have a lower income than Benelux. But Italy has been helped by Europe, and I think that we have to do the same thing for others now.

Of course, you are right to be worried about the Mediterranean area. Europe is not sufficiently aware of this problem: we are flooded by immigrants from the area, yet we have no cultural institutions, no centre for Islamic studies, no organisation to deepen our reciprocal knowledge. This is a disaster for continental Europe. But we have to look in both directions, and I think that we have the financial capabilities to do both. Speaking as an Italian, I cannot see any possibility of strong development in the south of Italy without having strong economies on the other side of the Mediterranean, so I hope that there will be deeper attention paid to the problems of Tunisia, Algeria, Egypt and Turkey. But I do not disagree with enlargement to the East: I think that we have to deliver on the promises that we made and engage for enlargement...

Laura Landi, Italy: Are European institutions strong enough to handle the problems involved if and when some of the major European governments turn to the right again in future elections?

Prodi: I do not want to tell you that there is no difference between right and left, but I can tell you that, in reality, the consensus that emerges in meetings of the EU stems more from mutual interests than ideas of right and left. If there are changes in govern­ments, there will of course be changes in policy, but if you examine the ways in which majorities have been reached so far, they were almost never reached along lines of political allegiance, but rather by considering national interests. So shifts will probably be more noticeable within parties, when the power of the centre increases again. If we look back in history, we can see how things have changed since 1996, when the majority of governments were right-wing. I was the first person to lead a major country in a political shift, then there was Britain, then France, and finally Germany. The rhetoric may have changed, in particular with more stress on fighting unemployment, but in terms of actual decisions, I do not find any real changes. When I analyse what is really happening, I do not find a difference between right and left, but a more subtle one between different types of interests...

Jody Barrett, United States: A lot of political scientists have pointed out that there are two conflicting tendencies at work today: one being the move towards integration - of which the EU is great example. The other is a closing off of society in an identity crisis that is causing a new backlash in the form of nationalism and ethnic tensions. How do you think that these concepts are playing out in terms of the EU?

Prodi: To take your point about integration: I am from Emilia, I am fat, therefore I am, by definition, an optimist! But I am an optimist because we have a degree of integration despite the tensions that exist... I may be biased but if you take all the interests that we have together, we have globalisation, and not just in terms of financial markets. But we have a few difficult spots in the world that will bring a lot of trouble. Unluckily for Italy they are all close to our borders, in particular the Balkans and the Mediterranean areas, areas for which we really need a common policy. As you know, I am a very firm believer in Europe, but I think that we cannot have any progress towards world peace without complete and strong agreement between the United States and Europe. We are obliged to move together, to act together, because otherwise we will not have the integration to which you refer…

The Hon. Romano Prodi was Prime Minister of Italy from 1996-1998. This article is adapted from a lecture and discussion that took place at the Bologna Center on February 22, 1999, shortly before M. Prodi' s appointment to the Presidency of the European Commission. Original transcription by Jennifer Finney. The Bologna Center Eurolecture series is sponsored by BankAustria.