for the European Currency*
4. Politics, Economics and Federalism
In this closing section I would like to talk about the resistance to and misunderstandings of federalists’ action among both the political classes and in academic circles� In principle this issue is connected to the study of the ideology, and has long been discussed by federalists� In short, it could be argued that the power of the dominant ideology, namely the set of ideas supported by national governments to support their European policies – or lack thereof – relegate federalist thinking and proposals to the utopian realm, an illusion, or future scenario that will never come to pass� Karl Mannheim expresses this very clearly: “Whenever an idea is called utopian, it is almost always by a representative of a past era� […] It is always the dominant group, in full agreement with the existing order, that determines what is to be regarded as utopian, while it falls to the group that is emerging or runs counter to the existing situation to determine what should be regarded as ideological”31� Another way of saying that history is always written by the victors, or at least by those who have not yet fallen from power, albeit in a precarious position� The federalists have to be aware of this harsh reality that condemns them to a sort of limbo on the margins of political, social and intellectual life� Within a nation state, minorities who are fighting for national power can take part in elections and gain public visibility when they enter parliament, even with just a handful of seats�
Federalists oppose the nation state in general, not a specific government, so they have no way of getting their ideas across to the public at large, except in exceptional circumstances, as happened when Altiero Spinelli, in the European Parliament, was recognized as the leader of a political project that had the potential to change the future of the Union�
31 Mannheim, K�, Ideology and Utopia, London, Routledge, 1991, p� 183�
These brief comments on the relationship between ideological and utopian thinking can help us see that the federalist battle must not be fought purely in terms of activism and contingent political action, but also in terms of providing an intellectual critique of the dominant ideas, as happened during the 17th and 18th centuries when the enlightenment harshly criticised the ancien régime. This is a huge task that requires a convergence of cultural players (philosophers, historians and social scientists) that goes beyond a single movement of militants, however determined� Indeed something of the sort is taking place, because the crisis of the European Union has led to many commentators discovering federalist ideas� I would therefore like to make a few remarks on the lessons that can be drawn from events that we have talked about�
In the light of the essays written by federalist economists ahead of the meeting in Rome32, and those which were used to introduce the conference33, it can be seen that they provide a comprehensive analysis of the construction of economic and Monetary Union that still remains topical today� The crisis of the European Union is predicted in detail in those papers, starting with the role of the European Central Bank, which has to be independent from the national governments and cannot on its own solve the problems caused by the lack of fiscal union� Yet they all but ignore a paradigm that has become a key element in the academic analysis of those same issues, namely the theory of optimum currency areas� This was clearly not due to naivety or dogmatism on the part of the federalist economists, but rather a preference for an alternative approach that seemed more appropriate to the study of that problem� The Werner Report had provided a satisfactory definition of economic and monetary union, clearly specifying that: a) monetary union was not to be seen merely as a system of fixed exchange rates, but a politically irreversible decision; b) alongside monetary union there had to be fiscal union, with an increased European budget (as the subsequent MacDougall Report reiterated); c) there had to be a central decision-making power, namely a European government� For this reason the federalist economists’
arguments were directed against those (the monetarists), who defended a return to a traditional fixed exchange rate system, as the solution to the problem of the convergence of European economies, and against those who defended the idea of flexible exchange rates (some American economists like Milton Friedman, and almost all the European Keynesian economists, under the illusion of being able to maintain the practice of
32 See Le Fédéraliste, No� 1, 1974�
33 Published in the ME-MFE book, L’unione economica e il problema della moneta europea, op. cit.
competitive devaluations)� The federalist economists adopted a conceptual framework formulated by Lionel Robbins in his pre-war writings on the need for an international economic order based on a central bank and a federal system of government�34 The optimum currency areas approach undoubtedly provides a number of structural elements that can help us understand the phenomenon of monetary integration, such as the need for more flexibility in the labour market and the mobility of labour and capital, but leaves out some decisive political aspects, such as the role played by federal fiscal union in guaranteeing the convergence and very survival of the monetary union, which is the political responsibility of the federal government� Indeed the history of academic debate on the theory of optimal currency areas can be traced35 without considering the problem of the construction of the Federal state as the indispensable political setting where a supranational currency can come into existence and reach its full potential� This gap between economic theory and political theory is even more marked in the theory of the international economy as it is presented in textbooks, in terms of both trade and currency�
There is therefore an obscure relationship between economic theory and political theory that has to be resolved� To understand how this came about, we must return to an important observation made by Robbins, who denounces “the error of classical economists”, namely that of entirely ignoring the need to complete the institutional analysis they carried out admirably as regards the functioning of the domestic market (which, as Robbins observes, they by no means view as a spontaneous order but as an order that requires a government and a legislative system to organize the competition between the different productive forces), by analysing the workings of the international order, which is on the contrary viewed as a spontaneous order, based on the implicit hypothesis that the various governments set out to pursue a harmonious system of relationships, even when this harmony would require sacrificing their national interests�
The error of classical economists was repeated and compounded36 by the founders of modern marginalist, or neoclassical economics� In the
34 See Robbins, L�, Economic Planning and International Order, London, Macmillan, 1937�
35 Masini, F�, “A history of the theories on Optimum Currency Areas”, in The European Journal of the History of Economic Thought, Vol� 21, No� 6, December 2014, p� 1015-1038�
36 While they perfected their analytical techniques such as those based on the principle of marginal utility, the production function and the general economic equilibrium, there was complete disregard for the institutions governing the international market, which is conceived as operating in conditions of competition (more or less perfect) in theoretical models, in the implicit context of a set of nation states� Unfortunately
works of Stanley Jevons, Léon Walras, Carl Menger, Alfred Marshall and Knut Wicksell we find but few references to the issue of the international economic order and the political institutions required to make it work�
Indeed the gold standard came about in the course of the 19th century as a spontaneous order, that no one had designed and which operated thanks to the common interest of all the countries involved� There was no need to study why and how it had come about: the theory of the benefits of free trade appeared to cover it quite adequately� It was only after the great depression of 1929 that people began to understand that an international economic order could only survive if the countries involved were willing to abide by certain rules of conduct� This awareness resulted in the Bretton Woods system and rules for international free trade guaranteed by the post-war hegemony of the United states�
This error in economic theory was accompanied by a parallel misconception in the theory of international relations� Various modern texts, like those of Hans Morgenthau, Raymond Aron and Kenneth Waltz37 make crucial observations on the relationships between national sovereign states, study systems of states (bipolarism, multipolarism, imperialism, colonialism, etc�) and consider the hypothesis of a world state or world federation, but only to relegate it to the realm of utopian thinking� Contemporary politics evolves “pragmatically” in the arena of power relations between sovereign states and the defence of national interests (the balance of power)� For this reason, even when considering the phenomenon of economic integration, of which European integration is a notable example, the idea of completing economic integration by creating a federation is never discussed as a “realistic” possibility� Only since the 1970s, after the collapse of the Bretton Woods system, has an academic approach been formulated with the explicit goal of moving beyond the vision that divides international economics and international relations into watertight compartments� This is International Political Economy (IPE), a new scientific paradigm, which has generated a vast amount of literature38� The limit of this approach, however, is that the premise of national sovereignty is never challenged, meaning that the
reality differs from this imaginary construction� When international economic crises arise the harmony vanishes and neoclassical economists resolutely search for a new, more perfect, general model�
37 Morgenthau, H�, Politics among Nations. The Struggle for Power and Peace, New York, McGraw-Hill, 1985; Aron, R�, Paix et guerre entre les nations, Paris, Calman-Lévy, 1984; Waltz, K�, Theory of International Politics, New York, Newbery Award Records, 1979�
38 For a review see Cohen, B� J�, Advanced Introduction to International Political Economy, Cheltenham, Edward Elgar, 2014�
interesting analyses of the effects of economic integration on the relations between states, and, vice versa, the effects of cooperation and conflicts between states on the integration of the international market has been developed in a conceptual framework which at the most hints at a new international economic and political order, but with no clear vision of an alternative to the international system in crisis�
Dissatisfied with these approaches to the study of the relationship between economics and politics, I have explored the consistency and relevance of a new point of view, Supranational Political Economy (SPE)� The specific nature of the European construction, starting with the ECSC, lies in its supranational structure, namely by a number of states deciding to give up some sovereign powers, which are assigned to a supranational ‘government�’ For these reasons, European federalism is different from all existing models of federal state� To the extent that the EU progresses towards greater unity, supranational federalism will differ greatly from traditional federal models, almost all characterized by a strong concentration of power at the central level� The path taken by institutional progress has been and will be characterized by constitutional gradualism, as Albertini theorized with regard to the struggle for the European currency� Now it is a case of generalizing that insight�
Supranational political economy represents a new scientific paradigm39 which can be used both to delve deeper than the current academic literature into the process of European integration, and to design the first supranational institutions of a world that is becoming multipolar, yet not able to significantly reform the old international institutions inherited from the cold war� The panorama of international politics is increasingly worrying: in place of the bipolar peace guaranteed by the ideological and military confrontation of the two former superpowers there is increasing anarchy fuelled by the collapse of states artificially created by European colonialism in Africa and the Middle East� Moreover, centuries of unbridled industrial development are set to result in the systematic destruction of all forms of life on the planet, unless we make a serious commitment to sustainable development on a supranational scale� Absolute national sovereignty, which in the past represented the crucial guide for political action, has now become a major obstacle to cooperation between peoples in pursuit of the supreme common good:
the survival of the human species, thanks to the peaceful coexistence
39 For more on this, see my essay “From National to Supranational: A Paradigm Shift in Political Economy”, in Iglesias-Rodriguez, P�, Triandafyllidou, A� and Gropas, R�, Shifting Paradigm After the Crisis. Legal, Economic and Political Perspectives, New York, Palgrave, 2016�
among ancient civilizations, finally united by shared cosmopolitan values�
The supranational principle allows us to design institutions capable of bridging the gaps between different national cultures and peoples� It is not a question of abolishing the nation states of the past, but opening them up to fruitful cooperation to achieve common goals�
These developments show that the experience of years of struggle for the European currency contains unexpected seeds� Yet it is necessary to specify a limit to the supranational political economy approach and identify a problem when it comes to extending the notion of constitutional gradualism to the global political order� The first obvious limitation is that the economic-political approach must be accompanied by a political-economic approach, in the sense that while the economic-political approach sets out to explore the benefits of the creation of supranational institutions to govern the economy to foster the integration of national peoples, the political-economic approach should aim to explore the issues facing supranational institutions when guaranteeing the security of national peoples and the relationship between national democracy and supranational democracy40, because as the case of the crisis in the European Union shows, if you create supra-national state institutions, such as the EMU, important tools of national government are taken away from the citizens, and this must be compensated for by providing democratic tools of government on a supranational level�
The problem regards the relationship between the construction of a European Federation and the building of a new, federal world order� As the MFE succeeded in playing a ground-breaking role in the process of European integration, the European Union, to the extent that it becomes a model for and an example of a democratic supranational government, will lead the way in terms of spreading of federalism in the world� Yet although European integration is moving towards “an ever closer Union”, it will never represent an ideal model for the national peoples of other continents, because Europe will necessarily prioritize its own interests above those of other countries, until the foundations are laid for relations based on a supranational rule of law and democracy� The European
40 Some academics, like D� Held (Cosmopolitanism. Ideals and Realities, Cambridge, Polity, 2010) and D� Archibugi (The Global Commonwealth of Citizens. Toward Cosmopolitan Democracy, Princeton, Princeton University Press) posit the need for a cosmopolitan democracy� This general aim is correct and goes in the direction sought by the federalists� However, their proposal does not entail the creation of a democratic world government, namely the institutions needed to steer the economy and power relations between states on the planet� If democracy is conceived as the self-governance of citizens, it is not clear why sovereignty should be limited to the national level�
Federation is therefore an imperfect and partial model of cosmopolitan federalism; a state set up to make a state (the world federation)� This remark in no way detracts from the value and importance of the political efforts made by European federalists� We should be aware that the Ventotene Manifesto and the initial successes in the construction of the European Union started a process of change in the international political order that will be as lengthy, uncertain and troubled as the enlightenment, the real dawn of the modern age� All each of us can do is add our grain of sand to the foundations of a building we will never see the upper floors and roof of� This is the issue that has haunted our generation and that, most likely, will also burden the lives of our grandchildren�