Trade-Offs and Sustainability: Reflections on the EU We Have and the One We Dream of

On June 19, JCU hosted the 2024 Meeting on Political Science and Political Economy, Trade-offs and Sustainability, entitled Trade-offs and Sustainability: Reflections on the EU we have, and the one we dream of. The event was sponsored by the Frank J. Guarini School of Business, the JCU Department of Economics, and Villanova University Department of Economics.

The keynote speakers were Dr. Vieri Ceriani, special advisor (for taxation) to the Head of the European Commission for the Economy, Paolo Gentiloni, and Franco Pavoncello, President of John Cabot University. Panel discussant were JCU Vice President of Academics Mary Merva and JCU professor Alessandro Antonelli.

Reflections on the EU
From left, Prof. Alessandro Antonelli, President Franco Pavoncello, Dr. Vieri Ceriani, VP Mary Merva

Dr. Vieri Ceriani: about the EU, its budget, and its likely growth in the coming years
Dr. Ceriani first recalled some of Europe’s main problems: the population is aging, economic growth has been lower than that of the US and China, and technological lag has accumulated, especially in the crucial digital and AI sectors. Europe is losing competitiveness compared to other economic areas, where productivity is growing the most.

Dr. Ceriani also commented on some disruptive impacts of the war in Ukraine, leading to the interruption of the mercantilist strategy of good economic partnership with Russia and China. It seems inevitable that Europe will equip itself with a common European defense. But common defense requires a common foreign policy and a common industrial policy. Spending more on defense will place constraints on national budgets, particularly those with excessive public finance deficits.

He then talked about the fact that, although the 27 EU member states keep their public accounts, it is very likely that the role of the EU budget will grow in the coming years. He also addressed fulfilling the NextGenerationEu project (NGEU), defense spending, which will certainly increase and, at least in part, may be common, the reconstruction of Ukraine, and possible new pandemic emergencies, which unfortunately cannot be ruled out.

How to find additional resources and make the EU integration process more sustainable? Dr. Ceriani illustrated several instruments that could be helpful (the use of European Union Bonds; the strengthening of the Emission Trading System; and the harmonization of corporate tax systems for large European companies). He finally observed that, unfortunately, linking new EU resources to harmonized taxes finds some limits in the unanimity rule that governs tax and other matters in the EU.

JCU President Franco Pavoncello on political and economic reasons behind the EU integration process and its constraints
President Pavoncello provided a broad and clear framework of political and economic reasons that made the European integration project possible. The European Union was born with the aim of promoting and maintaining peace, and not for strictly economic reasons, but eminently political reasons, which then triggered important economic benefits.

After World War II, the United States helped play a pivotal role in the creation of the EU. With the fundamental contribution of the Marshall Plan, the conditions were established for the first step of integration: The European Coal and Steel Community, founded in 1951, was the first step in securing lasting peace.

President Pavoncello continued by saying that the construction of the European Community has been so difficult also because the pro-Europeans have had to fight against the nationalistic ideals of European countries and have been forced to create structures that are super-national, while respecting the national interests of countries “afraid of mixing blood”. He then mentioned an important example and milestone in this respect: the introduction of the euro. and the setting of Eurozone countries’ public finance constraints through the Stability and Growth Pact (SGP), to reassure Germany, which has always been affected by the great fear of hyperinflation and its consequences.

After the 2008-2009 crisis, neo-fascist and populist parties put into question the direction that Europe was going toward, emphasizing the virtues of the sovereignty of individual member states over the possible medium-long term benefits deriving from programs of further monetary and fiscal integration in the EU.

Lastly, President Pavoncello pointed out that the results of the next US election (Democrats vs. Republicans) will undoubtedly have a huge influence on the direction that Europe is going toward.

Vice President of Academics Mary Merva on the unanimity rule, and structural changes in agriculture
With reference to the unanimity rule, and some related trade-offs and sustainable development issues, V.P. Merva attracted all the participants’ attention by asking whether the unanimity rule also contributes to favoring the permanence of more authoritarian leaders if one considers whether or not this governance structure renders EU funds a “natural resource curse.” These leaders may be able to recurrently threaten the EU with more extreme positions and given the leverage they have based on their veto power, may ask for and obtain significant resources from the EU. This situation can in many cases be paradoxical and generate unwanted effects: the EU policy position may be based on the view that having more income projects promotes economic development and democracy, however, authoritarian-populist leaders can abuse these resources to stay in power, thus gaining consensus, and being able to raise funds without taxing their citizens. We should therefore try to better understand whether EU funds are increasingly becoming a national resource curse and see how best to try to mitigate or eliminate the related distortions.

Regarding nationalism, V.P. Merva observed that a significant role in provoking its rise in the EU may be driven by structural economic changes in agriculture: 40% of small farms in Europe have disappeared.  As small family farms are disappearing and larger agribusinesses are taking over rural areas, we are seeing the loss of “main street.” According to V.P. Merva, to the extent that populist nationalistic sentiment is rooted in the identity of agricultural rural communities, these trends will continue to lead to markets dominated by the big winners of the economy, resulting in a fertile ground for nationalism.

The debate between President Pavoncello and V.P. Merva on some trade-offs and sustainability issues
President Pavoncello stressed that the EU already gave farmers vast resources which, in many cases, were a waste of money. According to the President, today’s real challenges are not so much about traditional sectors, but rather about what we will be able to do for European industry and how we are competing with Chinese AI.

V.P. Merva remarked that the European Union is in fact facing huge challenges and needs to answer several crucial questions: for example, how to deal with new, innovative sectors?

However, V.P. Merva also observed that the problem of rising nationalism is not the feeling of loss because of agriculture, but the loss of identity generated by the great difficulty in finding good or optimal solutions to tough trade-offs and sustainability issues. These include the practical need to mitigate aging population and inter-generational problems through immigration and through the maintenance of open borders. At the same time, there is a feeling of loss perceived by significant sections of the EU’s population, which fear losing stability and socio-cultural roots, due to immigration and destructive changes induced by the new competitive challenges.

Professor David Ratigan
Due to unforeseen circumstances, Professor David Ratigan did not directly participate in the meeting as a panel discussant, but he sent some reflections on the meeting’s main topics, stressing that the ease of economic flows and trade among member nations have played and will play a crucial role in promoting stronger ties and mid-long term sustainable EU development.

According to Professor Ratigan, these benefits are great and easily demonstrated via basic economic models, which while simplistic, advocate strongly in favor of such openness. The positive economic forces of open borders are real and significant and, despite the many temporary difficulties, will continue to ensure the European Union’s success.

Professor Alessandro Antonelli on the aging population, the new Stability and Growth Pact, crises, and concluding remarks

Professor Antonelli commented on the low fertility rate and the progressive further aging of the European population, which pose significant problems for the sustainability of European development, among which those related to labor markets, pension funds, government revenues, and the provision of services such as health and social care.

He then underlined that the new European Commission will take office shortly, and negotiations for plans aimed at ensuring sustainable public finance paths will continue in the third quarter of this year. Countries with excessive deficits and debts, including Italy, will be forced to introduce corrective measures by the recently approved renewed Stability and Growth Pact, in order to prevent excessive public finance imbalances from putting the health of the euro and its very survival at risk.

Professor Antonelli also pointed out that the European path continues, but always with exhausting tugs-of-war, and always with possible crises to face and resolve, and reminded all participants of Dr. Vieri Ceriani’s contribution to the solution of the Italian crisis between the final months of 2011 and the first quarter of 2013.

He finally thanked Dr. Ceriani, President Pavoncello, Vice President Merva, Professor Ratigan, all the participants, and the sponsors of the event (Frank J. Guarini School of Business, JCU Department of Economics and Villanova Department of Economics), for making the meeting possible, and full of important stimuli and reflections.