Italian business and political leaders are calling on EU institutions to take extraordinary measures to address the energy crisis provoked by the war with Iran. Emanuele Orsini, president of the Italian industrial association Confindustria has suggested a temporary suspension of EU budget rules to allow member states to provide support to businesses and families. Finance Minister Giancarlo Giorgetti has warned against raising interest rates and requested “extraordinary measures” from Brussels.
The lead editorial in the Rome daily Il Messaggero of March 11 – widely read in government circles – argues that the “exceptional circumstances” make it possible to derogate from the Stability and Growth Pact, the EU framework that limits deficit spending. The author, Paolo Balduzzi, notes that energy independence is unattainable in the short term and that all available instruments must therefore be used to provide immediate relief.
Concern about the effects of the energy crisis is not limited to just one country. Germany and Belgium joined Italy in holding a “pre-summit” to address high energy prices on March 10, while EUnews reports that the European Commission is considering whether to relax common budget rules, but for now is adopting a “wait and see” approach. No surprise here, given the tectonic pace at which the Commission tends to respond to real-world economic challenges, especially when it means questioning the monetary orthodoxy embedded in EU treaties and regulations.
Supporters of the idea that for every problem the solution is “more Europe” will undoubtedly point to precedents such as common spending approved during Covid and the flexibility granted for security investments if the disruption of energy markets continues. Yet the urgency of the crisis for countries that depend on energy from abroad (almost all in Europe, by choice) raises a broader question: Does centralising spending decisions at the European level make economic sense?
Because national governments cannot freely increase borrowing under current rules, large-scale responses to economic shocks often depend on slow negotiations in Brussels. The political imperative behind this method has always been clear in the history of the Union. Its practical effectiveness is more doubtful, and tends to wilt under close examination.
A key step in building the current framework was the Maastricht Treaty of 1992, which marked the transition from the European Community to the Union, and set deficit limits at 3 per cent of GDP and public debt at 60 per cent. These criteria have been called “stupid” by figures including former Commission president Romano Prodi, and even the man who created them – former French Ministry of Finance official Guy Abeille – has admitted they were arbitrary. This points to the deeper political purpose behind the stated goal of “convergence” among European economies: To ensure that national governments could not make decisions on their own. Multiple figures confirmed this goal at the time: Jacques Attali stated that the purpose of the monetary union was “to create a constraint that would make [political union] inevitable”, while Helmut Kohl called the Euro “a matter of war and peace in the 21st century”.
The main worry regarded the role of Germany, whose reunification raised fears of growing economic and political dominance in Eastern Europe. Yet the push for common constraints extended to other countries as well, amid pressure to accept the emerging paradigm of financialised globalisation, which called for eliminating political intervention on economic matters. Better to lock everyone into a common straitjacket to guarantee uniform progress towards the elimination of national sovereignty.
Additional regulations and treaties were adopted to strengthen the system over time, but they are hard to follow: Public debt still exceeds 100 per cent in five member states, and budget deficits often rise above 3 per cent, prompting pressure from Brussels for spending cuts. The problem is that reducing expenditures does not necessarily make things better: While inefficiency is real, it cannot be solved by slashing welfare services or productive investment. Rather than weaken the drive for consolidation, though, the solution offered is to suggest common programmes at the EU level.
A major issue, however, is the inefficiency of the mechanisms for using European funds. Comparing national emergency spending during the Covid pandemic and the Next Generation EU framework, an economic recovery package, demonstrates the point. In Italy, of the €18 billion allocated to healthcare by the European plan over five years, only about half has been spent after more than four years. During the pandemic, by contrast, national authorities spent nearly €20 billion in less than three years through emergency measures. Which mechanism is more effective to address urgent healthcare needs?
Advocates of centralisation argue that external constraints encourage discipline. In practice, changing entrenched administrative practices is slow. Simona Romiti, an Italian professional with 25 years of experience in managing European funds, noted that in Italy there is a gap between the economic and management skills required to implement public measures and projects, and the bureaucratic constraints which demand a greater role for administrators. The result is a limited ability to spend structural funds, a problem which affects many other countries as well.
Does it make sense to send resources to Brussels only to fail to use them fully once they return? Flexibility for member states, reflecting their different characteristics, would allow for both greater overall investment and quicker results. Yes, this would contradict current budget rules, but those rules, as we have argued, are more political than practical. The fear in Brussels is that a change could undermine the entire narrative of the EU, which is supposedly superior by design with respect to unreliable national governments.
The energy shock linked to the war in Iran, with the disruption of shipping in the Strait of Hormuz and the spike in market prices, is once again exposing the contradictions of EU budget policies. A solution is becoming urgent today, to break free of bureaucratic shackles that hinder an effective response to the crisis.
Trump administration have a vision of Hamilton’s ‘American System’ economics