Podcast Summary: "Toward a Genuine Economic and Monetary Union?"

LSE: Public Lectures and Events • November 4, 2013
Speaker: Fabrizio Saccomanni, Italy’s Minister for Economy and Finance
Host: LSE Film and Audio Team
Format: Lecture (~45 mins) and Q&A (~45 mins)

Main Theme

A critical exploration of Europe’s economic and monetary union (EMU):
Fabrizio Saccomanni discusses whether the EU is progressing toward a genuine economic and monetary union or if fundamental ambiguities and institutional weaknesses persist. He examines the historical roots, the aftermath of the recent financial crisis, the institutional reforms undertaken, and the remaining roadblocks — particularly in the areas of fiscal, banking, and political union. The session is wide-ranging, frank, and tinged with personal conviction.

Key Discussion Points and Insights

1. The Crisis as Catalyst and Revealer

• Saccomanni frames the global and European financial crises as both a trigger for reforms and exposure of deep-rooted weaknesses.
  • Major efforts were made to safeguard financial stability and improve fiscal sustainability, but long-term growth is now weak and uneven across member states.
  • The financial crisis forced Europe to introduce novel surveillance and crisis-management mechanisms.
  • “The crisis has created a lot of shocks… and at the same time… pushed European institutions and governments to take a number of impressive measures…” (07:00)

2. What Was the EMU Supposed to Achieve?

• Dispelling the myth of EMU as a purely technocratic project:
  • Political consensus, not technocratic fantasy, lay behind the union. It was intended to avoid competitive devaluations among neighbors, promote convergence, and prepare for eventual political union.
  • “What went wrong was not the fact that the project was imperfect, but that it was not carried out to its full realization.” (17:33)
• The drive for “ever closer union” is now a vague, emotionally charged, but increasingly unsatisfactory goal.
  • Saccomanni calls for honesty: does Europe want just a single market, a confederation, a federal superstate, or a “monster bureaucracy”?
  • “Now, after so many years, we have to recognize that this is a concept which is very heartwarming…and also very vague.” (10:00)

3. Fault Lines: The Incomplete Union

• Central bank federalization without matching progress in fiscal, economic, and political domains.
  • The ECB was established with significant powers, but other institutions remain mired in intergovernmental (consensual, veto-based) processes.
  • “De facto, this means that…very little decisions are actually taken…becomes more a forum for exchanging views...” (19:00)

4. The Reform Agenda: What Has Been Done, What Remains?

• Post-crisis responses:
  • Stronger fiscal discipline (Stability and Growth Pact, Fiscal Compact),
    • “…achieved through creation of various legal instruments…a lot of surveillance power and coordination powers…” (22:00)
  • Financial “firewalls”:
    • ECB’s outright monetary transactions, European Stability Mechanism
  • Toward a Banking Union:
    • Progress on unified supervision, but lack of progress on a single resolution mechanism and common deposit guarantee scheme.
• Long-term goals:
  • Contractual arrangements for structural reform — where financial support is contingent on reform commitments.
  • “…a contract signed between a country and the European Union in which the country takes the commitment to do certain structural reforms in exchange for some form of solidarity, financial support…” (31:00)
  • Fiscal union and political union remain politically contentious, especially regarding mutualization of debt.

5. Democratic Legitimacy and Institutional Design

• Ambiguity persists over Europe’s ultimate direction.
  • Is “democratic legitimacy” merely an empty phrase, or indicative of a shift toward a federal system?
  • “…we’re talking about democratic legitimacy. And you know, what is it democratic legitimacy in the construction that we are building?” (35:00)
• Challenges of national vetoes and the inefficiency of unanimity:
  • Saccomanni advocates for majority voting to replace national veto, drawing a parallel to US federalism.

6. Risks of Stagnation and Political Backlash

• The spectre of anti-European parties and a return to protectionism.
  • If euro-skepticism prevails, the consequences could be severe for integration, free movement, and stability.
  • “If that happens, it will be a disgrace for Europe…” (41:30)
• Europe needs to respond more efficiently and be closer to citizens’ needs, particularly youth unemployment and financial stability.

Notable Quotes & Memorable Moments

• On the project’s ambiguity:

  “People want to know whether what we are building is a common market…a federation…or just a monster bureaucracy that has no legitimacy whatsoever.”
  (11:00, Saccomanni)

• Why the crisis mattered:

  “We did not have the instruments to deal with the global financial crisis with the contagion…so decided to build these institutions and instruments that were needed.”
  (20:20, Saccomanni)

• On institutional limitations:

  “At present, all decisions in Europe are taken by unanimity. So that means that every country has a veto power. And that…I think is not very conducive to efficiency…”
  (45:00, Saccomanni)

• Vision for the future:

  “No more progrès au visage masqué, but openly say what we want to achieve.”
  (46:45, Saccomanni)

Important Timestamps

• [02:54] — Introduction; theme set by Saccomanni
• [07:00] — The impact of the financial crisis
• [10:00–14:00] — Defining the real aims of the European Union
• [17:29] — Where the EMU design “stopped short”
• [22:00] — Summary of post-crisis reforms
• [28:32] — The path toward banking union and fiscal capacity
• [35:00+] — Democratic legitimacy and the roadblocks to progress
• [41:30] — Political dangers ahead and warning against reversal
• [45:00+] — Call for efficiency and majority voting; closing remarks

Q&A Highlights

1. Transparency & Bottom-Up Approaches ([48:34–53:10])

• Question (Stefano Bonfa): Push for direct citizen engagement — is top-down reform compatible with a more platform-like, accessible Europe?
• Saccomanni’s Response: Openness and transparency are important and progressing, but direct democracy (circumventing representative bodies) is risky and subject to manipulation.

  “…the process of a delegated democracy…can be improved in terms of transparency…But I don’t think it can be replaced by sort of direct access either via Internet…” (50:25)

2. Lessons from the Greek Crisis & The Next Shock ([54:25–57:40])

• Question (David Iseling): How to avoid another Greece-style crisis?
• Saccomanni’s Response: The next crisis might be different — stemming from stagnation, unemployment, or social unrest. Europe needs to act before economic malaise stirs deeper political and social crises.

3. Collective Governance Implementation Failure ([58:04–61:00])

• Question (Graham Bishop): Why only 15% of governance reforms implemented?
• Saccomanni’s Response: Political resistance to reforms persists; member states need to see clear benefits rather than perceive interference.

4. Fiscal Transfers and Oppositions ([61:21–66:00])

• Question (Tommaso Milani): Why not more open advocacy for fiscal transfers to balance current account imbalances?
• Saccomanni’s Response: Fiscal transfers remain political anathema, especially in Germany, due to moral hazard fears. But a move toward shared debt responsibility is inevitable for true union.

5. Crime, Law Enforcement, and Unintended Effects of Union ([66:04–70:10])

• Question (Gillian Capiero): Does deeper union abet organized crime? Are current enforcement powers sufficient?
• Saccomanni’s Response: Recognition that harmonization in law enforcement is needed to prevent “arbitrage” of justice and manage cross-border challenges — especially in migration and asylum.

6. Italy’s Priorities During EU Presidency ([70:40–74:22])

• Question (Davidenturi): What are Italy’s aims as EU Chair?
• Saccomanni’s Response: Unclear if treaty rewrites or implementation of existing measures will dominate. Top priorities include growth, youth unemployment, and institutional reforms such as the banking union.

7. Labor Mobility and Youth Unemployment ([74:22–80:30])

• Question (Corrado Macchiarelli): Could more EU-wide labor mobility help?
• Saccomanni’s Response: Yes; discusses challenges of pension portability, the EU "youth guarantee," and need for more vocational training and mobility programs akin to Erasmus.

8. Non-Eurozone Members and Two-Speed Europe ([80:45–85:00])

• Question (Anthony Salamone): What about the UK and non-eurozone countries?
• Saccomanni’s Response: UK’s reticence is regrettable, but further eurozone integration likely means a two-tier Europe, at least temporarily.

9. Banking Union as Precondition for Sustainability ([85:00–87:08])

• Question (Mattia Barina): Can the EMU be sustainable without a banking union?
• Saccomanni’s Response: No. Banking union is essential—must complete all three pillars: supervision, resolution, deposit insurance.

Summary Flow & Takeaways

• Saccomanni’s talk is candid, historically aware, and pragmatic. He acknowledges the many achievements since the crisis but is frank about unresolved issues and political hurdles.
• He balances deep institutional knowledge with a call for greater urgency, transparency, and EU-level responsiveness.
• Q&A segments probe practical and theoretical issues, from digital democracy to fiscal transfers, banking union, and European labor and criminal policies.
• The episode’s tone is both warning and hopeful, emphasizing the existential stakes for the EU in resolving these debates before political backlash hampers further integration.

Further listening: For those interested in European economic integration, institutional design, and political economy, this episode offers a masterclass in both the theory and practice of monetary union policymaking.