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The Covid-19 epidemics and the issue of Italy’s public debt

Giancarlo Elia Valori

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How will the E.U. resources be defined in the near future for the coronavirus issue? The issue is, in fact, much more complex than we may think.

 The actual European Funds that are theoretically available are manifold: the European Regional Development Fund, the European Social Fund, the Cohesion Fund and, finally, the European Maritime and Fisheries Fund.  All of them have been activated by President Von der Leyen in the initial phase of the COVID-19 spreading to Europe.

 The resources identified by President Von der Leyen for providing support against the epidemics and its economic effects are all drawn from these budget items, which are also those transferred to the States, usually as pre-financing, i.e. as advances on operating expenditure.

 The unspent part of these advances will soon be renamed without any particular bureaucratic problems and these funds will cover at least some past expenses, precisely as from February 1, 2020.

 President Von der Leyen’s proposals affect also the General Regulation of European Funds, which will also enable us to use the Regional Development Fund to finance capital and investment, particularly to improve the efficacy of regional health services.

 In principle, contributions from these Funds will only be used to cover the losses caused by health crises, climate events, environmental accidents or accidents at sea which, however, account for at least 30% of the turnover of the affected company, calculated on the average of the last three previous years.

 For severe diseases and epidemics, this new E.U. system envisages that these Funds can be activated if damage greater than three billion euros or 0.36% of the usual GDP can be proved (well, what next? No end to bad news).

 Hence a total of only 8 billion euros are expected to be made available to all the European economies affected, plus further 29 billion euros as cascading effects of investment already being made.

 Too little, as is evident to us all.

 The 2021-2027 EU budget, however, has not been approved yet. The resources are therefore already scarce and, to tell the truth, completely insufficient for all EU countries. Nevertheless, approximately 850 million euros will be transferred to the Italian regions alone to face the epidemics, in exchange for a not so formal guarantee of “enhancing the managerial approach” to health management – which is already high in Italy – and also to the relationship between spending centres and political authorities.

 However, we are back again to the usual routine of a too little too late approach in the E.U., both for the Italian health spending and for the equally high one of the other countries affected by the epidemics, such as Spain, France and Germany, in the very near future.

 In the German case, however, the public budget cosmetics – which I am surprised is not well known to the international financial markets – will make it possible to turn a plater, i.e. the German public finance, burdened with colossal debt, into a very fast Varenne.

 It will not be with this little money and these post factum bureaucratic criteria that the European Union will rebuild its image in the European productive forces and industrial systems destroyed by the epidemics.

 In the meantime, Prime Minister Conte’s government has already funded – – with 25 billion Euros, mostly as debt instruments- the whole package of measures to face the Covid-19 pandemic.

 The government bonds that can be issued are valid only as from 2020 – as a starting date – but there will be specific “aid” for Air Italy, the Sardinian airline being closed, and the Solidarity Fund for Air Transport and the airport system will anyway have additional 200 million euros available.

 All these measures can be found altogether in the Prime Minister’s Decree, so that we have the feeling that, in the end, with a view to setting again the economy into motion in the productive Northern regions after the epidemics, there will be less money than it is needed just to rebuild the industrial system of Small and Medium-sized Enterprises, which – as is well-known to all scholars and experts – have a much shorter time of permanence on the markets than large companies.

 These 25 billion euros – which are clearly too little – also include funds for the publishing sector, given the unavoidable decline in advertising revenue, as well as an anti-spread shield for insurance companies to face the tension recorded on Italy’s public debt bonds. This is a very technical issue on which I will not elaborate in this article.

 As always happens, however, if investors know it, they discount the insurance value on the amount of bonds acquired or on their price.

 It is a painful mystery how, today, we can take a measure like the spread seriously, considering it measures a difference between the ten-year Bund of an ailing country, namely Germany, with the ten-year BTP of an equally ailing country, namely Italy.

 Indeed, I have always had little faith in the average intelligence of private financiers.

 Prime Minister’s Conte government, however, is ready to implement the E.U. changes to the volatility adjustment, which has always had a very discontinuous trend and a very limited effectiveness.

 Thus, by purchasing the tools for estimating the spread parameters, the companies that hold public debt bonds should be in a position to evaluate the functioning of the mass of bonds and calibrate the mix of investment in “paper” instruments, as well as the duration of all the bonds they own. But there is no guarantee in this respect.

 With specific reference to business support, the 25 billion additional public spending will allow to apply for the ordinary wage subsidies or for access to the ordinary allowances, but only for a period of nine weeks.  

 Once again there is not a single word about the companies’ operations to recover market shares, as well as to recover the profit already forecast. All these measures would apply for just nine months, which, even if the pandemic ended immediately, would probably not be enough for the many Italian SMEs affected by the epidemics to recover their place and positioning in the E.U. and international markets which, meanwhile, the others will have already taken.

 The fact that economic intelligence exists has not yet been understood by Italian politicians.

 With specific reference to the healthcare sector, the 25 billion euros – which, as can be seen, are becoming ever less available – also include only 150 million euros for the increase in overtime for the medical and paramedical staff.

 Based on the Decree enacted, the potential of specialized military medical staff will be increased by 320 doctors and nurses, but more money will be invested in local control offices for checks on goods and people.

 Moreover, a total amount of 340 million euros will be available to use the beds in the private healthcare facilities’ intensive care units. What about the already available direct funding for private healthcare facilities?

 It should also be recalled that the Supreme Defence Council has not yet been convened, which would be the minimum in the current situation.

 Once again, too little too late. There is no reliable data on the permanence of the virus and its distribution throughout the country.

 For SMEs, however, the Central Guarantee Fund will have only one billion euros available, which is still too little.

 If we overlap the maps of the infection areas, from the province of Lodi to the Veneto region, we can also have the map of the development area of Italy’s Small and Medium-sized Enterprises in the North.

 They face the international markets “barehanded”, just as Karate or Judo men fight. Whatever happens, the COVID-19 epidemics has put an end to Italy’s particular system of development and industrial organization, precisely in the most productive regions.

 Now for Northern Italy there is a possible future either as a “guaranteed” area or as an area completely dependent on the other countries’ economic cycles. This is the real game at stake. Especially for Germany, which thinks strategically about its economy within the EU.

 The guarantee, however, will in any case be increased up to 5 million euros per company. For those who are still in difficulty, there will also be easy access to the “Gasparini Fund” for the suspension of mortgage payments. Said Fund has been increased with as many as 500 million euros for the whole 2020.

 For the usual nine months after the entry into force of the Decree, access to this Fund will be provided also to the self-employed and freelancers who self-certify – and it will be very easy – a drop in turnover higher than one third which, however, shall be connected with the COVID-19 emergency (although no clear details are provided on how this correlation shall be proved).

 For banks, as well as for the other companies’ creditors, the turning of debt into tax credits is envisaged for a maximum amount of 2 billion euros.

 Hence we are well over the 25 billion euros initially envisaged, as debt instruments, by the Prime Minister’s package of measures, well knowing the debt conditions of many and often excellent SMEs in Northern and Central Italy.

 For restaurants, cafés, gyms, entertainment and culture, as well as transport services, there is an exemption at source of withholding tax payments on income. However, real income support would be needed rather than the usual tax exemptions on income that is no longer there.

 Finally, there is income support for freelancers only to the tune of 500 euros per month. Income support is envisaged also for those who have an active VAT number, as well as for the Made in Italy sector, which has always been the key for the SMEs’ economic penetration abroad. As to the latter, this income support – the amount of which is not specified – will be managed by the Institute for Foreign Trade (ICE). What about SACE for the companies which are already active overseas? In this case, everything is too vague.

 However, there are already all the signs of the E.U. trip.

 In one day the alleged gaffe of current ECB Governor Lagarde has already destroyed the Italian Stock Exchange, which, indeed, is owned by the London Stock Exchange, but the Franco-German banking axis has been speculating for years on the difference between the interest rates paid by Germany and France and the Italian ones.

 This is a real industry. Hence Lagarde’s alleged gaffe can be easily understood.

 Obviously all this is also a prelude to a sale of Italian companies and real estate sector, while it is increasingly likely that the rating agencies will downgrade Italy to junk from the current valuation of its public debt bonds, as a result of the 25 billion euros – albeit insufficient – spent as debt instruments to face the COVID-19 emergency.

 As already mentioned above, while describing President Von der Leyen’s plan, nobody within the E.U. is still outside the old “austerity paradigm”, which works badly even when things go well. Let us not delude ourselves, in the future, about what the Popperian epistemologists called “paradigm shift”.

 Hence de facto industrial stoppage due to the epidemics and E.U. Member States’ subsequent joint speculative action on the Made in Italy companies, as well as downward operations against all listed SMEs. In this regard, we should also recall the 2019 ruling of the Strasbourg Court on insolvent Municipalities, in which it was decided that the whole amount of local debt plus interest shall be taken over directly by the central State.

 This is already a huge blow. Currently there are, in fact, 66 large insolvent Municipalities, with 54 small administrations in the Calabria region and 409 medium and small Municipalities in crisis, for various reasons, as well as 111 insolvent Municipalities in Sicily, all for amounts which are currently difficult to assess but, however, very close to the famous 25 billion euros invested as debt instruments to face the COVID-19 epidemics.

 This is an evident manoeuvre to circumvent our fiscal and economic crisis, which will be used at the right time by our E.U. and non-E.U. competitors.

 Furthermore, if – as many current leaders of the ruling parties maintain – there will be Italy’s access to the European Stability Mechanism, a European Court will judge whether private assets should play their role in the default procedure, in addition to the public ones.

 It should also be recalled that 91% of Italian Municipalities are at risk of landslides and soil crumbling.

 Hence, for all public assets and companies, there would be the classic bankruptcy procedure, which may also involve private assets. Just as happened with Greece.

 And as was the case with Germany in Versailles, at the end of the First World War, thus paving the way for Nazism and the Second World War and, above all, for the European one.

 What about temporary solutions? A double circulation of the old lira, which should be made interchangeable with the euro – something that, in fact, former Prime Minister Monti prohibited in 2012 and that Germany never dreamed of abolishing – or the circulation of forward and futures contracts, as done by Hjalmar Schacht, the Jewish and Freemason brilliant President of the German Central Bank under Hitler’s rule, who invented the MEFO bills to ward off the last blows of Weimar Republic’s hyperinflation.

 With specific reference to public debt, the Bank of Italy speaks about an increase in debt – precisely with additional 9.8 billion new liquid assets of the Treasury, which brings it to 55 billion euros – with a further central government’s debt that has increased by 7.2 billion euros and that of local governments – whose bad financial situation has already been mentioned above – by 0.5 billion euros in 2020.

 For the long-standing theory of Eurobonds, called for by many more or less experienced economists, there is still a key question.

 What if, in fact – as a result of a possible persistence of the COVID-19 epidemics – the investors, skilfully manipulated – and we can well imagine by whom – turned to other bonds, such as BTPs?

 Currently Italy’s public debt is held by 80% of private markets/operators, by 33% of European institutions and central banks and by 20% of “other entities”, namely small and medium savers or other organizations.

 According to the European Commission, with a zero economic growth, at the end of this year the Italian public debt could reach, ceteris paribus, 2,435.7 billion euros out of a total EU-27 debt of 12,814 billion euros.

 If the Italian economy is set again into motion at the end of May, as forecast by Cerved, our companies could recover a level of turnover even 1.5% higher than the one recorded at the beginning of the epidemics.

 In essence, between 2020 and 2021 the COVID-19 epidemics is expected to cost companies 275 billion euros.

Certainly too much, but nothing that cannot be spread by a public debt carefully managed in its main components, if this data is disseminated among international investors. Hence we can definitely expand the range of buyers of our public debt bonds, carefully calibrated and even renewed, to open up to the financial markets in which we have ventured little in recent years: Great Britain, which certainly has a political, strategic and financial interest in opposing the E.U. policies, now that it is no longer a E.U. Member State; the United States, a market in which we have been present with our large companies, but much less with listed SMEs and other excellent companies; obviously China, but even India, not to mention Australia and New Zealand which, thanks to the London Stock Exchange – which knows the Milan Stock Exchange very well – could buy our bonds confidently.

 Hence, we should no longer ask for charity from the E.U. financial markets, which have not shown any interest in our internal and economic situation. We should begin to make high-level propaganda and skilful promotion of Italy’s “image”, not with a tourist-oriented approach but with excellent financial expertise.

 Moreover, there are those who – not heeding danger and experience – propose to turn the European ESM into the E.U. “Economy Ministry”, which could issue the famous Eurobonds or other instruments that, hopefully, would “sell like hot cakes” on the markets.

 Does anyone know that nowadays countries compete, by all means, on their public debt bonds?

 This operation – as debt instruments of the whole EU-27 – could raise the whole E.U.  budget, so as to help the less “fortunate” countries.

 The idea is good, in principle, but it does not take for granted what now seems obvious: the E.U. project to make Italy end up just like Greece – as in slow motion, like in sport events such as football and athletics.

 Moreover, the famous one trillion euro budget for the Green Compact, equal to seven years of the E.U. whole budget, was in fact an advertising idea, but we cannot even imagine where we can get this huge amount of money.

 According to other reliable banking sources, the situation of Italian SMEs in the COVID-19 epidemics phase will have an impact on the working capital of our Small and Medium-sized Enterprises equal to over 18 billion euros, out of an already calculated total of 342 trade receivables and payables.

 Nevertheless, only for the whole 2020, the requirements for SMEs could reach 46 billion euros, including repayments of debt coming due and investment.

 50% of this amount regards companies in Lombardy, Veneto and Emilia Romagna.

 Creating debt to set again the economy into motion is of no use in the long run – if not as a stopgap measure. A direct interest-free financing from the Bank of Italy is needed but – and this is going to be tough – also from the ECB, an institution in which experts study the old microeconomics and believe that it is the whole economic theory.

 With a view to solving the COVID-19 crisis, the State Rescue Fund – the well-known ESM – could resort to its “toolbox”, albeit this is very dangerous.

 Within the ESM, there is the possibility to activate the Precautionary Conditioned Credit Line (PCCL), i.e. loans granted quickly to avoid the default, but which are NOT conditional upon a Memorandum of Understanding (MoU) of mandatory cuts in public spending and “structural reforms”.

 This would mean a significant increase in unemployment, further compression of the internal market, as well as subsequent and obvious impact, as well as knock-on effects, for Italy’s companies. For an indebted government it is enough to sign a Letter of Intent, which is similar to a MoU, but is less imperative. Hopefully so, although no one has experienced it yet.

 Furthermore, in the case of an Enhanced Conditions Credit Line of the ESM, with MoU-style reinforced guarantees which, I imagine, would be required from Italy, the effects would be directly proportional to the amount of credit granted and the average return time.

 The ESM is therefore a trap and, in the long run, it would create the same disasters it would like to solve.

 Microeconomics is not the whole economic theory. Today there is no soup, like the Marginalists’ one, having the maximum marginal value at the first spoon and the minimum value at the last one. Usually, you finish earlier.

 Another nonsense, albeit very widespread, is the wealth tax called for by the IMF and other scarcely experienced economists.

 The first house owned does not produce income, but an increase in taxation is created immediately during an economic recession and you do not need to be John Maynard Keynes to understand what would happen next.

 Meanwhile, the big financial information agencies say far and wide that “there are 40 billion U.S. dollars of reasons to avoid the Italian public debt”.

 Hence the real and future struggle will also be fought with the careful and authoritative explanation of how the Italian public debt is made, and above all by avoiding the counter-propaganda of some of our scarcely affectionate E.U. friends.

Advisory Board Co-chair Honoris Causa Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr. Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York. He currently chairs “International World Group”, he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group. In 1992 he was appointed Officier de la Légion d’Honneur de la République Francaise, with this motivation: “A man who can see across borders to understand the world” and in 2002 he received the title “Honorable” of the Académie des Sciences de l’Institut de France. “

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Origins of Future discussed – Vienna Process launched

Zeno Leoni

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image credit: IFIMES

The first July day of 2020 in Vienna sow marking the anniversary of Nuremberg Trials with the conference “From the Victory Day to Corona Disarray: 75 years of Europe’s Collective Security and Human Rights System – Legacy of Antifascism for the Common Pan-European Future”. This was probably the first conference in Europe of large magnitude after the lockdown. It gathered numerous speakers and audience physically in the venue while many others attended online.


The conference was organised by four partners; the International Institute for Middle East and Balkan Studies (IFIMES), Modern Diplomacy, European Perspectives, and Culture for Peace, with the support of the Diplomatic Academy of Vienna that hosted the event in a prestigious historical setting.


The day was filled by three panels focusing on the legacy of WWII, Nuremberg Trials, the European Human Rights Charter and their relevance in the 21st century; on the importance of culture for peace and culture of peace – culture, science, arts, sports – as a way to reinforce a collective identity in Europe; on the importance of accelerating on universalism and pan-European Multilateralism while integrating further the Euro-MED within Europe, or as the Prodi EU Commissioned coined it back in 2000s – “from Morocco to Russia – everything but the institutions”. The event was sealed with traditional central European music and famous Viennese delicatessens.


Among 20-some speakers were: Austrian President (a.D) and current co-chair of the Ban Ki-moon center; the European Commission Vice-President; former Secretary-General of the OECD and Canadian Economy minister (under PM Trudeau); former EU Commissioner and Alpbach Forum President; former OSCE Secretary General and current OSCE High Commissioner on National Minorites; Austria’s most know Human Rights expert; Editor-at-Large of the Washington-based the Hill; Secretary General of the Union for the Mediterranean; Honourable Justice Constitutional Court President, and many more thinkers and practitioners from the UK, Germany, Italy and Australia as well as the leading international organisations from Vienna and beyond.

Media partners were diplomatic magazines of several countries, and the academic partners included over 25 universities from all 5 continents, numerous institutes and 2 international organisations. A day-long event was also Live-streamed, that enabled audiences from Chile to Far East and from Canada to Australia to be engaged with panellists in the plenary and via zoom.(the entire conference proceedings are available: https://www.facebook.com/DiplomaticAcademyVienna )

The event sought to leverage on the anniversary of Nuremberg to highlight that the future of Europe lies in its pan-continental union based on shared values but adapted to the context of 21st century. Indeed, if Nuremberg and the early Union were a moment to reaffirm political and human rights after the carnage of WWII, the disarray caused by C-19 is a wake-up call for a new EU to become more aware of and effective on the crisis of socio-economic rights and its closest southern and eastern neighbourhood.

From a political viewpoint, while the diversity of speakers and panels led to a multifaceted picture, panellists agreed on the need for more EU integration, a better balance between state and markets that could put the state again in charge of socio-economic affairs in order to compensate market failures; greater involvement of the Union for the Mediterranean in the implementation of EU policies, and the overcoming of Washington Consensus, among other things.


From a strategic perspective, two important points emerged. On the one hand, the EU in order to develop a more productive foreign policy agenda needs to resolve tensions that still create mistrust between the West and Russia, with particular attention to frozen conflicts. On the other hand, it is essential that European countries go back to a more long-term, forward-thinking policy agenda that can prepare its members for the strategic challenges of the future.

Above all, at the moment the EU lacks the necessary leadership that dragged it outside of WWII almost eighty years ago and that nowadays needs to overcome the differences that prevent the continent to achieve a fully integrated, comprehensive socio-economic agenda.

In order to make the gathering more meaningful, the four implementing partners along with many participants have decided to turn this event into a lasting process. It is tentatively named – Vienna Process: Common Future – One Europe. This initiative was largely welcomed as the right foundational step towards a longer-term projection that seeks to establish a permanent forum of periodic gatherings as a space for reflection on the common future by guarding the fundamentals of our European past.

As stated in the closing statement: “past the Brexit the EU Europe becomes smaller and more fragile, while the non-EU Europe grows more detached and disenfranchised”. The prone wish of the organisers and participants is to reverse that trend.

To this end, the partners have already announced the follow up event in Geneva for early October to honour the 75th anniversary of the San Francisco Conference. Similar call for a conference comes from Barcelona, Spain which was a birth place of the EU’s Barcelona Process on the strategic Euro-MED dialogue.

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Turkey in the Balkans: A march westward

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The Balkan Region is becoming attractive for a wide spectrum of foreign players – from Beijing to Washington, and from Brussels to Riyadh. Also, it presents considerable interest for Ankara.

For Turkey, the Balkan Region is important historically, culturally, politically and economically, playing the role of a “bridge” into Europe. In addition, the Turkic-Islamic foreign policy paradigm stimulates Ankara into action: nearly 17 million or more than one third of the population of Turkey are Muslims, while Recep Tayyip Erdogan is positioning himself as the main “advocate” of Islamic world. Significantly,  his authority as a patron of  the Balkan umma is on the rise.

Muslims make up the majority of the population in Albania, Kosovo, Bosnia and Herzegovina, Sanjak (in Serbia), in Macedonia and Montenegro the proportion of Muslims is 33% and 17% accordingly. Moreover, the peninsula is home to some 1.5 million Balkan Turks, even despite the fact that many of them emigrated to Turkey and that Turkey and Greece carried out an exchange of population after the Second World War.

Ankara began to demonstrate an ever increasing interest in the Balkan Region after the disintegration of Yugoslavia, but what gave the Balkan direction a new impetus was the arrival in 2009 of Ahmet Davutoglu, who announced that Turkey would assume the role of mediator between the EU and countries of the region, thereby contributing to rapprochement and integration of the  latter into Euro-Atlantic structures.

Since then the Turkish-Balkan foreign economic ties and military and political cooperation have demonstrated progressive growth.  Countries of the region have become involved in NATO programs and have reformed their armed forces in accordance with NATO standards. Since 1995 Ankara has been taking part in all NATO operations in the Balkans and has dispatched its servicemen to serve with international security forces in Kosovo, Bosnia and Herzegovina. And it has no intention to stop – Turkish military schools provide classes in Serbian, Croatian and Albanian.

In recent years many experts have noticed Turkey’s “soft force”, and the  Balkan Region is no exception. The Balkans have become a venue for dozens of educational, healthcare and cultural projects, with Turkey financing humanitarian campaigns and investing hefty sums in educational and medical projects, and in infrastructural and energy facilities. Under development is a plan to publish history textbooks in tandem with Albania, North Macedonia, Bosnia and Herzegovina. According to the Internet edition Balkan Insight, the popularity of Turkish soap operas in the Balkans boosts Turkey’s authority, simultaneously making it possible for Turkey to “re-write history”.

Unlike in the 1990s, when Ankara’s policy in the Balkans was oriented, first of all, at ethnically and religiously close countries and groups, now, Turkey is set on “covering” all countries of the peninsula. For Turkey, the main partners are Albania, Bosnia and Herzegovina, North Macedonia, Rumania, and “second level” counteragents are Croatia, Montenegro, Kosovo and Serbia. Incidentally, the significance of the latter has been growing steadily in the eyes of Turkish diplomats.

Erdogan, who visited Belgrade in October last year, has described Serbia as “a key country for peace and stability in the Balkans”. Cooperation with Serbia, he said, has reached an “ideal” level.

The opponents include Bulgaria (to a less extent) and Greece – countries where anti-Turkish moods are strong. Particularly, Greece. According to the Turkish newspaper Hürriyet, Ankara and Athens “have conflicting views on a number of points”, including the land border, the Aegean Sea, Cyprus and the entire East Mediterranean, where the natural gas – rich continental shelf and marine borders are still issues under discussion. The dispute over developed and prospected gas reserves narrowly escaped spilling into an open confrontation: Greek Defense Minister Nikos Panagiotopoulos threatened to “take up arms” in an interview broadcast by the Greek TV channel Star. His Turkish counterpart replied accordingly: «… we are persistent and resolute when it comes to protection of our interests and our rights, and we have the power needed for it». However, both sides softened their rhetoric soon afterwards.

In the Balkan Region Turkey has to compete, first of all, with the European Union, which looks at the region, not without grounds, as a “natural” zone of its interests. This competition becomes more intense as relations between Ankara and Brussels get cooler. 

The Euro-Atlantic direction currently dominates foreign policies of nearly all Balkan countries, despite the fact that the happy expectations of expanding cooperation with the West rarely come true. «European solidarity does not exist», – the Serbian president announced sadly as he declared a state of emergency in connection with the coronavirus pandemic.  Nevertheless, Bulgaria, Rumania, Albania, Croatia, Montenegro and North  Macedonia joined NATO; Bulgaria, Greece, Romania, and Croatia are members of the EU, Serbia and Montenegro are holding talks on their joining united Europe, and Albania and North Macedonia have received a green light to do so from Brussels.

However, EU officials acknowledge that they have so many internal problems that they cannot take in new members.

But the EU persists with its activity as, in the opinion of a whole number of western analysts, hopes of countries of the region for membership in the EU is all but the only factor that contains a new “Balkan explosion”. In addition, Europe is concerned about the growing activity of Turkey, Saudi Arabia and the United Arab Emirates in the region. In 2017 Austria’s Defense Minister Hans-Peter Doskozil expressed concern over the “slow Islamization of the Balkans”. Also, the EU is doing its utmost to reduce the influence of Russia and China.

Washington demonstrates complete agreement with Brussels. In May 2018 US Secretary of State Mike Pompeo, addressing the International Affairs Committee of  the House of Representatives, said that Russia (and also Turkey) were as he put it involved in “destabilizing the situation” in the Balkans. Hence the build-up of American military presence (US military bases are located on the territories of three countries of the region) and the involvement of Balkan states in NATO programs. Though, according to an official statement of the State Department, the US policy in the Balkans pursues the one and only  purpose of “assisting the states of the region in their efforts to strengthen peace, establish stability and create conditions for progressive development”. But the Balkans remember the Yugoslav crisis and the role of NATO in the aggressive destruction of this state.

Given the situation, friction with Ankara pushes Washington into building its own military infrastructure with the support of Rumania, where elements of the US missile defense shield are deployed, and Bulgaria, where four American military bases are located. Two years ago the United States announced the creation of several more bases on the peninsula, primarily in Greece.

At present, the Balkan Region presents an important chapter of the Russian foreign policy. A number of countries, first of all, Serbia, continue to request Russian presence. According to the author of the report “Where do Balkans go? New cooperation paradigm for Russia” (2018) at the Valdai Club, Russia ought to exert efforts to expand  the range of partners in this region, simultaneously fostering cooperation with external players. One instance of such cooperation  could be an extension of the Turkish Stream into Europe.

As for Turkey, this region is of importance within the framework of “neo-Ottomanism”, which envisages the spread of economic, cultural and political influence to former territories of the Ottoman Empire. Even though this doctrine has not been declared at the official level,  it de facto constitutes the ideological basis of the country’s foreign policy.

In the 1990s, on the peak of euphoria at the appearance of a whole number of Turkic states, Turkey proclaimed the creation of a “Turkic world” a major point of its foreign policy agenda. In the opinion of the country’s political elites, leadership in this “world” would boost Turkey’s value on the international scene and would thus facilitate its joining the European Union. Now, the agenda has become more ambitious: as part of this ideology, Turkey positions itself as an equal partner to  entire Europe and deems presence in the Balkans vital.

The “Turkic world” did not come into being for many reasons – it received no support from the West, and Turkey lacked the resources and influence to translate it into life unassisted. Likewise, the West does not need Pax Ottomana in any form, while efforts to create it may in the long run  prove too heavy a burden for the Turkish economy.  

From our partner International Affairs

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Of Multilateralism And Future To Europe Recalibration

Donald Johnston

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As the key-note panelist at the Modern Diplomacy and IFIMES conference today in Vienna, the former Secretary General of the Paris-based Organisation for Economic Cooperation and Development in Europe, and former senior minister in several Canadian governments, just delivered highly anticipated speech.

This panel in addressing the future of Europe is invited to answer this question:

“Is there any alternative to universal and pan-European multilateralism?  For the purpose of my remarks I am interpreting “ universal and pan – European multilateralism’ as moving forward with achieving more EU integration supported by institutions appropriate to a  kind of federal structure in line with the thinking of the Spinelli Group. But it also raises the question of global free trade which I promoted as Secretary General of the OECD and continue to believe must be the word’s future in addressing poverty and opportunity, especially for the worlds developing countries. But it has to be managed in a way sensitive to the challenges of both.

In these brief comments I intend to offer my view on the answer to this fundamental question about the future of Europe.

To begin, I would amend the question by adding the word “good” before “alternative”.

There certainly are alternatives some of which could set Europe on a path back to a collection of independent sovereign states and undo the remarkable progress in building a secure European Union in the post WWII period.

Many years ago when looking at the extraordinary work and vision of statesmen like Jean Monet trying to build a lasting and prosperous European Union, I came across a comment of British Historian H.A.L. Fisher in the preface to his 1936 book, A History of Europe. In part it read as follows:

“[No] question [would be] more pertinent to the future welfare of the world than how the nations of Europe … may best be combined into some stable organization for the pursuit of their common interests and the avoidance of strife.“

Although we appreciate the Marshall Plan’s amazing contribution to the Europe of today, it contributed more to restoring Europe physically while providing humanitarian assistance. Of course, the OEEC which evolved into the OECD in 1961 did provide an important framework and mechanism for economic and social development which continues to this day.

Fisher’s vision of a strong, unified Europe remains very much work in progress and that work really began with Jean Monnet’s initiative to create the European Coal and Steel Commission. I will comment on that in a moment But I remain convinced that Fisher was right, and the great rebuilding of Europe  and the EU after the Second World War must and will endure notwithstanding the barrage of criticisms  from euroskeptics, now emboldened by the United Kingdom’s Brexit vote of June 2016. Admittedly my conviction is based on the EU having strong, visionary leadership, which has not yet fully materialized.

Think of this. Although Greece represents less than 3 per cent of the Euro zone economy, euroskeptics used its financial crisis as ammunition to predict its withdrawal from the eurozone and the possible unravelling of the entire EU. The Greeks rejected that option: there was no Grexit.  Austrians also rejected right-wing populist nationalism in the 2016 Presidential election of Van der Bellen, a strong supporter of the EU.

The support for Brexit in the UK referendum was an unexpected shock for some, but it pleased others who wish to see the EU unravel and claim that the UK attitude reflects views held in other major European countries. I keep hearing and reading that the United Kingdom has rejected the EU, as if it were an overwhelming victory.  Bolstered by misrepresentations and downright lies it was a very slim referendum victory but Brexiters will argue that it was validated by Boris Johnson’s subsequent margin of  electoral victory.page53image34082368

There are also others, especially President Trump who appear to be hostile to the emerging  global role that the European Union is likely to play as it completes its evolution to a unified international force. This has become even more important as the United States under Trump becomes increasingly isolationist and opposed to international multilateralism constructed by visionaries over the past 75 years.

In a stunning commentary in Foreign Affairs (summer 2016), Professor Jakub Grygielof the Catholic University of America, implies that the upside to the EU crisis will be a return to independent sovereign nation-states across Europe. Indeed, that would be an upside for American isolationists. It would remove from US competition the largest unified single market in history and reinstate the possibility of future wars on the continent that this great European experiment was designed to prevent – as it has.

Some of Grygiel’s comments appear designed to create a false impression of the views of Europeans. Here is a cheerful observation to support his thesis: “a Europe of newly assertive nation-states would be preferable to the disjointed, ineffectual, and unpopular EU of today. There’s good reason to believe that European countries would do a better job of checking Russia, managing the migrant crisis, and combating terrorism on their own than they have done under the auspices of the EU.”

Really? What is that “good reason” that escaped the attention of the statesmen and nation builders like Jean Monnet in post-war Europe? Grygiel also says that the EU is ineffectual, which is true in some cases, as it is with many, if not most supranational bodies, including much of the United Nations (UN) activities. And what of the United States itself?

Sadly the world is watching that formerly great republic  floundering in the face of numerous serious challenges both social, economic, even racial, not even capable of effectively addressing the Covid-19 crisis through what is becoming a  dysfunctional government under a Commander in Chief who proudly presents himself as a narcissistic ignorant bully.

And non Europeans, especially Americans, systematically ignore the EU’s successes. One good example being the collective research of 28 networked European countries that produce one-third of the world research’s output – 34 per cent more than the United States and more than China. This was documented at the time of the Brexit debate in New Scientist.  (June 2016). These are the kind of synergies that could be sacrificed should the EU dissolve, and it may already be compromised by the withdrawal of the UK which has much world first class research.

Hopefully the; United Kingdom will stay united and prosper in the post Brexit period. However, there is good reason for concern as the Financial Times Martin Wolfe wrote at the time (June 24,2016). He said:

“David Cameron took a huge gamble and lost. The fear mongering and outright lies of Boris Johnson, Michael Gove, Nigel Farage, The Sunand the Daily Mail have won. The UK, Europe, the West and the world are damaged. The UK is diminished and seems likely soon to be divided. Europe has lost its second-biggest and most outward-looking power. The hinge between the EU and the English-speaking powers has been snapped. This is probably the most disastrous single event in British history since the Second World War.

Yet the UK might not be the last country to suffer such an earthquake. Similar movements of the enraged exist elsewhere – most notably in the US and France. Britain has led the way over the cliff. Others might follow.”

Will others follow the United Kingdom over the cliff? Alina Polyakova and Neil Fligstein, writing in the International New York Times at the time of the Brexit vote( July 2016), relied on polls that suggest that will not happen. They say, “Britain is not, and never has been, a typical member of the European Union, and in no country but Britain do populists and other euroskeptic forces have the 51 percent of votes needed to pull their countries from the union.”

Obviously, those in the UKwho wanted Brexit must have believed it is good for them and presumably for the United Kingdom, even if it means losing Scotland and perhaps Northern Ireland. The City of London will also suffer, but no one can estimate what the damage will be until all the terms of exiting are known.

Jacques Delors, who has dedicated much of his life to the European dream both in public office and after retirement through his Paris-based foundation, made the following observation in an inter- view in 2012 with the Handelsblattnewspaper: “If the British cannot support the trend towards more integration in Europe, we can nevertheless remain friends, but on a different basis. I could imagine a form such as a European economic area or a free-trade agreement.”

That might be the happiest outcome in the wake of Brexit. The real beneficiaries of Brexit are the remaining EU members inspired by people of the experience and quality of Jacques Delors and members of the Spinelli Group. The latter founded in 2010 as a network of thousands of politicians, individuals, writers, and think tanks looking to revive the momentum toward a federalist structure for the EU.” 

In fact, the Brexit vote and Johnson’s arrival as Prime Minister may have strengthened the resolve of many EU countries and prominent Europeans to accelerate the integration process in line with federalist thinking.

Obviously those having the foresight to realize the importance of greater integration and an emerging federalist model, such as the Spinelli Group, would be blocked by a United Kingdom, were it a member, to have reforms move in the opposite direction, consistent with Prime Minister Margaret Thatcher’s famous Bruges speech in 1988 where she said,

“We have not successfully rolled back the frontiers of the state in Britain, only to see them re-imposed at a European level with a European super-state exercising a new dominance from Brussels. Certainly, we want to see Europe more united and with a greater sense of common purpose. But it must be in a way which preserves the different traditions, parliamentary powers and sense of national pride in one’s own country; for these have been the source of Europe’s vitality through the centuries.”

This could hardly be seen as an endorsement of a federalist system of any kind, because decentralization, especially with the preservation of parliamentary powers, meaning full sovereignty, is incompatible with federalism. She could have added that the elements she wished to see preserved have also been the source of bloody European conflicts throughout the last millennium, including three wars between France and Germany in the 70 years between 1870 and 1939!

Consideration should be given to some steps that must be taken to realize the collective potential of the EU as a major global player, which it could never be if its members revert to sovereign nation- state status. Indeed, as other major countries grow in economic clout, it has been pointed out that not even Germany would be in a new G8. Only a united EU could have influence on the global stage.

Skeptics like Professor Grygiel, many of them American, seem blinded by the headlines and glare of current events, failing to place them in a broader historical context. Reviewing the remarkable evolution of Europe since the Second World War, I hope that the long-term success of Europe is inevitable. But as the great American judge Oliver Wendell Holmes once noted, “the mode by which the inevitable comes to pass is effort.” European leadership must now make that effort. It is critical not only for Europe, but for the world today.

A strong, unified Europe is also important for the emergence of global multilateralism and the further evolution of globalization. Since the end of the Cold War we have been living in a world dominated by just one superpower: the United States. Fortunately, that superpower has been a very open market and largely, but not entirely, militarily non-aggressive. Sometimes referred to as the “importer of last resort,” it continued to run current account deficits opposite many trading partners, especially China.

The American economy had enough strength and resilience to emerge slowly but with growing confidence from the global financial crisis of 2007–08. To become a companion economic locomotive, Europe must continue to open its markets, eliminate distorting trade subsidies, and undergo substantial structural reforms in labour, services, and manufacturing markets to stimulate European economic growth. I hope that the results of the Europe 2020 exercise and its follow up will help in that regard.

If that does not happen, the United States might use its economic muscle to focus increasingly on bilateral agreements that are becoming a serious impediment to global free trade.

If Europe had successfully moved to a more centralized and coherent federal model of government it could have reached the objectives adopted by the EU in 2000 (often referred to as the Lisbon Agenda), which was stated in the Lisbon Declaration (24 March 2000) as follows: “The Union has today set itself a new strategic goal for the next decade: to become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion.”

Well, that failed. A review of progress chaired by the former Dutch Prime Minister Wim Kok reported in 2004 that the strategy had fallen well short of its objectives. The diagnosis of the problems of broad structural reform was good, but implementation of reforms was seriously lacking. Kok’s review carried much credibility as he had overseen the continuation and completion of the major Dutch structural reforms originally introduced by his more conservative predecessor, Ruud Lubbers. Kok was also a regular participant in many international conferences, and during our discussions it was apparent to me that he was a talented consensus builder.

There is much to be said for  such consensus  builders, who enable intellectual and political opponents to better understand competing views. Strengthening such relations between European political leaders will be important in bringing cohesion and stronger integration to the EU in line with the objectives of the Spinelli Group.

The Lisbon Declaration, now replaced by the Europe 2020 strategy,  has five ambitious objectives related to employment, innovation, education, social inclusion, and climate/energy. The world would benefit greatly from Europe attaining those objectives.

Today only the EU and Japan might to come close to matching the United States in per capita GDP in the coming years.

 Demographic projections show Japan’s population in serious decline, but an expanded EU which should evolve with Turkey as a major player, would have a much greater population and a much larger market than the United States.

The objectives listed above can only be realized when the peoples of Europe achieve a consensus on what kind of legal community they truly wish to be, and so far,  progress to that end has been in fits and starts. The failure of the Lisbon Agenda, the rejection of the proposed constitution in both French and Dutch referenda, and now the exit of the United Kingdom underscore the difficulty of moving toward a flexible federal structure.

The use of the word federal seems to be an anathema for many Europeans. It is worth remembering  that with the creation of the European Coal and Steel Community inspired by Jean Monnet in 1951, the French government declared that it would “provide for the setting up of common foundations for economic development as a first step in the Federation of Europe.”

Today there does not appear to be any coordinated and broad- based visionary leadership like that of Jean Monnet that led Europe out of the destruction and chaos of the Second World War.

Perhaps the Greek crisis, the withdrawal of the United Kingdom from the EU, and continuing economic performance under potential will awaken Europeans to the need for a truly federal-type European Union, with strong central government institutions where appropriate, accompanied by the protection of individual nations’ precious linguistic and cultural identities. The genius of federalism is that it can accommodate great diversity in many areas.

What is the way forward? Where is the higher vision to achieve what is imaginable but not yet within reach? I suggest that the answer is to reconcile the various goals of Europeans, what I call the three Ms: minimizing frictions, maximizing synergies, and maintaining sovereignty.

Some believe they can achieve the first two without a dilution of sovereignty. That is not possible. From my Canadian experience with Quebec, however, I know that it is possible to minimize frictions and maximize synergies while maintaining cultures and national identities. In the case of Quebec, the French language, civil law, religion, and culture have been protected since the Quebec Act of 1774, which is one reason why separatist movements have never succeeded.

I see this kind of flexible federal structure, with necessary variations, in Europe’s future. Loss of Europe’s various languages and cultures would alter the character of the continent, moving it in the direction of the United States. The historical evolution and the nature of the “self-willed” peoples of Europe, as Fisher described them, make that path neither feasible nor desirable.

I finish these comments with a quote from a recent letter distributed by Thierry de Montbrial, the founder and head of the prestigious French public policy think tank IFRI.

“But it stands to reason that we in Europe in particular should capitalise on building the Union in order to prove the viability of a third way between the United States, that great democracy which still claims to be a liberal one, and the People’s Republic of China, which still claims to be communist. Most of us want to remain close to American democracy, but we refuse to become its vassals, notably as part of an Atlantic Alliance retrofitted to that end. There is an urgent need to clarify NATO’s truly shared objectives. As for the European Union, despite all the whining in recent weeks, it continues to sail ahead in stormy seas, as it always has…..

If there is one part of the world where multilateralism is making headway despite countless hurdles, it is the European Union. There is still a very long way to go in Europe and, even more so, on a planetary scale. But history is moving in that direction, for the alternative is collective suicide. There is no doubt that global warming, pandemics and more or less intense wars are foreseeable in the world’s near-term future. At least we can hope to limit the damage, which, after all, was the case during the Cold War. Let us be convinced of the European Union’s responsibility in that regard.”

I agree…who cannot?

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