Pragmatic and Ideal Federalism. Italian Premier Draghi Paves the Way for the Use of the Word Federalism

Mario Draghi
Italy's Prime MInister. Former President of the ECB.

[…] The war in Ukraine is posing one of the most serious crises in the history of the European Union. A humanitarian, security, energy and economic crisis all at the same time. This crisis is happening while our countries are still dealing with the consequences of the greatest health emergency of the last century. The European response to the pandemic was united, courageous and effective.

With unprecedented speed, scientific research gave us vaccines able to curb the contagion and drastically reduce the severity of the virus. We organised the biggest vaccination campaign in recent history, allowing us to save lives, get youngsters back in school and relaunch the economy. We approved the NextGenerationEU programme, the first large-scale European reconstruction project, financed with contributions from everyone in order to meet each country’s needs.  The same readiness and determination, the same spirit of solidarity, must now guide us in the challenges that lie ahead.

The institutions built by our predecessors in previous decades have served European citizens well, but they are inadequate for the reality we are faced with today. The pandemic and the war have called upon EU institutions to take on responsibilities they never had before. The geopolitical situation is undergoing rapid and profound changes. We have to move, and move as quickly as possible. We must also ensure that the management of the crises we are experiencing does not take us back to square one, but rather allows us to move towards a more just and more sustainable economic and social model.                             

We need pragmatic federalism, encompassing all areas affected by the ongoing transformations – from the economy to energy and security. I have spoken about pragmatic federalism, but I must also add that our European values of peace, solidarity and humanity need to be defended now more than ever. It is more difficult than ever, and indeed it will become increasingly difficult, for individual member states to defend these values. We not only need pragmatic federalism; we need a federalism based on ideals.

If this means embarking on a path that leads to a revision of the Treaties, then this must be embraced with courage and with confidence. If we are able to draw strength from the tragic events of the last few years to take a step forward; if we are able to imagine EU institutions functioning more efficiently, allowing us to promptly find solutions to citizens’ problems; then we will be able to give them a Europe in which they can identify themselves with pride.

Russia’s aggression against Ukraine has called into question the European Union’s greatest achievement: peace on our continent.  Peace based on respect for territorial borders, the rule of law and democratic sovereignty; peace based on the use of diplomacy as a means to resolve crises between states; peace based on respect for human rights, which have been violated in Mariupol, in Bucha, and in all places where the Russian army's violence has been unleashed against defenseless civilians.

We must support Ukraine, its government and its people, as President Zelensky has asked us, and continues to ask us to do. In a war of aggression there can be no equivalence between the side that is invading and the side resisting the invasion. We want Ukraine to remain a free, democratic and sovereign country.  Protecting Ukraine means protecting ourselves; it means protecting the project of security and democracy that we have built together over the last seventy years. Helping Ukraine is above all about working for peace. Our priority is a ceasefire to be reached as soon as possible, to save lives and to allow for humanitarian assistance to get to citizens, which is still very difficult at the moment. A ceasefire would also give new impetus to negotiations which, as yet, have not achieved the results we were hoping for. Europe can and must play a central role in supporting dialogue.

We must do so because of our geographic position, which places us next to this war and therefore on the front line in dealing with all its possible consequences.We must do so because of our history, during which we have proven our ability to build stable and lasting peace, even after bloody conflicts.  As a founding member of the European Union, as a country that believes deeply in peace, Italy is ready to work, in the front line, to reach a diplomatic solution.Already today, the war is deeply affecting our countries. Since the beginning of the conflict, approximately 5.3 million people have left Ukraine for the European Union – especially women and children.  That is more than double the number of refugees who were present in the EU at the end of 2020 (around 2.5 million). Italy believes in the European values of reception and solidarity. We have welcomed over 105,000 Ukrainian refugees, thanks to the generosity of families, volunteers and non-governmental organisations, whom I sincerely thank. Other countries – including Poland, Romania, Germany and Slovakia – have made even greater efforts. Many refugees want to return home as soon as possible, and some have already begun to do so. However, we do not know how the conflict will evolve, nor how long it will last.

We must be ready to give continuity to our initial momentum, allowing Ukrainian refugees to better integrate into our societies.

[…] From an economic point of view, the conflict has led to instability in the functioning of global supply chains and volatility in raw material and energy prices.  Ukrainian food supplies have collapsed due to the ravages of the war and the export blockades imposed by Russia in Black Sea and Sea of Azov ports.

[…] With regard to energy, the price of crude oil, which fluctuated between USD 70 and USD 90 a barrel between December and January, now stands at around USD 105 after peaking at USD 130 in March. The price of gas on the European market is around EUR 100 per megawatt hour - about five times what it was a year ago. These increases - which follow the price rises already recorded before the conflict began - have driven inflation to levels that have not been seen for decades. The price index in the euro area rose by 7.5% in April compared with a year ago, significantly affecting the purchasing power of households and levels of business output. The European economy is experiencing a slowdown: in the first three months of 2022, gross domestic product in the euro area grew by 0.2% compared with the last quarter of 2021. The International Monetary Fund expects the European Union to grow by 2.9% this year, down from the 4% it had estimated until recently.

Any one of these crises would require a strong reaction from the European Union. Together, they are forcing us to significantly speed up the integration process. Over the coming months, we must show European citizens that we are able to lead a Europe that can live up to its values, its history and its role in the world. A stronger, more cohesive, sovereign Europe - capable of taking the future into its own hands, as Chancellor Merkel said some time ago. Over the past 75 years, European integration has often been the best response - practical and ideal - to common challenges. The founding fathers of the European Union understood that economic development and social progress were difficult to achieve with the resources of individual member states alone. They identified the supranational model as being the only one capable of uniting the interests of European populations and exerting influence over events that would otherwise be beyond their reach. The integration process has been a gradual one, made up of crises and relaunches, of successes achieved despite internal divisions and, sometimes, in the face of external resistance. A result built "piece by piece, sector by sector", to quote Robert Schumann, as the European Union could not be created "overnight, like an ideal city".

Europe responded to the traumas of the Second World War by creating the first institutions for economic cooperation. I am thinking of the European Payments Union, which supported a return to currency stability and the resumption of trade; or the Economic Coal and Steel Community, which abolished customs barriers and other impediments to the free movement of goods in crucial sectors of the economy. The geopolitical tensions that arose with the Suez crisis in 1956 helped to speed up progress towards the Treaties of Rome. European countries reacted to the collapse of the Bretton Woods system in 1971 by setting up the currency snake, followed by the European Monetary System.

Their response to growing Euroscepticism in the 1980s was the targeted action programmes proposed by the Delors Commission and the Single Act in 1986. Following the end of the Soviet Union and the reunification of Germany, Europe had the signing of the Maastricht Treaty, the creation of the monetary union and, finally, the eastern enlargement of the European Union. The eurozone crisis at the start of the last decade led to institutions being strengthened and modernised, starting with the European Central Bank.

As I mentioned earlier, the pandemic united us and led to the creation of the NextGenerationEU programme. This long path towards integration has changed our lives for the better, bringing us peace, prosperity and a social model to be proud of. The single market not only relaunched the European economy at a time of difficulty, but it has also ensured protection for consumers and workers and forms of social security that are unique in the world.

We have built shared democratic institutions, such as this Parliament, where we can make joint decisions and which we can use to ensure that basic rights are respected. We have made the European Union not just an economic area, but also one where rights and human dignity are defended. This is a legacy that we must not squander; this is why we cannot go backwards. Now is the time to move this process forward. […] In a geopolitical context that has suddenly become much more dangerous and uncertain, we must tackle the economic and social emergency and guarantee the security of our citizens.

Investments in defence must be made with a view to improving our collective capacity – as the European Union and as NATO. During the last European Council meeting, the important decision was made to approve the ‘Strategic Compass’, which we must now implement quickly. However, we must also move quickly beyond these initial steps and build an efficient coordination of defence systems. We spend approximately three times the amount that Russia spends on security, but this expenditure is spread across 146 defence systems. The United States has only 34. Resources are therefore distributed very inefficiently indeed, and this hinders the development of a real common defence at EU level. To achieve strategic autonomy in the field of defence, we first need greater efficiency in terms of military expenditure in Europe.  A conference should be held to streamline and optimise our investments in military spending. Furthermore, building a common defence must be accompanied by a united foreign policy, and effective decision-making mechanisms.

We must move beyond the principle of unanimity, which gives rise to an intergovernmental approach based on mutual vetoes, and we must head towards qualified majority decision-making. A Europe able to make prompt decisions is more credible in the eyes of its citizens and in the eyes of the world.

One of the first areas where we must speed up is the enlargement process. The full integration of countries that express aspirations to join the EU does not represent a threat to the stability of the European project; it is part of achieving that goal. Italy supports the immediate opening of accession negotiations with Albania and North Macedonia, in line with the European Council’s decision in March 2020. We want to give new impetus to the negotiations with Serbia and Montenegro, and to ensure the utmost attention is paid to the legitimate expectations of Bosnia and Herzegovina and Kosovo. We are in favour of all these countries joining and we want Ukraine in the European Union. The membership process we have designed must be followed, but we must also proceed as quickly as possible.

The solidarity shown towards Ukrainian refugees must also push us towards a truly European management also of those migrants arriving from other situations of war and exploitation. More generally, we must define an effective European mechanism for the management of migratory flows, that goes beyond the approach of the Dublin Treaty. We must strengthen repatriation agreements and make them truly effective, but we must also strengthen legal channels for entry into the EU. In particular, we must pay greater attention to the Mediterranean, given its strategic position as a bridge towards Africa and the Middle East. We cannot look at the Mediterranean as only a border area, a place where to erect barriers. Many ‘young’ countries overlook the Mediterranean, and they are ready to inject their enthusiasm into their relations with Europe.

The European Union must build a real partnership with these countries, not only in economic terms but also from a political and social point of view. The Mediterranean must be an axis of peace, prosperity and progress. Energy policy is an area in which Mediterranean countries can and must play a fundamental role for the future of Europe. Europe is facing a profound geopolitical shift, which is bound to move its strategic axis increasingly towards the South. The war in Ukraine has shown the deep vulnerability of many of our countries to Moscow.

[…]  Reducing fossil fuel imports from Russia inevitably means Europe looking to the Mediterranean to satisfy its needs. I am referring to deposits of gas as a transition fuel, but above all to the huge opportunities offered by renewable energy in Africa and the Middle East. Southern European countries, and Italy in particular, are strategically positioned to pool this energy production and act as a bridge to countries in the North. Our central role tomorrow will depend on the investments we make today.

At the same time, we must immediately find solutions to protect households and businesses against the rising cost of energy. Curbing bills and fuel prices is also a way of making any sanctions more bearable over time. Since the very beginning of the crisis, Italy has been calling for a European cap on the price of gas imported from Russia. Russia sells almost two thirds of its natural gas exports to Europe – largely through gas pipelines that cannot be redirected to other buyers. Our proposal would allow us to use our bargaining power to reduce the excessive costs that are currently burdening our economies. At the same time, this measure would also allow us to reduce the amounts we are paying to President Putin on a daily basis, and that are inevitably financing his military campaign.

[…] The various crises arising from the conflict in Ukraine come at a time when Europe was already facing huge spending needs. Both the ecological transition and the digital transition involve investments that we cannot postpone. In addition to these, there are the costs of the war, which we must deal with immediately in order to avoid our continent sinking into recession. In both cases, these are asymmetric costs that affect different segments of the population and different production sectors in different ways, and that therefore require different offsetting measures.

No national budget is able to bear such efforts alone. No country can be left behind. The social harmony of our continent and our ability to support sanctions, which is especially the case for countries that are historically more dependent on Russia, are at stake. The European Union has already devised a number of useful tools to deal with these challenges. I am referring to the responses we put in place during the pandemic, which ensured rapid and widespread economic recovery in the European Union. We must build on this success, and adapt these tools to the circumstances we are now facing.

The European Instrument for Temporary Support to Mitigate Unemployment Risks in an Emergency (SURE) has granted loans to Member States to support the labour market. The European Union should broaden the scope of this instrument, providing countries that request it with new funding in order to mitigate the effects of rising energy costs.  I am referring to measures to curb bills, but also to temporary support for the lowest earners, for example by introducing detaxation measures for the lowest wages, as we did yesterday. These have the advantage of defending the purchasing power of households, especially the most vulnerable.

Opting for a lending mechanism such as SURE would avoid the use of non-repayable grants to pay for national current expenditure measures. At the same time, when interest rates are on the rise, it would provide those Member States with more fragile public finances with a less expensive alternative to borrowing on the market. In this way, we could broaden the scope of support measures at the same time as limiting the risk of financial instability. This measure should be implemented very quickly – as we have been in this situation for eight, nine, ten months now – to allow governments to take immediate action to support the economy. With regard to long-term investments in areas such as defence, energy and food, and industrial security, the NextGenerationEU programme is the model to be used.

The system of scheduled payments, linked to specific checks into whether milestones and targets have been reached, offers a virtuous mechanism to ensure quality spending. Spending the resources allocated to us well is crucial for our credibility in the eyes of our citizens and of our other EU partners, who, as I have said many times before, have agreed to tax their citizens to be able to help Italy and the other countries that have used these grants. Good governance is not about dealing only with the crises of the moment. It is about moving immediately to pre-empt those yet to come. The fathers of Europe showed us how to make democracy effective on our continent as it gradually transforms.

European integration is our best ally for tackling the challenges that history places before us. Today, as indeed has been the case at all decisive turning points since the end of the Second World War, we need determination and vision, but above all unity. I am sure we will be able to find them once again, together.

*Excerpt from the Address to the European Parliament delivered on 3 May 2022