62 years after the Treaty of Rome: why we still need Europe

May 27, 2019

Alessandra Lanza

The debate on the importance of the Union (for our country and not only) cannot be reduced to a mere balance between giving and having

 

“For over six decades Europe contributed to the advancement of peace and reconciliation, democracy and human rights”. Reading the 2012 Nobel Peace Prize motivation would be sufficient to remind us of the primary purpose of the European Union. 

Keeping in mind that the ultimate goal of the Union stemmed from a continent tore by wars is crucial. Otherwise the debate on the future of Europe, along with that of the Euro, runs the risks of becoming a mere budgetary matter, while the cornerstones of the integration process, the single currency, and the free movements of goods, capitals and people, are easily put into short term questioning. The weaknesses in the architecture of Europe and the uncertainties in its functioning are too often emphasized not with the scope of highlighting the need for strengthening cohesion on strategic themes, but to weaken the idea of the integration itself.

After the European vote, it may be interesting to ponder the long term benefits brought to every and each member State, especially to Italy, by the integration process and to imagine just how a truly integrated Europe might better be suited to face increasingly global challenges. 

A long-term perspective is essential as to better capture the nature and scope of the Union itself. During the years, not only the Union, but also the individual member States witnessed positive transformations. Since the creation of the European Economic Community, with the signature of the Treaty of Rome, in March 1957, by Italy and the other five founder members (Belgium, France, Germany, Luxemburg and the Netherlands), the European project has been able to move forward both in intensity and extension (figure 1). Since then, the EU witnessed the integration of 21 more States, in 7 subsequent enlargements (1973, 1981, 1986, 1995 2004, 2007, 2013) and the steady development of economic, monetary (for some), and political integration, through the coordination of national economic policies and the introduction of supranational authorities.

 
Figure 1 - European Index of Regional Institutional Integration
Source: Dorrucci, E., Ioannou,D., Mongelli, F., and Terzi, A. (2015)
 

Yet, these subsequent enlargements suggest the attractiveness of the European project, which, in its evolution, was able to capture the needs and broaden its scope to the new players.

Focusing on Italy, Europe assisted the country across a deep evolution, most importantly, in terms of economic and industrial growth by promoting the transformation from a country with a strong agricultural vocation (at the beginning of the 60s, agriculture was the first sector by occupation) to the second manufacturing power of Europe. During the years, Italian GDP per capita tripled (figure 2) and share on global trade steadily grew: today the European single market absorbs 56% of Italian export, and a further 15% of it goes to markets with which the common trade policy reached preferential agreements, improving the accessibility, especially for the SMEs. During the same period, the trade balance (figure 3) went from a barely positive average balance of around € 460 million (0,5% of GDP) in the 60s, to a strongly positive balance of € 50 billion (3% of GDP) in the last 5 years (data in dollars at current prices). 

 
Figure 2: GDP per capita (costant 2010 US$) 
Source: World Bank
 
Figure 3: External balance on goods and services (current US$) 
Source: World Bank
 

Economic growth was accompanied by a simultaneous convergence of other indicators, led by education. Although Italy still lags behind with respect to the largest European economies, the share of population aged between 25 and 34 years old with tertiary education increased by over 20 percentage points in the last 25 years. In 1991, young Italian graduates were slightly more than 6% among their peers, this share increased up to 26% in 2017 (figure 4).

In this regard, the contribution of Europe is evident apparent, especially in regards to the international mobility of students: from 1987 to present days almost 500 000 Italian students have benefitted from the Erasmus programme (figure 5), one of the most popular initiative of the European Union. It is estimated that, only between 2014 and 2020, Erasmus+ will give 4 million Europeans a chance to study, train, volunteer or gain professional experience abroad, with Italy ranking 4th in terms of departures (over 35 000 in 2017) and 5th in terms of arrivals (25 000). It is not a natural or free of charge process, but an active plan run by Europe, contributing to the education of the younger and ultimately, to the competitiveness of our enterprises once these acquired skills translate into an upgraded labour force.

The budget allocated for Erasmus+ was almost €14,7 billion in the period 2014-2020, €203 million of which was allocated to Italy in 2017, accounting to 2% of EU expenditure in Italy

 
Figure 4: Population with tertiary education: 25-34 year-olds (% in same age group)
Source: OECD (2019)
 
Figure 5: Erasmus students in Italy outgoing and incoming (number)
Source: European Commission (2018a)
 

Furthermore, the Erasmus programme contributes to the development of the European labour market, one of the cornerstones of the single market, alongside goods and capital integration. Indeed, participation to the program is expected to have a strong positive effect on the probability (+15/20%) to work abroad (Oosterbeek e Webbink, 2011; Parey e Waldinger, 2011). More generally, intra-EU labour mobility has increased hand in hand with the political and economic integration of the Union: In the last 10 years, the share of working-age population (20-64 years old) residing in another member state increased from 2,5 to 3,8% and amounts to 11,5 millions of EU citizens, which adds up to the 1,4 million cross-border workers. Italian citizens residing in different member states were 1,1 million in 2017, 40% more than in 1995, and 33% more than in 2010, with almost 50% residing in Germany, followed by United Kingdom (20%), Belgium and France (both less than 10% each). The integration in the labour market and education is generally higher for mobile workers than those of their co-nationals. 32,5% of Italian citizens resident in a different member state hold a degree, against a national average of 17,8% (the EU average is 32,4% for migrants, but 30,1% overall), while the employment rate of Italian mobile workers with respect to their co-nationals is 75,6% against 62,3%, a gap of 13,3 percentage points, well above the EU average (4pp.).

 
Figure 6: EU citizens (aged 20 to 64) who usually reside in another EU country (number) 
Source: Eurostat (2019)
 

As previously outlined, the European single market is more than trade liberalization and the free movement of workers as its scope extends to capital and business mobility. Looking at the Italian case, EU multinationals in Italy are almost 9000, and contribute to the Italian economy through the creation of € 290 billion in wealth and the employment of 780 000 workers. Alongside, Italian subsidiaries in other EU countries are more than 12 000, employing 700 000 workers and invoicing more than € 250 billion. Promoting internationalization of businesses and cross border mobility are at the heart of the industrial policy of the European Union. Several EU initiatives [1] aimed at enhancing coordination of rules in the area of corporate law, worked on the strengthening of the internal market and on the removal of remaining obstacles as the golden ticket to compete at the global level.

The benefits of the European integration are hard to number; besides the direct expenditure of the EU through funds and grants, there is an “added value” of Union membership, linked to the gains in efficiency and welfare resulting from the removal of barriers across the Union and the greater integration and collaboration in the allocation of resources. The first attempts to estimate the so-called EU “multiplier” date back to the 80s, when the “Albert-Ball” and “Cecchini” reports were published. In these reports, they tried to quantify the economic benefits of the completion of the custom union. The idea has been recently retrieved by the study Mapping the cost of non Europe, which estimated the costs, calculated as the loss in efficiency, of the absence of the European Union. The largest costs of “not being part” of the Union, or, in positive terms, the benefits of the EU are quantified in €1751 billion per year, distributed as shown in figure 7 [2]. 

 
Figure 7: Cost of non europe  (values in Euro bln, annual cost for EU) 
Source: European Parliament (2017)
 

In a re-assessment of the Cost of non-Europe, Mayer et al. (2018) compare the advantages of the Union with respect to a “standard” regional Trade Agreement (RTA, hereafter). Italy turns out to be one of the countries benefiting the most in terms of increase in trade thanks to its EU membership, with an estimated increase of 45% as regards the whole trade, and 139% for intra EU trade (with respect to an EU average respectively set at 36% and 109%). Also in terms of welfare, Italy gains from the EU membership: indeed, in the case of Italy leaving the EU, a loss between 2,8% and 3,3% of GDP is expected, depending on the agreement (respectively RTA or WTO – comparable to the Hard Brexit scenario).

If intangible benefits are difficult to spot, some final thoughts on the relationships between Italy and Europe arise from the analysis of the expenditures of European funds. Against a contribution amounting to €12 billion in 2017, the EU spends €9,8 billion in our country annually. This seemingly unbalanced relation must be read bearing in mind the aforementioned implicit advantages coming from the membership and adopting a historical perspective. The long-term relationship seems much more balanced, or at least consistent with the desired status of a country with the economic salience of the wealthiest countries. Converting to current prices and summing inflows and outflows from 1970 to present day, with the first contributions to EEC, Italy built up a net contribution of nearly €16 billion in almost fifty years, less than what was recorded for Germany, France and United Kingdom (Figure 8). 

 
Figure 8: Italian net contribution and overall EU budget (euro mln) 
Source: European Commission (2008) and European Commission (2018b)
 

However, the amount of the contributions should not be the only focus. Instead, a point of attention should be the purposes and the efficiency of these expenditures. More than 40% of European funds are allocated to agricultural policies that represent the largest expenditure headed to our country, followed by the so-called structural and investment funds, aimed at regional and urban development. Concerning these, Italy is the second recipient country, after Poland, with a total amount of €75 billion over 7 years (2014-2020). 

The funds allocated to Italy in large part consist of three main vehicles: the European Regional Development Fund (ERDF, 45%), which focuses on support for SMEs, research and innovation, the European Agricultural Fund for Rural Development (EAFRD, 28%), and the European Social Fund (ESF, 23%), focusing on sustainable development, training, and social inclusion. However, at present, with only one year left before the end of the programming period, only the 56% of the structural funds of the planned EU financing 2014-2020 appear to be allocated, and only the 17% have been spent (in absolute values, one half of what already spent by Poland; data are updated on a real time basis) (Figure 9). The delay in the allocation and expenditure of funds is then highly heterogeneous across Italian regions, with a gap of almost 11 percentage points between the northern and southern regions as concerns the spending rate (North: 26%, Centre 18%, South 15%). 

 
Figure 9: Structural and investment fund by stage of implemetation (total amount and percentages)
Source: European Commission (2019)
 

Hence, the risk of undermining an effective allocation of funds across the country, and, in turn, of jeopardizing the achievement of the funds’ objectives cannot only be attributed to the amount of funds nor the budget balance. It is also highly influenced by the delay of central and local administrations in their management. 

Moreover, the intense concentration of interventions on the agricultural sector suggests that there is room for improvement in the relationship with Europe, not only as concerns the efficient management and the amount of resources, but also in regards to the target of the expenditure towards the great global challenges. Indeed, through a constructive dialogue with Europe, Italy must contribute to tackle structural inefficiencies that slow down Europe in the challenge for competitiveness with USA and China. Research and development funds rank only third in the EU budget, and, most importantly, they are only one fourth of the amount allocated to agriculture. Despite the realization of Horizon2020 that, amounting to € 80 billion, is the greatest research program ever realized by the European Union, the R&D intensity of the EU remained stagnant at 2.03% for three years, from 2013 to 2016, and was surpassed by the Chinese one in 2015 (2,07%). In a competitive setting where investments in innovation account for 60 to 70% of productivity growth, the development of a strategy at Community level for innovation is a crucial move for the competitiveness of the member states and, thus, for Europe. Placing a value to these initiatives is a prerequisite to make a final assessment of the contribution of Europe to Italy, which otherwise risks to become an accounting sum of debit and credit.

In sum, the European path, despite its physiological necessary improvements, appears to be the only competitive path, solid enough for Europe to play a game as one of the leaders in a world where globalization sees the rising of regional blocks, where single countries of smaller dimensions risk marginalization. Not to mention all the strategic issues that will characterize the challenges of the next years: ranging from cyber security to IOT, artificial intelligence to surveillance, and defense to welfare. The shared journey of alliances and constructive dialogue will be the only road to keep on growing and to defend those values of dignity, peace, democracy, and prosperity that inspired the founding fathers of Europe and that still today the youngest European citizens consider as milestones of their common home.

 
[1] Only few weeks ago, a new directive in the matter of cross border mobility was announced. This introduces comprehensive procedures for cross-border conversions, divisions and provides for additional rules on cross-border mergers of limited liability companies established in an EU member state. https://www.consilium.europa.eu/it/press/press-releases/2019/01/30/eu-to-facilitate-cross-border-mob...
[2]  An example in this regard could be the presence of the market-coupling mechanism in the energy sector, in force at the Italian borders since 2015: this mechanism of market integration, by determining the value of electric energy in different European areas, allows to allocate transport capacity among the aforementioned areas, increasing the efficiency of capacity allocation. It was estimated that the removal of the market-coupling mechanism at the border between France and Italy would lead to an efficiency loss between the two countries, whose cost is estimated to be €78 million per year.
 
 

References:

Albert, M., Ball, R. J. (1983). Towards European Economic Recovery in the 1980s. Report presented to the European Parliament.
Cecchini, P., Catinat, M. & Jacquemin, A. (1988). “The European Challenge 1992: The benefits of a Single Market. Aldershot: Wildwood House
Dorrucci, E., Ioannou,D., Mongelli, F., and Terzi, A. (2015), “The four unions “PIE” on the Monetary Union “CHERRY”: a new index of European Institutional Integration”, ECB Working Paper No. 160 (February).
European Commission (2008). EU budget 2008 - Financial Report.
European Commission (2018a). Erasmus+ Factsheet 2017
European Commission (2018b). EU budget 2000-2017
European Commission (2019). European structural and investment funds. (Accessed on 18 February 2019)
European Parliament (2017). Mapping the Cost of Non-Europe, 2014-2019. Fourth Edition
Eurostat (2018). EU/EFTA citizens of working age who usually reside in another EU/EFTA country by citizenship and age [lfst_lmbpcita], Last update: 03/12/2018 
Mayer, T., Vicard, V. and Zignago, S. (2018). The cost of Non-Europe, Revisited. Working Paper CEPII.
OECD (2019), Population with tertiary education (indicator). doi: 10.1787/0b8f90e9-en (Accessed on 27 February 2019)
Oosterbeek, H. & Webbink, D. (2011), Does studying abroad induce a brain drain?, Economica. Volume78, Issue310, pp. 347-366
Parey, M.  Waldinger, F. (2011). Studying Abroad and the Effect on International Labour Market Mobility: Evidence from the Introduction of ERASMUS. The Economic Journal, Volume 121, Issue 551, pp. 194–222
The World Bank (2019). World development indicators. Washington, D.C.
The World Bank (2019). Education statistics. Washington, D.C.

 
 
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