Italy Thwarts E.U. Lawmakers Inspecting an Off-Shore Migrant Centre

On 17 June, 2026, the E.U. formally adopted a federal law, the Return Regulation, that allows states to set up “return hubs” outside of the E.U. for the returning of migrants back to their respective countries. On 29 June, 2026, elected representative in the Greens/EFA party in the E.U.’s parliament “were prevented from carrying out a full inspection of the Italian-run migrant detention centre in Gjadër, northwest Albania—a facility at the center of one of [the E.U.’s] most debated offshore migration experiments.”[1] Even though Albanian police patrolled the perimeter of the facility, that it was Italian-run means that state employees, rather than the foreign police, who were thwarting federal lawmakers in their inspection of the facility even though a federal law rendered the facility legal under federal law. Such obstructionist behavior does not bode well for the E.U.’s federal system, wherein both the federal and state legislative bodies are legitimate.

Rep. Tineke Strik, of the Greens/EFA party, said at the time of the visit, “Today’s visit was very disappointing and disgraceful. The staff really created a lot of obstacles for us.”[2] By “staff,” she likely was referring to the Italians running the facility rather than to the Albanian police outside, for police are never referred to as staff. Also, Albania’s Interior Ministry had “previously stated that the Gjadër centre operates as Italian territory, with Albanian police responsible solely for perimeter security.”[3] So managers from the E.U. state of Italy were the problem from the perspective of the federal delegation. Rep. Strik went on to explain, “We didn’t get any data, they didn’t answer any questions, and we were not allowed to really go into the cells and see what the situation is like.”[4] That a check on the Italian staff by federal officials was needed is evident from Rep. Strik’s finding: “For the people we did manage to speak to here, it’s clear they have problems asking for asylum, and many of them don’t see any way out of a failed system.”[5] Had the elected representatives in the Parliament known on 17 June that the system was “failed,” the proposed legislation likely would have been defeated. After the visit on 29 June, it is likely that a significant number of the representatives who had voted yes were suffering “buyer’s remorse.” So, the visit and inspection served a legitimate and thus valid purpose, and the obstruction that the lawmakers encountered from the Italian staff was inappropriate.

That the visit was stymied by state employees is significant from the standpoint of the E.U.’s federal system as a whole, for one of the chief benefits of federalism is that the federal level can act as a check on abuses of power at the state level, and vice versa. Checks can and should work in both directions for liberty to be protected from tyranny, which can occur at both levels in a federal system, and for the legitimacy of both levels. In fact, that the states rather than E.U. citizens are represented in the European Council (and U.S. states are represented in the U.S. Senate, which is founded on principles of international rather than national law) gives the state level a direct check on federal encroachments on the prerogatives of the several states. That E.U. law (excluding directives, which reply on implementation by the state governments) can have direct effect anywhere on E.U. territory, including inside the Italian detention centre in Albania, acts as a check on the power of states, for they are only semi-sovereign in the E.U. Even qualified-majority voting in the European Council and the Council of Ministers can be viewed as a check on a willful governor (e.g., Viktor Orbán) of a state, whereas the principle of unanimity blocks such a check and thus should be eliminated from the E.U.’s basic legal framework.

To be sure, perhaps the E.U.’s Commission would have been more appropriate than legislators in the Parliament in inspecting the Italian facility, for the Commission is the Union’s executive branch, which sees that federal laws, directives, and regulations are implemented whether by federal agencies or state governments. In contrast, lawmakers—legislators—are forward oriented in terms of creating new law. Had a delegation from the Commission have gone and been stymied, the Commission could have recommended to the bicameral Parliament and European Council that the Return Law be amended in some way that would better protect the human rights of the migrants and require state employees to allow inspections with full disclosure of information to federal officials visiting such facilities “off-shore.” Furthermore, it would be rather unwise for candidate states such as Albania, hosting such facilities to block E.U. officials from entering the facilities run by E.U. states. Fortunately, Albania kept clear of such obstructionism, and the blame can be put squarely on the E.U. state of Italy.

Interestingly, just hours before writing this essay, I showed my book on the E.U. and U.S. federal systems, entitled Essays on Two Federal Empires, whose cover-picture depicts the star-studded flags of the E.U. and U.S. (the stars on both represent states), to a young college student newly arrived in California from Italy. She visibly bristled as if in abject denial when she looked intensely at the picture on the cover. I wonder whether the staff at the Italian facility in Albania presumed that E.U. lawmakers had no right to inspect an Italian facility even though Italy was at the time a semi-sovereign state in the E.U.’s federal system. It was obvious to me that the young woman would barely speak to me after seeing my book’s cover, so obdurate was her state of ideological denial that she may even have presumed that the arrogance was mine. Political socialization, which bears on equivalences, evidently starts early.

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1. Rebecca Rommen, “EU Lawmakers Say They Were Blocked from Fully Inspecting Italy’s Migrant Detention Centre in Albania,” Euronews.com, 29 June, 2026.
2. Ibid.
3. Ibid.
4. Ibid.
5. Ibid.

On the Ideological Illogic of European Federalism

Europe may have contributed immensely to philosophy but logic seems to have been in short supply at times, as Europe ties itself in ideological knots in service of nationalism itself, as if that ideology had not given rise to two world wars in the twentieth century. I am not referring to the incendiary, irrational fear of the word, federalism, being applied to the European Union, but, rather, to the role of nationalist ideology in distorting the application of comparative institutional politics by journalists.

Take, for example, the following paragraph from Euronews: “Italian Prime Minister Giorgia Meloni hosted three-way transatlantic talks in Rome on Sunday, which European Commission President Ursula von der Leyen highlighted as a possible ‘new beginning in international relations between the two blocs.”[1] Scant reasoning is needed to conclude that the two blocs being referred to are the E.U. and U.S., and that the Italian prime minister represents the third party, Italy.

The logic begins to fray, however, because the E.U. state of Italy is not separate from the E.U., so the talks were not actually three-way. To treat a state in a union of states as equivalent to that or any other like union is to commit a category mistake. Politically, the other E.U. states might get jealous were the E.U. state of Italy to be reckoned both as a state of the E.U. and as a third party in the talks, as if an umpire between the two “blocs.”

Typically, European journalists refer to only the E.U. as a “bloc” in order to differentiate that union from the other empire-scale union across the proverbial pond. To refer to both unions as blocs defeats that purpose. In actuality, neither union is a bloc because neither union is temporary nor oriented around one issue, or pillar. Furthermore, the federal, yes, federal governmental institutions of both unions are more than merely a playground for intergovernmental relations among state governments. In other words, both the E.U. and the U.S. have the sort of federal system wherein governmental sovereignty is split between the federal and state systems. In Federal Government, Ken Wheare uses “systems” instead of levels to make the point that where sovereignty is divided up, one locus is not “above” the other. In fact, the system of state governments can act as a check on over-reaches at the federal level, and vice versa.

Therefore, the E.U.-U.S. talks were actually bilateral between two empire-scale federal unions comprised of federal and state governmental institutions. The same powers need not be federalized in both unions for the latter to evince what Wheare calls modern federalism to distinguish it from confederalism, wherein the states hold all governmental sovereignty. Nor need there be a balance of power between that of the “feds” and the states, although I contend that balance is important in both loci being able to serve as a check on the other. Neither the E.U. nor the U.S. has, at least as of 2025, achieved balance, and it may not be an altogether stable property of federalism. This does not relegate either union to being a “bloc,” and the E.U. ambassador to the U.S. agreed with me on this point when we met on May 1, 2025, when we met at Yale, whose European Studies Council takes the E.U. as being more substantial than does the counterpart at Harvard. The E.U. is neither mainly intergovernmental relations nor an alliance.

So in Rome on May 18, 2025, Meloni was simply playing host to the Vice President of the U.S. and the President of the E.U., both unions (not blocs) having distinct roles in foreign policy. The governor of Italy was not present to negotiate on behalf of the E.U. on tariffs pertaining to the U.S.; in regard to them, von der Leyen and Vance had their work cut out for them in dealing with both tariff and non-tariff barriers to E.U.-U.S. trade.

If the E.U. were a bloc, then the U.S. would be one too, but actually both claims would be counter-productive at a time when strength at the respective federal levels was needed. This is not to imply that any two empire-scale modern-federal unions are or even should be identical for them the be classifiable in the same political genus: modern federalism as distinct as a political “species” from confederalism, and also from instances of modern federalism at the “kingdom” (i.e., member-state) rather than empire-level. The inter-state heterogeneity in an empire-scale polity is a leap, or step, rather than degree, more than that which exists within a state, and this difference gives modern federalism at the empire-scale distinct properties, and in fact federalism itself is geared to such heterogeneity. This is not to say that regional differences do not exist at the state, or “kingdom” level, and a federal system can be useful there as well. Hence, California, for example, could benefit by adopting a federal system for itself. New York and Illinois could benefit too, as could the former E.U. state of Britain, which, like Switzerland, is (early modern) kingdom-level too. Hence UK-US or EU-UK is misleading in a way that E.U.-U.S. is not, even if nationalism goes down hard.

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1. “Italian PM Meloni Hosts EU-US Talks on Trade, Ukraine and Defence,” Euronews.com, May 18, 2025.

Cases of Coronavirus: Comparing China, the U.S.A., and Italy

On March 26, 2020, “the US overtook Italy and China as the country with the highest number of confirmed Covid-19 cases.”[1] At first glance, this statement can gain sufficient traction to become definitive. The implication that the U.S. is mismanaging the pandemic can even be regarded as valid even though the comparison itself is invalid.

Firstly, the United States, Italy, and China have very different population-levels. At the time, China’s population stood at roughly 1.435 billion, the U.S. population was 331 million, and Italy’s was 60 million. The U.S. had at least 81,321 cases.[2] China had at least 82,000 cases.[3] Italy had at least 80,539.[4] Per capita, the U.S. had at least one case for every 4,070 people; China had at least one per 17,500 people; and Italy had at least one case per 745 people. Adjusted for population-level, Italy was worse than the United States, which in turn was worse than China. Of course, China was coming down from its apex of cases, while the United States had not yet hit its apex and Italy may not have hit its own yet. Singapore’s confirmed 631 cases may seem a trifle until the city-state’s population of 5,838,360 is taken into account.  With at least one case per 9,253 people, Singapore stood between the United States and China in severity of cases.  So, at the very least, taking the population level into account is vital in comparing countries on the coronavirus pandemic.

Secondly, comparing countries assumes that they are all equivalent, as countries, not only for comparative purposes, but also as political entities. This is a modern assumption—that a city-state is equivalent to an empire, to take two points at the extremes; the kingdom being between the two. In other words, it is assumed that just because every country is sovereign, every country is equivalent even in non-political matters of comparison.

Historically, the attribute of sovereignty was not so decisive in declaring equivalencies. No one would claim that a stand-alone kingdom was the equivalent of an empire. For example, Althusius’ theory of federalism, described in his Political Digest (1604), clearly distinguishes a city, province, kingdom, and empire from each other. Based in part on the Holy Roman Empire, Athusius’ version of federalism contains a hierarchy, including guilds, villages, cities (composed of villages), provinces/regions, and the empire. Representatives of the guilds sit on village councils, village representatives sit on city councils, and so on until representatives of the provinces sit at the federal head—the empire’s governance.[5] It would be absurd to claim that a kingdom in one empire is equivalent to either a city or another empire. With these terms of political organization going by the wayside, the vague, over-generalizing term, country, filled the void, with its fallacious assumption that the attribute of sovereignty means that countries are equivalent in matters of making even non-political comparisons. This working assumption, as part of the status quo by the twenty-first century, is so ridiculous that the underlying presence of a warping large mass can be indirectly detected.[6] The ideology of nationalism, for instance, would have sufficient force to warp reasoning, as well as perception.

To get a glimpse of the flawed assumption, we can superimpose the historical terms on early-modern/modern countries (e.g., the UK, rather than the medieval England). At least as of 2020, the United States and China, as well as the European Union, were empire-level polities, whereas the E.U. state of Italy was an (early-modern) kingdom-level polity, and Singapore was a city-state. The flaw in only using the number of cases of coronavirus rests on the deeper flawed assumption that all countries can be classified on the same level, notwithstanding huge differences in scale and political type. In the E.U. and U.S., representatives of the states (early-modern kingdom level) sit in bodies at the empire level (i.e., the European Council and the U.S. Senate). To treat a state in one empire as equivalent to another empire thus represents a category mistake (i.e., conflating two different categories as one).

By implication, to treat the regions or provinces of a U.S. or E.U. state as equivalent to the U.S. or E.U. state level (provincia level in the ancient Roman Empire) also involves a category mistake. The American colonies, which became sovereign states (in a league or confederration), were mapped out to be on the scale of the early-modern kingdoms in Europe.[7] Hence the geographical scales of the U.S. and E.U. states cluster. California is roughly the size of Spain, Arizona of Italy, Texas of France, and Montana of Germany. The small states also cluster, but the differences between the large and small states is dwarfed by the difference between the state cluster and the unions' cluster. In other words, the difference between the sizes of the states and the unions is sufficiently larger than how much the states differ and the unions differ that a "step" (i.e., difference in kind, rather than just in amount) can be seen. That the unions are made up of the states is another way of pointing to two plateaus rather than a continuous slope (i.e., saying that the U.S. is larger than France, which is the size of Texas). This is why conflating the two clusters (i.e., of the states and of the unions) represents a category mistake. 

Therefore, comparing Italy’s 80,539 cases to the United States’ 81,321 can be understood as misleading, therefore, because not only are the population-levels so different, but also Italy is a state in a union that in turn is equivalent to the U.S. Logically, if the two unions are equivalent, then a state in one cannot be equivalent to the other union.

In comparisons in which either the E.U. or the U.S. as one or both sides, the overgeneralization is itself problematic because it hides the significant differences between the states. In other words, that the American States differed significantly in coronavirus cases in March, 2020 was lost in comparing the entire U.S. to Italy. With a population of 5.85 million, Wisconsin had at least 707 cases on March 26, 2020, and therefore one case per 8,274 people, while Washington (the state) had at least 3,207 cases in a population of 7.8 million, and therefore one case per 2,432 cases. The represents a substantial difference that is hidden in aggregating all of the states' data. The statement that the entire United States just got worse in coronavirus cases than a state in the E.U. is thus problematic. 

Even in correcting for the category mistake (e.g., comparing an empire-scale geographic polity with an early modern/modern "kingdom"-level polity, we would over generalize to say that the E.U. is worse off than the U.S. precisely because such a comparison ignores significant differences between the states in both unions. In fact, even if it made sense to generalize the entire U.S. (i.e., states differing little) rather than report predominately on the States, then the E.U. too should have been at the other end of the comparison, even if its states differed appreciably. As both unions were empire-scale, their respective states were very likely to different on a variety of indexes.

Having corrected for the category mistake and taken account of the fact that state-level differences were significant in both unions, greater insight could have been gleamed on how the virus was faring in Europe and America by comparing the "hot spots," for example. That is to say more accurate comparisons would be made between Italy, New York, France, Germany, California and Washington because they were all being battered by the illness by the end of March (which was going out like a lion).

On March 26, 2020, New York (the State) had over 37,000 cases in population of 20 million: one case for every 542 people, worse than Italy's 745 people. Washington (the State) stood at 2,432 people, less severe than the E.U. state of Italy. From this standpoint, the derivative (i.e., the change in the rate of increased cases) for each state could be used to compare the "hot spots" with regard to where they are relative to their respective apexes (i.e., the highest, hence peaking, infection rates). Comparing the "hot spots" could thus have been quite useful. 

Because the state level in both the U.S. and E.U. bore out tremendous differences in severity, it is just common sense that states rather than the unions, or even worse, a union and a state in another like union, should be compared. Moreover, that vast differences in population and in political category, or even just geographical scale (Italy being roughly the size of Arizona), have been routinely missed is a serious flaw both in reasoning and knowledge of political organization. I submit that the flaws in the default-axis of comparison have been protected by a worldwide blind-spot, which has enabled a myriad of false-comparisons. 

Nietzsche would doubtlessly write that a brain-sickness predicated on a weakness was behind the warping of reason and perception. A herd-animal mentality, including in the animals who cannot resist the urge to dominate, could explain how the warping became ingrained in the societal (and global) status quo. I contend that nationalism and turning the attribute of governmental sovereignty into a tautology rendered the flaws both invisible and part of the taken-for-granted status-quo. 

Well into the twenty-first century, people (and governments) around the world were still intent on assuming that the attribute of sovereignty justifies the assumption of equivalence between countries even in making non-political comparisons. Singapore and the U.S. can be compared on a variety of things because both are countries, meaning both are recognized internationally as sovereign within their respective territories. 

With its strong desire, ideology can eclipse reason and perception without leaving finger-prints. Nationalism has likely been playing a subterranean role in the warping of equivalence as in comparing E.U. states like France and Germany to the U.S.A., with the E.U.'s governance and the American States being deliberately overlooked or even blocked from view in a sort of state of denial. 

Even in comparative politics, confounding the state and federal levels of both the E.U. and U.S. is problematic. For instance, federalism came out of empire-level groupings and has the greatest benefits for empires, which are by definition heterogenous (diverse between provinces/states). To model the governance system of the E.U. or U.S. on that of Sinapore (a city) would entail a greater downside of uniform (i.e., union-wide) laws because in empires, "one size does not fit all" of the circumstances of the states (e.g., significant differences in coronavirus infection). Hence New York's government took much more strict measures against the spread of coronavirus than did the government of Kansas in March, 2020. Had the U.S. President handed down a severe, blanket "lock-down," it would have gone unnoticed that several states did not yet need that level of caution through government action. Hence, the state governments were able to set policies according to their situations. As in the case of the E.U. state governments, it was even possible for those American governments to distinguish between their respective regions (or provinces) in taking precautionary measures.[8] As a city, Singapore, unlike the states (and empire-scale unions), could only have one situation. Rather than being influenced by where sovereignty resides (at both the state and federal levels in the U.S. and E.U.), the level at which comparison is best made depends on what is the subject of comparison (e.g., coronavirus) and which level (or cluster) of institutional and geographical political organization (i.e., state, county/province, state/kingdom, or empire-scale country) presents the greatest differences on the subject.

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[1]. Jeffrey Sachs, “Why America Has the World’s Most Confirmed Covid-19 Cases,” CNN.com, March 27, 2020 (accessed March 28, 2020).

[2]. Donald McNeil, “The U.S. Now Leads the World in Confirmed Coronavirus Cases,” The New York Times, March 26, 2020.

[3]. Sachs, “Why America Has the World’s Most Confirmed Covid-19 Cases.”

[4]. Crispian Balmer and Gavin Jones, “Italy Suffers Setback to Hopes Its Corronavirus Epidemic Might Be in Retreat,” US News & World Report, March 26, 2020.

[5]. Skip Worden, British Colonies Forge an American Empire: A Basis for Transatlantic Comparisons (2015). Athusius' theory of federalism is also discussed and applied.

[6]. I am thinking here of how the presence of a black hole can be detected by looking at the warped orbits nearby (their shape and relatively high speed).

[7]. Skip Worden, British Colonies Forge an American Empire: A Basis for Transatlantic Comparisons (2015).

[8] Lest it be argued that the most suitable level of comparison is that of intra-state regional/provincial, the state size-cluster is not so large that intrastate differences would be as big as the interstate differences. However, the fact that the counties of Dane (which contains the state capital city, Madison) and Milwaukee were both more severely hit on March 26, 2020 than were the other counties suggests that state governments had reason in at least once case to either have different policies for counties or delegate the power to the county governments. Adopting the county level for comparisons within or across empire-scale unions would not be parsimonious and thus practical. Also, I suspect that the typical inter-county differences were less than the inter-state differences. This is why I stopped at the state level in assessing the best level of comparison generally. 

The Italian Election in 2013 Excessively Roiled Markets

With no party having gained sufficient seats in the upper house of the Italian legislature, analysts warned on February 25, 2013 of a “hung parliament,” which would make it even more difficult for structural and fiscal reforms to be passed. Even though the Democratic Party appeared to have gained a slim victory in the lower house, giving that party the majority of 340 seats out of 630, the upper and lower houses have equal law-making ability so even the possibility of a hung parliament roiled markets. I contend that this is yet another case of financial analysts over-reacting to political uncertainty. 

“It was the worst possible outcome, feared by market participants and European policy-makers alike. Italy is facing Greek-style political gridlock and possibly new elections,” Tobias Blattner said at Daiwa Capital Markets.[1] The Wall Street Journal observed at the time, “Italy’s growth prospects are tepid at best, and the election result demonstrates in spades that its fractious politics has not been masters.”[2] Generally speaking, the parties protesting the fiscal reforms demanded by the E.U. did well, suggesting that Italy could find itself at odds with the federal government in how to resolve the state’s debt crisis.

Italy’s bench market index, the FTSE MIB, traded down 4.62 percent on February 26^th and the euro sank close to a seven-week low against the dollar, trading at $1.31. Yields on 10-year Italian bonds jumped 0.45 percentage point to 4.81 percent. Bonds of Spain, Portugal and Greece were hit too. In America, the Dow fell nearly 300 points on February 25^th, the market’s worst day in almost four months. Markets in the E.U. were down around 2 percent, but futures indexes there and in the U.S. were up the following day.[3]

The optimistic showing of the futures indexes on the day after the election hints that the market on both sides of the Atlantic over-reacted to the anticipated gridlock and possible new election. To an extent, the results are within the range of what can be expected from a multi-party system of parliamentary democracy. Indeed, the states of Britain and Germany had had to form coalition governments just a few years before, and even the problematic Greek elections ended with a government. In fact, that government ended up ratifying the additional austerity.

Moreover, the immediate reaction of the markets seems antiquated to me in the sense that market participants had not adjusted their mindsets to the contemporary European context. In particular, the participants treated Italy as though it were a sovereign state, rather than a state in the E.U. There being a federal level mitigates the importance of state elections even though the states hold more power in the E.U. than the American states hold in the United States. Put another way, the E.U. would surely pressure Italian officials to end the gridlock. Even if the resulting state government were antagonistic to the austerity approach, negotiations would doubtless occur between the state and federal levels. The result would not be as stark or extreme as perhaps market participants presumed in their immediate reactions to the news.

Moreover, such overreactions to political instability may also be due to a projection of relative business certainty onto political turf, which is inherently uncertain even though engrained institutions and constitutions can buffer the turbulence as political dynamics naturally shift and even erupt. Business analysts and investors used to being able to hedge financial and market risk inhabit the business world, which generally does not produce such instability as does the world of politics. In other words, a legislature is generally more rambunctious than is a corporate board meeting. Uncertainty is even in just looking at that other world, as it is so different. This uncertainty, plus novice judgement in political affairs, can explain why political risk analysis may overstate political uncertainty even though it is more than business uncertainty.

1. Charles Forelle, “Italian Election Outcome Sparks Selloff,” The Wall Street Journal, February 26, 2013.

2. Ibid.

3. Alessandra Galloni and Giada Zampano, “Messy Italian Election Shakes World Markets,” Febraury 26, 2013; Katy Barnato, “US Stock Futures Rebound; Italy, Bernanke in Focus,” cnbc.com, February 26, 2013.

Anticipating a Recession: Economic and Political Indicators in the E.U.

Anticipation in August, 2019, at least among bond purchasers on Wall Street, of an impending recession in 2020 had at least in part to do with the E.U. In particular, a large state, Germany, had a disappointing second quarter in terms of contracting economic output, and the increasing prospect of Britain seceding from the Union was thought to result in the E.U. economy turning recessionary. I contend that both of these baleful indicators were over-emphasized. Additionally, adding the increasing political polarization in the E.U. as another contributor to an upcoming recession would be too much.

Germany’s economy contracted just 0.1% from the 0.4% growth rate of the first quarter.[1] Placing such emphasis on a change from 0.4 to 0.3 might strike some people as being petty. Yet Carsten Brzeski, chief economist in Germany of the Dutch bank ING said at the time, “Today’s GDP report definitely marks the end of a golden decade for the German economy.”[2] A 0.1% change ends a golden decade. How fragile golden decades must be!

To be sure, “industrial output for June dropped over 5% compared to the previous year. And the ZEW indicator of economic sentiment for August plunged sharply, hitting its lowest level since December 2011.”[3] Brzeski pointed to increased uncertainty from a large state seceding from the E.U. and the U.S.-China trade negotiations as the main culprit. Whereas the British economy would likely be negatively affected in the scenario of secession without coordination, the argument that the E.U. economy would contract as a result is more tenuous. Even if the British economy of a fully sovereign U.K. were to falter, the E.U. economy, being, like that of the U.S., made up of state economies, would hopefully be able to absorb interruptions in trade with Britain. Moreover, the empire-scale of the E.U. (and U.S.) is, as a cluster, much larger than the state-scale of political entities within the empire-scale union.[4]  Baleful economic predictions in 2019 for the E.U. post-secession may have been exaggerated in part due to conflating the two political scales. References to Britain’s “divorce” from the E.U. serve as perfect examples of the category-mistake. No, Virginia, the U.K. is not another E.U.; rather, pre-secession Britain was/is a political sub-unit in the E.U., whose laws and court (ECJ) trump(ed) British law and courts.

The pre-secession trend of business moving from the state of the U.K. to other states may suggest that the E.U. economy would actually benefit from a “no deal” secession. Furthermore, the E.U. trades with other countries, so disruption in trade with a former state could be viewed relatively and thus seen as less baleful for the Union than some economic forecasters were predicting in 2019.

More crucial to the E.U., and less to its economy, were “insurgent movements from the anticapitalist far-left to the nativist far-right,” which have “made inroads” amid “eroding public confidence in mainstream conservative and social-democratic parties that for decades” had dominated at the state level.[5] Although it is tempting to label all this as political instability, the political institutions have funneled even parties like the 5 Star party, which came out of anti-corruption protests, into the nitty-gritty of coalition talks.

Even the political tensions in 2018 between the state government of Italy and the federal E.U. level, which “upset investors in Italian bonds and banks, hurting the flow of credit,” and the collapse of the governing coalition in 2019, which drive some investors into bonds, were not economic crises for the E.U. economy as a whole. Politically, however, Matteo Salvini of the League Party in Italy, could already be viewed as potentially damaging the E.U. federal system. He “challenged” the E.U. law on fiscal discipline for state governments, accusing the states of Germany and France of hypocritically getting away with exceeding the limits on state debt and deficits while the E.U. imposed austerity on the Italian government. His complaint was valid enough. On August 20, 2019, he repeated he would defy federal authorities on the tax-increase (rather than a decrease!) part of the austerity fiscal-discipline federal mandate.

In the early 1830’s, U.S. President Andrew Jackson was forced to deal with South Carolina’s Nullification Acts, which stipulated that the state government could defy federal law regarding laws that the state deems are detrimental to South Carolina. Jackson was aware that a federal system in which governmental sovereignty is split, as in the U.S. and E.U., cannot long survive when even just one state government can decide to defy federal law. So the political uncertainty regarding the growing power of the political extremes in the E.U. has primarily political implications. To put the economics before the political in such a case represents yet another over-statement of the economic. Politics does not reduce to economics. Although the former can obviously affect the latter, one of the domains should not be put foremost in the domain of the other. My thinking on political uncertainty is that its economic effects tend to be overstated. Even in political terms, political institutions have shown a remarkable ability to funnel, or normalize, what was once raw political conflict.

Related: Skip Worden, Essays on the E.U. Political Economy: Federalism and the Debt Crisis. Available at Amazon.

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[1] Julia Horowitz, “German Economy Shrinks as ‘Golden Decade’ Comes to an End,” CNN.com, August 14, 2019.

[2] Ibid.

[3] Ibid.

[4] Skip Worden, British Colonies Forge an American Empire: A Basis for Trans-Atlantic Comparisons. Available at Amazon.

[5] Marcus Walker, “Italy’s Government Collapse Sets Up a Power Struggle,” The Wall Street Journal, August 21, 2019.

Balancing Budgets: Italy vs. Wisconsin

In what could be dubbed a tale of two states, Scott Walker of Wisconsin bragged about bringing the budget into balance without raising taxes while Silvio Berlusconi broke his pledge not to raise taxes in order to balance his budget for 2013. Walker relied on spending cuts and constricting the collective bargaining of government employees, while Berlusconi agreed to a package of tax increases, spending cuts and fewer labor protections to make up for $76 billion (54 billion euros) by 2013. The tax increases include raising the value-added tax from 20 to 21 percent and imposing a “solidarity tax” of 3 percent on state residents who earn more than $420,000 (300,000 euros). The latter tax would run through 2013. At a news conference in August, 2011, “Berlusconi acknowledged that he had pledged never to raise taxes, but that the attention of world markets had forced him to do so.” Was breaking his pledge a vice or a virtue?

Scott Walker would undoubtedly say “A VICE!” To be sure, there is merit in Walker’s feat in balancing a government’s budget without asking more from residents in terms of taxes. However, there is also merit in Berlusconi’s decision to “spread the pain” fairly even to the rich. Solidarity is a value that implies that we are all in it together so everyone sacrifices—not just those least able to do so. Choosing a spending-cuts-only approach wherein sustenance of the poor is compromised while the rich are not asked to contribute evinces not only a certain set of priorities, but also a certain value-set, which is antipodal to the principle of solidarity. From this standpoint, Berlusconi’s breaking of his pledge can be pardoned.

However, if excess government spending (i.e., not affecting the sustenance level) exists, it may be unnecessary to raise anyone’s taxes to balance a budget. To be sure, legislatures can pad lobbyists’ pockets by inflating budget items, and it is virtuous to cut such spending particularly to balance a budget. Also, labor unions can gain excessive power and demand too much from governments as well as workers. For example, in Wisconsin even part-time temporary instructors at public junior colleges must pay union dues amounting to a significant part of their pay per class. Someone teaching one class for one term only has different interests than a career instructor who teaches full-time at a college, yet the teachers’ union does not discern this difference. The problem comes in when a supermajority in government goes beyond correcting for such excess power in seeking to balance the budget on one segment of the population while another segment is allowed to go unaffected. The basic principle of fairness is violated in such a case.

The core principle not to be violated by any government may be put as follows: Instead of affecting the safety net on the sustenance level, taxes should be raised on those residents able to afford the additional tax. Being able to afford a tax justifies not depriving the poor of basic living requirements such as food, shelter and medical services. Contributing where one is able without undue hardship and a human right to sustenance can be said to be the two pillars of the principle of solidarity. Without this principle, a society is merely the sum of parts—a mere aggregate wherein selfishness rules rather than bows to a higher good. That is to say, solidarity thwarts misordered concupiscence while being necessary for genuine society.

Source:

Rachel Donadio, “Italian Senate Approves Austerity Plan,” New York Times, September 8, 2011.

Contagion Beyond the Headlines in the E.U.

The E.U. states of Greece and Italy were grabbing headlines during the first two weeks of November 2011, given the dramatic resignations of Papandreou and Berlusconi. The only other state to get some attention was France. The Wall Street Journal noted on November 12^th that concerns had been quietly building about France. According to the paper,“French bond yields rose to four-month highs, one day after Standard & Poor's Ratings Services erroneously issued a message saying it had cut France's triple-A credit rating. The yield on France's benchmark 10-year bond climbed 0.02 percentage point to 3.46%. That was 1.66 percentage points over yields on comparable German government bonds. France now has the highest government bond yields among its triple-A-rated peers in the region.” However, it seems overly dramatic to say that a .02 percent increase evinces a climb. Moreover, 3.46% is well under 7 percent, which is the level that was presumed at the time to signify the need for a bailout. Relative to the changes in the Italian yield, those of the French bonds could be viewed as relatively moderate, The French yield was still closer to that of Germany. Although not a red herring, the concern over France masked some real sleepers that were poised to take a hit in 2012. 

Eclipsed by the headlines, Portugal’s expected GDP for 2012 was revised downward by the E.U.’s executive branch in November from the May estimates of around -1.8% to -3% with an expected unemployment rate of nearly 14 percent. The 2011 numbers were also revised downward, from about -1.9% to around -2.1 percent. Meanwhile, Portugal’s semi-sovereign 10-year bond yield was at just over 12 percent, well over Italy’s “point of no return” rate of 7.5 percent, which was hit for a day during the second week of November. With an expected contraction of 3% in 2012 and a 12% yield in November of 2011, Portugal could be expected to face stronger head-winds in being able to make its interest payments in 2012. I suspect that the press had become so captivated with the circus of personalities in Greece and Italy that the iceberg lying in front of Portugal was simply not seen.

Besides Portugal, some of the states in Eastern Europe faced icebergs of their own—though not necessarily of their own making. These too were receiving too little press coverage in November of 2011. Specifically, the state leaders of the “euro zone” had decided in October to give the “zone’s” major banks until the following summer to raise their capital reserves. With that amount of time, the banks could avoid issuing new stock (which would dilute the holdings of their existing stockholders) and get the added reserves together by cutting back on lending to Eastern E.U. state governments instead. Morgan Stanley figures that Poland, Romania, and Hungary are most vulnerable to a loss of “euro zone” bank lending. Roughly 1 trillion euros of “euro zone” bank assets were in Eastern Europe at the time of the change in governments in Greece and Italy. Hungary’s exposure was the largest, with loans held by the banks amounting to about 37% of GDP. According to the Wall Street Journal, any hit to the E.U.’s eastern states, whose economic growth had been powered the global recovery, would only worsen the E.U.’s economic outlook and its ability to service its debts. That is to say, enabling the “euro zone” banks to raise additional reserve capital by reducing lending rather than raising equity may have been in the banks’ interest, but choking the eastern states could already in November be expected to make it more difficult for Greece, Italy, and Portugal to service their respective debts from reduced economic output in 2012. 

It would have been wiser on the journalists’ part to put France in perspective and take a look at Portugal and Eastern Europe than to have fixated so much on the plights of Papandreou and Berlusconi as they struggled to maintain power only to ultimately lose it.

For more on this topic, see Essays on the E.U. Political Economy

Sources:

Matthew Dalton, “Europe Slashes Its Growth Forecast,” The Wall Street Journal, November 11, 2011. 

Kelly Evans, “Eastern Europe Vulnerable in Debt Crisis,” The Wall Street Journal, November 11, 2011. 

Neelabh Chaturvedi, Stelios Bouras, and Liam Moloney, “Europe Pulls Back From Brink,” The Wall Street Journal, November 12-13, 2011. 

ECB Poised to Approve Italian Bailout of Monte dei Paschi Bank: An Instance of Federal-State Collusion?

Under the E.U.’s banking law enacted after the 2008 financial crisis, the state governments “are not supposed to inject fresh taxpayer money into a bank if it is deemed insolvent. When a bank gets into financial trouble, shareholders and bondholders, assumed to be sophisticated investors aware of the risks, are supposed to take the hit and bear the losses.” Much of the banking reforms were intended, moreover, “to prevent banks from becoming so big and so risky that they could hold the global economy hostage. Politicians and policy makers didn’t want taxpayers to be on the hook for the banks’ mistakes.” What about a mid-sized bank whose financial plight puts a state’s economy and reigning political elite in jeopardy? Should the E.U.’s central bankers look the other way and allow the state’s government to finance a bail-out so stockholders and bondholders need not feel the brunt?

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Analysis of Italy’s 2016 Referendum: Beyond the Euro and the E.U.

The predominate axis of analysis in the wake of the Italian referendum in early December, 2016 centered on the euro, the federal currency of the European Union. 

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

On the Credibility of the E.U.: Transfer Payments and State Deficits

In October of 2014, the prime minister of the E.U. state of Britain blatantly (and quite publically) refused to pay a “bill” that the E.U. Commission charged the state on account of upward revisions of its economic growth. “We won’t pay it,” David Cameron said defiantly into a microphone. Meanwhile, Jyrki Katainen, the E.U. commissioner for economic and monetary affairs, accepted the draft budgets of the states of France and Italy even though they violate the limit of 3% of GDP in the European Growth and Stability Pact. Those two states could face fines, however, and the commissioner also noted that the budgets would face strict scrutiny. I contend that these instances of tension between the state and federal levels speak volumes as to the attitude of state officials and likely their constituents toward the E.U. itself. The attitude does not bode well for the European Union as a system of public governance. 

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

E.U. Presses Italy to Tax Church Businesses

One of the chief benefits of federalism is the ability of one system of government to check another within the overall federal system. In the European Union, the state governments have so much power at the federal level—in the E.U. institutions—that it is difficult for the E.U. Government to check excesses and abuses in the state governments. E.U. law, regulation and directives rely on the state governments, albeit to varying extents. In the United States, the case is the reverse. The U.S. Government holds so many of the cards that the state governments cannot act to check abuses in the federal government. Actually, for all of the power that the U.S. Government has amassed, it does a horrible job in aiding citizens against abuses in their own state governments. Fortunately, we can look to Europe for a bright spot: the E.U. Commission and Italy, á grace de Mario Monti who is both governor of the state of Italy and a former commissioner in the E.U. Commission (the E.U.’s executive branch).

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Monti and Papadernos in the E.U.: Leadership in Technical Expertise or Democratic Deficit?

“The moment of truth has come.”[1] This was said by the head of state of the E.U.’s third largest state, Italy, in a televised address just after Berlusconi had resigned as the prime minister. Although the statement could be interpreted as referring to the need to reign in the Italian profligate system of public-sector patronage (which includes private contractors), Giorgio Napolitano could also have been referring to the credibility of his state at the E.U. level. “We need to restore confidence with investors and European institutions,” he continued before turning to the more tangible point that the state would need to refinance nearly 200 billion euros in government bonds before May, 2012.[2]

 Monti and Barroso (Thys/Agence France-Presse/Getty)

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

1. Alessandra Galloni and Christopher Emsden, “Italy’s Monti to Form New Government,” The Wall Street Journal, November 14, 2011.
2. Stephen Castle and Liz Alderman, “Under a New Prime Minister, Italy’s Star May Rise at the European Union,” The New York Times, November 23, 2011.

Greece & Italy: Undercutting Market Confidence in the E.U.

As a federal system, the E.U. can be expected to contain a certain amount of economic disparity. The state bond yields in October 2011, for example, were—one could say—“diversified.” Investors relishing high risk-return could partake in Greek bonds while retired investors could safely stick to the German variety. A healthy federal system proffers something for nearly every taste, while constraining the outliers for the sake of unity. It does not require uniformity. However, too much diversity can cause a federal system to come apart due to divergent pressures seeking more expression. Also, if the high-risk “end” is sufficiently risky, the ensuing atmosphere of uncertainty can undo the federation’s financial system. Uncertainty, like anxiety, can subtly eat away at a system to the point that it cannot pull itself out of its funk.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Greco-Roman Achilles’ Heel: Democracy or Leadership?

In assessing the abilities of the E.U. states of Greece and Italy to manage their respective debt-loads as expected by E.U. leaders, the impacts from the governance systems can be distinguished from the impact from compromised or failed leadership. In general terms, a forceful, visionary leader can leverage an existing governance system to “produce.” However, it is also true that a faulty system can make transformational leadership difficult if not nearly impossible.


The full essay is at "Essays on the E.U. Political Economy," available at Amazon.