How to combat economic nationalism in Europe

The Letta report on the single market should spur a renewal of supranationalism in the European Union.

Several European governments will discuss it—let us hope Italy’s does too. The report by the country’s former prime minister Enrico Letta on the future of the European single market (‘Much more than a market’, Letta entitled it) was presented to the European Council in mid-April. The council, representing European Union heads of state and government, had commissioned the report and it raises strategic problems which every country should address.

It appears 35 years after the report by the former president of the European Commission Jacques Delors which launched the single-market project and 14 years after the report by Letta’s predecessor Mario Monti which identified some of its weaknesses. This latest contribution highlights the fragmentation which once again characterises the most important project undertaken by the EU to date.

Nation-states to member states

The common market and then the single market were the response by Europe’s postwar leaders to the dangers of economic nationalism. As early as 1957, in establishing the then European Economic Community, those leaders had understood that it was possible to combat political nationalism—their main preoccupation in the shadow of fascism—by eroding its economic foundations. Their response to economic nationalism was construction of a supranational market, which would gradually transform nation-states into member states.

Through European laws—regulations and directives proposed by the European Commission and approved by the Council of the EU and the European Parliament—a regulatory system has been established, independent of specific national interests. But, above all, thanks to the supervision of the Court of Justice of the EU as to the constitutional basis of that system, the single market has been able to establish itself through the law (not just the goodwill of the member states).

Apparently, in this supranational market, the barriers to the pressures of economic nationalism are quite robust. Moreover, in some policies, such as that on ‘state aids’ or international trade, the commission has a monopoly on political decision-making.

Uncontrolled reversion

The accumulating crises since the 2008 financial crash, however, have been associated with an uncontrolled reversion to the intergovernmental approach to EU governance. Those crises—the sovereign-debt crisis, the pandemic and the energy and security crises induced by Russia’s war on Ukraine—exploded in arenas of competence of the member states. Their governments tried to manage them through the European Council but in each case deep divisions emerged, which made the governance of the crises slow and cumbersome if not incoherent. In the process, national governments imposed themselves as the central actors of the EU policy-making process.

This has spilled over on to the single market, where the supranational forms of defence have become more fragile. National governments (especially the larger ones) have started to call into question the control by the commission over state-aids policy. Nationalisation has become rampant in policies, such as energy, which are to an extent national competences and which became crucial following the aggression against Ukraine. The single market has remained intact—but the pressures for nationalisation, and renationalisation, have intensified.

The Letta report must be seen in this context. To take the single market forward, it proposes the integration of financial markets (giving rise to a savings-and-investments union), a strengthening of the capital market (mobilising unused private resources), the scaling up of market operators (in telecommunications and defence) which are too segmented at national level and fiscal convergence or harmonisation among member states. To pursue these and other goals, the report proposes stronger common instruments, including an ‘EU single market office’. On state aids, if member states with more ‘fiscal space’ were to take advantage of a relaxation in the rules, the report proposes decanting part of their budgets into a common fund to promote European industrial policies. On EU enlargement, while the conditions to become member states must be clear and non-negotiable—in particular respect for the rule of law—only a strengthened single market can absorb the nine states that are candidates to join.

The report’s author is aware of the difficulties the proposals will encounter. The crises, and their intergovernmental management, have divided member states among themselves, with the partial exception of the pandemic and the associated recovery package. The Russian war, rather than facilitating processes of aggregation and seeking common solutions, has instead had the opposite effect, accelerating the nationalisation of policies (even in military security and defence). Franco-German requests to move beyond commission control over state aids get louder day by day.

‘Coalitions of the willing’

In short, the single market is not in great shape, despite its supranational defences. Economic nationalism has once more become a threat. The nationalisation of European policy is inevitable if a key decision-making role is allocated to the European Council. The council is not only a tool for crisis managementbut has become a body to bring back into European policy conflicting ‘national sovereignties’.

If it proves impossible to find a balance between the latter and European sovereignty, the single market will continue to rest on fragile foundations. That is why the Letta report should indeed be discussed by the member-state governments—without however being blocked by the veto of any one of them. Ad hoc ‘coalitions of the willing’ can be formed to carry forward some of its proposals.

Sergio Fabbrini is professor of political science and international relations, Sanpaolo chair on European governance and head of the Political Science Department at Luiss University in Rome.