Central bank, Italian form of government and European integration Edoardo Sorrentino PhD in Public, International and European Law Università degli Studi di Milano The purpose of my thesis is to highlight an aspect that could redefine today’s theory of forms of gov-ernment. It is well known that the latter has, as its object of study, the provisions governing the relations between the constitutional bodies that participate at the function of political orientation. And this func-tion, in contemporary states, almost entirely coincides with the public management of the economy. Sus-tained growth of national income has become the primary objective of contemporary States, both to en-sure high levels of employment and to find the necessary tax revenue to finance the services provided by the State itself. It is immediately appropriate to point out that the public government of the economy is not the exclusive prerogative of fiscal policy. Monetary policy has an equally fundamental function. We cannot ignore the role that central banks have played in the public management of the economy. Through its operations – such as the fixing of interest rates, credit facilities to the Treasury and the pur-chase and sale of public and private securities – central banks are able to influence the growth of nation-al income, the general level of prices and the evolution of external accounts. In other words, the results of the economic policies adopted by governments are conditioned by the choices made by the issuing institutions. Consequently, a complete theory of the forms of government cannot be separated from the analysis of the relationship that the central bank has with the Government and with the Parliament, in other words with the political orientation circuit. The first chapter highlights the history of central banks and the evolution of their function, explaining how the position of the issuing institution is intimately linked to the purposes chosen by the State. A clear separation of roles has characterized nineteenth-century liberal democracies, dedicated to the safe-guard of markets. A government that had the monetary support of the central bank would, in fact, have interfered with the right of ownership and the freedom of economic initiative. An issuing institution in-dependent from the executive power and committed to maintaining price stability was therefore a means of making the Government to adopt a balanced economic policy. But in the substantial post-war democ-racies the government had to take an active role in order to correct the most intolerable inequalities produced by the market. In this framework, the central bank had to operate in a manner that served the government’s economic policy draft by ensuring that it would be financed on more favourable terms than those determined by the market. Obviously, this worldwide phenomenon has involved the Italian Republic. The constituents outlined, in addition to a poorly rationalized parliamentarism, an “economic constitution” that lacked clear guidance on the management of fiscal and monetary policy. The original 1948 text allowed the use of public debt without substantive, but only procedural, limits and did not openly enshrine the principle of monetary stability. The action of public authorities had to be oriented towards achieving full employment and reducing inequalities. The second chapter deals with the development of the Italian form of government during the first twen-ty years of the Republic. It is well known that the lack of rationalization of parliamentarism has led to the development of a political system with an extreme multi-party situation where the element of alter-nation of government has failed, due to the conventio ad excludendum of the anti-system forces. However, the ministerial instability do not affect the development of the country, which benefits from a particular international framework: the fixed exchange rate system designed at Bretton Woods in fact allows the acceding countries to modulate economic policy according to their growth goals, given that large capi-tals were not free to circulate internationally. Moreover, the expansionary economic policy of the United States – the center of the international monetary system – ensures high economic growth and low infla-tion levels in all western countries. In this period, the monetary policy of the Bank of Italy has been functional to the achievement of the economic policy goals of many governments. Despite the instability of the executives, in fact, the fundamental lines of development remain firm: an export-oriented econo-my in order to maintain the equilibrium of balance of trade of a country without raw materials and en-ergy sources. In other words, the monetary system built after the war allowed the development of a de-featist party system without this calling into question its constitutional assumptions. The third chapter analyses the effects of the collapse of the monetary system devised at Bretton Woods and the subsequent “stagflation” on the Italian institutional system. In fact, ministerial instability does not make it possible to counter the rise of prices during the 1970’s caused by wage demands and the oil shock. In this decade, Italy has experienced the highest levels of inflation among the large Western coun-tries accompanied by severe trade deficits. Only thanks to the governments of national unity the country succeeds in embarking on a path of recovery, crowned by the entry of Italy into the European Monetary System. This is a new system of fixed exchange rates in which the objective of ensuring the free move-ment of capital is expressly pursued. The entry into the Ems is supposed to push Italy to reduce state in-tervention in the economy. The so-called “divorce” between the Treasury and the Bank of Italy in 1981 is, in this regard, the tool to reduce the central bank’s financial support for the State’s borrowing ma-noeuvres. However, the 1980’s see an inflation fall, but at the same time the explosion of public debt and the formation of a large trade deficit financed by foreign capital, especially German ones. The continuing ministerial instability does not allow any serious restructuring of public expenditure. Moreover, in the 1980,s the fragmentation of the party system increases due to the crisis of the two political parties pro-tagonists of the previous thirty years. The fourth chapter focuses, in particular, on the crisis of the first half of the 1990’s, in which Italy leaves the Ems and faces the final crisis of the traditional parties, which give way to a new party system that re-volves on two opposite poles. At this stage there is a strengthening of the role of the President of the Republic in the resolution of government crises. The Head of State promotes the formation of technical governments that begin a serious work of fiscal consolidation, guaranteeing the commitments made by Italy at European level. In fact, the Maastricht Treaty, signed in 1992, will lead in 1999 to the creation of a single currency and a fixed exchange rate regime. The future currency will be managed by a central bank independent from member States of the monetary union and committed to the sole maintenance of price stability. The direct consequence of this priority objective is the prohibition of direct financial support to States which will be bound to finance themselves on the market under the conditions laid down for any private entity. In short, since 1992 the Italian “economic constitution” has entered a new phase: the democratically legitimized constitutional organs completely lose the levers of monetary policy. Price stability becomes an overarching value, to be pursued even when it goes against other objectives, such as a high level of employment. Fiscal policy itself is conditioned by quantitative parameters which the European institutions monitor. However, thanks to the consolidation work begun in the first half of the 1990’s, Italy also managed to join the single currency. The fifth chapter analyses the effects of Italy’s entry into the single currency area on the form of gov-ernment. The 2008 financial crisis led to a tightening of European budgetary constraints, while the Eu-ropean Central Bank has launched monetary support programmes that have allowed States to finance themselves on better terms than market conditions. At this juncture there was a new intervention by the Head of State as guarantor of Italy’s European commitments. A new technical government was formed whose primary objective was to reduce the country’s trade deficit and introduce the principle of budget-ary balance in the Italian Constitution. With this step, the “economic constitution” completed the turn-ing point towards the depoliticization of the public law of the economy that began in 1992. The crisis has determined the end of the fragile Italian bipolarism with the emergence of political forces alien to the traditional camps. The renewed political instability has led to a further strengthening of the Presi-dent of the Republic in his role of guarantor of the permanence of Italy in the single currency area. In this regard, the events surrounding the formation of a eurosceptic government in 2018 are emblematic. Following the 2020 pandemic, it was decided to lift budgetary constraints, while the Ecb expanded its monetary support to member States. It seems that a new phase of monetary union has been reached, but the rise in prices due to the Ukrainian conflict could force European States to adopt deflationary measures even more stringent than those adopted in the previous decade, with perhaps even more evi-dent effects on the party system and on the Italian form of government.

BANCA CENTRALE, FORMA DI GOVERNO ITALIANA E INTEGRAZIONE EUROPEA / E. Sorrentino ; tutor: F. G. Pizzetti ; coordinatrice: F. Biondi. - : . Dipartimento di Studi Internazionali, Giuridici e Storico - Politici, 2023. ((35. ciclo, Anno Accademico 2022.

BANCA CENTRALE, FORMA DI GOVERNO ITALIANA E INTEGRAZIONE EUROPEA

E. Sorrentino
2023

Abstract

Central bank, Italian form of government and European integration Edoardo Sorrentino PhD in Public, International and European Law Università degli Studi di Milano The purpose of my thesis is to highlight an aspect that could redefine today’s theory of forms of gov-ernment. It is well known that the latter has, as its object of study, the provisions governing the relations between the constitutional bodies that participate at the function of political orientation. And this func-tion, in contemporary states, almost entirely coincides with the public management of the economy. Sus-tained growth of national income has become the primary objective of contemporary States, both to en-sure high levels of employment and to find the necessary tax revenue to finance the services provided by the State itself. It is immediately appropriate to point out that the public government of the economy is not the exclusive prerogative of fiscal policy. Monetary policy has an equally fundamental function. We cannot ignore the role that central banks have played in the public management of the economy. Through its operations – such as the fixing of interest rates, credit facilities to the Treasury and the pur-chase and sale of public and private securities – central banks are able to influence the growth of nation-al income, the general level of prices and the evolution of external accounts. In other words, the results of the economic policies adopted by governments are conditioned by the choices made by the issuing institutions. Consequently, a complete theory of the forms of government cannot be separated from the analysis of the relationship that the central bank has with the Government and with the Parliament, in other words with the political orientation circuit. The first chapter highlights the history of central banks and the evolution of their function, explaining how the position of the issuing institution is intimately linked to the purposes chosen by the State. A clear separation of roles has characterized nineteenth-century liberal democracies, dedicated to the safe-guard of markets. A government that had the monetary support of the central bank would, in fact, have interfered with the right of ownership and the freedom of economic initiative. An issuing institution in-dependent from the executive power and committed to maintaining price stability was therefore a means of making the Government to adopt a balanced economic policy. But in the substantial post-war democ-racies the government had to take an active role in order to correct the most intolerable inequalities produced by the market. In this framework, the central bank had to operate in a manner that served the government’s economic policy draft by ensuring that it would be financed on more favourable terms than those determined by the market. Obviously, this worldwide phenomenon has involved the Italian Republic. The constituents outlined, in addition to a poorly rationalized parliamentarism, an “economic constitution” that lacked clear guidance on the management of fiscal and monetary policy. The original 1948 text allowed the use of public debt without substantive, but only procedural, limits and did not openly enshrine the principle of monetary stability. The action of public authorities had to be oriented towards achieving full employment and reducing inequalities. The second chapter deals with the development of the Italian form of government during the first twen-ty years of the Republic. It is well known that the lack of rationalization of parliamentarism has led to the development of a political system with an extreme multi-party situation where the element of alter-nation of government has failed, due to the conventio ad excludendum of the anti-system forces. However, the ministerial instability do not affect the development of the country, which benefits from a particular international framework: the fixed exchange rate system designed at Bretton Woods in fact allows the acceding countries to modulate economic policy according to their growth goals, given that large capi-tals were not free to circulate internationally. Moreover, the expansionary economic policy of the United States – the center of the international monetary system – ensures high economic growth and low infla-tion levels in all western countries. In this period, the monetary policy of the Bank of Italy has been functional to the achievement of the economic policy goals of many governments. Despite the instability of the executives, in fact, the fundamental lines of development remain firm: an export-oriented econo-my in order to maintain the equilibrium of balance of trade of a country without raw materials and en-ergy sources. In other words, the monetary system built after the war allowed the development of a de-featist party system without this calling into question its constitutional assumptions. The third chapter analyses the effects of the collapse of the monetary system devised at Bretton Woods and the subsequent “stagflation” on the Italian institutional system. In fact, ministerial instability does not make it possible to counter the rise of prices during the 1970’s caused by wage demands and the oil shock. In this decade, Italy has experienced the highest levels of inflation among the large Western coun-tries accompanied by severe trade deficits. Only thanks to the governments of national unity the country succeeds in embarking on a path of recovery, crowned by the entry of Italy into the European Monetary System. This is a new system of fixed exchange rates in which the objective of ensuring the free move-ment of capital is expressly pursued. The entry into the Ems is supposed to push Italy to reduce state in-tervention in the economy. The so-called “divorce” between the Treasury and the Bank of Italy in 1981 is, in this regard, the tool to reduce the central bank’s financial support for the State’s borrowing ma-noeuvres. However, the 1980’s see an inflation fall, but at the same time the explosion of public debt and the formation of a large trade deficit financed by foreign capital, especially German ones. The continuing ministerial instability does not allow any serious restructuring of public expenditure. Moreover, in the 1980,s the fragmentation of the party system increases due to the crisis of the two political parties pro-tagonists of the previous thirty years. The fourth chapter focuses, in particular, on the crisis of the first half of the 1990’s, in which Italy leaves the Ems and faces the final crisis of the traditional parties, which give way to a new party system that re-volves on two opposite poles. At this stage there is a strengthening of the role of the President of the Republic in the resolution of government crises. The Head of State promotes the formation of technical governments that begin a serious work of fiscal consolidation, guaranteeing the commitments made by Italy at European level. In fact, the Maastricht Treaty, signed in 1992, will lead in 1999 to the creation of a single currency and a fixed exchange rate regime. The future currency will be managed by a central bank independent from member States of the monetary union and committed to the sole maintenance of price stability. The direct consequence of this priority objective is the prohibition of direct financial support to States which will be bound to finance themselves on the market under the conditions laid down for any private entity. In short, since 1992 the Italian “economic constitution” has entered a new phase: the democratically legitimized constitutional organs completely lose the levers of monetary policy. Price stability becomes an overarching value, to be pursued even when it goes against other objectives, such as a high level of employment. Fiscal policy itself is conditioned by quantitative parameters which the European institutions monitor. However, thanks to the consolidation work begun in the first half of the 1990’s, Italy also managed to join the single currency. The fifth chapter analyses the effects of Italy’s entry into the single currency area on the form of gov-ernment. The 2008 financial crisis led to a tightening of European budgetary constraints, while the Eu-ropean Central Bank has launched monetary support programmes that have allowed States to finance themselves on better terms than market conditions. At this juncture there was a new intervention by the Head of State as guarantor of Italy’s European commitments. A new technical government was formed whose primary objective was to reduce the country’s trade deficit and introduce the principle of budget-ary balance in the Italian Constitution. With this step, the “economic constitution” completed the turn-ing point towards the depoliticization of the public law of the economy that began in 1992. The crisis has determined the end of the fragile Italian bipolarism with the emergence of political forces alien to the traditional camps. The renewed political instability has led to a further strengthening of the Presi-dent of the Republic in his role of guarantor of the permanence of Italy in the single currency area. In this regard, the events surrounding the formation of a eurosceptic government in 2018 are emblematic. Following the 2020 pandemic, it was decided to lift budgetary constraints, while the Ecb expanded its monetary support to member States. It seems that a new phase of monetary union has been reached, but the rise in prices due to the Ukrainian conflict could force European States to adopt deflationary measures even more stringent than those adopted in the previous decade, with perhaps even more evi-dent effects on the party system and on the Italian form of government.
PIZZETTI, FEDERICO GUSTAVO
BIONDI, FRANCESCA
20-feb-2023
Settore IUS/08 - Diritto Costituzionale
BANCA CENTRALE, FORMA DI GOVERNO ITALIANA E INTEGRAZIONE EUROPEA / E. Sorrentino ; tutor: F. G. Pizzetti ; coordinatrice: F. Biondi. - : . Dipartimento di Studi Internazionali, Giuridici e Storico - Politici, 2023. ((35. ciclo, Anno Accademico 2022.
Doctoral Thesis
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