Abstract
Inspired by the encyclical Rerum Novarum and drafted at the end of the Second World War, the Code of Camaldoli became an economic bible for many Catholic politicians. In short, the Code applies the principle of subsidiarity to the economy. This means that, in the event of market failure, the state may intervene to address the economic outcomes. One successful application of these Catholic values was in the operation of the Italian Institute for Industrial Reconstruction in the 1960s. Currently, the export-led growth system is experiencing a period of crisis. To pull Europe out of stagnation, the EU should stimulate domestic demand. Many countries plan to rely on the state to achieve this objective. The EU could use the European Investment Bank Group and the European Stability Mechanism as an industrial policy instrument to oversee ‘European champions’ across a diverse range of sectors, with a particular focus on defence.
Keywords
Introduction
This article explores the relationship between the Code of Camaldoli (Torresi 2024, 347–444), the Italian Christian Democrats, and the pursuit of a ‘third way’ between the state and the market. This investigation seeks to identify a model for the EU that can inform approaches to industrial policy and nation building.
The encyclical Rerum Novarum, promulgated by Pope Leo XIII on 15 May 1891 (Leo XIII 1891), has emerged as a subject of contemporary pertinence in the aftermath of the election of his successor, Pope Leo XIV, born Robert Francis Prevost (Ondarza 2025, 1). Composed during a period of social and economic transformation, the text is notable for its opposition to both collectivism and unrestricted capitalism. In summary, Rerum Novarum established the social teaching of the Catholic Church. The conceptual framework encompassing these principles, in conjunction with the tenets delineated within the Code of Malines, 1 served as the foundational basis for the formulation of the Code of Camaldoli at the end of the Second World War (Parolin 2023, 1).
The summer of 1943 was a critical juncture in Italy’s historical trajectory, particularly within the context of the nation’s precarious military situation, which posed a substantial threat to the stability of the fascist regime. It had become evident that the war was proceeding unfavourably for the armed forces of both Germany and Italy. This development prompted political and social groups that were antagonistic towards fascism, or had become so in recent years, to determine what should be changed after the conflict. In this particular context, the prominent Catholic intellectuals of the era resolved to organise a series of clandestine study days. These were to be held in Camaldoli, specifically in the Cenobio dei Padri Camaldolesi, from 18 to 24 July 1943. The objective of the conference was to serve as a response to the papal invitation extended to scholars encouraging them to engage with social and economic issues through a lens of Christian understanding. Each participant was assigned the task of preparing a concise written contribution centred on their respective area of expertise, under the guidance of Monsignor Bernareggi (Persico 2014, 66–9).
Following the premature interruption of the conference due to the escalating war and political climate, 76 statements were endorsed. These statements were formulated in concise terms and supplemented by extensive references to papal documents (including both the social encyclicals and documents by Pius XI that criticised totalitarian regimes and the radio messages of Pius XII) and to Thomistic doctrine. In particular, the drafters of the Code were inspired by St Thomas’s views on the character of the natural right of property and the idea that if the ownership of property is an inherent right of human beings, it is the state’s duty to guarantee the social function of wealth (Persico 2014, 58).
The final draft of the text was overseen by Sergio Paronetto and Pasquale Saraceno from September 1943 to May 1944, with contributions from other Catholic intellectuals. Among the younger participants in this work were Giulio Andreotti and Aldo Moro, who would become two of the most prominent and long-serving Italian prime ministers. The Code was subsequently printed in its entirety in early 1945, bearing the title ‘Per la comunità cristiana. Principi dell’ordinamento sociale’ (‘For the Christian Community: Principles of Social Order’). The aforementioned intellectuals also exerted a significant influence on Alcide De Gasperi. Indeed, the same line of thought found in the Code is also present in ‘Idee ricostruttive della Democrazia Cristiana’ (‘Reconstructive Ideas of Christian Democracy’). This pamphlet was distributed surreptitiously in July 1943 under the pseudonym Demofilo. In this document, De Gasperi, the true author, presented his political manifesto, based on Christian Democratic traditions, in the hope that it would inspire the reconstruction of the country once fascism had collapsed and a new era of political discourse had begun. The document was initially distributed in very limited numbers. However, commencing in July 1943, it was printed in several Italian cities with the objective of promoting its dissemination on a broader scale. Subsequent contributions from De Gasperi in 1944 resulted in the transformation of the programme into the political manifesto of the party Christian Democracy (Democrazia Cristiana) (Persico 2014, 49).
Despite the passage of nearly eight decades, the Code’s contents remain a valuable resource for contemplating the political and social involvement of believers in a period characterised by complexity and parallels to the historical context in which it was composed. The concept of solidarity, understood as an obligation to collaborate, including in the economic domain, with the objective of achieving the collective well-being of society, is of paramount importance. The Christian Democrats of the time felt compelled to commit themselves to the development of a doctrine that was necessarily intermediate between two extreme concepts: unbridled capitalism and Communism. Following the fall of the Berlin Wall, a doctrine that had hitherto been in place underwent a gradual weakening, with the result that unregulated globalised capitalism came to the fore (Deaton 2013). In a curious twist of fate, the most progressive and left-wing governments were also the most liberal, perhaps driven by a desire to demonstrate their progressive credentials. The Clinton era is likely to have exerted a significant influence, precipitating a transformation in which the market became the new secular religion, the totem of new ideologies (Valeri 2024, 9).
The economic theory behind the Code of Camaldoli, and the Institute for Industrial Reconstruction as key to industrial policy
In the Code of Camaldoli, there was a combination of personalism and solidarity. This combination is analogous to the ‘social market economy’ outlined by Wilhelm Röpke (1960), as explicitly referred to in Paronetto’s notes (Persico 2014, 45–7). In contrast to the Austrian school of von Mises, in which he was trained, Röpke ascribed a positive role to the state as the regulator of the economic system, guarantor of competition and social equaliser. Nevertheless, the function allocated to the state within the economic structure as delineated by the Code of Camaldoli was more extensive. Indeed, the idea of the Code was that the economy should be driven by the principles of free enterprise, the free market, the division of labour and competition, but the objective of achieving full employment necessitated a reallocation of resources towards the production process. In fact, work was considered both an individual and a social duty. Indeed, according to the Code, a close mutual relationship exists between the individual’s obligation to engage in gainful employment and society’s responsibility to furnish opportunities for such employment (Persico 2014, 83–4).
Consequently, the Code of Camaldoli established a distinct approach to the role of the state in the economy, grounded in the principle of subsidiarity. In particular, the following aims of public economic activity were considered essential: creating conditions that enable the available workforce to find adequate employment (art. 55), and promoting, where necessary, economic activities that are deemed profitable for the common good but neglected by private initiative (art. 76). This objective was accomplished through the implementation of a mixed economy, in which there was a close correlation between private and public economic activities. It was evident that when the necessity for state intervention in a developmental policy aimed at the common good had been rendered obsolete, a corresponding reduction in intervention had to be implemented.
The experience young Catholic graduates gained within the Institute for Industrial Reconstruction (IRI) was fundamental to the drafting of the Code (Persico 2014, 15–19). The IRI was established by the Italian government in 1933 as a response to the banking crisis that had erupted in the aftermath of 1929. The institute assumed control of the country’s primary credit institutions. These entities exercised significant influence over numerous corporations, particularly within pivotal sectors such as mechanical engineering, steel, shipbuilding, defence and electrical engineering. The IRI was the incarnation of a mixed economy model that generated the Italian economic ‘miracle’ in the post-war years and long afterwards. It functioned as a crucible and a laboratory for a core group of highly professional public managers and technical executives (Castronovo 2012, 53–4), including the young Catholics who were involved in drafting the Code.
The IRI is a great example of clever technocratic policymaking. It was very innovative and set in motion some of the solutions for today’s bailout plans. The IRI formula was based on a set of simple ideas: the IRI would (a) operate in the market under the same rules as market players; (b) use the same tools they used; (c) maintain the structure of the stock companies of participating firms, so that they could be sold back more easily; and (d) not grant any company a monopoly unless it already had this under a private management arrangement (Russo 2012, 426).
The value of the IRI formula has been widely recognised, by, among others, EU member states that have established IRI-like public bodies. For instance, the UK established the Industrial Reorganisation Corporation, France the Institut pour le développement industriel, Sweden the Statsfiretag and West Germany the Vereinigte Industrieunternehmungen (Russo 2012, 427).
The IRI then became an instrument of public industrial policy. However, IRI action was still driven by efficient and profit-oriented intentions. The situation worsened when, in the second half of the twentieth century, the IRI became part of the patronage system of the most powerful political parties at the time (Russo 2012, 428). The entrepreneurial state was transformed from a paradigm of excellence to one of inefficiency, thereby precipitating its dismantling. However, in the aftermath of corruption scandals, the baby was thrown out with the bath-water, with no discernible distinction between judicious and profligate expenditure (Artoni 2013, 15).
Making changes to EU financial institutions to support a new industrial policy
Many of the politicians who participated in the Camaldoli talks subsequently played a pivotal role in the process of European integration. In summary, while the Treaty establishing the European Economic Community (commonly known as the Treaty of Rome, or TEEC) does not explicitly mention the Camaldoli principles, the underlying inspiration for these principles, which emphasise the value of work, social justice and the common good, has contributed, albeit indirectly, to shaping the vision of a Europe that seeks to combine economic freedom with social responsibility. Indeed, the EU’s founding fathers explicitly articulated in the TEEC, amongst other principles, the necessity of ensuring a ‘balanced and smooth development’ of the common market (art. 130, TEEC), or the ‘harmonious development of world trade’ (art. 110, TEEC). As set out in the TEEC of 1957, one of the instruments provided for the practical realisation of its objectives was the creation of the European Investment Bank (EIB).
The EIB immediately entered the process of European construction, and its institutional history began in the years immediately following the Second World War. The first call for the creation of a financial institution owned by European states was made in 1949 (Manzella 2007). The main reasons behind the establishment of this bank were to intervene where imbalances would hit the less-favoured regions due to the formation of a single market for goods, services and capital, and to seek a certain balance between the advantages and obligations incumbent on the six countries participating in the TEEC (Strangio 2011).
The current crisis, which is economic, social and security-related, has sparked renewed interest in industrial policy around the world (Mazzucato and Rodrik 2023, 4). Antonio Tajani predicted this as early as 2012. In his role as vice president of the Commission and European commissioner for industry and entrepreneurship, he consistently advocated for a greater focus on the real economy and manufacturing. Notably, he launched the objective of revitalising the EU economy, calling for the endorsement of raising the contribution of industry to GDP to 20% by 2020 (European Commission 2012). There is a growing realisation, particularly in Western countries, that the market alone cannot address its own failures or new geopolitical challenges. It is evident that, over the last two decades, economic growth in the EU has been consistently lower than in the US, while China has rapidly caught up. European families have experienced a decline in their standard of living, with real disposable income growing at a rate almost twice as fast in the US as in the EU since 2000 (Draghi 2024). The potential growth of the EU economy is projected at just above 1% (Arnold et al. 2025).
The EU’s reputation as the ‘sick man of the West’ is mainly attributed to its political incompleteness, which hinders the effective functioning of the internal market and dashes hopes that the euro will become a reserve currency alongside the dollar. The issue of fragmentation of the internal market has been identified as a key factor contributing to various challenges, including the potential for constrained growth prospects and the presence of regional imbalances (Arnold et al. 2025; Draghi 2024; Letta 2024). This fragmentation risks becoming more acute because the industrial policies of different member states are often implemented through derogations from state aid rules. In the contemporary era, characterised by the prioritisation of defence in industrial development policy, reliance on individual states to pursue autonomous spending policies, already significantly weakened by the pandemic and geopolitical tensions, is a strategy that carries substantial risks. Even the most optimistic scenario that can be envisaged still includes increased market distortions and fragmentation.
In this regard, following the precedent set by the IRI and analogous entities in various European states, it is hereby proposed that the EIB Group undergo a restructuring process that would incorporate and control the European Stability Mechanism (ESM) under the same governance framework as the EIB. The proposed restructuring process would result in the merging of the ESM and the European Investment Fund. Consequently, the ESM would no longer follow the intergovernmental method. Rather, it would be rendered an integral part of the EU under the democratic control of the European Parliament. Of particular note is the utilisation of the ESM’s unallocated financial resources, amounting to €428 billion (lending capacity), in conjunction with its human capital. The new European Investment Fund would facilitate investment in venture capital funds that support small and medium-sized enterprises (as it does currently), as well as in prominent European champions. This is of particular importance for capital-intensive industrial sectors that contribute to the definition of ‘European public goods’, such as defence, energy and technology.
Indeed, it would be imprudent to expect venture capital to assume a primary role in the nascent and most hazardous phases of novel economic domains. It is important to note that the role of public funds in the development of biotechnology, nanotechnology and the Internet is often underappreciated. It is noteworthy that venture capitalists frequently arrive on the scene 15 to 20 years after significant investments have been made by public funds (Mazzucato 2013).
Consequently, this article suggests that the new European Investment Fund could serve as a mechanism through which European champions could transition from being state-owned enterprises to EU-owned enterprises. A policy of this nature, which would benefit from the EIB’s expertise (which is equivalent to that of the private sector), would also provide an opportunity to create for a less-fragmented internal market and would remove obstacles to the construction of a common defence force, since the major European champions in the sector would no longer be linked to a state or group of states, but would be controlled by the EU itself. Such an industrial policy would also serve the valuable function of stimulating European domestic demand at a time when a trade war with uncertain outcomes renders this lever essential to compensate for any loss of export quotas.