Belated observations on the Euro
Although there is a fairly long tradition in Western Europe, going back 135 years, of attempts at monetary union, the emergence of the Euro is rooted in the specific conditions which affected Western European capital following the Second World War. The end of the war witnessed, on the one hand, the emergence of US imperialism as the most powerful capitalist country industrially, financially and militarily, and, on the other hand, the rise of a powerful bloc of socialist countries, headed by the Soviet Union, which had made the greatest contribution to the defeat of the hitherto most powerful military machine – that of Nazi Germany. Most of Western Europe, in tatters consequent upon a devastating war, with a vibrant working-class movement stirred to revolutionary sentiment, a powerful socialist bloc for its neighbour, and the victorious Red Army firmly entrenched in Germany, provided a most fertile opportunity for further working-class advance – a development which frightened the daylight out of the imperialist bourgeoisie.
Imperialism had to do something – and very urgently – if it was to rescue itself from the mortal danger facing it. It was precisely with this aim that US imperialism came forward with the Marshall Plan, under which it provided $13 billion (accounting for 1.5 per cent of the then – US GDP) for Europe’s rehabilitation and reconstruction. The results of this huge infusion were very quick to manifest. Between 1948 and 1951, while Western Europe’s output increased by a third, its industrial output registered a rise of nearly 70 per cent. Between 1950 and 1973, the German, Italian and French economies grew at the rate of 6 per cent, 5.5 percent and 5.1 percent respectively – almost twice the rate of growth of the British economy during the same period. In these conditions of economic growth, the bourgeoisie in Western Europe – especially in Germany, France and Italy, all of which had strong communist parties – was able to provide the working class and the petty bourgeoisie with material benefits sufficient enough to blunt the advance of communism and tame working-class militancy.
Treaty of Rome – EEC
With their economies well on the road to recovery and expansion, six founding members – Germany, France, Italy, Belgium, Luxembourg and the Netherlands – established the European Economic Community (EEC) by signing the Treaty of Rome. Its preamble affirmed that signatory states were “determined to lay the foundations of an ever closer union among the peoples of Europe”.
Whatever the gloss accompanying it, the European project has always been aimed at political union – not merely economic integration. As early as 1948, Winston Churchill recognised that in the new conditions following the conclusion of the Second World War, which reduced the hitherto all-powerful European imperialist powers to virtual impotence, while US imperialism emerged as the colossus of the capitalist world, surveying all before it and dictating terms to all the other imperialist countries, the bourgeoisie of the European countries had perforce to unite or lose all influence and become irrelevant. Here is what Churchill said back then: “The movement for European unity must be a positive force, deriving its strength from our sense of common spiritual values. … It is said with some truth that this involves some sacrifice or merger of national sovereignty. I prefer to regard it as the gradual assumption by all the nations concerned of that larger sovereignty, which alone can protect their diverse and distinctive customs and characteristics” (quoted in the Financial Times, 6 January 1999).
Although written in a bombastic, flowery and woolly style, so characteristic of Winston Churchill, the meaning of the above observation is clear all the same. Of course, one has to decode Churchill’s euphemisms in order to understand the central message he attempted to convey in 1948. Thus, for instance, his assertion that the movement for European unity drew its strength from “our sense of common spiritual values” is meaningless if taken at its face value. After all these “common spiritual values” did not prevent the European powers from fighting each other to mutual destruction and devastation over the centuries. Nor can one accept at face value his claim that the aim of European unity is to “protect” the “diverse and distinctive customs and characteristics” of the European nations. No. The thrust of Churchill’s observation is that to preserve capitalism in Western Europe in the face of a militant working class and a powerful socialist bloc, on the one hand, and to make the voice of this capitalist Western Europe heard in the councils of the world, in view of the emergence of the dominant and domineering US imperialism, on the other hand, the national components of the European bourgeoisie had but one option – to bury their national divisions and pride, to sacrifice national sovereignty and assume “that larger [European – Lalkar] sovereignty”, through which alone they could hope to protect their imperialist interests (“their diverse and distinctive customs and characteristics”, if you like), for singly none of them was any longer in a position to face either US imperialism or the USSR.
Britain and the EEC
While pronouncing itself in favour of European economic integration and political unity, in the late 1940s and 50s, the British bourgeoisie, out of a mixture of national pride and delusions of imperial grandeur, decided that Britain’s salvation and prosperity lay in the Empire and its special relationship with the US. However, by the end of the 1950s, the British ruling class – with former colonies (beginning with India) slipping out of its control through the accelerated movement for political independence, and with the higher economic growth of the European economies relative to that of the British economy – began to realise that it could no longer play the imperial role on its own – a realisation only too brutally confirmed by the Suez debacle, when the Anglo-French-Israeli forces were compelled to put an end to their invasion of Egypt by the Eisenhower administration in the US.
Thus it was that in 1961 the Tory government made an application to joint the EEC. Ever distrustful of Britain as a US fifth column within Europe, General de Gaulle, the French President, vetoed the British application.
The Labour leadership, which had hitherto been against membership of the EEC and fiercely Atlanticist (favouring alliance with and subservience to the US through the NATO alliance which it helped to create in 1949), effected a volte-face and made Britain’s second application for EEC membership, only to be rejected again by de Gaulle. Refusing to take the French ‘Non’ for an answer, the British ruling class persisted in its efforts to join the EEC and was third time lucky. Negotiations to join being completed in 1972, as from 1st January 1973, Britain became a member of the EEC. The deep divisions within the Labour Party over the question of EEC membership were resolved by the following Labour administration of Harold Wilson through a referendum in 1975, in which the government asked, and won, approval for Britain’s continued membership of the EEC. Since then, no major bourgeois party has questioned Britain’s continued membership of the EEC (EU since 1993).
Further economic integration
In fact, the economic integration of the EU has proceeded at an ever-increasing tempo. These are the landmarks of this process:
The Single European Act 1986, constituted the first major revision of the EU treaty and marked a significant step in the direction of the completion of the single market. No less a euro sceptic, and a free marketeer to boot, than Margaret Thatcher, signed up to this Act, which in turn prepared the ground for a snowdrift of regulations to harmonise standards across Europe.
Maastricht Treaty 1991 (signed 7 February 1992) was pushed through by the Franco-German alliance. It mapped the route to economic and monetary union. In addition to paving the way for a single currency (the euro), the Maastricht Treaty provided for increased cooperation in areas such as foreign affairs, defence and the judiciary.
Amsterdam Treaty 1997 opened the way for an influx of new entrants to the EU, put a cap on the number of MEPs (Members of European Parliament) and put a seal on the now-dead Stability and Growth Pact (SGP), which was meant to underpin the EU’s fiscal rules (of which more later).
Nice Treaty 2000 aimed at streamlining and revamping the EU’s institutions in preparation for the expansion of EU membership from the present 15 to 25 on 1 May 2004. It was characterised by acrimonious negotiations, dominated by the French attempt to maintain parity with Germany (which has the largest economy and the largest population in the EU), and resulted in a voting system for the Council of Ministers which has been a running sore ever since. In addition, Nice endorsed the decision taken at the EU defence and foreign ministers’ meeting in Brussels on 20 November 1999, to create a defence capability independent of NATO. In accordance with this decision, a 60,000-strong Rapid Reaction Force, equipped with 400 aircraft and 100 ships, capable of being mobilised within 60 days and able to operate without replacements for periods of up to a year, is to be created so as to enable the EU to project forces far from Europe and independent of NATO. It will be a European military force, whether or not it is called by that, its proper name; it will be equipped with such armaments, and have such facilities, as will do away with the type of weaknesses revealed by NATO’s predatory war against Yugoslavia in the spring and summer of 1999, during which war US military dominance and European defence impotence alike presented a glaring contrast. Doubtless, the decisions at Nice constituted a complete departure from the military strategy of the EU and signalled the beginning of the break-up of NATO. In view of this, the assertion in the draft report on defence from the Nice Summit, that the new EU force was intended “to contribute to the vitality of a renewed link and a genuine partnership between the EU and NATO in the management of crises”, has a completely hollow ring to it.
The Nice Summit also decided on the establishment of a military committee, a military staff of around 100 and a political and security committee.
The Summit extended QMV (Qualified Majority Voting) in the decision-making Council of Ministers to an additional 50 policy areas which hitherto were subject to the unanimity rule. Further, it effected a re-weighting of the votes of member states in the Council in proportion to the size of their population – but not quite, as we shall see. Under the new dispensation, for an issue requiring QMV, a decision may only be taken provided it is backed by a triple majority, namely, a majority of the members states, representing 62% of the EU’s population and carrying 71% of the re-weighted votes.
Under a compromise, Britain was allowed a veto on tax and social security, borders, taxation and immigration in return for its consent to the clause on “enhanced cooperation”, which allows some countries to press on with faster integration, except in the sphere of defence, than others who are either unable or unwilling to do so.
Germany emerged from Nice with far fewer votes in the Council of Ministers than would be warranted by the size of her population. It withdrew its demand for additional votes, partly out of a desire to placate its traditional ally France and, more importantly, in return for the promise of another IGC (Intergovernmental Conference) by the end of 2003 to review the existing division of powers between the EU and the member states – basically as a means to further and faster integration. Germany, however, did receive recognition of its larger population through the allotment to it of 99 seats in the European Parliament as opposed to the 72 each allotted to Britain, France and Italy.
For all the disappointments expressed by European finance capital at its relatively modest achievements, and the disappointment felt by German imperialism in not being able to have the size of its population reflected in the new arrangement of re-weighted voting in the Council, the Nice Summit nevertheless, in view of the impending accession of new members from eastern and central Europe, managed to place Berlin at the centre of a new Europe and at the same time move closer to the goal of a united imperialist Europe able to fight its corner in the cutthroat world of competition for markets, sources of raw materials and outlets for investment against its rival imperialist powers – the US and Japan – and a Europe united for the intensification of the exploitation of the working class of Europe and repression and super-exploitation of the oppressed nations and peoples.
Stumbling steps towards a Single Currency
Apart from the fact that the Breton Woods system, put in place following the Second World War, whereby the world’s main currencies were tied to the dollar (which in turn was backed by gold), had by the early 1970s broken down under the burden of the cost of US wars in Indo-China, and the resultant huge US budget deficits and the devaluation of the dollar, a common market functions best with a single currency, which alone is able to get rid of currency fluctuations within that market and thus remove one of the impediments to its efficient functioning. A single currency was always envisaged by the founders of the EEC and talked about in the negotiations leading up to the Treaty of Rome. Through the trial and error of regulating the exchange rates, the EU would finally arrive at the mechanism of Maastricht for a single currency. However, before that the so-called snake (European Narrow Margins Arrangement) was set up in 1972; it made provision for the coordinated adjustment of the currencies of member countries – with the Deutschmark effectively acting as the currency around which other currencies oscillated. In 1979, the ERM (the European Monetary System and the Exchange Rate Mechanism) was created through a Franco-German initiative with the aim of creating a monetary zone big enough for dealing with the sudden shocks arising from wild currency fluctuations, made worse by the sudden inflow and outflow of speculative capital.
In the ERM system, currencies of countries which joined it were permitted to fluctuate against each other within bands of 2.25%. These bands in turn revolved around the European Currency Unit (ECU), an accounting unit arrived at from the participating currencies, whose weight in turn was calculated from a complex of the GDP of each member state as percentage of the GDP of the entire EEC and its (member state’s) share of the trade within the EEC. ECU’s fluctuations against other currencies, notably the dollar and the yen, shadowed the Deutschmark and kept in line with it. Britain kept well away from the ERM until October 1990 when it joined, only to be driven out of it on 16 September 1992 through a wave of speculative attacks on sterling in which speculators like George Soros made a cool billion pounds.
Maastricht and the Euro
The euro project can be dated from EU Summit of 1998, which entrusted Jacques Delors, the then president of the European Commission, with the task of preparing a report on economic and monetary union. Delors duly presented his report, which suggested a three-stage integration programme which, to the surprise of most observers, has been implemented – notwithstanding several bumps on the way.
In 1990, in accordance with the Delors Plan, capital controls between member states were abolished, which in fact made currency stability very much harder to achieve. Then came the Maastricht Treaty of December 1991, formally signed by the heads of government on 7 February 1992, which laid down the conditions for monetary union among the member states. Under the fiscal and monetary criteria of Maastricht, no member state could exceed a budget deficit of 3 per cent of its GDP or allow its public debt to be in excess of 60 per cent of GDP; its interest rates had to be within 2 per cent of the average of the three member countries with the lowest of interest rates; its rate of inflation had to be within 1.5 per cent of the average of the three member states with the lowest inflation; and exchange rates had to be within a declared band for a period of two years.
The Maastricht Treaty was followed within a year by a dramatic failure, when currency crises resulted from waves of speculative attacks on sterling and the lira. While Britain decided to leave the ERM, and it appeared as if a single currency was merely a distant dream, the EU responded by making the system more flexible – increasing the band of fluctuations from 2.25 per cent to 15 per cent. Denmark’s rejection of Maastricht in the referendum of 2 June 1992 was yet another shock to the euro project, not to mention the costs of German reunification, which pushed up German deficits, or the competitive pressure on Europe consequent upon the decline in the value of the dollar.
Countdown to the Euro
Nevertheless, Germany and France stuck to their plans for a single currency, with Helmut Kohl, then the Chancellor of Germany, going as far as to say that the alternative to a single currency was a collapse of the EU and the danger of renewed conflict in Europe. Here are the important dates of the countdown to the appearance of euro notes and coins and the disappearance of the currencies of the countries in the eurozone:
7 Feb 1992:
Treaty of Maastricht mapping route to economic and monetary union signed.
15/16 Dec 1995:
Euro chosen as name for single currency at EU summit in Madrid.
13/14 Dec 1996:
Design of euro notes unveiled.
16/17 Jun 1997:
Design of common side of euro coins unveiled.
Production of euro coins begun
1 Jun 1998:
European Central Bank established in Frankfurt
1 Jan 1999:
Economic Monetary Union launched with ‘one size fits all’ monetary policy and euro as a ‘virtual’ currency.
15 Jul 1999:
Production of euro notes begins.
1 Sep 2001:
Frontloading banks with euro notes and coins begins.
15 Dec 2001:
Starter packs of coins made available to the public
Euro notes and coins in circulation. Dual circulation of national currencies and euro.
1 Mar 2002:
National currencies no longer legal tender in euro-zone countries
(see Financial Times, 22 January 2001)
Thus it was that after existing as a ‘virtual’ currency for three years, during which it barely had any impact on the lives of ordinary citizens (who continued to use the national currencies of the 12 member states) – being merely used as a financial instrument by banks and currency dealers – the euro became a reality on 31 December 2001. The entry of the euro notes and coins into circulation on 1st January 2002 was doubtless one of the greatest logistical feats performed in peacetime Europe, surpassing in its complexity any comparable past human endeavour, involving as it did mind-boggling quantities. By 1st January 2002, 14.5 billion euro banknotes were printed, delivered and ready in banks, retail outlets and ATMs for distribution in the eurozone countries, as were 56 billion coins minted and delivered to shops, banks, etc. The introduction of the euro removed one of the most important barriers to the creation of an integrated European economy operating, just like the US, on a continental scale embracing nearly 300 million people.
Held together by the convergence criteria of the Treaty of Maastricht and the Stability and Growth Pact (SGP) of 1996, and often characterised as a leap in the dark, EMU (European Monetary Union) forced its way through, thanks to the favourable circumstances which accompanied its launch. At least partly owing to the efforts of the states participating, the single currency was born at a time of low inflation, moderate growth and declining unemployment. The EMU, which a sharp recession in the early 1990s, combined with the near collapse of the ERM in 1992-93, had put in jeopardy, survived mainly due to the European economic recovery, which made easier than expected the task of qualifying under the Maastricht criteria. The EU’s economy grew by about 2.8 per cent in 1998 and 1999 – the fastest in the decade.
Pros and Cons
By the time that the single currency came into existence, eleven countries managed to qualify so as to become members of the eurozone; with Greece qualifying soon after, 12 of the existing 15 members of the EU are also part of the single currency – Britain, Sweden and Denmark being the only ones staying out of the system. In a referendum recently held, the Swedish electorate rejected by a comfortable majority membership of the eurozone. The British ruling class has for long been divided over, first, the question of Europe, and for the last 10 years or so on the question of monetary union – its scepticism further strengthened by Britain’s humiliating exit from the ERM back in 1992. There is the pro-euro camp and the anti-euro camp. The pro-euro camp has been struggling to persuade a sceptical British public of the benefits of a single currency with arguments along the following lines:
> That the single currency would do away with exchange volatility and thus eliminate the risks attendant upon such volatility within the single market;
> That the single currency makes for a superior monetary policy, with sound public finances and low inflation;
> That it will help to create a very large integrated market of nearly 400 million people, for without the single currency the EU market can never be fully integrated; it being claimed by some analysts that not since the adoption of the Gregorian calendar in 1752 has there been a more momentous alignment to facilitate trade among the countries of Europe;
> That the single currency will create an integrated and transparent European capital market – both easier for investors to analyse and present a bigger attraction for them to invest in;
> That the single currency would help to create price transparency throughout the eurozone and thus strengthen competition;
> That, since the EU is Britain’s biggest trade partner, with 50 per cent of her exports going to the EU and one million jobs dependent on it, staying out of the eurozone could conceivably hurt Britain’s trade;
> That if Britain does not join the single currency, it would have far less influence over the redesign of the architecture of the single currency, with its ramifications on such questions as monetary policy strategy of the ECB (European Central Bank), changes to be made by the eurozone members to the SGP (Stability and Growth Pact), the Financial Services Action Plan, and the location of the infrastructure of various financial systems, such as the clearing and payments system, with the result that Britain will become a competing “offshore” financial centre and a signal to the eurozone countries to proceed with only minimum regard to UK preferences or interests;
> That the single currency, in the opinion of the social democratic ‘left’ and a significant section of the TUC, is a means of guaranteeing workers’ rights through the social chapter of the Maastricht Treaty and eliminating the short-termism and asset stripping concomitant upon speculation in a world of ever-changing interest and exchange rates. Sir Ken Jackson, former head of the AMICUS union, in an article in the Morning Star of 28 June 1999, wrote what can only be characterised as a panegyric in support of the euro, concluding that membership of the euro will mean low interest rates, cheaper mortgages and low inflation. The single currency, he said, will be the “consumers’ champion”, better for pensioners, good for jobs and good for homeowners.
It was on the basis of starry-eyed arguments of the type advanced by Sir Ken and its faith in the Social Chapter as a guarantor of British workers’ rights that the 1996 Conference of the TUC resolved to support monetary union, for it saw it as a means of extending the post-war Keynesian consensus (between capital and the majority of the proletariat and the petty bourgeoisie) to all the countries of the EU. What this gentry do not understand is that the Keynesian consensus was a product of the very special conditions wrought by the Second World War – wholesale destruction of productive capacity and infrastructure, the glorious victories of the Red Army and the emergence of a powerful socialist bloc, the successes of the Chinese revolution, and huge revolutionary sentiment among the European proletariat. All these factors sent a shiver down the spine of the entire European bourgeoisie, whose response was to embrace Keynesianism, not just in Britain but throughout Europe, as the only instrument for meeting the proletarian challenge to their rule.
Keynesian Consensus Dead
The conditions which gave rise to Keynesianism disappeared by the mid-1970s, since when the bourgeoisie have returned to the attack with a vengeance. The attack in Britain started with the Callaghan administration and intensified during the years of the Thatcher government. The great miners’ strike of 1984-85 was a watershed. The combined forces of the state (the police, the judiciary and the intelligence services), the bourgeois media (from the BBC and ITV to the Sun, the Mirror, the Financial Times and the Telegraph) AND the leadership of the Labour Party and the TUC, joined forces to isolate the miners and force them to return to work without a settlement. Then followed the mass victimisation of the most militant members of the NUM, the decimation of the coal industry and a widening of the attack on he entire working class, from which the British working class has yet to recover.
The conditions for the application of the Keynesian consensus have equally disappeared in Europe, especially since the fall of the Berlin Wall, the collapse of the East European people’s democracies, culminating in the collapse of the USSR. It is no longer a question of the European bourgeoisie providing substantial material concessions to the working class in the fight against communism; now its chief preoccupation is to win the battle for markets, raw materials and investment outlets against its rival imperialist powers – the US and Japan. In view of this, Keynesianism in Europe has been steadily eroded making way for an attack on the European working class not dissimilar to the one which has been taking place in Britain over the last two decades. Far from Europe protecting the rights of British workers, the opposite will be the case as governments struggle to comply with the financial and monetary disciplines of the Maastricht criteria. All of this means greater unemployment, further deregulation of the labour market, erosion of trade union rights, wholesale destruction of welfare benefits and pensions, increasing casualisation of the labour force, and further monopolisation of the economy, all in an effort to make European capital more competitive against its rivals. That is what the whole EU and single currency enterprise is all about – a gigantic attempt by the European bourgeoisie to flex its financial muscle and back it by an appropriate foreign and defence policy (of this more anon).
Besides, capital cannot, either singly or as a bloc of national capitals in the EU or any other grouping, resolve in the arena of commodity circulation the problems which arise from the basic contradiction between the productive forces and relations of production. The latter long ago became outmoded and thus a brake on productive forces. It is this contradiction between social production and private appropriation which periodically produces crises of overproduction, with their superabundance of capital, lack of opportunities for its profitable employment, and a glut of commodities which cannot be sold because of the impoverishment of the masses – thus producing the absurd contradiction whereby “… the mass of the workers are in want of the means of subsistence, because they have produced too much of the means of subsistence”. During every crisis of overproduction, “… society is suffocated beneath the weight of its own productive forces and products, which it cannot use, and stands helpless, face to face with the absurd contradiction that the producers have nothing to consume, because consumers are wanting”.
Since the capitalist relations of production act as a brake on the expansive power of the productive forces, the only solution to the problem is the deliverance of the productive forces from the bonds of the capitalist mode of production, for their “… deliverance from these bonds is the one pre-condition for an unbroken, constantly-accelerated development of productive forces, and therewith for a practically unlimited increase of production itself”. Only by the elimination of the capitalist relations of production, and the taking over by society of the productive forces, can the need, as it the case under capitalism, for the means of production to undergo “… a preliminary transformation into capital, into the means of exploiting human labour-power” be eliminated. And eliminated it must be, for it is “the necessity of this transformation into capital”, which “stands like a ghost between these and the workers. It alone prevents the coming together of the material and personal levers of production; it alone forbids the means of production to function, the workers to work and live” (words in quotation marks from Engels’ Anti-Dühring, pp. 381, 383, 391, FLPH Moscow 1954).
The elimination of the above contradiction offers the only salvation for the working class. Without this elimination, the British working class, as indeed the working class of other countries, will continue to flounder from pillar to post – inside the EU or outside of it, in or out of the eurozone.
That, quite naturally is not the viewpoint of the British or any other European bourgeoisie. All of them are determined to solve their problems at the expense of the proletariat, the oppressed nations and their rival imperialist powers. It is with this in mind that they are sparing no effort in building a rival – a European – imperialist bloc with an integrated economy and a single currency, backed by a suitable security and foreign policy.
[In the next, concluding, part we shall deal with the arguments against joining the euro, the prospects of European union and the attitude of the proletariat to it.]