Will the EU survive the crisis?
Contradictory forces at work
The EU was formed by various small
European imperialist powers (small by comparison to the mighty US) coming
together to create for themselves a large common home market as a basis for
achieving the economic clout necessary to maintain themselves as imperialist
powers. Once formed, the EU – and the common currency adopted some years later
by a majority of its members states – appeared to be permanent fixtures capable
only of expansion – to such an extent did economic union appear to benefit all
its participant bourgeois states. Of course, conflicts of interest continued
in plenty between different member states: these arose, for instance, between
the original imperialist members and later non-imperialist entrants whom the
former effectively subsidised as they drew them into the new imperialist
superpower. These contradictions were, however, overshadowed by the benefits
to be gained from union. Common interest was and remains a strong force binding
the contending parts to each other. However, economic crisis has sharpened the
contradictions that act as centrifugal forces driving the parties apart.
Inter-imperialist contradictions between Britain, Germany and France, and contradictions between the stronger European economies, on the one hand, and the weaker
ones such as Greece, Ireland and Portugal, on the other, are all exacerbated.
Already imperialist Italy and France are feeling the weight of the failures of
the “peripheral” economies beginning to pull them under the water, causing
rising panic.
All this provides a graphic
illustration of the dialectical truth that everything in the world, however
solid and permanent it might appear, is ultimately in a
process of decay from the moment it comes into being. This process of decay
will in the end begin to accelerate rapidly once the forces that brought the
various elements into unity are overwhelmed by those which tend to pull them
apart.
The crisis
in Europe
But, as the French would say, revenons
à nos moutons – let us return to the matter in hand. In the present
crisis, the various member states of the EU are perfectly well aware that if
the crisis is bad for the EU as a whole, it would be far worse for its various
participants, including the imperialist ones, if they were not united as a
single economic bloc. In spite of their union, however, they still face a
sovereign debt crisis that threatens to wipe out a sizeable percentage of
European capital (as well as the saving and pensions of the working class).
This crisis has been building up over
at least the last 30 years. It is at heart a classic crisis of overproduction,
this being the design fault built into the capitalist system. As the masses of
workers – who at the same time make up the bulk of consumers – are, in the
interests of profit, paid as little as possible and reduced in number as much
as possible, they are increasingly unable to buy all the increasing mass of
commodities that the capitalist enterprises bring to market. This in turn
bankrupts the least “efficient” of the capitalist enterprises, causing further
job losses and downward pressure on wages caused by an excess of the supply of
labour power over the demand for the same. Bankruptcies start to escalate,
while economic activity stagnates. However, this process can be, and is,
retarded by the simple expedient of the capitalists, who would otherwise find
it difficult in the circumstances to invest profitably, lending money to
workers to enable them to continue as consumers despite their relative
poverty. These capitalists also lend to governments who run up debts at the
expense of the taxpayer – most workers – for the purchase of goods and
services. Some of these are useful to the masses who foot most of the bill;
others, however, are of no benefit to working people – e.g. military
expenditure – and some of it is not far off open swindling – e.g. PFI schemes
to build hospitals and schools tied into “service contracts” that are plain
rip-offs.
But then comes the day of reckoning –
literally speaking – the day the borrowing must be repaid. So much has been
borrowed, however, that repayment is no longer possible. This first became
apparent with mass failures among subprime mortgagees in the US who, as the poorest, were the first to fail. But overborrowing was a global phenomenon, and
default spread like wildfire throughout the world. This threatened the banks
which had lent the money, most of which were then rescued by the various
governments of the countries in which they were based – hoping to avoid the
economic devastation that necessarily follows a bank failure in a capitalist
economy. However, the astronomic cost of bank rescues – and the probability
that future bank rescues will be needed – raises the question of whether the
countries themselves would ever be able to raise from taxpayers the funds
necessary to repay the debts they were incurring – particularly in the context
of faltering production, the consequence of the crisis of overproduction.
These doubts drive up interest rates, making debts even more costly to service
and default even more likely, all in a vicious upward spiral.
It is in this vortex that the EU now
finds itself embroiled without much chance of escape – which doesn’t mean that
it isn’t desperately fighting for survival, however doomed that fight may prove
to be.
Contradictions
among the bourgeoisie
Experience shows that although the
crisis will destroy massive amounts of capital and hurl considerable numbers of
the bourgeois into bankruptcy, the diminished number who do manage to survive
will become richer and more powerful than ever, unless, that is, they are
removed from the scene as a result of proletarian revolution. This reality
pits every bourgeois against every other in the battle for survival. And this
phenomenon is now seriously threatening to overwhelm the forces that have been
holding the EU together. The bourgeois who survive will be those who are able
to (a) offload most of the crisis losses on to the working class, (b)
consistently produce the highest quality commodities at the lowest cost (by
shedding workers and reducing wages and taxes), (c) position themselves to be
able to enrich themselves at the expense of other bourgeois, and (d) enrich
themselves by forcing weaker powers to pay tribute – either through military
conquest or threat of it, or by financial blackmail.
These various options pit financial
bourgeois, industrial bourgeois, bourgeois of different countries, bourgeois of
oppressor and oppressed nations, against each other to such an extent that they
often cease to be able to cooperate with each other even in situations where
cooperation remains the best option for all of them.
This is the scenario that has been
playing out in the EU, with contradictions between certain members states
reaching such a pitch that their most venerable political representatives have
been reduced to extremely unstatesmanlike public bickering.
“Just six weeks ago, after Mr.
Cameron tried to inject himself into talks about the euro, Mr. Sarkozy said
bluntly, ‘You have lost a good opportunity to shut up.’ He later added: ‘We are
sick of you criticizing us and telling us what to do. You say you hate the euro
and now you want to interfere in our meetings.’” (Sarah Lyall and Stephen
Castle, ‘Britain suffers as a bystander to Europe’s crisis’, New York Times,
8 December 2011). And further, Christian Noyer, head of the Bank of
France, broke protocol to say that the UK, not France, should lose its AAA
credit rating, which he later justified as a response to an earlier jibe made
by the British Chancellor of the Exchequer, George Osborne, who had publicly
questioned the viability of France’s banks, comparing France’s predicament with
that of Greece.
Debt
rollover
Every one of the EU member states is
at risk of sovereign default if the interests rates they have to pay when they
roll over their debts continue to rise, while at the same time their ability to
pay those debts is being constantly eroded by the slowdown of economic activity
brought about by the crisis of overproduction. Hence the danger facing banks
in the euro area. Threatened with the downgrading of their credit status, they
are holding nearly $2 tr of bank debt due to be repaid by the end of 2014,
according to data from the Bank for International Settlements (quoted by Mark
Scott in ‘European Banks Hunt for
Ways to Raise Cash’, New York Times, 12 December 2011).
The crisis has made itself most
strongly felt in the EU in those eurozone countries whose methods of commodity
production tend to be more ‘inefficient’ (which generally means more labour
intensive) than the average. Because of this, these countries have been unable
to compete effectively in the world market, and their levels of production –
and therefore of income generation, have fallen behind Europe’s stronger
economies. As a result, they are not generating the income needed to service
their debts. Realising this, the lenders on whom they now depend to be able
even to roll over their debts demand higher and higher rates of interest because
of the risk they are incurring of borrower default. And naturally, the higher
rates of interest make that default ever more probable. However, if default
actually occurs, this is a problem not just for the borrowers but also for the
lenders, who include major European banks that can collapse altogether if
enough of their borrowers default. This freezes up credit lines as lenders
cease to be able to afford the risks involved in lending – all with very
adverse effect on economic activity, income generation and the general ability
of borrowers to pay debts. If banks are in danger of failing, the governments
of the countries in which they are based are more or less obliged to come to
their rescue (at the cost of the taxpayer) because of the severe economic
disruption that bank failure is bound to cause. Hence the need for the
economically stronger European nations to come to the rescue of the weaker
ones. Effectively they do so in order to save themselves, whatever the
rhetoric.
Response to
the spectre of default
While they may rail on about economic
mismanagement in the weaker countries, the fact is (a) that the stronger
countries have benefited for years from exporting to the weaker countries, thus
helping to wipe out various types of economic activity in the weaker countries,
and (b) uneven development of capitalism is a LAW. There will always
INEVITABLY be some countries that are economically weaker in comparison with
others, and therefore of necessity their debts will weigh down on the economies
of their creditors – which, however, will have been gorging themselves on
massive interest payments right up until the time that default actually occurs.
The stronger European economies, that
have been gorging themselves on the massive interest rates that are being paid
by Greece, Portugal, Ireland, Italy and Spain are now faced with the prospect
of default.
The lenders try to put off the
inevitable for as long as possible by imposing draconian austerity on the
borrowers so that a higher proportion of national income can be used to pay
debts but even bourgeois commentators are able to recognize that austerity
causes more problems than it solves:
“… [M]any argue that the core
problem is less discipline than the lack of economic growth and the deep
current-account imbalances … within the euro zone. Austerity tends to bring
recession, not growth, and Europe needs growth to cope with its debt” (Steven
Erlanger and Liz Alderman, ‘Chronic pain for the euro’, New York Times, 12
December 2011). Austerity, as everybody knows, is also deadly for the
capitalist system as, not only does it promote rebellion among the oppressed
classes, but it destroys effective demand for capitalist commodities at a time
when overproduction is already severe. In other words, it inevitably
exacerbates the crisis, undermines yet another layer of capitalist commodity
producers, further decimates national income, creates yet more bad debt, and
causes yet more bank failures, building up to an ever more heightened risk of
sovereign default.
Building a
firewall
Austerity, therefore, cannot be the
be all and end all. So the stronger nations have been attempting to build a
‘firewall’ of funds that can be borrowed by ailing nations/banks at affordable
rates of interest in order to avoid the situation where countries are driven
into default by escalating interest levels. Again it must be emphasized that
the whole point of the firewall is to protect the economies of the stronger
countries against the default of their debtors, to try to save the stronger
countries from joining the ranks of the ‘economic basket cases’. For instance,
because of threat of default, “German banks had a capital shortfall, which
must be made up by next June of €13.1bn – nearly triple the result of a
previous test in October – pushing up the Europe-wide deficit from €106bn to
€115bn”. (Patrick Jenkins and Ralph Atkins, ‘European banks have €115bn
shortfall’, Financial Times, 9 December 2011).
The creation of the firewall,
however, really pits the various bourgeois elements against each other. The
bottom line is that capitalists are being asked to provide funds at a low rate
of interest to lend out on high risk loans. This is effectively asking
capitalists who are already facing difficulties in shrinking markets to forego
the profits to be made from optimum investment of billions of pounds, in order
to bring in a minimal return on a very risky venture. The US is very keen for the Europeans to get on with the job of setting up this fund – this will help
safeguard US investment in Europe without costing the US a penny. And British prime minister Cameron is keen that British capital too should be able to
take advantage of the debt guarantees the Europeans are trying to put together,
but also without British capitalists contributing anything at all – or only
relatively small amounts, via the IMF. Hence the attitude that the problem is
a Eurozone problem to which non Eurozone countries should not be expected to
contribute, even though British banks too will be in deep trouble if their
European borrowers are driven to default. This difficulty is compounded by the
fact that ever since the crisis erupted Europe has been putting together
firewalls – all of which have proved inadequate to prevent the further spread
and exacerbation of the wildfire. In these circumstances, contributions to
‘stability funds’ look like so much money down the drain – and not small
amounts of money either. “The bailout fund, which Europeans once hoped could
be leveraged from its current $590 billion to more than $1.35 trillion, needs
strengthening in light of the higher interest rates even AAA-rated countries
like France are now having to pay” (Steven Erlanger, ‘Leaders piece
together an effort to keep the euro intact’, New York Times, 5 December
2011).
Or, as Richard Milne of the Financial
Times put it on 15 December (‘Sarkozy plan to prop up sovereigns is
worrying’), “If Albert Einstein’s dictum of insanity being the act of doing
the same thing again and again expecting different results were applied to the
eurozone, political leaders would be well on their way to being
institutionalised…
“… European leaders appear to be
repeating one of the original sins that led to the eurozone crisis in the first
place: forcing banks and insurers to load up on government debt. …
“The result was that banks stuffed
themselves to the gills with sovereign debt, not just from their home countries
but across Europe. Even as the crisis started to erupt in late 2009, bankers
say several institutions stocked up on Greek debt because of the extra yield it
offered.”
The German
outlook
Germany is currently Europe’s
strongest economy, a fact that it attributes to the protestant work ethic
inherent in the German character and a superior ability to organise (although
actually it is all about German imperialist expansion into eastern Europe
following the collapse of the Soviet Union, in turn facilitated by the absence
of the right to burn up any of its resources in military expenditure following
defeat in the second world war). Germany is therefore called on to contribute
more than others, while at the same time being highly vulnerable to debtor
default. Given its nationalistic analysis of the crisis, its nationalistic
solution is along the lines of subjecting the ‘irresponsible’ peripheral,
mainly southern European, countries to Germanic economic rigour, discipline and
order. It would be enjoyable to watch them try! However, it is this
pathetically naïve analysis which lies behind the German proposal to provide a
large amount of the necessary firewall funds PROVIDED that in return the
countries that seek assistance effectively surrender their fiscal sovereignty
to an EU dominated by Germany.
This is the endeavour on which Germany’s Chancellor, Angela Merkel, and France’s president, Nicolas Sarkozy, have reached the
agreement reported by the Financial Times in the following terms:
“France and Germany have reached a ‘comprehensive’ agreement on new fiscal rules for the beleaguered eurozone, as a
package of measures designed to save the single currency begins to take shape.
“The proposals, which include a
commitment not to force private sector bondholders to take losses on any future
eurozone bail-outs, were announced by Angela Merkel, German chancellor, and
Nicolas Sarkozy, French president, in Paris on Monday. Together with tough
budgetary measures drawn up by Mario Monti’s new Italian government, they will
form part of the ‘fiscal compact’ demanded by the European Central Bank to enforce budgetary discipline
in the single currency region …
“… Financial markets later came under pressure after the Financial Times
reported Standard & Poor’s plans to put all 17 eurozone members on review
for a downgrade.
● Private sector bondholders will not in
future be asked to bear some of the losses in a future debt restructuring – Greece will be a one-off
● Treaty change for all 27 European Union
members, but if this cannot be achieved then move forward with a treaty for the
17 eurozone members alone
● Automatic sanctions for countries that
breach the rule on deficits below 3 per cent of gross domestic product
● A ‘golden
rule’ to be written into the constitutions
of all 17 member states, obliging them to balance their budgets
● The ‘golden
rule’ will be verified by the European Court
of Justice, although it will not have direct powers of sanction over national
budgets
● Bring forward the launch of the European
Stability Mechanism, the eurozone’s permanent bail-out facility, from 2013 to
2012” (Hugh Carnegy and Richard Milne, ‘France and Germany agree new rules’, 6 December 2011).
Sarkozy was terrorised into agreement
by the prospect of France losing its AAA credit rating because of its banks’
exposure to the debts of countries considered likely to default in the not too
distant future.
British
recalcitrance
The British prime minister, David
Cameron, on the other hand, flatly refused to sign up to the proposals, mainly
on the grounds that without safeguards for the British financial services
industry – which does after all contribute some 10% or more to Britain’s GDP,
he was not signing up to anything. “Britain’s banks make more
cross-border loans than those of any other country in the world, 18 percent of
the global total. London is also home to the largest foreign exchange market
in the world. And it remains the headquarters for the large banks that trade
European sovereign debt” (Landon Thomas Jr., ‘A stark step away from Europe’, New York Times, 12 December 2011). Clearly this is not a position British
capitalism is going to put at risk by submitting itself to EU regulation born
of the Franco-German belief that the crisis can be brought under control by
strict Germanic discipline and control over the financial services industry.
However, although the eurosceptics in the Conservative Party were euphoric at Cameron
showing Johnny foreigner the British bulldog spirit, financial commentators are
worrying that effectively Cameron has handed Europe over to Germany on a plate,
with Britain being henceforth excluded from any influence over the European
project and in danger of being left to sink or swim (and most probably sink)
all on its own. Certainly there is a danger that “the pact the other
European members agreed to at the Brussels summit meeting will harden an
emerging 17-member euro zone caucus within the 27-member European Union – a
bloc that votes together on issues, particularly on financial regulations, that
could work against the City of London” (ibid.).
British prime minister Cameron also
faces problems with his LibDem coalition partners who do
not share the Tory right’s traditional euroscepticism. There has even been
speculation that they might abandon the ruling coalition thus causing its
downfall – but LibDem principles have not stretched to such bold action in the
past, so there is no special reason to think that they would do so on this
issue, or indeed on any other.
The fact of the matter is that
whatever Merkel may think, capitalist crisis is not susceptible to control. It
is as resistant to it as any tsunami, and even if Angela Merkel and her advisers
were by some miracle to acquire the dictatorial control they would like over
financial affairs generally, their attempts to control the crisis would be as
futile as King Canute’s were to control the tides.
No solution
As it is, German dreams of a European
takeover are not likely to materialise in practice for they would really
require a renegotiation of the Lisbon Treaty, and the unanimous approval of all
27 EU countries. At the very least, as Steven Erlanger points out in the New
York Times of 6 December (‘Sarkozy and Merkel push for
changes to European Treaty’), “By pressing for a new treaty the French and
German leaders took big risks on two fronts. Their proposal threatens to divide
the 17 European Union countries that use the euro from the 27 nations that are
part of the larger European Union, some of which, like Britain, are likely to reject intrusive budget oversight from Brussels. And it remains uncertain how
warmly national parliaments and voters even within the euro zone will embrace
the changes…
“Mr. Sarkozy said the
Franco-German aim was to have treaty changes drafted and agreed upon by the end
of March. But ratification will take longer. In France, for instance, Mr.
Sarkozy will not try to ratify any treaty change until after legislative elections
that finish on June 17. Even if he is re-elected president in May, not a sure
thing, he may lose his majority in Parliament.
“There is another crucial issue,
too, which is the process of ratification. If Ireland decides that these
changes are fundamental enough to be approved by referendum, it may slow
matters further. Ireland rejected the last European treaty in a referendum,
before European colleagues forced Dublin to vote again.
“And it may be that voters
are wary of ‘more Europe’, and that their growing disaffection has not been overtaken by their
concerns over the fate of the euro.”
Moreover, the very attempt at a
European takeover may in fact precipitate the failure of the firewall to calm
the money markets:
“Heading into their crucial two-day
summit, European policymakers struggled to meet two mutually exclusive demands:
Berlin’s insistence on full-scale change of European Union treaties to enshrine
fiscal discipline and the need to assuage financial markets with quick,
decisive action” (Peter Spiegel, ‘EU policymakers struggle to square the
circle’, Financial Times, 9 December 2011). In
other words, securing constitutional change in the EU is a very slow and
uncertain process, while what is needed to calm the markets, is rapid and
decisive action.
Precisely because German demands put
at risk the creation of a firewall that will so greatly benefit Europe’s
creditors, the US has expressed its displeasure at Merkel’s demands for a new
European treaty:
“… [E]ven as the cogs of the
European agreement were being fitted into place, President Obama issued his
sharpest warning yet about the German-led solution. He said the focus on
long-term political and economic change was well and good, but emphasized that
failure to react quickly and strongly enough to market forces threatened the
euro’s survival in the coming months” (Nicholas Kulish, ‘Euro crisis pits
German and US in tactical fight’, New York Times, 11 December 2011).
In the words of Wolfgang Munchau: “Remember
what everybody said a week ago? To solve the crisis, the Eurozone requires, in
the long run, a fiscal union with a prospect of a Eurozone bond and, in the
short run, unlimited sovereign bond market supported by the European Central
Bank. What we have now is no treaty change, no Eurozone bond and no increase
in either the rescue fund or ECB support” (‘Snags, diversions – and the
crisis goes on’, Financial Times, 12 December, 2011).
With or without a firewall, however,
it is only a matter of time before the crisis exacerbates, and as it does so,
the strains on the European Union will increase and burst the Union asunder,
unless other factors intervene to save it.
The prevailing state of affairs in
the EU reminds one of the penetrating observation by Lenin to the effect that,
under the conditions of imperialism, a “United States of Europe is either
impossible or reactionary…”. He went on to add: “of course, temporary
agreements between capitalists and between the powers are possible. In this
sense the United States of Europe is possible as an agreement between European
capitalists … but what for? Only for the purpose of jointly suppressing
socialism in Europe, of jointly protecting colonial booty” against rival
imperialist powers (Lenin, ‘Slogan for a United States of Europe’, Collected
Works, Vol. 21, pp.340-341, August 1915).
Throughout its existence the EU has
furnished sufficient proof of the above observation by Lenin. It is now
entering a stage leading to the unravelling of the temporary agreement which
drew the European imperialist powers closer in the special conditions in the
aftermath of the Second World War.
Proletarian
intervention
As crisis rips through the capitalist
economy, the interests of millions of workers are severely damaged. It is not
just a question of the bourgeoisie trying to save itself at the expense of the
oppressed; it is also the fact that if a wealthy household of exploiters
becomes bankrupt, its servants also lose their livelihoods. And the
proletariat loses to a far greater extent than do the masters:
“…the Organisation for Economic
Cooperation and Development … found that income inequality rose in 17 of the
22 OECD countries surveyed between the mid-1980s and late-2000s with profound
consequences for social cohesion.
“The gap between rich and poor widened
most sharply in the US, Germany, Finland, Israel, Luxembourg and New Zealand,
the OECD found, although it remains highest in its poorer members, Mexico and
Chile.
“In those two countries the
incomes of the top ten per cent are twenty-five times higher than those of the
bottom ten per cent, while it is 14-to-one in the US, Israel and Turkey and 10-to-one in the UK.” (Editorial, ‘Rich-poor divide
widens in advanced economies’, Financial Times, 6 December 2011).
Moreover, on 15 December Robin
Harding of the Financial Times showed how marked is this phenomenon in
the US:
“‘We are the 99%’, the slogan of Occupy Wall Street, is a reference to
the rising wealth of the top 1 per cent of US income distribution. But an
equally valid slogan might be: ‘We get 58%’.
“That figure is the share of US national income that goes to workers as wages rather than to investors as profits and interest.
It has fallen to its lowest level since records began after the second world
war and is part of the reason why incomes at the top – which tend to be earned
from capital – have risen so much. If wages were at their postwar average share
of 63 per cent, workers would earn an extra $740bn this year, about $5,000 per
worker, according to FT calculations. …
“’What is absolutely remarkable is that profits in the corporate sector
are 25-30 per cent greater than they were before the recession, even though
there is substantial unused capacity and high unemployment,’ said Lawrence Mishel, president of the left-leaning Economic Policy Institute
in Washington.” (‘Pay gap a $740bn threat to US recovery’).
We can be sure that in this respect
the US typifies what is happening in most capitalist countries at the present
time.
The present crisis of overproduction
– the deepest ever faced by capitalism – is surely, if slowly, creating the
conditions which are bound to cause awareness among the working class of the
utter rottenness of capitalism and the impossibility of reforming this system
so as to bring prosperity and peace to the masses. No amount of better
regulation, no amount of austerity, no amount of stimulus spending, would serve
to rid capitalism of the crisises inherent in it. There really is no
alternative but the overthrow of the entire capitalist system and its
replacement by socialist planned economy.
In the fight of the working class for
socialism, against the omnipotence of giant monopolies, giant banks and the
financial oligarchy, the customary trade-union and parliamentary methods of
struggle are hopelessly inadequate. The Leninist theory of revolution and the
Leninist method of organisation offer the only road to salvation open to the
proletariat faced with the stark choice:
“Either place yourself at the
mercy of capital, eke out a wretched existence and sink lower and lower, or
adopt a new weapon – this is the alternative imperialism puts before the vast
masses of the proletariat. Imperialism bring the working class to revolution”
(Stalin, Collected Works, Vol. 6, pp.74-75).