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.
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.
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.
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.
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).