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Can the bosses unite Europe?

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Europe’s Inter-Governmental Conference meets in the shadow of economic downturn, mass unemployment and the French strike wave. The bosses’ dream of a single currency is turning into a nightmare for the working class. Keith Harvey assesses the prospects for the European Union.

The Maastricht Treaty (1992) outlined a series of steps for further economic and monetary union between the member states of the European Union (EU). At the Inter-Governmental Conference (IGC), beginning in March 1996 the heads of state will review progress on implementing the Treaty’s provisions and debate the next steps towards political and monetary union. Already, at Madrid in December 1995, the heads of state agreed that 1998 will see a decision on who is to join the single currency.

The IGC will be the arena of major arguments between the European imperialists: what to do about the weighting of member states on the Commission, what sort of common security and defence policy to adopt, how far enlargement of the EU should go and how fast?

These arguments occur against a backdrop of slow progress and, for some, looming failure in meeting the Maastricht criteria.

An ambitious timetable of economic convergence for the EU member states was adopted at Maastricht. Participation in the flrst wave of countries to use the single currency (now to be called the “Euro”) would only be possible if a member state could satisfy tough economic conditions.

When the IGC opens in Turin only Luxembourg will meet those conditions. Even Germany failed to keep its budget deficit below 3% in 1995.

During the IGC the Franco-German alliance, which has stood at the heart of the European economic and monetary union project for the last 20 years, will be tested to the full. Recessionary tendencies in both economies will increase pressure to ease interest rates and increase spending—acts that would postpone even further “convergence” with the Maastricht criteria. The success of the neo-Gaullist right in France in 1993 and 1995 has undermined the unconditional support for European union of the French state under Mitterrand.

What then are the strains on the European Union? What are the prospects for single currency before the new millennium? Can the Franco-German bourgeoisie resolve their domestic problems and push the European Union into a new era?1

The European imperative

The move towards greater economic and political union within the old European Community (EC) did not spring from idealistic notions of brotherhood and solidarity. Rather, as the member states emerged from global recession in 1982/83, the respective national governments realised that the economic interests of the European multi-nationals would best be served by further co-operation and integration.

The EU is the biggest trading bloc in the world. But the major European manufacturing, financial and service companies were less competitive than their US and Japanese rivals. National barriers and protected markets inside the EC gave rise to a proliferation of firms which operated on too small a scale, and which were burdened with costs that made them unable to compete effectively in global markets with their US and Japanese rivals.

Non-tariff barriers, border control costs, a mass of differing product specifications for differing national markets, protected procurement contracts—all these increased the costs of doing business. They impeded the concentration and centralisation of capital on the continental scale needed to compete with the emerging trading blocs around the USA and Japan.

In the 1980s big business lobbied hard to remove these obstructions. The 1986 agreement for the “single market” was the result. Harmonisation measures were set out as were measures designed to open up the markets of each country and to cut the costs of doing business.

But this market brought its own problems. On the one hand, its advantages were open to all those (US and Japanese firms included) who found themselves inside the market and would not on its own differentially assist European firms. In part this could be overcome by implementing a system of common protective measures erected by the EU against non-EU capital.

On the other hand, even for EU countries, the benefits of the single market would differ according to the strength and competitiveness of each member’s economy. The strongest economies would sweep all before them. The weaker states would be tempted to devalue their currencies to gain export advantages. Alternatively the weak states would demand massive compensation and financial transfers from the stronger as the price for the single market.

Thus the Delors Report of 1989 suggested further steps of currency and economic union by bringing all EU states’ economies broadly in line: the “convergence criteria”.

Then in 1989/90 the world changed dramatically. Stalinism collapsed in the USSR and Eastern Europe, providing further impetus towards European federalism. In the first place the eastern European states needed to be enticed away from Russian influence by incorporating them into the EU; this would also make the prospects for capitalist restoration more secure.

Secondly, the collapse of Stalinism produced an unstoppable momentum for German re-unification. Many EC states were wary of the extra power this would give to German imperialism. Britain was particularly opposed. In these conditions France decided to back Germany but, in return, demanded that Germany endorse political and monetary unification. France thereby furthered its aim of tying down German imperialism and limiting its independence and securing a privileged place for Franco-German alliance at the heart of European unity.

For its part Germany acquiesced, recognising that as a defeated power after the second world war it could only further its imperialist ambitions within and beyond Europe so long as it cloaked itself in pan-European garb.

A balance sheet of Maastricht

The aim of single market measures was to promote economic growth and convergence, and to stimulate the emergence of “European” capital. Despite the supposed mobility of labour both unemployment rates and wage levels differ on a very wide range compared with the states of the USA. The Social Charter has as yet made little progress in equalising welfare levels. Prices also still show a very wide variation across the EU.

Outside of areas that touch upon safety standards members states have mainly opted for recognising other states’ standards rather than harmonising them into a common standard. This has meant that firms still have to produce a variety of products for different national markets.

Moreover, apart from the financial services sector little has been done by the start of 1996 in the EU to end protection in national markets in the transport, telecommunications, energy and airline sectors. Here the key breakthroughs are not scheduled to happen until 1997 and 1998.

The policy of promoting “European champions”, i.e. mergers of big transnationals on a European basis, has not really made much progress since 1993. In short there has been little progress towards creating a truly European economy, a European capital or a European bourgeoisie.

The failure or delay of many single market measures have ensured that the predicted boost to growth (and hence to tax revenues and employment) has not materialised to date.

As compared to the second half of the 1980s, economic growth and integration within the European Union have faltered in the first half of this decade. Between 1985-90 intra-EC investment rose by 43% in anticipation of the single market. Gross GDP in the member states increased by 14%. And in these five years unemployment actually fell.

Extrapolating from these trends led the EC Commissioners to set wildly optimistic forecasts and targets during the Maastricht negotiations.

Now, the failure to sustain growth has compounded the difficulties that EU countries have experienced in meeting the convergence criteria set out in the Maastricht Treaty.

This treaty was pushed through despite the reluctance of sectors of the German bourgeoisie, who did not want to give up control over the strong D-mark for a weaker Eurocurrency. The stringent convergence criteria that were adopted reflected the wishes of conservative independent monetary authorities of German imperialism (the Bundesbank). They insisted that a member state could only qualify for participation in the single currency if the following conditions were met:

• budget deficits of less than 3% of GDP;

• public debt of less than 60% of GDP;

• inflation and long-term interest rates of no more than 1.5% and 2% respectively above the performance of the three best EU states;

• a country must be a member of the Exchange Rate Mechanism (ERM) and not have experienced serious exchange rate upheavals in the previous two years.

Across Europe the quest for these goals has acted as a powerful brake on economic recovery, resulting in severe reversals for economic integration, and its effective division into a “two-speed” process.

Within six months of the Treaty being signed the process suffered its first big reversal. With the UK anchored in recession, the financial markets reasoned that sterling’s exchange rate within the ERM was incompatible with economic recovery and would have to be realigned downwards. The markets speculated heavily on that outcome and eventually forced the UK and Italy out of the ERM altogether in September 1992.

Perversely, the fate of sterling only served to illustrate the half-way house character of the ERM and the need to transcend it with something invulnerable to market speculation.

So long as economic performance of member states diverged widely, and the economic cycle was so unevenly experienced between them, then the ERM was open to attack. It underlined the need for a higher economic convergence in the form of monetary union.

But here the devotees of monetary union have been thwarted by the weakness of the economic recovery. During the early 1990s EU growth averaged less than 1% a year. In 1993 EU GDP declined by 0.4%. Recovery began in the EU only in late 1993, two years behind the United States and Britain. Boosted by a rapid growth in exports to the USA, strong growth in the eastern part of Germany and a 15% depreciation in the value of EU currencies, the EU economies grew by 3% in 1994.

But that recovery has been short-lived and, in most countries, weaker than predicted. France, the UK and Italy have all seen growth average around 2.5% in the last three years, below the average for the late 1980s. In these conditions tax receipts have been lower than expected and public spending on unemployment2 and other welfare provisions have not been scaled down as much or as quickly as the national governments expected when they signed the Treaty. In the EU one in five of all young people under 25 has no job.

Progress along the path indicated at Maastricht has also been impeded by the evident unpopularity of the implied austerity measures (and the evident lack of democracy in EU institutions and decision-making).

In September 1992 the French government secured ratification of the Treaty in a popular referendum by the narrowest of margins. In Britain protracted parliamentary wrangling within the Conservative party has repeatedly threatened to stop the process altogether. Denmark rejected Maastricht at first, only to secure a narrow margin in a second popular vote in November 1994. In Sweden a comfortable victory was secured in 1994. But by October 1995 elections for the European parliament revealed mass disaffection, with over half the seats going to anti-EU candidates.

Resistance has not been confined to referenda or elections. From the beginning working class resistance to being made to pay the social costs of Maastricht has dogged the European bosses.

As early as October 1992 the Spanish working class took to the streets to resist austerity measures. Throughout 1993 Italian workers protested energetically against pension reform plans. In December 1995 it was the turn of the French public sector workers to raise the struggle against welfare cuts to a new level.

In addition the phenomenon of weak bourgeois government in many countries has prevented the full-blooded implementation of austerity measures to control public finance. This applied to France at least up until the election of Chirac in May 1995. It is still a major problem for the Italian bourgeoisie and in Spain. Compromises have been the norm rather than all-out assault. Austria is a typical example here.

The EU remains stuck in a vicious circle. Without an “ever closer union among the peoples of Europe” which economic integration will bring, the political enthusiasm for a federal state is difficult to generate. Every recession increases the calls for national solutions in all the member states and opens the way to demagogic use of Europhobia by economic nationalist wings of both the conservative right and the social democratic left.

Will the centre hold?

Germany has long argued that it was necessary to bring in the countries of eastern Europe one by one3. At the same time it was necessary to offset the necessary centrifugal tendencies that this would promote by creating a “strong centre” economically and politically. Recognising the Danes and the British as unenthusiastic members and Spain, Italy and Greece as unlikely to meet the criteria for monetary union, Helmut Kohl has emphasised the need to create a “hard core” in the EU centred on Germany, France and Benelux.

But the Franco-German alliance is being gnawed by economic and political doubts.

To stand any chance of persuading the Bundestag to vote for monetary union Kohl had to set very tough criteria for EMU. These criteria helped plunge the French economy during 1992/93 into its worst recession since the second world war.

France emerged from the recession sluggishly and unemployment remains high. In September 1995 industrial production was only 0.4% higher than one year previously.

The French bourgeoisie, faced with a massive problem in meeting the convergence criteria for monetary union by the end of 1997, are obliged to press on with this attack. At more than 5% of GDP the government’s budget deficit is already way off its 3% Maastricht-set target. Juppé plans to cut the budget deficit ($63bn in 1995) by 10% next year and at the same time to halve the enormous deficit in the social security budget. This has run into fierce opposition from the working class. He has also postponed any tax cuts for at least two years which will alienate the middle classes.

Politically, Chirac is showing signs of much less enthusiasm for monetary union than Mitterrand. He has decided on a thorough review of French foreign policy. His re-assertion of French national interests by carrying out nuclear testing led to serious friction with Germany (and to rapprochement with Britain).4 Indeed he has encouraged London to increase its role in the EU. He has twice delayed the implementation of the Schengen agreement on open borders.

But the problems are not just on the French side. The German economic locomotive in Europe has also faltered. Germany went into recession late, after the recovery reached its cyclical peak in 1990 and 1991. It hit the bottom in 1993. Strong exports returned in 1994 and early 1995, in cars and electronics as well as a construction boom financed by borrowing. But this fell away badly as investment dried up in the second half of the year. In 1995 GDP growth was 1.9% and growth was virtually flat in the last three months of the year. For 1996 a growth rate of 2% or less is expected.

For Germany the borrowing undertaken to finance re-unification has had a huge impact on its public finances, pushing the budget deficit over the 3% Maastricht limit in 1995. The growth of budget deficits, both on a national and a state (Länder) level is still a burning problem for German capitalism. Some Länder (Hamburg, Bremen, and to a lesser extent Berlin) are close to bankruptcy. In addition there are parts of German industry (building and construction, machine building) which are in considerable trouble due to a weakness of domestic demand. Unemployment has reached the politically sensitive four million mark (10%); insolvencies are still high.

Humiliation in Bosnia

The most obvious defeat inflicted in the Bosnian war was on the European Union’s superpower pretensions.

The roots of European impotence in Bosnia lay in the contradictory position of German imperialism. Germany is an economic giant. Since re-unification it has grown into a state with 81 million inhabitants and is the leading political power of the EU. But it remains chronically weak at the strategic military and diplomatic level unable to impose its wishes in any re-ordering of the alliances on the continent and thus vulnerable to French, British and US pressure.

France on the other hand had to break ranks with its German ally and act in concert with Britain and ultimately the USA. Britain and the USA, whilst they themselves did not agree on a solution to the Bosnian conflict, repeatedly thwarted any solution that would have consolidated an exclusively European political and military power on the continent. Britain, at least as long as Major and the Tories cling on to power, will continue to obstruct plans for a military force under European control.

The Bosnian war demonstrated to the world that France, Germany and Britain found it impossible, to concert their foreign policies, playing diplomatic chess against one another (with the Bosnians as pawns) and attempting to ally with the US at various points against their fellow Europeans.

Early summer 1995 witnessed the near total collapse of the Franco-British led “peacekeeping” mission and the final exposure of the superpower ambitions of the EU as mere bluster.

The EU had demonstrated that it was quite unable to restore order “in its own backyard”.

Despite this political and diplomatic weakness German imperialism has been slowly but surely establishing its economic hegemony over the central European economic space.

Germany’s investments in Eastern Europe are of course limited, especially when compared to the $140 bn per annum of federal government spending being pumped into the former DDR Länder—three times the planned cost to the EU of admitting the eastern European countries!

But in the Czech Republic, Hungary, Slovenia and even in Slovakia, Germany is playing an important role. In the Russian market it is now beginning to forge ahead of its rivals.

German imperialism now has to press ahead with developing a political, diplomatic and military complement to this economic strength. The most direct route would be through greater federalism.

It is difficult for it to shake off the remaining internal and external chains of World War II without merging into a union with an “innocent” state like France and thereby gaining the ability to act fully as a fully fledged imperialist power in the political and military fields.

It must achieve this eventually or all its economic investments and extension into central and eastern Europe will be vulnerable.

France too has long term reasons to keep to its “historic compromise” with Germany. As a rival the latter is too big and powerful economically, and potentially too dangerous.

Moreover, if France does not pursue this strategy then the only alternative is to rely on the US-British axis, with all the negative consequences for France’s world investments and world role.

The differences of the EU states with the US over Bosnia, recently seen in the differences of the French with the Dayton agreement on Sarajevo and the friction within, such as the abrupt American rejection of Ruud Lubbers, the French favourite for Secretary General of Nato, will in the end convince France and Germany that there is no real alternative to their strategic alliance.

Not least it will force them to confront the question of their lack of an independent military force sufficient to defend their own interests on the mainland of Europe. For now, while NATO is US dominated and led, it is still Europe’s only effective command structure.

The joint Franco-German corps of 35,000 soldiers remains dogged with operational difficulties and remains little more than a token force in terms of size.

The Conference for Security and Co-operation in Europe (CSCE) played no role independent from that of the paralysed EU in Bosnia.

The Western European Union (WEU) has the stated dual aim to act as “the embodiment of the European defence identity and to serve as the European pillar of NATO”. For all the reasons outlined above it cannot do both at the same time. Effectively it has remained entirely dependent on and within NATO.

The German ruling class has finally gained parliamentary and public support for the Bundeswehr to operate outside Germany; it will be obliged in the coming years to deepen this “peacekeeping” commitment into an effective, independent military machine commensurate with its economic power and unencumbered by the post-war ideology of “collective guilt”.

The future of European Union?

The project of European union, led by Franco-German imperialism is under severe strain. Low growth, divergent economic cycles, high labour costs and slow progress towards European industrial integration all put Europe at a disadvantage next to its main rival in global terms—the United States.

The IGC will be a battleground in which the radically different conceptions of the future of Europe will be fought over.

For the British bourgeoisie, at least for its commanding elements in the City, the single market corresponds to its maximum programme: a glorified free trading bloc. They are not opposed in principle to some form of common currency but are resolutely opposed to the political convergence that is implied in this step and to which German imperialism aspires.

The British, at least under the Tories, do not want a Europe that increasingly defines itself against the USA politically and which endangers the free movement of capital between the blocs of the world economy.

The US is the guarantor and defender of the City of London’s worldwide investments. For centuries Britain has sought to prevent France, Germany or any one country from hegemonising Europe and thus subordinating Britain. It plays the role of divider and arbiter. This strategy is as old as the social dominance of the British bourgeoisie itself. It will take a truly historic shift to make the British bourgeoisie good Europeans.

For this reason the British want only a Europe a la carte. By this is meant a pick-and-mix Europe with each member state signing up for those bits of European union that its wants and rejecing those that it dislikes.

In Britain’s case this means shutting the door on the Social Chapter and keeping border controls on the free movement of people.

Under Major Britain will also be in the forefront of the pressure to delay the move to a single currency well beyond 1999 and to reaffirm the preconditions set out in the Maastricht Treaty.

They will seek to slow down the deeper Europe by seeking to bring in more member states from Eastern Europe or Turkey, thereby delaying further convergence.

But if this game plan were to succeed then Europe will continue to lag behind the USA and risk further dislocation and disunity, unravelling what has been thus far achieved. Germany is unlikely to tolerate this. Germany will press for the twin track approach.

France and Germany together with Benelux will strain to achieve the 1999 deadline or very soon thereafter.

The ruling CDU in Germany stated clearly in its policy document in September 1994, Reflections on European Policy:

“It is essential that no country should be allowed to use its right of veto to bloc efforts of other countries more able and willing to intensify their co-operation and deepen integration . . . the existing ‘hard core’ of countries oriented to greater integration and closer co-operation must be further strengthened.”5

Indeed, France and Germany could decide to “tweak” the Maastricht criteria at least sufficiently to allow the Franco-German bloc to push ahead allowing others to join up for greater federalism when they are ready, if ever.

Such a step would correspond to the strategic political interests of France and Germany but may have significant short-term dangers for the German economy and would be resisted strongly by those left out of the “hard core”.

Whatever bourgeois policy emerges the growing resistance of the European working class and the continuing crisis of bourgeois leadership in several countries ensures that the key class struggles in the imperialist world in the next years will continue to take place in Europe.

1. For a full discussion on the contradictory logic of European integration see K Harvey, “Europe beyond Maastricht”, in Trotskyist International Issue 10, January 1993.
2. Despite the recovery, as we predicted unemployment has not fallen significantly. According to official figures it stands at Austria 6.6%, Belgium 14.7%, Britain 8.1%, Denmark 9.8%, France 11.5%, Germany 9.2%, Holland 7.0%, Italy 11.3%, Spain 22.7 %, Sweden 7.6%.
3. The EU commission now believes that the costs of integrating the five best countries would be $50 bn extra a year and that it is unlikely that any will be allowed to join until 2002.
4. In response to Chirac’s more nationalistic grumblings Theo Waigel, the German economics minister, has openly questioned France’s ability to meet the Maastricht criteria on monetary union. A prominent French academic writing in the Herald Tribune (25 October) has observed in alarm: “Had Germany and France seen eye to eye politically it is unthinkable that Mr A Waigel or any top German official would have questioned France’s candidature for membership in the EMU. Europe’s monetary and political future, therefore is in considerable danger.”
5. Quoted in Journal of Common Market Studies, 1994 Annual Review, p5