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The EU: European capitalist superpower or socialist united states of Europe?

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After the launch of the European single currency Dave Stockton examines the ambitions of Europe's bosses and politicians as they head into the new millennium

Jubilation greeted the launch of the euro at the beginning of January. Since then the politicians, bankers and bureaucrats have been busy congratulating each other. Eleven of the 15 European Union (EU) countries Euroland have locked their national currencies together, transferred their reserves into euros and ceded power to the European Central Bank (ECB) to set interest rates for all member states.

The euro can now be used as a unit of account and will replace the 11 currencies as a direct means of exchange in 2002. Six months after this the franc, the deutschmark and the lira will pass into history. There is little doubt that during the coming years the euro will emerge as the world's second reserve currency.

The months before the launch of the euro witnessed a rapid increase in the tempo of economic change in Europe that will have undoubted political ramifications. The struggle in January between the Commission and the European Parliament over allegations of corruption and fraud shows a new sense of assertion on the part of the parliament. Its politicians sense that when the policies of the ECB begin to be felt directly by the citizens of the EU, it will be MEPs, not merely national governments, that will be expected to counter the decrees of the unelected bankers and bureaucrats.

The advent of the euro is having a serious effect on the actions and plans of the big banks and industrial corporations right across the continent. It has unleashed a wave of mergers and restructuring in finance, industry and commerce.

The working class movement, both in its trade union and political organisations, must wake up to the dangers and opportunities that this new period of struggle creates. It must develop new tactics and forms of organisation around two clear goals active internationalism and a determination that a united Europe must be socialist and open to the workers and oppressed peoples of the world. Not an imperialist Fortress Europe spreading exploitation and preparing for a third world war.

By creating a second world reserve currency, challenging the dollar's half century hegemony, the launch of the euro is a precursor to the polycentric world of the twenty first century.

Euroland is highly unlikely to remain a purely economic arrangement. Like the 19th century Zollverein (the customs' union that preceded the unification of Germany) this powerful economic bloc will be obliged to develop a stronger political and military framework, to protect itself against rivals from without and class struggle from within. If it does not, it will eventually succumb to internal centrifugal tendencies and external pressures.

A federal European state has always been the more or less open project of the French and German bourgeoisies. In the early 1 990s the Germans were dubious about giving up the deutschmark but it was finally accepted as the price for the political joint venture with France to progress. The success of rapid German reunification in 1989 90 convinced Helmut Kohl that a bold, Bismarkian policy could and would work for Europe as a whole. Only such a policy could finally release the German imperialists from the consequences of the Second World War. If this means the transcendence of the German nation state itself, instead becoming part of a wider European imperialist bourgeoisie, then this would be a price worth paying. It rids the German bourgeoisie of the stigma of the Holocaust and at the same time leaves them with the lion's share of the superprofits within Europe.

The French bourgeoisie knows that it will never become a truly global power as an isolated nation state. France, long ago, decided that it could not hope to equal or surpass Germany economically or the Anglo Saxons either economically or politically. In a unified Europe France could play the role of leader because of its military and diplomatic strength, and the Germans' need to remain discreetly in the background when it comes to overtly imperialist action and aggression.

Only a united Europe has the potential economic strength to match the USA in the new global markets. That economic strength must acquire a commensurate political and military unity. Events in the 1990s especially in former Yugoslavia have demonstrated time and again the humiliating impotence of the EU when it comes to concerted political and military action. The challenge is to harmonise the interests of five major imperialist powers, one of which has a "special relationship" with the USA (subservience).

Under Thatcher and Major, the British set out to obstruct the "concert of Europe" whenever it diverged from the policy of Britain and the USA. Tony Blair may have stated his desire to be "at the heart of Europe" and his willingness in principle to join the euro, but he still rejects federalism and most importantly is as slavishly pro American as the Iron Lady. True, Blair has promised to consider a "European defence policy". But Britain's foreign policy remains stubbornly at odds with that of France in the Balkans, the Middle East and Africa.

But the new impetus given by monetary union means the Franco German bourgeoisie is unlikely to wait for Blair indefinitely. The unilateral Anglo US attack on Iraq has probably made them even more determined to press ahead, even if this means as with the euro leaving Britain on the sidelines.

The development of globalisation at least in the sphere of markets, currency, bonds and equities has demonstrated the inability of even medium sized imperialist powers to control their own destinies. On the other hand, the USA, with its iron grip on the world economic institutions (TM F, World Bank, WTO) shows what a continental power can do to remain master of its fate and put others on rations when the going gets tough.

Can the Franco German led states succeed in doing this on a continent with no unifying national ideology and culture (indeed with a superabundance of highly divisive ones), with only the barest rudiments of a transnational bourgeoisie, with a pronounced "democratic deficit" in its central institutions (Parliament, Council of Ministers, Commission, Central Bank)?

Can they succeed in doing this on a continent whose working class has much higher levels of trade union and workplace organisation, a more developed series of social welfare gains, a stronger tradition of political independence (workers' parties, political labour movements) with a record of militant struggles over the last thirty years, and an historic (even if recently eroded) tradition of creating and recreating anti capitalist programmes and aspirations?

The bosses of mainland Europe have for a long while looked admiringly at the advantages which their US counterparts possess. US top executives far outscore their European rivals in salaries, bonuses and share options. For all the Europeans' snobbish criticism of cowboy capitalism, which they compare unfavourably with the supposedly more civilised mixed economies of Europe, they cannot but admire the way US bosses have slashed workers' real wages, cut unions down to size and consequently boosted profits as a proportion of national income.

The British Tories set out to copy their US allies as early as the 1 980s and British bosses have many of the advantages of the Thatcher Revolution. Consequently Tony Blair, with his determination to keep the unions in Thatcher's chains, continue wholesale deregulation and decouple the Labour party from its foundations in the working class movement, is a figure that fascinates the European bourgeoisie.

Blair has adopted Clintons "Third Way" a supply side remedy for the socially destructive consequences of neoliberalism while steadfastly preserving the latters basic uncontrolled free market practice. But the more far sighted European leaders recognise that Blairism was only possible on the foundations of Thatcher's victories over the British unions in the 1980s and the step by step purge of the defeated left in the Labour Party from 1983 90 by Neil Kinnock.

Will the European ruling class set out to copy the Reagan Clinton or the Thatcher and Blair recipe, concentrated into a few years rather than decades? Or will they attempt to aply a modified form of their own highly structured methods of class collaboration social partnership developed since 1945 both by Christian Democracy and Social Democracy alike?

After all, these institutions produced decades of relative stability, even of apparent cessation of the class struggle in the years of the long boom. These were, paradoxically, the years of high growth rates for Europe. The two succeeding decades of concessions to monetarism if not its wholehearted adoption has witnessed only declining average growth rates. The temptation to use them to meet the task of scaling down the European workers' gains to levels which will allow them to compete on the global market will be great.

The European Bankers claim that the euro will lead to prosperity and security in Europe and beyond and will help overcome the chronic global monetary instability and exchange fluctuations which have punctuated the nineties. By reducing exchange and transaction costs it should give a boost to EU economies, prolonging their boom phase within the present business cycle. Already it has spurred a process of far reaching changes in banking and financial services across the continent, as banks, insurers and business consultants merge and offer their products in each others' countries.

The euro is part of a package of economic changes aimed at making Europe's bosses effective competitors with the US mega corporations and prepare for what was, until 1997, heralded as the coming Asian century. Jean Claude Trichet, currently governor of the Bank of France and appointed successor to ECB president Wim Duisenberg, recently summed this up:

"The completion of a single market of 290 million people, endowed with monetary soundness, fiscal rectitude and the appropriate structural reforms, will pave the way for a prosperous Europe. But it will only succeed if the euro is embodied in the behaviour of business leaders, entrepreneurs, consumers and above all, our fellow citizens themselves. This is not just a European experiment. In the current period of international crisis, the success of the euro is a necessity not only for Europe, but also for the rest of the world which must be able to count on European growth and prosperity if the global economy is to prosper."

Trichet then set out the following requirements for this success:

(i) the independence of the ECB from political interference leading to low inflation/ stability

(ii) budgetary and fiscal rectitude in the member states as laid down in the Stability and Growth Pact

(iii) structural reforms in the member states, that is a bonfire of "burdensome rules and regulations"

(iv) increased competitiveness to weed out the inefficient.

The objective is to use the common currency to spur a phase of economic expansion to reduce the high levels of structural unemployment which threaten stability, while allowing the levelling down of wages and welfare within the EU, thus aiding global competitiveness.

The process is also intended to unleash a wave of concentration and centralisation of capital. This is already underway. A whole series of European mega firms have engaged in restructuring over the past three years, selling or closing down old low profit making components and acquiring others in Europe and North America. Among the European giants pioneering these moves are telecommunications firms like Nokia (Finland), German chemicals giant Hoechst, carmakers like DaimlerBenz (now Daimler Chrysler) and the electronics corporation Siemens. Elf Aquitaine and Danone in France and Royal Dutch Shell and Phillips in Holland are doing the same.

Such restructuring brings with it serious attacks on the jobs and conditions of European workers. Siemens plans to axe operations employing 60,000 workers. Philips wants to cut its manufacturing sites by one third. Shell has announced 3,700 job losses in refining. Hoechst has sold $8bn of operations and bought $l2bn to turn it from an unwieldy chemicals and drugs conglomerate into a high tech biological and chemical sciences concern at the cutting edge of the biotech and new pharmaceuticals industries.

In Germany the traditional integral links between the banks and industry noted by Rudolf Hilferding in Finance capital and Lenin in Imperial ism are in the process of what may prove to be a historic change. European companies have until now been far less dependent than US companies on the capital markets for new investment. Of their debt 75 90% is in the form of bank loans (comparable figures for the US and Britain are 30% and 56%).

German industry traditionally secures most of its financing from German banks, which have up to now owned large, often controlling, blocks of shares in their client companies. The original Common Market was intended as a bloc between France and Germany in which French agriculture and German industry were mutually assured of markets. But under Dc Gaulle and his successors, from the late 1950s to the early 1980s, France modernised its industry under a strong statist system. The EU consolidated' this Franco German model of social partnership, protection in the workplace, industry dominated by the banks and the centrality of the inflation proof deutschmark. Britain remained aloof from all this in the 1960s, 70s and 80s with a declining industrial base, a rising financial services sector and stock market and up to 1987 stormy industrial relations.

But in the 1 980s and 1 990s financial deregulation, led by the US and Britain, created global capital markets. In such a system capital flows to areas where returns are high. Highly liquid capital separated itself from permanent linkage to specific corporations. Rapid technological change has placed demands on European firms which outstrip the resources of the relatively small French and German banks. If European banks such as Deutsche Bank want to grow into world competitors then they have to break their too exclusive ties to specific corporations. This has rendered out of date the German tripartite system, French state supervision and the Italian unwieldy conglomerates which all involve varying degrees of inter-linkage between government, banks, and industrial concerns.

The core EU economies have much less developed equity markets than the US and Britain. This is now being challenged by both the larger companies and banks. The banks are rushing to combine into Europe wide financial institutions and to acquire subsidiaries in North America and the Far East. They know that they have a long way to catch up with US giants like Chase Manhattan or the newly merged Citigroup.

German corporations face serious problems with their wage levels and social costs. The average hourly manufacturing wage is $30 in Germany compared with $20 in the USA, $15 in Britain, and $3 in the Czech Republic. The thirst of German capital to exploit the skilled but historically cheap labour just across its eastern borders is overmastering. The German unions realise this too. "Our Asia is right next door" remarked one union official.

The process of national and regional wage negotiations is coming under heavy strain. The hard line faction of the German employers, led by Daimler Benz and BMW, has introduced flexibilisation by threatening to close plants. Hoechst has cut 12,000 of its 65,000 workforce over the last seven years. Between 1994 and 1997 Siemens sacked 36,000. In BMW, 70,000 jobs have gone now only 40% of its employees are in Germany.

Investment into Germany is virtually nil while $8Obn of German investment has gone abroad in the 1990s, $6bn to Eastern Europe and also to the USA (setting up Daimler and Mercedes Benz plants). The latter plans to make 30% of its cars abroad within ten years. Daimler has, in reality, taken over Chrysler in the recent merger. These corporations are using the threat of moving operations over the eastern borders to force wage moderation and flexibilisation in western plants.

Another problem is the cost of the social wage. In Germany there is general agreement among the capitalist class that direct taxation cannot be raised. The cost and scope of welfare provision continues to rise, due to the ageing population and high structural unemployment. But attempts to force a direct cut in social expenditure have proved a failure over the last few years. The government introduced a reduction of the six weeks of sick pay per annum from 100% to 80% for new contracts. Siemens and Daimler again in the forefront of the bosses offensive tried to impose it at once on all existing contracts. But they were defeated by massive trade union protests. In France too, when the Juppe government tried to raise the retirement age of train drivers (50) it was similarly defeated.

However, the leaders of the trade unions are not so much concerned with defending their members' economic and social gains as preserving their role in the process of negotiation even if they are negotiating give backs. The leaders of the German trade union federation DGB, led by the hitherto left wing IG Metall, offered the employers an Action Pro gramme for Jobs and Investment, a package which, though mild by British or US standards, offered wage restraint and deregulation in return for which the bosses would, it was hoped, employ new workers.

French etatism in economic matters goes back to Louis XIV's finance minister Colbert and to Napoleon. It was reinforced by Dc Gaulle's industrialisation in the 1960s. Distrusting the Anglo Saxon model, the French bosses and parties still have to bite the bullet of wholesale privatisation and deregulation. The French economy retains a strong core of state owned industries and state financing rather than domination by the banks or the stock exchange.

The old system has borne its fruits: a modern railway system; airports and roads; education system; and telecommunications. Yet already downsizing is underway at Renault and France Telecom. The French bourgeoisie has hesitated more than once, and with good reason. Any large scale assault on the public sector will face revolt from the organised workers and the core electoral base of the Socialist Party.

To change from the European model of the relations of industry, banks and the state to the Anglo Saxon model has enormous repercussions for the whole social contract between capital and labour established after the last war. In fact the German model is the most elaborate. Even attempting to modify it substantially is likely to cause great upheaval. The so called social market economy (Soziale Marktwirtschaft) is actually embodied in the constitution. It consists of a strong welfare state, national health system, high unemployment benefits and generous sick pay.

It also extends into what the AngloSaxons regard as the private sphere of employment, guaranteeing a high level of job security for the employees of the big corporations and a high degree of cohesion between management, government and unionised labour. This is sometimes underpinned by part ownership by government or the Lander (federal states) as at Volkswagen. It is thus no surprise that VW heads the faction of the German bosses that wish to use the social partnership system to negotiate concessions rather than to provoke direct confrontations aimed at weakening or breaking the unions on the ThatcherReagan model.

The boards of these companies are the locus of joint decision making or "Mitbestimmung". Many of management's prerogatives are overseen by works' councils (Betriebsraete). In companies with more than 2,000 members, worker representatives have half the seats on the board. This has led to a remarkably low level of strikes for long periods of time.

In addition the German apprentice system is still in force lasting for two to three years, assuring high levels of craftsmanship, skilled labour and high quality products. The government and the unions share the costs with the employers. In essence this is the "stakeholder principle" avidly promoted by Will Hutton, though given only the briefest of nods by Tony Blair himself.

The US "shareholder value" principle is totally inimical to this system. It could hardly exist where the first requirement for financing corporations was high dividends on shares to attract investment. But US and British commentators (The Economist, Busi ness Week) predict that the merger mania underway in Germany, France and Italy will inevitably bring with it the "shareholder value" criteria and the consequent disappearance of concern for "social stakeholders".

The period immediately before the launch of the euro has seen a remarkable bounce back from the problems which wracked monetary union in the early nineties. In 1992 3 turmoil and ferocious speculative runs on national currencies (in particular the pound, the franc and the lire) broke up the European Exchange Rate Mechanism. Speculators like Georges Soros helped themselves to millions from European central banks' reserves before they caved in. Yet over the past three years exchange rates have moved back to pre crisis levels and stabilised.

The reason is that the EU has enjoyed a sufficiently powerful upswing of the economic cycle to allow governments to apply the Maastricht Treaty and Stability Pact measures without provoking a full scale social and political revolt. In France, Germany and Italy there were serious strike waves but they never became a conscious assault on the Maastricht plans.

The worst of the pain has been borne by the EU's 30 million unemployed and the socially excluded (youth, immigrants, single parents). The reformist parties and trade unions have, as usual, shamefully ignored these layers except in empty rhetoric while their main social base (the employed and unionised workforce, disproportionately representing the skilled, higher paid workers) were not driven into open revolt.

Nevertheless in France, Germany and Italy in the years 1995 7 things looked dangerous for the Maastricht austerity measures. The credibility of right wing governments fell sharply. The likes of Juppe, Berlusconi, and Kohl who were most closely associated with these measures were weakened as a result of action on the streets and could not hold on to power at the ballot box. For the bourgeoisie it became obvious that the task of social control in the final year of the Maastricht process would be best assured by the entry into government of the socialist, labour, social democratic and ex Stalinist parties in most European states. Only Spain and Ireland have non social democratic governments of purely bourgeois parties.

But it has also been achieved by postponing some of the hard choices, that is the systematic levelling down of the social welfare, job security and wage levels of the European workers. These manoeuvres and sheer economic good luck are waning assets on the verge of a world recession. The question is: how serious will this recession be?

Europe is out of synchronisation with the crisis spreading from Asia to Latin America. Growth in the major continental economies, France, Germany and the Benelux states, was accelerating strongly in 1997 and in the first six months of 1998. Most commentators were extremely optimistic about a boom, which they predicted would not reach its peak till 2001 2. Faced with crisis in Asia and its spread to Latin America, and most importantly the Russian loans debacle and collapse of the rouble in August 1998, EU officials still boasted that Europe would be "an island of stability" or an "an oasis of growth". They forecast growth in employment of 1% in 1999 and the same in 2000.

Yet GDP growth within Euroland has shown signs of slowing under the impact of world events; from 3.5% in the first quarter of 1998 to 2.1% in the second quarter. The European Commission has prudently lowered its 1999 growth estimate from 3.2% to 2.6%. Private sources are more cautious than that: Deutsche Bank forecasts 2.3% growth and JP Morgan 1.8%.

But there is no doubt that the European business cycle is out of synchronisation with both the USA and Japan. The latter is already deep in recession while the USA is in the final speculative upward spiral of its boom. Europe on the other hand is only three or four years into its cycle. Europe saw a double dip recession, in 1991 2 and 1993 4, caused in part by the distorting effects of the German reunification boom and the collapse of ERM. If the present cycle proves of average duration then a further recession would not be expected until two or three years into the first decade of the new millennium.

In addition the predicted stimulus to the economy of the one off effects of monetary union of 1 5% of GDP in this period should also help the "island of stability" scenario according to EU propagandists. But, as well as the professional Euro optimists, we should look at the views of the equally bourgeois Eurosceptics. These have their stronghold in Britain and Scandinavia, though there are prominent examples even in France such as Charles Pasqua and Jean Claude Chevennement.

The Euro is a fact, despite all the prophesies of doom from the British Euroseepties, whether of the Tory Right or their waning shadows on the Labour and ex Stalinist left. Already there is talk of bringing forward the date for the issue and the use of the euro notes and coins. The objections of the Eurosceptics are basically that Europe is not the USA. What works there will, they argue, not work in Europe because:

(a) one set of interest rates must fit a wide variety of economies;

(b) national economies will find themselves at different stages of the business cycle;

(c) there is no real European labour market or it is exceedingly rigid.
All of these observations are true enough, but it does not follow that they are likely to destabilise the euro itself over the next period.

European interest rates do not attempt to cater for all but are set for the major economies, i.e. France, Germany and to a lesser extent Italy. These represent 74% of the Eurozone's economic activity.

Countries likely to suffer inflationary pressures, such as Ireland, represent 1% of EU GDP and if its inflation rate were to hit double figures this would contribute only 0.1% to the total. Meanwhile France's inflation rate is close to zero (consumer prices 0.4 over the three months to November 1998, compared to +.7 over the previous year) and Germany's are also low ( 1.3 and +07 respectively). With the next three years bringing recession rather than boom and with world commodity prices tumbling ( 18.7% for all commodities, 43% for oil!) deflation rather than inflation is the likely trend in the Eurozone. Inequities between the currencies are likely to be containable by fiscal measures.

The results of deflation closures and unemployment will be the main issues facing the ECB and the Council of Ministers. Already, at what is in all probability the peak of the European recovery, unemployment though it has fallen by a few percentage points still stands in double figures in the big Eurozone economies: France 11.6%, Germany 10.6%, Italy 12.3%, Spain 18.2%. Pressure to tackle structural unemployment will redouble when the feeble job creation schemes of the French and German governments are reversed by mass layoffs.

Thus the social responsibilities of the ECB will become an area of intense dispute indeed it had already broken out in the months before the launch. Ironically the German bankers and politicians stand on opposite sides of the debate.

In the early and mid nineties, the French won the Germans to the idea of a new European currency as the next step in an ever closer union by the promise that it would be as singlemindedly committed to the price stability of the euro as the Bundesbank had been to the deutschmark.

Unlike the US Federal Reserve Board or even the Bundesbank, the European Central Bank has no responsibility for promoting economic growth, it is rigidly committed to the single goal of monetary stability. The pressures came from the Bundesbank (headed by Hans Tietmayer a profound sceptic about the Euro) and the German Finance ministry in the CDCSU coalition (headed by Theo Waigel). The result is that the ECB is, according to the London Financial Times: "One of the most independent central banks in history. It is accountable to no one. Its executive is appointed by politicians but they are unsackable."

The ECB was meant to work on a pre ordained series of anti inflationary criteria. The Maastricht Treaty (1992) and the Stability Pact (1995) forced member states to achieve close to balanced budgets, which "left virtually no room for macroeconomic policies to deviate from the course set by the autopilot."

Wim Duisenberg, the Dutch chairman of the board of the ECB, though a former Social Democrat (and 1970s Keynesian) was an early convert to monetarism. He has publicly pledged the ECB to actively resist a widening of the bank's objectives to include promoting growth let alone lowering unemployment. He has bluntly refused to publish details of the ECB's inflation forecast (in case it encourages trade unions to put in higher wage demands) or to publish minutes of its meetings (in case the six members of the council "come under political pressure" from their own countries). Duisenberg has even suggested that there should be a seventeen year restriction on the publication of these minutes!

The ECB already sees the trade unions and popular pressure via the democratic processes of the member states as the main enemy and rushes to take refuge in business secrecy. The politicians, especially the social democrats, are worried that such secrecy will rapidly make the ECB loathed by millions of EU citizens, increasing the already huge democratic deficit of its unelected central structures.

However it is from the labour movements, muffled by the trade union bureaucracies and the parliamentary machinery of the reformist parties and governments, that objections to this disregard for jobs and welfare has arisen. Mass anger against high levels of structural unemployment in the EU has been channelled, in a much reduced form, into the policies of the continental social democratic and Socialist parties. Many of the "left" governments in the EU which came into power over the last two years are pledged to reduce unemployments as their major priority.

These governments, in particular the French and German finance ministers Dominique Strauss Kahn and Oscar Lafontaine, have already indicated their dissatisfaction with the ECB's priorities and suggested changes. In reply the British press launched a preemptive propaganda campaign against Lafontaine. Tony Blair has made overtures to Chancellor Schroeder whom the British press proclaim, on no good grounds, to be Blair's disciple to join the "third way" and reject "old style socialism".

Blair's finance minister Gordon Brown is likely to be more sympathetic to Duisenberg than to his "fellow socialists". His first response to proposals from Lafontaine to deal with the inequality of taxation systems between the member states was waspish: "We want to cut business taxes not raise them and therefore we will veto any tax harmonisation proposals".

The only problem is that New Labour has ruled out joining the euro "in this parliament", i.e. before 2002. Although Britain is a member of the European System of Central Banks (ESCB) which pursues a common monetary policy for the whole EU, it is not a member of the Governing Council of the euro (though it has impertinently demanded to be so).

The difference between British and continental social democracy is hardly surprising. The entire New Labour project was launched on the back of a cumulative defeat of the British unions between 1982 and 1987, the subsequent crushing of internal opposition within the Labour Party and the triumph of the Blair Brown axis over Old Labour symbolised by the removal of the radically redistributive Clause IV from the Labour Party constitution. New Labour has since wooed the bosses and the millionaire media, offering to act as a ratchet mechanism, preventing any roll back of the bosses' gains such as the antiunion laws and the shift from direct taxation of wealth to indirect taxation on the mass of wage earners.

Indeed it has promised to carry out a "reform" of "overspending" on the welfare state and education replacing universal entitlement with "targeting". This is all part of a package to woo financial support from big business away from the Tories. One major factor in this project is to take Britain into the euro as soon as a decisive popular mandate can be engineered. Thus, barring a sudden upsurge of class struggle in Britain which would put enormous pressure on the unions and then on the Labour Party, Blair and Brown are likely to remain on the monetarist right wing of the arguments in the EU. But as long as they falter on the banks of the euro, fearing to jump in, their supply side sermons to "free" European labour markets by deregulation will carry little weight.

If the European Union is dragged into a serious recession, if not in 1999 then early in the new millennium, then the ECB, still flying on its deflationary autopilot, will in all probability crash into the European Council of Ministers dominated by social democratic governments responding to pressure from their respective labour movements. These governments have all pledged themselves to lower unemployment. They can hardly be seen to submit tamely to ultra neoliberal bankers, originally appointed by the Juppes and the Kohis, especially if the US Federal Reserve were by then to be pursuing counter cyclical measures of a neo Keynesian stripe.

Whilst the monetary system is highly centralised, fiscal policies and systems are still quite varied. Moreover they remain in the hands of the 11 national governments, albeit constrained by the solidarity pact. In fact contrary to the claims of the British Tories the EU has a very small central income (under 2% of EU/GDP) and most of this is redistributed to farmers via the CAP. The EU has pitifully small regional funds for underdeveloped areas and virtually no funds for large scale anti crisis measures. It is for this reason that all the summits on unemployment have led to virtually no measurable job creation.

When he suggested tax harmonisation, Oscar Lafontaine was not engaging in "dinosaur socialist schemes" as the British press claimed. Tax harmonisation is an essential measure in the creation of real single market conditions. Though the Irish have been used as the stalking horse for all those who give low or no tax breaks to US, Japanese, and Korean firms seeking to penetrate EU markets, it is plainly Britain's Thatcherite legacy of massive handouts to corporations, its highly regressive tax system, that is the real target. Related to this is the attempt to equalise social benefits in order to create a "level playing field" in the labour market. Whilst the Eurocrats would like to move towards lower taxes on business they realise that convergence will mean an end to the Thatcherite tax regime in Britain hence the vituperative opposition of the Murdoch press.

As to the "rigidities of the labour market", what the Eurosceptics mean is not only the lack of mobility of labour but also its lack of flexibility. The supply side answer is to slash social security provision down to a "safety net" level, which will stop people starving or rioting but at the same time will be so "basic" (painful, humiliating) as to drive them to take the lowest paid jobs on offer.

At its extreme this is the US neoliberal model to which Clinton and Blair add a network of public and private charity for the unemployable and information/training so that people take low paid jobs in the service sector. This is not far from the "lesser eligibility" principle of the British New Poor Law of 1834. Life in receipt of social welfare must become worse than living on the lowest wages available. Its "ethical" foundation fixed firmly in 19th century ideology is that the unemployed simply do not want to work. They must therefore be compelled to do so. Clearly this "principle" runs contrary to all logic and historical experience: why should the unemployed be any lazier during the downswing of the economic cycle than its upswing? But more importantly it runs contrary to key demands of the European trade unions and commitments of the reformist governments, such as a minimum wage of one half to two thirds of the average male median and a maximum working week of 35 hours.

As they try to cut their wage and social costs in pursuit of global competitiveness and shareholder value, the big corporations in Europe will put pressure on the continental social democratic governments to abandon their regulatory policies for the third way. One need not have any illusions in the Jospins or Lafontaines whose 35 hour weeks and Keynesian public spending programmes are either so full of exceptions or so underfunded that they will never substantially reduce unemployment to recognise that the Blairite recipe means Thatcherism with a "social" spin.

The third way's most universally accepted argument is that globalisation and sharpening competition makes the European social welfare and partnership model untenable. It declares the social democratic dream (a market economy with democratic socialist society) to be a utopia, because capitalism can no longer provide it.

There is of course a large measure of truth to this, with one important qualification. There is an alternative. It is a socialist society based on a socialised (i.e. socially owned and democratically planned) economy. Because the European Communist, Socialist and Labour parties have abandoned the objective of a completely alternative economic and social system they have no answer to the capitalists' own abandonment of the post 1945 social contract with the labour bureaucracy, apart from weak palliative measures to ease the pain or delay it as long as possible.

Marxists should not hope or assume that the monetarist, shareholder value industrialists and their "third way" servants will do the job for us of breaking illusions in social democratic reformism. Thatcher's Britain in the 1980s and its legacy should be a lesson to everyone. Defeat upon defeat, loss upon loss, does not in the end radicalise. Of course the struggle to defend reforms opens the opportunity for a political sea change in the workers' movement. But this change will come on condition that tactics and methods of struggle are adopted which can bring victory in struggles against the employers and their governments, and that a different goal to reforming capitalism is consciously taken up by the most militant layers the vanguard of the working class. That is why it is necessary to build political organisations in every country which openly declare war on reformism and bureaucratism in the labour movement. The crisis of capitalism and reformism makes this not only necessary but possible. Revolutionary political organisation can be built and capitalism can be overthrown.

Unfortunately some tendencies which commit themselves publicly or privately to social revolution believe that as the social democratic governments abandon reformism in practice, an opportunity arises to take up the discarded programmes of yester year and try to recreate left reformist dcctoralist projects and parties. These include: the British Socialist Workers Party, which advances a programme of radical policies disconnected from the fight for working class control and revolution, and its co thinkers in the German social democracy who organise around a programme of left wing reforms; the USFI and the French group Lutte Ouvriere, who are standing on a similarly reformist platform in France for the 1999 European elections; and the CWI, connected to the Socialist Party in Britain, which deliberately eschews all public mention of revolution in order to construct new mass workers' parties with, it hopes, layers of reformist workers appalled at the rightward shift of the real socialdemocratic parties. These groups cannot see the road forward in the EU to a Socialist United Sates of Europe but instead try to find popularity in the declining fragments of the "anti European" movements. In the unlikely event that these projects result in anything other than failure, they can only coalesce into further disastrous misleaderships of the working class in the crises and struggles to come.

Whatever the economic fate of the euro and further measures to create a European imperialist federation, Europe faces either an intensification of class struggle or an intensification of class exploitation and oppression. Defeat will follow for the workers of Europe if they adopt the old Stalinist and "left" Social Democratic strategy of counterposing "their own" national states to a united Europe. Leaving the EU is no solution. "Independent" capitalist states would have to adopt even more savage austerity policies, and their employers even more ruthless downsizing and rationalisation, to compete on the world market. Labour movements which had pledged themselves to unity with their own "patriotic bosses" and severed their links with their European brothers and sisters would be politically and organisationally weakened, indeed disarmed, in the face of these new attacks.

Whether the Euro bourgeoisie's project succeeds or fails, Europe's workers must precede them in building a new Europe wide movement as an indissoluble link in an even wider, truly global chain. Only by concerted cross European actions can the new mega corporations be prevented from slashing wages and working conditions, weakening or abolishing trade union rights and undermining workplace organisation. Only by Europewide action can the EU leaders' plans to erode social welfare provisions be defeated. Only by helping the workers of South Korea, Indonesia, Thailand, and Eastern Europe to establish powerful unions, workplace organisations and their own parties can European workers thwart the plans of the multinationals.

Summed up this means that the exploited and the oppressed of Europe need international organisation at every level: trade union, industrial, women's organisations, youth etc. Above all else, the case for an International party the European section of a new world party of socialist revolution has never been stronger. Today it is only modem Marxism Trotskyism which expresses this historic goal of the working class movement without ambiguity or reservation.

The revolutionary international will grow in respect and authority to the extent that it leads the rebuilding and transformation of the national and international movements of resistence to exploitation and oppression. Such movements can only flourish if, from the outset, they are militantly anti capitalist and anti imperialist, defending all oppressed nations and social groups. And only when they are firmly rooted in the advanced workers of the semi colonial, former "socialist" and imperialist countries will they be able to co ordinate a truly international struggle against global capitalism.

Is this an enormous task? Yes, but one that is vitally necessary for the very survival of workers' gains and organisations, let alone to secure a future free from insecurity, poverty and exploitation. It is a task which begins not with Platonic commitments but concrete actions.

International organisations of the working class must escape the stranglehold of the trade unions, social democratic and the remnants of the Stalinist bureaucracies. These bureaucracies are disqualified from playing a leading role by their chronic small state nationalism which they can shed, if at all, only for a Euro imperialist chauvinism.

Europe's workers cannot restrict themselves to a defensive struggle nor to preserving the existing trade union and political organisations. These have fatal weaknesses that millions of workers know only too well from first hand experience.

What are they? In two words: reformism and bureaucracy. In the coming years, which will be ones of deepening capitalist crisis and mounting resistance, the central task is to rally the fighting forces to a revolutionary action programme.

That is why the League for a Revolutionary Communiust International has published a European Action Programme. We call on all working class organisations to discuss it, adopt it, promote it and join the fight to put into practice. *

* Stop the Euro bosses austerity.
* Defend welfare, pay and working conditions.
* Extend democratic rights.
* Free the Third World from debt slavery.
* A legal limit of the working week to 35 hours with no loss of pay.
* Against employers who say there is no work and attempt to lay off workers we demand the equal sharing of the available hours amongst the workforce with no loss of pay.
* For workers' control over hiring and firing. For legally enforceable protection against dismissal. For permanent contracts and full time employment wherever this is wanted.
* No to job flexibility agreements in return for pay rises.
* Nationalise all firms declaring redundancies or closures. Occupy all plants under workers' control.
* For a sliding scale of wages and legally enforceable EU wide minimum wage set at 10 euros an hour.
* For a system of universal unemployment and welfare benefits, health care free at the point of treatment, and pensions all starting at the level of the best examples in the EU at present.
* No to all anti trade union laws; for the right to strike; to be a member of a trade union: to elect factory committees with recallable delegates; no to compulsory ballots
* For the free movement of workers across the EU. Open the borders. For the unrestricted right to asylum. Down with all immigration controls. Down with the racist, repressive Trevi and Schengen treaties! Down with the Nato treaty and NATO interventions in the Balkans and the Middle East. Recognition and support for those fighting national oppression, genocide and imperialism. Support for the victims of torture; arrest and punishment of their torturers, confiscation of the millions looted by dictators in the service of imperialism
* An end to business secrecy and bureaucratic secrecy open the accounts and the computers of the banks, the businesses, the state and EU bureaucrats to workers' inspection. The workers must make no sacrifices, take no reductions whilst the real profits, dividends salaries and business plans of the bosses remain in the dark
* Down with the unelected European Commission and ECB. For the election of a sovereign European Constituent Assembly from all those countries in the EU and seeking to join it convened and defended by the fighting organisations of the working class. We must fight for a European revolution which sets as its goal:
* The expropriation of the large banks, industries, communications systems and the media, large farms and retail outlets. For their operation acccording to a system of integrated plans at a European, national, regional and local level. All to be democratically decided on by workers and consumers and with workers' management of production and distribution.
* A Socialist United States of Europe fighting for the world revolution.