A Socialist alternative to the European Union

By Alan Woods, In Defense of Marxism, 4 June 1997

A fundamental change is taking place on a world scale. In the midst of a boom, we are witnessing an unprecedented onslaught on living standards in every continent. In the USA, Japan and Europe, the ruling class is attempting to put the clock back, cutting state expenditure, dismantling the welfare state, and destroying all the gains of the past fifty years. This is not an accident. Marxists have explained the reasons many times. In the past period the capitalist system has gone beyond its limits. Now it is compelled to retreat, relinquishing the old Keynesian policies of state intervention and managed capitalism. The same economists who previously saw the state as the source of their salvation now regard it as the source of all their ills. They have belatedly understood what the Marxists pointed out decades ago—that, on a capitalist basis, the policy of deficit financing would eventually lead to an explosion of inflation.

The old discredited Keynesian methods everywhere led to huge deficits in public spending. The capitalists and their governments know that a continuation of such methods would lead to two things: uncontrolled inflation and an explosion of the class struggle. That is why everywhere they are obsessed with the idea of cutting state expenditure. From a capitalist point of view, they have no alternative. At the present time, the economists have the delusion that, by keeping a low rate of growth and controlling inflation they can avoid the normal capitalist economic cycle of booms and slumps. This is a futile dream. At the present time, in most of the advanced capitalist countries, inflation has been relatively low (prices continue to increase, but at a slower pace). This is mainly because demand is being depressed by the pressure on wages. Some prices have actually fallen (though this is the exception): steel prices are falling at a rate of 2 percent a year, and mobile phone prices by an astonishing 20 percent a year. This is only partly due to the cheapening of commodities through the advance of technique and productivity.

The main reason is the absence of demand and the appearance of over capacity in a whole series of sectors. With cuts in living standards, unemployment and stagnant demand, the capitalists cannot increase the prices of their goods as would normally occur in a boom. This is merely another expression of the fact that the present boom is being achieved at the expense of the working class, by means of increased pressure on the nerves and muscles of the worker to squeeze the last ounce of surplus value and so boost productivity and profit margins. Cause becomes effect and vice versa. Because they cannot raise prices to boost profit margins, the bosses are compelled to put even greater pressure on the workers to reduce the costs of production. This merciless pressure on the nerves and muscles of the workers to squeeze the last ounce of surplus value is one of the key features of the present boom on a world scale. In the words of the investment firm J.P. Morgan, There's an explosion of productivity gains going on. (The Economist, 18/1/97.)

However, this is not at all a progressive development. In the past. the capitalist system played a relatively progressive role in developing the means of production in pursuit of profit. As the repositories of surplus value, the capitalists invested in new machinery, constantly revolutionising the productive forces. This was the main way in which they increased the productivity of labour. But now this has changed. They no longer invest in the productive forces to the same degree as they did in the past, preferring to dedicate themselves to the pursuit of easy profits through gambling on the stock exchange, derivatives and all kinds of speculation. The current spate of take-overs has led to an unprecedented acceleration of the concentration of capital and monopolisation, as predicted by Marx, and steadfastly denied by the bourgeois economists. In the majority of cases, these take-overs are not accompanied by new investment but, on the contrary, by massive asset-stripping, closures and sackings. The giant monopolies enrich themselves without the painful necessity of developing production and taking risks. They plunder the state through the swindle of privatisation where public utilities are snapped up at knock-down prices and turned into private monopolies. This madness is not confined to the advanced capitalist countries but has been forcibly extended to the Third World.

Far from abolishing the economic cycle, all these developments will merely give it a more severe and convulsive character. By cutting state expenditure and holding down wages, they simultaneously cut the domestic market, thus creating new contradictions. Each capitalist class seeks a way out by exporting. But this cannot provide a real solution, since all cannot export. Somebody must import! The struggle to conquer even the tiniest market space has assumed an obsessive and feverish character. The big economic powers are scrambling to grab markets in East Asia. But there are not enough of them for all. Moreover, the boom in Asia is already running out of steam, and new Asian producers are themselves beginning to export cheap goods onto world markets. The trade surplus of China with the USA will soon exceed that of Japan.

Despite all the talk about free trade and liberalisation, there is a fierce struggle for markets between all the main capitalist nations. There is a clear tendency for the world to break up into trading blocks, dominated respectively by the USA, Germany and Japan. Each one jealously tries to protect its own markets and spheres of influence, while demanding more access to those of its rivals.

In the period of general capitalist upswing that followed the second world war (from 1948 to 1974 approximately) the rapid growth of world trade and the world division of labour played an important role in stimulating investment and growth. But this is no longer the case. In the recent period, we have seen growths in world trade of 8 and 9 percent, with no noticeable effect on economic growth which remained stuck at miserable levels of 2-3 per cent. This fact alone serves to expose the fundamental difference with the period of upswing. Moreover, in the last two years world trade has again begun to decline, to 4 percent and now to 2.5 percent.

Despite the official optimism, the present boom is very fragile and unstable. The persistence of big deficits everywhere means that they are still worried about the underlying rate of inflation. If the economy were really to take off, they would be faced immediately with a new outbreak of inflation. That is why Alan Greenspan of the US Fed has warned of the possibility of a rise in interest rates in the USA in the coming period as a means of damping down inflation. However, a rise in interest rates would reduce profit margins and could provoke a fall in investment and precipitate a recession. The USA was the first to enter the present boom, and may be the first to go into recession. The boom in the USA has already lasted over six years—quite a long time compared to the post-war average. It will certainly begin to run out of steam in the next one or two years. A downturn in the US will in turn have a big effect in the rest of the world.

This coincides with the most serious economic crisis in Japan since the second world war. The Japanese economy has in effect been in recession for the past five years. Under the pressure of the USA and the EU, who wanted Japan to reflate in order to create markets for their own exports, the Japanese were the only ones to attempt to resort to Keynesian deficit financing to revive the economy. Over the past few years, billions of dollars have been pumped into the Japanese economy by the state. This has had only a marginal effect in boosting growth, but has meant that Japan now has a huge public deficit. In fact, if we include the debts of local administrations, it now has a bigger deficit than Italy. It is by no means certain that the Japanese economy will sustain this growth, and a recession in the USA would have a most serious effect in Japan, which is struggling to carve out spheres of influence in Asia.

As to Europe, the situation is characterised by low rates of growth (around 2 percent), high budget deficits and public indebtedness and unprecedentedly high rates of unemployment for what is supposed to be a boom. All the governments are busy slashing state expenditure. But this will make it impossible either to achieve high rates of growth or reduce unemployment. On the contrary. These policies will only serve to cut the market and deepen the slump, once it comes. At the same time, there has been an enormous increase in social contradictions, a widening of the gap between rich and poor, and the beginnings of a profound change in the consciousness of all classes. We are thus entering into an entirely new period in history, a period far more similar to the period between the two world wars—a period of convulsions and crises. By going back to the classical model of capitalism, the bourgeoisie will make this inevitable. At the end of the day, like conditions will produce like results. The mass strikes and demonstrations in France, Germany, Italy and Belgium in the recent period are a warning of things to come. Every one of the European countries is faced with a crisis in the economic, social and political plane. It is in this context that we must see the question of European unity and the debate over Maastricht and monetary union.

The decline of Europe

The Common Market was established as an attempt by the European bourgeois to overcome the narrow confines of the nation state, with its limited market. Historically the nation state played an essential role in developing capitalism, which served in the first instance to protect and develop the home market. However, with the development of communications, technique, science, multinational companies, and the world market, the productive forces came into conflict with the limitation of national state boundaries as well as private ownership of the means of production. Capitalism and the nation state from being a source of enormous progress became a colossal fetter and impediment to the harmonious development of production. This contradiction reflected itself in the world wars of 1914-18 and 1939-45 and the crisis of the inter-war period.

The development of world trade in the post war period allowed the capitalist system to overcome this contradiction, at any rate partially and for a temporary period. The separate national markets of Britain, France, Germany, and the others, were far too small for the giant monopolies. The Common Market was created in an attempt to overcome this limitation. The big monopolies looked forward to an unrestricted regional market of hundreds of millions, and beyond that to the world market. On the basis of the economic upswing, the European capitalists were largely successful in establishing this glorified customs union, where the abolition of tariffs between the countries of the Common Market and a common tariff with the rest of the world served to develop and stimulate world trade.

In the Communist Manifesto, written in 1847, Marx and Engels showed that capitalism, which first arises in the form of the nation state, inevitably creates a world market. The crushing domination of the world market is, in fact, the most decisive feature of the epoch in which we live. No country, no matter how big and powerful, can escape from the pull of the world market. The total failure of socialism in one country in Russia and China is sufficient proof of this assertion. So is the fact that both the major wars of the 20th century were fought out on a world scale and were wars for world domination.

In a brilliant article written in 1924, Leon Trotsky predicted the decline of Europe. He said that the centre of gravity of world history would pass to the Pacific, and that the Mediterranean Sea (which in Latin signifies centre of the earth) would be relegated to an unimportant lake. In reality, this has already occurred. The decline of Europe, which began one hundred years ago, was enormously accelerated in the two world wars, but particularly in the period after 1945. Europe's decline was accompanied by the irresistible rise of the United States. Europe, and particularly Britain, was the real loser in both world wars, and the USA was the real victor. This merely reflected the real balance of forces. The United States began to flex its muscles as a world power in 1898 with the war with Spain which effectively gave it possession of Cuba. But the most decisive turning points were in the first and second world wars, when US imperialism, having remained on the sidelines long enough to weaken its European rivals, Britain and France, finally threw its weight into the struggle against Germany and emerged as the supreme arbiter of the destinies of Europe.

This is not the first time in history that formerly powerful states were compelled to bow the knee to more powerful neighbours. The Greek city states of Athens and Sparta once played a dominant role, but exhausted themselves through wars, and were finally forced to accept the domination of Macedonia and then Rome. They were too small to continue to play an independent role. After 1945, Europe lay in ashes, weak, divided and bled white by the conflict. By contrast, American industry was intact, and two-thirds of all the world's gold reserves were in Fort Knox. Britain, also severely battered, was still sufficiently strong to occupy for a time the role of second fiddle to the transatlantic giant, with the pound sterling as a reserve currency to the dollar. But in practice, the Lilliputian powers of Europe could not maintain themselves against the might of US imperialism on the one hand and Stalinist Russia on the other. In contrast to the situation after world war one, the threat of revolution and the need to halt the advance of the USSR, forced America to underwrite European capitalism with large amounts of aid and investment under the Marshall Plan. In effect, with the Marshall Plan, Europe was placed on American rations.

This relative weakness was the main factor that led to the setting up of the European Common Market. While the myopic British ruling class clung to its dreams of imperial power, the French and German ruling classes were forced to come to terms with the new situation. Germany, in particular, emerged from the war severely weakened, with the loss of a big part of its territory and the massive destruction of its industries. Another reason for the creation of this European bloc was as a political, diplomatic and economic counterweight against the USA and Japan. On their own, the separate European powers were not able to compete effectively with the economic domination of America and Japan. So here we had a contradictory development—on the one hand, a massive development of world trade and the lowering of tariff barriers, and on the other the emergence of huge trading blocs that act as new barriers to world trade.

The French ruling class, having suffered defeat at the hands of Germany in three wars in the space of less than a hundred years (1870-71, 1914-18 and 1939-45), was obsessed with the idea of avoiding a new war with Germany by tying its neighbour to itself, first with the European Coal and Steel Agreement, then in the EEC. Given the weakness of Germany, they imagined they could become the real leaders of Europe, although things did not turn out as they had planned. Even when Germany rebuilt a powerful industrial base, the French ruling class still imagined it could dominate Europe, arriving at a kind of condominium, in which Germany would have economic supremacy, but France would have the political and military leadership. This is one of the main reasons why France insisted on keeping control of its own nuclear weapons. In practice, however, the Paris-Bonn axis is a fig-leaf that barely conceals the crushing domination of Germany.

The defeats of French imperialism in Indo-China and Algeria forced Paris to accept the loss of its status as an imperial power and dedicate its energies to reinforcing its role in Europe, while developing industry. This was possible on the basis of the post-war economic upswing. The result was the transformation of France from a formerly mainly agricultural and rentier economy into an industrial power, and in the process enormously strengthening the working class. The same process of the whittling away of the peasantry and the growth of the proletariat took place in Italy, Spain and the other European states.

Although the broad analysis made by the Marxists has been proved to be correct, the growth of the Common Market from six countries to fifteen, and the integration of their economies has gone far further than we originally thought. They were able to do this because of the development of world trade, and the general upswing in world capitalism in the period 1948-74, from which they all benefited. While there was economic expansion, they were able temporarily to develop the economy. With an abundance of markets, full employment and a growth rate of 5-6 percent a year, the different capitalist powers of Europe could afford to reach a gentleman's agreement dividing up a growing market among each other with a minimum of fuss. True, De Gaulle vetoed Britain's first application to join the EEC, partly because he was suspicious that Britain would be a Trojan Horse for American interests in Europe, but mainly because France did not want any rival to her pretended position as co-ruler of Europe together with Germany. The short-sighted British ruling class, which had refused to join with Germany and France in the beginning, preferring to aim at an imaginary world role, paid for its stupidity by seeing its power dwindle rapidly to next to nothing while France, Germany and even formerly backward Italy overtook her.

All this was predicated on a high rate of economic growth. This gave rise to a significant development of the productive forces for a time. In this context, the closer integration of the economies of the main European powers was in the interests of all of them. Finally, Britain scraped in, followed by most of the other former members of EFTA (the European Free Trade Agreement) the trading bloc of the weaker European states, put together by Britain as an unsuccessful attempt to counter the EEC. The illusion was created of an irresistible movement in the direction of a united Europe. Nevertheless, the internal contradictions remain and will inevitably emerge in a period of economic downswing. As we have already seen over the past period, the vested national interests of the different European powers have come to the fore. The crisis of the EMS in 1992 indicated the fragile basis of this unity. They are now at loggerheads over which countries should participate in the single currency, the terms and timetable, and which new countries should be allowed to join the EU in the future.

France and Germany

In the first instance, the drawing together of Germany and France and the other countries of the EEC was an attempt to defend themselves against the USA and Russia. In the epoch of the world economy, the European national economies were too small to compete on their own. It was necessary to pool resources and arrive at an agreement to share a common market, first in steel and coal, then in other products. This was a tacit recognition of the fact that under modern conditions, the nation state has turned into a reactionary fetter on the development of the productive forces. It is too narrow to contain the colossal productive potential of modern industry. From any rational point of view the case for European unity is unanswerable. But on a capitalist basis, genuine unity is impossible. As Lenin explained long ago, a capitalist united states of Europe is a reactionary utopia—that is to say, it cannot be achieved, and if it could be achieved, it would not be in the interests of the working people.

As a matter of fact, the only time a united capitalist Europe was achieved was under Hitler. The Nazis succeeded temporarily in uniting continental Europe under German domination. The reactionary nature of such a union requires no further comment. But it must be understood that under capitalism, the antagonism between the different ruling classes is such that any union must necessarily mean the domination of one power over the others. We see the elements of this at the present time. Over a period of decades, Germany succeeded in achieving by economic means what it failed to achieve in two world wars—uniting Europe under the domination of German imperialism. This is the essential thing to grasp about the so-called European Union. Behind the façade of unity, all the old contradictions between the national states continue to exist and in fact are intensifying.

The EU is in fact a nominal customs union for the defence of European capitalism against the USA and Japan. Internally it is a partially free market which works within certain limits, as long as the vital interests of the member states (particularly the key players) are not affected, but in which each one of the ruling classes strives for its own advantage. Under conditions of upswing, they were able to hold together and even achieve greater integration. But under conditions of sluggish growth, stagnant demand and high unemployment as at the moment—and still more in a serious recession—all the national contradictions will be exacerbated, beginning with France and Germany.

The decisive turning-point was the unification of Germany. At a stroke, a new and powerful state of 80 million inhabitants was created, situated in the heart of Europe, with a mighty industrial base and a formidable military potential. Here it is necessary to cut through the fog of official propaganda and diplomatic lies, and lay bare the real relationships. Though German unification was greeted in Paris and London with polite applause and handshakes, it undoubtedly filled the British and French ruling circles with apprehension. Even before this, Germany was clearly the dominant power in Europe, but now the immense potential of a united Germany threatened to overwhelm the others entirely.

It is surprising to what extent the foreign policy of a given state remains constant. This peculiarity arises from the fact that through all the changes of government, the state apparatus with its caste of conservative Mandarins remains intact. The permanent bureaucracy tends to preserve an inertia built up over a long period, generations, maybe centuries. Thus, the main strategic objectives of German foreign policy in Central and Eastern Europe known as the Drang nach Osten (the thrust to the East) has remained basically the same for a hundred years. Not satisfied with its economic domination of Western Europe, German imperialism wants to recover its traditional spheres of influence in Eastern Europe and the Balkans. This is an alarming prospect for the other European capitalists.

The combined economies of Germany, the Czech Republic, Poland and Hungary would constitute a market of 140 million people, with a total GDP of $2.4 trillion to start with. From a socialist point of view, the uniting of these economies would be an entirely rational development, as part of the Socialist United States of Europe. But on a capitalist basis it is a finished recipe for conflict. The combination of German industry, finance and technique with the large pool of skilled cheap labour in Eastern Europe would pose a serious threat to Germany's EU partners. In an article entitled Germany's Big Backyard, the American magazine Business Week (3/2/97) exposes the growing concern of the other European powers at the rise of German influence in the East:

In fact, Central Europe has a distinct German accent. Cautiously, Europe's economic powerhouse has returned to the region it once traversed in tanks. It has leapfrogged Austria and the US to become Central Europe's biggest investor. Joint ventures bridge its borders, more than 6,000 in Hungary alone. Germany is Central Europe's most generous aid donor and its mightiest trading partner, accounting for more than half of the EU's total trade with the 12 eastern countries applying to join the union. ‘Germany is building a region of co-prosperity,’ says James Lister-Cheese, East Europe specialist at Independent Strategy, a London-based economic forecasting firm.

And it continues:

But in reality, Germany is increasingly setting the terms for the continent's future shape. ‘Germany will be more central to the new geography of Europe,’ says Dominique Moïsi, deputy director of the French Institute of International Relations. Privately, some French politicians are concerned that a powerful German bloc within a bigger EU will neutralise France's influence.

Some worry that Germany is substituting economic and political dominance for its former military supremacy. Sir James Goldsmith has made fear of a German-inspired federation of European nations a linchpin of his new Referendum Party campaign in Britain. His rhetoric suggests that if Britain joins monetary union, it would effectively be ceding sovereignty directly to Helmut Kohl, by way of the evil EU bureaucrats in Brussels.

Even if the move towards monetary union is completed, it would not signify any lessening of the tensions between the European states. On the contrary. It would exacerbate them. This fact is well understood by the most intelligent capitalist observers, as the following quote shows:

The real problem is that the D-Mark itself looks overvalued against the non-European currencies, including the dollar. If the franc is overvalued it is because it has been pulled up by the D-Mark, It is hardly likely that in these circumstances the German government would tolerate a major French unilateral devaluation. It found the much more justifiable Italian and British depreciations hard enough to take. If a future French government were to follow the advice of so many English language financial writers and attempt a unilateral devaluation, the damage would not be limited to EMU. There would be a risk of international currency warfare of a kind not seen since the second world war. (Financial Times, 12/9/96)

Fortress Europe

Far from being a step in the direction of free trade, the EU is a regional trading block directed, on the one hand, against the USA and Japan, on the other hand it is an alliance of imperialist powers dedicated to the collective exploitation of the Third World. This neo-colonialist mode of exploitation is no less predatory than the overt plunder of the colonies realised in the past on the basis of direct military rule. In general, the same old colonies in Africa, Asia and the Caribbean are being sucked dry by the same old bloodsuckers. The only difference is that this robbery is effected legally through the mechanism of world trade by which the advanced capitalist countries of Europe exercise a joint domination of the ex-colonies, and are thereby spared the cost of direct rule, while continuing to extract huge surplus profits by exchanging more labour for less.

Europe indeed represents a formidable trading block, despite its relative decline. In fact, with an internal market worth approximately $8.4 trillion, it is actually 20 percent bigger than that of the USA. The main aim of the European capitalists is precisely to club together to try to protect this market against the competition of American and Japanese products. This engenders the wrath of the American capitalists who long ago dubbed the EU Fortress Europe, a description that is not far from the mark. Given the lack of demand in Europe (Business Week recently wrote about a European recovery often indistinguishable from a recession.), exporting to the USA has become an essential lifeline. Given the rising value of the dollar and a falling D-mark, this poses a serious threat to American business interests. On the other hand, a recession in the USA will hit Europe hard, and even send it into a deep crisis. The present already high rates of unemployment will soar, and all the contradictions will be sharpened.

In one famous aside, Henry Kissinger was quoted as saying: When I want to speak to Europe, whom do I call? The formation of the EU makes it possible for the ruling classes of Europe to speak with one voice up to a point (at least in theory). Europe has clashed with Washington over many issues, most recently the Helms-Burton and D'Amato Acts which impose sanctions on non-US companies trading with Cuba, Iran or Libya. The tensions between Europe and the USA have not disappeared, and will inevitably grow in the coming period. For that reason, it is unlikely that the EU will formally break up. The European capitalists will want to hang together, in order not to end up hanging separately.

That said, the contradictions between the European states make it impossible for them even to agree on a common foreign policy. The growing contradictions between the interests of France and Germany are manifested ever more clearly. When Germany needed extra funds to finance the absorption of East Germany, it did not hesitate to raise interest rates without consulting Paris or any of its other partners, although with high rates of unemployment, a rise in interest rates was the last thing France needed. In the field of foreign policy, German intrigues played a big role in encouraging Croatia to declare its independence, thus provoking the break-up of Yugoslavia. This was completely opposed to French foreign policy, but Paris was forced not only to accept it, but to send troops to clear up the mess afterwards, while Germany sat with its arms folded. The main sphere of influence of French imperialism is still in North Africa and the Mediterranean, whereas Germany looks East, and aspires to include its new client states in Eastern Europe in the EU—a move which would be a direct threat to the future of the Common Agricultural Policy, which is vital to French agricultural interests.

In March of this year, they failed to agree on a policy in relation to Albania. Italy and Greece, with the backing of Denmark and France, wanted to send a large European force to Albania. But a majority of countries, led by Britain, Germany and Sweden, opposed it. Eventually, the Italians and Greeks sent troops anyway. But the others stayed well out of it.

The recent visit of President Clinton to London and his well-publicised friendship with Tony Blair and the alleged revival of the special relationship with Britain is also no accident. Washington would like a reliable ally inside the EU, and sees Britain as the most likely—if not the only—applicant for the job. It is precisely this relationship with the USA which traditionally made France suspicious of Britain, which will not prevent them drawing closer as allies against Germany in the next period.

In an attempt to frighten the opponents of EMU into line, Kohl even raised the spectre of a future war in Europe: The policy of European integration, he said, is in reality a question of war and peace in the 21st century. (The Independent 3/2/96). Kohl demagogically appeals to internationalism: We have no desire to return to the nation state of old. It cannot solve the great problems of the 21st century. Nationalism has brought great suffering to our continent. (ibid.) What he means is that Britain, France and all the others should set aside their nationalism and humbly accept the leadership of German capitalism.

However, the others have a somewhat different view! A diametrically opposite view was put forward in a recent book (The Rotten Heart of Europe) written by Bernard Connolly, a senior Brussels bureaucrat in charge of putting EMU into practice who warns that the attempt to move to monetary union can lead to a sharpening of national conflict in Europe and even war. In highly lurid language, Connolly warns: Still the cynicism of the French technocrats, traitors to their own people, and the arrogant, overbearing, menacing zeal of the German federalists, not to mention the grandiose ambitions of Helmut Kohl, remain on collision course. The result of this clash of forces cannot yet be predicted with any precision. But it will be extremely unpleasant for the peoples of Europe. Connolly's apocalyptic turn of phrase is exaggerated, but as a high placed official, there is no doubt that he is saying out loud what others are thinking. In the corridors of power in London and Paris, there is persistent murmuring about the intentions of Germany. The clash of interest exists and will get even more bitter as the contradictions of EMU unfold in practice.

In the last half century, the idea of war has receded in the consciousness of the masses in Europe. Yet a hundred years ago the anarchist Kropotkin pointed out that war is the natural condition of Europe. And historically that was true. Only the peculiar balance of forces that arose from the second world war meant that war—at least war between the major powers—was off the agenda. Nevertheless, we are now entering into a new and troubled period in history. The tensions that now exist between the United States, Japan and Europe in another period would have already led to war. But with the existence of nuclear weapons, and also the horrific array of other barbarous means of destruction—chemical and bacteriological arms—all-out war between the major powers would signify mutual annihilation, or at least a price so terrible as to make war an unattractive proposition, except to ignorant and unbalanced generals.

Nevertheless, the war in Bosnia was a reminder of the kind of nightmare scenario that can occur if the working class fails in its historic mission to change society. Kohl's warnings in that sense have a certain symptomatic significance. In the convulsive period that lies ahead, the European workers will have many opportunities to transform society. But if they fail, at a certain stage there can be a movement in the direction of reaction. It is most unlikely that this could take the form of a classical fascist regime as in the 1920s and 30s. The ruling class burned its fingers badly with Hitler and Mussolini. They will not surrender state power to a fascist madman. But it is quite possible that they will try to move in the direction of a Bonapartist regime—a military police dictatorship like that of Pinochet in Chile. Under modern conditions, such a regime can have a ferocious character. Under conditions of extreme crisis, it cannot even be theoretically excluded that this might lead to war in Europe, although such a development is unlikely. Nevertheless, the fact that the possibility was publicly raised by Kohl and also echoed by Juppé is an indication of a profound change in the situation. Under present-day conditions not war between the European states, but class war in every country of Europe is the prospect that now opens up.

The Scourge of Unemployment

The patrimony of a poor man lies in the strength and dexterity of his hands; and to hinder him from exploiting this.....is a plain violation of this most sacred property. (Adam Smith)

In Greek mythology, there was a character called Procrustes who invited his guests to sleep in a bed which had the peculiarity that it would only admit people who fitted exactly into it, and, in order to ensure that they would, its owner had the unpleasant habit of lopping off arms, legs and heads to achieve the required dimensions. The capitalist system in the present epoch is just like the bed of Procrustes. The amazing development of the productive forces made possible by the advances of industry, science and technology since the second world war has built up a colossal productive capacity. This cannot be absorbed by the existing markets. Everywhere there is too much capacity—too much steel, too many cars, too many microchips, too much food even. So why invest in creating new capacity? On the contrary. It is necessary to cut back, to close down, to cease production, even to pay people not to produce. Factories are closed down as if they were matchboxes; millions are put out of work; whole communities are laid waste. Just like the bed of Procrustes.

The original European common market was for coal and steel. The coal industry has been decimated in one country after another. Now it is the turn of steel. In 1984 there were 450,000 jobs in the European steel industry. Now there are only 250,000, and this will have to be reduced still further. There is said to be over capacity in steel. Yet steel still remains essential for building and a whole series of productive activities. From the point of view of the needs of society, there can be no question of an excess of steel. We definitely need more of it. But from the narrow standpoint of capitalist production for profit, there is definitely too much steel, and too much of many other things. This is the logic of the madhouse, but it is precisely the logic upon which the capitalist EU works, and for that very reason, it can never work in the interests of the working class.

The crisis of European capitalism is reflected in the return of organic unemployment. Despite the recovery, over 18 million are officially unemployed in the EU, although the real figure is in the region of 30 million. Germany has the highest levels of unemployment since Hitler came to power. French unemployment is over 3 million. The wave of insecurity affects not only the workers but also the middle class, and even layers of management:

Insecurity is sweeping through European middle-income households, writes the Wall Street Journal, as jobs become harder to keep and even harder to find....As companies flatten their organisational charts, employers are discarding entire strata of middle-income jobs. Manufacturers are relocating more production abroad to compete in a global market full of more cheaper, more flexible rivals. Public service jobs are disappearing as governments try to trim bloated deficits and state-owned firms prepare for privatisation and new competitive challenges. Entire companies are restructuring through mergers, leaving tens of thousands of redundant workers in their wake. Age discrimination is narrowing options for millions of workers with more and more job seekers over 40 being shunted aside. (Wall Street Journal, 19/6/96).

At this moment in time, there are officially 18 million unemployed in the EU. In fact, this figure is wrong. In practice the official figures of jobless grossly understate the real position. The real figure will be at least double the official estimate. And we must bear in mind that this level of unemployment exists during a boom. In the USA, which boasts its success in the field of employment, between 1990 and 1995, the largest firms actually destroyed four million jobs (one quarter of the total). These have largely been replaced by part-time jobs, mostly poorly paid, in the service sector (Mac Jobs). In order to make ends meet, many US workers have to take two or three jobs, working long hours at terrible cost to their health and family life. There is enormous anxiety, stress and job insecurity at all levels.

In the last six years, Germany, France and Britain destroyed 16-17 percent of all manufacturing jobs. Some industries have been completely decimated. For example, in 1979, the German textile and leather industry employed 550,000 workers. By 1994 that had dropped to 180,000. In France, in 1982 the defence industry employed 270,000 workers. That fell to 90,000 in 1993, with another 25,000 to 50,000 further redundancies to go. (The Economist, 23/1/96.)

Permanent mass unemployment now affects all the countries of the EU. Moreover, more than 40% of the unemployed have been out of work for more than a year. It is like a terrible epidemic, and like all epidemics, it strikes at virtually all layers of society. Even white collar, skilled and professional strata that in the past thought themselves immune, have been struck down. The same WSJ article quotes Wyn Nystrom, head of the Brussels office of PCM Europe: Cradle-to-grave employment security if history—it's gone. Uncertainty has replaced the age of entitlement. Two-thirds of today's middle management tasks in Europe will disappear.

A man or woman over 40 years old who loses a job knows that he or she is unlikely to get a proper job again. But the most devastating effects of joblessness are suffered by the youth, with all the social side-effects of drug-addiction, vandalism and crime. In Spain, almost half the under 24s are unemployed. In Italy and France, the proportion is more than one in four.

Chancellor Kohl promised to halve Germany's unemployment by the year 2000. The Swedish Social Democratic government said the same. Chirac was elected on a promise to cut French unemployment, and Aznar in Spain promised that 1997 would be a year for jobs. Commenting on this, the Economist writes:

So far this whirlwind of promises has reaped virtually nothing. More than 18 million people in the European Union are looking for work. Germany's unemployment stands at 4.5 million, even though its large firms are recovering. French unemployment is over 3 m. The record is dreadful: each recovery has failed to regain the ground lost to unemployment in the previous recession. (My emphasis, AW.)

Despite the promises of Goran Persson, Swedish unemployment, if you include those on retraining schemes and the like, now stands at 13.3%. Ireland, which is now being presented as a great economic success story and even as a European tiger, has officially 11.7% unemployed. Even Holland, where unemployment is officially only 6.2%, this figure does not tell the whole story, since actual employment is calculated to be only 62% of the economically active population, which means that many people have dropped out of the workforce altogether. In Britain, 1 in 4 have experienced periods of unemployment since 1992. This situation, linked to very slow rates of growth, has resulted in massive debt problems and huge budget deficits.

By what means do the European capitalists propose to reduce unemployment? By slashing social benefits and unemployment pay to force the jobless to accept low-paid employment; by removing all restrictions on sacking workers (greater labour flexibility); by promoting part-time jobs with no protection and low wages, at the expense of real jobs. In Spain, some 30% now work in such jobs, including many young people who have been forced to take them for lack of an alternative since the 1980s. Lacking all protection, these will be the first ones to be laid off when demand slackens.

The tough Maastricht economic criteria was a recognition that if Europe continues with its present ever-growing deficits and public debt, there will be an explosion of inflation. Already public debt in Italy is over 125% of the GDP; in Belgium it is 130% of GDP; in Germany and Britain it is more than 60% of GDP. Given the slow growth rates, these debts are continuing to build up. If the European capitalists had managed to reach growth rates of 6-8% p.a., then they could have sustained their levels of state spending. But the near-recession growth figures in Europe, despite the recovery, has forced the bourgeois to adopt deflationary measures. Huge cuts are on the order of the day as each European power grapples with its budget. In reality they are trapped. If they cut state expenditure and the living standards of the working class then they cut the market, which in turn reduces growth and prepares the way for a devastating slump, possibly another 1929. They are facing an insoluble dilemma.

That is the meaning of the capitalist crisis, which the left reformists are unable to understand. They hanker after Keynesianism, of boosting public expenditure, which the capitalist system can't afford and which would lead to chronic inflation. The only option for the capitalists is to carry through cuts in living standards and the welfare state. In the coming downswing, the EU powers will find themselves enmeshed in hopeless contradictions, each one attempting to find a solution at the expense of the other. The EU will be paralysed by crisis.

Why Maastricht?

In the pages of Capital, Marx already explained that through credit capitalism goes beyond its natural limits, expanding the market in the short term, only at the cost of undermining it at a later date. In the last boom in the period 1982-90, they used credit and public spending to avoid a recession. From a capitalist point of view, this was really irresponsible. The classical policy of Keynes was to use pump-priming to get out of a recession. To use such measures during a boom was quite unprecedented and showed just how afraid they were of the political and social consequences of a recession. In the event, they merely succeeded in postponing the recession for two years, while making it deeper and more prolonged. Now they cannot have recourse to those methods. On the contrary. The resulting levels of indebtedness—public, private and corporate—are still causing them problems at the present time. That is why they have cat aside the mask of liberalism to reveal the real cold, rapacious mask of capitalism, under the banner of sound finance and balanced budgets, which is the battle cry of Maastricht.

In their desperation to find a way out of the crisis, the bourgeois economists swing all over the place, supporting first one policy, then another. They understand nothing and foresee nothing. In the late 1980s, they thought that the boom would go on indefinitely. They did not predict the recession in 1990, or the subsequent recovery. Having embraced Keynesianism in the period of the upswing, they became fervent advocates of monetarism in the 1980s. But in practice, monetarism has already shown itself to be bankrupt. The Economist pointed out recently that those governments that were most enthusiastic about monetarist policies in the 1980s (Japan, Finland, Switzerland) all ended up with the biggest mess subsequently. The same thing will happen with Maastricht. They are cutting the market so severely that they can end up in a deep slump, without having experienced a proper boom.

The Maastricht treaty is not about European unity, but merely an excuse for carrying out an attack on living standards and cut public spending. The same policy is being carried out by all the other capitalist governments, including the United States, which is, as far as we know, not contemplating adherence to EMU. The real reason is the burning need to reduce the very high public debt which is absorbing a disproportionate amount of the wealth of society and has become a monstrous ulcer gnawing at the bowels of the system. The public debt of Italy amounts to no less than 120 percent of the Italian Gross Domestic Product (GDP), and that of Belgium equals 130 percent of its GDP. These figures have no precedent in peacetime. They cannot be sustained. The interest repayments on these debts swallow up a great part of the national budget. Without these repayments, most of these countries would have a budget surplus. This fact alone shows the enormous increase in waste and parasitism which are inseparable from modern capitalism.

These figures explain the policy of ruthlessly cutting down on state expenditure being pursued by all governments. It is not the product of malice or caprice, as some people imagine, but flows from the contradictions of the capitalist system itself. The capitalists find themselves trapped between the devil and the deep blue sea. On the one hand, if they permit the deficits to continue, they will be faced with the danger of uncontrollable inflation in the future. On the other hand, the policy of cutting state expenditure will cut the market and deepen the crisis. Despite this, they have decided to gamble everything on a policy of cuts. This world-wide phenomenon is what lies behind Maastricht. The capitalist system has gone beyond its limits and is now compelled to cut back, on pain of extinction. Whoever fails to understand this fact will never grasp the true significance of Maastricht or work out a real alternative to it.

When Maastricht was unveiled in 1992, all the European governments and economists were euphoric. We said at the time that Maastricht was a dead duck, that it could not work. How has that prediction worked out in practice?

The problem is that the European capitalists are attempting to move towards union at a time when the general economic conditions are pointing in the opposite direction. If they could obtain a rate of growth of 5 or 6 percent, as they did during the period of upswing, then they could bring about monetary union without too much trouble. But with growth rates of 3 -2 percent or less, this is impossible. What lies behind the pleas for flexibility is the defence of the national interests of each state. If they agree on a common currency, they will disagree on everything that flows from it. Quite apart from this, there are a thousand and one other points of conflict—cross-border travel, passports, immigration, and so on.

All this means that a Federal European state on a capitalist basis is ruled out. Especially in conditions of world economic crisis, which is inevitable in the next two years or so, all the contradictions will come to the fore. It is unlikely that the EU will break up completely because of the need to defend their markets against the USA and Japan. They have to hang together or hang separately. But the movement towards European union will founder in a sea of national conflicts and bickering. The European bourgeois will have to content themselves with a series of bilateral agreements and shifting alliances, with Germany looking ever more to the East, and France moving closer to Britain and the weaker European states in an attempt to balance the growing power of Germany. Such a situation will be very unstable and pregnant with all kinds of explosions.

This is what the bourgeois economists do not take into account. To them this is just like a mathematical problem or a game of chess. They are removed from the realities of life, and especially the class struggle. Already there have been strikes and general strikes in one country after another. This marks the beginning of the reawakening of the European working class. That is the most important thing to see.

The policy of cuts has already begun. By the end of 1997, France will have nearly halved its budget deficit as a percentage of GDP in the space of three years. Italy will have reduced it by no less than two thirds over a period of four years. In Sweden, that former bastion of the welfare state, the budget deficit was 12 percent of GDP only three years ago, but is now down to three percent. From the standpoint of the capitalist system, this represents progress, but for the mass of the population, it means a vicious onslaught on living standards and the conditions of life. The social consequences of this are now being recognised by all but the most obtuse sections of the bourgeoisie: or now, writes The Economist, those efforts have helped to create a grim landscape of slow growth, weak profits, and social anxiety. (The Economist, 18/1/97, my emphasis.)

The strict application of the Maastricht terms would force the workers to accept wage cuts or job losses or both. It would be the end of the kind of welfare state to which the last two generations have become accustomed in Germany, France and Italy. It would signify the destruction of those elements of a semi-civilised existence which have been conquered by the labour and trade union movement over the last four or five decades, and the return of all the old nightmares of poverty and insecurity. But this policy does not flow exclusively from the logic of European monetary union, as the Eurosceptics would have us believe. In fact, it has already been applied in Britain—despite public show of hostility towards Maastricht of the main political parties in the UK.

The German, French and Belgium workers take one look at the conditions across the Channel and say Not for us! But, using Maastricht as an excuse, the European bosses are attempting to put the clock back to what appears from their class point of view to be a golden age of sound money and balanced budgets—before the first world war! From a capitalist standpoint, this is a logical position. Or rather, to quote from Shakespeare's Hamlet, Though this be madness, yet there's method in it! The effect of such a policy will be to exacerbate all the contradictions and provoke an explosion of class struggle in one country after another. In effect this has already begun, as shown by the strikes and demonstrations in France, Germany, Italy and Belgium in the last two years. This is only the beginning.

France

The electoral debacle of the French Right shocked the international bourgeoisie. They did not expect it, and least of all the scale of the Left's victory, which transformed the biggest right-wing majority in the National Assembly for 150 years into a big majority for the Socialists and Communists. This result—together with the massacre of the Tories in the British general election—is a clear sign of the enormous volatility that exists in society, characterised by violent swings of public opinion from left to right and back again. It opens up a new and stormy period in the history of France, which Marx said was the country in which the class struggle is always fought to the finish.

Under the strain of attempting to keep up with Germany, French capitalism is beginning to break down. In reality, France is far weaker than Germany. It does not have the same industrial base. Growth is miserably slow—a mere 1.3% in 1996, and unemployment is around 13%. Yet a cut in interest rates to assist economic growth is ruled out by the need to keep the franc in line with the D-mark. The policy of the franc fort (the strong franc) has aggravated the already severe problems of French industry and deepened the recession. This is exactly what the policy of Maastricht means! The public sector deficit was estimated at 4 percent of GDP at the end of 1996. The 1997 budget includes tax cuts in an attempt to encourage growth, but at the same time a freeze in public spending. On this basis, the reduction of the deficit will be minimal, yet Chirac insists he will meet the 3 percent Maastricht target. How? By taking into account the receipts from the sale of France Télécom. But this trick does not change the underlying position, since it is a one-off gain, whereas the deficit is permanent and structural. On the other hand, the freezing of public spending represents a cut in real terms, something unknown in France in recent years.

The swing to the left on the electoral plane was prepared by a wave of industrial disputes. During the one-day strike by five million public sector workers protesting against a proposed pay freeze, a clear majority of French public opinion backed them. The European (12/10/95) pointed out that an opinion poll in the daily newspaper Le Parisien showed that 57 per cent of French people were in favour of the strike action and only 26 per cent were opposed. This shows the beginnings of a change of mood in French society. The same phenomenon could be seen one year later in the magnificent strike movement of December 1996 The lorry drivers' strike was an astonishing movement which revealed the colossal power that lies in the hands of the workers. This group alone was able to paralyse the French economy (and even the rest of Europe) and bring the government to its knees. Although not traditionally among the most advanced layers of the class, the lorry drivers showed great spirit, militancy and determination, and won their main demands. What is more important, three quarters of the public supported them , despite the inconvenience caused by the strike. Likewise, most of the foreign drivers expressed sympathy and solidarity with their French brothers, although the strike was hurting them.

As a result of the movement from below, there is the beginnings of a change in the unions. Force Ouvrière was formed as a right wing breakaway from the Communist CGT and was virtually a company union. But pressure from below pushed it into a militant position, actually to the left of the CFDT and CGT in the public sector strikes of December 1995. By contrast the CFDT, which had been on the left since 1968, had gone to the right. But this in turn provoked a big left wing opposition in the ranks of the CFDT, which has become organised as the Tous Ensemble (All Together) group. This shows the beginning of a process of internal differentiation which will take place in all the trade unions in the period that now opens up. The polarisation to the left and right in society will sooner or later find its expression in the ranks of the labour organisations.

Chirac decided to call an early general election, despite having a huge majority in parliament (464 seats out of 577 in the National Assembly), in the hope of securing a further five years in power, in order to push through the unpopular austerity policies that flow from this. Despite the explosive conclusions which will flow from this, the French ruling class is desperate to retain their position as the second in command in Europe, scrambling to keep up with its more powerful neighbour, while sweating and cursing under its breath. But despite the outward show of unity, the whole process is fraught with contradictions. It is increasingly doubtful that France will be able to join EMU at all. Relations with Germany are strained, despite all the talk of a Paris-Bonn Axis. One German official was recently quoted as saying during the French election campaign: If the momentum shows itself to be strongly against reform policies (i.e. more cuts, AW), we have to ask which way the French government will go. (Business Week, 5/5/97.)

The swift recovery of the Socialists stunned both the ruling parties and the foreign experts who had been complaining that Chirac had not been sufficiently zealous in cutting living standards in the pursuit of the Holy Grail of Maastricht. In reality, this was an entirely predictable development. However, Chirac did not really have any other option, since, if he had waited another year the situation would have been even worse. The French election, perhaps even more than the British, revealed the highly volatile mood that now exists in society, particularly the middle class, characterised by violent swings to the left and right and back again. As Lenin explained long ago, this is one of the symptoms of a profound crisis of society. Already sections of the French ruling class are talking about revolution, like the Gaullist former interior minister, Charles Pasqua, who in November last year, harking back to 1788 said We are on the eve of a revolt.

Germany

In an attempt to reduce Germany's public sector deficit from 4 percent to 2.5 percent (an even lower level than the 3 percent required by Maastricht), Kohl proposed a programme of spending cuts of DM 70 billion (£30 billion), including a 2.5 percent cut in federal spending, in addition to other reductions at regional level. Among the measures proposed were a freeze in unemployment benefit, cuts in assistance with medical charges and reductions in pensions entitlement. There were also long-term proposals to increase the retirement age of women from 60 to 65. As if this was not enough, a series of changes in Germany's employment laws were proposed, with the aim of reducing the employers costs and giving them greater freedom to sack workers, and also to reduce the level of sick pay from 100 percent of normal earnings to 80 percent.

The bourgeois governments always commit the error of confusing the working class with the leading strata of the trade unions and labour movement. When Kohl announced his programme of cuts, the German union leaders responded by calling a mass national demonstration. This was in fact the biggest demonstration since before Hitler, with 350,000 converging on Bonn on the 15th June 1996. But, typically, the leaders tried to water it down by giving it the innocuous air of a carnival with beer, sausages and balloons. The representatives of the capitalists could not restrain their jubilation. They had a good laugh, and carried on with their cuts. This is absolutely typical of the conduct of the trade union leaders internationally. Even when they are compelled by pressure from below to call a demonstration, they do everything in their power to limit it, to turn it into an empty gesture and a means of blowing off steam. As always, weakness invites aggression. Such behaviour (which for some inexplicable reason they regard as realism) merely emboldens the employers to carry out further attacks.

However, they completely misjudged the situation and the real mood on the shop floor. In reality, the realistic union leaders were out of touch. Even the shop stewards did not faithfully reflect the mood of anger and bitterness which had slowly accumulated in the class. This was revealed in the spontaneous wave of unofficial strikes which greeted this attempt to reduce sick pay from 100 to 80 percent of normal earnings, an important conquest of the German working class. Kohl's announcement was met by an explosion on the shop floor which left both the employers and the union leaders with their mouths open. The spark was ignited by the workers of Mercedes Benz, when the management announced in early October their intention to carry this cut into action, thus tearing up the collective agreement with the workforce. There were immediate walkouts, and Mercedes Benz was compelled to back down. There were mass demonstrations of steelworkers in the south west and North Rhine Westphalia. The most interesting thing to note here is the fact that up till now there was no tradition among the German workers of unofficial strikes. But that is changing rapidly. The mood of the workers was shown by the comments of a Mercedes shop steward from the Stuttgart plant, Tom Adler:

The pressure came from below. The morning after the management board decision to introduce the 80 percent, the morning shift went out on strike, It was a spontaneous movement not organised by the IG Metall nor by the local shop stewards committee. The late shift and the night shift also walked out spontaneously. the rallies outside the factory gate were well attended and expressed massive rage on the part of the workers, something I have never seen before with my fellow workers. This was a situation in which nearly anything would have been possible. The events in these days have demonstrated one thing: consciousness can develop in enormous leaps. Many workers have understood that something must happen. Many who were passive and reluctant only a day before joined the strike. (Socialist Appeal November 1996)

The Mercedes workers succeeded in forcing the bosses to back off, but the latter will inevitably regroup and launch another attack later on. They have no alternative but to attempt to destroy all the gains won by the workers in the past 50 years. This is the beginning of an entirely new period in the German labour movement. Overnight, the old policies of class collaboration and workers' participation (Mittbestimmung) have been discarded by the ruling class. The workers have shown that they are prepared to take up the challenge.

Now Kohl announces that I have never nailed myself to the cross of 3%. The desperate exertions of Kohl to push through monetary union at all costs have provoked an open split between his government and the mighty Bundesbank. In a transparent manoeuvre to reach the 3% target by a bit of creative accounting, he has demanded that the Bundesbank revalue the state's gold reserves, thereby releasing a large amount of funds and reducing the deficit as by the wave of a magic wand. Unfortunately, the Bundesbank does not like such sleight of hand. Apart from any other considerations, such a blatant trick would make it difficult to argue for the exclusion of Italy, Spain and the other weaker states from membership of the exclusive EMU club on the grounds that they had resorted to trickery to fix their deficits when Bonn was doing just the same. No! The name of the game is not conjuring tricks, but an all-out assault on public spending and living standards, and the Bundesbank will accept nothing less!

Italy

There is a dire crisis in Italy, which despite all the boasts of the past period, remains a relatively weak economy (at least compared to Germany and France). The economy grew by only 0.7% in 1996, and many Italian businessmen fear a recession. Domestic demand is weak, and investment very low. Unemployment is over 12%. Between January and August 1996, big manufacturers and heavy industry shed 2.4% of their workers. The public debt stands at 123% of GDP—the second highest in the EU (after Belgium). After decades of unstable coalition governments of the centre-right, the Italian ruling class is now trying to lean on the centre-left Olive-tree coalition of Romano Prodi to carry out a policy of cuts, hiding behind the banner of Europe.

Having been unceremoniously ejected from the European Exchange Mechanism along with the pound sterling in September 1992, the lira re-entered it in November 1996. In fact, the devaluation of the lira in 1992 benefited Italian (and British) exports, much to the disgust of France. But from the outset, the spokesman of the Bundesbank, Hans Tietmayer, made it plain that, although Italy had rejoined the ERM, its admittance to the European single currency was by no means assured. When the Maastricht agreement was signed, Germany insisted that stringent conditions be attached which would ensure that the new currency would be a strong one. This meant that all applicants should have low inflation, low long-term interest rates, stable exchange rates and low public sector deficits and debts. That was meant to mean Germany, France, Benelux, Austria and maybe Ireland. (Even that would have meant accepting flexible criteria on debt for Belgium and Ireland). Italy was not supposed to enter into it. Therefore, the Germans in particular have been insisting on the most rigorous conditions before accepting Italy (or Spain).

Paradoxically, by rejoining ERM, the Italian bourgeoisie has thrown away a big advantage. The devaluation of the lira, as we have seen, gave a big impulse to Italian exports, especially in the North-east of the country, which has been flooding European markets. This competitive advantage will now be lost. Instead, the Italian market itself will be squeezed by cuts, while the external market will be reduced by the rise in the lira. In a vain attempt to keep up with the French and Germans, the Prodi government has clamped down hard, using the excuse of Maastricht to push through a vicious policy of cuts. As the Economist cynically put it: The Maastricht criteria are important, but they require a slashing of the welfare state. Mr. Ciampi promptly answered: ‘I promise we will’. The 1997 budget represented a cut of 62 trillion lire—this on top of a cut of 16 trillion lire in the mini-budget of 1996, and a so-called tax for Europe, and yet another mini-budget just before Easter to find a further 15 trillion lire in order to fulfil the Maastricht terms. This constant belt-tightening will not succeed in bringing Italy up to the level required to participate in the first wave of EMU, but will provoke a social explosion at a certain stage, as we saw in France.

Britain's position

In the past Britain was the workshop of the world, leading the way in industrialisation. But history plays strange tricks. Now, in the period of capitalist decay, Britain leads the way in pursuing the most retrograde policies in all spheres. Under Thatcher, a quarter of Britain's manufacturing industries were destroyed and replaced by the most parasitic sector of services, banking and insurance. Britain has partially become transformed into a parasitic rentier state, An unimportant island off the coast of Europe and a satellite of US imperialism, a humiliating dependence which they attempt to disguise with foolish talk of a non-existent special relationship. In reality, Washington attaches much more importance to its links with Bonn than with London, although it occasionally uses Britain as its catspaw to defend its interests in Europe when necessary.

Like the bullfrog in Aesop's fable, the British capitalists are puffing themselves up, bragging about their alleged successes on the economic front. This is a blatant lie. Under the Conservative government, Britain's industrial base was partially destroyed. It has been turned into a low wage, low skilled, backward economy, although all history shows that an economy based upon low wages can never prevail against an economy based on high wages, high productivity and modern machinery. The utterly reactionary British ruling class is attempting to turn the British workers into the coolies of Europe. They have systematically dismantled the welfare state and pushed down the living standards especially of the poorest sections of society. In some respects, they are fast going back to Dickensian conditions of wages, hours and conditions and the brutal treatment of the unemployed, sick and homeless. This is seen as an attractive model by many of the European bosses, who, however, are fearful of the social consequences of such a policy. For their part, the new breed of upstart middle-class Tory leaders, ignorant and rapacious, are blind to the consequences of their actions which are piling contradiction upon contradiction, preparing a social explosion in the next period.

The real balance of forces, however, was starkly revealed when the Bundesbank unceremoniously ejected the pound sterling and the lira from the ERM and forced Britain and Italy to devalue in 1992. By this means the Bundesbank showed who was boss! However, a section of the most reactionary and obtuse elements of the British ruling class resents the idea of bowing to the might of German capitalism in Europe. They suffer from delusions of grandeur about Britain's role in Europe and the world. This section, represented by the so-called Eurosceptic wing of the Conservative Party cannot reconcile itself to the loss of Britain's former power and influence. They long for a return to past imperial glories, and are blind to the fact that this power was based on Britain's monopoly of industrial muscle, which is now non-existent. The wish to become independent of Europe merely disguises the reality of Britain's dependence on the United States.

However, the fact remains that , having lost both its industrial base and its colonies, Britain is now completely dependent on the European market. The idea of withdrawal is completely utopian. It would be an even bigger disaster for British capitalism. This is understood by the decisive sector of the big monopolies which still dominates the Tory Party leadership and is resisting the pressures of the Eurosceptic wing.

This split in the Tory Party is the most serious split for 150 years. The industrial wing of the British capitalist class (and part of finance capital with connections in Europe) understands that there is no future for Britain outside Europe at the present time. The old markets in the former colonies have largely disappeared, taken over by the Americans and Japanese. Such is the collapse of Britain's manufacturing base, that a large part of industry is now in foreign hands. The Tories are proud of this fact, which in reality flows from two things—coolie wages and Britain's access to the European market.

Countries like South Korea and Japan want to use Britain as a launching pad to get their products into Europe, thus circumventing the EU's tariff barriers. In fact, there is an acrimonious dispute with the European Commission as to what extent Japanese and Korean cars made in Britain can be considered British at all. Clearly, if Britain were to leave the EU, or refuse to join EMU, at least part of this capital would be lost. Most of Britain's exports go to the EU, including 60 percent of its industrial goods. Britain sells more goods in Germany than it does to the USA; more in Holland than in the six Asian tigers plus China and the Philippines together; more in Sweden than in all Latin America; more in Ireland than in Canada, Australia, New Zealand and South Africa combined.

It is true that, given the frightful decline of its industrial base, the future for British capitalism inside the EU is bleak. But neither is there a future outside it. To pull out now would be a disaster, causing a severe economic recession, aggravating all the social contradictions and even putting into question the unity of the UK itself as a result of the effects in Scotland, Wales and Northern Ireland. While it cannot be altogether ruled out that this could happen under conditions of, say, a deep slump, it is more likely that they will hang together, for fear of hanging separately. The main reason is always the same—that none of the European states is really viable in the context of the present world economy. In order to protect themselves against competition from America and Japan, they are condemned to stick together in an uncomfortable union. But this is very far from the ideal of a Federal Europe envisaged by the founders of the Union.

The smaller states

Up to the present time, Germany has underwritten the EU at considerable cost to its exchequer. The poorer states (Greece, Spain, Portugal, to some extent Italy and Ireland) have benefited from this arrangement. That explains their enthusiasm for the European ideal. But now that situation is going to change. The unification of Germany has had a contradictory effect. On the one hand, it has strengthened German imperialism, creating a mighty state in the centre of Europe. But on the other hand, it has also undermined Germany, placing a tremendous strain on her finances. The decision, in effect, to buy up East Germany by offering its people a massive bribe in the form of a one to one exchange for Ostmarks proved extremely expensive. In addition, the cost of integrating the economy of the East, modernising the infrastructure etc. has represented a serious drain even on the huge resources of Germany.

Despite all this expenditure, the problems of the East have not been solved. There is mass unemployment and growing resentment at the treatment of East Germans as second-class citizens. It is almost like a colony, or, even more, like the Italian Mezzogiorno. In the initial stages, the expenditure on sewers, roads and telephones gave rise to a construction boom which concealed the real state of affairs. But now this has ended. There is high unemployment in both East and West. For the first time since Hitler, there are 4.5 million unemployed in Germany. The German capitalists are also faced with the need to cut state expenditure. This means that they cannot affords to be so generous with their contributions to the EU budget. In future they will make sure that their contributions are tied to their own interests. This is already the case in Greece, where the EU money for construction projects is tied to contracts for German firms.

The labour movement

The growing social polarisation will have a profound effect in the working class. A gulf will open up between the classes. Over a period, the consciousness of working people will be transformed. All the old illusions will be destroyed, preparing for an enormous swing to the left. At a certain stage. this will be reflected inside the mass organisations of the working class. In the last period, the leaders of the workers' parties and the unions have gone far to the right. They do not understand the depth of the crisis of capitalism, and have no perspective or alternative. The right wing leaders, as always, are merely a pale echo of the opinions of the ruling class. They are virtually indistinguishable from the left bourgeois politicians. In the period of capitalist upswing, they could at least offer the prospect of minor reforms, but now they cannot even do this. Their programme is fundamentally the same as the capitalist parties—more of the same, cuts, austerity, falling living standards. Thus we see the complete bankruptcy of reformism.

However, the left wing of reformism has no real alternative either. They also do not understand the real nature of the crisis, and cannot answer the arguments of the right wing who at least are consistent. If you accept the existence of capitalism, then you must accept its laws also. The Lefts do not advocate the abolition of capitalism, but talk in confused terms about a mixed economy, with some nationalisation, more public spending and more reforms. In the present period, this is a dream. The old Keynesian model has collapsed everywhere and cannot be revived. Any attempt to carry out a half-and-half policy would cause an explosion of inflation, a collapse of investment and the currency and a worse situation than before. No-one takes such ideas seriously any more. It is doubtful if even many of the left reformists really believe them, which is the main reason why they have been defeated by the right wing everywhere, although this situation will change in the next period.

It is ironic that, just when the market is being discredited everywhere, the reformist leaders are rushing to embrace it. They are in for a big surprise. Particularly in the event of a new recession, which is inevitable in the next few years, these organisations will be shaken from top to bottom, starting with the trade unions. The present leaders of the unions, like their political counterparts, have moved far to the right, reflecting the pressures of capitalism. Nicole Notat in France, Antonio Gutierrez in Spain, John Monks in Britain and Hubertus Schmoldt in Germany are typical representatives of this new breed of trade union leaders who are anxious to show their ‘statesmanlike’ qualities by surrendering all the gains of the past and striving for a consensus with capital, precisely when the objective basis for such a consensus has ceased to exist. Far from being the great realists which they imagine themselves to be, they are the worst kind of utopians. They are trying to base themselves on a capitalism that no longer exists. They are looking backwards, not forwards. Moreover, their so-called practical policies have the opposite result to that intended. Weakness invites aggression. For every step back they take, the bosses demand two more. They are not even capable of fulfilling the most elementary duty of a trade union leader—to defend existing levels of wages and conditions. However, the employers' offensive is preparing a backlash which will also prepare the ground for the radical transformation of the unions in one country after another. The right wing leaders will either be compelled to lead the struggle, or else be pushed aside to make way for others who are prepared to do so.

The future is already clear in outline from the events in France. Following the big strikes in late 1995, there has been a ferment of discontent in the CFDT. In Italy, Cofferati advocates a compromise with Dini on the pensions issue. the leaders of the Spanish CCOO and UGT sign a deal with the right wing PP government for the flexibilization of labour—that is, giving a green light to the bosses to sack workers. This at a time when the official unemployment rate in Spain is 23 percent. The German trade union leaders also expressed their willingness to collaborate with the cuts proposed by the Kohl government, before the wave of strikes and protests from below. This is typical of the conduct of the union leaders internationally. All of them now accept the need for a reform of the welfare state—that is, cuts.

Will EMU succeed?

The road to EMU is fraught with difficulties. Indeed, five years ago, we thought it was unlikely to succeed. The truth is that the original Maastricht terms are as dead as a dodo, although they cannot admit it. They can only proceed on the basis of all kinds of tricks, fudging and creative accountancy. The deadline has already been postponed from 1997 to 1999, and in effect the full implementation will not take place until 2004. Many things can occur between then and now. A recession would undoubtedly exacerbate all the contradictions and probably scupper the whole business. Even at present, the opposition to Maastricht is growing even in Germany.

In an article which recently appeared in the Süddeutsher Zeitung, entitled A Euro for All, we see a reflection of this mood:

The closer we move toward the date for a decision, the more doubts there are about whether it should be taken seriously at all. The doubts are being unintentionally sown by the chancellor and his foreign and finance ministers, because they keep on contradicting each other. On the one hand, they stress that they want to ensure that the conditions are satisfied without any ifs and buts and then simultaneously deny the consequences of saying precisely that: it is already too late for the Maastricht fiscal policy criteria to be met. Thus monetary union should be called off. The Maastricht treaty calls for ‘an acceptable state of public finances in the long term, reflected in a budget that is not excessive.’ This means that a candidate for monetary union must demonstrate that he is in a position to maintain an overall budget deficit below three percent of GDP. Public debt should not exceed 60 percent. Apart from tiny Luxembourg, there is no EU country that can furnish such a proof. Indeed, the opposite is true: since the conclusion of Maastricht, higher deficits and higher levels of debt have been the norm. Member states are now seeking to trim down their deficits for decision year 1997 by using all kinds of accounting tricks and are thus bending the rules of the treaty. That is not the way in which those who framed the treaty understood fiscal policy convergence, which they sought in order to achieve a stable monetary union.

At the present time, Kohl seems determined to press ahead with monetary union. Having pushed through German unification, he wants to appear in the history books as the architect of European union. But, in the words of Robert Burns, the best laid schemes of mice and men gang aft agley. Kohl is worried that any further delay in implementing the timetable for EMU might mean that the whole business could be called off altogether. Before the British election, John Major, in an attempt to silence the Tory Eurosceptics, stated that EMU would not be reached by 1999, and that, if it was, it would break down anyway. At least he got it half right. Given the intense pressure from Kohl, it is possible—though by no means certain—that some kind of deal will be cobbled together by then. But, being based upon an inherently flawed series of compromises, it will inevitably break down at a certain stage.

At one point, realising that it was impossible to achieve the convergence criteria, Germany considered pressing ahead with a small number of states which qualified for EMU (basically, Germany, France and the Benelux countries) forming a core, and leaving Britain, Italy and the weaker states out in the cold (the so-called two-speed Europe). All kinds of manoeuvres are taking place, involving different combinations, as the different national states struggle for an advantage:

There was also consternation at the remarks of Carlos Westendorp, the Spanish Foreign Minister, who said there was a secret understanding between European governments that EMU could not go ahead with France, Germany and the Benelux countries alone. Unless one other large country—Britain, Spain or Italy—was prepared to join by 1999, the EU would have to ‘stop the clock’ on the whole project, Mr Westendorp said. ‘We are in a situation of a credibility crisis in the entire project.’

Under the plan put forward by the former French president the economic performance demanded of countries wishing to join EMU could be relaxed if the economic cycle was heading downwards. Such a plan would run into stiff opposition from Germany. (The Independent, 25/1/96.)

The problem with the idea of the so-called two-speed Europe was revealed immediately after the break-up of the ERM. Britain and Italy were forced to devalue their currencies, which gave their goods an important price advantage in relation to those of Germany and France. They grew at the expense of the latter, provoking a chorus of protests from the German and French manufacturers. So any attempt to form a German Block of core countries inside the EU would cause severe strains, and could even lead to the break-up of the Union. That is why the idea had to be dropped. Instead, the Bundesbank wants all the currencies to enter EMU on its own terms, in order to rule out any possibility of new competitive devaluations. However, this merely creates new contradictions.

The case of Belgium is particularly glaring. With a huge public debt amounting to 130 percent of GDP, how can it be argued that Belgium qualifies for EMU? Yet they have found reasons to justify Belgium's admission to the club. Of course! There can be no question of a common currency without at least Belgium and Holland (in effect, satellites of Germany). But Belgium and Holland would not be willing to join without France, since their dependence upon Germany, already a fact. would be too unbearable. For the same reason, the Dutch in particular have shown great enthusiasm for greater British involvement. All of them feel uncomfortable about being completely overshadowed by their powerful neighbour. Here we already see the outline of future struggles and splits.

The Bundesbank continues to take a tough line, demanding tough rules and even the imposition of punitive fines for member states which fall down on the convergence criteria. They want to ensure that the euro is as solid as the D-mark, but this is a dream. The conditions laid down by the Bundesbank for monetary union are extremely rigorous, because they do not want the euro to be a weak currency which would have to be propped up by German funds. That is why the Germans are unenthusiastic about Italy joining EMU in the first round. It is no secret that the Italians have resorted to trickery to qualify. On this basis, they will not be able to maintain a stable and strong currency for long. How could they maintain a fixed exchange rate between economies on such a different level? In reality, Kohl and Chirac have agreed to bend the rules to prevent the process from collapsing altogether. The truth is always concrete. Let us pose the question concretely of how EMU would work out in practice.

The Maastricht terms for convergence, in essence, mean two things: 1) fixed exchange rates and 2) permanent austerity. The economic and social consequences of both things would be far-reaching, creating all kinds of stresses and strains, even for Germany, but also for France, but even more so for the weaker economies of Spain, Italy and Belgium, which. in practice, cannot meet the harsh terms laid down for convergence and are resorting to all kinds of tricks and creative accounting to give the false appearance of so doing. The immediate results of the Maastricht convergence plan have already been seen—to cut demand and produce a savage deflation. As a result of this, there is even the risk of Europe entering into a deep slump. At the very least, unemployment will rise all over Europe. Living standards will be cut, as a result of the policy of counter-reforms linked to the slashing of state expenditure. This is the real objective of the exercise, as we have already explained. It would apply with or without the aim of European monetary union. That is why the argument, put forward by the anti-EU lobby in Britain and other countries is completely phoney. Inside or outside the EU or EMU, on a capitalist basis, they will pursue the same kind of policy. That is not to say that, under the pressure of the movement of the working class, there might not be attempts to revert to the old Keynesian methods of deficit financing. But on the basis of capitalism, that will only prepare a disaster—a strike of capital, galloping inflation and a collapse of the currency, forcing them to return to an even more savage policy of cuts. Under conditions of capitalist crisis, all roads lead to ruin.

It is not excluded even now that, under the pressure of the social crisis and big movements of the working class, they will be forced to postpone the introduction of the single currency, or even abandon it altogether. But even if they proceed on the basis of a botched agreement (no other is possible), they would be faced very soon with new and insoluble problems which would eventually lead EMU to break down amidst mutual recriminations, as happened earlier with the ill-fated ERM. Far from leading to greater European integration, it would have the opposite effect, enormously aggravating the tensions and conflicts between the national states.

There is a vast gulf separating theory and practice. In theory, it all looks very nice and logical. The problem is that the capitalist system is anything but logical. In the abstract, the idea of a common European currency is a good one. It would save a lot of money, streamline trade, facilitate long-term economic planning and investment decisions and eliminate a whole series of unnecessary and wasteful operations. But in practice, on a capitalist basis, it would be a disaster. In theory it would mean that all the national currencies would be locked into a rigid system. No national government would be allowed to alter the agreed exchange rate. This means that no country would be allowed to get out of a crisis by resorting to devaluation.

Germany does not want a repetition of the situation where Italy and Britain obtained an unfair competitive advantage by devaluing their currencies, thus making their exports cheaper than German products. Under EMU, this would be ruled out. Neither would one state be allowed to provide funds to help another country out of difficulties. Denied access to devaluation, each government would have to seek a solution at home—which means a policy of savage deflation and unemployment, especially for the weaker economies. It also means an enormous increase in tensions between the different states and between the classes within each state. Such an inflexible monetary system is clearly unviable. In practice, from the beginning each national state will try to get an advantage over the others. This will create all kinds of conflicts, leading to eventual breakdown. Neither will the attempt to impose a regime of permanent austerity work.

Capitalist anarchy

The central problem may be simply stated: the idea that economies of such different characters, all pulling in different directions, can be successfully harnessed to a unified central currency, backed up by common funds and binding legislation, is clearly false. The capitalist system is anarchic by its very nature. The attempt to tie these economies into a rigid common exchange rate will immediately give rise to a whole series of distortions and unbearable contradictions. When the economic conditions of one state demand an increase in interest rates, those of another will demand a reduction. Who decides? It is not difficult to foresee the answer. As the chief economic power in Europe, Germany will impose its criteria through the Bundesbank which will effectively control the central banks. We already saw this when the Bundesbank increased interest rates without bothering to consult its partners. This was the case even before EMU has been introduced. EMU would only put the official stamp on the actual relation of forces that already exists.

In a fixed exchange system, some are bound to lose out. This is already evident in the problems that have arisen in the run-up to the common currency, which are placing a question-mark on whether the scheme can be implemented by 1999, or at all. The original Maastricht terms are already, as we predicted from the beginning a dead duck. Only by massaging the figures and moving the goal posts can some semblance of progress be maintained. But such manoeuvres indicate that the whole plan is unsound from the start. Although they have indicated that they intend to join EMU in the first wave, Spain and Italy are too weak to do this without causing intolerable contradictions at home. Greece is automatically excluded, although the Simitis government is launching an unprecedented attack against living standards in the hope of qualifying at some date in the distant future. Likewise the Portuguese Socialists are doing the dirty work of the capitalists. This is preparing the ground for an explosion of the class struggle in all these countries in the next few years.

The truth is that none of them meet the Maastricht terms, except for tiny Luxembourg. Even Germany does not qualify. As for Belgium, with its huge public debt of 130 percent of GDP, it comes nowhere near the target of 60 percent. But since EMU would be unthinkable without Belgium, they merely turn a blind eye to it. The assertion is made that countries can qualify if they come close to the Maastricht criteria, or are moving towards them, or have deficits that are temporarily (?) too high. They wag a finger and inform member states that they must avoid excess (?) deficits, and so on. In other words, they are twisting and turning, trying to salvage something from the mess. Only by means of all kinds of trickery and creative accounting can they maintain the pretence that the Maastricht terms are being observed, as the following quote from a EU spokesperson shows:

‘A country must not exceed a deficit of 3 per cent of GDP (planned or actual) unless it has ‘declined substantially’ and ‘comes close to’ it, or the excess is ‘only exceptional and temporary’, he said. (Financial Times, 17/4/96, my emphasis.)

In other words, the original Maastricht terms are indeed a dead duck. Only by blatant fiddling can countries like Belgium be included. But here we have yet another contradiction. Theo Waigel, the German Finance Minister, demands that the criteria must be strictly adhered to, on pain of a heavy fine. This reminds one of the words of Alice in Wonderland to the king when she complains: That's not a regular rule, you just invented it. And in fact, they are inventing new rules all the time. This is just a reflection of the conflicting interests of the different capitalist states, which behind the scenes are involved in a fierce struggle. Chirac, reflecting the relative weakness of France, is demanding a softening of the conditions, while the Bundesbank is demanding cast-iron guarantees that the conditions will be carried out to the letter.

The proof that this was indeed not a regular rule, to quote Alice, was shown by the fact that Herr Waigel himself attempted to bend the rules the moment it became apparent that Germany was not going to meet the Maastricht conditions without fiddling the books. In complicity with Kohl, the intrepid Finance Minister hit on a good ruse. They would ask the Bundesbank to revalue Germany's gold reserves, thus obtaining several billion Marks with which to plug the $11 billion hole in the Federal budget. Unfortunately for Waigel, the Bank was not willing to play ball. Not only did he fail to get the extra money, but only narrowly survived a censure motion in the German parliament! The hard-faced money men in Frankfurt are adamant that they want a strong euro. If Weigel and Kohl want extra money, they must get it by proper means—i.e., by squeezing the population.

'The Germans are very suspicious of the behaviour of other countries once they get into monetary union,' Steven Englander, economist at Smith Barney Inc. in Paris, said. (International Herald Tribune, 5/11/96.) If and when EMU is achieved, however, the most important decisions will be in the hands of the central bankers, that is to say, European finance capital, and that effectively means the Bundesbank. The enormous increase in the power of parasitic finance capital is one of the most striking features of the present period internationally. These reactionary, narrow-minded bankers will attempt to rule with an iron hand, imposing budgetary discipline on all nations, irrespective of the state of their economy. To paraphrase Lenin, these cooks will prepare only peppery dishes!

The mentality of these elements is accurately reflected in the proposal to inflict a massive and automatic fine on any government that goes over the 3 percent ceiling for budget deficits. They want each nation state to deposit a large amount—as much as 0.2 percent of its GDP—in a central fund, which would be forfeit if they exceeded the limits. How would this work out in practice? Given the uneven character of capitalist development, it will be all but impossible for all the European states to get a balanced budget at the same time. In practice, some will be moving into deficit while others are in surplus, reflecting the strengths and weaknesses of the different economies, and the different phases of the business cycle. The attempt to force all these different economies into the straitjacket of a common currency will cause all kinds of distortions and tensions, as The Economist pointed out:

According to the German formula (which is opposed by other countries, notably France), governments failing to keep their budget deficits below 3% of GDP would have to place ‘a deposit’ with the European authorities. If the excess borrowing continued, the funds would be forfeit. Fines might be calculated at the rate of 0.2% of GDP plus another 0.1% for every percentage point by which the deficit exceeded 3% of GDP. A deficit of 6% of GDP would attract the maximum fine of 0.5% of GDP—an enormous sum. Otherwise, it would be not a stability pact but a deepen-your-recession pact. Suppose a country with a deficit of 2% of GDP (small by contemporary European standards) began moving into recession. To prevent the deficit rising above the ceiling, the government would need to cut spending and raise taxes—worsening the slow-down and putting further upward pressure on borrowing. In thinking about the scale of the needed fiscal adjustment, recall that when Britain moved from boom to recession at the end of the 1980s, the public sector's financial balance deteriorated by ten percentage points of GDP: from a surplus of 3% of GDP to a deficit of 7%.

If the government failed to hold borrowing at less than 3% of GDP, it would then have to pay a big fine-in-waiting to the European authorities. It could hardly be allowed to meet this impost by borrowing. If the rules allowed such a manoeuvre, they would be saying, in effect: borrowing to pay unemployment benefit is not allowed, but borrowing to pay the fine for borrowing to pay unemployment benefit is. This seems preposterous, even by EU standards. (The Economist, 14/12/96.)

The introduction of EMU will not abolish the boom-slump cycle. The movement into recession will inevitably affect the finances of each country somewhat differently depending on the relative strengths and weaknesses. But it must mean a decline in income from taxes and an increase in expenditure on such things as unemployment. What action could the British government take in the above-mentioned case? Under Maastricht, it would not be allowed to borrow money to cover the deficit. The only way out would be to cut spending and raise taxes in the middle of a recession. If they failed to do this, they would run the risk of a heavy fine for permitting their budget deficit to exceed the agreed ceiling of 3 percent. Such a fine would, of course, increase the deficit and make the situation even worse. This is the economics of the madhouse! Indeed, one wag has said that EMU really stands for European Masochists' Union. It cannot work, and the more serious strategists of Capital know it. That is why Chirac is demanding flexibility—in the interests of France, and all the others are saying the same thing.

Is monetary union possible?

There were no less than five monetary unions in Europe in the nineteenth century, but the only successful ones were those that led to the establishment of a unitary state. Thus, the monetary union set up by Germany in the 1830s laid the basis for the unification of Germany later on. The same was true of Italy which carried out a process of monetary union as part of the movement towards national unification in the 1870s. This was in the period when capitalism was in the ascendant and playing a relatively progressive role in developing the productive forces. The formation of the national states was a necessary corollary of the development of the national market. But stable monetary union went hand in hand with a common state apparatus, taxation, customs barriers, army and police force, as well as a national bank. Where this was not the case, all attempts at monetary union invariably failed.

France, Belgium, Italy and Switzerland formed a currency zone linked to silver in the 1860s, but it broke down as a result of large Italian budget deficits and the debasement of the currency. A further factor was the movement in the direction of the international gold standard, which gathered strength in the 1870s as a result of the development of world trade. Austro-Hungary briefly participated in a common currency with Prussia. That attempt ended badly, with the war between Austria and Prussia in 1866. In both these cases, one power was, in effect, seeking to establish its domination over the others—in the first case, Louis Bonaparte's France, in the second, Bismarck's Prussia. The countries of Scandinavia also attempted monetary union in the 1870s, but this likewise broke down among political squabbling between the different states.

The conclusion is clear. On a capitalist basis, a stable monetary union cannot be achieved without a unified state. Moreover, the crushing domination of the world market means that, to be viable, any regional currency must fit in with the global exchange rate system. In the past, this was achieved by the introduction of the gold standard, from the 1870s onward. All the national currencies had to be linked with gold, which provides an objective standard of measuring value. After the second war, the overwhelming superiority of US imperialism allowed it to impose the dollar as the international currency (with the pound sterling as a secondary currency). At that time, in addition to the strength of its industry, which was intact while Europe and Japan were in ruins, the USA held two thirds of the world's gold reserves. Thus, the dollar was as good as gold. But since the collapse of the Bretton Woods fixed rate system, no satisfactory alternative has been found. The result has been an increasingly unstable situation in the currency markets internationally, with vast amounts of money being used for speculative purposes, providing the basis for periodic crises and forced devaluations which bring nation states to their knees in a question of hours.

Part of the aim of EMU is to create a regional currency which will be proof against such instability, in which there will be a fixed exchange rate decreed by the fiat of the European central banks who will guarantee sound finance, as before 1914. However, even from a strictly economic point of view, this is an arbitrary assumption. They do not suggest linking the new currency to a metallic standard such as gold or silver, as in the period to which they apparently long to return. Neither do they propose to link it to a global agreement, like Bretton Woods. Just how they propose to maintain a fixed exchange rate in a world market characterised by floating exchange rates is not at all clear. Economists in the USA are openly sceptical about the idea. Just how sound will the euro be? If international money markets are not convinced it is worth what the European bankers say, then it will be no more secure against speculative currency movements than, say, the Italian lira at the present moment.

Contrary to the demagogy of the Eurosceptics, the EU is not a federal state, and there is no prospect of it becoming one. It therefore cannot function in the same way as, say, the USA, which, in the event of a crisis, can channel funds from the centre to any state which finds itself in difficulties. In Canada, which is also a federal state, the federal government underwrites the debts of the poorest provinces. Thus, Newfoundland receives from the federal government transfer payments equivalent to almost 75 percent of its personal income. On the contrary, as we shall see, the Maastricht treaty rules out such aid. All the burden of a recession must be borne by each member state unaided. The intention is to compel each government to maintain sound finance through the good old method of raising taxes, cutting public spending and selling off state assets. This stratagem leaves out of account the fact that before the first world war the trade unions and the workers' political parties were relatively weak, and the working class itself was actually a minority in most of the countries of Europe (Britain was the exception, because it had entered the phase of capitalist development far earlier than the others). Since the second world war the class balance of forces in Europe has been transformed. The social reserves of reaction, in particular the peasantry, have been whittled away by industrial development. The working class has become the dominant force in society, and will resist any attempt to take away the gains it has made since 1945.

The attempt to go back to the classical period of capitalism will provoke an unprecedented upsurge in the class struggle. But there is no guarantee that it will bring the benefits that the capitalists anticipate. By placing a heavy burden on the shoulders of even the weakest European economies, they run the risk of provoking a collapse. The terms of the proposed monetary union assume that each country must stand on its own feet—to use the phrase beloved of all bankers. At present, European governments can raise money in international finance markets to cover their debts, and (with the exception of Greece) are regarded as safe bets. But Italy's ratio of public debt and unfunded pension liabilities is more than twice as large as Germany's. When Italy no longer has its own currency and central bank, such weakness will inevitably lead to an increase in the cost of credit. New York sometimes pays a higher risk premium than Italy, although its ratio of debt to income is much lower. Even now the major credit ratings agencies cannot agree about how to classify the future debt issued in the new currency, which suggests that there will be wide divergences in the credit ratings of the European countries after 1999. The capitalists in Italy and the other weaker economies will be forced to pay a higher rate of interest than the others, thus cutting into the rate of profit. In the longer term, this can destabilise the finances of such states, raising the danger of a crisis. For the first time, international investors are talking (in private, of course) of the risk of default in Europe.

Just as Quebec is regarded as a high risk and has to pay very high premiums in order to borrow money, because of the danger of secession, so international finance capital is already contemplating the risk of a break-up of EMU even before it has been put in place. They calculate that the policy of permanent cuts and austerity demanded by EMU will provoke such social unrest that it will break down. Starting with countries like Italy and Finland, the weaker economies will be forced to break away. In the event of a recession, the whole thing will tend to break up. In any case, it is still not certain that they will succeed in achieving EMU by the 1999 deadline. And if it is delayed, it may not take place at all:

Those who detect a whiff of desperation point to Mr Santer's warning last week that the single currency will die if it is delayed beyond the agreed launch date in 1999. Recalling that hesitancy by European governments had buried plans in the 1950s for a west European defence union, Mr Santer told a Swiss newspaper: ‘This example shows that delaying currency union would be the end of it.’ (Financial Times, 13/2/96, my emphasis.)

However, the real reason why EMU will fail is because the European capitalists are not capable of achieving the kind of five and six percent annual growth rates they enjoyed in the past:

Mr Wim Bergans, spokesman for the ETUC in Brussels, is also supportive, but cautions: ‘We don't want to reopen negotiations on EMU, but you will not have EMU with 20m people out of work in Europe.’ (Ibid.)

Is the EU progressive?

Part of the reason for the EU's existence is for the purpose of the continued exploitation of the former European colonies in Africa, the Caribbean etc. The only difference is that this is joint exploitation, as opposed to the old one to one relationship of a colony to its imperial masters, and the plunder is carried out through the mechanism of trade, as opposed to the direct robbery perpetrated under military rule. The ex colonies are used as a source of cheap raw materials and also cheap labour, although with mass unemployment, this role is less necessary than in the past. In the period of upswing, the capitalists of Europe encouraged the immigration of a large number of workers from the former colonies in Africa, Asia and the Caribbean who were used as cheap labour. Now, in the downswing, they can no longer be used. Instead they have become the scapegoats for mass unemployment and the target for the demagogy of right-wing politicians like Le Pen in France. Racism is the inseparable companion of imperialism and the domination of one people by another.

Lenin pointed out that one of the features of imperialism is the domination of finance capital. The Maastricht treaty is a good example of this. Under the new system, all the main levers of financial power will be (theoretically, at least) in the hands of a European central bank, under a board consisting of six internal executives (including the president) and the governors of the member central banks. The whole scheme has been cooked up by the Bundesbank which is supposed to be independent of the German government. In fact, the new central bank is supposed to be even more independent, since it will not be answerable to any elected national government. The toothless European parliament is, even more than the national parliaments, a mere talking shop which can settle nothing except for the most marginal questions. The bank will only be required to testify before the European parliament from time to time—an idea funny enough to make even a banker laugh. In reality what we have here is a blatant expression of the striving of finance capital for untrammelled domination, to free itself from all constraints and rule supreme. Lenin explained long ago that the essence of imperialism is the domination of the banks and big monopolies. The present proposals represent the clearest confirmation of this analysis. On a capitalist basis, the crude reality of European unity is the complete domination of finance and monopoly capitalism, to the detriment of the interests of the mass of the people—the workers, peasants, unemployed, pensioners and small business people. These bankers and their allies in the boardrooms of the big monopolies can be relied upon to pursue a relentless policy of squeezing the last ounce of profit out of the people in the name of Capital, irrespective of the social consequences.

This is precisely what we mean when we say that the idea of European unity on a capitalist basis is a reactionary utopia. It is utopian because it cannot be carried through to the end. The existence of deep conflicts of interest between the capitalists of the different national states, like the fault lines in geology, will inevitably cause these attempts to break down at a certain stage. Paradoxically, the very attempt to install a common currency will lend an even more convulsive and bitter character to these tensions. But to the degree that they succeed in achieving greater integration, this merely signifies a greater degree of domination of the banks and monopolies over the lives of the peoples. It is therefore not only an utopia, but a reactionary utopia. There is absolutely nothing progressive about it.

Theoretically independent, the central bank will be the only one in the world to be governed by a treaty signed by fifteen countries. In practice, it will carry out a policy in the interests of the most powerful states, that is to say, in the first place, Germany. The idea of a supra-national central bank, free from national pressures, is a self-evident piece of nonsense. In the same way, the big multinational companies cannot be separated from their national base, although their operations are world-wide. Does anyone seriously believe that General Motors is anything but an American company? Or that Mitsubishi is anything but Japanese? In the same way, in the last analysis the European central bank will be run by the Bundesbank, which will certainly reflect the national interests of German capitalism. By pursuing a conservative financial policy, allegedly of its own free will and volition, the central bank will provide the Bonn government, and all the others, with the convenient excuse that the cuts and unemployment which result from it is nothing to do with them, but the inevitable result of the sacred principle of free market forces and financial independence. And who can argue with that? In reality, there will be plenty of arguments, and very ferocious ones, at that.

It is by no means certain that the intentions of the central bankers can be carried into practice. The attempt to carry out a policy that amounts to permanent austerity cannot be maintained. It will lead to one social explosion after another, with strikes, general strikes, mass demonstrations, and even insurrectionary movements. What happened in Albania was a warning. Under certain conditions, there can be new Albanias. We have entered into an entirely new period, characterised by sudden and sharp turns in the situation. The ruling classes of Europe have sown the winds and will reap whirlwinds. The situation will be much more similar to the 1920s and 30s than the period of the last fifty years.

Nevertheless, the advanced capitalist powers have accumulated a considerable layer of fat over the last five decades. Faced with a mass movement, they may be forced to abandon their plans and opt for a policy of reflation at a certain stage. Even now, the policies of monetarist neo-liberalism have shown themselves to be bankrupt. The idea of privatisation now stinks in the nostrils of even middle class people. They are preparing a massive backlash against it, and a big swing to the left. It is ironical that the reformist leaders have embraced the market just at the point in which it is beginning to break down. The attempt to impose permanent austerity will break down, and with it all the plans for a common European currency. A return to inflation will rapidly undermine the euro in international markets. But a fall in the value of the euro will have other consequences. The boom in the USA will come to an end probably just when the Europeans are attempting to introduce the common currency. A downturn in the USA will put pressure on the dollar, particularly in view of America's persistent external deficit. This could be the signal for a new outbreak of competitive devaluations, with the Americans allowing the dollar to fall in order to restore competitiveness to their exports. It was precisely this kind of competitive devaluations that undermined world trade before the second world war, and turned the slump into a world Depression. The return of such conditions is quite possible in the next period.

An amusing sideline of this is the idea put in circulation by the nationalists, for example in the Basque Country and Scotland, that the EU somehow represents a progressive development which will aid the cause of small nations. They seek to prettify the reality of the Europe of big Capital by talking about a Europe of the Peoples. What foolishness! Since when did the rule of the big banks and monopolies act in the interest of small nations? This is typical of the prejudices of the petit-bourgeois nationalist leaders who reject the class analysis of society and therefore inevitably fall under the influence of the ideas of the ruling class. Far from benefiting the Basques, Scots or Welsh, a capitalist Europe will trample their interests underfoot, destroy their industries and impoverish their populations. The fact is that a capitalist Europe represents a trap for all the peoples.

Marx on Free Trade

Over a hundred years ago, Karl Marx explained that, in the struggle between the Tories and Liberals over Free Trade versus Protectionism, the working class had to maintain an independent position. We were in favour neither of one thing or the other. This was merely a struggle between different wings of the ruling class (landowners and manufacturers) in which the workers had no interest.

The present debate on EMU bears a striking resemblance to the controversy on free trade in the last century. Then as now, there was a sharp difference of opinion between various wings of the ruling class in Britain. The landed aristocracy, for its own purposes, defended protectionism, while the rising industrial bourgeoisie, defending its own interests, advocated free trade. (Needless to say, at that time, the weaker bourgeoisies of France and Germany were all in favour of protectionism). In the course of this struggle, which became extremely heated, the rival wings of the ruling class both sought to enlist the support of the working class. What was the position of Marx and Engels? They adopted a firm position of class independence, and resolutely advised the workers to refuse support to either one of the two sides. This was despite the fact that, in the abstract, one could argue that free trade was more progressive than protectionism. However, questions of this kind can never be settled in the abstract. it is necessary to pose the question concretely, that is to say, from a class point of view. And it is clear that the interests of the working class was not served by either of these policies. Only a socialist policy can serve the interests of the working people. That remains as true today as 150 years ago, when Marx delivered his speech on free trade. The issues are somewhat different, but the principles are identical.

Our position on the EU is similar to the position Marx took in the controversy about free trade or protectionism that time. He explained that the interests of the working class are neither for free trade nor protectionism, but international socialism. That the debate on free trade reflected the interests of different sections of the ruling class. It was a trap to take sides in this dispute, and the workers' movement had to take an independent political stance. Similarly with us. We are neither for nor against withdrawal from the EU on the basis of capitalism. The interests of the working class is not represented in either case.

It is entirely false to argue in favour of devaluation or reflation (i.e. inflation) as a way of solving the crisis of capitalism, as some Lefts do. This is no solution at all. It represents an indirect attack on living standards through increased prices, and in any case would only end up in an even more severe deflation than before. From the standpoint of the working class, there is nothing to choose between inflation and deflation. It is head and tail of the same coin—the choice between death by beheading or roasting over a fire. We want neither one thing or the other, but only the right to live and work in decent conditions. But that right is now incompatible with the rule of Rent, Interest and Profit. In the USA, the mania for cutting down the share of the state has actually led to an attempt to amend the Constitution to make budget deficits illegal! Even the bourgeois economists regard that as crazy.

For a Class Alternative to the European Union

Does this mean that we are indifferent to the question of the Maastricht Treaty and the European Union? Not at all. But we insist that this issue, like all others, must be approached from a class point of view, and no other. Already workers across Europe who are faced with redundancies and closures are questioning the class character of the European Union. Tens of thousands have taken to the streets to protest about job losses in Germany, France, Belgium and Spain. As a Belgium metal worker demonstrating against unemployment put it recently: Europe is for Capital, it is a Europe which does nothing for workers. This feeling will become generalised and is preparing fertile conditions for an all-European struggle against the dictatorship of the bankers and capitalists that oppress all the peoples of our continent. In order to be successful, however, it is vital that the Labour Movement does not become entangled in so-called alliances with reactionary sections of the capitalist class posing hypocritically as the defenders of an imaginary national unity.

What is necessary is a clear class alternative to the capitalist EU. In dealing with questions of this character, we need to proceed from fundamental considerations. Socialists must take an independent class viewpoint, and not be pushed into positions that defend the interests of one or another section of the capitalist class. The business of the Labour Movement is not to line up behind different groups of capitalists, but to fight for the socialist transformation of society, nationally and internationally, as the only solution to our problems. Forget this, and you will inevitably end in a mess.

We are accustomed to see the right wing Labour leaders echoing the views of big business—after all, that is their role. Unfortunately, however, the left reformists, even the best and most honest of them always approach these questions on the basis of capitalism instead of approaching them from a class point of view, and thereby end up defending a reactionary position. They find themselves in the company of all kinds of right-wing chauvinist elements and the declared enemies of the working class. This is inevitable if we do not remain firm on basic class principles and a socialist perspective.

Opposition to the Europe of the monopolies does not mean that we must support the kind of national independence advocated by the Eurosceptics. The policy of national self-sufficiency (autarchy) has failed everywhere where it was tried, and must inevitably fail in the modern epoch when everything is decided by the world economy. The attempt to build socialism in one country led to a disaster in Russia and China, although they were both mighty economies based on the resources of sub-continents. What future could there be for small states like Britain, France, or even Germany in isolation? The idea of combining the economic resources of Europe—and the whole world—is a progressive aim which shows the only serious way forward out of the present crisis of humanity. The two main obstacles which are preventing the further development of industry, agriculture, science and technique on a world scale are private ownership of the means of production and the nation state. Only by eliminating these obstacles can society break the shackles that fetter its development. Thus, the real alternative to the capitalist EU is not national independence but the Socialist United States of Europe.

The idea of a capitalist united Europe, as Lenin long ago explained, is a reactionary utopia. On the one hand, it is impossible to achieve a genuinely united Europe on a capitalist basis. The separate national interests of each capitalist class rules this out. In reality, what is proposed by the EU and Maastricht is very far from this. But even if they could achieve it, then it would be entirely reactionary, as it could only be brought about by the most brutal means. Hitler attempted this by military conquest and occupation.

Marxists and the EU

The European Union is nothing more than a capitalist club, a glorified customs union, established to promote the interests of European big business. It has nothing in common with the interests of the working class. That is our starting point. Our opposition to the EU is exactly the same as our opposition to capitalism or capitalism generally. We take a clear independent class position. The only alternative to the capitalist EU the Socialist United States of Europe.

This is our general position. However, it is necessary to link the general demands to a concrete programme of struggle against all attempts to put the burden of the crisis of capitalism on the shoulders of the working class, the old, the unemployed, the sick, the women and youth. There is growing opposition in the Labour movement, especially on the left, against the Maastricht criteria for monetary union. We are opposed to Maastricht, as we are opposed to all capitalist measures against the working class. Nevertheless, we should not be under the illusion, as are the lefts, that the austerity measures are simply due to Maastricht. Maastricht is used as an excuse or smoke screen for the cuts and attacks taking place throughout Europe. These attacks would have taken place with or without Maastricht. According to the right wing Economist, labour costs are too high. They must be driven down to put European capitalism back on its feet. This situation arises from the crisis of capitalism itself. That is the reason why austerity measures are taking place simultaneously throughout the capitalist world, from Europe to Japan and the United States.

Despite all the contradictions, the main capitalist powers in Europe, especially the Germans and French, are determined to push ahead with a European currency. The plan is to introduce it at the beginning of 1999. But this can be easily blown off course with the advent of a new world recession. What is our view of a European currency? Firstly, we cannot consider it in the abstract. Who is introducing it and why is it being introduced? Under capitalism, we have to oppose the introduction of a single currency, as it will be used to cut living standards. Obviously, in a socialist Europe, a common currency would be introduced to facilitate planning and exchange. But under capitalism it is a different question. It is not an abstract issue of just being for or against the principle of a single currency—we have to take into account concretely how its implementation will be used to carry through attacks on living standards, etc. In other words we have to draw out all the implications and consequences for the working class of a single currency on the basis of capitalism. In any referendum we would advocate a ‘No’ vote to the single currency, and argue the case for a socialist Europe.

Even where the EU pretends to stand for workers' interests ( the Social Chapter), there is no real protection against capitalist exploitation. The only real defence is the unity, organisation and class consciousness of the workers, and their willingness to fight. That this exists and is growing is clear from the struggles of workers in Germany, Belgium, France and other countries over the last few years. There workers have had no protection from the Social Chapter against cuts, closures or redundancies. The Belgium government complained that Renault had failed to consult the workers at Vilvoorde before announcing the closure of the plant. As if that would solve the problem. No amount of consultation will solve the problems created by the present crisis of capitalism.

Even where workers succeed in fighting against the cuts (and we must actively support all such struggles), the victory proves to be only temporary. The bosses and their governments soon return to the attack, taking back with the right hand what they gave with the left. The reason for this lies, not with the caprice of this or that minister, but with the impasse of the capitalist system. The right wing Labour and trade union leaders, having long ago abandoned the idea of socialism, merely act as the echo of big business. But the Lefts, in reality, have no viable policy either. Their demands for reforms and more public spending are quite utopian from the standpoint of modern capitalism. They are trying to base themselves on a capitalism which no longer exists. Under present conditions, a half-and-half policy policy is worse than useless. Any attempt to go back to Keynesian methods would cause an explosion of inflation, a collapse of investment and the currency and a worse situation than before. No-one takes such ideas seriously any more. Only the left reformists really believe them, and consequently are incapable of putting forward a convincing socialist argument against the EU, which is the main reason why they have been defeated by the right wing everywhere, although this situation will change in the next period.

It is ironic that, just when the market is being discredited everywhere, the reformist Labour leaders are rushing to embrace it. They are in for a big surprise. Particularly in the event of a new recession, which is inevitable in the next few years, these organisations will be shaken from top to bottom, starting with the trade unions. The present leaders of the unions, like their political counterparts, have moved far to the right, reflecting the pressures of capitalism. Nicole Notat in France, Antonio Gutierrez in Spain, John Monks in Britain and Hubertus Schmoldt in Germany are typical representatives of this new breed. approach these questions on the basis of capitalism instead of approaching them from a class point of view, and thereby end up defending a reactionary position. They find themselves in the company of all kinds of right-wing chauvinist elements and the declared enemies of the working class. This is inevitable if we do not remain firm on basic class principles and a socialist perspective.

Only a Marxist policy based on workers' internationalism and the programme of the socialist transformation of society can arm the Labour Movement for a serious struggle against the Europe of the bosses. It is necessary to fight for the expropriation of the banks, finance houses and monopolies and a socialist planned economy under the democratic management and control of the working people. We must have an internationalist perspective, based on the need to combine the huge productive potential of the whole of Europe in a harmonious fashion, abolishing the frontiers—those remnants of barbarism—and creating the conditions for the free movement and fraternisation of the peoples. A democratic socialist plan of production, drawing upon the vast economic, material and human resources of Europe would enable us to end the nightmare of unemployment. The immediate introduction of the 32 hour working week is the prior condition for putting 18 million Europeans back to work. Freed from the artificial restraints of production for profit and the narrow confines of the nation state, production would soar to unseen heights. This is the way to set the economy free and not the madness of capitalist anarchy! On this basis, we would not be talking about a miserable target of two or three percent a year as at present, but a growth rate of ten percent as an absolute minimum.

Such a target—very modest for a planned economy backed by the united resources of Europe—would mean that in the space of just two five-year plans, the wealth of Europe would be doubled. There would be no more talk of austerity, cuts, hospital and school closures. On the contrary. It would be possible to launch upon the most ambitious programme of public works ever seen in history. Instead of cuts in living standards and longer hours of work, we would be in a position to increase wages and pensions every year and progressively reduce the working day, as increasing production generated greater wealth. In a very short space of time, we could abolish poverty and deprivation, even in the most backward regions of Europe.

This, in turn, would make the national problem a thing of the past. Within the framework of a flourishing and democratic socialist commonwealth, every people would be guaranteed full equality and autonomy to control its own affairs, speak its own language and develop its own culture. Far from oppressing and strangling small nations, a socialist Europe would give them full freedom to develop and prosper. But in place of the old reactionary, claustrophobic nationalism, with its inevitable companion of narrowness xenophobia, a new spirit will arise, in line with the demands of the modern age—a spirit of fraternity and co-operation between the peoples in realising the full potential of Europe. This would be a beacon to the peoples of Africa, Asia and the rest of the world, laying the basis for the establishment of a socialist world federation.

This is no utopia, but is an entirely realistic—even modest—vision of what would be possible on the basis of the present productive capacity of European industry, agriculture, science and technology. But this potential cannot be realised as long as Europe remains divided and under the domination of a handful of banks and big monopolies. To break this reactionary stranglehold and set about the radical transformation of society. That is the only goal really worthy of workers and youth in the eve of the 21st century—the struggle for the emancipation of humanity from capitalist barbarism and the creation of a world fit for people to live in.

• No to Maastricht! No More Cuts!
• No to the Europe of the Bankers and Capitalists!
• Nationalise the Banks and Monopolies under Workers' Management!
• For the Socialist United States of Europe!