Eurozone 10th anniversary

Economic crisis – cracks appear in bosses’ EU

Danny Byrne, CWI London

The international capitalist crisis, which has unfolded over the last months, has served to completely discredit the free market policies and ideology of the boom period, of the last twenty years or so. An element of the ‘un-challengeable’ arguments put forward by the supporters and ideologues of the free market was the idea that capitalism had entered a new phase of peace and harmony, characterised by the co-operation and ever-increasing integration of national capitalist economies and governments. The European Union was heralded as a prime example of the setting aside of national rivalries. The introduction of the Euro, ten years ago this month, as a common currency, in particular, was put forward as evidence of the new-found unity of European capitalism.

The events of the last few months have truly rubbished these claims. As the economic crisis unfolded, the ‘unity’ and ‘collective action’ previously heralded by European governments were cast aside, as various national governments performed major interventions in the market, in defence of their own economic interests. This shaking up of the EU provides a useful glimpse into the new period of intensified national rivalries which will accompany the international economic downturn.

Divided and desperate

On Saturday 4 October 2008, as stocks and shares plummeted around the world and in the aftermath of the collapse and bailing out of a significant section of the US financial sector, the leaders of the four largest EU economies met in Paris to discuss a co-ordinated response to the threat to Europe’s financial sector. Britain’s Gordon Brown, German Chancellor Angela Merkel, French PM, Nicolas Sarkozy, and Italy’s Silvio Berlusconi had been through a strenuous couple of weeks, as they, along with governments around the world, stumbled from one disaster into another, seemingly incapable of stabilising a world economy in freefall. Little wonder the four leaders failed to agree on any joint action.

They had been angered only days previously by the actions of their Irish and Greek counterparts, who moved to guarantee all banking deposits. Merkel slammed the actions of Irish finance minister, Brian Lenihan, as “unacceptable”. Lenihan had issued a guarantee to all deposits, not only in Irish-owned banks, but also in foreign-owned banks based in Ireland, which had a distorting effect on European markets. However, the independent actions of Irish capitalism, without regard for the interests of its EU partners, along with the four leaders’ failure to agree on a joint rescue package in Paris, indicated the limitations of capitalist European integration and the devastating scale of the crisis.

The basis for these limitations is the fact that different sets of national capitalists have different and competing interests. While imperialism and globalisation have necessitated a more internationally spread and inter-linked world economy, the basic social-economic unit of capitalism remains the nation-state. While national ruling elites can pull together when all seems well, or to better exploit working people, in times of panic and crisis they have a tendency to pull back into their own corners. The Irish bank guarantee is testament to this (see article on Irish banking crisis).

This tendency was clearly reflected in the failure of the EU leaders to implement a bailout plan for the whole Union. Despite perhaps being in the best interests of EU capitalism, the idea of an EU-wide ‘shield’ for the banking sector was dismissed out of hand. The remarks of German finance minister, Peer Steinbruek, shed further light on the inability of European capitalism to act as one. Asserting that in the case of German financial interests, the German government must remain “masters of the process”, he explained, “The Chancellor and I reject a European shield because we as Germans do not want to pay into a big pot where we do not have control”. When an EU-wide stimulus package was finally agreed, out of burning necessity, it was over two months after the onset of the financial crisis.

Euro weakness exposed

Even the Euro, the much heralded common currency of the majority of EU states, on the tenth anniversary of its introduction as an electronic method of payment, has been exposed by recent events as being anything but stable. The value of the currency plummeted, amid the failure of leaders to act together to stabilise markets. Reports even suggested that some unofficial money changers were charging different rates for Euro notes printed in different countries. In Germany, increased numbers of people withdrew cash directly from bank branches rather than ATMs, as there they could ensure they were being given German bank notes. As the crisis unfolded, Simon Derrick, currency chief at the Bank of New York Mellon was quoted in the Daily Telegraph, “What is bothering everyone, is the clear lack of a unified government in the Eurozone…My concern is that this could snowball very fast and threaten monetary union.” This uncertainty as to the future of the Euro currency is entirely justified.

The euro and European Monetary Union (EMU), like the EU, constitute unstable experiments in the convergence of various national economies, which cannot be artificially bound together. The euro was established in a period, during which European capitalism was on the crest of an economic wave and saw the introduction of a common currency as a useful tool. Its establishment however, has not led to a convergence of EMU economies, which remain national in character. However, a collapse or crisis in one EMU country would have implications for the currency, as a whole and, as the experience of events around the current crisis testify, stronger states will not be easily persuaded to take a hit in the interests of ailing neighbours.

These developments are also likely to seriously undermine the arguments recently put forward by numerous economic commentators and politicians, such as Peter Mandelson in Britain, that various EU countries currently outside the Eurozone would be best served joining the euro at this stage, to avail of the ‘stability’ that would be provided. It is likely that, should Britain seek euro entry, Germany and France would oppose the incorporation of crisis-ridden British capitalism into the EMU, which already burdened by the struggling Irish, Greek and Spanish economies. For other economies, such as those admitted to the EU after the passing of the Nice Treaty in 2003 but whose incorporation into the euro currency was put on hold, or more established EU economies, such as Sweden and Denmark, who opted to stay out of the currency, the prospect of being tied to ailing economies cannot be very attractive.

‘Fiscal easing’ and credit downgrades.

This disunity and national self-interest displayed in the reaction by European governments to this crisis begs the question, what the basis for a common European currency was in the first place? Indeed, as the crisis unfolds, economies in difficulty, such as Italy, with its notoriously high deficit (which caused a near currency crisis in 2006), or Spain (forecast by the European commission to generate a deficit of over 6% in 2009), as its economy is hit by the bursting of its housing bubble, could drag the currency down, impacting on all EMU states. The so-called EMU ‘Stability Pact’, which necessitates that member states keep deficits below 3% annually, to preserve the stability of the currency, is being exposed as an unrealistic attempt at tying Europe’s economies together.

Indeed, in the last few days, four Eurozone countries, (Spain, Greece, Ireland and Portugal), were warned that the rapidly deteriorating state of their public finances would lead to their international credit rating being downgraded. This would have serious implications, in that borrowing costs would increase for these countries. In the context of the current crisis, with governments seeking to spend their way out of recession, fuelled by borrowing, the impact of these developments could be disastrous. In the case of Ireland, for example, where projected borrowing for this year is at around €20 billion (almost half of the country’s existing national debt), higher borrowing costs will further exacerbate its economic situation.

In response to the inevitability of a whole number of countries breaching EU fiscal regulations, a temporary easing of the rules was agreed, in the last few months of 2008. However, fuelled by recent developments, it seems as though a fallout is brewing within the Union. The downgrading of a number of countries’ credit ratings has led to a further widening of the gap between the value of bonds from these countries, compared with more ‘fiscally prudent’ EMU states, such as Germany, Belgium and the Netherlands. The fact that these economies are all tied together by the Monetary Union means that deficits and downgradings in various European countries will impact negatively on stronger Eurozone economies. In the Financial Times (14 January 2009), Tony Barber and David Oakley outlined the potential for sharp disagreements to emerge over the impact of ‘fiscal easing’ on various national economies, particularly Germany’s: “Germany, which has made strenuous efforts to put its fiscal house in order over the past three years, is far from alone in being concerned that excessive fiscal easing may inflict long-term damage on Europe’s monetary union – a price the Germans are adamant they will not pay.” In the next period of economic turbulence, countries like Italy, Greece or Spain being forced out of the EMU or Euro currency cannot be ruled out.

As the CWI consistently pointed out, the contradictions between the interests of various national economies cannot be decisively overcome on the basis of capitalism. Given impetus by the collapse of the Stalinist planned economies in Russia and Eastern Europe, various European powers were able to come together and co-operate to ensure favourable conditions for capitalism in the ascent. The EU also provided European bosses with the capacity to better compete with the US and Chinese economies. However, as far as Europe’s millions of workers are concerned, the EU has represented a union of European bosses and exploiters, united by their need for ever-increasing attacks on working people.

A bosses’ union

The anti-worker nature of the EU was well illustrated by the role its institutions played during the last period of economic boom, in bolstering and co-ordinating the EU-wide neo-liberal offensive. As profits sky-rocketed, the EU establishment pursued a vicious campaign of undermining wages, increasing working hours and facilitating privatisations.

The EU plays a leading role in pushing a neo-liberal assault on public services. The Lisbon Treaty, the EU’s intended ‘constitution’, which was rejected by Irish voters in June 2008 (only to be put back before the electorate, later this year) is explicit in calling for “uniformity in measures of liberalisation”. In other words, uniformity in the asset-stripping of the public sector across Europe, and the selling-off of vital public services, including health and education, to greed-driven speculators.

A socialist Europe

The rejection of the Lisbon treaty by Irish voters in June 2008 stands as an example to the workers and young people of Europe of how the EU establishment can be knocked back. The Socialist Party (CWI in Ireland) will be calling for another ‘No’ vote when the treaty is put before the Irish population again despite the fact that it was already rejected. However, voting no in referenda will not be enough to rescue European workers from the unemployment, attacks, and general suffering that a prolonged period of economic downturn will bring. The governments of the EU countries, and the leaders of the EU will attempt to pass off the cost of the crisis onto workers and their families.

The attacks of bosses and governments will provoke a new wave of radicalisation, as workers and young people fight back. The development of new mass workers’ parties of struggle throughout Europe will be an important part of this process. The only viable alternative to capitalist crisis, the cycle of booms and slumps, and attacks is a socialist planned economy, in which the fate of jobs, homes and livelihoods are not determined by the casino capitalist market. It would see the European economy planned democratically, to meet the needs of the great majority rather than the super-rich and their representatives in the EU and national governments. The struggles of European workers must be based upon the power of the working class to bring an end to the European dictatorship of big business, represented by the EU elite, and to replace it with a socialist model. On the basis of the democratic control of working people over the economy and society, there can be real solidarity and partnership between European workers of all countries, in a Socialist United States of Europe.