Belated observations on the Euro

We began this article in the March/April issue of Lalkar. In this issue we conclude with the arguments against joining the euro, the prospects of European union and the attitude of the proletariat to it.

Arguments against joining the Euro

Those who oppose British membership of the single currency do so on the following real or imaginary grounds:

a) That the adoption of the euro deprives member states of the two most important tools of macroeconomic policy – exchange and interest rates;

b) That with the discipline imposed by the Stability and Growth Pact (SGP) (now in a shambles, but more anon), with its ceilings on fiscal deficits, no weapon is left with which individual countries could defend themselves against unwelcome shocks – every member country simply becomes a region; fiscal policy cannot be used as an effective counter-cyclical measure, or even to ensure concerted expansion in the eurozone in its entirety, all of which means that the problems of unemployment, slow growth and recession in individual countries become even less amenable to mitigation than already is the case;

c) That interest rates are set by the European Central Bank (ECB) for the entire euro area, irrespective of the appropriateness or otherwise of a given rate of interest for the individual economies; further that monetary policy in the eurozone is entirely devoted to price stability, with its focus on fighting inflation rather than the prevention of deflation, with the result that monetary policy does not, and cannot, respond to slack in individual countries or parts of the region;

d) That the membership of the euro would put at risk foreign direct investment into the UK, which it attracts because of its “flexible” labour market and a much-“reformed” welfare system (euphemisms for anti-trade union legislation and denial of unemployment and other benefits), whereas Europe suffers from a “rigid and regulated” labour market and an “unreformed” welfare and pension system, thus making European labour far too costly to hire and fire. In fact, the figures on inward investment are questionable and can be used both by the supporters and opponents of the single currency.

A survey by accountancy firm Ernst and Young found that while the UK was still the location for 19 per cent of the inward projects coming into Europe in 2002, its share between 1998 and 2002 had fallen from 28 per cent. By comparison, the share going to the eurozone countries had fallen by a mere 2 per cent from 46 per cent to 44 per cent. Additionally, it found that the share going to the non-EU countries of Europe rose significantly from 23 per cent to 32 per cent. These non-EU countries belong to eastern Europe, with low costs, ‘flexible’ labour markets, access to EU market and better growth rates. The Financial Times (FT) of 4 June 2003, from which the above facts concerning inward investment are taken, says that as “… more countries line up for accession to the EU, they [east European non-EU countries – Lalkar] will become more and more appealing”. The conclusion is clear, if implicit – in or out of the EU or eurozone countries must ‘regulate’ their labour market and ‘reform’ their welfare benefits or face the prospect of losing inward investment to their more competitive rivals in the drive downwards to the lowest common denominator.

d) That unlike the US, the eurozone as a single currency area suffers from some formidable obstacles, such as a common language (one of the significant conditions for a vast and flexible labour market), and the absence of a fiscal safety net, with a mechanism for large fiscal transfers, from booming to depressed regions, especially in view of the fact that the EU’s budget is capped at 1.27 per cent of its GDP;

e) That membership of the single currency would result in the loss of British sovereignty and the sovereignty of the British Parliament, the loss of democratic control over vital levers of economic and financial policy, control over which will pass to unelected and unaccountable bankers, bureaucrats and institutions in Brussels and Frankfurt, forgetting conveniently that presently these decisions are also taken by unelected and unaccountable bankers and bureaucrats and that the British state, the British Parliament and the British cabinet are nothing less than the “national war engine of capital against labour” (Karl Marx, Civil War in France), that in Britain, as in any other capitalist country, be it in a constitutional monarchy or the most democratic of republics, the proper business of state is conducted “behind the scenes and is carried on by the departments, chancelleries and General Staffs”, while parliament is confined to the role of a talking shop for the purpose of fooling the masses, and merely serves as a rostrum for Her Majesty’s mendacious ministers, and equally mendacious spokesmen of Her Majesty’s opposition, for the purpose of “duping the credulous rustics with phrase-mongering and resolutions” (Lenin, State and Revolution, p.55). The war in Iraq is a graphic illustration of the truth of this statement.

Labour and the Euro

The British bourgeoisie has been, and is, deeply divided over the question of the membership of EMU (European Monetary Union), as it once was on the membership of the EEC (European Economic Community). The previous Conservative government, especially under Margaret Thatcher, became almost viscerally hostile to the very idea of a single currency, with the result that sections of British monopoly capital made known their disenchantment with the Tories and helped in the removal of first, Thatcher as prime minister, and eventually the Conservative government in the 1997 election.

Labour was put into office, for it alone, at the time, promised to take Britain into the EMU. Soon after Labour had been elected, Chancellor Gordon Brown declared, “the time of indecision is over. The period for practical preparation [to join the euro] has begun”, adding that “we are the first British government to declare for the principle of monetary union”. He then went on to appoint a committee, dominated by representatives of British monopoly capital, to make the necessary practical arrangements to prepare Britain for euro membership.

The Five Tests

In his announcement of 9 June 1997, Chancellor Brown also spelled out the economic criteria – the five tests – that must be met before Britain could join the euro. These were as follows:

Test 1.

Whether “business cycles and economic structures [are] compatible so that we and others could live comfortably with euro interest rates on a permanent basis”.

By the end of the year 2000, interest rates in Britain and the eurozone were close to convergence, the output gap (the capitalist-speak for the deviation of actual from potential output) was quite close, but unemployment in the eurozone stood higher than in the UK – at least according to the massaged figures on unemployment used by the British government.

Test 2.

Whether there was sufficient flexibility in the system to tackle any problems, it being accepted by bourgeois economists that floating rates provide greater flexibility for dealing with shocks than an irrevocably fixed exchange rate.

Test 3.

Whether membership of EMU “would create better conditions for companies making long-term decisions to invest in the UK”. Until 1999 there was little evidence that the failure to join the single currency had had any adverse effect on investment in the UK, for in that year (1999), business investment in the UK represented a higher share of GDP than in Germany and France. The UK also remained the largest recipient of Foreign Direct Investment (FDI) in the EU; in 1999, it received 39% of the total FDI received by the EU.

Test 4.

The effect of membership “on the competitive position of the UK’s financial services industry, particularly the City’s wholesale markets”.

The City is one of the largest and most sophisticated financial markets in Europe. It is one of the three major financial centres of international capitalism – New York and Tokyo being the other two. It has the largest foreign exchange market, accounting for nearly a third of global transactions. It is the centre of international trade in gold, and accounts for half of global trade in non-local shares. After Tokyo, it is the largest centre of fund management, has the largest derivatives market, and continues to be the biggest centre of insurance and ship broking. On reliable estimates, the City generates a fifth of Britain’s income and employs 311,000 people (down from a peak of 326,000 in 2002, see FT, 17 February 2004).

It is this position of the City as a major international financial centre, and the fear of losing the massive profits that flow from it, which serves to reinforce the euro-sceptic tendency within the ruling class. In particular, speculators in currency stand to lose a great deal of money, considering that $1.5 trillion is traded on the world’s currency markets – a third of it on the London money market – and UK membership of the euro cannot fail to burn a big hole in the pockets of money changers.

The City’s strategic position, combined with Britain’s relationship with the US – trade, financial and military – causes a significant section of British finance capital to entertain the illusion that it can make a go of it alone outside the eurozone or in some sort of special relationship with the US. On the other hand, others apprehend that Britain’s refusal to join the single currency, far from turning Britain into the Hong Kong of Europe, could end up by undermining the position of the City, especially if the euro manages to establish itself successfully as a rival to the dollar. In view of the fact that 40% of its income from the export of goods, 30% from the export of services, and 33%cent of its income from investment come from the eurozone (the comparable figures for income from the US are 12%, 23% and 20% respectively), serves to bolster the arguments of the pro-euro lobby.

Test 5.

The fifth test merely sums up the preceding four, namely whether “joining the European monetary union [would] promote higher growth, stability and a lasting increase in jobs”.

Then there is the question, omitted from Gordon Brown’s tests, of exchange rates. Certainly from the time of the launch of the euro until recently, the exchange rate of sterling against the euro was too high and Britain’s entry at the rates then prevailing could have turned a “temporarily uncomfortable level into the burden of chronic uncompetitiveness” (FT, 21 February 2001).

Since then the euro has bounced back and reached a level at which the exchange rate does not offer an obstruction to Britain’s membership. At its inception, the euro stood at $1.19. On 22 September 2000, it fell to 65 cents – a loss of 5 cents over the month and 28 per cent since it launch on 1st January 1999, causing US, UK and Japanese central banks and the ECB to intervene on 22 September to support the euro. Fundamental to the euro’s decline was the strength of the US economy, and the resultant flood of euros out of the eurozone to the US to finance the latter’s growth built on a spending spree – in other words to finance excess US consumption over production. Owing to the inherent weakness of the US economy, with it huge budget and current account deficits, its huge indebtedness to the rest of the world, gigantic military expenditure, and its growth dependent on ever-increasing consumer spending financed by foreigners, the dollar has slid against the euro by 46% over the past two years; during 2003 alone, the dollar fell by 18% against the euro. Today the euro stands at $1.25.

Gordon Brown has since 1997 cooled the idea of Britain’s membership of EMU. Whereas in his statement to parliament on 23 October 1997 he said that Britain would join the euro before the next election “barring some fundamental and unforeseen change in circumstances”, in his recent assessment of the 5 tests, the sole guardianship of which he has always claimed for the Treasury, he declared that these tests had not been met. Notwithstanding the fact that a majority of the Labour members of parliament and a significant section of the trade-union leadership are in favour of Britain joining the euro, the Labour government is just as divided and paralysed as the previous Conservative administration, finding itself unable to sell the idea of euro membership to a sceptical British public.

Membership of euro – a political decision

The truth, which most of the time remains unstated, is that in the final analysis, the decision to join the euro or not is a political – not an economic – decision; a monetary union is primarily a political, not an economic project. Those who wish to join do not simply rely on the economic criteria; instead they set about creating the prerequisite conditions for membership. This is precisely what happened with the eurozone countries. Without the 1999 deadline, the 12 eurozone countries, like Britain, would still be waiting to join the euro. As to the question of convergence between the British and the eurozone economies, this is not something God-given but the result of policies. The British government can create those conditions of convergence if it has the desire and the will to do so. If, on the other hand, it is of the opinion that there are solid grounds for Britain not desiring to converge (it may, for instance, conclude that the current economic troubles of the eurozone are not cyclical but symbolic of a deep-rooted long-term weakness), then the thing to do would be to quit the EU and the single market.

Political Union or Break Up of the European Union

The ultimate aim of the founding fathers of the EEC was to create a political union – a federal European state with a single currency. The path chosen towards this objective was economic rather than constitutional, for in the conditions of half a century ago a constitutional path would simply have been a non-starter. In the words of Martin Wolf “Europe was to be integrated politically, by being integrated economically. Moreover, the journey was to be taken one practical step at a time” (‘Europe’s Challenge’, FT, 6 January 1999).

These tactics of the founders of the EEC have been brilliantly successful, but they were no more than tactics. With the introduction of the single currency, economic integration has run its course, forcing European Union (EU) countries to confront the political reality staring them in the face. Either they take the necessary political steps and embrace the constitutional mechanisms towards a federal Europe with a single currency, an integrated market, a central bank and a common security and foreign policy or give up the whole project. The time for fudge and nudge, for patent dishonesty, is long past.

This how Martin Wolf portrays the situation which faced Britain and other EU countries at the beginning of 1999, and which faces them presently too: “British protagonists of participation in the grand European project have, too often, pretended that the economic means were also the ends. Even now proponents of British adoption of the euro pretend this is an economic decision, to be taken on the basis of a conventional calculation of national economic interest. This is dishonest nonsense. The goal has never been strictly economic. It has always been to secure an irrevocable political integration of Europe’s states and peoples.

“Now, with the launch of the euro, Europe has reached the end of its functional path; economic integration per se has become a matter of dotting ‘i’s and crossing ‘t’s. The continent must return, willy nilly, to the political questions left aside at the beginning of its journey, half a century ago” (ibid).

The proponents of monetary union, especially Germany, have never tried to hide the fact that behind the monetary union lay the political integration of Europe. Had it not been for this goal, Germany would never have given up a currency as strong as the D-mark. And the introduction of the euro is, “… like a wedding ring, … a powerful symbol of the consummated marriage” (ibid).

With the successful introduction of the euro, economic integration had completed its work and made way for constitutional measures to further the cause of political integration among the members of the EU – 15 now, but 25 as of first of May when the accession of 10 new members from eastern, central and southern Europe takes effect.

To deal with this enlarged EU and to deepen political integration was the business of the Nice Summit of December 2000. Although advancing just a little the cause of integration, Nice created new complications. Under the Treaty agreed at Nice, any EU decision requiring QMV (Qualified Majority Voting) could only be made by a triple majority: a majority of the member states (13 out of 25), representing 62 per cent of the EU population, and 72 per cent of the weighted voting (232 out of 321). The Nice Treaty comes into effect on 1st May.

Nice was a rotten compromise driven by France’s insistence to have voting parity with Germany although the latter’s population is far larger than that of the former (Germany 82 million, UK 59 million, France 60 million, Italy 58 million, Spain 40 million and Poland 39 million). If that meant giving 27 weighted votes apiece to Spain and Poland as against 29 for the Big Four (Germany, Britain, France and Italy), the French president, Chirac, was prepared to go along with it. Far from making decision-making easier, efficient and intelligible, the Nice system made it clumsier, opaque, undemocratic and a prescription for deadlock.

Constitutional Treaty

It was precisely to repair the damage done by Nice that the EU’s Laeken summit in December 2001 set up the European Convention, under the chairmanship of the former French president Valéry Giscard d’Estaing, to draft a new constitution. The Convention started its proceedings on 1 March 2003, with 104 delegates (as set out in the table 1), with the mandate to produce a draft constitutional treaty for endorsement by the IGC (Intergovernmental Conference) by the end of 2003. Table 1: Membership of the European Convention Chair 1 Vice Chairs 2 Reps of Heads of States of governments of member states 15 Reps of national parliaments of member states 30 Reps of European Parliament 15 Reps of European Commission 2 Reps of governments of candidate states 13 Reps of parliaments of candidate states 26

After 16 months of deliberations, Giscard delivered a draft constitutional treaty, which provides for a simplified voting system requiring a double majority of 50 per cent of the member states representing 60 per cent of the EU’s population. Following a big concession from France the draft treaty scrapped the system of weighted voting; it also scrapped the rotating six-monthly presidency of the Council of Ministers, replacing it with a semi-permanent president of the European Council, and a foreign minister with one foot in the Commission and the other in the Council – replacing the dual role currently performed by Chris Patten, the Commissioner for external affairs and Javiar Solana, the EU’s foreign policy chief. The draft treaty also provides for the extension of majority voting and reduction in the size of the Commission to 15 full commissioners. In the face of vehement opposition from the US, the treaty makes provision for a CFSP (Common Foreign and Security Policy).

The year 2003 was not overly propitious for European unity and agreement on a new constitution. In February, the issue of the then-impending Anglo-American imperialist war against Iraq produced sharp differences between ‘New Europe’ and ‘Old Europe’. In June, following Gordon Brown’s assessment of the five tests, the British government shelved plans for a referendum on the single currency. September saw the Swedish rejection of the euro in a referendum. On 25 November, EU finance ministers decided against taking disciplinary action against Germany and France for their persistent breach of the EU’s fiscal rules, thus tearing to shreds the SGP (Stability and Growth Pact), souring relations between the fiscal and monetary authorities, upsetting the European Commission (which since then has decided to start legal proceedings in the European Court for enforcement of the Pact), and putting in jeopardy the negotiations over the constitutional treaty. Through this action the credibility of the EU and the eurozone has been much damaged. As the FT of 25 November put it, the worst time to break a treaty is when you are negotiating a new one. Germany and France have been likened to a pair of playground bullies by some smaller members of the EU. To Spain’s bitter complaint over the breach of the Pact, one French diplomat retorted: “We will not take lectures from Spain on economic management. If it weren’t for the transfers from Germany to Madrid, they would be having the same problems under the stability pact” (quoted in FT, 27 November 2003).

Although in violating the SGP Germany has violated its post-war taboo of the sanctity of fiscal orthodoxy, it had little choice in view of a collapse in tax revenues and steeply rising unemployment that left the German treasury with a Euro 43.4 billion ($51.6 billion) shortfall in the federal budget.

The IGC, which met in Brussels at the weekend of 12-13 December to consider the draft treaty, ended in failure because of differences over the composition of the Commission, national vetoes and, above all, the insistence of Spain and Poland to stick to the complex Nice voting formula, which favoured them at the expense of bigger countries, notably Germany. The Brussels deadlock represented a split between old members, founders and latecomers, and big against the would-be big. If accepted by the IGC, the new treaty would have been delayed until 2009, for as from 1st May this year it is the treaty agreed at Nice that will govern the working of the EU. Further, even if accepted at Brussels, there was never a guarantee that the new treaty would receive ratification by each of the 25 member states. With several of the member countries planning referenda on the treaty and the public mood in the EU becoming more sour by the day ever since enlargement to 25 became a political reality at the Copenhagen summit of December 2002, the chances of failure were pretty high.

Two-Speed Europe

Following the failure at Brussels, France and Germany revived proposals for a two-speed Europe with an inner and outer orbit. A two-speed Europe is already a reality in the form of the eurozone and the Schengen group of countries that operates a border policy. But the failure at Brussels has spurred Germany and France to pursue with even greater determination the project of an “avant-garde group”, under which some countries will forge ahead with faster integration without waiting for others, who will be free to join as and when they wished. Since the sole purpose of such a pioneering group is to enhance Franco-German power, by its very nature such a group is inimical to European integration. Even the six founding members of the EEC disagree with each other. As to the latecomers, while cooperation in security and defence requires Britain, which insists on a veto in these matters, as well as in the areas of tax, social policy, judicial cooperation and budget rebate, countries such as Austria, Greece, Hungary and the Czech Republic have expressed their desire to be part of the vanguard.

Since the 11 March Madrid bombings, in which nearly 200 innocent Spaniards paid with their lives for the criminal policies of their ruling class and government, and the electoral defeat of the Popular Party of José María Aznar, the political scene has undergone a dramatic change. Not only has the incoming Socialist administration of Zapatero announced its intention to withdraw Spanish troops from Iraq, thus delivering a shattering blow to the Anglo-American imperialist project for the occupation of Iraq, it has also showed its willingness to take, unlike the previous Spanish government, a more flexible stance on questions which separated Spain from Germany and France. It has indicated that it would be prepared not to insist on its voting rights under the Nice Treaty – a stance that has forced the Polish government too to reconsider its position. With this, the chances of the new constitutional treaty being accepted by the 25 member states of the EU have improved considerably. Certainly the Irish presidency of the Council, under Bertie Aherne, is working overtime to achieve such an outcome.

We cannot foretell with certainty if the project for the political union (for federal Europe – that is what it is) will be successful. Only time will tell. That Germany and France are determined to create a new European imperialist bloc dominated by them, or perhaps by them and Britain if the British decide to throw in its lot with them, there cannot be any doubt. Chirac confidently stated, admittedly before the Brussels summit, “Europe’s history is one of a series of crises overcome. We progress from crisis to crisis” (quoted in FT, 3 November 2003).

Certainly Germany and France have some persuasive arguments in the form of money and the EU budget. The accession of the 10 new countries on 1st May would add a mere 5 per cent to the EU’s GDP but a huge 20 per cent to its population. In 2000, the present 15-strong EU had a population of 376 million and a GDP of $8,460 billion, while the 10 new countries due to join on 1st May had a combined population of 74 million, their combined GDP was only $338 billion. The new members are much poorer than the old, with their per capita income at purchasing power parity (PPP) averaging at $10,550 (Cyprus being the richest with GDP per had of $20,780 and Latvia the poorest at $7,070 per head), as compared with GDP per head of $23,556 (Belgium and Luxembourg being the richest with GDP per head of $27,470 and Greece the poorest with $16,860) among the existing 15 member states (see FT, 11 December 2002).

There are thus going to be increasing demands on the shrinking fiscal resources of the EU, laying the ground for further acrimonious arguments over money, providing the paymasters, especially Germany, with an opportunity for arm-twisting of the recipients such as Poland and Spain. Looming ever larger is a struggle between these two groups over the structure of the EU budget between 2007 and 2013, which will once again pit the disputants at Brussels against each other. Hard on the heels of the failure at Brussels came another shock. In what looks like a pre-planned move, the six principal contributors to the EU’s budget (Germany, France, Britain, the Netherlands, Sweden and Austria) made a formal demand for the reduction of the ceiling on contributions to the EU’s budget from 1.27 per cent of GDP to 1 per cent. Just as 10 new, relatively poor, countries from eastern and southern Europe are at the EU’s entrance door, the richer members want to reduce their generosity. The smaller the EU budget, the less cash would there be not just for Poland and other newcomers but also for existing beneficiaries such as Spain. There is more than a subtle hint from the paymasters to the recipients to behave or else face the prospect of a cut in aid, mostly in the form of farm and regional subsidies – the principal instrument of redistribution in the EU. With the change of government in Spain, the chances of Germany and France getting their way look increasingly probable.

At the moment, no one can say with certainty that the project to create a federal European state, with a single currency, a single army, a common foreign and defence policy, and a single legislature, an executive and a judiciary, would be or would not be realised. There formidable obstacles to its realisation, such as deep divisions across Europe over transatlantic relations, lack of a common language, the problems resulting from the stability and growth pact, the difficulty of managing a union of 25 members and the challenge of further additions to the EU, the distrust between big and small members states and the rivalry among the bigger states, wrangles over budgetary contributions, disagreements on the question of a single foreign and defence policy, and the absence of an integrated European bourgeoisie.

Maybe we shall see the emergence of a two-tier Europe, which is what Germany and France have threatened to do if the constitutional treaty is rejected. German foreign minister, Joschka has warned: “The draft Constitution is a tremendous step forward. If it is blocked, history will not wait. Things will move forward. We’ll have different goals”.

As already stated, a two-tier Europe is already in existence in the form of the eurozone (with 12 states in it and others out of it) and the Schengen arrangement for border controls and cross-border policing. It is perfectly possible that the Franco-German axis would manage to create a group of core countries with a common foreign and defence policy.

As for the UK, the British ruling class is divided over questions of membership of the euro and of a common foreign and defence policy. The City, which accounts for nearly a fifth of British earnings, is ambivalent towards euro membership. On the one hand, it is fearful that membership of the eurozone might deprive it of its position as one of the chief financial centres and that it might be subordinated by its European rivals – especially Frankfurt. On the other hand, it is afraid that British non-membership of the euro might attract business away from it to Frankfurt and Paris, leaving London as a far less important financial centre. Besides, both the City and European capital have a lot to gain from combining forces, which would go a long way towards establishing the euro as a rival to, and perhaps a replacement for, the dollar. Likewise, in the field of defence, Britain’s armed might serves to give European common defence the credibility that it lacks thus far. For reasons of history, its economic interests and its investments, Britain has for decades faced two ways – in the direction of the US and Europe. The British ruling class has to choose in favour of the US or Europe, for the transatlantic Europe, which Britain would dearly love to create, has disappeared never to emerge again. Germany and France are engaged in the relentless pursuit of creating an imperialist bloc of European countries to rival the US and Japan. For the British bourgeoisie now the clear cut choice is between becoming a part of a federal Europe, which Germany and France are engaged in creating, or leaving the EU altogether and hitching itself to the US.

Our attitude

Our considered view is that the European proletariat ought to oppose with all its might the project of a united Europe under the conditions of capitalism. The concept of a ‘United Europe’ is not a new idea. It has been floated at different times by the ruling circles of different European countries in their desire to ‘unify’ Europe under their own control and hegemony. The present endeavour, this striving of the West European bourgeoisie to create a ‘unified’ Europe, is not due to sentimentality on its part, or to its devotion to the ‘idea’ of Europe, or to its desire to bring the peoples of Europe closer to each other, let alone ‘to spread peace, security and prosperity’, as is often asserted by the, in part ignorant, in part mendacious, political and ideological representatives of European finance capital. In this context we cannot resist quoting the concluding paragraph of an article written jointly by Tony Blair and Göran Person, respectively the prime ministers of Britain and Sweden, characterised as it is by breathtaking hypocrisy, duplicity and honeyed phrases to dupe the Simple Simons of this world and divert their attention away from the real imperialist nature of the European project:

“We also share a vision of a reformed and modernised Europe – neither a super state nor just a free-trade area, but an open community of democracies based on the rule of law and values of liberty, openness and social justice, acting together to promote common interests. Our two countries will work together to strengthen and develop that vision in the months ahead, in partnership with all who share our values and hopes” (Financial Times, 21 September 2000).

This striving to ‘unify’ Europe has it origins in numerous causes of an objective character. If in the 1950s, the desire to unify Europe emanated from the economic weakness of Europe and the fear of the spread of revolution, today it is the economic strength of Europe and the disappearance of the Soviet Union and the abysmal state of the working-class movement. In 2000, the EU’s GDP at $8,460 billion, at market prices, was nearly as big as that of the US at $9,600 billion. At the time of the launch of the euro in January 1999, the EU accounted for one third of world trade and 20 per cent of global exports (while the US accounted for 16 per cent and Japan 10 per cent). As from 1st May, its internal market will embrace 460 million people as compared with the US’s 282 million. The USSR collapsed in 1991. In view of that collapse, and the new economic conditions, EU-finance capital sees no reason to bend to the wishes and whims of US imperialism. The uneven development of capitalism, and the emergence of the EU as an economic power rivalling the US, has seen to this. As a result, the European bourgeoisie is busy creating yet another – European imperialist bloc, with its own ambitions for domination – and the working class ought to oppose it for the following reasons.

Reason 1.

It is the duty of the European proletariat to struggle against all superpower domination and hegemonism, not just against that of the other imperialist powers such as the US.

Reason 2.

A unified Europe will lead to the further intensification and exploitation of the European working class. The EU in no way changes the essence of the capitalist mode of production. Far from abolishing the contradictions inherent in capitalism, the EU merely gives rise to them in new forms and fields. Thus the EU has over the years witnessed an increase in the two problems typical of capitalism – the under-utilisation of capacity, and the phenomenal growth of unemployment – all of which furnish fertile soil for the intensification of the exploitation of the European working class by European monopoly capital.

Far from assuring workers’ rights, as some of the trade union leaders and the social democratic ‘left’ assure, the Europe created will be characterised by massive privatisation, de-regulation, swingeing cuts in welfare benefits, pensions and wages, as countries struggle to meet the Maastricht criteria. In anticipation of the launch of the euro, a wave of mergers swept across Europe – from banking and insurance to telecommunications and retail – as European companies readied themselves to do battle against companies from rival imperialist powers. Every merger resulted in rationalisation and huge job losses. These mergers are driven by the need of European capital to cut costs, increase profitability, and strengthen its position against competition from monopoly capitalist enterprises from the US and Japan (for details of mergers and acquisitions, see the Preface to the second edition of Imperialism: decadent, parasitic, moribund capitalism by Harpal Brar).

Reason 3.

A united Europe is bound to present a formidable force for the purposes of further oppressing and extracting superprofits from the already oppressed and super-exploited peoples of Asia, Africa and Latin America. It is bound to make all attempts to attack and exterminate the movements for national liberation and socialism in the vast continents of Asia, Africa and Latin America.

The planned EU 60,000-strong Rapid Reaction Force (RRF), equipped with 400 aircraft and 100 ships, capable of being mobilised within 60 days and operating without replacements for periods of up to a year, having an independent (i.e., independent of NATO) capacity to project forces at long distances from its borders, will be nothing short of a unified European military force, irrespective of whether it is called by that, its proper description, or not. This force, sanctioned at a meeting of EU defence and foreign ministers on 20 November in Brussels, and since then endorsed by the Nice Summit, is to be endowed with such armaments and facilities as will do away with all those weaknesses revealed by NATO’s war of aggression against the Yugoslav people in the spring and summer of 1999, during which war US imperialist military dominance and European impotence alike were only too plainly, and for the European bourgeoisie only too painfully, revealed. Thus, the EU force is to be equipped with transport planes, cargo ships, guided precision weapons, electronic intelligence gathering, control and communications capabilities. It is an unprecedented departure from the military strategy of the countries of the EU and marks the beginning of the break-up of NATO. This is the reality, no matter how often, and how emphatically, the EU leaders pledge that the NATO alliance remains the cornerstone of Europe’s defence, or that this new force is intended “to contribute to the vitality of a renewed link and a genuine partnership between the EU and NATO in the management of crises”, as the draft report on defence from the Nice Summit would have us believe. No one, least of all US imperialism, is fooled by such declarations. No wonder, then, that William Cohen, US defence secretary, publicly warned on the eve of the Nice Summit that NATO would become a ‘relic’ unless the EU’s defence plans were closely tied to NATO. US fears can hardly have been assuaged by the following statement of M. Chirac at the start of the Nice Summit:

“If Europe, for its own reasons, finds it wishes to intervene where the US would not be involved, then it has to have the means to do that.

“The idea is not to weaken but to strengthen NATO. It has to be co-ordinated with NATO, but it also has to be independent.”

The Nice Summit also approved the establishment of a military committee, a military staff of around 100 and a political and security committee.

With characteristic hypocrisy, the EU asserts that its RRF is intended “solely for humanitarian, crisis management, peacekeeping and peacemaking exercises”. Was not NATO’s barbarous war against the Yugoslav people waged under an exactly similar slogan? No, the truth is that it will be a rival – European – imperialist force designed to crush the proletarian revolutionary and national liberation movements in Europe and elsewhere, for imperialist humanitarianism, peacekeeping and peacemaking are no more than euphemisms for the counter-revolutionary suppression by imperialism of national liberation and socialist movements. Precisely that is why V I Lenin made the observation that:

“A United States of Europe under capitalism is tantamount to an agreement on the partition of the colonies [neo-colonies in our times]”.

Further, anything that helps the imperialist bourgeoisie, including that of Europe, to achieve these counter-revolutionary aims, anything that helps it continue the extraction of superprofits from Asia, Africa and Latin America, harms not only the interests of the peoples of Asia, Africa and Latin America, but also the interests of the European proletariat, for imperialist superprofits, by furnishing the means for bribing the upper stratum – the labour aristocracy – of the working class, foster the growth, and strengthen, opportunism in the working-class movement – thus retarding the struggle of the proletariat in the imperialist countries for its social emancipation. Let us note in passing that by and large the trade-union leadership in Britain and Europe which, representing as it does the privileged sections and being therefore tied hand and foot to imperialism, is supporting this project. Precisely for this reason the European proletariat is duty-bound to oppose the moves aimed at creating a European imperialist super-state.

Reason 4.

In a crisis situation, the European bourgeoisie is bound to use its combined strength for the suppression of the proletarian revolutionary movement.

Thus the capitalist integration of Europe, undertaken by European finance capital, cannot be in the interests of the working class. The European bourgeoisie is seeking to unite its forces for the purpose of suppressing the revolutionary movement on the continent of Europe, for suppressing the liberation movements in Asia, Africa and Latin America, for maintaining the flow of tribute – the imperialist superprofits and plunder – from these vast continents, and for strengthening its competitive position vis-à-vis US and Japanese imperialism. The project of a unified Europe bears all the hallmarks of its creators. This is how that revolutionary genius, V I Lenin, characterised the theories of the advocates of a united Europe:

“The United States of Europe under the conditions of capitalism is either impossible or reactionary. Certainly, it is possible for temporary agreements to be concluded between capitalists and between states. From this point of view it is also possible to create the United States of Europe, as an arrangement of the European capitalists …, but what for? Solely for the joint suppression of socialism in Europe. To create the United States of Europe under the conditions of capitalism means to organise reaction” (On the United States of Europe Slogan).


In view of the foregoing, it is clear that the aims of the united Europe presently being forged by European capital are, and cannot be otherwise under the conditions of capitalism, reactionary, and irreconcilably opposed to the interests of the working class, which can never see its future in a community of interests with its exploiters, namely, the imperialist bourgeoisie of Europe. The Europe that the monopoly capital of Western Europe is striving to create and strengthen will be a Europe of finance capital, of bankers and industrialists, and not a Europe of the working class. It will be a Europe of capital and counter-revolution, and not a Europe of the working class and of proletarian revolution. Hence, the European working class must, spurning all deception and subterfuges of the bourgeoisie, reject the slogans and project of a ‘United Europe’ presently being advocated not only by the big bourgeoisie of Europe, but also by the petty-bourgeois philistines and the ‘hired coolies of the pen of imperialism’ who are paid to depict imperialist slavery in bright colours.

In recommending this course of action, we are fully aware, we find ourselves on the same side as a whole spectrum of political parties and trends, ranging from sections of the Troto-revisionist fraternity to sections of the Conservative Party, the Empire Loyalists of various kinds – even the BNP fascists. But it will be clear to anyone who takes the trouble to read, and grasp the meaning of this article, that our reasons for urging the European (including the British) proletariat to oppose this project are entirely different from the reasons being advanced by the other opponents, who are against the European project for chauvinist reasons, such as ‘the sovereignty of the British parliament’, the traditions of ‘British parliamentary democracy’, ‘keeping the pound with the queen’s head’ on it, etc. We reject these bourgeois and chauvinistic arguments in their entirety. Had these been the only reasons that we could discern for the British working class being opposed to the present efforts at European integration, we would certainly not have undertaken the trouble of writing this rather lengthy piece. Doubtless there would not be wanting grouplets of cranks who, with hair-splitting methods of argument, reminiscent of medieval scholasticism, would manage to find our reasoning nationalist or opportunist or both. But that is life, since there is no law outlawing cranks, of whom, sadly, capitalism produces a lot and furnishes the conditions which allow them to grow with tropical luxuriance.

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