Is the Pound worth saving? (1999)

From the June 1999 issue of the Socialist Standard

Some said it would never happen, yet on 1 January of this year the Single European Currency became a reality. Five months on, we have seen the fall of Oskar Lafontaine, the German Finance Minister, the resignation of the entire European Commission and the Euro steadily fall in value.

Despite all of this, New Labour has started to come off the fence and demonstrate that they are preparing to recommend Britain’s entry to the project, subject to a referendum of course. This policy shift (especially after publishing the National Changeover Plan), has only intensified debate across the country, spawning a plethora of ad hoc organisations, dedicated to both sides of the argument.

Without equivocation, we in the Socialist Party say that the introduction is a capitalist question which has nothing whatsoever to do with the interests of the working class. Our class interests can only be furthered by the abolition of the capitalist wages system and all money no matter which name our masters wish to give it.

The “pro” and “anti” positions span the political spectrum from right to left. Some of the Eurosceptics to be found on the extremes of the Conservative and Labour parties are actually in favour of EU withdrawal, whilst the majority are just hostile to the Single European Currency. In the case of the Europhiles, they can be found anywhere from the Tory left, the Liberal Democrats through to New Labour. It is interesting to note that the vast bulk of the pseudo-revolutionary Trotskyite sects are defending their own variation of the Eurosceptic position.

Ever-increasing concentration

The Euro project is just the latest (but by no means the last) phase of European capitalism’s attempts to compete as an effective unit on the world stage (especially against the US and Japan). This is not just a political project, as the capitalist media likes to make out, but is rooted in the ever-increasing concentration, centralisation and integration of European capital. Indeed, the prelude to the launch of the Euro was littered with take-over activity. This process itself is part of capitalism’s attempt to restructure itself to the needs of the modern globalised economy.

Perhaps, not surprisingly, we find that the most powerful section of the capitalist class (big manufacturing and finance) are generally the ones pushing for Britain’s entry into the Euro. There are the capitalists who have a big stake in Europe either via importing/exporting or providing finance for take-overs.

It does not follow that businesses with extensive European interests who have supported the development of Europe vis-à-vis the EEC and single market EU, necessarily believe the Euro is a good idea in itself. The CBI, which represents big manufacturing capital, is actually quite divided on this issue despite its leadership being in favour. For many members, it’s not the principle of the Euro which is the problem—it is the economics of it. However, some pro-European capitalists take the view that although the single currency is not perfect, they cannot be left out of it. In fact some argue that early membership would have allowed the British government to influence the shape of the Euro project in their favour.

Bearing in mind that the majority of the British public are not Euro enthusiasts, we should expect to see a big propaganda drive over the next year or two from the powerful pro-Euro lobby (which is likely to involve the government). The most popular argument trotted out by the Europhiles is that an integrated Europe will reduce the risk of another European war because Germany will be kept in check. This is a feeble argument which totally misunderstands the causes of war. The fact that superficially Europe’s capitalists are coming together does not alter the fact that they remain competitors and this is only a marriage of convenience. If, due to capitalist logic, the arrangement should break down, no amount of political organisation at a supra-national level will prevent a war. The example of the United Nations demonstrates this.

Following on from this, we are told that from this position of political stability there will be increased economic growth via increased trade and low interest rates and inflation. The logical corollary of this would be a Europe reasserting itself on the world stage, whilst capable of dealing with its own internal balance-of-power. As pro-Euro economist Christopher Johnson argues in his book In With The Euro, Out With The Pound:

“The Euro, with the UK inside it will become a world currency alongside the dollar and the yen. Britain can thus retain, or even regain, some of its status as a world economic and financial power without giving up its national identity.”

Moreover:

“Britain can avoid German domination of Europe only by joining France, Germany and other European countries as partners in an integrated Europe” (p.197).

Quite where Johnson find the facts to support such optimistic economic reasoning is anybody’s guess. It’s certainly not supported by the first five months of the Euro, which has highlighted many of its contradictions. Firstly, there has been the constant bickering between the politicians and the bankers of the European Central Bank (see January Socialist Standard) which resulted in the resignation of “Red” Oskar Lafontaine, the German Finance Minister, and of course the corruption scandal at the heart of the EU Commission which demonstrates the lack of even basic democratic accountability. And as for the Euro becoming a world reserve currency to threaten the dollar—well it hasn’t happened yet. 

Eurosceptics

However, the capitalist class is multi-faceted and some sections are openly hostile to Britain joining the Euro. These capitalists (generally small and medium size concerns) grouped around organisations such as the Institute of Directors and the Federation of Small Businesses see joining the Euro as a costly adventure. The EU “social market” model is derided as an economic anachronism which will not be able to compete against the low cost, dynamic “free market” US and that Britain’s entry into the single currency will effectively spell the end of the Thatcherite revolution.

There is a certain amount of truth in this position. It is clear that if Britain did join the Euro there would be moves to harmonise taxes and costs since British capital would have an unfair advantage over its European rivals. However, it is also true to say that European capitalists have been trying to restructure their own economies for sometime now with attacks on welfare provision and working conditions. The results of this have been violent protests and demonstrations by French and German workers. In reality, Euro capital will try to restructure at home whilst demanding concessions from a British entry.

The Eurosceptics often claim that a single currency with a “one-size-fits-all” monetary policy would inevitably require a single fiscal policy. John Redwood, the Tory arch Eurosceptic, articulated this view in his 1997 book Our Currency, Our Country:

“You cannot have a single currency without a single interest rate, a single banking policy, a single budget and a single finance minister or central bank governor. You are inevitably led to a single taxation policy and a single economic policy. You are close to creating a single government” (Preface).

Although Redwood’s arguments may be more cogent and honest than Christopher Johnson’s, his views are ultimately based upon populist nationalism. Britain would cease to be an independent nation and parliament would resemble little more than a glorified county council under the jackboot of French and German bankers.

This may or may not be true. The question is what difference would this make to the working class? When people like John Redwood start talking about democracy it’s difficult not to laugh.

The main strengths of the “Eurosceptic” position rests on their critique of single currency economics. Firstly, they argue that Europe is not an “optimal currency area” which is a prerequisite for the Euro to be a long-term success. Britain’s trade cycle is synchronised more closely with that of the US and this could cause problems with a common interest rate policy (i.e. German growth may be slowing and Britain’s picking up). This could mean that the currency area was more susceptible to “asymmetric shocks” that could threaten the stability of the entire continent.

Left-wing Eurosceptics with their desire to reform British capitalism have also used “loss of control” arguments. The Campaign for an Independent Britain write in a recent pamphlet:

” . . . opting for economic self governance, rapid growth and full employment means opting out of a single currency” (Burkitt, Bainbridge and Whyman—There is An Alternative, p.65).

It is a supreme irony that left-reformists such as the aforementioned authors and Tony Benn can be on the same side as the Thatcherites, whilst denouncing the Maastricht “Convergence Criteria” and Amsterdam “Stability Pact” for being “monetarist” and “deflationary”. For these people are still labouring under the delusion that capitalist governments can control and influence the economy by using monetary and fiscal policies. They have learned nothing from history.

Clearly, the Tory Eurosceptics (currently under the leadership of William Hague) nominally support the notion of an independent Britain, but in reality represent the pro-US section of the British capitalist class. It is precisely this division between the pro-European and pro-US sections of the capitalist class that will fuel the single currency debate in the coming months.

Indeed, the EU and US seem to be in a perpetual trade war at the moment and such tensions are likely to increase rather than diminish. This makes Britain’s future role even more interesting. If Tony Blair does take Britain further into Europe, how will this affect Anglo-US relations? Perhaps Blair’s strategy will be to play one bloc off against the other?

We have seen the poverty of all the capitalist arguments for and against the Euro and located this debate in its true context. From the petty nationalists to the more “sophisticated” pro-Europeans this is not a debate for the working class. To be “pro-European” or “anti-European” is to fall for capitalist trickery. We should create our own agenda rather than just responding to our masters’ in-fighting. Is the Pound worth saving? A better question would be: Is capitalism worth saving?

Dave Flynn

Exit Oskar the pink (1999)

From the April 1999 issue of the Socialist Standard

In March the man the Sun once called the most dangerous man in Europe resigned as Germany's Finance Minister. The Sun—or rather Rupert Murdoch as a capitalist himself—didn't like him because they thought he had plans to increase direct taxes on profits in Britain up to the same level as in Germany.

Oskar Lafontaine was chairman of the German Social Democratic Party (SPD) which returned to power in October after years in opposition. Politicians who are out of office for long periods often loose their grip on capitalist reality—that governments must nurture profits and provide an environment in which they can flourish since they are what makes capitalism go round—and imagine that governments can work wonders simply by political will.

Sometimes, when returned to power after years in the wilderness, they try to put this mistaken idea into practice. The classic example was the French leftwing government, with Communist Party participation, that came into office when Mitterrand was first elected President in 1981. They really believed that they could "relaunch the economy" by "increasing popular consumption" and so they brought in measures to increase the minimum wage (which in France affects all wages since they are tied to it) and social benefits.

The result wasn't long in coming. Instead of economic growth being relaunched, inflation increased, leading to three devaluations of the franc in as many years. Within a year the new government adapted its policies to capitalist reality; they clawed back the reforms they had introduced and imposed austerity as a means of shifting the balance back from consumption to profits. They had learned the hard way that you cannot run capitalism in the interests of the excluded majority.

Since, with Kohl winning election after election, the SPD had been out of power for fifteen years, the big question after their September 1998 election victory was: would they make the same mistake as the first Mitterrand government, especially as they were in coalition with the Greens who also had ideas which if seriously pursued would threaten profits?

Oskar Lafontaine had written a book in which he proposed, as a way of getting Germany out of the current crisis, that wages and salaries should go up in line with productivity. He repeated this in newspaper articles and interviews after the SPD election victory. Since this would result in wages and salaries going up faster than they had been, it was equivalent to the policy pursued by the 1981 French government. And the thinking behind it was the same: if wage and salary earners had more to spend this would create more markets, so stimulating the economy to grow again.

In the event this turned out to be just another electoral promise but it earned Lafontaine the reputation of being "Red Oskar". Red used to signify revolutionary and has always been the fetish colour of Socialists. But there was nothing revolutionary about Lafontaine's ideas. He was merely putting forward the orthodox Keynesian nostrum that in a period of economic stagnation you should increase spending. Of course by the end of the 1970s Keynesianism had proved to be an utter failure on this point, as Marxists had foreseen years previously. But it is a measure of the very narrow margin of manoeuvre of reformists these days that even milk-and-water Keynesian reformism is denounced as "revolutionary" and "red".

Although, as Finance Minister, Lafontaine never tried to implement his idea of tying wages and salaries to productivity he did introduce some new direct taxes on profits and he kept on calling on the European Central Bank to reduce interest rates. He believed that this would help Germany out of the crisis (even though in Japan interest rates are less than 1 percent and they're still in the economic doldrums). For a Finance Minister to repeatedly call for a lowering of the interest rate was seen as out of order or even counterproductive. The ECB, which fixes the minimum short-term lending rate for the whole of Euroland, had to refuse such calls just to prove it did not give in to political pressure.

It was this that was the immediate cause of Lafontaine's downfall. The interest rate reduction which he and the rest of the German government wanted was being held up by his political interference making it difficult for the Bank to do this. So pressure was bought to bear and he left politics to spend more time with his family. Yet another reformist politician bit the dust. Good, or rather good as long as it helps workers in Germany and elsewhere realise that reformism is a dead-end.

Adam Buick