Contradictions in Euroland (1999)

From the January 1999 issue of the Socialist Standard

Only a few weeks before the launch of the single currency in Europe and just when things should have been coming together, a public row broke out between the monetarist European central bankers of Frankfurt and the French and German governments.

Put simply, the politicians (especially the new German government under Gerhard Schröder and his Finance Minister Oscar Lafontaine, the Sun’s latest bugbear) are talking of reflating Euroland—the 11 member states who adopted the euro as their common currency on 1 January—with extra government borrowing and spending in order to deal with structural unemployment. Of course, this attempt to revive discredited Keynesianism has not gone down well with the “orthodox” central bankers who think this will threaten the strength and stability of the euro. Such a clash of opinions is highly significant, with Wim Duisenberg, the President of the new European Central Bank (ECB), publicly condemning such economic “recklessness”.

Indeed, for those who remember the Maastricht “convergence criteria” and the Amsterdam “stability pact”, the politicians would seem to be wanting a major U-turn, but a closer inspection reveals the “Euro-fudge” which has always been there.

The process of closer integration in Europe has been driven in recent years by the Franco-German axis. In monetary terms this has been characterised by the “franc fort” (strong franc) policy whereby France pegged the franc to the German mark and its satellite currencies. France has always wanted Germany to cede more on the politics of economic and monetary union and not least on the idea of an “economic government” for Europe.

Germany used to favour a “strong” euro to replace the mark. France has been less orthodox and sought to weaken monetary policy with references to growth and employment targets. With the coming to power in Bonn of the new Red-Green coalition, it would appear that Germany is coming round to the French view.

Such a policy mess does not bode well for Euroland. There is also the plan to expand the EU eastwards, which must mean structural adjustments to the Common Agricultural Policy and fiscal transfers from the richer and “Club Med” states to the new entrants. Quite how such a plan is designed to sit with the single currency is anybody’s guess.

Further, the EU and the US have locked into yet another trade row, this time about banana imports which some commentators see as one of the first moves towards protectionism as the world economy faces recession. Indeed, this is the real context—the world crisis of capitalism. Faced with ever-increasing concentration of capital, the EU plan is to forge together in order to take on the big boys, the US and Japan.

Where does this leave Blair? After nailing his colours to the European mast is it any wonder he is so worried about the new direction for Europe proposed by Lafontaine and the others? It is, after all, a bit Old Labour and Mr Murdoch will be even less pleased with New Labour for getting caught up with such corporatism.

Dave Flynn