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

Greece: the Road to Bailoutistan (2017)

Book Review from the August 2017 issue of the Socialist Standard

In his new book, Adults in the Room: My Battle with Europe’s Deep Establishment, Yanis Varoufakis sets out to portray himself as the political outsider who more than spoke truth to power: he stood up to power, and earned its scorn. He details his period as the Greek Minister of Finance as he tried to negotiate a write-down on Greece’s unsustainable debt, and an end to the practice of extend and pretend: his characterisation of the previous two bailouts from the European Central Bank, European Commission and the International Monetary Fund (known collectively as the Troika) which gave Greece more debt, turned it into a debtor colony (he names it Bailoutistan), and pretended that it could ever hope to pay the debt back.

Throughout, though, he reveals himself as a form of insider, a member of the international financial and academic set, with ‘good friends’ in major institutions throughout the world, including Lord Norman Lamont. He even had prior for working as an advisor for PASOK, the leftist Greek party that held political hegemony there for so long. He was, however, not a member of Syriza, and not part of the Eurogroup club of time-served politicians.

Like most politicians’ memoirs, though, he does go out of his way on point-scoring and dredging up old wounds. He claims Alexis Tsipras went and learnt to speak English on his advice; he recounts the reason why he turned up on British news in a tight couture shirt (he was travelling at short notice, and an aide was sent to buy him a shirt as he had no luggage); a vital document was not sent to the Eurogroup in time to be considered, and apparently this was deliberate political sabotage by a rival he claims was in hock to the Greek oligarchs.

The biggest betrayal was he says was that of Tsipras: they had an express agreement, Varoufakis claims, that they would stay the course. He gives us the game theory behind his strategy with the Troika: Varoufakis wanted a write-down on the value of the Greek debt, and a smaller required budget surplus to service, to allow some room for Greece to start growing again. He theorised that only a credible threat to default on some Eurogroup bonds, and thus destabilise the currency, would lead to that agreement. By his account, the refusal to sign up to a third bailout depended on being willing to issue the threat. In the end, Tsipras refused to issue the threat (in his review of this book, journalist Paul Mason suggests Tsipras backed down rather than risk civil war).

Varoufakis hung on to his post, trying to carry through some of his other reforms to tax collection and public spending. Tsipras launched the famous Greek referendum, to which the people replied “Oxi!” to a third bailout. Varoufakis reveals that Syriza players were secretly hoping for a yes vote, enabling them to back down and accept the bailout. At that point, Varoufakis resigned.

The book is useful on revealing the state of international institutions and Greek banks. Here’s how Varoufakis describes the deep corruption in Greek finance (worth quoting at length):

  ‘Here’s how our two bankers – let’s call them Aris and Zorba – did it.
  Aris’ family founded offshore companies, to which Zorba agreed secretly to lend without guarantees the millions that Aris’ bank needed. Why such generosity towards a competitor? Because Aris and Zorba were sitting under the same proverbial oak. Desperate to raise money for his own bank, Zorba agreed the loan on condition that Aris’ bank lent a similar amount to Zorba’s family’s offshore outfits. Aris’ and Zorba’s families then used money from their offshore accounts to buy new shares in their own banks, thus fulfilling the regulator’s requirements that new capital be raised and thereby qualifying for the real money that the poor taxpayer was borrowing from the troika.
   … they ended up owing nothing to anyone. Both sets of loans … were written off soon after being granted and transferred to the banks’ long list of non-performing loans….
  …An even more outrageous trick was employed: in addition to millions from Zorba’s bank, the Aris family’s offshore companies also borrowed millions from Aris’ own bank. These loans were also written off as unserviceable or non-performing, or were used to buy office space that was resold to other parties only to be leased back by the bank or sold to it at inflated prices. The newly conjured up funds, or ‘profits’ would be used to buy new shares in the bank, keeping up the pretence that investors were injecting private capital into them.’

This is nothing less than institutional corruption and financial fraud. This, seemingly, didn’t just apply to Greece, as executives at Barclays have recently been accused of a similar money-go-round with their bailout loan from Qatar.

Something similar happened with what the European Central Bank concocted to enable Greece to make a €3.5 billion repayment. It was literally a case of a central bank creating money, but money for the sake of money, nothing useful is bought with all this effort, except to the political right to keep Greece subservient to its creditors (of course, as is made clear above, this pretend money creation is only possible with the political connivance of the state’s central bank which is the only type of bank that really can just issue as much money as it wants).

That is the central lesson of this book: Varoufakis’ position would have been sensible in any business, but this wasn’t business. It was politics. He recounts talking to Wolfgang Schäuble, the German Finance Minister and apparent Eminence grise of the Eurogroup, who seemed to believe that there was no alternative to but to continue what he was doing, and impose extreme austerity on Greece. Varoufakis tells of how many people, individually, expressed sympathy, but in practice, stuck to the organisation line in any committee or in public. Interestingly, the only person to come out with praise was Emanuel Macron, then working in the French finance ministry. He apparently backed Varoufakis’ ideas, which may be significant for the coming years.

The need for the Eurogroup to have credibility internationally, to maintain the line that debts cannot be written down or off, that economic union, ultimately means political union to avoid such destabilisation, meant it had to pursue the only policy it had. In the end Syriza complied, after Greece was subject to a medieval siege that saw essential drug supplies cut off (including insulin and thyroxin) and a humanitarian crisis ensued.

Varoufakis describes how the institutions gave him the run-around: not letting him know who or where the decision-makers were; treating any speech by him as if they were listening to ‘the Swedish National Anthem’; and releasing misleading briefings to the press about events at meetings (there were no proper minutes, but Varoufakis recorded them secretly). The EU, he says, is likely to give Britain the same treatment during the Brexit talks.

His book is a warm and witty account of a period of significant turbulence in a country of 10 million, with a government prepared to try and stand up to the financial power structures of the world. It is also a story of their failure to achieve even limited reform and compassion for the people of Greece. What they were asking for hardly amounted to revolution, but was an attempt to shore up capitalism. Sometimes, the system just works against itself.

Pik Smeet