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

The Myth of Maastricht (1997)

From the September 1997 issue of the Socialist Standard

Pity the poor inhabitants of Maastricht. Six years ago no one outside of Holland and the neighbouring areas in Belgium and Germany had heard of the name of their town. Now, throughout Europe, it is a by-word for austerity, budget cuts and social regression.

It all goes back to February 1992 and the choice by the Dutch government, whose turn it then was to hold the presidency of the European Council of Ministers, to have Maastricht as the site for the final round of negotiations and the signing of a treaty to further integrate the economies of the Common Market countries. These countries aimed to move from a single European market without customs and other barriers to trade to an “Economic and Monetary Union” (EMU) in which there would be a single European currency to be controlled by a single European central bank.

Despite the various rather less sordid economic names it has gone under—and the Treaty of Maastricht changed the official name from European Community to European Union—the Common Market has always been essentially that: a project to bring about one unified barrier-free market in Europe. In other words, a purely capitalist project of no concern to ordinary people. That was why, in the referendum in 1975 on whether Britain should stay in or pull out of the Common Market, Socialists wrote “Socialism” across the ballot paper rather than voting either “yes” or “no”. That remains our policy for any future referendum on the subject.

The project itself goes back to the immediate post-war period when the capitalists of France, Germany, Italy and the Benelux countries realised that they would be handicapped if they tried to compete with America on their own and decided on the long-term goal of merging their economies into a single European economy.

This has been a long, slow process which has been going on for over 45 years now. First, the coal and steel industries were made subject to common rules. Then this was extended to all other industries and, at France’s insistence, to agriculture. A common external tariff was erected, then all internal customs and tariffs between the member states were abolished, then non-tariff barriers to trade (different technical and other standards which had to be harmonised) were tackled.

To the leaders of Europe at least one barrier to a fully integrated common market still remained: currency fluctuations. These distort trade by the effect they have on prices. If a country’s currency is devaluing this makes its exports cheaper and so gives its exporting capitalists a competitive advantage over those from other countries. As this advantage does not arise from employing more efficient productive methods it is seen as unfair by the other member states.

Ignominious exit

The Common Market has tried to get round this problem with various schemes to fix limits to the extent to which member state’s currencies are allowed to fluctuate in relation to each other. This hasn’t worked all that well, as shown by the devaluations over the years of the French franc, the Italian lira, the Spanish peseta and the British pound (which ignominiously left the European Exchange Rate Mechanism one famous Wednesday in September 1992).

The Treaty of Maastricht adopted the ambitious aim of establishing a single European currency as the solution to this problem. The first step is due to be taken on 1 January 1999 when the exchange rates between the currencies of those Common Market states which join will be fixed, in theory for ever. For instance, the French franc would from then on always exchange for, say 3.4 Deutschmarks. If this works, then “franc” and “mark” will in effect be different names in different countries of what is essentially, from an economic point of view, already the same currency. The plan is that in 2002 these different names should be dropped and the same name “euro” be adopted everywhere.

But it is not as simple as that. Devaluation is a downward adjustment of the external value of a state’s currency reflecting a deteriorating relative economic performance or the fact that its currency’s internal value has declined faster than that of other states due to its government pursuing a more inflationary monetary policy. So at least one condition for lasting fixed exchange rates is that each state should pursue the same monetary policy. As governments generally inflate their currencies to pay for their spending including on the National Debt, the Maastricht Treaty placed restrictions on the level of both government spending and government borrowing.

These are the famous “Maastricht criteria” which all governments hoping to be in the first wave of countries adopting the Single European Currency are striving to meet. Those who blame the resulting austerity on the Common Market overlook the fact that at the moment world competitive pressures are forcing governments everywhere, not just Common Market governments, to cut back on government spending and impose austerity.

It is global capitalism that is to blame not the Treaty of Maastricht as such. Maastricht only comes into it because it was when and where the member states of the Common Market decided to coordinate and harmonise the austerity measures that capitalism currently dictates should be taken.

It is an illusion to imagine that, if there had been no Maastricht Treaty, there would be no austerity measures, or that Britain or France or Sweden or wherever could avoid them by withdrawing from the Common Market. Maastricht is merely one way of applying capitalist austerity, not its cause. Austerity is capitalism’s current order of the day and no country can escape from it.

That’s why you don’t find Socialists standing on the White Cliffs of Dover alongside British ‘Euro sceptics’ such as Tony Benn, John Tyndall, Arthur Scargill, Lord McAlpine and the others waving Union Jacks and chanting “Maastricht, Out, Out, Out”. We are fair to the people of the Dutch town and place the blame for austerity where it really lies: on global capitalism.

Socialists are not among those sad individuals who feel their identity threatened by the disappearance of the pound. What does it matter what name a capitalist state’s currency goes under? If anything, while capitalism lasts a single European currency (if ever it comes) would bring a slight advantage to workers as, when we go abroad to work or on holiday, we would no longer have to pay a tribute to the money-changers as we do today. But Socialists don’t want capitalism to last. We want it and all its currencies to go.

Adam Buick

Towards one Europe? (1993)

From the February 1993 issue of the Socialist Standard

If, as socialists contend, “unity is strength”, then the capitalist class would appear to be making a bid to strengthen their position in Europe. The Maastricht Treaty, signed by the twelve heads of state of the member countries of the European Community and currently undergoing the process of examination and ratification by the British House of Commons, is without doubt intended to be a declaration of European capitalist unity. Indeed, it grandly proclaims itself to be “A Treaty on European Union”.

You may not actually have read it, and if so, you are fortunate. 61,351 words of legalistically-precise, diplomatic-speak is not everyone’s idea of bedtime reading, insomniacs excepted. However, because of its clearly-stated objectives and the various claims made on its behalf by its supporters in all the main political parties, it is a document worthy of examination. This is not least because its supporters on the left of capitalism's political spectrum in particular claim that Maastricht represents a great leap forward for the European working class and provides the opportunity for a sustained European-wide peace.

Maastricht
The Treaty itself largely takes the form of a scries of amendments to the original Treaty of Rome which established the basis for the EEC in 1957. Its goals, set out in the Common Provisions in a preamble to the main text, notably include the following:

  The creation of an area without internal frontiers, through the strengthening of economic and social cohesion and through the establishment of economic and monetary union, ultimately including a single currency . . . [and] . . . the implementation of a common foreign and security policy including the eventual framing of a common defence policy, which might in time lead to a common defence.

About half of the Maastricht Treaty is taken up by the steps deemed necessary to achieve the level of economic and social cohesion vital for the achievement of these, and other goals. The economic harmonization provisions call for an “irrevocable fixing of exchange rates leading to a single currency, the ecu, and the definition and conduct of a single monetary policy and exchange rate policy".

The task of implementing such policies lies in large measure with a European System of Central Banks (ESCB), whose governors shall form a council presiding over a European Central Bank with “the exclusive right to authorize the issue of bank notes within the Community”.

The initial step towards the "irrevocable fixing of exchange rates” has, of course, been the already tarnished European Exchange Rate Mechanism (ERM). According to the Treaty, a European Monetary Institute will be set up in 1994 to oversee the general moves towards monetary union and sometime in 1996 a meeting of European heads of state will decide whether a majority of the member states fulfil the necessary conditions for it. The British government, though committed to the rest of the Treaty, has secured an opt-out clause on the final stage of monetary union and also on the agreement on social policy (the Social Chapter)—which simply means that the government will have less to renege on when it continues the time-honoured practice of governments everywhere of trampling on the working class whenever the capitalists deem it imperative.

There are sound reasons why some capitalists and politicians in Europe wish to proceed along the lines of political and economic union. The failure of governments across the world to successfully tackle the many problems which have beset the capitalist economy since its inception have led many to the conclusion that action to reform and mould capitalism cannot be successfully undertaken within the borders of any one single nation state. The growing inter-connectedness of the capitalist economy has been seen—with a degree of justification—as a force which no longer gives automatic recognition to the individual nation.This was recognized by Marx in the nineteenth century and is a process which has accelerated rapidly in the latter half of the twentieth:

  The bourgeoisie has through its exploitation of the world market given a cosmopolitan character to production and consumption in every country. To the great chagrin of reactionists, it has drawn from under the feet of industry the national ground on which it stood. (Manifesto of the Communist Party).

Black Wednesday
Capital is now a truly world force, and its rapid movements make the nation state seem like an economically powerless institution. It is here that occurs one of capitalism’s many contradictions—one which is in no small part responsible for the recent difficulties encountered by the European nation states set on Union. This is the contradiction between the inter-connectedness of capital on the one hand, and the firmly national and imperialist basis on which the capitalist class organizes itself on the other.

The competitive drive to accumulate capital which pervades capitalist production and exchange ensures that sections of the capitalist class with divergent economic and strategic interests are forever in antagonism with one another over trading arrangements. sources of raw materials and spheres of influence.

At one level such antagonisms were clearly demonstrated last September with the departure of Britain from the ERM on “Black Wednesday" and the devaluations of the Italian and Spanish currencies. Though the ERM ensured relatively cheap and stable import prices it was opposed by a significant section of the British capitalists who contended that an exchange rate pegged at around £1:2.95DM made British exports uncompetitive and necessitated high interest rates to support the pound at what was an otherwise unsustainable level.They considered that the ERM produced unfavourable trading conditions and are now lobbying the government never to return to it in its old form.

European unity among the capitalist class is made even more unlikely because national antagonisms over trading conditions and the like are exacerbated by divergent economic performances between nation states. This is part of the explanation for the slide of the pound against the deutschmark. Britain’s economy was weaker and entered into slump much earlier than Germany’s, and the monetary conditions required in Britain were rather different from those appertaining in Germany, producing further antagonisms.

If by some miracle a single currency, with one central bank and one minimum lending rate, was established in Europe, it could not end these antagonisms. A single interest rate, for instance, would have to reflect the market conditions affecting money capital throughout Europe. In order for it to work effectively all of Europe would have to be at the same stage of the trade cycle at more or less the same time. Interest rates tend to be highest at the end of a boom and then at the onset of economic crisis and slump. If one country entered recession before the others—as is normally the case—it would even more quickly than normally drag the other countries down with it by pushing interest rates up in those countries where rates would otherwise still be falling.

It is highly unlikely, however, that it will come to this. For it is not only at the purely economic level that nation states tend to march to a different tune. The more longterm political, military and strategic concerns of Europe's nation states invariably lead them to pull in different directions. The interests of Britain and Germany are, for example, hugely at odds. Britain's position is largely determined by its relatively privileged status with regard to the world’s largest capitalist power, the United States.

While the US initially used its considerable influence in Western Europe to try and bind the various nation states closer together as a strong buffer to the former state capitalist Eastern bloc, its main priority since the collapse of the USSR has been to prevent Germany emerging at the head of a strong new imperialist bloc. In this it is being ably assisted by Britain. Germany, determined to challenge US hegemony, has been able to rely on support against the US from France, but future French support will only be forthcoming to the extent that France itself can ensure German military and strategic containment across the European continent.

In the light of the collapse of the Eastern bloc and with German re-unification, the inherent imperialistic tensions between the European nation states are, if anything, intensifying. This was recently acknowledged by Iain Vallance, chairman of British Telecom:

  In Western Europe the Community is less stable than it has been for more than 40 years. There is a risk that we could return to . . . the pointless struggle for political dominance by individual states or rival groups. (Sunday Times 11 October)

The sharp disagreements over the latest GATT "settlement” are just one example of why Mr Vallance’s worries are well-founded. The history of capitalist Europe has periodically been one of imperialist adventurism, invasion and annexation.

So far, capitalism has shown itself to be incapable of overcoming the national divisions that it has engendered over two centuries and more. Maastricht will not change this. It is a capitalist utopia, already—and not surprisingly—coming apart at the seams.

Dave Perrin