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Issue 50, September 2000

Bloc Building

    Convergence and divergence
    EU structures
    Enlarging the Union
    International relations

The European Union has set out its Agenda 2000: enlarging the EU by taking in countries from Central and Eastern Europe, and reforming EU structures. Against the background of a partial economic recovery, the euro is poised to replace national currencies. MANNY THAIN assesses the prospects for 'the European project'.

THE EUROPEAN UNION (EU) 'dotcom' summit held in Lisbon on 23/24 March evoked fulsome praise from the European media. Britain's prime minister, Tony Blair, stole the show, promoting e-commerce, the deregulation of telecomms and other pro-big business policies. There was a conspicuous lack of initiatives from France and Germany, the two countries which usually occupy centre-stage.

Blair slid effortlessly into a deal with Spain's right-wing prime minister, José María Aznar: "A curious alliance, you might say", commented the Financial Times. "Not so. We have to catch up with the times. The word from Downing Street is to forget right/left divides. That is pre-Thatcherite politics. What counts is that Mr Blair and Mr Aznar are both 'modernisers' - partners in the cause of economic and social reform. They share the same political vocabulary. For interventionism we must substitute flexibility, for social partnership, dynamism. It was the British and Spanish prime ministers who first came up with the idea of a special European Union summit to propel Europe into the dotcom age". (24 March)


Yet there were also warnings of the repercussions of these neo-liberal policies. Nicole Fontaine, the centre-right president of the European Parliament, denounced the direction the EU was taking: "Relocations, social dumping, ruthless exploitation of the disparities between the social and fiscal legislation of member states and remorseless pursuit of profit at the expense of working men and women have a direct and traumatic impact on their lives". People were "scandalised by untrammelled capitalism", she said. (Financial Times, 24 March)

French prime minister, Lionel Jospin, successfully demanded that energy and transport be excluded from the agenda. He was backed by Germany's Chancellor, Gerhard Schröder, whose government had just bailed-out the huge Holzmann construction company to save threatened jobs. In reality, however, both these social democrats share the same neo-liberal policies as Blair. Schröder has cut corporation tax from 52% to 39% and plans to lower the top-rate income tax from 51% to 42%. Jospin has carried through more privatisation than the previous conservative administration.

What the establishment politicians fear is provoking working-class opposition to attacks on living and working conditions. This is at the root of the difference in language used by the European leaders. The French and German working class have not suffered defeats on the same scale as, for example, Britain's workers over the last 15 years. There is still a confidence to fight back and a preparedness to struggle. Jospin and Schröder have to tread more carefully, so they mask their neo-liberal policies for the purpose of political survival.


"What on earth are the French up to with their 35-hour week?" asked The Economist. "The short answer is a heroic exercise in political symbolism... there is often a startling gap between rhetoric and reality on Europe's left". The same article warns: "Liberalisation by stealth, if that is what is going on, is a perilous political exercise. It requires tremendous skill to ensure that gestures to the left are at once neither economically harmful nor politically empty". (12 February)

The EU project is for the benefit of the ruling classes - a bosses' Europe. Lord Goldsmith, New Labour's representative in Brussels negotiating an EU Charter for Rights, epitomises this. His brief, urged on by the Confederation of British Industry and other business groups, is to ensure that any workers' rights mentioned are subservient to national law. In Britain that means retaining some of the harshest anti-trade union legislation in the Western world. Goldsmith "accepted he had been pressing for the deletion of many of the sections on workers' rights, including rights to free collective bargaining". (Guardian, 1 August)

Britain is the most Euro-sceptic country in the EU. Support for joining the euro has fallen to 22%, and only 24% trust the European Commission (the EU's executive). Twenty-five percent said they thought EU membership was positive. (Guardian, 25 July) In one of a series of leaked memos, Blair was warned against running a pro-euro campaign in the run-up to the next general election. Splits in the cabinet are desperately being patched up. The leader of the Tory Party, William Hague, sees Europe as an opportunity to claw back support for his embattled party. He has embarked on a reactionary, English nationalist turn.


On the other hand, the French president, Jacques Chirac, in his opening speech as France took over the EU presidency in July, stressed how he was "attached to the European social model, based on social dialogue... the role of the state as protector of social cohesion". (Independent, 5 July)

This right-wing conservative politician outlined plans to promote workplace and social rights. This does not represent a political conversion on his part. The reason for Chirac's rhetorical shift is that he faces a presidential election in 2002, and he is taking advantage of France's EU presidency to kick-start the campaign. Chirac appears to be less worried by the challenge from the right: the Front National has split in two and is in desperate straits, and the Gaullist right is weak and divided. His main threat comes from more EU-friendly conservatives but, above all, a possible head-to-head battle with Jospin. A survey showed that 59% of French people were either 'enthusiastic' or 'favourable' about the EU, with 70% supporting faster integration and enlargement. (Guardian, 27 June)

top     Convergence and divergence

WHAT IS THE situation with the EU and euro? Since the end of the post-war economic upswing in the mid-1970s there has been a growing development of regional trading and economic blocs. In times of economic crisis, protectionism and trade disputes tend to manifest themselves regionally; for example, around the North American Free Trade Agreement (NAFTA), the EU, Asean (South-East Asia), and Mercosur (Latin America). This has been illustrated by disputes between the US and EU at the World Trade Organisation (WTO) - and its predecessor, GATT - over farming subsidies, bananas, hormone-treated beef, cashmere and other products.


Currency unions between major countries can be viable in times of economic boom but are unsustainable in periods of crisis. It is precisely at times of economic turmoil that each country is forced to take different measures to defend the interests of its national bourgeoisie. The different measures each country has to take to deal with crises are incompatible with the strict rules a currency union imposes.

The first stage of the euro has happened. And, so long as the current boom in the US continues to pull the rest of the world economy along in its wake, it is even possible that the second stage could begin. That involves replacing the national currencies by the euro within the eurozone - Germany, France, Belgium, Netherlands, Luxembourg, Italy, Austria, Spain, Portugal, Ireland and Finland. Greece has recently been admitted as the twelfth eurozone member. If everything goes according to plan, that will commence in 2002. France has already stopped minting the franc; and euro notes and coins would mean the end of the 3,000 year-old Greek drachma, Europe's oldest currency.

But many economic commentators now agree that it is a question of when - not if - recession hits the US and world economies. Barry Riley stated in the Financial Times: "There are worries around. This week, the Bank for International Settlements, the central bankers' central bank, emerged from its usual obscurity in Basle to publish its annual report. 'The global economy now stands on the brink', it announced. 'But', it added unhelpfully, 'the brink of what?' The danger of a nasty global rebalancing, focused on a tumble by the US dollar, seems to underlie its anxieties". (10 June)


After the economic crises in Asia, Russia and Latin America from 1997, overseas investment flooded into the highly profitable 'safe haven' of the US economy. This further fuelled the speculative boom in shares on Wall Street and helped fund investment by US corporations, stoking up the US's current account deficit (now around $400bn, 4% of GDP). The strength of the dollar sucked in cheap imports from countries which had devalued their currencies. These imports, largely bought on credit, have kept the world's beleaguered economies afloat. Any slowdown in the US economy, however, will immediately affect the countries exporting to the US, and any fall in the value of the dollar will precipitate a reversal in the flow of overseas investment into the US economy.

The effects of a future crisis depend on the depth and scale of that crisis. It would be foolhardy, therefore, to try and predict the precise course of future events. Europe is made up of economically powerful states. They will strive to stay together, especially in the face of US protectionism and trade wars. But within the various regional blocs, the ruling class of each nation state will also attempt to further its own interests.

Joining the eurozone meant implementing so-called 'convergence criteria', which were designed to rein in public debt, keeping budget deficits at or below 3% of GDP. The idea was that this would guarantee the maximum stability for the new project. Initially, Greece was not allowed in, Italy cooked the books and Germany engaged in some last-minute 'creative accounting' to comply.


Convergence in some aspects leads to differences in other areas. Already, 18 months on, there is a widening gulf in the performance of the economies in the eurozone: Ireland's economy is growing at over 9%; Finland and Spain 4%; with Italy well under 3%. Since 1994, the French economy has grown faster than Germany's.

Economic and monetary union effectively imposes a single interest rate on all economies. Germany's inflation is at 2% and the eurozone interest rate is 4.25%, so Germany's real interest rate is 2.25%. Ireland with inflation at 5.2% has an interest rate which is actually negative in real terms (minus 0.95%). Low (or negative) interest rates tend to boost speculative investment and consumer spending - in Ireland the high levels of personal indebtedness (mainly mortgages) mean that lower interest rates result in people having more money to spend. There is a real danger of the Irish economy overheating as money pours in, pumping up the speculative bubble and threatening runaway inflation. House prices have been rising by over 20% a year, and share prices have risen by 40%. However, because Ireland accounts for only 1% of the eurozone economy, the European Central Bank (ECB) gives it scant regard when calculating its economic policies.

Similarly, ECB decisions on the euro affect the value of the currency throughout the eurozone. Again, individual countries react differently to the same stimulus. Countries like Germany which conduct most of their trade within the EU are affected much less than states which rely more on trade outside of the eurozone, for example, Ireland, Finland and Belgium.


The European economy as a whole has undergone a certain recovery, as opposed to boom, over the last couple of years. A key factor is that the low value of the euro means that eurozone exports are cheaper. But selling them depends on the market, especially the US. A downturn in the US economy would end the European recovery.

top     EU structures

THE LAUNCH OF the euro has been seen as another step towards European integration, both by those for and against it. Some commentators have contended that it signifies the beginning of the end of the nation state and the building of a common European identity. On the basis of a prolonged period of economic growth and relative social peace, capitalism has been able to partially surmount the national boundaries. But it has by no means abolished the framework of the nation states, which are the basic building blocks and power bases of the national, capitalist economies. The EU and single currency represent a trade and economic alliance between the ruling classes of various European countries.

Since its inception, the EU and its predecessors have been constantly pulled in opposite directions: closer economic and political co-operation being cut across by the interests of the national ruling classes of the individual states. The European Coal and Steel Community Treaty in 1951 involved a limited pooling of sovereign powers for France, Germany, Italy, Belgium, Netherlands and Luxembourg; and the European Economic Treaty of 1957 outlined a 'common market' for goods, farming and trade. In the late 1960s and early 1970s, especially under French influence, the EU grew as an economic rival to the US.


The 1987 Single European Act brought in Britain, Greece, Denmark, Ireland, Portugal and Spain. This Act, however, represented a step back from Jacques Delors' vision of a federal Europe, jettisoning the social aspect of the project. In 1992 the Maastricht Treaty on European Union drew up the blueprint for monetary union and a common foreign and security policy. In 1997 the Treaty of Amsterdam brought in Austria, Finland and Sweden and introduced the Schengen rules on immigration and rights of movement within the EU. The EU today comprises the above-mentioned 15 states

The EU's structures have been almost totally discredited. In 1999, its president, Jacques Santer, and the entire European Commission, resigned following the exposure of massive fraud, mismanagement and cronyism. The Commission's vice-president, Manuel Marín, and former French prime minister, Edith Cresson, were both deemed unworthy to hold office.

The European Parliament has no real power but acts as a check on the Commission. The Council of Ministers (the real decision-making authority of the EU) is made up of representatives of national governments. It is an inter-governmental body reflecting national concerns. The euro is in the hands of the unelected European Central Bank, which is independent of the Commission. Foreign, security and defence policy is likewise out of the Commission's hands. And Members of the European Parliament (MEPs) are elected by voters in the individual nation states, usually on domestic issues, on the political situation in voters' own countries. This is why a government often falls prey to protest votes at European elections. Last year, a centre-right majority was elected to the European Parliament when most of Europe's national governments are of a social-democratic nature.


The European Commission is made up of 20 members: Germany, France, Italy, Britain and Spain, each have two votes; the other ten countries have one each. Of the Council of Ministers' 87 members, Germany, France, Italy and Britain have ten votes each; Spain has eight; Greece, Netherlands, Belgium and Portugal five; Sweden and Austria four; Denmark, Finland and Ireland three; and Luxembourg has two votes.

At present, smaller nations have proportionally higher representation. For example, Luxembourg's population is 429,000 and Germany's is now 80 million (Bavaria alone has twelve million people, 24 times that of Luxembourg). If representation was based on population, Germany would have 160 members on the Council of Ministers to Luxembourg's two! But the disproportionate representation is permitted because the biggest nation states remain in control.

Qualified majority voting, which decides most issues, requires 62 of the 87 votes in the Council of Ministers. A blocking minority can be obtained with 26 votes. Italy, Spain, Portugal and Greece can muster 28 votes in a 'Mediterranean bloc'. On the other hand, three big countries can stop any decision, as can practically any combination of two big countries and two small ones.

The big six will ensure that their power is not eroded by the planned enlargement of the EU to incorporate a number of mainly Central and Eastern European states. But to stop the influx of smaller nations tipping the balance in their favour, the structures would have to be changed. This will raise extending majority voting at the expense of the national veto, something countries, such as Britain, find unpalatable. December's intergovernmental committee (IGC) in Nice aims to outline a new EU constitution.


top     Enlarging the Union

THE HELSINKI SUMMIT in December 1999 attempted to deal with enlarging the EU, part of its 'Agenda 2000'. This would dramatically alter the face of Europe by bringing in more than a dozen nation states.

It provides another clear example of the transformation of world politics since the collapse of the former Stalinist states of the Soviet Union and Eastern Europe in 1989/90. Tearing down the 'iron curtain' has raised the question of how to reintegrate Central and Eastern European states into Europe. These countries had been 'lost' to capitalism for nearly 50 years following the second world war. The US at that time pumped in massive amounts of financial assistance, known as Marshall Aid, to rebuild Western Europe in the wake of the devastation of the war, developing it as a counter-balance to the Soviet Union and its satellite states. The collapse of the former Stalinist states and the reunification of Germany has also tipped the balance of power in its favour.

At Helsinki, the countries were put into categories according to the likelihood of their joining the EU. In the first wave were placed Poland, the Czech Republic, Hungary, Estonia, Cyprus and Slovenia. In the second wave, Malta, Latvia, Lithuania, Slovakia, Bulgaria and Romania. The inclusion of extremely poor countries, such as Bulgaria and Romania, was politically motivated: a post-Balkans war attempt to keep these states 'on message' with Western imperialism. Turkey was given candidate status: sometime-in-the-future-maybe. Ukraine was effectively written off.


The collapse of the former Stalinist states has already transformed the make-up of Europe. Eight former Stalinist states have become 27 nation states and there are others in formation, including Montenegro, Kosova and Chechnya.

Commentators view this process with hope tempered by trepidation: "If there is one task for which the Union is well suited it is that of bringing the former communist countries of Central Europe into a liberal, Western, market system, and bringing others in besides. Failure to admit the principal countries in good time could make them hostile, and even endanger their democracies". (The Economist, 20 May - my emphases, MT)

These states were never 'communist' in the true meaning of the word. They were Stalinist. These were brutal dictatorships led by centralised bureaucracies with no channels for the democratic participation of working-class people. The most vicious methods of police-state repression were used to oppress movements of the working class and ethnic minorities. Stalinism nonetheless represented a rival system to capitalism. The states were not run on capitalist lines but were based on state-owned industry and planned economies. Although extremely brutal, the Stalinist system provided relatively wide-ranging social services, such as education, health and housing. For Western Europe to be an effective bulwark against the Stalinist states it also had to provide social services to placate the workers in the West - the political rationale behind Marshall Aid. Because there was no workers' control, however, the Stalinist economies ground to a halt under the weight of bureaucratic mismanagement and corruption: the survival of the regime was the first priority, the needs of the working class came last.


The Economist's hope for the foundation of a 'liberal, Western, market system' throughout Central and Eastern Europe is a forlorn one. The West's parliamentary democracies are based on the prolonged relative social peace in Western Europe which, in turn, is built on comparative economic prosperity. These features provide the foundations for a relatively stable parliamentary system. The long post-war boom from 1950-73 reinforced this situation. Future economic crises will undermine the social peace within Western Europe. Central and Eastern Europe are starting out from a much weaker position. The new capitalist economies - including capitalism's brightest prospects, Poland, Czech Republic and Hungary - are based mainly on raw materials, heavy industry and agricultural produce. They cannot hope to emulate the economies of Western Europe. The political effects of this mean that they will not be able to develop 'stable' Western-style democracies.

In 1990, Militant International Review (the predecessor of Socialism Today) carried an article, Returning to Capitalism? which discussed the possibility of capitalist restoration in Poland and Hungary. The article warned: "The idea of a Polish 'Sweden', with an affluent welfare state, is a delusion... The reality would be a Polish 'Argentina', with millions of impoverished workers fighting for survival. Poland - and Hungary, if it followed the same course - would repeat, under new circumstances, the experience which followed their independence in 1918 following the first world war. Far from becoming flourishing capitalist democracies, they were torn by deep crisis and dominated by bonapartist [authoritarian] regimes". (MIR, No.42)


Of the Central and Eastern European countries, Poland is key. Its 40 million people are more than the combined population of the other first-wave countries. It initially set 2003 as the target date for EU membership. That was effectively ruled out at the Lisbon summit where the EU announced that it would be 'ready' to accept new members from 2003. This is widely interpreted as meaning 2005 or 2006.

Even this is utopian. The Polish economy is very weak. Poland's current account deficit almost doubled in the twelve months to the end of March and now stands at 8.3% of GDP. Exports fell by 13% last year because of trouble in the Russian economy and weak EU demand. On 12 April, the Polish currency, the zloty, which had been traded in a band closely linked to the US dollar and euro, was floated. It plummeted by 10% before levelling off. "Another factor is Poland's reliance on foreign capital, much of it short-term... Portfolio money, much of it 'hot', will be needed to plug the remaining gap. Should this not arrive, or flood back out, the zloty could plummet... higher rates might attract a destabilising amount of speculative capital, while lower rates would fuel domestic demand and imports, pushing the current-account deficit higher". (The Economist, 13 May)

The economic collapse of any Central and Eastern European country would have far-reaching social and economic repercussions throughout Europe. It would have a major destabilising effect on the EU. A world economic crisis would devastate Central and Eastern Europe, where trade has shifted from the East to the West over the past decade. (Exports to the EU account for 27% of Polish GDP, 35% for Hungary, 41% for Czech Republic.)


Enlargement also brings into question the Common Agricultural Policy (CAP), which takes up half the EU's $90 billion annual budget. Although it only accounts for around 2% of EU members' GDP, the allocation of funds and payment of contributions invariably leads to acrimonious squabbles between the states. Most of the countries waiting to join have big agricultural sectors. Poland, to cite the most extreme example, has 27% of its workforce on the land (Britain has 2%, Denmark 5%). To extend CAP subsidies to the six first-wave nations would cost the EU an additional $15 billion a year. That is impossible. Conversely, to bring Polish agriculture in line with the EU will mean the decimation of employment in this sector and the attendant social and political upheaval. The most intractable obstacle to reform, however, is France, the biggest recipient of CAP handouts. Despite the Helsinki summit's vague pledges of reform sometime in the future, a two-tier system for CAP, with new members receiving less, is inevitable.

top     International relations

RELATIONS BETWEEN THE EU and Russia are strained. This was a factor in the EU's decision to jettison Ukraine. Ukraine has the same land and population sizes as France. It runs on Russian oil and gas and harbours the Russian Black Sea Fleet. Russia's attitude to Ukraine was shown when one of Boris Yeltsin's foreign policy advisers referred to it as a 'temporary phenomenon'. (The Economist, 23 October 1999)

The EU is seen as having stolen Russia's 'traditional markets' in Central and Eastern Europe. When the rouble collapsed, Russia tried to increase its export of steel and other goods to the EU but was unable to break through the trade barriers protecting the European market. Nonetheless, the EU is Russia's biggest trading partner. Most of Russia's trade with the EU, however, is in raw materials, whereas most of the trade from the EU is in manufactured goods. The terms of trade are heavily weighted in Europe's favour, a similar relationship, in fact, to that between the industrialised capitalist countries and the neo-colonial world.


European defence is also an issue. Nato's Balkans war last year exposed Europe's military impotence and its reliance on the US. Establishing K-For, the UN 'peacekeeping' force in Kosova, stretched the EU powers to the limit, yet it involved only 2% of the forces supposedly available in Europe. The Helsinki summit announced plans to develop a rapid reaction force of 60,000 troops by 2003.

At present, each European state has its own standing army, an expensive duplication of equipment, training and specialisation. If the EU states pooled their resources, the theory goes, an ultra-modern outfit could be assembled - a much more efficient use of resources. Despite US protests that it foots the bill for Nato operations, the last thing the US really wants is a serious rival to its strategic domination. This is why it is adamant that any potential European force must be subordinate to Nato, which is ultimately controlled by the US.

There are, of course, competing visions within the EU. Britain, for example, closely shadows the US view. France, on the other hand, would like to see the development of a European rival to US imperialism.

Turkey is of crucial importance. Its proximity to the Middle East, the issue of Cyprus (in the first wave and divided between Greece and Turkey), and that it is a client state of the US with close links with the Israeli state, add to its bargaining power. Turkey is a Nato member and is demanding that no European Nato forces be handed over to a European force without its agreement. The decision to give Turkey candidate membership of the EU was a concession to the US.


The future of Europe depends on a multitude of complicated factors. The point is not to write-off enlargement but to ask, What sort of Union would be created?

Twenty or more countries could only maintain a single currency on the basis of a prolonged economic recovery. That is an almost unimaginable perspective. But that does not necessarily mean that an economic crisis would automatically lead to the total disintegration of the euro. It could still be possible for a core group of countries linked to Germany - the Benelux countries, for example - to retain a common currency. The currency union as it is constituted today, however, is unsustainable.

The best Europe's ruling classes can hope for is a regional bloc to resist the pressures from other regions against the backdrop of increased world and inter-state rivalry. The post-modernist 'historians' who talk of the end of nation states are mistaken. Capitalism's inability to overcome all the restrictions the nation state imposes on it will be a major feature in the coming years. It will be clearly exposed in Europe. Capitalism cannot unite the world. That is the task of the international socialist revolution - the only basis for a genuine European union.

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