Issue 226 of SOCIALIST REVIEW Published January 1999 Copyright © Socialist Review
Over the past few months, visitors to the British Museum in London have been invited to view an exhibition on 'earlier monetary unions'. The fact that this is mainly an exhibition of Greek and Roman coins symbolises one crucial point about the European Monetary Union (EMU) which has now been formed. Nothing like this has been attempted before.
EMU represents a huge gamble by the European ruling class. It was devised in the triumphant mood of success at the completion of the single European market in 1992, and in the expectation that it would unleash unprecedented economic growth. By contrast, monetary union has arrived in a climate of fear, after months of turbulence in world markets, the collapse of the Russian economy and with the continuing threat of a world slump.
Remarkably, the whole idea of the 'single currency' for Europe is almost an accident. When the heads of the European governments met to discuss monetary union, they faced the intransigent opposition of the then prime minister Margaret Thatcher to the idea of a common currency. The British government believed that the rest of Europe would not go ahead without them. Instead, the French and the German governments, led by François Mitterrand and Helmut Kohl, used the opportunity to draw up a new, more radical proposal. Instead of a 'common' European currency-- which would have allowed for the continuing existence of the franc, the deutschmark, the lira etc-- there was to be a new single currency. And so the euro was born.
It may seem extraordinary that such a risky enterprise should be launched in this way, but the value of EMU for European capitalism is potentially enormous. Under the single market there was a wave of rationalisation. As tariffs and other obstacles to trade and investment were abolished, big companies took the opportunity to rationalise on a European scale, eliminating less profitable businesses and creating streamlined operations. This was a long drawn out process, over eight years or more, and it left European businesses in better shape to confront their US or Asian rivals. EMU has much more dramatic aims: it will force companies to rationalise more rapidly, enabling the large companies to achieve huge economies of scale; it will eliminate the costs of operating with 11 different currencies; and its strict rules on state spending and borrowing will, the bosses hope, force through the cuts in welfare spending-- above all pensions and social security-- which they have so far been unable to achieve.
At the same time the freeing up of stock markets could lead to a speculative boom, with literally billions of pounds to be made from buying up bargains. It will be a bloody affair in the finance sector. The creation of the Euro has been estimated to save $65 billion a year in currency exchange costs. A huge amount of capital will become more mobile. The result will almost certainly be a wave of mergers and takeovers with the weak going to the wall-- starting with the finance sector. Their gain is our pain. As the US magazine Business Week commented: 'The euro has become a backdoor approach to imposing the pain needed to renew Europe.' The largest companies, such as Unilever, have been openly predicting that the single currency would provide the opportunity to 'rationalise' jobs and wages. John Harvey-Jones, former chairman of ICI, has predicted that, as a result, half the factories in Europe will disappear over a ten year period. The euro is a 'trojan horse' in the words of David Bowers, European equity strategist for Merrill Lynch & Co.
But the best laid plans can go pear shaped, as Merrill Lynch themselves discovered rather painfully when the bottom fell out of the Asian markets. In the case of EMU the critical question is not so much a boom followed by a bust (though that could happen), but the political consequences. Almost every European government has tried and failed to impose the type of austerity demanded by the new regime. Many workers-- especially in the public sector-- are already well aware of the stakes. Governments have been claiming for the past five years that cuts and wage restraint were necessary to meet the terms for monetary union. Periodically there have been big confrontations-- in Italy, Belgium and, most visibly, Greece and France. Nor has the resistance been confined to public sector unions: look at the recent mobilisation of French school students against the appalling lack of funding for basic education.
If these mobilisations were simply against right wing, conservative regimes that would allow some play for reformist politicians (however cynically), but monetary union is taking place in quite new political circumstances. There are left, or centre-left, governments in 13 out of the 15 EU states. More importantly, in several of those countries-- above all France and Germany-- the left has taken office on the back of a popular mood for change-- expectations that things really will get better.
The stage is set for a massive clash between expectations and reality, because what these governments have to offer is a long way short of even mild social democratic reform. It is true that there are policy differences. Tony Blair is significantly to the right of both Gerhard Schröder in Germany and Lionel Jospin in France. But the options set out by even the most left wing of these governments are extremely limited. Here's Dominique Strauss-Kahn, the French finance minister: 'Put simply, the question we have to answer is whether we should go for a Reagan-Volcker lax budget/tight money policy mix, or rather for the opposite Clinton-Greenspan policy mix?'
For the French government there apparently is an alternative-- but it is only a variation of one or other of the right wing strategies adopted by US governments. When you remember that these are the policies which first drove down the living standards of most US workers, and then held them down, it becomes clear that what's on offer under monetary union is essentially a regime which will try to undermine most of the gains secured under previous governments. Core elements of the social democratic consensus will come under fire, such as guaranteed pensions and job security in the public sector.
Underpinning this is an almost mystical reverence for the market. The new generation of 'socialist' ministers apparently do believe that 'markets' have an independent existence, that they are an institution which functions without any human activity. The amazing thing is that they continue to spout this claptrap at the very time when the most traditional exponents of the free market-- like Paul Volcker, head of the US Federal Reserve (central bank) under Reagan-- have been warning that the system is out of control and that those running these markets have no idea what they're doing.
Major conflicts seem inevitable in the public sector. In the private sector, groups of workers who have been relatively protected from the effects of rationalisation up till now-- for example, in banking and finance-- are likely to be in the front line. The single currency, on some estimates, could mean the closure of up to half the 166,000 bank branches in continental Europe. Elsewhere, the pressure we have seen on Rover workers from BMW to accept job loss and complete management control of working time will be repeated over and over again. Just as the new arrangements at Rover will be used to force through changes at suppliers (all in the name of Labour's new 'partnership'), so the deal will be used as a lever elsewhere. This isn't new: it's only a matter of five years since workers at Mercedes in Stuttgart were told that they had to accept new conditions 'like those in Britain' or investment would move abroad. What will be different this time round is the intensity of the pressure.
Monetary union was agreed in the atmosphere of free market euphoria which followed the collapse of Stalinism, and in the belief that this was the final element in the creation of a dynamic and competitive European economy fit to compete with the United States, Japan and the Asian Tigers. The world looks rather different today. Nor is the EU in any sense a unified economy. The squabbling over who contributes what to the EU budget-- and who gets what in return-- is one sign of the underlying tensions. Another is the argument over tax harmonisation-- a potentially explosive issue when countries such as the UK, Ireland or Finland are able to attract investment because of much lower tax rates on companies than in Germany, Sweden or France. The conflicts to come will see much greater political tensions.