On January the first 2002, with great pomp and ceremony, the euro was introduced into circulation in a trading zone numbering 300 million people. What does this mean? And what are the prospects for the new European currency?
The euro's launch has been greeted with a well-orchestrated campaign of official enthusiasm, designed to silence all doubts on the question. French newspapers greeted the birth of the currency with enthusiasm and lurid colour diagrams. All opposition has melted away. The conservative daily, Le Figaro, which sometimes flirts with euroscepticism, declared itself in a front-page editorial to be the "Fig-Euro". "Is a little bit of France vanishing today?" it asked. "No, the single currency of the Roman Empire never prevented its peoples from expressing themselves."
The centre-left newspaper Libération filled its front page with a euro symbol made up of euro coins. It also chose a Roman metaphor to describe the day. "The European Union has crossed the Rubicon," it said. "No more U-turns are possible on the road to the unification of Europe."
Le Monde, more subtly, had a front-page cartoon by Serguei, which showed a two-headed Frenchman weeping over a franc and a euro. The caption read: "Heads or tails".
The enthusiasm was replicated elsewhere. Complacency must be avoided, the Irish Independent said: "So smoothly did the transition go on its first day that one could easily forget its deeper meaning. The citizens handling the new money were taking part in a momentous political occasion."
For The Irish Times, Euro launch day was "a powerful symbol of closer EU integration". But the move raises concerns about a one-size-fits-all interest rate policy, it said: "Both the ECB and the member states will have much to learn in the years ahead about economic management in a single currency area."
And tax harmonisation is likely to come onto the agenda, it said. "The advent of the euro is clearly a landmark in the development of the EU. It will throw other issues relating to the future of Europe into sharp focus."
There were even approving noises across the Atlantic. An article in The New York Times marvelled that the same coins can now be used "to buy a cup of coffee and the morning paper in Amsterdam, Lisbon, Helsinki, Naples, Dublin and Dresden". The paper assessed the launch as "more than a breathtaking logistical challenge and financial milestone for Europe. It is also a day of great political significance. With euros in circulation, the process of European integration &endash; first championed half a century ago by a visionary French statesman named Jean Monnet &endash; acquires its most potent and tangible symbol".
Can Europe avoid crisis?
It is true that we underestimated the degree to which the European capitalists could arrive at a compromise and push towards greater economic and monetary unification. We did not think that the Euro would succeed to the degree that it has. We were wrong. The Euro has finally been introduced as a common currency in 12 of the EU states. This is an important development. A common currency is the first condition towards European integration. It ought to boost internal trade and thus act as a powerful stimulus to the development of the productive forces. Is this going to happen?
The reason the introduction of the euro has occurred is rooted in the general conditions of the world economy in the last period. It was only possible on the basis of the prolonged world boom, which benefited Europe and enabled the different capitalists to put aside their differences (temporarily). But now the situation is entirely different. The Euro has been launched at the worst possible moment - on the eve of a world economic downturn, which will hit Europe hard.
The European capitalists display an amazing capacity for self-delusion. Only a few months ago they were boasting that they would avoid the recession. Now these boasts are shown to be hollow. Ironically, the worst affected sector is the communications industry (mobile phones), which was supposed to be the main motor of a new period of expansion for European capitalism.
Vodafone, the big British mobile phone company, announced pre-tax losses of £8.4 billion ($12 billion) in the six months to the beginning of December 2001. Profits at Siemens, the German engineering giant, fell by 76 percent to the end of September, including restructuring charges and a write-down of assets in its mobile and fixed-line telephone divisions. German unemployment now stands officially at 8 percent of the workforce.
The idea of the European capitalists that they will be able to insulate themselves against the cold winds of world recession through monetary union and a more thorough exploitation of the European market is a dream. The colossal development of world trade, and the huge weight of the world market, rules this out. Already, reports of a slight rally in US manufacturing have forced the euro to give up some of its gains against the dollar. And European industry is still mired in recession.
Ray Attrill, research director at 4castweb.com, said the euro's exchange rate would still be led by performance of the euroland economy compared with the United States. "The exchange rate will be determined by the US business cycle and we believe the first quarter of the year will look quiet in the US while euroland is labouring, pushing the euro down to 85 cents," he said. (Independent, Jan. 3rd.)
This is the real context in which the euro has been launched. Under conditions of world crisis, rising unemployment and a struggle for markets, the rigid framework of the Maastricht agreement will aggravate the crisis and increase the contradictions between the states of the EU.
Question mark over the euro
The Economist recently drew a negative balance of the Euro's achievements: "When the Euro was conceived a decade ago, there was much heady talk of how it would boost competition in Europe, of all the structural reforms it would promote, even of how Europe would displace America as the world's economic dynamo. Yet, as a recent report by the European Commission concluded, the gap between Europe and America in both productivity and GDP per head has widened rather than narrowed over the past decade. This year's theory that, thanks to the Euro, Europe would largely escape the effect of a global recession has also proved false, as its biggest economy, Germany, has shuddered to a halt. As if to trumpet Europe's failings, the Euro has spent most of its first three years of ethereal life testing new lows against the dollar." (The Economist, 1/12/2001)
Contrary to the hopes of the European bourgeois, the Euro has been a weak currency from birth. The need to maintain its level is one of the reasons why interest rates in Europe have not been reduced as fast as in America. This will aggravate the crisis in Europe and increase unemployment in the coming months. Paradoxically, the Germans, who were the most adamant in demanding strict adherence to the Maastricht rules, are now suffering the consequences in the shape of four million unemployed. The German economy, which ought to act as the main motor-force for Europe, is hopelessly stalled.
The stubborn refusal of Duisenberg and the European Bank to lower interest rates has set the stage for conflict between the Bank and the European governments. They would like to see a further fall in the Euro to boost exports - the main reason for the relative success of the countries of the Euro zone in the last period. But despite this success, the performance of the core countries, especially Germany and Italy has been miserable, and their problems will now increase. Unemployment is beginning to climb again.
One effect of the introduction of a common currency will be to increase cross-border competition. The aim is to increase productivity by eliminating weak companies. But this places countries like Italy, Greece, Spain and Portugal at a disadvantage. Increased competition spells more bankruptcies, factory closures and unemployment. From this, new contradictions arise. In the past, Italy got out of difficulties by devaluing the currency. But this is now ruled out by the Maastricht agreement.
Devaluations by nation states are not allowed, and neither is any other state permitted to help Italy. Therefore, the full weight of the crisis will be placed on the shoulders of the working class. The Italian employers are already putting pressure on Berlusconi to take action. The stage is thus being set for an explosion of the class struggle in one European country after another.
This will lead, not to European integration, but to increased tensions and antagonisms between the national states. In the end, it is probable that the Euro experiment will break down amidst mutual recriminations. Already there are indications of conflict between the states in the Euro zone, as each government tries to protect its own capitalists against foreign competition.
Contradictions between states
Two years ago, at the Lisbon Summit, the EU heads of government agreed to a programme of further liberalisation with the aim of making the EU the world's most competitive economy by 2010. What has happened? France has implemented only minimal energy liberalisation and blocked the setting of any deadline for a total opening-up of the market. Full competition in the postal services has been delayed. Germany has put its boot through an EU directive on take-overs that took 12 years to work out and then introduced new rules to protect German owners. The Lamfalussy Plan to liberalise wholesale financial services has been sabotaged by procedural manoeuvering in the European parliament, even though it was unanimously endorsed in Stockholm in March. An agreement on a EU-wide patent regime has been prevented by disagreements on language policy. And so on and so forth.
What this shows is that each national government, while paying lip service to the "ideal of European integration", is mainly concerned with the defence of "national interests" - that is to say, the interests of its own bourgeoisie. Thus, Germany's decision to sabotage the law on take-overs was dictated by its desire to protect its domestic companies against foreign take-overs - such as Vodafone's bid for Mannesmann. The French opposition to energy liberalisation has been designed to support its state-owned giant, Electricité de France. The French government protects its national monopoly, which is meanwhile pursuing an aggressive policy of taking over the companies of states with more open markets.
Behind the "European" rhetoric stand the interests and ambitions of the most powerful European states, especially Germany and France, which seek to dominate Europe. Only the smaller countries take the rhetoric about the European ideal seriously, since they are too weak to stand on their own and foolishly imagine that they can be important players on the European scene. In addition, they have their own selfish interests to defend.
Belgium benefits from being the main seat of the "European institutions" - which brings in a tidy sum to the national exchequer. They are therefore the most convinced "Europeans". The weaker economies like Greece, Portugal, Ireland and Spain are enthusiastic "Europeans" only to the extent that they have done very well out of European subsidies. But when these are sharply reduced or abolished, which is already happening, their enthusiasm will cool rapidly. And that is inevitable in the next period when the economic crisis begins to bite and Germany, which pays most of the bills, gets tired of this role.
The truth is that the smaller states of Europe count for very little. This was shown recently in the aftermath of September 11. Britain (a semi-satellite of America) decided everything together with France and Germany. The others were not even invited to dinner in London. The Italians protested loudly. The others grumbled also: "We are being treated like candidates to join the EU. Decisions are made and then we are just informed." But that is just the real state of affairs. Only it is not supposed to be made public. Only Blair's characteristic crudity made it too obvious. The recent row at Laeken over the distribution of secondary EU institutions led to Berlusconi vetoing all decisions. When the Swedish Prime Minister complained that his country had got no institution, Chirac said maybe they "would like the headquarters for EU model agencies as they had such "pretty girls"! Such is the contempt shown for the smaller EU countries by the big Four.
A further expansion of the EU will exacerbate the problem. Does anyone seriously believe that Germany, France and Britain will accept that they cannot have a discussion without inviting 22 other European leaders? The German capitalists are pushing for the entry of their client states in Eastern Europe: Poland and the Czech Republic. France, which is opposed to this, proposes the entry of Rumania. This is yet another example of the conflict of interests between Germany and France. In the end, it is likely that the expansion will go ahead. But in that case, the bigger EU states will find a way of dominating the show anyway.
The launch of the new currency finds Britain as divided as ever on the issue of joining the euro zone. Newspapers in Britain delivered mixed verdicts on the euro. The reactionary chauvinist Sun's front page was devoted to what it called: "The dawn of a new error". The 12 European countries participating have taken "a giant leap in the dark" and "thank goodness Britain is not part of it", the newspaper said in a page one editorial.
The Tory Daily Mail called the launch the "great euro gamble" and predicted it means "we'll all pay higher prices" as traders cash in on launch-time confusion to push up prices. The Daily Telegraph said it was a "leap into the unknown". And The Times said Britain would be wise to sit in its ringside seat "for some time".
Some newspapers, however, were more positive. The Mirror wished its readers "a happy new euro" and said: "The future prosperity of the UK is dependent on being part of the euro." An editorial in The Guardian called for eurosceptics and enthusiasts alike to "bury their differences, raise their glasses and wish the euro a long and prosperous life".
The ambiguous attitude of the British bourgeoisie to Europe and the Euro is explained by several factors. There is a sharp division between the manufacturing sector which trades with Europe and does not want a continuation of the high pound, and the parasitic finance sector based on the City that has grown immensely in power in recent years.
The pound tumbled against the euro, as the successful launch of notes and coins raised hopes that British membership of the single currency was now more likely. The euro surged more than 2 per cent against sterling, its largest one-day gain to date, as it made gains across the board, when a feared chaotic launch of notes and coins failed to materialise. Against the dollar it hit a peak above the psychological 90 cents mark &endash; a gain of 1.85 per cent &endash; and hit a 27-month high against the Japanese yen.
The sharp fall in the value of sterling against the euro raised hopes that British membership of the single currency was more likely. Most economists say, however, that the euro needs to rise significantly, to about 68p, to make entry possible - even if the five "economic tests" demanded by the British government as a condition for entry, are met.
A further devaluation of the pound would suit the industrial wing of the British bourgeoisie, whose exports to Europe have been hit by the strong pound. They need the pound to fall against the euro in order to restore competitivity. Thus, shares in Corus Group, the UK's largest steelmaker, rose more than 6 per cent to a seven-month high after the news of the falling pound. The company recently said the pound needed to fall at least to ¤1.40 (or above 70p to the Euro), for it to compete with its continental rivals.
Mark Miller, UK economist at Morgan Stanley, said he believed the anticipation of that announcement would push the euro towards an exchange rate of 70p, which he described as "fair", by the end of the year: "The successful transition to notes and coins and the movement against sterling suggests that as the assessment comes closer there is a real chance the pound will move closer to 70p, which does not look so distant now," he was quoted as saying in The Independent (Jan. 3rd).
But other analysts warned that yesterday's movement &endash; the fourth New Year rally for the euro in four years &endash; was not necessarily the start of a long-term revival after three years of weakness. Since its launch as an electronic currency in January 1999, the euro has fallen 23 per cent against the dollar, 11 per cent against the yen and 12 per cent against the pound. They said the launch of notes and coins had little economic implication as they only made up 6 per cent of total euros in circulation.
In short, the British ruling class is still split on the issue of the euro. The powerful financial sector favours a strong pound and is unconcerned at the plight of British manufacturing industry - already in recession - or the threat of rising unemployment. This wing of the bourgeoisie looks more to US imperialism than to Europe.
Having lost its empire and being reduced to a second-rate power off the coast of Europe, the British ruling class is reluctant to relinquish its dreams of being a world power, and is hesitating between a role in Europe and that of a satellite of US imperialism. But the underlying weakness of the Euro and doubts about its future are undoubtedly important factors in its calculations.
The future of Europe
The main danger for the capitalist system is not the prospect of slump. The boom-slump cycle has been a constant feature of capitalism for the last 200 years. They know that sooner or later, they can get out of even the deepest slump. The real danger is the threat of the unravelling of free trade and the rise of protectionism as a result of the slump. This is what turned the slump of 1929-33 into a world depression which lasted until the Second World War.
The expansion of world trade has played a vital role in the last half century, and particularly the last twenty years. It has enabled the capitalists, partially at least and for a temporary period, to overcome the limitations of the nation state. But the basis on which this rests is quite fragile and can easily be destroyed, especially under conditions of world slump in which they are all fighting for limited markets.
Already there are tensions between Europe and America over trade which led to the breakdown of the Seattle talks. Although some issues have been resolved, new conflicts are emerging all the time. Particularly in the USA, protectionist tendencies are building up. America is the biggest economy in the world and is prepared to use its muscle to gain access to foreign makers, while protecting its own. It has benefited from lower trade barriers more than any other country, hence its public enthusiasm for free trade. But the Republicans in Congress (and the Democrats also) are ready to sacrifice the principle of free trade in order to protect American agricultural and manufacturing interests.
At the moment the capitalists are driving on with "free trade" by proposing a new round of reductions in trade restrictions at the WTO meeting in Dohar). The last Uruguay Round took a decade to achieve. This one will be still born. The development of world recession will inevitably lead to an increase in protectionist tendencies which will threaten the fragile structure of world trade so carefully constructed over the past half century. This is the main fear of the strategists of capital. They have understood what the Marxists have long ago explained: namely, that the main motor-force of the world economy has been the growth of world trade ("globalisation").
Even in the period of the boom there has been a tendency for the world to fragment into rival blocs. US imperialism has created Nafta, including Canada and Mexico, which aspires to control the whole American continent, north and south of the Rio Grande. Europe has created the EU which strives to control North Africa, the Balkans and Eastern Europe. In Asia, Japan has created a weaker yen bloc. As the slump deepens, the contradictions between these rival trading blocs will increase.
The tensions between Europe and America, and between America and Japan, will intensify under these conditions. America will attempt to export unemployment to Europe and Japan, provoking retaliation. The prospect opens up of trade wars and competitive devaluations which will deepen and prolong the crisis.
The developing crisis will intensify the contradictions between the nation states of Europe, and particularly between Germany and France, with Britain manoeuvering between them. But it is unlikely that the EU will break up, because of the need to compete with the USA. The European capitalists must hang together, for fear of hanging separately. But the dream of a united Europe on a capitalist basis remains what Lenin said it was: a reactionary utopia.
For the Socialist United States of Europe!
The EU was formed after the Second World War because the weak capitalist powers of Europe were too small to maintain themselves against the might of the Soviet Union on the one side and the United States on the other. This was a tacit admission that the nation state had become a reactionary fetter on the development of the productive forces.
In itself, the idea of pooling the productive resources of Europe is progressive. But on a capitalist basis it is utterly impossible to unite Europe. This is because the capitalists of Germany, France, Italy etc. put their own national interests first. They compete against each other, and occasionally wage war against each other. The only time Europe has been united on a capitalist basis was when Hitler reduced it to slavery.
After the War, France and Germany arrived at a modus vivendi, with the idea of jointly dominating Europe. Initially, the French ruling class had the illusion that they could play the leading role, while tying Germany closely to France, in order to prevent a new war in Europe. However, it soon became evident that Germany, with her powerful industrial base, would be the dominant partner. Since then, the relation between the two states has been uneasy. In the future, it is inevitable that conflict will break out between them.
In many ways, the national interests of France and Germany are in conflict: over the expansion to the East, agricultural policy, etc. Likewise, there are conflicts developing with all the other European states. Under conditions of slump, these antagonisms will tend to intensify.
Thus, on a capitalist basis, Europe can never be united. Each national bourgeoisie jealously guards its own interests, markets, spheres of interest, army and so on. In order to achieve a genuine integration of Europe, it is first necessary to overthrow the rule of the big banks and monopolies. Only then will it be possible to introduce a genuine socialist plan of production for the whole of Europe, under the democratic control and administration of the workers and small farmers.
In the Socialist United States of Europe, there would not just be a question of a common currency, but a free federation of the peoples, with the fullest autonomy for even the smallest national groups: Basques, Corsicans, Bretons and Welsh. It would signify, not the suffocation of small peoples, but the right to develop their language and culture to the fullest extent, within the general context of a common plan of production that would immediately eliminate the scourge of unemployment and mobilise all the productive capacity of Europe for the benefit of all.
The huge increase in the production of wealth made possible by a planned and harmonious utilisation of the productive forces would lay the basis for a general reduction of the working day - not just to 35 hours a week, but to 30 hours immediately, and steadily reducing after that. It would lay the basis for a cultural revolution which would put in the shade all the achievements of the Renaissance. Europe would be rescued from decades of ignoble decline and recover her former glory a centre of world civilization, and the pioneer of the new socialist world order.