Just over 25 years after its foundation, the European Union looks like it could be falling apart under the weight of its own contradictions. Everywhere you look, the major parties are coming under increased pressure due to the heightening of the class struggle as a result of 10 years of crisis. This has meant that, in one country after another, the ruling class can no longer rule in the old way.
In Germany, years of austerity and the uneven sharing out of the weak boom has provoked a widespread rejection of the major parties. This is pushing the CDU towards more demagogic language, and making them less faithful representatives of the ruling class. In Italy, the ruling class has completely lost control of the government, which is on a collision course with the EU over its debt. In France, Macron – the supposed ‘saviour’ of liberal democracy – has plummeted in the approval polls, and seems paralysed in his quest to carry out the austerity that capitalism requires in the country. In Britain, the ruling class has lost control of its traditional party and is being catapulted towards a disorderly Brexit completely against its interests. Brexit alone would be challenging enough, but there are all manner of simultaneously occurring crises, any one of which could be the final straw that could break the EU’s back.
Germany: from “pillar of stability” to destabilising factor
Two years ago, after the election of Donald Trump as US President, The New York Times wrote that Angela Merkel “has emerged as the last powerful defender of Europe and the trans-Atlantic alliance”. Simon Tilford, the deputy director of the Centre for European Reform, was quoted as saying that it was “fortunate that Germany is led now by Merkel, because there is a chance she will step up and do what Europe needs her to do.” However, from being a “pillar of stability”, Angela Merkel has now become one more factor destabilising Europe, as has the situation in Germany as a whole.
In the recent period, the German economy was performing well and, on the surface at least, the country stood out as a securely anchored ship in the turbulent world situation. The government had forecast 2.3 percent economic growth for 2018 and the growth figure has hovered around the 2 per cent mark since 2014. Moreover, being the strongest country in the EU, Germany was sheltered somewhat from having to carry out the brutal austerity policies seen in some other countries. For example, the British TUC shows that, in the period 2007 to 2015, real wages in Germany increased by 14 per cent, whilst in the UK, real wages have reduced by more than 10 per cent.
Nevertheless, while these figures seem to paint a rosy picture of life in Germany, the reality is quite different. As we have explained elsewhere, German workers experienced harsh austerity well before the economic crisis. ‘Agenda 2010’, which was carried out by Gerhard Schröder’s Social Democratic-Green government from the early 2000s, involved tax cuts for the rich alongside cuts to pensions and unemployment benefits for the rest. It meant that, by 2008, the share of national income taken up by wages was cut to 64.5 percent, the lowest level for 50 years. The price of labour was forced down and, combined with substantial investments in industry, Germany was turned from the ‘sick man of Europe’ into a very competitive nation on the world market. Moreover, the gains from the upswing in German capitalism have not been felt by everyone. Around 40 percent of the population now has less purchasing power and a lower standard of living than 20 years ago, wealth inequality is at its highest level since 1913 and over 15 million people were at risk of poverty or social exclusion last year: almost a fifth of the population.
It is this pressure on the living standards of the German working class and middle class that is now expressing itself in discontent towards the major political parties. The latest INSA/YouGov polling has the grand coalition at just under 40 percent. The Social Democratic Party (SPD) has fallen to around 14 per cent, with many polls putting them below the far-right Alternative for Germany (AfD). To put this in context, the SPD received 20.5 percent in the last federal election, which was itself the party’s worst result in post-war German history. At the same time, the Union (the coalition between the Christian Social Union [CSU] and Christian Democratic Union [CDU]) has sunk to just over 25 percent. Again, this is a sharp fall from the 33 percent the bloc won in the federal election, which was itself their worst result since 1949.
Polarisation in Germany
What we are seeing in Germany is the same process that is taking place around the world: a polarisation to both the left and the right, which is resulting in a widespread rejection of anything considered part of the ‘establishment’, thus making it very difficult for the ruling class to rule in the old way.
The CDU is the traditional representative of the German ruling class. However, the ruling class makes up a tiny proportion of German society and so are forced to rely on different layers, especially the intermediate (the petty bourgeoisie as Marx described them) and backward layers of the working class. The problem for them is that the capitalist crisis is forcing the different classes that make up society into conflict. The German ruling class is in favour of accepting refugees to Germany, not out of humanitarian concern, but because it increases the supply of cheap labour, and alleviates tensions in the European Union. They are in favour of participation in the European Union, not out of any concern for internationalism, but because it provides a market to export their goods. Unfortunately for the ruling class, and in the absence of any real alternative from the left, the AfD’s argument, that immigration is the cause of the fall in living standards, can seem reasonable. If you add this to the fact that the AfD has also talked about sticking up for ‘the little man’ by offering a minimum wage and reducing taxes on families with children, it is not so surprising that some workers in precarious employment have turned to this party. Equally, the petty-bourgeois layers that also provided a base for the CDU in the past have been squeezed by the increased competition in the world market. In this context, the AfD’s eurosceptic position, and its rejection of TTIP has attracted support.
The popularity of the AfD has forced the CDU to attempt to shift to the right in order to maintain its popularity, which makes it less capable of performing the role of faithful puppet of the ruling class. This explains some of the ‘tough talk’ from Merkel and Seehofer on immigration in the last few months. However, the ramping up of anti-immigration rhetoric in an attempt to win back voters shifting to the AfD has disgusted some of their previous supporters and, as we have reported previously, the CDU has lost just as many voters to the liberal Greens as to the AfD. The parties of the ruling class are losing their traditional base of support, which has opened up cracks between different representatives of the ruling class.
The resignations of Angela Merkel and Horst Seehofer must be understood in this context. At present, there are three front-runners in the race to replace Merkel as leader of the CDU: Annegret Kramp-Karrenbauer, Friedrich Merz and Jens Spahn. Annegret Kramp-Karrenbauer, known as AKK, is understood to be politically closest to Merkel. She supported Merkel’s immigration policies and was also the person who organised the party’s election campaign last year. Friedrich Merz left frontline politics in 2009 after a conflict with Merkel. He is from the right wing of the party, holding a reactionary, conservative outlook on social questions, but is also an extreme liberal when it comes to economic questions. There is some speculation that he may push for greater EU integration. Jens Spahn is the current health minister and has been an outspoken critic of Merkel, opposing the Eurozone reforms.
Whomever replaces Merkel, it is clear that the trouble the party is facing will only continue. Indeed, all three potential leaders have been keen to distance themselves from Merkel. Even AKK has described Merkel’s performance as chancellor over the last few months as “leaden”. In the future, therefore, there could be conflict between Angela Merkel, who has said she will stay on as chancellor, and the new leader of the CDU as the different wings of the ruling class find leaders to express their interests.
More instability to come
Adding to this, the pressures from society on the major parties are only likely to increase. Germany’s economy has been relatively strong over the past few years due to the strength of its manufacturing exports. However, this sector is especially vulnerable to the brewing trade war between the US and China because of the role both of these countries play in the supply chains of the industry. Moreover, as well as China, Donald Trump has singled out Germany for the trade surplus the country has with the US. This has led him to threaten tariffs on German goods, which would be incredibly damaging to the German car industry.
All of this uncertainty is already having an effect. An annual report by Germany’s Council of Economic Experts has warned that growth is likely to slow to 1.6 percent this year from 2.2 percent last year. It points out that the reason for this is “smouldering trade conflicts worldwide”. Moreover, the German economy contracted for the first time in more than three years in the last financial quarter on the back of a fall in exports. This contraction was to a large extent a result of the major German carmakers halting production of cars whilst they ensured they complied with new EU emissions standards. However, as Joerg Kraemer, the chief economist at Commerzbank explained to the Financial Times: “even without [this], the German economy would hardly have grown at all due to declining demand from China.” What is clear, is that the uncertainty around global trade could trigger a major recession in Germany and the Eurozone as a whole. Ultimately, therefore, what we are seeing is that the crisis in society and the falling living standards of many have led to the major parties of both left and right becoming discredited.
Italian debt crisis
Just as the crisis in Germany means the country is less able to influence events in Europe as a whole, the Italian government is now in a standoff with the European Commission. The disagreement centres around the level of debt held by the state and how best to deal with it. Italy has the third-highest public debt in the world and the second in the Eurozone as a proportion of GDP. On top of this, it is the third-biggest Eurozone economy, which means that instability here represents a threat to financial stability across Europe.
The Italian state’s debt is certainly not due to the profligacy of successive governments. Indeed, all new debt since 2002 has been used to pay for interest, not spending. The Financial Times points out that Italian governments have had primary fiscal surpluses pretty much non-stop since 1992. This means that, if you exclude the money the government pays out on servicing its debts, the budget has been in surplus. Essentially, therefore, the Italian working class is being squeezed solely to pay back debts.
As we have previously explained, the root cause of the problem in Italy is the low level of productivity. Under conditions of crisis, where the market is squeezed and competition is all the more fierce, this weakness becomes a severe problem. Since the introduction of the euro, unit labour costs in Italy have grown by about 20 percent compared to Germany and by 10 percent compared to the Eurozone as a whole. This weakness is compounded by the fact that Italy is a member of the Eurozone, which prevents the devaluing of the currency, as it did in the past. A currency devaluation would have made Italian exports cheaper and thus more competitive. The Financial Times points out that there is also a lack of industrial modernisation in the country, with a large number of small family-owned companies that are less productive than equivalents elsewhere. Indeed, 95 percent of Italy’s businesses have fewer than 10 employees.
The Italian National Institute of Statistics recently reported that 17.5 million people now live below the poverty line, which amounts to around a third of the entire population. Within this total are 4.74 million who classify as ‘absolute poor’, which means that they are unable to purchase basic goods and services. This number has increased rapidly from 1.7 million in 2006. The unemployment rate now stands at 9.7 percent, which is an increase of around 3 percent since 2008. Youth unemployment, however, stands at 31.6 percent. Moreover, previous Italian governments have offered little assistance by way of welfare for young people, with only 4 percent of social spending going to help people under forty. The combination of high youth unemployment with little state help on offer has forced some families to live on the pension of just one member of the family. Reuters, for example, interviewed one man whose family relies on the 800-euro-a-month pension of one member of the family. This is used to cover the living expenses of one retiree, her son and grandson.
This situation has radicalised the population, causing a generalised distrust of the establishment. The Financial Times interviewed Simon Chiantese, an unemployed person in Naples, who said that “we believed so many things for so long and we’ve always been disappointed.” It is this radicalisation that explains why the major parties were so roundly rejected in the last election. The Democratic Party (PD) won 18.76 percent of the vote, down from 25.43 percent in the 2013 general election, while the Five Star Movement (M5S), which only formed in 2009, won the most votes with 32.68 percent. The far-right League also did well, winning 17.35 percent of the vote.
It is, moreover, no surprise that these two parties did well. M5S’ programme included a ‘citizen’s income’ of 780 euros a month (an amount that would at least triple the income of the family interviewed by Reuters), an end to the casualisation of labour and reversing the counter-reforms in the pension system carried out by the PD government. Additionally, Matteo Salvini’s consistent railing against the “speculators”, alongside his calls for a flat tax has attracted many of the squeezed, petty-bourgeois small business owners, meanwhile (again in the absence of any left-wing leadership) the whipping up of anti-immigrant sentiment has gained some traction.
There are huge hopes among Italians that the two parties will be able to carry out their programmes. The governing parties are trapped. If they are seen to betray their programmes, the support that they have garnered could easily dissipate. However, within the limits of capitalism, there is no way that the programmes can be afforded. The government plans to increase spending and reduce taxation, while the public debt is already very high and the world is on the verge of entering in to a new recession. No one will be prepared to lend the government the money to carry this out.
It is likely that these considerations led the government to conclude that they needed to come up with some sort of fudge: to offer some reforms in order to appease their base that won’t increase the deficit too much. The conflict over the Italian budget centres around whether or not to add 0.8 percent to the deficit next year. This amount is nowhere near enough to cover the cost of their proposed ‘citizen’s income’ and is therefore already a concession. Nevertheless, even this modest increase in the deficit was too much for the European Commission to accept. Jean-Claude Juncker, the Commission’s president, pointed out that the Italian government’s budget was unacceptable because “their level of public debt is too high… the draft budget does not fully respect the recommendations of the Eurozone ministers.”
The standoff has also spooked investors in Italian debt, who had already been concerned the new government wouldn’t carry out ‘sensible’ austerity policies. Since the government came to power in mid-May, net sales of Italian assets by foreign investors reached 17 billion euros per month. This has pushed up the price of Italian debt, with the spread between Italian 10-year bonds and German Bunds of the same maturity rising to 3.15 percent in mid-November, up from 1.3 percent in mid-May. This means that the Italian government will have to pay 3 percent more interest on its debt than the German government. While the government won’t feel the increased cost until it has to issue new bonds to fund the redemption of maturing ones, an increase in the interest rate will inevitably lead to an increase in the deficit. Because of the size of the Italian debt, this could become a problem very quickly and lead to the state defaulting on its payments, which would be a disaster for the Eurozone. Concerns over the ability of the Italian government to pay back its debt have led to at least one ratings agency, Moody’s, downgrading its credit rating to one notch above ‘junk’. A rating of ‘junk’ would be a catalyst for a flight of capital from Italian debt and would prevent the ECB, which already holds around 15 percent of Italy’s overall debt, from buying more bonds. This, again, could be a trigger for a default.
Additionally, the ECB is coming under pressure to increase interest rates. Many commentators are worried that, with the onset of a new economic crisis, the fact that interest rates are currently zero gives very little room for manoeuvre. On top of this is the worry that some economies are overheating, with very low levels of unemployment and a concurrent increase in wages. In normal times, these would be signs that interest rates should be raised.
However, an increase of interest rates by the ECB on top of the government’s increased bond yields could mean that this situation could rapidly unravel. Goldman Sachs already predicts that Italian interest payments will rise to 4.6 percent of GDP in 2018. This is likely to weigh heavily on the minds of ECB officials when deciding whether to increase interest rates, reducing their wiggle room.
The situation in Italy, like many other countries around the world, demonstrates that, under conditions of crisis, if the capitalist class tries to restore equilibrium in the economic plane, this can destroy the equilibrium in the social or the political plane. Forcing the living standards of the Italian working class down in order to pay interest to the banks has caused huge instability and has meant that the Italian ruling class is no longer in control of the government. The Financial Times sums up this feeling of the ruling class when they complained that “in an age increasingly dominated by social media and fake news, parliaments are not enough to protect current and future generations from irresponsible short-term policies driven by electoral considerations rather than prudent economic and financial thinking.” Of course, what they are saying, from their own point of view, is that, under the impact of intensified class struggle, all the old certainties are melting away. There has, after all, always been ‘fake news’, it’s just that now the lies of the ruling class are less believed.
Emmanuel Macron to the rescue?
With Germany in the midst of a political crisis and Italy at risk of default, the ruling classes of Europe may have looked to Emmanuel Macron, the president of France, for leadership. As recently as April last year, the French ruling class was triumphant as Emmanuel Macron won the 2017 presidential election with 66 percent of the vote. Macron, the self-proclaimed Jupiterian leader, was going to “make the planet great again” with an overhaul of France and Europe as a whole. ‘Populism’ had supposedly been defeated. However, just over a year-and-a-half later, Macron’s personal approval ratings have sunk to 29 percent and he was reportedly forced to take a holiday to recover from a breakdown.
In Europe, Macron certainly did intend to fight against the centrifugal forces ripping the EU apart. He argued for the creation of a common pool of money for the single currency area, which would be funded through national contributions and new EU taxes and levies. This money could then be used to foster growth and stabilise countries hit by economic shocks. This very ambitious plan would be equivalent to several percentage points of the Eurozone’s GDP. In addition to this, he is pushing for a larger financial backstop to deal with troubled banks. This all sounds very good indeed, considering the situation in Italy. In theory, a pool of EU money that could upgrade Italy’s economy and also provide a backstop for the troubled banks, would be extremely beneficial.
It was, however, a Sisyphean task for Macron to get these reforms through. He had originally hoped to rely on Angela Merkel to help him out. After all, the German economy is reliant on exports to the EU and can’t really afford for it to break apart. Merkel’s departure as CDU leader and the ensuing political crisis now makes this incredibly difficult. It is true that Friedrich Merz and the Greens are more in favour of EU integration than Merkel, but the fragmenting of the political situation may make it impossible for anyone to help him push these reforms through. This explains why the deal that the two were able to come to is much less ambitious. With no figures mentioned, the eurozone budget will not be used to carry out countercyclical measures, but will only be there to make up for possible reductions in spending on research and development that a country may make when facing a downturn. In reality, it is merely a face-saving exercise for Macron.
Macron must also look to convince the leaders of a group of mainly northern European nations, who have recently responded to Macron by calling for greater national responsibility for public finances and less EU-funded support. One way that he could convince this group is through accelerating his promised reforms at home. France’s deficit is 2.8 percent of GDP, which is an increase from 2.6 per cent last year. Part of the reticence shown by some of the so-called ‘hawkish’ nations towards Macron’s proposals could stem from a desire to avoid discouraging ‘sensible’ (austerity) policies. Macron will, therefore, be a lot less capable of convincing other leaders within Europe if it looks as though France is unable to deal with their own deficit.
Can Macron accelerate the progress of his reforms?
Indeed, Macron has already come under attack from his own base for not moving quickly enough with his reforms. For example, Geoffroy Roux de Bézieux, the head of France’s largest employers’ federation called on him to “accelerate [the] pace” of his reforms. However, he also recognised that this may not be so easy, admitting that “it’s becoming more difficult now to accelerate [change], given public opinion and the polls”. Macron’s popularity has sunk to a level below that even of Francois Hollande at this stage in his presidency and he is still yet to attempt his reforms of the pension system, healthcare, central public administration and local government. Macron won the presidency without much of a base, winning 24 percent of the vote in the first round, and this has only declined. He has been hit by a number of ministerial resignations, including Gérard Collomb, who accused him of “hubris” and said that “in the palaces of the Republic, we lose the ability to link and listen with the population.”
Macron promised that his painful reforms would result in reduced unemployment and an increase in growth. However, the headline unemployment rate has barely changed since Macron came to power and even this figure masks the real situation. There has been an explosion of people working only a small number of hours each week who still need to claim benefits. This has almost doubled since 2008 to 2.2 million people. In addition to this, the prime minister had to downgrade the already anaemic growth forecast of 1.9 per cent to 1.7 percent in August.
If, however, Macron is to push ahead with his reforms, it is likely to cause a huge social explosion. Just this month we have already seen the “yellow vests” mass movement of hundreds of thousands of people against a proposed tax increase on diesel and petrol, which is supported by a large majority of the population.
When Macron came to power, on the surface, it seemed as though the French ruling class was in a very strong position. Below the surface, however, was the same seething discontent that we find elsewhere in Europe. Rather than a sign of strength, therefore, the crumbling of the French Socialist Party and the Republicans, and their replacement by En Marche, was a sign of weakness. With the continued discrediting of Macron, a vacuum is developing, which must be filled, one way or another.
The Brexit crisis
As if these problems were not enough for the European Union, it also has to deal with the exit of its second biggest economy. Trotsky once said that “the British imperialists… do their thinking in terms of centuries and continents”. Today, however, it would not be hyperbole to suggest that the British ruling class has now lost control of the situation. It doesn’t seem to be able to plan what will happen next week, let alone next century. The special decline of British capitalism looks as though it will be accelerated by a chaotic exit from the European Union, and there doesn’t seem to be much that the ruling class can do about it.
Brexit is not a result of ‘fake news’, Russian trolls or Jeremy Corbyn. It is a result of 10 years of austerity and falling living standards, which have created huge resentment in society. Unsurprisingly, the ruling class and its representatives in government ensured that it was the working class who paid for the economic crisis of 2008. In the 10 years since the crisis, workers have seen their incomes reduced by an average of £800 per year. Additionally, the UN reports that there are now 14 million people living in poverty and 1.5 million who are destitute, which means that they are unable to afford even basic goods. This has caused many people to develop a bitter hatred of the establishment and the status quo.
It is this context within which we can understand the Brexit vote as being a result of some of those most affected by austerity putting two fingers up to the establishment. Indeed, polling shows that those most likely to vote ‘leave’ were people who lived in communities most severely affected by austerity. Many workers thus voted for Brexit out of disgust at the present situation. Brexit, for many at least, represented some sort of change.
This situation is, however, a nightmare for the ruling class. The EU is Britain’s biggest trading partner, with 44 percent of exports of goods and services going to other countries in the trading bloc in 2017. Moreover, many companies in the UK work according to ‘just in time’ production, which means that any delay or added time costs in checking goods crossing the border will add substantial costs to the production of those goods. The ruling class as a whole, therefore, would like to do all it can to ensure as soft a Brexit as possible. This explains the tepid reception Theresa May received when she reported on the deal at the Confederation of British Industry’s conference on 19 November. While it is certainly true that there are individual capitalists in favour of Brexit, it is undeniable that the vast bulk of the British ruling class was in favour of remaining in the EU.
The ruling class has lost control
The trouble for the British ruling class is that its has now lost control of its traditional party, the Conservatives. The party has been slowly losing its traditional base of support. Like many other parties of the ruling class around the world, they have attempted to solve this by whipping up a racist, nationalist mood among certain layers of the petty bourgeoisie and working class. Unfortunately for them, the chickens are now coming home to roost. There are some layers that have been convinced by this line, and are merely taking it to its logical conclusion. There really is no way of controlling immigration within the European Union, and so the only way to do so is to leave.
The decline of the British ruling class reflects itself in many ways and one of these is in the degeneration of the Tory Party. In the past, this party was the envy of the ruling classes of the world. Today, however, it is being ripped apart by centrifugal forces. On the one hand, is the very powerful tendency of those who seem to believe that Britain can actually regain its status as a world power once again, rather than the weak, third-rate power it is today. The perfect representative of this tendency, loved by the membership of the party, is Jacob Rees-Mogg. On the other hand, however, rather than the aristocratic statesmen who used to run the Tory Party in the interests of British capitalism, the party is now dominated by careerists with a very short-termist view. For example, David Cameron, in an attempt to placate the right wing of the party, attempted a short-term gamble by running the referendum on membership of the EU. He, of course, lost this referendum, and has now left the Tory Party in open conflict with itself.
In normal times, this would not be ideal, but usually, a general election could be called and the ‘second eleven’ could be called out. The leaders of the Labour Party, traditionally, have been called on when needed to form governments, carry out the interests of the ruling class, discredit themselves and then pass power back over to the Conservative Party once they had regrouped. Today, however, the Labour Party too has been taken over. Hundreds of thousands of radicalised people have entered the party in order to fight against austerity. The Labour Party, therefore, cannot be trusted. Not because of the leader, Jeremy Corbyn, but because of the hundreds of thousands of radicalised working class and young people, who have entered the party and will put tremendous pressure on a future Labour government. A Labour government could raise the hopes of working-class people within the country and so must be avoided at all costs.
While the majority of the ruling class desperately want to avoid Brexit, they have very limited power to do so. Every avenue that they try is likely to cause even more instability. A push for another referendum would likely exacerbate the deep polarisation in society. Equally, the deal Theresa May has managed to cobble together with the European Union, which the head of the CBI has supported as “progress”, is not certain to pass through parliament. The Tory government only has a majority as they are propped up by the Democratic Unionist Party, which has already said that the deal breaks “one of the fundamental agreements [the Tories] had with us”. The DUP argues, correctly, that it would result in Northern Ireland being treated differently from the rest of the UK and so, for them, risks a step down the road to a united Ireland. In addition to this, despite the huge pressure from the ruling class (alongside outright bribery in the form of peerages), May can’t even rely on her own party to vote for the deal.
Finally, while the Blairites certainly represent the voice of the ruling class in the Labour Party, putting pressure on this faction to vote for the deal is very risky. It would create a huge amount discontent within the party and is likely to radicalise things even further. Many Blairite MPs have already faced votes of no confidence within their local parties and if they were seen to be propping up the government, the mood would reach fever pitch and you could see a wave of deselections. This would mean that local parties would vote to bar the current MP from standing as the Labour candidate at the future election and replace them with someone else. The ruling class may also wish to leave the Blairites in the party as a fifth column, ready to split and bring down a future Corbyn government at a certain stage. In any case, it is not even certain that the pressure of the ruling class would manage to convince the Blairites to vote for the deal. This group, and the very limited base in society that they rest on, has been whipped up into a frenzy over the question of a second referendum to force the country to remain in the EU. This deal, therefore, may not be enough for them.
It is very difficult to predict exactly what is going to happen in Britain, but there are a few things that are clear. The ruling class has, for now at least, lost control of the situation and both major parties are on the verge of splitting. This is an unprecedented situation for the previously glacial country.
European Union in crisis
In each country within Europe, the form of the crisis may differ. However, the content is much the same. Across the EU, it is the working class, the young and the poor who have been asked to pay for the crisis. This has forced down living standards and has provoked seething discontent. It has also forced people to desperately search for solutions to their problems. This means that the old certainties are being rejected.
Brexit means that the European Union is losing its second-largest economy. The degeneration of the Conservative Party meant that a referendum was held, and the huge amount of anger in society meant that many working-class people voted ‘leave’ to kick out at the establishment. Regardless of what sort of Brexit deal is eventually agreed, we are likely to see some barriers to trade as a result of this vote. Given the fact that Britain is Germany’s third-biggest trading partner, this could add to the problems facing the already-slowing Eurozone economy.
This is, moreover, the situation before the next major slump has hit. The economy is, after all, supposed to be in a state of recovery! Concerns about the next slump have led some to recommend increasing interest rates. This would, however, only exacerbate problems in places like Italy, and could push parts of the Eurozone into recession. On the other hand, if the ECB doesn’t increase interest rates, it will not have any mechanisms to deal with the next crisis. The ECB will only end its quantitative easing programme this month, and will likely not have the time to bring up interest rates before the next recession hits, which will leave the European economy very exposed.
European leaders can’t let Italy default, which explains their intransigence when it comes to government spending. The bailout of Greece was difficult, and Greek government debt was only €250bn. Italy’s debt is €1.2tn. Insisting on budget discipline, though, will only increase the already-high anti-EU mood in the country.
With Macron and Merkel dealing with crises at home, they appear unable to push through reforms within the area. Merkel is under pressure within Germany to abandon her support for the southern European economies. Further reforms or bailouts are likely to encounter fierce resistance from these elements in Germany. Macron is even weaker, being pushed from both the right and left, and under pressure from a mass movement. The political capital of the European leaders is spent, and they will struggle to find support for any further sacrifices to keep the European Union together.
The Marxists have always explained that the European Union could work so long as the economy was growing. Under the impact of crisis, however, the national tensions would re-emerge. This is what we are seeing today. The crisis has forced national interests to the fore as the ruling classes of each country worry about their own interests first. This is what is leading to the rise of protectionism on a world scale, and also to the breaking apart of the European Union.