European Monetary
International Viewpoint #197 • December 24, 1990
WESTERN EUROPE is perhaps the he British case
T most spectacular, given the radical positions taken by Thatcher.
But in other countries, the tradi-
Union: the stakes tional right has divided over the European question. Moreover, the inability of some right-wing parties to respond positively to this challenge has given the social demo-
MARGARET Thatcher resigned as leader of the Conservative crats an open field to present themselves
Party so that it would have a chance of winning the next as the only coherent European political elections. Her fall can partly be explained by the unpopularity
Nonetheless, it should be noted that the of the poll tax, as well as rising inflation and the economic situation differs very much from country state of the country. It was certainly also because of the to country. The German right, for exam-
European question, which has deeply divided the British ple, has obviously not dragged its feet in playing the game of European unification.
ruling class, to the point of provoking an open crisis in the
In other words, the European "rights" are
Tory party and in the government.
responding differently to this challenge in accordance with the pressures put on them by various sections of the capitalist class.
In some countries, where the 1992 Single Market will force an abrupt reorganization of the economic fabric by removing all protectionism and eliminating obstacles to foreign competition, sections of the traditional right are taking the risk of advancing increasingly systematic criticism of the scheme of economic and monetary union. This is not easy for them, inasmuch as they have to reconcile the interests of part of their electorate with those of big industry and banking.
Right wing parties play double game
None of these parties can easily give up their relationship with small and middle- sized enterprises or a section of the petty- bourgeois voters who are frightened by the European future. So, they have to play a double game, and find a scapegoat by putting all the blame on the Brussels bureaucracy and the European Commission for problems that they claim are arising from too rapid economic unification.
This is the classical denunciation of
"Euro-statism." But it makes impossible any bloc of the right-wing parties in the
Strasbourg European parliament, and this accentuates the new role of the social democrats as offering more up-to-date answers to capitalist needs.
What very much worries people like
Thatcher in Britain or Chirac in France is the new relationship that all this involves between the "national" state and EEC institutions. Over and above the reactionary stupidities of the former British premier, there is in fact a contradiction today between the national authorities and the supranational ones. And this puts a big question mark over the future of the European project.
The problem is indeed one of the legitimacy of the state and its intervention in regulating social relations. The multiplication of decisions, measures and regulations now proclaimed as coming from
"Brussels" is tending to undermine some
"social consensuses" that have been built
20 on the angersuse than on bittions. Either the latter may no longer look effective and credible, and the unresolved problem will be one of the "demoand historic legitimacy of the EEC bodies that partially substitute for them. Or the state may seem to be the unwilling victim of cosmopolitan pressures exercised by Brussels functionaries, and then some will take the option of defending "national" values against the liquidators of the fatherland!
In the final analysis, this lack of an effective solution to the question of a partial transfer of sovereignty from the states to the EEC bodies poses serious problems. This can already be seen in the total loss of credibility of certain national agricultural policies. For example, sels" has just decided that agricultural price subsidies need to be lowered by 30% in order to seek a consensus with the United States in the GATT negotiations This decision was obviously made after among the governments through the European Council. But some ministers of agriculture have preferred to plead not guilty to the farmers, fostering the feeling that everything is now being imposed by Brussels.
Delors plan is basis for discussion
The so-called Delors Report on Economic and Monetary Union was presented in April 1989 to the European heads of states and governments. It has remained until today the basis of discussion and negotiation about what has been portrayed as a necessary acceleration of the process of integration. Although it has at times been described as a logical sequel to the Single Act signed in December 1986, this new project will require a modification of the original treaty.
The Delors plan provides for three "stages" in arriving at a full monetary union. The first, which opened on July 1, 1990, calls for a convergence of the economic and monetary policies of the mem-
CLAUDE GABRIEL ber states. It was inaugurated with the free circulation of capital (according to the Single Act, this was supposed to begin with the "big market" in 1992). In principle, this should open the way for the formal entry of all the EEC currencies into the European Monetary System (EMS).
### Transition to common monetary norms
The second phase is portrayed as a transition — a "learning phase" — leading to collective decision making, with the responsibility for the decisions still falling on the "national" authorities. This is sup posed to be a gradual approach leading up to the establishment of common monetary norms, the pooling of a part of exchange reserves and a reduction in the fluctuation of the various currencies. A supernational body for coordinating monetary policies is supposed to be set up to oversee the activi-
The three phases will involve establishing fixed and immutable exchange rates, setting up a single European central bank (already dubbed "Eurofed") and making the ECU the single currency of the EEC The currency reserves of the central banks would then be pooled.
This new project was in reality an option opened up from the beginning by the hazards of the Single Act. The freedom to set up banks and insurance companies and the freedom to offer services in fact usher in free-for-all competition, because of the different tax systems in the various countries for savings and capital. Any financial service offered in one coun try under local conditions by any banking body can be proposed freely in this form in all other EEC countries. Since the Single Act permits such free circulation of capital, very large imbalances can suddenly appear as a result of differences in competitiveness or in movements seeking more profitable placements. And this is to say nothing of the speculative attacks that are always possible against
There is, therefore, an objective risk of the states' losing control over the money supply. The disorder of "free circulation" would, therefore, require a new monetary order. And the risk of things getting out of hand cannot be definitively removed in the EEC until the third stage of the Delors plan is reached.
What advances have been made in that direction? In June 1989, the Spanish peseta entered the EMS. It was temporarily allowed to fluctuate by up to 6% against the other currencies. In September, Portuguese escudo was included in the "basket" defining the ECU.
In January 1990, the Italian lira, which up until then had participated in the EMS with a fluctuation range of more or less 6%, became "adult," coming into the bracket where the basic range of fluctua-
In May 1990, the Belgian franc established a fixed parity with the German Mark, after the Dutch guilder. The French government is considering doing the same
So, we have certainly seen a strengthening of the role of the EMS in recent months and a tendency toward relatively stable parities for some of the currencies concerned. In October, the turn came of the pound sterling to enter the EMS, despite the Thatcher government's past blustering.
These trends have essentially corresponded to concrete industrial and commercial realities. Interdependence has increased. Now the EEC accounts for more than 50% of the foreign trade of these countries. The monetary question is thus the logical conclusion of all the other European processes begun long ago.
Private use of ECU still limited
But the use of the ECU in private transactions has seen only a very modest growth up until now, because it has had no function in general transactions. In order for it to have that, it would be necessary to "break with the ECU," and make a choice of currency, with the costs and risks that would involved. The Delors plan designed to definitively overcome this problem.
None of this for the moment opens the way for eliminating all the contradictions created by the Single Act. Let us look at some of them:
• Until things are further developed, the risks inherent in a gap between capital movements and the shattering of the institutional frameworks can give rise to grave problems. An example is the unevenness and instability of interest rates, which are sources of speculative movements. When interest rates went up in West Germany at the beginning of 1990, the Dutch government almost took the guilder out of its fixed parity with the Mark.
• But there are even more problematic aspects. In the present EEC, goods and capital can circulate without any hindrance, while producers' goods do not have the same mobility. Capital is more mobile than factories. Factories are more mobile than labor. Therefore, you cannot get a "spontaneous" adjustment of wage costs to productivity differentials.
• No one yet knows how the budget deficits of each state can be monitored and mastered. But this is a necessary task in the second phase of the EMU. The Delors plan originally called for very tight supervision from Brussels. But there is no reason to think that by that point the transfer of political authority that this involves will have reached such a level. Draconian policies needed to cut deficits
The various states all have their traditions as regards monitoring the volume of money, wage policies and so on. No two price indexes have yet been established on the same criteria! Moreover, no one knows exactly how in some countries draconian policies for reducing the deficits are going to gain social acceptance this is true for Italy, but also for Denmark, where all this puts in question the famous Scandinavian model of social develop-
• The scope of these problems could lead to a two-level or a two-speed EMU,
West Germany, France, Denmark, the Benelux and maybe Italy, if it manages to cut its budget deficit, forming a leading group.
On the national level, there are important gaps in economic performance from one region to another. But at present, the states have not been able to curb the destabilizing effects of such differences, for example through a relatively free circulation of labor, which in most countries does not run up against any linguistic barriers. They have also been able to devote not inconsiderable means to economic and social incentives.
However, nothing of this sort exists today at the European level. The compensatory funds still represent only a derisory sum. Free circulation of labor belongs to the realm of fiction. And the differences in inflation rates remain very pronounced, between at least two groups of countries (see table p. 22). In such conditions, it is hard to see how in the short term the yawning gaps in economic performance among countries can fail to force the EEC to make a difficult choice — either a twospeed EMU for different groups of contries, or a draconian application of reconversion plans that could lead to very sharp social tensions.
It is quite significant that on the eve of the conference on the EMU, the idea is going around about a subgrouping of countries that are moving faster than others toward monetary union. The chair of
WESTERN EUROPE the German central bank, Karl Otto Poehl, has publicly accepted this idea of "two speeds." 1 But it would then be necessary to solve the problem of the gap between the realm of the Single Act (with all the going even wider) and that of the EMU
How can you fit together all these various levels and make them into a coherent whole? How can you provide a viable institutional system for all this?
The British proposal for having a common currency alongside the national currencies has not so far been accepted. For the Thatcher government, the aim was to try to keep national control over the money supply. Thus, the government would decide to change only a certain percentage of the monetary volume into ECUs. Total mutual convertibility of the European currencies would make it possible to use the strong currencies to boost the weaker ones. Such a half-way solution was not supported by the Delors report, nor has it been by the majority of the governments. ECU as single currency most
The option therefore has been for the ECU as a single currency. The reason is that, although this solution may appear maximalist, it in fact emerges as the most coherent. It will inflict a real "Darwinian purge" on the most fragile of the European economies — a rapid decline in inflation, control and reduction of the public deficit. For Delors and his colleagues, it is a way to march straight ahead to European unification, while the British solution seemed to be a procrastination that could open up other contradictions. The Delors project is designed to be an express track, avoiding any stopovers that might delay the pro-
However, the radicalism of this course does not in itself solve the underlying problem. This is why, at the end of the day, John Major's coming to power in London is going to reopen the debate. The new Conservative government's opening to Europe can make it possible to refloat the idea of the "parallel" (or hard) ECU combining it with a two-speed EMU. The most advanced countries could then adopt a single currency, while the others could manage for a time with a "parallel" currency. Jacques Delors very demagogically ridiculed Thatcher's theses. But they did point up the real problems of unification.
The Delors plan set January 1, 1993 as the date for the start of the second stage. This was far from getting unanimous support, in view of the pitfalls to be avoided and the difficulties that will have to be resolved before then. The Spanish state 1. Financial Times, November 26, 1990. 2. You can see this problem, for example, with the Schengen conference on free circulation of persons and immigration control, to which for the moment only 21 six of the BEC states have adhered.
International Viewpoint #197 • December 24, 1990
WESTERN EUROPE
1979 1987 1990* France 10,8 3.1 3,2 FRG 4 0,2 2,3 U.K. 13,4 4.2 9,4 Italy 14,8 4,7 5,8 Belgium 4,5 1,6 3,2 Denmark 9,6 4 4,8 Ireland 13,3 3,2 4 follan( ireece 19 4,2 - 16,4 0,7 13,7 2,1 Spain 15,7 5,3 7 Portugal 23,9 9,4 12,7 Annual inflation rates of EC countries economics minister, Carlos Solchaga, distinguished himself in particular in this debate, arguing for putting the date back to 1994. It was thought that the Spanish state needed this time to bring its competitiveness into line with that of the more
It was in fact the Germans who settled this point. Helmut Kohl confirmed on October 17 in an interview on French TV, that it was necessary to take 1994 as the date for inaugurating the second stage of monetary union. In so doing, he settled a debate inside the German establishment itself on the tempo of the process. On October 28, the European Council adopted
As for the third stage, the outlook remains undefined. The conclusions of the October European Council meeting stipulate that after three years of the stage" the Twelve will take stock of things "in order to prepare the way for the decision concerning transition to the third stage that will come within a reasonable time." 3 François Mitterrand was to stress that for his part he wanted a time period of four to six years, which would mean real union around 1999 (Delors reportedly wanted a shorter time period). But there are already many unknown twists and turns along this course, and first of all the effects of the American and BritConference on political union planned
In any case, nothing in all this settles the question of the institutions and the states. Parallel to the conference on economic and monetary union, a conference on political union will be held in December 1990. The communiqué issued by the Rome European Council in October defined the objective of this meeting as strengthening the EEC's ability to act by extending its authority to other sectors complementary to economic integration that are essential for social cohesion. This 22 great conflation aimed, finally, at achieving a common foreign and security policy as soon as possible. 4 It can be seen today, in the light of the Gulf crisis and the "hostages" question, how hard it is for the Twelve and the EEC to define common interests!
However, the biggest difficulty remains the matter of institutions. On this point, there is a total tangle. The first problem is the dividing line between the authority of the Brussels Commission and the nation states. The second is the authority that the European parliament should have. There is now a strong current in this body that wants to make it a real European legislature, which would deprive not only the Commission but also the European Coun cil and national parliaments of a major part of their prerogatives.
What is supposed to be applied today is the principle of rounding out. The supernational institutions will only make decisions in those areas where a general decision is necessary to maintain the equilibrium of the whole. These are fine words to reassure the supporters of national sovereignty. In reality there is already such a fabric of interdependence that it is getting harder and harder to make national choices that are not at least subordinate to the big European project. Everything (starting with budgets and wage policies) will increasingly depend on the macro-economic choices made at the European level by the Commission and the governments. Second house proposed for
European parliament
In most of the states, the parliamentary institutions have been presented with a fait accompli, and can only respond to European decisions. So, there is talk now of a second house of the European parliament that would enable national representatives to meet directly, a sort of senate. This is the proposal made, for example, by Chirac in France, or Michael Heseltine in Britain. But by reinforcing the role of the national parliaments as intermediaries, such a solution would lead to reduc-
•ot the m Commission.
The French Socialists have preferred to propose holding an assembly of European members of parliament, including representatives of the Strasbourg parliament and the national parliaments, on the eve of the big European choices. Such a meeting has just been held in Rome at the end of November, apparently to prepare the way for governmental conferences in December on EMU. Two hundred and fifty eight deputies, senators and their "European" colleagues met to discuss, among other things, the celebrated "deficit of democracy" of the European institu-
Is this a European senate or regular interparliamentary conferences? In reality, two radically different options lie behind these choices - a sort of confederation, beloved of a part of the European right (a "Europe of the nations") and a long-term federal project, which the social democrats and Christian Democrats tend to support.
The Single Act, properly speaking, is a declaration of faith in free-for-all free enterprise. A lot of people have discerned in it the irrefutable mark of a historical tendency towards "less state." In fact, contradictory tendencies are operating in this respect, reflecting the needs of a worldwide reorganization of capital on the one hand and the problem of the political means for economic regulation and preserving social relations on the other. Single Act raises question of para-state bodies
The Single Act barely began to be implemented before it started raising the question for its sponsors of a higher level of para-state institutions to respond to the new European needs. The deregulation of public services is going hand in hand with the privatization of these services — breaking down the divisions among markets, making alliances and undertaking new concentrations. But this has not been the mark of a change in the functioning of contemporary capitalism.
The role of the institutions, the state apparatus, is more than ever the cornerstone of the system. Those who have pushed bourgeois free-trade theses recent years are getting a painful lesson about this from the current debate on the importance of political control over the upsets caused by the Single Act.
The question of institutions has raised its head again over the status of the future European central bank. The central banks in the various European countries currently have very different relationships with their respective states and political authorities. However, an agreement seems to have emerged now that the future Eurofed will be totally independent, as the German Bundesbank is, for instance (unlike the French central bank, which is totally subject to the orders of the government).
To what extent does this choice reflect doctrine, and to what extent pragmatism? In fact, it is quite clear that since the problem of the political institutions of the future EMU has in no way been solved, the European states are quite incapable today of taking any other option toward the Eurofed. It will, therefore, be "independent," because that is the position of 4. Le Monde, October 30, 1990. On European defense, see my article in International Viewpoint No. 194, November 12. 5. Le Monde, November 21, 1989. 6. This has kept the same people from proposing a central bank system modelled on the American one, that is, twelve banks crowned with a federal structure. If this were the choice, then it would be necessary, in the last analysis, for the twelve banks all to be independent of their respective "national" authorities. That is easier to say than to do!
INITIATIVE
ADVICE
DECISION
WESTERN EUROPE
Juridicial
Control
COURT OF
EUROPEAN PARLIAMENT
ADVICE
JUSTICE
ADVICE COMMISSION proposition ADVICE ECONOMIC ADVICE AND SOCIAL COMMITTEE How a European Community decision is taken the Germans and because no one has any ject of controversy. It involves a big risk idea of what a European bank under political control could look like .
Another feature of the EMU project is the desire to use this process to block the spread of a recession from the United States. The 1930s depression led to the collapse of the gold standard based on the pound sterling.
This fed protectionist drives. It took a whole transitional phrase, from the strengthening of the dollar after 1934 to the 1944 Bretton Woods Accords, which confirmed US world dominance, to achieve a new international monetary equilibrium.
Mark is basis for new world monetary system
Today, we are in a situation that is both analogous and different. While the capitalist crisis has not yet been resolved, and the threat of recession is growing, with EMU, the Germany-EEC couple is trying to pull off a bold monetary operation in order to resolve the upsets in the world economy in
Inasmuch as the only free international reserve currency is the Mark, and not the franc or the pound, the creation of a European currency that would play a key role in reorganizing the world monetary system would be based on the German currency.? This is why, among other things, a lot of people are talking about the "Mark zone," rather than EMU!
The idea is also that, thanks to unification, German demand on the European market can generate overall growth in the BEC that will make it possible to escape
But this operation remains especially hazardous since it is impossible to say whether the German economy is going to be capable of carrying through both the EMU operation and the absorbing of the former GDR.
The real costs of German unification remain a mystery, or at least a major sub-
COUNCIL COF MINISTERS of inflation, despite the federal government's decision to reduce public spending.
In the present unsettled situation of the the challenge of EMU to restabilize the world monetary system takes on the appearance of a race
We can always take comfort from the difficulties the European bourgeoisie is facing in achieving unity. It would have been surprising if on this crucial question the old rule of capitalist contradictions did not raise its head again.
It is more serious, however, to ask whether the workers' movement and all the social movements are going to able to resume the offensive quickly and take advantage of the factors of instability linked to this transition.
It has to be noted that the main (not the only) initiatives taken to press demands on the European level have come from the farmers' unions, that is, fundamentally bourgeois and petty-bourgeois forces. With the benefit of a long-standing clearly European agricultural price policy, the farmers' unions have been able to mount a number of international counterattacks.
Inadequate response of workers' organizations
The workers' unions, however, have been far from able to do this, for reasons that have to do with the chauvinism and conservatism of the bureaucrats who run these organizations.
In the European trade-union movement today, the weight of social democracy makes any independent reaction still more difficult.
However, the pressure extends beyond these leading circles. The building of Europe as it is envisaged today tends to be portrayed as "good sense," apparently
The workers' movement, meaning here the reformist leaderships and the state of organization and consciousness of the
Member states directive ruling/decision
Specific ruling/decision enterprises workers, is light years from doing what needs to be done immediately in order to respond to the European offensive of the
Many factors combine here, and it is not possible to say for sure whether the European bourgeoisies are going to be able to carry through the EMU scheme.
But rather than trying to read the tea leaves, it is better to present a certain number of factors that are already at work:
• For reasons both strictly "European" and because of worldwide reconversions, the dominant sectors of capital want to achieve such economic and monetary
• Some of the contradictions and difficulties the project is running up against can be solved, providing the movement does not act in a way that would obstruct the European capitalist
A part of the solution depends therefore on the ability of the bosses and the governments to force the workers' movement back a bit more and to make working people pay the price for their Europe.
• A sharp world recession could delay the project but not necessary sink it. The structural reasons for such unification will remain in the long term.
• If this project does not come to fruition, especially in the prescribed time periods, this will not keep the many partial measures being taken now from being blows to the social gains and political capacities of the working class.
• Already in this stage of the bourgeoisie's European project, the workers' movement and revolutionaries are faced with new strategic problems.
What sort of struggle should be waged today in Europe?
What forms can continent-wide solidarity take?
And what sort of political and organization project should the left have if it wants to respond to these new challenges? * cp. ch, No. 195, Novembe 25, 1e in International 23 Viewpoint, No. 195, November 26, 1990.
Authoritarianism and
International Viewpoint #197 • December 24, 1990 tary bases to Crete. Greece is also compared with the April legislative elections, the right more or less maintained its position in the big cities of Athens and Salonika and has retained control there. This is basically due to the votes of the "middle layers" who are most numerous in the big cities. At the same time a significant part of Synaspismos' own electorate and militants cast a blank ballot or even
SINCE the elections in April 1990, which saw the return of the right to power, Greece has experienced the sharpest attacks on the working class made in the past joining in the Gulf crusade.
The workers have, inevitably, responded. There have been strikes in all the sectors affected by the government's measures, reaching a high point in Septemvoted for the right - in Athens 5% of bal-