Monetary chaos
ON August 2, the European Union took a holiday from its monetary system (EMS), the primary mechanism which is supposed to lead to
International Viewpoint #248 September 1993
German economy and not its "strength" or the arrogance of German bankers. In the space of six months, German exports have dropped by 10%. Industrial production has dropped by 6% over one year.
One can say that by defending the stability of the German mark, the Bundesbank
ERNEST MANDEL — Brussels, August 18, 1993
T HE project of capitalist unifica-
tion of Europe was frozen halfway between a simple free trade zone and a real fed-eral state. The Single Act and the Maastricht Treaty were attempts to unfreeze the situation through the creation of a common currency. The creation of a political and military authority was put off to a further date.
It can be asked whether this option was lacking in realism from the very beginning. A common currency presupposes common monetary and financial policies. And does this not itself presuppose common economic policies - that is, a common federal authority?
The European Monetary System (EMS) and the Maastricht Treaty were sunk on the rocky shores of economic and social reality. This is the meaning of the monetary storm of July and its aftermath.
This reality is characterised by:
• The extraordinary imbalance between the extent of floating capital and money on the one hand and the exchange reserves of the European central banks on the other. On the exchange markets alone, transactions are equal to the annual volume of world trade. Daily transactions on the exchange markets reach a total as high as $900bn, three times higher than the combined exchange reserves of the seven major industrial powers and smaller members of the EEC. Capital on the settlement markets is as high as $10,000bn.
When there is downward speculation against a currency, the central banks can only defend the currency in question by buying it with their exchange reserves. Over a few days, the Bank of France lost 90% of its exchange reserves in its attempt to defend the franc. The Bundesbank gave it an advance of an equivalent amount in German marks for its reserves. It was a lost cause.
• No political authority, even the most tyrannical, can oblige owners of merchandise or of large sums of money to accept play money in exchange for their holdings. Forced exchange (or slightly limited fluctuations) of currencies losing value event-ually gives way. This is the objective cause of speculation, since all the European currencies are play money to varying degrees. Inflation has been reduced, but not defeated. In the European Community, it is now on average between 4 and 5% per year and it is in the process of increasing. This leads to a cumulative loss of 50% every seven
This is why capitalists have a tendency to seek out "values of refuge" such as real estate, shares, gold and other precious metals. Bonds have to offer safeguards against devaluation (that is, an interest rate higher than the "normal"). This is why interest rates are so high in spite of the abundance of capital in the form of money. According to the weekly The Economist, real interest rates (after subtracting the rate of inflation) are 2.6% in Germany, 4.5% in the Netherlands, 5.5% in Belgium, 6.7% in Spain, 7.1% in France and 11.8% in Denmark — much higher than historical averages.! And these figures are actually lower than they should be.
• There has been an economic depression that has lasted for some 20 years. The normal "industrial cycle" has operated within this framework. At present, all European countries are in recession. Maastricht presupposed a progressive harmonisation of economic and financial conditions in the different member countries. The EMS presupposed the pooling together of a part of the different countries' exchange reserves — to the detriment of Germany above all. When business is good, these painful sacrifices are tolerable in spite of everything; everyone hopes to profit in the end. But when business is bad, "selfishness is blessed" and the "everyone for themselves" mentality dominates; gains for one party almost certainly imply losses for another — and thus the difficulty of getting Maastricht-type rules
Contrary to appearances, what sent the EMS into a slide was the weakening of the may be weakening the position of German exports, but it is faced with a difficult choice due to the huge public debt it amassed as a result of the hurried capitalist reunification of Germany. Any policy of economic "revival" aggravates inflation and any policy of defending the mark aggravates the recesSIon.
The unfruitful attempt at revival through a lowering of interest rates led to a series of devaluations, first of the British pound, then of the lira, the peseta, the Swedish crown and finally of the French franc.
• Other member countries of the EEC are faced with the same dilemma, aggravated by economic weakness which is worse than Germany's. As a result, Germany has emerged from the collapse of Maastricht less weakened than its partner-competitors. But it has emerged weakened nevertheless. Any deepening of financial instability in the rest of Europe, any deepening of the recession, will have negative effects on the German economy.
This explains the near-desperate to salvage something from the wreckage over the mid-term - to set up something more modest than Maastricht, but something that points in the same direction all the same.
• Is this a two-speed Europe? For the moment, it seems more like a three-speed Europe: the German mark zone, an intermediary zone (France, Britain, Italy) and a zone of weaker currencies. If the Netherlands, Belgium and Luxembourg and perhaps Denmark integrate themselves into the German mark zone, it is not in order to succomb to "German dictates", but because doing so corresponds to the interests of their bourgeoisies. One need only see what proportion of their exports are going where, and what part they make up of their total production, to understand why.
But for the bourgeoisies of these countries — and no doubt of Austria also, which is knocking on the EEC's door — it is not only privileged relations with Germany that count. It is the consolidation of the European Community as a whole that is a question of
1. The Economist, July 31, 1993.
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political and monetary union. EUROPE
Table 1
USA production as a percentage of the production of other countries
International Viewpoint #248 September 1993 life or death for their economies Their exports toward member countries of the EEC outside the German mark zone are almost as significant as those to those in it.
The governments of these countries are going to exercise tremendous pressure on Germany for it to come to some kind of accommodation with, above all, France and Britain. Saving the EEC is their goal. Belgium, which is now taking over the presidency of the Council of EEC Ministers, will take up this task with vigour. The Belgian prime minister, Dehaene, gave a taste of what is to come in an interview he gave to the Belgian press.2
• The wish for such an arrangement also corresponds to a political preference for avoiding the risk of German domination in all fields, which would flow from Germany's immense economic weight. The Franco-German leadership that has led the EEC until now is preferable in the eyes of the European bourgeoisies. French military weight (and to a lesser degree that of Britain) neutralises the possibility of German military hegemony.
• While the EEC machine may have broken down, it is not beyond repair. Its success depends on interests — in the first place, those of European multinationals — which are too powerful for it to be so easily discarded. To understand this, one need only note that inter-community trade acounted for 60% of the total trade of the EEC countries in 1990, against 49% in 1980.
But these "pro-European" forces are not the only ones present in the twelve member countries of the EEC. There are also the
1970 1975 Japan 495 317 Germany 547 371 EEC 158 113 Japan & EEC 113 77 trusts oriented primarily towards the internal markets of their own country. There are the non-European multinational corporations. There are the small and medium-sized firms threatened by the new arrangements. There is the public and semi-public sector "protected" up until this point in the member contries. There are also political forces within the bourgeoisie who are aware of the European institutions' lack of legitimacy in the
These institutions are inadequate instruments for responding to political crises and social explosions. This absence of legitimacy is without a doubt heightened by the technocratic arrogance and the absence of political sensitivity of which the Commission has provided numerous examples. It has not been able to "sell" its merchandise, as the debates around Maastricht clearly demons-
But this is only a minor element of the problem. The main thing is the absence of any kind of European consciousness among the large majority of the popular masses. They do not in anyway feel that they belong to some nascent European "nation". While
CHATATE
1980 1986 1987
254 214 188
330 469 401
93 131 104
64 77 67 they are less influenced by nationalism than before 1948, and while travelling and choosing one's partners without paying attention to borders and ethnic origins has certainly oriented the youth in this direction, no new international identity has yet to replace the former, declining national identity. This is why a nationalist retreat remains possible in the medium-term. And the new identity will only emerge little by little out of new needs and experiences and common cross-border
"European construction" can not progress unless it plays referee between all of these 50 to 60 disparate forces for the whole EEC — in other words, institutionalised haggling and blackmail. Consequently, things will only progress slowly, and there will be many retreats.
• There are other fundamental realities. The problems of European capitalist unification are part of a specific global context. There is first and foremost the triangular trade war between the USA, Europe and Japan — in which none of the three is dominant enough to enable it to dictate terms to the others. This is clearly a product of the dramatic decline of American production in relation to that of its main competitors (see
Multinationals of European origin and other economic and political forces in Europe see a consolidated EEC as the best way to defend their interests against American and Japanese competition. While Washington and Tokyo are good at defending the interests of Boeing, IBM and Exxon, Paris, Rome, The Hague, Madrid and Brussels do not yet have the sufficient strength to defend those of Fiat-Seat, Rhône-Poulenc, Philips or Solvay.
• In spite of all the sermons in favour of monetary stability, the temptation to use de facto monetary devaluation as a weapon in a trade war is very real. American and Japanese capitalists celebrated the weaken-ing of the EEC that resulted from the collapse of the EMS.
But the consequent strengthening of the dollar and the yen may hit Japanese and American exports. In the month of June, the American trade balance reached its highest deficit in five years. The deepening of the
2. Quotidien de Bruxelles, Le Soir, August 18, 1993.
Internationa/ Viewpoint #248 September 1993 recession in Europe and the growing misery of the peoples of the Third World always provoke an analagous effect. The Schadenfreude (malicious enjoyment) will be short-lived.
• The relative stability of exchange rates in the 1980s was based on the long economic recovery which followed the 1980-81 recession. This recovery was based on real estate and stockmarket speculation, but this inevitably came unstuck - lest we forget the stock market crash of October
As a result, floating money-capital progressively spilled over onto the exchange markets. The monetary measures of July 31 certainly increase risk for speculators result of the threat of a series of devaluations. Thus money-capital is flowing back into the stockmarket; in New York, London and Frankfurt stockmarket levels have reached levels higher than the records of 1987
These figures do not take inflation into account. They should be reduced by some 35% to 50% to see the real increases in the values of stocks. But since this increase does not in any way correspond to a proportionate growth in production, a new October 1987 is on the horizon.
• French President Mitterrand and Prime Minister Balladur are now denouncing a dark plot against France by international speculators, after having denounced "the Germans" as the ones responsible for the attack on the franc. They could with equal credibility ape Pope John Paul II or Ayatollah Khomeini and hold the Devil or the
To honestly recognise speculation as part of the intrinsic mechanisms of the capitalist economy and the fundamental "values" of bourgeois society is certainly not fashionable these days. But facts are more stubborn than myths.
### Table 2
Share prices in local currencies, including dividend re-investment, compared to 1987:
Hong Kong + 379%
France + 164%
Netherlands + 155%
Britain + 159%
Denmark + 147%
Sweden + 157%
Australia + 138%
USA + 130%
Germany + 106%
Belgium + 91%
Source: The Sunday Times, August 15, 1993
Who then are these famous speculators, aside from certain individuals - 120018 F/L like George Soros whose exploits have been high- - 110018/L lighted by the press?3 It would be quite an accomplishment to discover the nationality of these specuthose who operate in New York and Tokyo are in part European, and often Fren-
When it is a question of quickly making a lot of patriotism and other noble sentiments don't carry much weight. But in the check the nationality of immigrant workers than of those who export capital!
Is it really so subversive to ask the question, "how many French speculators could be counted among those who speculated against the franc?"
Let's add a juicy detail: according to the Washington correspondent of the Sunday Times, the head of the Federal Reserve Board (the American central bank) regularly loans money to private banks at an interest rate 3.5% to 4% lower than the interest rates they can get by buying nearly risk-free state
One doesn't have to be a genius to get rich in such conditions. The profits of American banks have risen dramatically, and they use these profits to speculate on the exchange markets, their appetite for supplementary gain being insatiable. These are not small profits, and our not-so-brilliant friends are always on the lookout for new adven-
• We will not mourn the death of Maastricht. The Single Act is an undemocratic and socially regressive undertaking, grounded in attacks on democratic freedoms, on increased repression of the weakest layers, on a deepening of the "dual society" which leads to a rise in racism and neo-fascism and agression against the people of the Third World.
But while we do not mourn for Maastricht, we are not altogether thrilled with what will follow. Maastricht did not crumble under the weight of mass struggle, but rather under the collective weight of the internal contradictions of the capitalist system. The initiative remains more than ever in the hands of the bourgeoisie. The work-ing class is more than ever open to severe blows.
For this class, the economic and social situation is dominated by unemployment. In Germany, France and Italy the number of unemployed is already higher in absolute
- even in relative terms - than that of the 1930s. Unemployment and the fear of unemployment dominate the thoughts of the organised workers movement and the mindset of the working masses.
In such a climate, Chancellor Kohl does not hesitate to preach the need of lengthening the workweek. He pretends to ignore the fact that while individual firms certainly have to shoulder costs for their employees, these employees also constitute the primary purchasing power for the merchandise of a large part of the firms that have to sell a growing mountain of goods and services. Without this realisation of plus-value, there will be no revival of capital accumulation — robots will never buy ready-to-wear items.
With a brutal frankness that goes beyond mere cynicism, international investment experts (among them a representative of the Indo-Suez Bank) proclaim that what Germany needs after the failure of Maastricht is a massive reduction in social spending.
Chancellor Kohl is obeying orders. On August 11 he announced the first cuts in social spending, including unemployment insurance, in 45 years. The Italian, Spanish and Portuguese governments are following suit. In Portugal, there is even talk of re-establishing the right to make 14 year-old children work. Only the German weekly Die Zeit is sounding the alarm and asking what will become of Western stability in such
• To face up to this capitalist offensive, the workers movement must unburden itself of the myth of its supposed guilt with respect to unemployment. It is not "high salaries"
3. See Business Week, August 23, 1993, for an interesting analysis of the "successes" of this personality.
4. Sunday Times, August 8, 1993
5. "Massive cut in German welfare expenditure", International Herald Tribune, August 14-15, 1993.
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