Trouble at the top
The disarray among ruling circles in the
European Union could hardly have been more clearly depicted than at the
‘summit’ over the weekend of October 4th and 5th. In
reality the event was little more than a photo-shoot. The meeting brought
together the Prime Ministers of Britain, Germany, Italy and France. The Prime
Minister of Spain clearly had his nose put out of joint by the lack of an
invitation. The other EU members (currently 27 nation states) also may well
have asked why they weren’t to be asked to take part in decisions that could
profoundly affect their futures.
The only realistic reply could be that the
meeting would have been even more of a shambles. Europe cannot get its act
together. First the participants at the summit swore to unite in action in the
teeth of the crisis. Secondly, when it came to pumping money in to the European
banking system (which must come if the plan is serious) they all got cold feet.
National interests came first. German finance minister Peer Steinbruck blew the
gaff. “We as Germans do not want to pay into a big pot where we do not have
control and do not know where German money might be used,” he complained. Since
the EU nations are not hanging together, they will hang separately.
No sooner had Merkel returned home than she
announced a unilateral comprehensive state guarantee over all bank deposits.
This was precisely the kind of act that the summit was intended to prevent. Two
small EU countries, Ireland and Greece had already announced state guarantees
for all bank deposits. This was intended, of course, to prevent a run on their
banks. It had exactly the opposite effect on their neighbouring countries’
banks. British savers, insecure at home, were desperately withdrawing their
money to open up accounts in Ireland where their cash would be safe. In the
fevered atmosphere, this threatened to bankrupt British banks and intensified
The following weekend, the 15 Eurozone
members met once again, chastened by the continuing financial panic. They swore
to do whatever it takes to prop up the banks. They all agreed, and they’ve
suddenly discovered 2trn Euros to pump into money markets. But national plans
are being implemented to recapitalise the banks – in Germany, Italy, France,
Spain, Austria and Portugal. There is no sign of international co-ordination or
decision-making across Europe.
Over the past couple of weeks we can see
Europe fully in the eye of the storm as much as the USA, where it began. Five
European banks have been bailed out in three days. The Germans have had to
stump up 35bn Euros to rescue Hypo Real Estate. Wolfgang Munchau described Hypo
in the Financial Times as, “Not even a bank at all, just one of those large and
obscure members of the global shadow banking system that could easily bring the
house down.” The Benelux countries carved up Fortis assurance for the same
reason and France helped them out with Dexia’s difficulties (company motto
‘short term has no future’). Iceland’s crisis is in a class of its own. We may
have regarded Iceland as an unimportant little country, but all the British
local authorities whose money is frozen in Icelandic banks now know better.
The Economist (02.10.08) comments, in an
article entitled ‘World on the edge’, “By some measures, many European banks
look more vulnerable than their American counterparts do—and that is saying
quite something, given the past week’s forced sale of Washington Mutual,
America’s biggest thrift, and Wachovia, its fourth-biggest commercial bank. In
America, outside Wall Street, the banks have lent 96 cents for each $1 of
deposits. Continental European banks have lent roughly €1.40 for each €1 of
deposits. They have to borrow the rest from money-market investors, who are not
especially confident just now. Some Europeans, including the British, Irish and
Spanish banks, have housing busts of their own. And they must contend with the
toxic American securities they bought by the billion, as well as their own
The USA has been the focus of most economic
commentary since the credit crunch broke just over a year ago. But as financial
crisis, property crash, inflation and slowing growth interact it’s now official
– recession is looming in Europe.
Even the European Commission has slashed
its growth forecasts and admitted that Germany, Spain and Britain are heading
Britain has a trade deficit with more or
less everyone, but our biggest trade partner by far, and the biggest black hole
in the trade figures, is with Europe. Europe is by far our biggest export
market, and as it goes into recession they’ll buy less of our stuff – and that
is going to hurt.
Nouriel Roubini is an economic commentator
known as Dr Doom. But he’s got everything right so far. His latest newsletter
predicts that, "Europe is the next leg down in the global housing
Denmark is already in recession. It’s
official. The Roskilde bank has had to be bailed out by the government. Earlier
the Trelleborg Bank was forced to sell itself to Sydbank. In the second quarter
of 2008 Italy’s GDP fell by 0.3%. But then, Italy is the sick man of Europe.
However France’s GDP also fell 0.3%. Sweden has been on a credit binge in the
Baltic countries, which are slowing rapidly. Sweden is due to take a hit.
The financial crisis has also hit the plans
of the right wing government in Sweden. Determined to privatise state assets,
they would have to sell them for a song. “We are not going to have a clearance
sale here,” says Finance Minister Odell, adding that it would be “political
In Germany, which a lot of people were
hoping would get Europe out of this pickle, output also dropped by 0.5% last
quarter. These are the big players in the EU. The Eurozone as a whole fell by
0.2% in the second quarter of 2008.
In Spain the finance minister says,
"It’s the most complex crisis ever." The Spanish economy has been
extraordinarily dependent on the construction industry, responsible for 25% of
GDP. The Spanish have been knocking out 600,000 houses a year for the past five
years (compared with the pathetic 100,000 generated by the UK building industry
this year). Of course it was all based on the house price bubble, and it’s all
gone pear-shaped. Demand has collapsed, construction giant Martinsa-Fadesa has
gone belly up, and several banks are teetering on the brink. 280,000 building
workers have lost their jobs and unemployment is up by half a million this year
already to reach the highest level since the 1992-93 recession. In August alone
245,000 lost their jobs. Car sales and industrial production are down. It’s
just like home!
Two quarters of actual economic decline
counts as a recession. So here it comes. And this trouble is set to continue till
at least 2009.
Kenneth Rogoff, former chief economist at
the IMF, promises that "the worst is to come." He continues,
"We’re not just going to see mid-sized banks go under in the next few
months, we’re going see a whopper, we’re going to see a big one – one of the
big investment banks or big banks."
Is there anything they can do about it? The
European Central Bank has been keeping interest rates excruciatingly high. This
acts as a straitjacket on the economies of the Eurozone. The reason? The ECB
thinks inflation is the main enemy. Maginot line economics! It took absolute
panic in financial markets to persuade the dinosaurs at the ECB to cut interest
rates at the same time as all the other major central banks. No wonder only 5%
of Spaniards and 8% of Germans think the ECB is doing a good job.
The Euro has been falling against the
dollar for the past six months. We don’t notice that in Britain as sterling is
in freefall. The reason for the revival of the dollar is paradoxical.
Speculators have realised that the recession may have been born in the USA, but
it’s now spread to the rest of the world, so the Euro sinks. The recent fall in
oil prices have also been a factor for the now rising dollar, but the price of
oil is likely to provide currencies with a switchback ride in the future.
Michael Saunders, writing in the ‘Financial
Times,’ (15.08.08) declares, "It’s time to forecast a recession." He
continues, "In pretty well all of Europe – the Euro area and the UK – the
downturn is going to be longer and deeper than the consensus expects."
It’s a "competition in misery."
So we’ll get poorer because they’re getting
poorer, and then they’ll get poorer because we’re poorer. It’s a downward
spiral with no end in sight. European workers face a gloomy future. They have
no alternative but to fight to defend their standard of living and to overthrow
the system that is the cause of their problems.
The new Europe
The collapse of Stalinism in Eastern Europe
had West European capitalists licking their lips. As Matthias Schnetzer pointed
20.06.08), “The capitalist restoration of Eastern Europe created a field of
investment for Western imperialism. This provided capitalism a certain
breathing space by transferring large amounts of capital assets into the CEE (Central
Eastern Europe) region. Banks, insurance companies, Telecommunications, etc.,
were acquired by foreign corporate groups and are now almost entirely in the
hands of Austrian or German owners.”
This is an old story. Ever since Marx
analysed the accumulation of capital, he emphasised the unevenness of the
process, with capital constantly seeking new outlets to advance into.
Most East European countries have been
growing at more than 5% p.a. over recent years. This, of course, is for the
most part just a bounce back from the collapse of their economies along with
the Stalinist regimes. Now they’re running
out of road, and inflation looms.
You might expect countries that have been
growing so fast to have been doing so by running a surplus with Western Europe,
by exporting more to us than we sell to them. After all there has been a
hollowing out of manufacturing industry here as capitalists chase cheap labour
in East and Central Europe. But in fact the CEE region is developing a
threatening balance of payments deficit with Western capital. This shows that
the advanced countries and capitals dictate the terms of trade. They are ‘out
East’ for what they can loot.
The restoration of capitalism means the
restoration of crisis conditions in the CEE countries. Matthias points to the
unsound nature of speculation in the ‘wild East.’ “We can ask the question:
what would happen, if one day the outstanding private loans cannot be paid
back?” He concludes, “One can see to what extent the CEE region is facing a
high risk of an upcoming financial crisis.” So West European capital’s conquest
of the CEE region, which was supposed to give it a new lease of life, has
actually recreated the contradictions of capitalism on a bigger scale. The
bigger they come, the harder they fall.
Migrants and racism
Nobody knows how many migrants there are in
Europe. A 2003 guesstimate was that there were 56 million in the European
Economic Area. But then there are the ‘irregular’ migrants. 800,000 in Italy,
500,000 in Germany, 300,000 in France, 200,000 in the UK – who knows? This is
apart from all the failed asylum seekers who have disappeared off the books
On first appearance the capitalist class
seems schizophrenic about migrant labour. They love cheap labour to do the
dirty jobs, of course. But then most EU governments impose all manner of
restrictions and quotas on free movement, which effectively drive ‘illegals’
underground. But that’s how they like it. Workers who fear deportation are not
going to kick up a stink about wages and conditions. They fear going on strike.
So the capitalist class is quite consistent. It sees restrictions on free
movement as a way of creating a super-exploited layer of workers, and of
dividing the working class.
The other side of the accumulation of
capital is what Marx called an “Industrial reserve army, that belongs to
capital quite as absolutely as if the latter had bred it at its own cost.”
Migrant labour doesn’t cost the capitalists a penny to train and reproduce.
Then, when they don’t need you any more, they dump you back where you came
from. With relatively full employment in the advanced West, migration from the
CEE countries has replenished the industrial reserve army for capital. These
workers, they hope, can be used as a whip against the conditions of those in
formerly secure employment and drive down conditions for all working class
The situation is probably worst at present
for the Italian Roma. There are 150,000 gypsies there, mainly living in camps
on the edge of industrial cities. Half of them were born in Italy, but that
doesn’t help their case. In one incident at a Roma encampment near Naples,
hysterical stories circulated about the kidnap of a baby. The camp was attacked
by vigilantes egged on by the camorra, the local mafia. Attackers shouted,
“This is what happens when gypsies steal babies.”
This is how fascism began. This is not just
an outbreak of local madness. Reaction is deliberately promoted by the ruling
class. Berlusconi is determined to fingerprint all Roma. Every one a potential
criminal! We say the Roma are our people. Workers must not fall for the bosses’
tactics of divide and rule.
The Irish referendum on the Lisbon Treaty
over the summer threw up a ‘no’ vote. So the Treaty, which outlines a new
decision-making process for an enlarged EU, is effectively a dead duck. This
has in effect paralysed decision-making for the European Union as a whole. But
experience of the past fifty years has shown that, if EU integration is not
going forward, then it will begin to roll back.
Now Europe is on the threshold of
recession, nationalist resentment at the EU will be on the rise. As Marx said,
“It is one thing to share out profits and quite another to share out losses.”
European integration has only proceeded as far as it has because of economic
growth and prosperity. That can’t be relied on in the future.
Decisions have to be taken, about EU expansion
into Turkey, the Balkans and Eastern Europe, and about harmonisation of
standards for services. All of this, of course, is part of the dominant
neo-liberal agenda within the councils of the EU. As Europe has been enlarged,
each new poor Eastern member has been seen as an excuse to tear up social
protection for the working class among existing members and push standards down
to the bottom. Before a member nation is allowed to join, the World Bank and
WTO go in and lay down the law about implementing a full neo-liberal programme.
The revised Working Time Directive,
‘inspired’ behind the scenes by New Labour, has been diluted so as to allow
working for 63 hours a week instead of 48. European trade unions should be
fighting this change with all their might. Inflation is on the rise all over
Europe. The European working class must unite to demand a sliding scale of
wages across Europe like the Italian scala mobile (automatic cost of living-
related wage increases) which for years protected workers’ living standards
against the ravages of inflation.
The EU’s future is further complicated by
the way its members have been inveigled into a series of treaty obligations,
particularly under NATO, which is effectively dominated by the USA and is used
as an attack dog on behalf of world imperialism. Naturally the bombing of
wedding parties in Afghanistan and the indiscriminate massacre of Iraqi
civilians in Operation Shock and Awe has not convinced everyone in the world of
the humanitarian and democratic credentials of NATO. European governments rightly share the
backwash of that unpopularity
President Bush has seen it in the US
interest over the past few years to virtually surround Russia, detaching former
allied and subordinate countries from the former soviet bloc and pressing them
to ‘join the West’. Even from a bourgeois viewpoint it was unwise for European
countries to involve themselves in these adventures, especially now they are
increasingly dependent on oil and gas supplies from Russian pipelines.
But also the different ruling classes in
the EU have different national interests, which come to the fore in times of
stress. German and Austrian capitalism have oriented themselves to expand into
the East, while Britain is seen as a servile pawn of the USA. France has its
own agenda. This hobbles the prospects for unified European decision-making
Putin has become tired of the humiliations
heaped on Russia while its economy collapsed during the transition to
capitalism. He is determined to assert Russia’s position as a regional
superpower, and has already demonstrated his willingness to switch off
neighbours’ energy as a diplomatic counter. This means increased uncertainty
for Europe as a whole.
Many on the left have been demoralised by
right wing election victories in Germany, France, Greece and most recently
Italy. Britain looks set to follow. But Merkel had to rest on the Social
Democrats and Sarkozy has similarly proved unable to deliver on his promises to
the bosses. European workers have shown their willingness to fight back.
This year there has been a huge public
sector strike of 100,000 in Denmark, a country of 5 million people. The strike
was illegal, but that didn’t stop the Danish working class. There have been
three general strikes in Greece in three months against the attempted
privatisation of education and cutting pension rights, as the bosses attempt to
lay the burden of the crisis on the shoulders of the working class.
Portugal has been in a state of continuous
ferment for years. The bosses are determined to tear up legislation protective
of workers’ rights and casualise employment completely. As in Greece, pensions
are in their sights.
Even in sleepy Switzerland a railway
workshop in Bellinzona, threatened with closure, was occupied by the workforce
for two months, leading to a situation of virtual dual power in the town.
Belgium has seen an epidemic of wildcat
strikes leading up to an effective general strike in June. As Erik Demeester
10.07.08) “As inflation knows no language borders or nationalist divisions the
whole of the Belgian working class has become involved in this movement. Even
in the middle of June, factories were still facing spontaneous strikes related
to the question of falling purchasing power. Such a wave of wildcat strikes has
not been seen for more than 30 years. We need to go back to the seventies to
remember strikes similar to the ones seen today…
“The whole situation pushed the union
leadership to declare a week of action from the 9th to the 12th of June around
a series of demands to protect real purchasing power… The result was overwhelming
and very much beyond what the union leaders had wanted. The readiness for
action of ordinary workers is very strong. Over just four days 100,000 workers
took to the streets in very militant demonstrations, much more than expected.”
We must build on the best traditions of the
European working class to unite and fight capitalist cutbacks and build a
The way forward
Here is the programme the International
Marxist Tendency put to the European Trade Union Confederation when they
demonstrated against European finance ministers at Ljubljana, Slovenia, last
April. This shows the way to respond to attacks by the bosses and their
political representatives in national parliaments and the European Union.
increase to take back what has been lost in the last years!
national minimum wage in each country of at least two thirds of the average
wage, as a first step towards a European minimum wage.
For a sliding scale
of wages to defend our living standards!
Repeal all EU
directives that introduce or support casualisation of labour!
No to the Lisbon Treaty!
Scrap all racist
immigration and asylum policies!
No to "social
For fighting and
democratic trade unions!
Organise shop stewards’
committees (democratically elected and subject to recall) in every branch of
industry, coordinated on a European level.
re-nationalisation of what has been privatised for the profit of a few
capitalists, and the public ownership under democratic workers’ control and
management of pension and health systems, transport, telecommunications, the
production and distribution of energy, banking, insurance and credit, and of
all major industries.
No to the Bosses’
European Union. For a Socialist united states of Europe!