Chris Harman

Thinking it through

Mind euro business

(June 1998)

From Socialist Review, No.220, June 1998.
Copyright © Socialist Review.
Copied with thanks from the Socialist Review Archive at
Marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

Mention the euro to most people on the left in Britain and the response you get is a mixture of boredom and incomprehension. It seems remote from ordinary people’s lives – a diversion raised by the right wing rump of the Tory Party in an attempt to rebuild its fortunes.

But the issue is of enormous importance to capitalists right across the continent. In every west European country apart from Britain, last month’s go ahead for its introduction next year dominated the front pages of all the newspapers. They recognised it as constituting a political and economic turning point.

What they rarely acknowledged, however, was its potential to cause political mayhem even once fully in operation.

Essentially, the introduction of the euro is the next key step in the attempts of rival national capitalists to overcome the animosities that led to two world wars and to combine their efforts to compete with US and Japanese capital. In that it is the logical continuation of the European Coal and Steel Community of the early 1950s, the Common Market of the late 1950s, the European Community of the 1980s and the European Union of the 1990s.

But it is also a step onto entirely new ground.

European unity until now has meant dismantling trade barriers between different countries and making it easier for firms in one country to operate in another – through harmonisation of business law, European directives and so on. But control over other important economic decisions has remained with the individual countries. They have still had a strong influence over the climate within which nationally based firms operate.

The most important such decisions have been concerned with tax policies, interest rate levels and currency exchange rates.

These are the tools which mainstream economic thinking regards as the main ones available to governments to counter the boom-slump cycle through their effect on the behaviour of firms when it comes to employment, wages, prices and investment.

The successive crises of the last quarter century show them to be completely inadequate tools. Nevertheless, they are the instruments which are at the centre of all the debates over economic policy in financial ministries, central bank committees and the heavyweight press.

Typical is the present, often raucous, dispute in Britain over interest rates and the exchange rate of the pound. It has involved the Treasury, the CBI and the Bank of England, with many industrialists claiming that high interest rates have produced an exchange rate too disadvantageous for them to be able to compete profitably in foreign markets, while Bank of England advisers claim interest rates are too low to counteract wage inflation.

The adoption of the euro crucially involves national governments and national central banks surrendering most of these tools to a new European Central Bank.

This suits the growing number of firms whose operations span several European countries. They know that they will be able to exert enough pressure on the European Central Bank to ensure it takes their interests into account.

But most capitalist firms are still predominantly based in one or other country, despite all the hype about ‘globalisation’. And there are still considerable differences between countries as regards things such as their industries’ level of dependence on trade outside Europe, the strength of resistance of workers to employers’ demands, the proportion of old and new industries, the degree of foreign investment. This means that interest rates and foreign exchange rates can hit key firms in one country in a very different way to those in another.

What happens when a big economic crisis breaks across Europe, for example, in the early 2000s? Measures taken by the European Central Bank to help sections of big business in some countries can have a devastating effect on others. So, for example, a rise in interest rates designed to discourage wage rises in, say, Germany, might turn an already serious recession into a devastating slump in, say, Spain and Ireland – whose governments would have lost the old tools for trying to cope with the situation.

Under such circumstances, the economic crisis would necessarily turn into sharp political confrontation. At the top of society capitalists in different countries would want very different policies from the central bank, causing acrimonious rows at intergovernmental meetings, comparable to last month’s spat between France and Germany over the appointment of the bank’s president, only on a much bigger scale.

Meanwhile there would be huge pressures from the mass of people hit by the crisis for national governments to do something. Yet these governments would find they had lost the devices which at present make it possible for them at least to give the impression of taking action.

Under such circumstances the chances are very strong of one or another playing the nationalist card, going back on its commitments, and abandoning the euro for a new national currency, throwing the whole continent into political crisis.

In any case, all the ingredients would be present for the flourishing of sorts of politics very different from those envisaged by the enthusiasts for the euro.

The right in the Tory Party already recognise this. Both they and the various Nazi parties across Europe hope to channel popular bitterness in nationalist directions, making ‘defence of our pound’ or of ‘our franc’ into a rallying cry which will get them mass support. And those sections of capital who see their future as lying elsewhere than in Europe are already banging the nationalist drum themselves – hardly a day goes by without Murdoch’s Sun ranting about ‘the danger to our currency’.

But the bitterness can explode in a very different way, into class politics. Government measures in preparation for the euro have helped fuel the rebirth of industrial militancy in much of Europe in recent years. This in turn can make it easier for socialist, internationalist politics to make an impact if the euro adventure ends in grief for the continent’s rulers.

Last updated on 21 December 2009