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International Socialism, April 1975


Notes of the Month

What is the European Economic Community?


From Notes of the Month, International Socialism, No.77, April 1975, pp.4-7.
Transcribed & marked up by by Einde O’Callaghan for ETOL.


IT IS AN attempt, on a strictly capitalist basis, to overcome some of the contradictions between the scale of modern capitalist industry and the restrictions of national boundaries.

The Treaty of Rome (1957), original signatories West Germany, France, Italy, the Netherlands, Belgium and the mini-state of Luxembourg, lays down vague and grandiose aims for the European Economic Community which it established.

The EEC, states the treaty’s preamble, will:

  1. establish the foundations of an ever-closer union among the European peoples;
  2. ensure economic and social progress of their countries by eliminating the barriers which divide Europe;
  3. aim at the constant improvement of living and working conditions;
  4. act together to achieve steady expansion, balanced trade and fair competition;
  5. by strengthening the unity of their economies ensure harmonious development of various regions and backward areas;
  6. by means of a common commercial policy aim at the abolition of restrictions in international trade;
  7. strengthen the links binding Europe and overseas countries;
  8. by the establishment of this combination of resources they arc resolved to strengthen the safeguards of peace and liberty and call on others in Europe to join them in this.

In fact what was established was a customs union, abolishing tariffs and quota restrictions between the ‘six’ (over a period of 12 years and largely achieved by 1968), and imposing a common external tariff against the rest of the world – so much for ‘the abolition of restrictions in international trade’. Britain, Denmark and Eire entered this arrangement in 1973 on the basis of a gradual ‘harmonisation’ with EEC tariff rules.

Of course a customs union, especially if combined with the free movement of capital – provided for by Articles 67-73 of the Rome Treaty but never more than very partially implemented – has profound economic, social and political consequences.

Unless counteracted by special arrangements it must lead to a rapid growth of those enterprises with the highest productivity at lowest costs at the expense of lower productivity enterprises, irrespective of national boundaries.

This, in turn, would lead to the concentration of production in certain areas and the rundown of whole regions, leading to chronic unemployment and decay on the one hand and vast, overcrowded boom areas on the other.

This is, indeed, the logic of capitalist production and, as Christopher Soames, one of the two British members of the EEC Commission, put it with brutal frankness ‘going into Europe is based essentially on the capitalist system and will always be so ...’

But the same tendencies are present inside each ‘independent’ national capitalist country. And because governments try to mitigate the effects of concentration for political (and sometimes military) reasons, so the EEC has, in practice, been forced to respond to ‘national’ pressures which cut across the logic of a ‘free enterprise’ free for all.

This, in turn, leads to new contradictions. An outstanding example is that bureaucratic monstrosity, the Common Agricultural Policy.

The Common Agricultural Policy

THE CONDITIONS and costs of agricultural production vary very greatly from country to country. Free trade in agricultural products would have meant the driving out of business of millions of small farmers, especially in France. The social and political consequences would have been explosive.

So the CAP was born. It is based on ‘planned intervention’ by the EEC Commission.

‘In order to keep prices from falling to world levels, levies are made on imports into the Community, bringing their price up to the Community’s so-called target price (after a certain allowance for transport costs). On the other side, export rebates are given to Community producers so that they may sell their goods on the world market at the lower prices prevailing there without incurring a loss. For most commodities producers are guaranteed a minimum price ... The European Agricultural Guidance and Guarantee Fund (FEOGA) will buy up the surplus which cannot be sold and then try to sell it at world prices on the world market.’ (What About Europe Now? Lloyds Bank, 1971, p.24)

In effect, the consumers in the EEC countries helped the French state to maintain its political stability by subsidising its peasants. A ‘dear food’ policy is absolutely central to the working of the EEC.

The system has not led to great gains by the poorest producers. They barely stay in business. What it has done is to lead repeatedly to massive overproduction of unsaleable produce by the richer and better equipped farmers – a ‘butter mountain’, then a ‘beef mountain’, now a ‘wine lake’, all of which are paid for, in the last resort, by consumers, the majority of them workers. By 1970 the CAP accounted for 95 per cent of the EEC budget!

Naturally, the divergent interests of the different EEC states lead to repeated conflicts about the CAP and attempts to modify its workings. This has produced a system of almost incredible bureaucratic complexity. Thus it has recently proved profitable to take advantage of the various premiums and rebates by importing German beef to Dover, taking it through customs and then putting it on the next ship for France. If it had been sent straight over the Franco-German border the subsidy would have been much lower!

The CAP is an excellent example of the irrationality of capitalist planning. At the time of British entry into the EEC even the Tory government admitted that it must mean steadily rising food prices (as the UK gradually ‘harmonised’ with EEC rules). But as a matter of fact the sharp rise in food prices over the last two years owed much more to the rocketing of world prices in the boom of 1973-74 than to the EEC. The CAP will ensure that they continue upwards as world prices ease off.

‘National Sovereignty’

THERE IS no doubt at all that the ultimate aim of the politicians who established the EEC was a European capitalist super-state. An official publication of the EEC Commission (European Community: The Facts), issued in 1967 when Harold Wilson and George Brown were opening up negotiations for British entry, states bluntly that the EEC countries ‘aim at eventual political union’ and intend ‘to form the basis for a future United States of Europe’.

The reasoning behind this objective was summarised by Chris Harman in IS 49.

‘Europe’s capitalists find themselves driven by the scale of business operations, the ever greater expense of technological advance and the requirements of military defence to try and integrate their efforts. This cannot be restricted to a mere removal of trade barriers. It seems to necessitate an actual merger of the ruling classes themselves. Only in this way could they develop the resources to enable them to compete with the other giants of the modern world economy’.

However, the difficulties in the way of any such fusion of ruling classes are enormous and it is certainly not taking place at present. There are still separate German, French, British etc capitalisms and each is closely integrated with its ‘national’ state, indeed much more closely than ever. The economic role of the state in capitalist society grows irreversibly.

The EEC is not a state. The Brussels bureaucracy has no ‘bodies of armed men’ at its disposal. It is wholly dependent on the support of the EEC member states, especially the big ones, to implement its directions. The prospects for the evolution of a real ‘political union’ will be examined shortly. But what, at present, are the restrictions on ‘national sovereignty’ voluntarily accepted by EEC members?

On the face of it they are considerable. The EEC Commission has, in theory, power to make decisions binding on members concerning agriculture (CAP), monopolies and restrictive practices, coal and steel production, state aid to industry, nuclear power and a considerable number of other matters. It does in fact make such decisions. But its great powers are limited in practice by the consent or otherwise of the big member states. The authority of last resort in the EEC is the Council of Ministers – the representatives of the member states (the European Parliament is pure façade).

In theory ‘the Council of Ministers’ takes the policy decisions but does so only on the basis of ‘proposals from the Commission’ and on the basis of ‘weighted majority decisions’. In practice, a single big member – France – has repeatedly frustrated both the Commission and the other member states. Wilson’s ‘re-negotiation’ was carried on with the heads of governments. And the single voice of ‘either Helmut Schmidt or Giscard d’Estaing counted for more than the combined weight of the Commission and all the other members (less West Germany and France) put together.

None of this alters the fact that the Treaty of Rome imposes severe limitations on the power of signatory governments to regulate their economies. If enforced they would prevent, for example, the imposition of import controls. And the treaty gives the Commission a veto on government aid to industry In fact the rules get bent – within limits – to accommodate ‘national’ (capitalist) interests.

The reformist left is quite right to argue that EEC membership is incompatible with a socialist planned economy. Of course it is. The whole object of the EEC is to strengthen West European capitalism. But it is hardly the EEC Commission or the Treaty of Rome that constitute the immediate road-blocks holding up the ‘advance to socialism’. Nor is it ‘loss of national sovereignty’. The British capitalist state machine, headed by the government of James Harold Wilson, is way out in front of them. And if foreign intervention were to become the big threat, then NATO – about which messrs Benn, Foot and Shore are remarkably silent – is the real menace, not the unarmed bureaucrats of Brussels.

Economic and Monetary Union?

IF THE EEC could develop into a genuine super-state, with or without Britain, then European and world politics would be profoundly changed. What is the likelihood of a capitalist ‘United Europe’?

The direct road to a political federation, was envisaged in the ‘Declaration of Bonn’ (1961) following which the then six member states of the EEC set up a committee (the Fouchet Committee) to draft statutes for such a federation.

The project was dead within twelve months, killed by a French veto. Whether even its advocates took it very seriously may be doubted. The certainty that Gaullist France would reject it enabled them to be ‘good Europeans’ without running any serious risk of being taken at their word.

The gradualist approach towards unity was undoubtedly taken much more seriously. Its requirements were summarised by Chris Harman in the article from which we have already quoted:

‘1. Present impediments to the free movement of capital from one country to another would have to be done away with. The development of a European capitalist class is inconceivable unless any of its members can invest as easily in one country as in another ... national states have to give up the right to control capital movements across their frontiers.
‘2. ... legislation and tax policies in different countries have to be made homogenous with one another, so as to prevent advantages for investment in one country rather than another.
‘3. ... the exchange rates of the different European currencies with one another should be fixed ...
‘4. The tendency of national states to give preferential treatment in the allocation of government contracts to national rather than other European firms would have to be overcome ...’

The first three are vital. Five years ago the EEC did set out on the path of what was called ‘economic and monetary union’ (EMU). The attempt did not survive the shocks of world monetary chaos, inflation and recession. ‘EMU is not yet as dead as the dodo but it is on the endangered species list’ as the Economist wittily expressed it (15.3.75).

Free capital movement has made virtually no progress, and West Germany in particular is extremely sensitive to the threat of ‘foreign’ (even if EEC) takeovers. This, in spite of the 1957 treaty provision requiring it. Significantly, however, this project – unlike most others – had no timetable laid down for it

Nor has there been significant harmonisation of the tax burden. Total taxes and other state stoppages varied from 34 per cent of gross national product in Italy through 42 per cent in France to 51 per cent in Denmark (1972 figures quoted in Tribune). The British figure was then 39 per cent.

In the crucial field of monetary union there has not only been no progress, there has been a flight in the opposite direction. The EEC ‘snake’, a system intended to confine fluctuations of EEC currencies with one another between narrow limits, has disintegrated. The franc and the lira float independently of the D mark and of each other and the pound (never in the system) sinks gently independently of all three.

The currency question is a key test. A ‘super-state’ without a common currency is clearly nonsense. Of course it does not matter if the different constituents have different coloured currency notes with different names printed on them. But these notes have to have some fixed relation to one another – or there is not one ‘European’ capitalism but several national ones.

In fact there is no serious evidence to suggest that the capitalist classes of the EEC countries can fuse. It is sometimes argued that the growth of multinational corporations represents an ‘internationalisation’ of capital which could lead to an ‘internationalised’ capitalist class. This is to confuse the form with the substance. Of the 25 biggest ‘foreign’ multinationals operating in Britain in 1973, 16 were US-based companies, three Canadian-based, two Swiss-based (Nestlé and Ciba-Geigy), one South African (Rothmans) and only three EEC-based (Philips Electrical – Netherlands, Hoechst – West Germany and Michelin – France). Even if the old-established Anglo-Dutch firms (Shell and Unilever) are thrown in together with the ailing Dunlop-Pirelli, the picture is one of transatlantic penetration rather than ‘internationalisation’.

Harold Wilson once called the EEC ‘a Magna Carta for the barons of the multinational mega-corporations’ (20.1.73, quoted from The Menace of the Multinationals, LRD, from which the information quoted above is also taken). In fact all 25 of these biggest multinationals were established in Britain before entry into the EEC.

Why Big Business Wants In

TO SUMMARISE: the EEC is a customs union plus a dear-food agricultural protection scheme plus a supra-national bureaucracy with considerable formal regulatory powers but no guns. The aims of creating a supra-national capitalist class, and a West European super-state to go with it, are unrealised and probably unrealisable.

Why then are all the decisive sections of the British capitalist class strongly in favour of remaining inside it?

The extravagant projections of rapid economic growth that used to be bruited about by pro-marketeers are not now taken very seriously. For example, it used to be pointed out that in the first nine years of the EEC’s existence the combined industrial output of the six rose by 67 per cent, compared to 3 3 per cent in Britain (but US output rose by 72 per cent in this period and Japanese output by double that).

The implication was that British output would tend to grow much faster inside the EEC. In fact the EEC growth rates were conditional on the prolonged world boom that has now receded into history. There may well have been a gain in growth rates due to the specific effects of the progressive removal of tariffs and quota restrictions. But that was a once and for all effect. As the Economist noted recently,

‘Only the simple-minded will believe that intra-community trade will repeat its performance of increasing ... twice as fast as world trade as a whole since the customs union began in 1959.’

Not so much is heard now of the ‘cold shock of competition’ argument; the view that increased EEC competition would force a substantial rise in productivity in Britain by forcing the shut down of less efficient producers and the diversion of resources to the more efficient (at the expense of the workers, of course).

This is, of course, the classic free-trade argument. As the CBI put it in 1970

‘... The opportunities offered by, and the stimulus of, free access to a fast growing market should provide the necessary conditions for achievement by the UK of a significantly faster rate of growth than has been achieved in the last 15 years ...’

Only the market isn’t growing now and the ‘cold shock’ argument is hardly reassuring in conditions of world recession. In fact the British balance of trade with the rest of the EEC (including Eire and Denmark) is heavily in the red. About one-third of all British exports go to the EEC (compared with 10 per cent in 1951 and 19 per cent in 1958) but the British trade deficit with it has grown from £580 million in 1972, the last year before entry, to £2,214 million in 1974.

In spite of all this, big business clings to the EEC perspective. Not now with the grand hopes it entertained at the time of entry. Its confidence has been sapped by inflation and recession, its expectations are now more modest. It is a question of fear that the alternatives are even worse.

‘All canvassers of British industry since the overwhelming evidence of support in the Economist-ORC poll just over a year ago have shown growing support for membership of the EEC. Why? First, more trade, more contact and a desire to avoid discrimination against sensitive British exports like lorries (EEC tariff 22 per cent) and agricultural tractors (EEC tariff 18 per cent). Just as important, one other big fear has grown up recently at the prospect of Britain leaving.

‘It is this. If Britain leaves, industrialists exporting to Europe will still have to make goods that meet EEC industrial, environmental and safety standards: but with the vital difference that they will have no say at all about what those standards should be or when they should be agreed. Take one typical example. The huge British coal equipment industry has, as a result of membership, been able to make sure that technical standards in Europe are not defined, as they were about to be, in a way that would have badly hurt British exports of coalmine conveyor belts.

‘The EEC Commission also has ambitions to persuade member states to make the EEC into a real common market in patents, which could mean another non-tariff barrier to trade for outsiders. It is one thing for a Sweden or a Norway, long used to exporting on other people’s technical standards, to surmount such difficulties. It would be quite another thing for a monolithic industrial economy like Britain’s ...’ (Economist, 15.3.75).

Such almost ludicrously modest aims, and the implication that British industry cannot overcome difficulties that are habitually overcome by minnows like Norway, Sweden or Switzerland, testify to the extent to which the events of the last few years have demoralised sections of our ruling class.

Michael Barratt Brown, writing in Tribune, proclaims,

‘Let no one be mistaken, the British trade union movement has been carving into the very guts of British capitalism in the last two or three years ... The only hope for British capital is to get in under the protection of the EEC against the power of the British working class ...’

This is a grotesque misreading of the actual situation but it does probably reflect, in grossly exaggerated form, the fears of sections of capitalist opinion.

Of course there has been no ‘carving into the very guts’ of capitalism but there has been a failure, from the capitalist standpoint, to break or even effectively curb the power of the working class in economic terms. The idea that the EEC, objectively, offers any serious protection against ‘the power of the British working class’ is false. After all, Britain has been in the EEC since 1973. But what it can and does do is to provide additional weapons for the armoury of the right wing of the labour movement to be used in the interests of capitalism.

The argument that the EEC ‘will not allow’ this or that policy measure will undoubtedly be used by the Labour government against the left if it scores a big referendum victory.

Much more important, a defeat on the EEC issue would profoundly weaken the credibility of the right wing of Labour and therefore, indirecdy but no less vitally, the power of big business. Their spokesmen know this very well. That is why the Economist says ‘a vote against staying in the EEC will be a triumph for the wild men ...’

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