From International Socialism 2:75, July 1997.
Copyright © International Socialism.
Copied with thanks from the International Socialism Archive.
Marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).
The centrepiece of European economic and monetary union (EMU) is the launch of a European single currency, the euro, at the beginning of 1999. Preparations for the euro’s launch have helped justify the adoption of austerity policies right across Europe. EMU is consequently feeding the climate of class polarisation that is developing on the Continent. Divisions over Britain’s relationship with the European Union (EU) helped destroy the last Tory government. Though Tony Blair has promised a ‘fresh start in Europe’ his government too will face enormous problems and challenges, particularly over whether or not to join the single currency if it goes ahead.
EMU has been a major theme of the European project ever since the original European Economic Community (EEC) was established under the Treaty of Rome in 1957.  Over these years the British left have come to develop increasing illusions about the EU. In particular, the defeats suffered by the working class movement at the hands of the Thatcher government in the 1980s pushed much of the Labour left towards a much more sympathetic stance towards the EU. The turning point is often seen as the address by Jacques Delors, then president of the European Commission, to the 1988 Trades Union Congress. Delors painted an enticing picture of a ‘social Europe’ on the Continent, where relatively high levels of state intervention in the economy and generous welfare provision represented an alternative to Thatcherism. Despairing of workers’ ability to resist the Tories and the bosses, many on the British left looked towards the European Commission instead. By 1989 the Labour leader, Neil Kinnock, could claim ‘we are better Europeans’ than the Tories. 
John Palmer, European editor of The Guardian, has been a bell-wether in this shift of attitudes. Originally a fierce opponent of British entry into the EEC, by the late 1980s he argued Europe ‘must become the “citizens’ Europe”, the “workers’ Europe”.’ Acknowledging that ‘[t]he Treaty [of Rome], and in a more qualified way the EEC decision-making institutions, at heart reflect the values, priorities, and prejudices of a capitalist, predominantly free-market economic system,’ he nevertheless appealed to ‘an increasing recognition that it would be folly not to use the existing institutions to achieve such reforms as can be won and also as a public springboard to campaign for more radical change’. 
Behind such left support for the EU lies the belief that European integration represents the transcendence of national interests and conflicts. This view is not confined to those on the traditional left. Helmut Kohl, one of the chief architects of EMU, warned in February 1996 that its failure might make the outbreak of war in Europe more likely.  The premiss on which such arguments are based is, however, false. There is no evidence that the EU has succeeded in overcoming the national antagonisms between the major capitalist classes in Western Europe. This point was already powerfully made by an article in this journal by Chris Harman at the time of the debate on British entry into the EEC in 1971. 
Harman argued that the original formation of the European Common Market in 1957 indeed reflected the fact that capitalism had transcended national frontiers in Europe. None – not even Germany, Britain and France – had the ability on their own to compete effectively on a world scale. This forced the rival capitalisms into armed conflict during the two world wars over which was to control the resources and the markets of the Continent. By establishing a customs union, ‘the traditional limitations on the development of each national European capitalism would be overcome short of military conflict’, leading in time to ‘the beginnings of a positive integration of the rival capitalist classes’ with the development of ‘the state structure of a European super-power’. 
This process was, however, subject to formidable obstacles: ‘The whole trend of the development of production might be to transcend national boundaries, but the fact remains that the vast majority of firms continue to be owned from and operate within a particular national base. Even the multinationals usually have such a base from which they spread out.’ The EEC had been unable to alter this reality by promoting cross-border mergers. Thus the desired ‘“Europeanisation” of capital ... continually clashes against national state boundaries. The only way out would seem to be to somehow reduce the dependence of firms on the national state by developing some sort of European state.’ But ‘the European institutions have not begun at all to rise above the squabbles of opposed national interests’. 
This analysis of an EEC caught between the conflicting tendencies for the internationalisation and the national organisation of capital still seems like the best basis for understanding the process of European integration. It can indeed draw support from the most important historical study of the origins of this process, Alan Milward’s The European Rescue of the Nation-State. As the book’s title suggests, it is concerned to challenge the assumption that there is ‘an antithesis between the European Community and the nation-state’. Indeed:
After 1945 the European nation-state rescued itself from collapse, created a new political consensus as the basis of its legitimacy, and through changes in its response to its citizens which meant a sweeping extension of its functions and ambitions reasserted itself as the fundamental unit of political organisation. The European Community only evolved as an aspect of that national reassertion and without it that reassertion might well have proved impossible. 
Central to this reconstruction of the nation-state in Western Europe was the development of what is often called Keynesian social democracy. A political consensus shared by both Christian-Democratic and reformist parties took shape. Central to it were state intervention in the economy to secure full employment and increased competitiveness, a massive extension of what now came to be called the welfare state, and measures designed to support agriculture and thereby to reduce the politically dangerous gap between rural and urban incomes. 
These policies may have contributed to, and were certainly sustained by, the economic boom which Western Europe began to experience at the end of the 1940s. In particular, West Germany emerged as ‘the pivot of West European trade’. Not simply did West German exports of manufactured goods to the countries which would, along with West Germany itself, form the original EEC Six (France, Italy and Benelux) soar; it provided a growing market for their own exports of manufactures. This development ‘made the Federal Republic indispensable to the rescue of the European nation-state’. Trade between the Six grew more quickly than foreign trade elsewhere in Europe: Britain, in particular, found itself increasingly marginalised.
This reorientation of the Western European economy around rapidly growing international trade in manufactured goods laid the pre-existing basis for the customs union between the Six created by the Treaty of Rome in 1957.  Moreover, the experience of the European Coal and Steel Community they had already established in 1950 showed how the ‘Europeanisation’ of certain problems – for example, the decline of the Belgian coal industry – could make life easier for individual national governments by pooling resources and spreading blame. The development of the Common Agricultural Policy in the 1960s followed a similar pattern. ‘Europeanisation’ allowed national politicians to subsidise the incomes of the peasants on whose votes some still depended. 
Milward emphasises the economic dimension of European integration. In doing so, however, he tends to play down other, crucial political factors involved in the process, of which two in particular stand out.  First, the critical relationship that has bound together European institutions ever since the Treaty of Rome has been that between France and (West) Germany. After three Franco-German wars in 75 years, and faced with the American drive to rebuild German capitalism as a counterweight to Russian dominance of Eastern Europe, the French ruling class sought to contain German power through a close alliance. General Charles de Gaulle, the French president who concluded the 1963 Franco-German Treaty formalising this alliance, summed up his view of the relationship: ‘The EEC is a horse and carriage: Germany is the horse and France is the coachman’. 
For his part, the first West German chancellor, Konrad Adenauer, was, as Milward himself notes, ‘unswerving in his idea that Western European integration must be the basis of the Federal Republic’s security and that it was ultimately the only chance of German reunification.’ The crucial Franco-German deal which made possible the Treaty of Rome required Adenauer to override the opposition of his economy minister, Ludwig Erhard, a free marketeer who feared that the Common Market would lead to higher wages and more generous welfare policies in West Germany. 
Secondly, the establishment of the EEC represented the culmination of consistent efforts by the US in support of European integration. Once again, Milward himself provides much of the evidence. At the time when the Marshall Plan for European reconstruction was launched in 1947–48, the US administration advanced the idea of a European customs union. 
From Washington’s perspective, European integration would provide the economic underpinning of the NATO military alliance formed in 1949. The political benefits this would produce outweighed the damaging impact which US policy makers feared the formation of the Common Market, and the fillip this might give to European protectionism, would have on American economic interests. The State Department explained in 1955: ‘In this United States approach [of support for European integration] other problems including the admittedly serious commercial ones which might arise as a result of the development of the common market, were necessarily subordinate’. 
Thus the formation of the EEC reflected more than the economic overspill of Keynesian social democracy across national frontiers in Western Europe. It took place in the context of the inter-imperialist conflicts and alliances within the international state system as it was reshaped after the Second World War.
Politics has thus been central ever since the time of the Treaty of Rome. This was certainly true of the most important single change the Community has undergone since 1957, the Maastricht Treaty signed in December 1991. The provisions it lays down for EMU – above all, the creation of a single European currency and a European central bank responsible for maintaining price stability throughout the EU – mean that participating nation states will lose control over monetary policy. Though member states will still be legally responsible for taxation and public expenditure, the convergence criteria and the Stability Pact which I discuss below impose severe limits on national fiscal policies. If carried through successfully – a big if – EMU will imply a qualitative breakthrough to a quasi-federal European state. This ambitious strategy was developed against a very different background from that in which the Treaty of Rome was signed. The economic and financial instability which marked the end of the long boom around the beginning of the 1970s involved a reshuffling of relationships among the major capitalist powers. The political hegemony of the US was undermined by its economic decline relative to West Germany and Japan in particular.
The shifting balance of economic power in Western capitalism did not necessarily make European co-operation easier. A first step towards EMU was taken in 1972, with the creation of the ‘snake’ linking European currencies. This was also an attempt to fill the vacuum created by the collapse of the international monetary system centred on the US dollar, set up at Bretton Woods in 1944. The ‘snake’ proved a fiasco. The onset of the first great post-war slump in 1973–1974 pulled the major European economies further apart. Britain, France and Italy all rapidly withdrew from the ‘snake’.
A second attempt followed in 1978, when the West German chancellor, Helmut Schmidt, and the French president, Valéry Giscard d’Estaing, proposed the European Monetary System (EMS). The operational part of the system was the Exchange Rate Mechanism (ERM). EEC currencies were to fluctuate no more than 2.25 percent either side of a central parity; where participating currencies looked like exceeding these limits, governments and central banks were required to take corrective action by intervening in the money markets and altering interest rates. Schmidt, the architect of the ERM, saw it as a way of minimising destabilising currency fluctuations. But there were also more straightforward German national interests involved. Tying the Deutschmark (DM) to weaker European currencies would prevent it from rising too far against the US dollar, which was falling steeply in the late 1970s, and thus keep German exports competitive.
The reality of German financial predominance on the Continent was demonstrated during the early years of François Mitterrand’s Socialist Party administration. Elected to the French presidency in May 1981, Mitterrand proceeded to implement a programme of extensive nationalisations and social and economic reforms. Predictably enough these measures were met with considerable resistance on the part of capital – an investment strike, the flight of capital from France, and huge downward pressures on the franc in the currency markets.
The Mitterrand government’s response to these pressures from local and international capital focused on its futile efforts to maintain the franc’s parity within the ERM. Between October 1981 and March 1983 the French currency was devalued no less than three times. The last of these devaluations represented a decisive victory for Jacques Delors, then Mitterrand’s finance minister. He defeated the left wing of the French cabinet, who were arguing for withdrawal from the EMS, and forced through a package of austerity measures which amounted to the abandonment of the programme on which Mitterrand had been elected and the effective adoption of Thatcherite free market economics.
The outcome of the 1981–1983 French crisis was that, as Bernard Connolly puts it, ‘the ERM … turned into an undeclared DM-zone’.  Henceforth, other currencies in the ERM fluctuated upwards and downwards against the DM. After March 1983, French governments of both right and left committed themselves to the franc fort (strong franc) policy. By effectively binding the franc to the Deutschmark the political elite in Paris hoped both to force French industry to rationalise and become more competitive, and to preserve the crucial political relationship with Bonn (though, as we shall see, they hoped to use EMU to shift that relationship in their favour).
The transformation of the ERM into a DM-zone gave exceptional influence to the West German central bank, the Bundesbank. Thus, when a rise in West German interest rates was followed throughout the rest of Western Europe in October 1989, the Financial Times commented: ‘Europe already has a central bank. It is called the Bundesbank, and it is located in Frankfurt’.  This financial predominance was a reflection of the relative weight of German capitalism within the EC. By the late 1980s West Germany’s manufacturing sector amounted to 68 percent of those of France, Italy and Britain combined. 
The East European revolutions of 1989 and the collapse of the Soviet Union seemed likely further to strengthen the trends towards a German hegemony in Europe. The combined effect of the Federal Republic’s absorption of the defunct East German state in 1990 and of the eclipse of Russian influence in Eastern and Central Europe was to confirm Germany’s re-emergence as a world power. The plans for greater European economic and political integration in the Maastricht Treaty appeared to reflect greater German assertiveness.
The reality of the situation was considerably more complex. The Maastricht Treaty, and in particular the proposals for EMU at its heart, reflected neither the transcendence of narrow national interests nor the rise of German hegemony. Rather, they represented a compromise between the conflicting interests of French and German capitalism. On the German side, Helmut Kohl expressed the Federal Republic’s long standing support for European political union. The rationale for this policy had been spelled out by his Social-Democratic predecessor, Helmut Schmidt, in a secret 1976 document known as the ‘Marbella paper’. Schmidt warned that West Germany’s ‘unwanted and dangerous rise to second world power of the West in the consciousness of other governments’ could lead to ‘a revival of memories not only of Auschwitz and Hitler but also of Wilhelm II and Bismarck ... perhaps as much in the West as in the East.’ It was consequently,
’necessary for us, so far as at all possible, to operate not nationally and independently, but in the framework of the European Community and the [NATO] alliance. This attempt to cover [abdecken] our actions multilaterally will only partially succeed, because we will (necessarily and against our own will) become a leadership factor in both systems’. 
Greater European political integration was thus essential to provide the necessary multilateral ‘cover’ for the assertion of German interests internationally. It did not follow, however, that Germany was enthusiastic about economic and monetary, as opposed to political, union. The Bundesbank in particular had always been strongly protective of its own position. The Bundesbank now feared that the end of the DM would mean both the eclipse of its own power and the replacement of its notoriously restrictive tight-money policies with a laxer approach. Moreover, it argued that for EMU to be successful required political union as well.
The initiative for EMU came thus, not from Germany, but from elsewhere. David Marsh of the Financial Times indeed called it ‘an attempt, led by France and Italy, to emasculate the Bundesbank by subsuming the D-Mark into a single European currency’.  EMU was attractive to the French ruling class for two reasons. First, by strengthening the EC as an economic bloc it would allow European governments to act more independently of the US. The same objective lay behind French efforts, bitterly opposed by Washington and London, to encourage Germany in particular and the Community more generally to engage in military co-operation outside the framework of the US-dominated NATO. Secondly, EMU would reverse the shift in the balance of economic power in Germany’s favour that had occurred in the early 1980s. The European Central Bank (ECB) created by the Maastricht Treaty would, unlike the Bundesbank, be accountable to European governments, in whose counsels France had an exceptional weight.
It was Delors, the French president of the European Commission, who made concrete proposals for EMU. In a report published in April 1989 he called for ‘a transfer of decision-making power from member-states to the Community as a whole...in the fields of monetary policy and macro-economic management’.  These plans met with solid resistance from the Bundesbank, whose then vice-president, Hans Tietmeyer, declared in June 1991, ‘United Germany has much to lose in the forthcoming reordering of European currencies, namely one of the most successful and best monetary constitutions in the world.’
German opposition to EMU was overcome thanks to a plan hatched on the eve of the Maastricht summit in December 1991. Its architects were the two craftiest politicians in Europe, François Mitterrand and Giulio Andreotti, the Italian prime minister. They proposed to make the establishment of a single currency by 1 January 1999 at the latest conditional on convergence among participating economies. Tough criteria were laid down. Notably no country could participate in the single currency unless its inflation rate did not diverge from those of the three most successful member states by more than 1.5 percentage points, its currency had stayed within the normal ERM fluctuation margins for the previous two years, the budget deficit was no more than 3 percent of gross national product (GNP), and gross government debt no more than 60 percent of GNP.
The adoption of these convergence criteria overcame the German objection that EMU would lead to softer monetary policies and therefore a weaker currency than those produced by the Bundesbank. The treaty also established an independent European Central Bank with the stringent duty ‘to maintain price stability’ (though the French have persistently disputed the interpretation of these clauses). Kohl could not refuse the offer of such a tough version of EMU. On the front of political union, he gained only limited concessions. Thus the development of common foreign, security, immigration and criminal justice policies was not made the responsibility of transnational institutions such as the European Commission but left to political co-operation between EU governments. The directly elected European Parliament received only a moderate increase in its powers. 
The Maastricht Treaty ushered in 1992, the year the Single European Market came into effect. The accompanying hype suggested that the long awaited European super-power was finally taking shape; a series of developments soon punctured these dreams. In the first place, the common European foreign and security policy failed at the first hurdle, in former Yugoslavia. The German government forced through EC recognition of Croatia and Slovenia soon after Maastricht. But the Community proved unable to impose any solution on the Bosnian war that was the inevitable consequence of the break-up of Yugoslavia. Divided counsels prevented the development of a coherent European policy. Germany remained strongly pro-Croatian, while France and Britain, with troops on the ground as part of a United Nations force, were much more cautious.
In the end, it was the US which brought the war at least temporarily to an end.  This outcome did not simply reflect Washington’s overwhelming military superiority over any other power in the world. For all its notorious faults, the US governmental apparatus provided a much more effective decision making and command structure than the bizarre European amalgam of supranational institutions and intergovernmental co-operation. More generally, the mid-1990s saw a reassertion of American political and military leadership in Europe. Washington’s dangerous gamble of expanding NATO eastwards to the borders of the old Soviet Union served both to incorporate Moscow’s former East European clients within the Western bloc and to re-assert US primacy within that bloc.
American self-confidence was reinforced by the fact that the US economy grew strongly during the mid-1990s while Continental Europe stagnated. Associated with this this was a certain recovery, in some industries at least, of US competitiveness compared to the low point American capitalism had reached in the early 1980s.  European firms felt the resulting pressure in various sectors.  None of this implied the global predominance of a US ‘ultra-imperialism’. It did indicate the difficulties the EU faced in translating its economic strength (by the mid-1990s its GNP was larger than that of the US or Japan) into the effective exercise of political power. No wonder, then, that the euphoria over Maastricht and the single market was soon followed by prolonged agonising over ‘Eurosclerosis’ – that is, over the continental recession as a symptom of the EU’s alleged inability, supposedly because of overregulation, high wages, and extravagant welfare provisions, to compete with the US and the East Asian ‘tiger’ economies. 
This sense of malaise was reinforced by a second factor, the development of fierce political opposition to the Maastricht Treaty. The common theme initially at least was that the moves towards a closer European union threatened national sovereignty. In Germany this danger was interpreted as an attack on the Deutschmark. Elsewhere, however, the treaty was more likely to be seen as an instrument of German hegemony. It took two referendums and a series of special exemptions to get it approved in Denmark. Even in France the Maastricht provisions were only narrowly approved by popular vote. The unpopularity of the treaty took its architects by surprise and forced them onto the defensive. The standing of Delors in particular suffered a setback from which it never recovered. But supporters of Maastricht found their position further compromised by a third development, a series of huge currency crises which fatally damaged the ERM.
A number of threads were interwoven in these crises. One was the Bundesbank’s struggle to defend its institutional position. The bank showed its displeasure with the Maastricht Treaty by raising German interest rates to record levels within days of the summit. This decision reflected more than bureaucratic pique. German reunification had been accompanied by an economic boom fuelled by huge surges in state spending and borrowing. Fearful that inflation might escape control, the Bundesbank decided to apply the brakes. But other European governments, required to maintain their parities with the DM within the ERM, were forced to raise interest rates as well. The effect was to spread recession right across Western Europe.
Naturally speculators eagerly sought to exploit the resulting strains by ruthlessly testing the fault-lines in the ERM on the currency markets. Britain and Italy were the first to crack under the pressure of massive selling of their currencies: on 16 September 1992 – Black Wednesday – the pound and the lira were forced out of the ERM. A further series of currency crises which centred crucially on the franc culminated in the decision in August 1993 to allow currencies within the ERM to fluctuate within widened bands of plus or minus 15 percent around their parities – a retreat which seemed to make the mechanism a dead letter. 
Bernard Connolly in his detailed history of the ERM’s fall has unravelled another strand in this debacle, namely that of Franco-German conflict. He argues that Jean-Claude Trichet, then head of the French Treasury (and now president of the Banque de France), sought to take advantage of the take-off in German inflation in the early 1990s to pursue a policy of ‘competitive disinflation’ which, by ruthlessly using unemployment to squeeze inflation out of the French economy, would increase its competitiveness and perhaps even allow the franc fort to supplant the DM as the anchor of the ERM. The Bundesbank president, Helmut Schlesinger, regarded Trichet’s policy as as a fundamental threat to German financial predominance in Europe. He was forced by Kohl to mobilise the resources of the Bundesbank successfully to defend the franc when it came under massive speculative attack after Black Wednesday in September 1992. But, when the next great surge of speculation against the franc came in July–August 1993, Schlesinger was able to resist the French authorities’ demands that he cut German interest rates and buy francs to support their currency, at the price of causing apparently fatal damage to the ERM. 
The ERM crisis of 1992–1993 is instructive because it highlighted the extent to which the EU is traversed by profound national antagonisms among even the two capitalist classes on which the entire Community rests. Paradoxically, however, though the ERM died, EMU did not. The German and French governments continued to press ahead with the introduction of a single currency because of the political importance it had assumed for them.
Britain was the only major European power not to sign the Treaty of Rome. This reflected the belief of the British ruling class that involvement in a Continental customs union would cut across Britain’s continued role as a world power through both its ‘special relationship’ with the US and what remained till the late 1950s an empire of formidable extent. Ernest Bevin, foreign secretary in the post-war Labour government, protested to a US official in 1947 that Britain was ‘not just another European country’. 
This attitude proved, of course, to be unsustainable. The 1956 Suez crisis harshly demonstrated the limits of British imperial power in the era of the superpowers. Subsequent years brought further humiliations. The effects of economic and political decline could be seen at the end of 1967, when Harold Wilson’s Labour government was forced to accept the devaluation of the pound and to announce that British forces would be withdrawn from east of Suez. 
The failure of the post-war efforts to maintain Britain as a world power led to a reorientation of the ruling class strategy towards Europe. Harold Macmillan, who took over as Tory prime minister after the Suez debacle, liquidated most of the surviving British colonial empire, chiefly in Africa, and applied for British membership of the EEC. It took a decade before Britain actually joined in January 1973, under another Tory government, that of Ted Heath. Nevertheless, it seemed as if British capitalism had decisively turned towards Europe.
The question of whether or not to join the Common Market split both major British parties. Yet in the early 1970s it was Labour which suffered most because of the issue. The polarisation between a strongly pro-European right led by Roy Jenkins and a bitterly anti-EEC Labour left presaged both the rise of the Bennite movement in the late 1970s and the breakaway by the Social Democratic Party in 1980–1981. The Tories had their dissidents – most famously Enoch Powell, who actually resigned from the party over the issue and called for a Labour vote in the February 1974 election – but they were at this stage a comparatively weak force.
The June 1975 referendum on British membership of the Common Market – a device of Wilson’s to patch over Labour divisions – saw the bulk of the ruling class united behind the campaign for a yes vote, which in the event received the support of 67.2 percent of those who took part. The labour movement might be badly split over Europe, but at this stage the ruling class was much less so.
Margaret Thatcher, having displaced Heath as Tory leader in February 1975, reflected this consensus. Thus when the Labour prime minister, James Callaghan, decided in December 1978 that Britain would not participate in the new ERM, she declared, ‘This is a sad day for Europe’.  As prime minister she signed the Single European Act in December 1985. This secured the wholesale removal of barriers to competition within the EC – a move advocated especially by Thatcher’s appointee as European commissioner, Lord Cockfield – at the price of permitting the Council of Ministers to make laws on a wide range of matters by qualified majority, thus removing the national veto on many Community decisions. 
What subsequently turned European integration in general and the ERM and EMU in particular into an issue which split the Tory party from top to bottom, played a role in the destruction of Thatcher’s premiership, paralysed that of her successor, and helped produce the worst Conservative electoral defeat since 1906? Tory Eurosceptics are unable to explain this turn of events except in terms of the renegacy of Nigel Lawson, Thatcher’s Chancellor of the Exchequer between 1983 and 1989. John Redwood, for example, contrasts a halcyon period for the British economy in 1983–1987, when the government was following its monetarist Medium-Term Financial Strategy (MTFS), with a phase of ‘immense turbulence’ in 1987–1993 caused by Lawson’s ‘ideological commitment to the sterling/Deutschmark rate’ as a prelude to British entry into the ERM. The implication is that everything would have been fine had not Lawson irrationally abandoned the ‘pragmatic Medium-Term Financial Strategy’. 
In reality, Lawson’s search for a stable exchange rate, which from the mid-1980s led him to advocate British entry into the ERM, reflected his despair at the failure of monetarism. As financial secretary to the Treasury in the early Thatcher years, he had drafted the MTFS, which was published in March 1980. The strategy was based, not on ‘pragmatism’, but on the central dogma of monetarism, the form of free market economics which was adopted by both the Labour and Tory leaderships in the mid-1970s.
Monetarism states that the quantity of money in the economy determines the overall level of prices. Rises in the rate of inflation are therefore caused solely by increases in the money supply in excess of the real rate of growth of output. Controlling inflation, an overriding objective of policy makers faced in the 1970s with the phenomenon of stagflation (rising prices and unemployment), requires a constant rate of growth in the money supply, to be achieved chiefly by reductions in public expenditure. 
Despite its noisy espousal of monetarism, the Thatcher government proved quite unable to control the money supply. In the summer of 1980 the Tories’ main measure of the money supply, Sterling M3, was rising at an annual rate of 20 percent, way above the MTFS target of 7–11 percent. By 1982 Samuel Brittan, one of the original propagandists for monetarism, ruefully admitted ‘the complete failure of the government to meet its original monetary targets’. 
In their evidence to a House of Commons committee in 1980, both Milton Friedman, the chief theorist of monetarism, and Nicholas Kaldor, its main Keynesian critic, agreed that Thatcher’s policy in practice did not depend on controlling the money supply. Rather, what the latter called ‘Keynesian methods of demand management’, in particular via high interest rates and a strong pound, were being used to precipitate a devastating industrial recession, and thereby ‘to create enough unemployment to bring the unions to heel’. 
By the mid-1980s successive efforts by the Treasury to vary its definitions of the money supply it was trying to control had all fallen victim to Goodhart’s Law, named after the Bank of England economist who argued that ‘any monetary target became distorted once it was selected for policy purposes’.  But the Tories’ failure went much deeper than this. Their high interest rate policy in 1979–1981, and the resulting strength of sterling made British exports uncompetitive and thus helped to produce the worst slump since the Industrial Revolution, which wiped out a fifth of British manufacturing. Economic recovery, when it came in the mid-1980s, still left manufacturing industry dangerously shrunken compared to its major rivals abroad. And sterling began to fluctuate wildly on the currency markets, falling to a low of $1.05 in February 1985. 
The increasingly bitter debate among leading Tories over whether or not Britain should enter the ERM therefore reflected the failure of Thatcherism significantly to revive the fortunes of British capitalism. Lawson’s attitude was shaped by disillusionment with the MTFS he had himself devised. He later explained, ‘The MTFS was intended to be a self-imposed constraint on economic policy-making, just as the Gold Standard and the Bretton Woods system of exchange had been in the past, and the ERM came to be for most European Community countries in the 1980s’.  He argued when the MTFS was introduced that direct government control of the money supply would provide the kind of ‘constraint which operated quasi-automatically for a country on the Gold Standard’, which Britain had abandoned in 1931.  In other words, it would provide a ‘quasi-automatic’ mechanism for stabilising the economy without political intervention in the market by governments. When ‘domestic’ monetarism failed, Lawson sought an alternative stabilising mechanism supposedly outside the control of politicians. British membership of the ERM would impose the external discipline on the economy which control of the money supply had been unable to provide.
Thatcher’s opposition to joining the ERM reflected her root and branch objection to subordinating British economic policy to the Bundesbank. Entering the ERM, she said, would demonstrate that ‘we had no faith in our own ability to control inflation’.  Behind this argument developed a much more fundamental controversy over whether the future of British capitalism lay in closer integration in the EC or in remaining an offshore island, a kind of mega-Singapore pursuing free market policies and oriented on the world economy, and in particular on the US and East Asia, rather than on Europe.
Increasingly strongly committed to the latter objective, Thatcher espoused a progressively shriller Euroscepticism, which was most famously expressed in the peroration of her Bruges speech of 22 September 1988: ‘We have not successfully rolled back the frontiers of the state only to see them reimposed at a European level, with a European super-state exercising a new dominance from Brussels’.  But the prime minister found herself increasingly isolated in her own cabinet, as many of her fellow monetarists – not merely Lawson but also Geoffrey Howe, Chancellor of the Exchequer 1979-1983 and subsequently foreign secretary – came to strongly back entry into the ERM.
The dispute was exacerbated by Lawson’s policy ‘shadowing the Deutschmark’ – in effect, trying to maintain a stable sterling/DM exchange rate on the currency markets. This originated from the February 1987 Louvre agreement among the Group of Five leading industrial countries to stabilise their exchange rates. But Lawson saw the policy as a way of quietly preparing for British entry into the ERM. In 1987-1988, when the currency markets were pushing sterling up against the DM, he was obliged to counteract these pressures by cutting interest rates and selling pounds, which pumped extra money into the economy.  The global stock market crash in October 1987 led Lawson, like other Western finance ministers, further to relax monetary policy to prevent the world economy sliding into slump. He thus helped to stoke up an inflationary boom which affected not only Britain but also the US and Japan in the late 1980s.
Lawson’s strategy also fatally destabilised the government. Egged on by her economic adviser Alan Walters, Thatcher forced him in March 1988 to uncap the pound and allow it to float freely, triumphantly telling the House of Commons, ‘There is no way in which you can buck the market’.  The dispute between the prime minister and her ‘brilliant’ chancellor became increasingly public. Eventually Thatcher demoted Howe and forced Lawson out. She was nevertheless pushed by their successors, Douglas Hurd and John Major, into agreeing that sterling should join the ERM on 4 October 1990. Thatcher’s own fall followed shortly, after she had failed to stop the EC’s Rome summit from adopting a time-table for implementing the Delors report. Her ‘No, no, no’ to EMU in the House of Commons goaded Howe into resigning and launching a devastating attack on her. Within days she had been forced out of office by a combination of Michael Heseltine’s leadership challenge and a cabinet rebellion headed by one of her most pro-European ministers, Kenneth Clarke. 
Perry Anderson argues that Thatcher was ‘effectively removed by an Italian ambush’ mounted by Andreotti and his foreign minister, Gianni de Michelis.  But if it was increasing divisions over Europe that created deep fault-lines within the Tory government and gravely weakened Thatcher, the fundamental cause of her downfall lay elsewhere. The introduction of the poll tax in England and Wales in the spring of 1990 provoked a massive social rebellion whose high point was the Trafalgar Square riot at the end of March, but which was also expressed in staggering levels of non-payment of the tax throughout its brief life. In March and April 1990 Labour enjoyed a 23 point lead in the opinion polls. Many Tories saw Thatcher’s removal as essential to their electoral survival.
It seemed, moreover, as if her downfall had greatly alleviated the Tory differences over Europe. John Major, though elected party leader with the Thatcherites’ support, rapidly moved in a pro-European direction, proclaiming his desire to see Britain ‘at the very heart of Europe’. Kohl, eager to support a more sympathetic tenant at 10 Downing Street, backed Major’s efforts at Maastricht to secure a British opt-out from the single currency and the Social Chapter. Major declared the result ‘game, set and match for Britain’. Philip Stephens predicted in the Financial Times that he would not have much difficulty over the treaty with the Thatcherite right: ‘the irreconcilables will represent a splinter rather than a split’. 
These confident expectations were destroyed on Black Wednesday, 16 September 1992, when the pound was forced out of the ERM. The boom Lawson had helped engineer in 1987-1988 by the early 1990s had turned into a serious recession. This was exacerbated by the broader disequilibrium between the European economies. As we have seen, in 1991-1992 the Bundesbank raised interest rates in an attempt to kill off the inflationary German boom that followed reunification. The problem facing Major’s Chancellor of the Exchequer, Norman Lamont, was no longer to stop sterling rising against the DM. To maintain the pound’s parity inside the ERM Lamont had to keep interest rates high.
As at the beginning of the 1980s, British manufacturing industry was crucified by high interest rates and an overvalued currency. The collapse of the housing boom of the late 1980s left millions of people who had literally bought into the Thatcherite dream of a property-owning democracy pauperised by negative equity or even dispossessed of their homes. By the summer of 1992 the danger was that the recession would turn into a deflationary slump. The Bank of England’s projections suggested that ‘if interest rates were not cut over the following year, prices might actually start falling for the first time since the 1930s’.  Inevitably, massive speculative pressures began to build up against those currencies, particularly the pound and the franc, whose position within the ERM seemed increasingly unsustainable. The situation was further destabilised when the Maastricht Treaty was rejected in the Danish referendum of June 1992. Finally, on 16 September, the inevitable occurred: a giant wave of selling swept sterling out of the ERM. 
Black Wednesday dealt the Major government a blow from which it never really recovered. The fiasco crystallised for millions of people the sense of betrayal they felt for a government many had just re-elected. The Tories’ electoral annihilation on 1 May 1997 was a child conceived on 16 September 1992. But Black Wednesday also gave an immense fillip to the Tory right. The punishment the British economy had suffered thanks to the government’s efforts to defend the pound’s ERM parity seemed to vindicate Thatcher’s warnings about the dangers posed by the process of European integration.
Increasingly, in the cabinet, on the back benches, and among the party rank and file, the Eurosceptics rallied to defend national sovereignty against the mortal threat represented by the EU in general and the single currency in particular. For them, European integration was an instrument of German domination. Thatcher told the German weekly Der Spiegel, ‘It is quite clear that you Germans do not want to anchor Germany in Europe but Europe in Germany.’ Two right wing backbenchers, Bill Cash and Iain Duncan-Smith, attributed to Kohl the ‘desire to create a federally integrated hard core of states as the western pillar of a Germano-Russian condominium to govern the entire continent’.  An increasingly frenzied nationalism became for the Tory right a fantastic imaginary compensation for the real weakness and mediocrity of British capitalism.
The government was forced onto the defensive over a succession of issues – over its announcement of massive pit-closures in October 1992, during the bitter parliamentary struggle to secure the ratification of the Maastricht Treaty in 1992-1993, and then, with increasing persistence, in the long drawn out internal debate over British participation in EMU. Consistently, it was the Tory right which made the running. Major’s attempt to re-establish his authority by calling a special leadership election in June 1995 if anything only made the situation worse by allowing John Redwood to emerge as a credible spokesman for the right.
The concessions to the Eurosceptics continued. Sometime pro-European Tories like Malcolm Rifkind and Stephen Dorrell shifted their positions in order to ingratiate themselves with the right. Lamont’s successor as chancellor, Kenneth Clarke, found himself increasingly isolated as the sole defender of EMU in the cabinet. In March–April 1996 he was outmanoeuvred and betrayed by Major when the cabinet committed itself to holding a referendum on British participation in the single currency. 
The government moved yet another step towards the Eurosceptics by declaring the following January that it was ‘very unlikely’ that the pound will be merged with the euro when the single currency was launched two years later. Though the formula allowed Clarke to continue to insist that Britain could still join the first wave of participants in the euro, his voice was a lonely one. During the election campaign itself, Major allowed 190 Tory candidates to publicise their opposition to the single currency in their manifestos (while only three included pro-European statements in theirs), and indeed sought to stir up nationalist hostility to the EU in a desperate and ineffectual attempt to head off inevitable defeat.  No doubt the survivors of the disaster which overtook the Tories on 1 May will continue the civil war over Europe on the opposition benches.
The divisions that have developed over Europe inside the Tory party during the past ten years represent one of the most serious crises in its history. Since the Tories have been, for the past century, the main party of British capitalism, holding office for 71 of the last 100 years, this is a development of great significance. Comparisons are often drawn with the two historic splits the Tories suffered, in the 1840s over the repeal of the Corn Laws and in the 1900s about Free Trade.  These comparisons are apt because these political crises of Toryism occurred at turning points in the history of British capitalism. Sir Robert Peel’s repeal of the Corn Laws (which protected British agriculture from the competition of foreign imports) was a major defeat for the hitherto dominant landed aristocracy. It reflected the increasing strength and confidence of industrial capital, who believed that British dominance of world trade in manufactured goods could easily finance the import of cheap food and thus reduce wage costs and conciliate a rebellious working class.
The crisis over free trade represented the reverse of this process. By the end of the 19th century Britain’s position as the leading imperialist power was under challenge, in particular from the rising industrial economies of the US and Germany. Joseph Chamberlain’s campaign for Tariff Reform reflected a strong current within the ruling class who argued that the only effective response to increasing competitive pressures was to transform the British Empire into a coherent economic and military bloc from which foreign imports were excluded by high protective duties.
The analogies between the free trade crisis and present Tory divisions over Europe are particularly close. In the 1900s the British ruling class had to face up to the dilemma created by the fact that both Germany and the US had emerged as global naval as well as industrial powers; it could fight one, but not both, and so would have to ally itself with the other. Chamberlain’s campaign in 1903–1905 shattered the unity of the Unionist coalition of Tories and ex-Liberals opposed to Irish Home Rule that had enjoyed a long period of political dominance since the mid-1880s. Arthur Balfour, like John Major, proved a weak prime minister (though, as a nephew of Lord Salisbury, one from the top drawer rather than a Brixton flat). His endless manoeuvres and compromise formulas – including the promise in 1910 of a referendum on Tariff Reform – to prevent a Unionist split resembled Major’s antics 90 years later, and he was swept from office in 1906, losing even more seats than his successor did in 1997. 
British capitalism has fallen a long way since it presided over the world as a weary and declining Titan under the elegant philosopher aristocrat Balfour. The objective backdrop to the contemporary crisis of Toryism is Thatcher’s failure to reverse Britain’s relative economic decline over the past century. The most the Tories can claim is to have prevented that decline from continuing. British real gross domestic product (GDP) per hour worked was 11th highest in the world in 1992, the same ranking as in 1973 (though real GDP per head fell from 11th highest in 1973 to 17th in 1994). But even the Financial Times’ pro-free market columnist Martin Wolf acknowledged the limits of this achievement: ‘To have halted, or even slowed, the pace of relative decline is comforting. But delight must be tempered by awareness of the reason for this success. This is the deterioration in performance elsewhere, above all on the European continent.’ And the fact still remained that British GDP per hour worked was fifth in the world in 1950. 
Faced with this record of failure, where does British capitalism’s future lie? In the mid-1990s the Tory right began to radicalise their opposition to Maastricht and to any further European integration. This stance does not simply reflect domestic British political developments. The EU Intergovernmental Conference (IGC) began to review the Maastricht Treaty in March 1996. In May and June 1997 the conference will have before it proposals for the extension of qualified majority voting to cover, among other things, immigration and asylum, the strengthening of common policies, particularly on foreign affairs and defence, and the acceptance of ‘flexibility’ which would allow a ‘core’ led by Germany and France to integrate more rapidly than the rest. The evolution of the EU is thus tending to confront Britain with a choice between accepting a more integrated union or getting out. The status quo is no longer on offer.
Tory proponents of withdrawal argue that Britain could have its cake and eat it outside the EU. They claim that British companies could participate in the Common Market in which the EU originated, exporting to the Continent and continuing to attract inward investment on this basis. At the same time, they can enjoy the benefits of their involvement in the rest of the world economy, trading with and investing in North America and the Far East. This vision of Britain as a global Singapore is based on its success in attracting foreign direct investment. The United Kingdom’s stock of inward investment rose from £52 billion in 1986 to £131 billion in 1994. By the mid-1990s foreign owned companies employed 15 percent of the workforce and produced 40 percent of manufacturing exports. Britain attracted 40 percent of all American and Japanese investment in the EU.  This influx was premised, however, on British membership of the EU, since investment in Britain is a means of access to the European market. Hiroshi Okuda, president of the Japanese car multinational Toyota, sent a frisson through the British business world when he warned in January 1997 that the company’s strategy towards Britain would ‘change’ if it did not take part in the euro.  A few months later, Jürgen Gehrels, chief executive of Siemens UK, said that investment plans worth £1 billion would be threatened if Britain stayed out of EMU. 
The debate over EMU found the capitalist class profoundly divided. According to a poll published by the CBI and the Association of British Chambers of Commerce in November 1996, 58 percent of business executives supported British participation in the single currency, while 30 percent opposed it.  The key interests supporting EMU were British owned companies heavily involved in trade with and investment in the rest of Europe and the British subsidiaries of foreign owned multinationals. Niall Fitzgerald of Unilever, Sir David Simon of BP (now a minister in the Labour government), and Sir Clive Thompson of Rentokil were among the most vocal advocates of Britain joining the euro.
Yet even many of those who supported EMU did so on a conditional basis. John Gardiner of the engineering group Laird described the single currency as ‘the least bad option’. What the Financial Times described as ‘a phalanx of UK manufacturing interests’, including the chairmen of TI, T&N, and GKN, and the bosses of the privatised utilities, were ‘not against a single currency in the long term’, but argued that ‘the large differences between Europe’s big economies … makes locking currencies in the immediate future impractical and unwise’.  A Financial Times survey of executives of small to medium sized companies in the spring of 1997 produced similar results: 73 percent said Britain should join the single currency ‘at some stage’, but 64 percent thought Britain ‘should delay joining’, and 77 percent believed that Britain would ‘wait until after 1999’. 
Meanwhile there was a powerful group of capitalists who backed the Eurosceptics. Many of these represented what one might call offshore interests – firms which though based in Britain operate on a global rather than a European basis. One characteristic of this grouping was their relative detachment from any national anchorage. An extreme example of this is provided by the former food magnate Jimmy Goldsmith who divides his time between his homes in Paris and Mexico, but personally funded the Referendum Party in the 1997 election. More important were the media barons Rupert Murdoch and Conrad Black, the heads of worldwide empires whose British tributaries were feverishly anti-European. The hard anti-European wing of British capital was undoubtedly a minority of the ruling class, but its media power greatly amplified its voice.
There were, however, some signs that the Tory right’s drift towards support for British withdrawal was pushing significant sections of big business to rally together in response. Sir Bryan Nicholson, CBI president at the time of the 1996 beef crisis, denounced the Eurosceptics’ ‘romantic nationalism and churlish xenophobia’.  His successor, Sir Colin Marshall of British Airways, supported Major then, but nine months later he signed a letter with 22 other business leaders, including advocates of EMU like Niall Fitzgerald and Chris Haskins, the pro-Labour chairman of Northern Foods, denouncing ‘the spread of extreme Euroscepticism and of the mistaken belief that an arm’s length and hostile attitude on Europe is now in the UK’s best interests’.  During the election, documents were published suggesting that the CBI would come out in favour of Britain joining the euro soon after its launch. 
The final piece in the puzzle was the City of London. The City was, as the Financial Times put it, ‘the leading centre of global currency and capital markets’. London had 30 percent of all foreign exchange transactions in 1995, was one of the three top futures markets and the world’s biggest fund management centre, and handled between 40 and 50 percent of international mergers and acquisitions.  On the face of it, the City was the sector of British capitalism that needed the EU least. In fact, however, London was fast becoming a centre of European banking. In the late 1980s and the 1990s, many City firms were taken over by big European banks – Morgan Grenfell by Deutsche Bank (which has also moved its investment banking division to London), Kleinwort Benson by Dresdner Bank, Barings by ING of the Netherlands. Whether these banks – and the major American and Japanese banks that also made London their European centre of operations – would stay on if Britain kept out of the euro was anybody’s guess.
The difficulty in establishing with any precision where the British ruling class’s interests lay over Europe is an objective one. Britain is probably the most internationalised of the major capitalisms. Paul Hirst and Graeme Thompson in their recent study of globalisation show that the bulk of multinational corporations’ assets and sales are concentrated in their home economies. While this is true of British firms, the level of concentration is lower than elsewhere. Thus in 1992–1993 75 percent of Japanese and German companies’ sales were in their home base, 67 percent of American, and only 65 percent of British. In the same year 97 percent of Japanese industrial multinationals’ assets were in their home region, 73 percent of American, and 62 percent of British. 
Because British capital’s interests are more globally dispersed than those of its main competitors, it is harder for the ruling class to arrive at a consensus about what line they should take over Europe. More fundamentally, however, the debate over the EU and the euro reflects the impasse facing British capitalism. The failure of Thatcherism to reverse 100 years of decline means that the ruling class finds it hard to plump single mindedly either for full hearted participation in an increasingly integrated Europe or for the ‘world island’ strategy advocated by the Tory right. They are likely to continue to vacillate in the face of these alternatives.
The new Labour government will participate in these vacillations. Tony Blair’s predecessors, Neil Kinnock and John Smith, were strongly pro-European, supporting British entry into the ERM, welcoming the Maastricht Treaty, and criticising the Tories for opting out of the Social Chapter. Under Blair, however, Labour began to drift, in tandem with the Major government, in a more Eurosceptical direction. Three factors seem to have been involved. In the first place, the shadow cabinet was divided. While Gordon Brown was strongly in favour of British participation in the single currency, the centre-left, represented by deputy leader John Prescott and Robin Cook, the shadow foreign secretary, were much more dubious of the euro’s merits. Blair himself balanced between these two currents of opinion.  Secondly, New Labour sought to reassure big business that it could be trusted with office. Blair therefore promised that signing up to the Social Chapter would not affect British labour market ‘flexibility’. Finally, the increasing dominance of the anti-European right within the Tory party made Labour vulnerable to attack for being willing to ‘sell Britain out’ in EU negotiations. To protect his right flank from Eurosceptic attacks both during the election and in office Blair therefore began to shadow Major’s European policies.
Thus Labour’s election manifesto repeated the formula frequently used by Cook that there were ‘formidable obstacles’ to Britain joining euro in the first wave. Cook went on to say that ‘if you don’t join in 1999, it is unlikely that you’d be joining in the course of the next parliament’, apparently closing the door to British participation in the euro before 2002 at the earliest.  When Major threatened, if re-elected, to block agreement at the IGC unless British fishermen won concessions, Blair was quick to wrap himself in the Union Jack, declaring, ‘When British interests are at stake, of course we are prepared to be isolated’.  After its election, Labour moved quickly to promise a ‘fresh start’ in its relations with Europe and to sign Britain up to the Social Chapter. Gordon Brown’s simultaneous decision to give the Bank of England control over interest rates could be interpreted as a step towards taking part in EMU, since this requires the independence of central banks in the euro-zone. Brown was, however, careful to hedge his bets, using the Tory formula that ‘it is highly unlikely that we will join EMU at the first date in 1999’. 
Given the importance of this issue, what stance should socialists take towards the single currency? The free market right have become, in Britain at least, the most vocal opponents of European integration and the euro. In parallel, the mainstream of the reformist left have emerged as their main champions. Michel Sapin, minister of economy and finance in France’s previous Socialist Party government, sees the euro as a bastion against the globalisation of capital: ‘Faced with this globalisation, the true Marxist point of view consists in raising counter-powers. European money is the principal [of these counter-powers]. Faced with capitalism, it increases the role of the state and the collective point of view’. 
John Palmer is scarcely less evangelical:
In an era of sweeping economic globalisation, European monetary union will provide an essential foundation for stable and sustainable growth that generates jobs. A single European currency will weaken the power of those who thrive on monetary chaos and financial speculation. It can also help ensure that the overweaning [sic] power of the global marketplace is better balanced and constrained by democratically decided economic and social priorities. 
As Mary McCarthy once said of Lillian Helman’s memoirs, everything Palmer writes here is false, even the punctuation marks. Usually, the choice of currencies is hardly the sort of issue in which revolutionary socialists take much interest. But the introduction of this currency, the euro, in present circumstances is likely to have a devastating effect on the jobs, wages, and collective consumption of the European working class. To understand why this is so, we have first to consider the role of national currencies under capitalism.
Capitalism develops unevenly. At any given time different economies have different levels of productivity, costs etc., and, moreover, they are constantly changing, sometimes dramatically, relative to each other. A consequence is that significant disequilibria between economies unavoidably occur. Currency fluctuations act as a means through which economies can adjust more easily to the development of such imbalances. Imagine an economy that has succeeded in enhancing its international competitiveness. Its exports rise. The result is both the development of a balance of payments surplus and higher domestic output and spending. Sooner or later, interest rates will have to rise to prevent the economy from overheating. Money flows into the country, in anticipation or as a consequence of the increase in interest rates. The currency therefore appreciates compared to other currencies, making its exports more expensive and thereby helping to slow the economy down. In due course, particularly if a recession develops, interest rates fall and the currency also slides down compared to other currencies. Exports become cheaper, and the resulting increase in output helps to stimulate an economic recovery.
This little fable undoubtedly presents an idealised picture of a market economy as a self-equilibrating mechanism. Nevertheless, it does show how fluctuations in exchange rates help economies to adapt to changes. Will Hutton, a supporter of the single currency, acknowledges that ‘Currency changes are themselves important sources of adjustment, and this shock-absorber capacity, even more important when economic structures vary so much, would be frozen for good once the euro was launched’. 
The history of the ERM gives an intimation of the consequences. The system’s development as a DM-zone meant that the German currency itself became the fixed point around which the other currencies fluctuated. The DM itself could never be devalued relative to the currencies in the system. This meant, in the first place, that interest rates in other EC countries had to be higher than German ones, in order to maintain their parities within the ERM. When German interest rates rose sharply, as they did in the early 1990s, the effect could be devastating. Secondly, other currencies could only be devalued, not revalued, against the DM. This deprived these economies of a crucial adjustment mechanism when they were booming. Since revaluation was ruled out as a means of cooling down an overheating economy, inflationary pressures built up till a much more severe devaluation became unavoidable. 
Of course, existing national states with their own currencies contain considerable uneven development within their borders. The regional differences in unemployment rates within Britain are an example. In a huge continental economy such as the US, there are enormous contrasts between different parts of the country, yet all are subject to the same federal government and share the same currency. Nation states, however, have at their disposal certain means of minimising the impact of these regional differences. They are well explained by Lawrence Lindsey, a governor of the US Federal Reserve System:
In the absence of exchange-rate variations between US regions, the automatic stabilisation of regional economic differences relies on two other mechanisms: labour mobility and fiscal transfer.
The US is characterised by a very mobile workforce. The US Census Bureau estimates that roughly 17 percent of Americans move in a typical year and 3 percent of the population, some 7.7 million people, change their state of residence.
This provides a big part of the inter-regional adjustment in the US economy. For example, during California’s economic difficulties between 1990 and 1994, nearly 1.2 million left the state. This led to a rapidly expanding workforce for the booming areas of the west. For example, Utah added 200,000 jobs, a 24 percent increase in the same period and Colorado added 300,000 jobs ...
The second source of inter-regional economic stability in the US comes from automatic changes in fiscal transfers between the regions and central government. The progressive tax system provides most of this adjustment: because the tax take is closely related to income levels, regions in recession find that their net fiscal positions change rapidly through the cycle.
For example, when the California economy was booming in 1987 to 1991, the state provided nearly 17 percent of marginal tax revenues, while driving its share of tax receipts up from 12 percent to 13.4 percent. From 1991 to 1994, the state’s share of marginal tax revenue fell to just 8 percent and its share of the national tax burden declined to 12.5 percent.
These differences are significant. Had the 1991 share of California stayed constant, Californians would have paid $11 billion more in taxes in 1994 – or $350 a head. 
Neither of these mechanisms are likely to play a remotely comparable role in the EU when the single currency is introduced. Labour mobility between EU member states is still very limited. As for fiscal transfers in favour of poorer regions and countries, even a supporter of the euro like the Financial Times concedes that the ‘EU’s “federal” budget is much too small to make significant adjustments,’ and the whole direction of European policy is towards further restricting social spending. 
In the absence of the mechanisms which existing states possess to even out regional imbalances, the effect of introducing the euro will probably be to trap the poorer and less competitive EU countries in a hard-money regime which will keep their unemployment rates permanently high. Moreover, the terms on which the single currency is being introduced have a strongly deflationary bias. The convergence criteria, as we have seen, require participants in the euro to reduce their budget deficits to 3 percent of GNP and gross government debt to 60 percent of GNP. This has required the adoption throughout the EU of large scale programmes to reduce public spending.
The effect of these cuts has been to slow down the European economies, particularly since they were introduced at a time of recession. This led to what one economist, Iain Begg, has called ‘the paradox of growth’. The convergence criteria compare debts and deficits with national income. A higher rate of growth would mean that national income grew relative to government borrowing, making it easier to meet the convergence criteria. But the convergence criteria demand lower spending, which slows down the growth rate. Government borrowing thus rises relative to national income. So trying to meet the convergence criteria makes it harder to meet the convergence criteria! 
Nor are such absurdities a feature merely of the transition to EMU. Fearful that the participation of heavily indebted southern European states would make the euro significantly weaker than the DM, German finance minister Theo Waigel campaigned for a ‘Stability Pact’. This would in effect make the convergence criteria – toughened to include an even harsher 1 percent deficit target – a permanent financial regime, policed by the Commission and the ECB, and enforced by fines of up to 0.5 percent a year of the GDP of defaulters. The ‘Stability and Growth Pact’ finally agreed at the EU’s December 1996 Dublin summit represented a compromise, since France persuaded Germany to allow the Council of Ministers to exempt by qualified majority vote countries running an excess deficit which are able to plead the excuse of ‘a severe economic downturn’. 
This outcome reflected a deeper ambiguity. Was EMU to consist of a set of rigidly enforced rules amounting to a kind of economic straitjacket? In this case it was likely to lead to disasters and absurdities. Or were the rules to be interpreted flexibly, thereby giving scope to the normal process of bargaining among the member states? The prospect of such an outcome aroused Germany’s worst fears that it was exchanging the almighty DM for a lax monetary climate in which inflation would flourish.
These fears concerned how EMU would work once it had been established. But enormous difficulties faced the introduction of the euro. One issue concerns which countries would actually qualify to join the single currency. The Maastricht Treaty laid the basis of a multi-speed Europe. The imposition of convergence criteria implied that those countries which failed to meet them would not take part in EMU. Moreover, both Britain and Denmark won exemptions from various aspects of the treaty, which further reinforced the tendency for member states to participate in differing degrees of integration. At the time the treaty was signed, one commentator, Ian Davidson, argued that Major’s supposed triumph at the summit was a hollow one: ‘Britain has, single-handedly, created the beginning of a two-tier Europe in which it is in a minority of one’. 
The effective collapse of the ERM in 1992-1993 led the French and German governments to push hard in the direction of a multi-speed Europe. In order to meet the EMU timetable they envisaged a hard core (Germany, France, Benelux, Austria, Ireland and Finland were the most frequently mentioned candidates) launching the single currency while Britain and the south European states remained on the sidelines. But in 1996–1997 the situation shifted again, as new governments in Italy, Spain, and Greece asserted that they would be able to join in the euro’s launch in January 1999.
The prospect of Italy in particular joining euro in the first wave caused great unease in German government and business circles. The Italian deficit and government debt were way above the Maastricht limits, and blatantly cosmetic devices were used to try to massage the figures down – for example, the imposition of a special one-off ‘Eurotax’ which would be used to reduce the budget deficit and partly repaid in 1999. (They weren’t the only ones: France’s hopes of meeting the Maastricht target depend on some creative accounting – for example, a special £4 billion payment from France Télécom.)
Speaking at the Davos World Economic Forum in February 1997, Ulrich Cartillieri of the Dresdner Bank asked, ‘How will France and Germany explain to Italy that it should stay out [of EMU]? In the view of many, if Italy is admitted it could be a timebomb within the union. If those issues drag on much longer, the whole scenario of EMU in 1999 might implode’.  Shortly afterwards, a plan to persuade Italy to delay its participation in the euro till 2000 or 2001 was leaked, but the Italian prime minister, Romano Prodi, angrily rejected this idea.  The Italian problem begged the larger question of whether any West European state of any significance would meet the convergence criteria. The 1990s proved to be a decade of slump and stagnation in Europe. Recession forced up social spending and reduced tax revenues, thus making it harder for governments to hit the Maastricht targets. Germany, anchor of the European economy, was particularly hard hit. In February 1997 German unemployment reached 4.67 million, the highest level since 1933, the year Hitler took power. The previous month the government’s annual economic report predicted that the 1997 budget deficit would be 2.9 percent, and would thus meet the convergence criteria by a whisker. But this projection was based on the assumption that unemployment in 1997 would average 4.1 million. Since every 100,000 extra jobless costs the German Federal Labour Office about DM 3 billion a year in benefits and lost contributions, the overshoot in unemployment could push the deficit through the 3 percent Maastricht ceiling. 
EMU without Germany would be a dead letter. No wonder then that, at the end of February 1997, European financial markets fell sharply as they were swept by rumours that EMU was about to be delayed for two years. They soon recovered, but the incident highlighted the way in which every crack in the European economies would be ruthlessly tested by the financial markets in the run-up to the euro’s launch. The International Monetary Fund subsequently expressed concern about the impact of EMU on world financial markets. According to The Guardian:
Massimo Russo, an adviser to the managing director of the IMF … said: ‘We at the IMF believe any delay in Stage Three [introduction of the euro] would lead to substantial dangers.’ A delay, he added, could lead to the project being shelved for some time, making it hard for countries to continue their efforts towards qualifying for EMU and causing chaos on financial markets. 
Delaying EMU, let alone abandoning it, would also be a political disaster for the German and French governments. Kohl announced in April 1997 that he was carrying on as chancellor till after the 1998 German federal elections in order to ensure that the euro was launched on time. Shortly afterwards his finance minister, Waigel, the hard-money man who had demanded the Stability Pact and the strict observance of the convergence criteria, declaring ‘3 percent is 3 percent’, suddenly changed his tune. ‘I have never nailed myself to the cross of 3 percent,’ he said. 
Waigel’s almost comic reversal suggested that Bonn was ready to fudge the convergence criteria in order to make sure that EMU started on schedule at the beginning of 1999. In any case, the government which emerged from the French legislative elections in May and June 1997 will almost certainly use the evidence of domestic opposition to the euro to press for a relatively relaxed interpretation of the Maastricht targets. Even before the election, when the European Commission declared in late April that Italy and Greece were the only EU countries unlikely to hit the 3 percent deficit target, Hervé de Charette, the French foreign minister, backed the indignant Italians, accusing the Commission of being ‘too severe’. 
The difficulties still facing Germany in meeting the Maastricht targets were highlighted by Waigel’s announcement in mid-May that he proposed to revalue the Bundesbank’s gold and foreign exchange reserves. This would allow him to cover a projected £42 billion shortfall in government revenues in 1997–2001 and to keep the budget deficit within its 3 percent limit. So even Bonn was being forced by the EMU deadlines into creative accounting.
What did this imply for the European economy? Professor David Currie of the London Business School outlined four possible scenarios for EMU. The first two assumed that the euro’s launch would be delayed, with respectively negative and positive economic consequences, the fourth projected a rosy future for EMU. The Financial Times summarised the third scenario as follows:
Between six and ten countries start EMU on schedule in 1999. Because the entry criteria were fudged, however, debt and deficit levels remain high in several countries. The European Central Bank finds it hard to run the new euro monetary policy effectively and exchange rates prove volatile. Fines on high-deficit countries embitter intra-EMU relations. The euro economy stagnates – and the ‘outs’ suffer too. There is a rising political clamour for independent currencies and rising hostility to the EU. 
Currie himself predicted an outcome that ‘combines elements of both scenarios three and four’. But scenario three seems, on the basis of the preceding analysis, to be a better bet. This does not mean that the EU is doomed to permanent stagnation. On the contrary, it is quite likely that the immediate run up to EMU will see at least a partial German economic recovery. A combination of factors – a loosening of monetary policy by the Bundesbank in 1995, worries about EMU, the strength of the US economy – caused the DM to lose a tenth of its value against the dollar in the year to March 1997. Cheaper German exports began to stimulate manufacturing industry in the first few months of 1997. This revival, particularly if it affected other European economies, could help ease the actual introduction of the euro.
Nevertheless, EMU is a recipe for stagnation and instability in the longer term. A single European monetary policy, in the absence of the stabilising mechanisms found in nation states, and reinforced by the convergence criteria and the Stability Pact, will build deflationary pressures into the political economy of the Continent. The various attempts to diminish EMU’s harshness – for example, by fudging the Maastricht targets and subjecting the ECB to the ‘political power’ of the European governments – will, in all probability, encourage massive, destabilising speculation against the euro on the financial markets. Under the euro, the EU is likely to suffer the worst of both worlds – both economic stagnation and monetary volatility.
Thus the case for EMU put forward by social democrats like Hutton and Palmer cannot be sustained. Hutton, for example, argues that the euro will strengthen ‘the broad European model’ of capitalism, with its more generous welfare provision and greater state intervention than in the US or Britain.  This ‘model’ has, however, been under increasing pressure since the mid-1980s. Thus the drive to the single market under Delors, the great advocate of a ‘social Europe’, represented a significant shift towards neo-liberal policies.  The Social Chapter was primarily a device to impose a minimum level of social protection which would prevent countries like Germany with their relatively developed welfare states from being undercut by southern (or later, Eastern) European rivals.
Indeed, the Tory MEP John Stephens argues that ‘the single currency is proving to be the most powerful promoter of Tory principles in Continental Europe in the history of the EU’ as ‘budget deficits are being cut, state enterprises privatised, welfare and pension provisions reformed, capital and labour market rigidities addressed. In every EU state the monetarist orthodoxies of stability and low inflation are being entrenched’. 
Slightly further to the left, Robert Reich, Labour Secretary in Bill Clinton’s first administration and a liberal Democrat much admired by the Blairite wing of the Labour Party, warns:
Joining the euro may be fine in the long run. But to move so quickly, and impose so much fiscal austerity, risks turning a situation of high structural unemployment into an even worse crisis in the long run ... It is the very opposite of what one would want in policy now. The recovery has not yet taken hold in Europe, and if Europe goes on an austerity binge, and the US follows suit for fear of inflation, then I would not be surprised if we all head into a very deep recession. 
One section of the European left, recognising these consequences, rightly opposes EMU. But their critique of the single currency is an essentially nationalist one. They argue, in other words, that the austerity measures being adopted by EU governments are uniquely a consequence of the Maastricht Treaty: it is the drive towards greater European integration that is responsible for the spread of deflationary policies throughout Europe. This case is put by some of the strongest surviving organisations with a Stalinist background – the French Communist Party and Rifondazione Communista in Italy, for example. But it is also argued by some left social democrats – Jean-Pierre Chevénèment and the Mouvement des Citoyens in France, Tony Benn and other supporters of the Labour left Campaign Group in Britain.
The nationalist critics of EMU, whether they are reformists or Tories, fail to see that deflation and austerity are not purely European phenomena. They are to be found throughout the advanced capitalist world. In December 1995 the Financial Times commented, ‘Over the past three years the economies of the industrialised world have been in the grip of fiscal correctness. With the exception of Japan, their governments have been engaged in a belt-tightening exercise unprecedented at this stage of an economic upswing’. 
Cutting the budget deficit has become one of the main elements of the political consensus throughout Western capitalism in the 1990s. Part of Bill Clinton’s strategy of ‘triangulation’ – stealing the Republicans’ clothes – has been to adopt the Republican right’s objective of a balanced budget. In Canada both the Liberal federal government and Mike Harris’s right wing Tory administration in Ontario have been slashing public spending in order to reduce the deficit. Most bizarre of all was the decision of the Japanese government in early 1997 to adopt the Maastricht limit of a budget deficit of no more than 3 percent of GNP. Even the usually strongly orthodox Financial Times described this ‘return to fiscal rectitude’ as ‘almost inexplicable’. As a result, Japan in the 1990s was the only major capitalist country to experience something approximating the kind of deflationary slump which the entire world economy suffered during the Great Depression of the 1930s. The Financial Times warned the Japanese ministry of finance that ‘by retreating prematurely into fiscal orthodoxy they will throttle the economy’. 
A superficial explanation of the spread of ‘fiscal correctness’ would be to put it down to the spread of free market ideology with its goal of ‘limited government’. It is certainly pleasant to imagine how caustically Maynard Keynes would have greeted the repetition of errors justified by laissez-faire dogma which he had attacked so effectively during the inter-war period. And undoubtedly the ideas of the free market right did come to set the agenda of mainstream political debate in the 1980s and 1990s. The pose New Labour’s Gordon Brown strikes as an ‘Iron Chancellor’ who will control public spending even more rigorously than his Tory predecessors is symptomatic of this policy consensus.
But the official mania for deficit cutting had deeper causes that must be traced back to the era of global economic crisis which opened up at the end of the 1960s. Three global recessions – in the mid-1970s, the early 1980s and the early 1990s – and the uneven and unstable recoveries from them sharply reduced average growth rates. This affected public finances in two ways. In the first place, as we have already seen, stagnation and slump reduces tax revenues and pushes up social spending, forcing governments to borrow more heavily.
Thus, contrary to the claims of the Tory and Republican right, soaring government debt and budget deficits were not caused by generous welfare provision for feckless single mothers. They were a consequence of the failure of the capitalist mode of production to make efficient use of the productive resources of humankind. The right’s favoured remedy of slashing public spending only, as we have seen, makes matters worse. Spending cuts, particularly in the depressed conditions of Europe and Japan in the 1990s, would further slow down economic growth and therefore increase the debt burden.
Secondly, one feature of the economic crises of the 1970s and 1980s was stagflation – that is, the tendency for the rates of unemployment and of inflation to rise together. Eventually economic slump would force up unemployment to levels high enough to cause a reduction in inflation, but the subsequent periods of recovery were haunted by fears that price increases would take off again. From governments’ point of view, one advantage of inflation is that it reduces the value of their debts. Many investors who lent money to governments by buying their bonds saw the value of their assets more or less wiped out by the inflations of the 1970s and 1980s. Financial markets, reflecting the bondholders’ concerns, now closely monitor government policies to make sure they do nothing which might stoke up inflation.
The Financial Times summed up the resulting state of affairs:
From the 1970s onwards the developed world has seen persistent structural deficits and an associated increase in government debt to levels previously only experienced after wars. At the same time bond investors who were burned by high inflation now punish governments by imposing a high risk premium. This combination has reduced the potency of fiscal policy as a reflationary weapon. Hence the slow recovery from the recession of the 1990s, which caught many forecasters on the wrong foot.
In effect, we have returned to the pattern of the 19th century, where the public sector was too small to permit active fiscal management and monetary policy was dictated by the requirements of the gold standard. As in the 19th century, cyclical turning points now seem to be dictated by banking crises and market collapses. Recessions are exacerbated by credit contraction and debt deflation. 
This analysis is somewhat overstated. The public sector today, despite the privatisation and deregulation of the past 15 years, still represents a far larger proportion of economic activity than it did in the 19th century, averaging around 50 percent of national income in the EU. The constraints of the financial markets did not prevent the US government helping to stimulate and sustain a relatively strong and prolonged recovery from the slump of the early 1990s. Nevertheless, in the rest of the advanced capitalist world, the present decade has seen, not stagflation, but strongly deflationary tendencies.
The Maastricht convergence criteria are the particular form in which these tendencies are expressed in the EU. If they were not there, the demands to reduce the deficit and to slash the welfare state would still be present. Moreover, global competitive pressures are in any case pushing European capitalists to rationalise and restructure at the expense of their workforces. The Financial Times explained the spectacular rise in German employment in early 1997 thus: ‘While the government has made slow progress pushing through structural reforms to meet the challenge of globalization, German businesses have responded swiftly and ruthlessly to pare high production costs. Hardly a day passes without some company announcing job losses’. 
The fact that austerity measures and other attacks on the working class would come even if the Maastricht Treaty had never been signed leads the French far left organisation Lutte Ouvrière (LO) to adopt an attitude of indifference towards EMU. Its English language publication declares:
Revolutionaries have no reason to campaign either for this imperialist Europe or against it, particularly in the name of retaining the present status quo with all its paraphernalia. The working class has nothing more to fear from an imperialist European Union than from an imperialist Britain – but in both cases it has no choice but to fight the imperialism of the capitalist class. 
This stance echoes the abstract sectarianism which led LO to refuse to participate in the great French anti-racist and anti-fascist mobilisations of early 1997 on the grounds that their organisers were reformists who didn’t understand that the only way to get rid of racism and fascism is to overthrow capitalism.  The fact the capitalist offensive can come in various forms does not mean one can be indifferent to the actual form it takes here and now.
Preparations for EMU have provided the basis for a Europe-wide austerity drive which produced measures like the Juppé plan of November 1995, an attack on the French social security system that provoked the biggest wave of mass strikes France has seen since May-June 1968.  This is not an issue towards which revolutionary socialists can remain indifferent. We have to stand clearly in opposition to EMU and the single currency, while firmly criticising the nationalism and chauvinism of the Eurosceptics and their reformist allies, against the bosses’ Europe and for a workers’ Europe.
The drive towards the euro is beginning feed into the atmosphere of class polarisation which has spread throughout Continental Europe in the mid-1990s. The efforts of the Kohl government and its big business backers to increase the international competitiveness of German capitalism by attacking the gains of the organised working class has provoked bitter resistance. In September 1996 the ruling conservative-liberal coalition forced through the Bundestag a package of cuts including a reduction of sick pay to 80 percent of normal earnings. West German workers won the right to 90 percent, later 100 percent, sick pay as a result of a 114 day strike by steel workers in 1956–1957.
This move gave the green light to an aggressive group of employers led by Jürgen Schrempp, boss of Daimler-Benz. Schrempp had been pushing for a style of management much more like that practised by British and American capitalism involving the globalisation of investments and the maximisation of ‘shareholder value’ (i.e. short term profits). He rammed through the cut in sick pay straightaway (Kohl had promised change would apply only to new contracts). This move provoked a fierce reaction from the giant engineering union IG Metall. A wave of strikes centred on Daimler’s Bremen works forced the bosses to back down. The confrontation showed both the sheer strength of the German working class and the increasing determination of big capital to restructure the economy as a means of forcing up profitability.
Similar confrontations were developing throughout Europe. In France, in particular, the December 1995 strikes proved to be a turning point. The struggle led to the emergence of a new layer of rank and file activists and gave confidence to the wider working class in the face of the further assaults mounted by the Juppé government and the employers. In April 1997 the French daily Libération reported under the headline Social Conflicts: A Whiff of Gunpowder:
At the end of a hot social week, the bank workers were called today to stop working and join the ranks of the malcontents. The junior doctors are on strike, the employees of the former Air Inter are stopping work, the workers of Renault are supporting their Belgian colleagues with work stoppages, the Post Office is disrupted, the Paris airports have seized up. The white collar workers of Alcatel at Lannion are burning wooden fencing in front of their factory. The Merit knitting and dye works at Saint-Chamond is blockaded. The GAN [insurance workers] are demonstrating ... Strikes … are blossoming like mushrooms in the thunderstorm of the crisis. 
Just as Tony Blair declared the struggle between workers and bosses dead, social division – or la fracture sociale, as it is known in France – is widening on the continent. Some of the resulting struggles find European workers identifying a common class interest across national frontiers. In March 1997 the French car multinational Renault announced that it was shutting down its works at Vilvoorde in Belgium at the price of over 3,000 jobs. Some 20,000 car workers reacted by going on strike across Europe – in France, Belgium and Spain. Libération called it ‘the day of the Eurostrike’.  On 16 March more than 70,000 demonstrators – Flemish, Walloon, French, Italian and Dutch trade unionists – marched through Brussels in support of the Vilvoorde workers in what Libération described as the ‘first demonstration in favour of a social Europe’. 
The interweaving of the drive for the single currency with this developing social crisis began to cause divisions within the previously strongly pro-European social democratic parties. In Germany, Gerhard Schröder, the SPD right’s challenger for the chancellorship, and Kurt Wiesehügel, leader of the IG Bau building workers’ union, called for a delay in the introduction of the euro. In France, Lionel Jospin, leader of the Socialist Party, which under Mitterrand and Delors had laid the foundations of Maastricht, had to bloc with the strongly anti-European Communist Party in the May-June legislative elections. As Chirac dissolved the National Assembly, Jospin declared:
If, to meet the criterion of 3 percent, which Germany very probably will not meet, it is necessary to impose on the country, with our rate of unemployment, with our weak demand and purchasing power, with our weak economic growth, a new dose of austerity, my reply is: no. No to absolute respect for the criterion of 3 percent. 
Jospin’s shift is illustrative of the intense manoeuvring among the European ruling classes in the lead-up to the euro’s introduction. His aim was less to stop EMU than to renegotiate its terms. But this stance is also indicative of the wider social polarisation to which the drive to meet the Maastricht targets is contributing. The new Labour government in Britain will, sooner or later, find itself caught up in that polarisation, and facing the workers’ struggles it produces.
1. European terminology is a nightmare. The European Economic Community was established by the Treaty of Rome in 1957. In its first few decades it was known, especially in Britain, as the Common Market. The 1985 Single European Act formally renamed it the European Community while the 1991 Maastricht Treaty included it for certain purposes in a larger European Union.
2. Quoted in D. Reynolds, Britannia Overruled (London 1991), p. 272.
3. J. Palmer, Europe without America? (Oxford 1988), pp. 190–191.
4. The Observer, 11 February 1996.
5. C Harman, The Common Market, International Socialism (old series) 49 (1971).
6. Ibid., p. 7.
7. Ibid., pp. 11, 13. This analysis is generalised and developed more systematically in C. Harman, The State and Capitalism Today, International Socialism 51 (1991).
8. A.S. Milward, The European Rescue of the Nation-State (London 1994), pp. 2–3.
9. Ibid., ch. 2.
10. Ibid., p. 167. See generally ch. 4.
11. Ibid., chs. 3 and 5.
12. See P. Anderson, Under the Sign of the Interim, London Review of Books, 4 January 1996.
13. Quoted in B. Connolly, The Rotten Heart of Europe (London 1996), p. 7.
14. A.S. Milward, op. cit., pp. 196–226 (quotation from p. 198).
15. Ibid., p. 122.
16. Ibid., p. 427.
17. B. Connolly, op. cit., p. 33. Connolly’s insider’s history of the ERM is wildly biased: its author is a fanatically Eurosceptic Thatcherite who was sacked from his senior post in the European Commission for writing it. Nevertheless, the book’s combination of inside information and rigorous economic analysis makes it required reading for those who want to understand the real workings of the EU.
18. Financial Times, 6 October 1989.
19. Ibid., 30 November 1989.
20. Quoted in T.G. Ash, In Europe’s Name (London 1994), p. 87: (emphasis in original). [Note by ETOL: No emphasis is indicated in the printed version of the article]
21. Financial Times, 23 September 1992.
22. Report on Economic and Monetary Union in the European Union, extracts in Financial Times, 18 April 1989.
23. See the discussion of the Maastricht deal. ibid., ch 9.
24. See L. German, The Balkan War, International Socialism 69 (1995), and J. Petras and S. Vieux, Bosnia and the Revival of US Hegemony, New Left Review 218 (1996).
25. See A. Callinicos, Marxism and Imperialism Today, in A. Callinicos et al., Marxism and the New Imperialism (London 1994), pp. 56–59.
26. Financial Times, 20 April 1994.
27. See, for example, Can Europe Compete?, a series of features in the Financial Times, commencing 24 February 1994.
28. See, on the general background, A. Callinicos, Crisis and Class Struggle in Europe Today, International Socialism 63 (1994), pp. 14–21, 31–33.
29. B. Connolly, op. cit., especially chs. 7 and 12.
30. Quoted in A.S. Milward, op. cit., p. 354.
31. See D. Reynolds, op. cit., chs. 7, 8 and 9.
32. Quoted in P. Stephens, Politics and the Pound (London 1997), p. 6.
33. See D. Reynolds, op. cit., pp. 267–270.
34. J. Redwood, Our Currency, Our Country (London 1997), p. 58–59.
35. Succinct overviews of monetarism are to be found in I. Trevithick, Inflation (Harmondsworth 1976), and S. Brittan, How to End the ‘Monetarist’ Controversy (London 1982).
36. S. Brittan, ibid., p. 29.
37. Lord Kaldor, Memorandum of Evidence, Treasury and Civil Service Committee: Memoranda on Monetary Policy (London 1980), p. 95. See also M. Friedman, Response to the Questionnaire on Monetary Policy, ibid.
38. S. Brittan, op. cit., p. 26.
39. For a detailed critical analysis of the Tories’ economic record after 1979, see P. Green, British Capitalism and the Thatcher Years, International Socialism 35 (1987).
40. N Lawson, The View from No. 11 (London 1992), p. 67.
41. N. Lawson, The New Conservatism (1980), annexe I, ibid., p. 1042.
42. Quoted in P. Stephens, op. cit., p. 50. Stephens’s book gives a detailed account of the developing divisions within the Thatcher and Major governments on Europe and the pound.
43. Quoted ibid., p. 109.
44. J. Redwood, op. cit., pp. 46–50.
45. Quoted in P. Stephens, op. cit., p. 93.
46. A. Watkins, A Conservative Coup (London 1992).
47. P Anderson, English Questions (London 1992), pp. 302–303. Connolly offers a similar interpretation, though he casts Delors as the arch-villain in a conspiracy involving Tory ‘Eurofanatics, and their allies in Brussels, Strasbourg, Bonn, and Rome, as well as in the CBI, the bulk of the British media, and the Labour, Liberal and Socialist Workers parties’(!): op. cit., pp. 100–107 (quotation from p. 100).
48. Financial Times, 12 December 1991.
49. P. Stephens, op. cit., p. 197.
50. For accounts of the process leading to Black Wednesday, see ibid., chs 8–10, and B. Connolly, op. cit., ch. 6.
51. Financial Times, 25 May 1996.
52. P Stephens, op. cit., pp. 330–344.
53. The Daily Telegraph, 30 April 1997.
54. For a succinct analysis of these turning points see A. Gamble, Britain in Decline (London 1981), ch. 2.
55. R.F. Mackay, Balfour: Intellectual Statesman (Oxford 1985), chs. 7–11, and A Sykes, Tariff Reform in British Politics, 1903–13 (Oxford 1979).
56. Financial Times, 8 April 1997.
57. Report on Britain, Financial Times, 12 June 1996.
58. Ibid., 30 January 1997.
59. The Observer, 20 April 1997.
60. Financial Times, 11 November 1996.
62. Financial Times, 10 March 1997.
63. Quoted in P. Stephens, op. cit., p. 351.
64. Financial Times, 11 March 1997.
65. Financial Times, 23 April 1997.
66. Report on Britain, Financial Times, 12 June 1996.
67. P. Hirst and G. Thompson, Globalization in Question (Oxford 1996), Tables 4.1 and 4.2, p. 96. See also C. Harman, Globalization, International Socialism 73 (1996).
68. P Stephens, op. cit., pp. 352–353.
69. Financial Times, 7 April 1997.
70. Financial Times, 15 April 1997.
71. Financial Times, 7 May 1997.
72. M. Sapin, Il Nous à Appris a Ne Pas Subir l’Histoire, Telérama, 12 March 1997, p. 14.
73. J. Palmer, The Case for Joining, in M. Kettle et al., The Single Currency: Should Britain Join? (London 1997), p. 15.
74. W. Hutton, The State to Come (London 1997), p. 94.
75. B. Connolly, op. cit., analyses these and other perverse effects on the ERM.
76. L. Lindsey, An American View of EMU, Financial Times, 29 November 1996.
77. Financial Times, 14 October 1996.
78. W Keegan, Why the Swiss Are Laughing All the Way to the Franc, The Observer, 3 March 1996.
79. J Redwood, op. cit., ch 12.
80. Financial Times, 12 December 1991.
81. Financial Times, 3 February 1997.
82. Financial Times, 5 and 6 February 1997.
83. Financial Times, 7 March 1997.
84. The Guardian, 28 April 1997.
85. Financial Times, 7 April 1997.
86. Financial Times, 30 April 1997.
87. Financial Times, 25 February 1997.
88. W. Hutton, op. cit., p. 96.
89. J. Grahl and P. Teague, The Cost of Neo-Liberal Europe, New Left Review 174 (1989).
90. Financial Times, 27 March 1997.
91. The Guardian, 22 April 1997. Perry Anderson, while conceding that, on the face of it, ‘Maastricht leads to an obliteration of what is left of the Keynesian legacy … and most of the distinctive gains of the West European labour movement associated with it,’ nevertheless suggests that Delors might have been making ‘a hidden gamble’ at the time the treaty was signed that the ‘drastic consequences’ of EMU would produce ‘overwhelming pressure … to create a European political authority capable of reregulating what the single currency and single-minded bank have deregulated,’ The Europe to Come, London Review of Books, 25 January 1996, p. 5. This speculation attributes to Delors a Machiavellian deviousness and socialist commitment exceeding that ascribed to him even by the more paranoid Eurosceptics.
92. Financial Times, 9 December 1995.
93. Financial Times, 13 January 1997.
94. Financial Times, 23 December 1996.
95. Financial Times, 7 February 1997.
96. The Working Class Has Nothing to Fear From European Integration, Class Struggle 14, January–February 1997, p. 11.
97. Les Manifestations contre la Loi Debré, Lutte Ouvrière, 28 February 1997, and A. Laguiller, Pour Faire Echec Au Front National Il Faut Faire Payer La Crise au Patronat, Lutte Ouvrière, 4 April 1997.
98. C. Harman, France’s Hot December, International Socialism 70 (1996).
99. Libération, 4 April 1997.
100. Libération, 9 March 1997.
101. Libération, 17 March 1997.
102. Libération, 21 April 1997.
Last updated: 12.4.2012