Socialist Appeal - British section of the International Marxist Tendency

This long document by Alan Woods provides a comprehensive answer to many key questions for the European labour movement. What is Maastricht? Why are they introducing all these cuts? Would it be better without Maastricht? Will it succeed? And most important of all, how do we fight it and what is our alternative.

A fundamental change is taking place on a world scale. In the midst of a boom, we are witnessing an unprecedented onslaught on living standards in every continent. In the USA, Japan and Europe, the ruling class is attempting to put the clock back, cutting state expenditure, dismantling the welfare state, and destroying all the gains of the past fifty years. This is not an accident. Marxists have explained the reasons many times. In the past period the capitalist system has gone beyond its limits. Now it is compelled to retreat, relinquishing the old Keynesian policies of state intervention and managed capitalism. The same economists who previously saw the state as the source of their salvation now regard it as the source of all their ills. They have belatedly understood what the Marxists pointed out decades ago - that, on a capitalist basis, the policy of deficit financing would eventually lead to an explosion of inflation.

The old discredited Keynesian methods everywhere led to huge deficits in public spending. The capitalists and their governments know that a continuation of such methods would lead to two things: uncontrolled inflation and an explosion of the class struggle. That is why everywhere they are obsessed with the idea of cutting state expenditure. From a capitalist point of view, they have no alternative. At the present time, the economists have the delusion that, by keeping a low rate of growth and controlling inflation they can avoid the normal capitalist economic cycle of booms and slumps. This is a futile dream. At the present time, in most of the advanced capitalist countries, inflation has been relatively low (prices continue to increase, but at a slower pace). This is mainly because demand is being depressed by the pressure on wages. Some prices have actually fallen (though this is the exception): steel prices are falling at a rate of 2 percent a year, and mobile phone prices by an astonishing 20 percent a year. This is only partly due to the cheapening of commodities through the advance of technique and productivity.

The main reason is the absence of demand and the appearance of over capacity in a whole series of sectors. With cuts in living standards, unemployment and stagnant demand, the capitalists cannot increase the prices of their goods as would normally occur in a boom. This is merely another expression of the fact that the present boom is being achieved at the expense of the working class, by means of increased pressure on the nerves and muscles of the worker to squeeze the last ounce of surplus value and so boost productivity and profit margins. Cause becomes effect and vice versa. Because they cannot raise prices to boost profit margins, the bosses are compelled to put even greater pressure on the workers to reduce the costs of production. This merciless pressure on the nerves and muscles of the workers to squeeze the last ounce of surplus value is one of the key features of the present boom on a world scale. In the words of the investment firm J.P. Morgan, "There's an explosion of productivity gains going on." (The Economist, 18/1/97.)

However, this is not at all a progressive development. In the past. the capitalist system played a relatively progressive role in developing the means of production in pursuit of profit. As the repositories of surplus value, the capitalists invested in new machinery, constantly revolutionising the productive forces. This was the main way in which they increased the productivity of labour. But now this has changed. They no longer invest in the productive forces to the same degree as they did in the past, preferring to dedicate themselves to the pursuit of easy profits through gambling on the stock exchange, derivatives and all kinds of speculation. The current spate of take-overs has led to an unprecedented acceleration of the concentration of capital and monopolisation, as predicted by Marx, and steadfastly denied by the bourgeois economists. In the majority of cases, these take-overs are not accompanied by new investment but, on the contrary, by massive asset-stripping, closures and sackings. The giant monopolies enrich themselves without the painful necessity of developing production and taking risks. They plunder the state through the swindle of privatisation where public utilities are snapped up at knock-down prices and turned into private monopolies. This madness is not confined to the advanced capitalist countries but has been forcibly extended to the Third World.

Far from abolishing the economic cycle, all these developments will merely give it a more severe and convulsive character. By cutting state expenditure and holding down wages, they simultaneously cut the domestic market, thus creating new contradictions. Each capitalist class seeks a way out by exporting. But this cannot provide a real solution, since all cannot export. Somebody must import! The struggle to conquer even the tiniest market space has assumed an obsessive and feverish character. The big economic powers are scrambling to grab markets in East Asia. But there are not enough of them for all. Moreover, the boom in Asia is already running out of steam, and new Asian producers are themselves beginning to export cheap goods onto world markets. The trade surplus of China with the USA will soon exceed that of Japan.

Despite all the talk about free trade and liberalisation, there is a fierce struggle for markets between all the main capitalist nations. There is a clear tendency for the world to break up into trading blocks, dominated respectively by the USA, Germany and Japan. Each one jealously tries to protect its own markets and spheres of influence, while demanding more access to those of its rivals.

In the period of general capitalist upswing that followed the second world war (from 1948 to 1974 approximately) the rapid growth of world trade and the world division of labour played an important role in stimulating investment and growth. But this is no longer the case. In the recent period, we have seen growths in world trade of 8 and 9 percent, with no noticeable effect on economic growth which remained stuck at miserable levels of 2-3 per cent. This fact alone serves to expose the fundamental difference with the period of upswing. Moreover, in the last two years world trade has again begun to decline, to 4 percent and now to 2.5 percent.

Despite the official optimism, the present boom is very fragile and unstable. The persistence of big deficits everywhere means that they are still worried about the underlying rate of inflation. If the economy were really to take off, they would be faced immediately with a new outbreak of inflation. That is why Alan Greenspan of the US Fed has warned of the possibility of a rise in interest rates in the USA in the coming period as a means of damping down inflation. However, a rise in interest rates would reduce profit margins and could provoke a fall in investment and precipitate a recession. The USA was the first to enter the present boom, and may be the first to go into recession. The boom in the USA has already lasted over six years - quite a long time compared to the post-war average. It will certainly begin to run out of steam in the next one or two years. A downturn in the US will in turn have a big effect in the rest of the world.

This coincides with the most serious economic crisis in Japan since the second world war. The Japanese economy has in effect been in recession for the past five years. Under the pressure of the USA and the EU, who wanted Japan to reflate in order to create markets for their own exports, the Japanese were the only ones to attempt to resort to Keynesian deficit financing to revive the economy. Over the past few years, billions of dollars have been pumped into the Japanese economy by the state. This has had only a marginal effect in boosting growth, but has meant that Japan now has a huge public deficit. In fact, if we include the debts of local administrations, it now has a bigger deficit than Italy. It is by no means certain that the Japanese economy will sustain this growth, and a recession in the USA would have a most serious effect in Japan, which is struggling to carve out spheres of influence in Asia.

As to Europe, the situation is characterised by low rates of growth (around 2 percent), high budget deficits and public indebtedness and unprecedentedly high rates of unemployment for what is supposed to be a boom. All the governments are busy slashing state expenditure. But this will make it impossible either to achieve high rates of growth or reduce unemployment. On the contrary. These policies will only serve to cut the market and deepen the slump, once it comes. At the same time, there has been an enormous increase in social contradictions, a widening of the gap between rich and poor, and the beginnings of a profound change in the consciousness of all classes. We are thus entering into an entirely new period in history, a period far more similar to the period between the two world wars - a period of convulsions and crises. By going back to the classical model of capitalism, the bourgeoisie will make this inevitable. At the end of the day, like conditions will produce like results. The mass strikes and demonstrations in France, Germany, Italy and Belgium in the recent period are a warning of things to come. Every one of the European countries is faced with a crisis in the economic, social and political plane. It is in this context that we must see the question of European unity and the debate over Maastricht and monetary union.

The decline of Europe

The Common Market was established as an attempt by the European bourgeois to overcome the narrow confines of the nation state, with its limited market. Historically the nation state played an essential role in developing capitalism, which served in the first instance to protect and develop the home market. However, with the development of communications, technique, science, multinational companies, and the world market, the productive forces came into conflict with the limitation of national state boundaries as well as private ownership of the means of production. Capitalism and the nation state from being a source of enormous progress became a colossal fetter and impediment to the harmonious development of production. This contradiction reflected itself in the world wars of 1914-18 and 1939-45 and the crisis of the inter-war period.

The development of world trade in the post war period allowed the capitalist system to overcome this contradiction, at any rate partially and for a temporary period. The separate national markets of Britain, France, Germany, and the others, were far too small for the giant monopolies. The Common Market was created in an attempt to overcome this limitation. The big monopolies looked forward to an unrestricted regional market of hundreds of millions, and beyond that to the world market. On the basis of the economic upswing, the European capitalists were largely successful in establishing this glorified customs union, where the abolition of tariffs between the countries of the Common Market and a common tariff with the rest of the world served to develop and stimulate world trade.

In the Communist Manifesto, written in 1847, Marx and Engels showed that capitalism, which first arises in the form of the nation state, inevitably creates a world market. The crushing domination of the world market is, in fact, the most decisive feature of the epoch in which we live. No country, no matter how big and powerful, can escape from the pull of the world market. The total failure of "socialism in one country" in Russia and China is sufficient proof of this assertion. So is the fact that both the major wars of the 20th century were fought out on a world scale and were wars for world domination.

In a brilliant article written in 1924, Leon Trotsky predicted the decline of Europe. He said that the centre of gravity of world history would pass to the Pacific, and that the Mediterranean Sea (which in Latin signifies "centre of the earth") would be relegated to an unimportant lake. In reality, this has already occurred. The decline of Europe, which began one hundred years ago, was enormously accelerated in the two world wars, but particularly in the period after 1945. Europe's decline was accompanied by the irresistible rise of the United States. Europe, and particularly Britain, was the real loser in both world wars, and the USA was the real victor. This merely reflected the real balance of forces. The United States began to flex its muscles as a world power in 1898 with the war with Spain which effectively gave it possession of Cuba. But the most decisive turning points were in the first and second world wars, when US imperialism, having remained on the sidelines long enough to weaken its European rivals, Britain and France, finally threw its weight into the struggle against Germany and emerged as the supreme arbiter of the destinies of Europe.

This is not the first time in history that formerly powerful states were compelled to bow the knee to more powerful neighbours. The Greek city states of Athens and Sparta once played a dominant role, but exhausted themselves through wars, and were finally forced to accept the domination of Macedonia and then Rome. They were too small to continue to play an independent role. After 1945, Europe lay in ashes, weak, divided and bled white by the conflict. By contrast, American industry was intact, and two-thirds of all the world's gold reserves were in Fort Knox. Britain, also severely battered, was still sufficiently strong to occupy for a time the role of second fiddle to the transatlantic giant, with the pound sterling as a reserve currency to the dollar. But in practice, the Lilliputian powers of Europe could not maintain themselves against the might of US imperialism on the one hand and Stalinist Russia on the other. In contrast to the situation after world war one, the threat of revolution and the need to halt the advance of the USSR, forced America to underwrite European capitalism with large amounts of aid and investment under the Marshall Plan. In effect, with the Marshall Plan, Europe was placed on American rations.

This relative weakness was the main factor that led to the setting up of the European Common Market. While the myopic British ruling class clung to its dreams of imperial power, the French and German ruling classes were forced to come to terms with the new situation. Germany, in particular, emerged from the war severely weakened, with the loss of a big part of its territory and the massive destruction of its industries. Another reason for the creation of this European bloc was as a political, diplomatic and economic counterweight against the USA and Japan. On their own, the separate European powers were not able to compete effectively with the economic domination of America and Japan. So here we had a contradictory development - on the one hand, a massive development of world trade and the lowering of tariff barriers, and on the other the emergence of huge trading blocs that act as new barriers to world trade.

The French ruling class, having suffered defeat at the hands of Germany in three wars in the space of less than a hundred years (1870-71, 1914-18 and 1939-45), was obsessed with the idea of avoiding a new war with Germany by tying its neighbour to itself, first with the European Coal and Steel Agreement, then in the EEC. Given the weakness of Germany, they imagined they could become the real leaders of Europe, although things did not turn out as they had planned. Even when Germany rebuilt a powerful industrial base, the French ruling class still imagined it could dominate Europe, arriving at a kind of condominium, in which Germany would have economic supremacy, but France would have the political and military leadership. This is one of the main reasons why France insisted on keeping control of its own nuclear weapons. In practice, however, the Paris-Bonn axis is a fig-leaf that barely conceals the crushing domination of Germany.

The defeats of French imperialism in Indo-China and Algeria forced Paris to accept the loss of its status as an imperial power and dedicate its energies to reinforcing its role in Europe, while developing industry. This was possible on the basis of the post-war economic upswing. The result was the transformation of France from a formerly mainly agricultural and rentier economy into an industrial power, and in the process enormously strengthening the working class. The same process of the whittling away of the peasantry and the growth of the proletariat took place in Italy, Spain and the other European states.

Although the broad analysis made by the Marxists has been proved to be correct, the growth of the Common Market from six countries to fifteen, and the integration of their economies has gone far further than we originally thought. They were able to do this because of the development of world trade, and the general upswing in world capitalism in the period 1948-74, from which they all benefited. While there was economic expansion, they were able temporarily to develop the economy. With an abundance of markets, full employment and a growth rate of 5-6 percent a year, the different capitalist powers of Europe could afford to reach a gentleman's agreement dividing up a growing market among each other with a minimum of fuss. True, De Gaulle vetoed Britain's first application to join the EEC, partly because he was suspicious that Britain would be a Trojan Horse for American interests in Europe, but mainly because France did not want any rival to her pretended position as co-ruler of Europe together with Germany. The short-sighted British ruling class, which had refused to join with Germany and France in the beginning, preferring to aim at an imaginary world role, paid for its stupidity by seeing its power dwindle rapidly to next to nothing while France, Germany and even formerly backward Italy overtook her.

All this was predicated on a high rate of economic growth. This gave rise to a significant development of the productive forces for a time. In this context, the closer integration of the economies of the main European powers was in the interests of all of them. Finally, Britain scraped in, followed by most of the other former members of EFTA (the European Free Trade Agreement) the trading bloc of the weaker European states, put together by Britain as an unsuccessful attempt to counter the EEC. The illusion was created of an irresistible movement in the direction of a united Europe. Nevertheless, the internal contradictions remain and will inevitably emerge in a period of economic downswing. As we have already seen over the past period, the vested national interests of the different European powers have come to the fore. The crisis of the EMS in 1992 indicated the fragile basis of this "unity". They are now at loggerheads over which countries should participate in the single currency, the terms and timetable, and which new countries should be allowed to join the EU in the future.

France and Germany

In the first instance, the drawing together of Germany and France and the other countries of the EEC was an attempt to defend themselves against the USA and Russia. In the epoch of the world economy, the European national economies were too small to compete on their own. It was necessary to pool resources and arrive at an agreement to share a common market, first in steel and coal, then in other products. This was a tacit recognition of the fact that under modern conditions, the nation state has turned into a reactionary fetter on the development of the productive forces. It is too narrow to contain the colossal productive potential of modern industry. From any rational point of view the case for European unity is unanswerable. But on a capitalist basis, genuine unity is impossible. As Lenin explained long ago, a capitalist united states of Europe is a reactionary utopia - that is to say, it cannot be achieved, and if it could be achieved, it would not be in the interests of the working people.

As a matter of fact, the only time a united capitalist Europe was achieved was under Hitler. The Nazis succeeded temporarily in "uniting" continental Europe under German domination. The reactionary nature of such a "union" requires no further comment. But it must be understood that under capitalism, the antagonism between the different ruling classes is such that any union must necessarily mean the domination of one power over the others. We see the elements of this at the present time. Over a period of decades, Germany succeeded in achieving by economic means what it failed to achieve in two world wars - uniting Europe under the domination of German imperialism. This is the essential thing to grasp about the so-called European Union. Behind the façade of unity, all the old contradictions between the national states continue to exist and in fact are intensifying.

The EU is in fact a nominal customs union for the defence of European capitalism against the USA and Japan. Internally it is a partially free market which works within certain limits, as long as the vital interests of the member states (particularly the key players) are not affected, but in which each one of the ruling classes strives for its own advantage. Under conditions of upswing, they were able to hold together and even achieve greater integration. But under conditions of sluggish growth, stagnant demand and high unemployment as at the moment - and still more in a serious recession - all the national contradictions will be exacerbated, beginning with France and Germany.

The decisive turning-point was the unification of Germany. At a stroke, a new and powerful state of 80 million inhabitants was created, situated in the heart of Europe, with a mighty industrial base and a formidable military potential. Here it is necessary to cut through the fog of official propaganda and diplomatic lies, and lay bare the real relationships. Though German unification was greeted in Paris and London with polite applause and handshakes, it undoubtedly filled the British and French ruling circles with apprehension. Even before this, Germany was clearly the dominant power in Europe, but now the immense potential of a united Germany threatened to overwhelm the others entirely.

It is surprising to what extent the foreign policy of a given state remains constant. This peculiarity arises from the fact that through all the changes of government, the state apparatus with its caste of conservative Mandarins remains intact. The permanent bureaucracy tends to preserve an inertia built up over a long period, generations, maybe centuries. Thus, the main strategic objectives of German foreign policy in Central and Eastern Europe known as the Drang nach Osten (the "thrust to the East") has remained basically the same for a hundred years. Not satisfied with its economic domination of Western Europe, German imperialism wants to recover its traditional spheres of influence in Eastern Europe and the Balkans. This is an alarming prospect for the other European capitalists.

The combined economies of Germany, the Czech Republic, Poland and Hungary would constitute a market of 140 million people, with a total GDP of $2.4 trillion to start with. From a socialist point of view, the uniting of these economies would be an entirely rational development, as part of the Socialist United States of Europe. But on a capitalist basis it is a finished recipe for conflict. The combination of German industry, finance and technique with the large pool of skilled cheap labour in Eastern Europe would pose a serious threat to Germany's EU "partners". In an article entitled "Germany's Big Backyard", the American magazine Business Week (3/2/97) exposes the growing concern of the other European powers at the rise of German influence in the East:

"In fact, Central Europe has a distinct German accent. Cautiously, Europe's economic powerhouse has returned to the region it once traversed in tanks. It has leapfrogged Austria and the US to become Central Europe's biggest investor. Joint ventures bridge its borders, more than 6,000 in Hungary alone. Germany is Central Europe's most generous aid donor and its mightiest trading partner, accounting for more than half of the EU's total trade with the 12 eastern countries applying to join the union. 'Germany is building a region of co-prosperity,' says James Lister-Cheese, East Europe specialist at Independent Strategy, a London-based economic forecasting firm."

And it continues:

"But in reality, Germany is increasingly setting the terms for the continent's future shape. 'Germany will be more central to the new geography of Europe,' says Dominique Moïsi, deputy director of the French Institute of International Relations. Privately, some French politicians are concerned that a powerful German bloc within a bigger EU will neutralise France's influence.

"Some worry that Germany is substituting economic and political dominance for its former military supremacy. Sir James Goldsmith has made fear of a German-inspired federation of European nations a linchpin of his new Referendum Party campaign in Britain. His rhetoric suggests that if Britain joins monetary union, it would effectively be ceding sovereignty directly to Helmut Kohl, by way of the evil EU bureaucrats in Brussels."

Even if the move towards monetary union is completed, it would not signify any lessening of the tensions between the European states. On the contrary. It would exacerbate them. This fact is well understood by the most intelligent capitalist observers, as the following quote shows:

"The real problem is that the D-Mark itself looks overvalued against the non-European currencies, including the dollar. If the franc is overvalued it is because it has been pulled up by the D-Mark, It is hardly likely that in these circumstances the German government would tolerate a major French unilateral devaluation. It found the much more justifiable Italian and British depreciations hard enough to take. If a future French government were to follow the advice of so many English language financial writers and attempt a unilateral devaluation, the damage would not be limited to EMU. There would be a risk of international currency warfare of a kind not seen since the second world war." (Financial Times, 12/9/96)

"Fortress Europe"

Far from being a step in the direction of free trade, the EU is a regional trading block directed, on the one hand, against the USA and Japan, on the other hand it is an alliance of imperialist powers dedicated to the collective exploitation of the Third World. This neo-colonialist mode of exploitation is no less predatory than the overt plunder of the colonies realised in the past on the basis of direct military rule. In general, the same old colonies in Africa, Asia and the Caribbean are being sucked dry by the same old bloodsuckers. The only difference is that this robbery is effected "legally" through the mechanism of world trade by which the advanced capitalist countries of Europe exercise a joint domination of the ex-colonies, and are thereby spared the cost of direct rule, while continuing to extract huge surplus profits by exchanging more labour for less.

Europe indeed represents a formidable trading block, despite its relative decline. In fact, with an internal market worth approximately $8.4 trillion, it is actually 20 percent bigger than that of the USA. The main aim of the European capitalists is precisely to club together to try to protect this market against the competition of American and Japanese products. This engenders the wrath of the American capitalists who long ago dubbed the EU "Fortress Europe", a description that is not far from the mark. Given the lack of demand in Europe (Business Week recently wrote about a "European recovery often indistinguishable from a recession."), exporting to the USA has become an essential lifeline. Given the rising value of the dollar and a falling D-mark, this poses a serious threat to American business interests. On the other hand, a recession in the USA will hit Europe hard, and even send it into a deep crisis. The present already high rates of unemployment will soar, and all the contradictions will be sharpened.

In one famous aside, Henry Kissinger was quoted as saying: "When I want to speak to Europe, whom do I call?" The formation of the EU makes it possible for the ruling classes of Europe to "speak with one voice" up to a point (at least in theory). Europe has clashed with Washington over many issues, most recently the Helms-Burton and D'Amato Acts which impose sanctions on non-US companies trading with Cuba, Iran or Libya. The tensions between Europe and the USA have not disappeared, and will inevitably grow in the coming period. For that reason, it is unlikely that the EU will formally break up. The European capitalists will want to hang together, in order not to end up hanging separately.

That said, the contradictions between the European states make it impossible for them even to agree on a common foreign policy. The growing contradictions between the interests of France and Germany are manifested ever more clearly. When Germany needed extra funds to finance the absorption of East Germany, it did not hesitate to raise interest rates without consulting Paris or any of its other partners, although with high rates of unemployment, a rise in interest rates was the last thing France needed. In the field of foreign policy, German intrigues played a big role in encouraging Croatia to declare its independence, thus provoking the break-up of Yugoslavia. This was completely opposed to French foreign policy, but Paris was forced not only to accept it, but to send troops to clear up the mess afterwards, while Germany sat with its arms folded. The main sphere of influence of French imperialism is still in North Africa and the Mediterranean, whereas Germany looks East, and aspires to include its new client states in Eastern Europe in the EU - a move which would be a direct threat to the future of the Common Agricultural Policy, which is vital to French agricultural interests.

In March of this year, they failed to agree on a policy in relation to Albania. Italy and Greece, with the backing of Denmark and France, wanted to send a large European force to Albania. But a majority of countries, led by Britain, Germany and Sweden, opposed it. Eventually, the Italians and Greeks sent troops anyway. But the others stayed well out of it.

The recent visit of President Clinton to London and his well-publicised "friendship" with Tony Blair and the alleged revival of the "special relationship" with Britain is also no accident. Washington would like a reliable ally inside the EU, and sees Britain as the most likely - if not the only - applicant for the job. It is precisely this "relationship" with the USA which traditionally made France suspicious of Britain, which will not prevent them drawing closer as allies against Germany in the next period.

In an attempt to frighten the opponents of EMU into line, Kohl even raised the spectre of a future war in Europe: "The policy of European integration," he said, "is in reality a question of war and peace in the 21st century." (The Independent 3/2/96). Kohl demagogically appeals to "internationalism": "We have no desire to return to the nation state of old. It cannot solve the great problems of the 21st century. Nationalism has brought great suffering to our continent." (ibid.) What he means is that Britain, France and all the others should set aside their nationalism and humbly accept the leadership of German capitalism.

However, the others have a somewhat different view! A diametrically opposite view was put forward in a recent book (The Rotten Heart of Europe) written by Bernard Connolly, a senior Brussels bureaucrat in charge of putting EMU into practice who warns that the attempt to move to monetary union can lead to a sharpening of national conflict in Europe and even war. In highly lurid language, Connolly warns: "Still the cynicism of the French technocrats, traitors to their own people, and the arrogant, overbearing, menacing zeal of the German federalists, not to mention the grandiose ambitions of Helmut Kohl, remain on collision course. The result of this clash of forces cannot yet be predicted with any precision. But it will be extremely unpleasant for the peoples of Europe." Connolly's apocalyptic turn of phrase is exaggerated, but as a high placed official, there is no doubt that he is saying out loud what others are thinking. In the corridors of power in London and Paris, there is persistent murmuring about the intentions of Germany. The clash of interest exists and will get even more bitter as the contradictions of EMU unfold in practice.

In the last half century, the idea of war has receded in the consciousness of the masses in Europe. Yet a hundred years ago the anarchist Kropotkin pointed out that "war is the natural condition of Europe." And historically that was true. Only the peculiar balance of forces that arose from the second world war meant that war - at least war between the major powers - was off the agenda. Nevertheless, we are now entering into a new and troubled period in history. The tensions that now exist between the United States, Japan and Europe in another period would have already led to war. But with the existence of nuclear weapons, and also the horrific array of other barbarous means of destruction - chemical and bacteriological arms - all-out war between the major powers would signify mutual annihilation, or at least a price so terrible as to make war an unattractive proposition, except to ignorant and unbalanced generals.

Nevertheless, the war in Bosnia was a reminder of the kind of nightmare scenario that can occur if the working class fails in its historic mission to change society. Kohl's warnings in that sense have a certain symptomatic significance. In the convulsive period that lies ahead, the European workers will have many opportunities to transform society. But if they fail, at a certain stage there can be a movement in the direction of reaction. It is most unlikely that this could take the form of a classical fascist regime as in the 1920s and 30s. The ruling class burned its fingers badly with Hitler and Mussolini. They will not surrender state power to a fascist madman. But it is quite possible that they will try to move in the direction of a Bonapartist regime - a military police dictatorship like that of Pinochet in Chile. Under modern conditions, such a regime can have a ferocious character. Under conditions of extreme crisis, it cannot even be theoretically excluded that this might lead to war in Europe, although such a development is unlikely. Nevertheless, the fact that the possibility was publicly raised by Kohl and also echoed by Juppé is an indication of a profound change in the situation. Under present-day conditions not war between the European states, but class war in every country of Europe is the prospect that now opens up.

The Scourge of Unemployment

"The patrimony of a poor man lies in the strength and dexterity of his hands; and to hinder him from exploiting a plain violation of this most sacred property." (Adam Smith)

In Greek mythology, there was a character called Procrustes who invited his guests to sleep in a bed which had the peculiarity that it would only admit people who fitted exactly into it, and, in order to ensure that they would, its owner had the unpleasant habit of lopping off arms, legs and heads to achieve the required dimensions. The capitalist system in the present epoch is just like the bed of Procrustes. The amazing development of the productive forces made possible by the advances of industry, science and technology since the second world war has built up a colossal productive capacity. This cannot be absorbed by the existing markets. Everywhere there is too much capacity - too much steel, too many cars, too many microchips, too much food even. So why invest in creating new capacity? On the contrary. It is necessary to cut back, to close down, to cease production, even to pay people not to produce. Factories are closed down as if they were matchboxes; millions are put out of work; whole communities are laid waste. Just like the bed of Procrustes.

The original European common market was for coal and steel. The coal industry has been decimated in one country after another. Now it is the turn of steel. In 1984 there were 450,000 jobs in the European steel industry. Now there are only 250,000, and this will have to be reduced still further. There is said to be over capacity in steel. Yet steel still remains essential for building and a whole series of productive activities. From the point of view of the needs of society, there can be no question of an excess of steel. We definitely need more of it. But from the narrow standpoint of capitalist production for profit, there is definitely too much steel, and too much of many other things. This is the logic of the madhouse, but it is precisely the logic upon which the capitalist EU works, and for that very reason, it can never work in the interests of the working class.

The crisis of European capitalism is reflected in the return of organic unemployment. Despite the "recovery", over 18 million are officially unemployed in the EU, although the real figure is in the region of 30 million. Germany has the highest levels of unemployment since Hitler came to power. French unemployment is over 3 million. The wave of insecurity affects not only the workers but also the middle class, and even layers of management:

"Insecurity is sweeping through European middle-income households," writes the Wall Street Journal, "as jobs become harder to keep and even harder to find....As companies flatten their organisational charts, employers are discarding entire strata of middle-income jobs. Manufacturers are relocating more production abroad to compete in a global market full of more cheaper, more flexible rivals. Public service jobs are disappearing as governments try to trim bloated deficits and state-owned firms prepare for privatisation and new competitive challenges. Entire companies are restructuring through mergers, leaving tens of thousands of redundant workers in their wake. Age discrimination is narrowing options for millions of workers with more and more job seekers over 40 being shunted aside." (Wall Street Journal, 19/6/96).

At this moment in time, there are officially 18 million unemployed in the EU. In fact, this figure is wrong. In practice the official figures of jobless grossly understate the real position. The real figure will be at least double the official estimate. And we must bear in mind that this level of unemployment exists during a boom. In the USA, which boasts its success in the field of employment, between 1990 and 1995, the largest firms actually destroyed four million jobs (one quarter of the total). These have largely been replaced by part-time jobs, mostly poorly paid, in the service sector ("Mac Jobs"). In order to make ends meet, many US workers have to take two or three jobs, working long hours at terrible cost to their health and family life. There is enormous anxiety, stress and job insecurity at all levels.

In the last six years, Germany, France and Britain destroyed 16-17 percent of all manufacturing jobs. Some industries have been completely decimated. For example, in 1979, the German textile and leather industry employed 550,000 workers. By 1994 that had dropped to 180,000. In France, in 1982 the defence industry employed 270,000 workers. That fell to 90,000 in 1993, with another 25,000 to 50,000 further redundancies to go. (The Economist, 23/1/96.)

Permanent mass unemployment now affects all the countries of the EU. Moreover, more than 40% of the unemployed have been out of work for more than a year. It is like a terrible epidemic, and like all epidemics, it strikes at virtually all layers of society. Even white collar, skilled and professional strata that in the past thought themselves immune, have been struck down. The same WSJ article quotes Wyn Nystrom, head of the Brussels office of PCM Europe: "Cradle-to-grave employment security if history - it's gone. Uncertainty has replaced the age of entitlement. Two-thirds of today's middle management tasks in Europe will disappear."

A man or woman over 40 years old who loses a job knows that he or she is unlikely to get a proper job again. But the most devastating effects of joblessness are suffered by the youth, with all the social side-effects of drug-addiction, vandalism and crime. In Spain, almost half the under 24s are unemployed. In Italy and France, the proportion is more than one in four.

Chancellor Kohl promised to halve Germany's unemployment by the year 2000. The Swedish Social Democratic government said the same. Chirac was elected on a promise to cut French unemployment, and Aznar in Spain promised that 1997 would be a "year for jobs". Commenting on this, the Economist writes:

"So far this whirlwind of promises has reaped virtually nothing. More than 18 million people in the European Union are looking for work. Germany's unemployment stands at 4.5 million, even though its large firms are recovering. French unemployment is over 3 m. The record is dreadful: each recovery has failed to regain the ground lost to unemployment in the previous recession". (My emphasis, AW.)

Despite the promises of Goran Persson, Swedish unemployment, if you include those on retraining schemes and the like, now stands at 13.3%. Ireland, which is now being presented as a great economic success story and even as a "European tiger", has officially 11.7% unemployed. Even Holland, where unemployment is officially "only" 6.2%, this figure does not tell the whole story, since actual employment is calculated to be only 62% of the economically active population, which means that many people have dropped out of the workforce altogether. In Britain, 1 in 4 have experienced periods of unemployment since 1992. This situation, linked to very slow rates of growth, has resulted in massive debt problems and huge budget deficits.

By what means do the European capitalists propose to reduce unemployment? By slashing social benefits and unemployment pay to force the jobless to accept low-paid employment; by removing all restrictions on sacking workers {"greater labour flexibility"); by promoting part-time jobs with no protection and low wages, at the expense of real jobs. In Spain, some 30% now work in such jobs, including many young people who have been forced to take them for lack of an alternative since the 1980s. Lacking all protection, these will be the first ones to be laid off when demand slackens.

The tough Maastricht economic criteria was a recognition that if Europe continues with its present ever-growing deficits and public debt, there will be an explosion of inflation. Already public debt in Italy is over 125% of the GDP; in Belgium it is 130% of GDP; in Germany and Britain it is more than 60% of GDP. Given the slow growth rates, these debts are continuing to build up. If the European capitalists had managed to reach growth rates of 6-8% p.a., then they could have sustained their levels of state spending. But the near-recession growth figures in Europe, despite the recovery, has forced the bourgeois to adopt deflationary measures. Huge cuts are on the order of the day as each European power grapples with its budget. In reality they are trapped. If they cut state expenditure and the living standards of the working class then they cut the market, which in turn reduces growth and prepares the way for a devastating slump, possibly another 1929. They are facing an insoluble dilemma.

That is the meaning of the capitalist crisis, which the left reformists are unable to understand. They hanker after Keynesianism, of boosting public expenditure, which the capitalist system can't afford and which would lead to chronic inflation. The only option for the capitalists is to carry through cuts in living standards and the welfare state. In the coming downswing, the EU powers will find themselves enmeshed in hopeless contradictions, each one attempting to find a solution at the expense of the other. The EU will be paralysed by crisis.

Why Maastricht?

In the pages of Capital, Marx already explained that through credit capitalism goes beyond its natural limits, expanding the market in the short term, only at the cost of undermining it at a later date. In the last boom in the period 1982-90, they used credit and public spending to avoid a recession. From a capitalist point of view, this was really irresponsible. The classical policy of Keynes was to use "pump-priming" to get out of a recession. To use such measures during a boom was quite unprecedented and showed just how afraid they were of the political and social consequences of a recession. In the event, they merely succeeded in postponing the recession for two years, while making it deeper and more prolonged. Now they cannot have recourse to those methods. On the contrary. The resulting levels of indebtedness - public, private and corporate - are still causing them problems at the present time. That is why they have cat aside the mask of liberalism to reveal the real cold, rapacious mask of capitalism, under the banner of "sound finance" and "balanced budgets", which is the battle cry of Maastricht.

In their desperation to find a way out of the crisis, the bourgeois economists swing all over the place, supporting first one policy, then another. They understand nothing and foresee nothing. In the late 1980s, they thought that the boom would go on indefinitely. They did not predict the recession in 1990, or the subsequent recovery. Having embraced Keynesianism in the period of the upswing, they became fervent advocates of monetarism in the 1980s. But in practice, monetarism has already shown itself to be bankrupt. The Economist pointed out recently that those governments that were most enthusiastic about monetarist policies in the 1980s (Japan, Finland, Switzerland) all ended up with the biggest mess subsequently. The same thing will happen with Maastricht. They are cutting the market so severely that they can end up in a deep slump, without having experienced a proper boom.

The Maastricht treaty is not about European unity, but merely an excuse for carrying out an attack on living standards and cut public spending. The same policy is being carried out by all the other capitalist governments, including the United States, which is, as far as we know, not contemplating adherence to EMU. The real reason is the burning need to reduce the very high public debt which is absorbing a disproportionate amount of the wealth of society and has become a monstrous ulcer gnawing at the bowels of the system. The public debt of Italy amounts to no less than 120 percent of the Italian Gross Domestic Product (GDP), and that of Belgium equals 130 percent of its GDP. These figures have no precedent in peacetime. They cannot be sustained. The interest repayments on these debts swallow up a great part of the national budget. Without these repayments, most of these countries would have a budget surplus. This fact alone shows the enormous increase in waste and parasitism which are inseparable from modern capitalism.

These figures explain the policy of ruthlessly cutting down on state expenditure being pursued by all governments. It is not the product of malice or caprice, as some people imagine, but flows from the contradictions of the capitalist system itself. The capitalists find themselves trapped between the devil and the deep blue sea. On the one hand, if they permit the deficits to continue, they will be faced with the danger of uncontrollable inflation in the future. On the other hand, the policy of cutting state expenditure will cut the market and deepen the crisis. Despite this, they have decided to gamble everything on a policy of cuts. This world-wide phenomenon is what lies behind Maastricht. The capitalist system has gone beyond its limits and is now compelled to cut back, on pain of extinction. Whoever fails to understand this fact will never grasp the true significance of Maastricht or work out a real alternative to it.

When Maastricht was unveiled in 1992, all the European governments and economists were euphoric. We said at the time that Maastricht was a "dead duck", that it could not work. How has that prediction worked out in practice?

The problem is that the European capitalists are attempting to move towards union at a time when the general economic conditions are pointing in the opposite direction. If they could obtain a rate of growth of 5 or 6 percent, as they did during the period of upswing, then they could bring about monetary union without too much trouble. But with growth rates of 3 -2 percent or less, this is impossible. What lies behind the pleas for "flexibility" is the defence of the national interests of each state. If they agree on a common currency, they will disagree on everything that flows from it. Quite apart from this, there are a thousand and one other points of conflict - cross-border travel, passports, immigration, and so on.

All this means that a Federal European state on a capitalist basis is ruled out. Especially in conditions of world economic crisis, which is inevitable in the next two years or so, all the contradictions will come to the fore. It is unlikely that the EU will break up completely because of the need to defend their markets against the USA and Japan. They have to "hang together or hang separately". But the movement towards European union will founder in a sea of national conflicts and bickering. The European bourgeois will have to content themselves with a series of bilateral agreements and shifting alliances, with Germany looking ever more to the East, and France moving closer to Britain and the weaker European states in an attempt to balance the growing power of Germany. Such a situation will be very unstable and pregnant with all kinds of explosions.

This is what the bourgeois economists do not take into account. To them this is just like a mathematical problem or a game of chess. They are removed from the realities of life, and especially the class struggle. Already there have been strikes and general strikes in one country after another. This marks the beginning of the reawakening of the European working class. That is the most important thing to see.

The policy of cuts has already begun. By the end of 1997, France will have nearly halved its budget deficit as a percentage of GDP in the space of three years. Italy will have reduced it by no less than two thirds over a period of four years. In Sweden, that former bastion of the welfare state, the budget deficit was 12 percent of GDP only three years ago, but is now down to three percent. From the standpoint of the capitalist system, this represents "progress", but for the mass of the population, it means a vicious onslaught on living standards and the conditions of life. The social consequences of this are now being recognised by all but the most obtuse sections of the bourgeoisie: "or now," writes The Economist, "those efforts have helped to create a grim landscape of slow growth, weak profits, and social anxiety." (The Economist, 18/1/97, my emphasis.)

The strict application of the Maastricht terms would force the workers to accept wage cuts or job losses or both. It would be the end of the kind of welfare state to which the last two generations have become accustomed in Germany, France and Italy. It would signify the destruction of those elements of a semi-civilised existence which have been conquered by the labour and trade union movement over the last four or five decades, and the return of all the old nightmares of poverty and insecurity. But this policy does not flow exclusively from the logic of European monetary union, as the Eurosceptics would have us believe. In fact, it has already been applied in Britain - despite public show of hostility towards "Maastricht" of the main political parties in the UK.

The German, French and Belgium workers take one look at the conditions across the Channel and say "Not for us!" But, using Maastricht as an excuse, the European bosses are attempting to put the clock back to what appears from their class point of view to be a golden age of "sound money" and balanced budgets - before the first world war! From a capitalist standpoint, this is a logical position. Or rather, to quote from Shakespeare's Hamlet, "Though this be madness, yet there's method in it!" The effect of such a policy will be to exacerbate all the contradictions and provoke an explosion of class struggle in one country after another. In effect this has already begun, as shown by the strikes and demonstrations in France, Germany, Italy and Belgium in the last two years. This is only the beginning.


The electoral debacle of the French Right shocked the international bourgeoisie. They did not expect it, and least of all the scale of the Left's victory, which transformed the biggest right-wing majority in the National Assembly for 150 years into a big majority for the Socialists and Communists. This result - together with the massacre of the Tories in the British general election - is a clear sign of the enormous volatility that exists in society, characterised by violent swings of "public opinion" from left to right and back again. It opens up a new and stormy period in the history of France, which Marx said was the country in which the class struggle is always fought to the finish.

Under the strain of attempting to keep up with Germany, French capitalism is beginning to break down. In reality, France is far weaker than Germany. It does not have the same industrial base. Growth is miserably slow - a mere 1.3% in 1996, and unemployment is around 13%. Yet a cut in interest rates to assist economic growth is ruled out by the need to keep the franc in line with the D-mark. The policy of the "franc fort" (the strong franc) has aggravated the already severe problems of French industry and deepened the recession. This is exactly what the policy of Maastricht means! The public sector deficit was estimated at 4 percent of GDP at the end of 1996. The 1997 budget includes tax cuts in an attempt to encourage growth, but at the same time a freeze in public spending. On this basis, the reduction of the deficit will be minimal, yet Chirac insists he will meet the 3 percent Maastricht target. How? By taking into account the receipts from the sale of France Télécom. But this trick does not change the underlying position, since it is a one-off gain, whereas the deficit is permanent and structural. On the other hand, the freezing of public spending represents a cut in real terms, something unknown in France in recent years.

The swing to the left on the electoral plane was prepared by a wave of industrial disputes. During the one-day strike by five million public sector workers protesting against a proposed pay freeze, a clear majority of French public opinion backed them. The European (12/10/95) pointed out that "an opinion poll in the daily newspaper Le Parisien showed that 57 per cent of French people were in favour of the strike action and only 26 per cent were opposed." This shows the beginnings of a change of mood in French society. The same phenomenon could be seen one year later in the magnificent strike movement of December 1996 The lorry drivers' strike was an astonishing movement which revealed the colossal power that lies in the hands of the workers. This group alone was able to paralyse the French economy (and even the rest of Europe) and bring the government to its knees. Although not traditionally among the most advanced layers of the class, the lorry drivers showed great spirit, militancy and determination, and won their main demands. What is more important, three quarters of the public supported them , despite the inconvenience caused by the strike. Likewise, most of the foreign drivers expressed sympathy and solidarity with their French brothers, although the strike was hurting them.

As a result of the movement from below, there is the beginnings of a change in the unions. Force Ouvrière was formed as a right wing breakaway from the Communist CGT and was virtually a company union. But pressure from below pushed it into a militant position, actually to the left of the CFDT and CGT in the public sector strikes of December 1995. By contrast the CFDT, which had been on the left since 1968, had gone to the right. But this in turn provoked a big left wing opposition in the ranks of the CFDT, which has become organised as the Tous Ensemble ("All Together") group. This shows the beginning of a process of internal differentiation which will take place in all the trade unions in the period that now opens up. The polarisation to the left and right in society will sooner or later find its expression in the ranks of the labour organisations.

Chirac decided to call an early general election, despite having a huge majority in parliament (464 seats out of 577 in the National Assembly), in the hope of securing a further five years in power, in order to push through the unpopular austerity policies that flow from this. Despite the explosive conclusions which will flow from this, the French ruling class is desperate to retain their position as the second in command in Europe, scrambling to keep up with its more powerful neighbour, while sweating and cursing under its breath. But despite the outward show of unity, the whole process is fraught with contradictions. It is increasingly doubtful that France will be able to join EMU at all. Relations with Germany are strained, despite all the talk of a Paris-Bonn Axis. One German official was recently quoted as saying during the French election campaign: "If the momentum shows itself to be strongly against reform policies (i.e. more cuts, AW), we have to ask which way the French government will go." (Business Week, 5/5/97.)

The swift recovery of the Socialists stunned both the ruling parties and the foreign "experts" who had been complaining that Chirac had not been sufficiently zealous in cutting living standards in the pursuit of the Holy Grail of Maastricht. In reality, this was an entirely predictable development. However, Chirac did not really have any other option, since, if he had waited another year the situation would have been even worse. The French election, perhaps even more than the British, revealed the highly volatile mood that now exists in society, particularly the middle class, characterised by violent swings to the left and right and back again. As Lenin explained long ago, this is one of the symptoms of a profound crisis of society. Already sections of the French ruling class are talking about revolution, like the Gaullist former interior minister, Charles Pasqua, who in November last year, harking back to 1788 said "We are on the eve of a revolt."


In an attempt to reduce Germany's public sector deficit from 4 percent to 2.5 percent (an even lower level than the 3 percent required by Maastricht), Kohl proposed a programme of spending cuts of DM 70 billion (£30 billion), including a 2.5 percent cut in federal spending, in addition to other reductions at regional level. Among the measures proposed were a freeze in unemployment benefit, cuts in assistance with medical charges and reductions in pensions entitlement. There were also long-term proposals to increase the retirement age of women from 60 to 65. As if this was not enough, a series of changes in Germany's employment laws were proposed, with the aim of reducing the employers costs and giving them greater freedom to sack workers, and also to reduce the level of sick pay from 100 percent of normal earnings to 80 percent.

The bourgeois governments always commit the error of confusing the working class with the leading strata of the trade unions and labour movement. When Kohl announced his programme of cuts, the German union leaders responded by calling a mass national demonstration. This was in fact the biggest demonstration since before Hitler, with 350,000 converging on Bonn on the 15th June 1996. But, typically, the leaders tried to water it down by giving it the innocuous air of a carnival with beer, sausages and balloons. The representatives of the capitalists could not restrain their jubilation. They had a good laugh, and carried on with their cuts. This is absolutely typical of the conduct of the trade union leaders internationally. Even when they are compelled by pressure from below to call a demonstration, they do everything in their power to limit it, to turn it into an empty gesture and a means of blowing off steam. As always, weakness invites aggression. Such behaviour (which for some inexplicable reason they regard as "realism") merely emboldens the employers to carry out further attacks.

However, they completely misjudged the situation and the real mood on the shop floor. In reality, the "realistic" union leaders were out of touch. Even the shop stewards did not faithfully reflect the mood of anger and bitterness which had slowly accumulated in the class. This was revealed in the spontaneous wave of unofficial strikes which greeted this attempt to reduce sick pay from 100 to 80 percent of normal earnings, an important conquest of the German working class. Kohl's announcement was met by an explosion on the shop floor which left both the employers and the union leaders with their mouths open. The spark was ignited by the workers of Mercedes Benz, when the management announced in early October their intention to carry this cut into action, thus tearing up the collective agreement with the workforce. There were immediate walkouts, and Mercedes Benz was compelled to back down. There were mass demonstrations of steelworkers in the south west and North Rhine Westphalia. The most interesting thing to note here is the fact that up till now there was no tradition among the German workers of unofficial strikes. But that is changing rapidly. The mood of the workers was shown by the comments of a Mercedes shop steward from the Stuttgart plant, Tom Adler:

"The pressure came from below. The morning after the management board decision to introduce the 80 percent, the morning shift went out on strike, It was a spontaneous movement not organised by the IG Metall nor by the local shop stewards committee. The late shift and the night shift also walked out spontaneously. the rallies outside the factory gate were well attended and expressed massive rage on the part