EURO - a single currency

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The creation of the euro - the European single currency - indicates a major realignment in the balance of global power. Finance and industry, military and government are in the throes of great changes. Capitalism proceeds not politely in the drawing rooms and glass towers of merchants and bankers, but in ruthless takeovers and bankruptcies, by hurling millions of workers into unemployment and poverty and ultimately by the cataclysm of war. Trevor Rayne continues to explore the planned single currency.

In part one we examined the history of Britain's relationship to the European Union (EU) and the steps towards a single European currency, the euro, scheduled for launch in 1999. In the context of re-emerging power blocs the British ruling class resolved to ally with Germany and Europe. If this means joining a single currency then so be it.

Labour Party policy mirrored the evolution of ruling class thinking and presented itself as the most reliable vehicle for carrying out the wishes of multinational capital. It is the biggest British firms that have been most concerned to adjust government policy towards Europe. They chilled towards persistent Tory Euro-scepticism. Prime Minister Blair and Chancellor Brown plan to take Britain into the single currency after the next general election.

Nowhere in the miles of newsprint written on the single currency can you find the defining characteristics of imperialism which underpin the motion towards currency union.

Currency union is a component of economic and political consolidation conducted by finance capital; the alliance of monopoly industrial and banking capital. It is done because of the level of integration in ownership and production of European finance capital, resulting from its ceaseless quest to expand. It is done in order to better compete with the USA and Japanese-centred power blocs, to more effectively compete for world markets and resources, to oppress the majority of underdeveloped nations and intensify the exploitation of the working class in Europe.

Most arguments about the single currency leave the giant corporations out of the picture, as though we lived in a world of free markets and not monopolies, of democratically responsible governments and not concentrations of hidden and irresponsible power. The question is not whether one is pro or anti Europe, but whether one is pro or anti capital, but this is the last question the monopoly-owned media will have us ask.

The case for

Arguments for a single currency divide into two varieties; one celebrates the virtues of more efficient markets and financial stability, the other, from the social democratic left, sees the prospects of government regulation of markets enhanced and the post-1945 consensus between capital and the majority of the working class and middle class sustained - a pan-European Keynesianism.

Candidly expressing the corporate view in favour of a single currency, the Financial Times describes national government policies as increasingly irrelevant as companies operate globally. Companies are able to avoid national tax rates and labour regulations they deem undesirable. Thus defence of a national currency as defence of national government powers is futile. A single currency will create a fully-integrated European market like that of the USA, but bigger. Currency fluctuations and devaluations are major inhibitors of international trade, but with a single currency they will be gone from the member countries. The most cost-effective and trusted firms will win in the wider, more free competition that results. Consumers will benefit from the greater choice in goods and services before them and prices will be transparent, allowing direct comparison across the member countries. Price discrimination, whereby, for example, the same car sells fordifferent prices in different countries, will be abolished by the single currency.

Furthermore, the single currency should afford some protection from the storms that blow through the international currency markets. Since 1985, foreign currency and international securities transactions have increased ten-fold to $1.5 trillion a day, $100 million a minute. Such vast speculative sums repeatedly demonstrate how damaging they can be to economies and governments: witness Asia today and the UK's ejection from the European Exchange Rate Mechanism in 1992. A single currency, we are told, will reduce uncertainty and risk associated with currency movements, interest rates should then fall. With lower interest rates, profits do not need to be so high for investment to take place. Hence, investment increases, more people are employed and governments receive more taxes and pay out less benefits. A virtuous circle.

Of course, a single currency will mean companies do not have to pay commissions for changing currencies when they trade with member countries. This could save companies and consumers upwards of 0.4% of the EU's Gross Domestic Product. For the City, the single currency will offer more broadly-based equity markets as investors spread shareholdings through diversified pan-European portfolios: the City wants to do the dealing. Banks and insurance companies will expand their business without the restraints on capital movements associated with national currencies. The loans market will be open across the euro zone.

Hidden away in all this celebration of markets is the undeniable logic of capital that the big will get bigger and the power of the powerful will multiply.

By the late 1980s much of the Labour Party was looking to the European Community and its European Court of Justice as the last defence of employment and trade union rights. Giving up on its own will and ability to resist the Thatcher government, social democracy sought to profit vicariously from the gains of the European labour movement. Labour Party opposition to the single currency is largely confined to 'old Labour', elected before 1983. Most Labour MPs favour the single currency and Europe as the likeliest way to preserve the privileges of the middle classes and the better-off workers of the labour aristocracy.

British trade union leaders welcomed the Social Chapter of the 1991 Maastricht Treaty: this was the treaty that confirmed the route to monetary union and the criteria for entrance to it. In particular, the union leaders welcomed the proposal to facilitate the integration of trade unions into the EU's legislative process - for health and safety measures, for example - and the setting up of new institutions such as works councils and 'social partner' agreements. These were seen as reinforcing trade union leaders' right to a share of state responsibility, which Thatcher undermined.

The 1996 TUC annual conference passed a motion in support of European Monetary Union. It was proposed by the AEEU and supported by the GMB, TGWU and MSF. The TUC envisages monetary union as a prerequisite for rebuilding Britain's manufacturing industry.

Articulated by Ken Coates MEP, former Labour MP Stuart Holland and Guardian correspondent John Palmer, left social democracy argues for a pan-European Keynesianism in which national demand management policies are replaced by European and regional regulation. A single currency between member countries should permit long-term investment planning with stable interest rates. This removes the scourge of what is called 'short termism', associated with speculation, asset stripping and volatile interest and exchange rates. Speculation and short termism are blamed for the fate of the plans of the French Socialist Party government in the early 1980s, when Mitterrand dropped state interventionist policies in the face of a run on the French franc. This is viewed as a seminal lesson for the European left in government. For Ken Coates, the harsh Maastricht convergence criteria for monetary union (see FRFI 140) and stated objectives for increased employment are compatible, not contradictory, because the former establishes the stability necessary for the latter to be implemented. Never mind that unemployment has grown across much of Europe as governments attempt to reach the convergence criteria on public sector borrowing, inflation and interest rates.

The case against

Those ranged against the single currency project are also varied. They cover a spectrum of right and left chauvinists who seek to defend the sovereignty of Britain and Parliament against the encroachments of assorted unaccountable bureaucrats, bankers, Germans, French or whoever from beyond these shores. The class origins and functions of British institutions, that ensures the sovereignty of capitalists over the majority of the people and limits democracy to what is acceptable to the rule of capital, is overlooked or denied.

Also pitted against the single currency are those with something to lose. A faction of the City is less attached to regional concentrations of capital and, taking its profit from the global money markets, views the abolition of competing European currencies as a threat to speculative gains. Thus this heart-rending complaint from Union Bank of Switzerland Phillips and Drew: 'It [the euro] would take away our work and our chances of making a profit, so naturally we are against it.'

The particular function of the City as one of the three main financial centres of international capitalism strengthens the Eurosceptic tendency. A representative from a Japanese banking subsidiary in London puts forward a common warning: a single currency means a single monetary policy for member countries and a single interest rate; what the governor of the Bank of England, Eddie George, called a 'one size fits all' policy. Given that different European countries have different industrial and economic cycles of growth and slow-down, a single interest rate threatens to conflict with what is needed in each particular country at its own stage of the cycle. At a time of growth low interest rates will spur inflation and at a time of slow-down high interest rates trigger depression.

The Guardian economics editor Larry Elliott describes as ominous the events surrounding 16 September 1992 when sterling was driven out of the Exchange Rate Mechanism by speculation. To maintain the pound's membership of the fixed exchange rate system required high interest rates that contributed to record home repossessions, bankruptcies and pushed unemployment over three million. In other words, the British economy could not withstand the requirements for financial integration with Europe. In support of this it is argued that smaller British companies are more exposed and therefore more vulnerable to variable interest rate loans than their German counterparts, for example, or larger British firms. Further, UK mortgage debt accounts for two-thirds of household income, while that of Germany is less than a quarter and the EU average is a third. Consequently, Britain is far more sensitive to interest rate changes than Germany and the rest of the EU.

Frequently added to doubts that different European economies could manage with a uniform monetary policy is the claim that their labour markets are too inflexible. By this is meant that wages are too high and conditions of labour too protected to encourage employment when companies are dissatisfied with profits. The argument goes on, that Britain has a more flexible and thus attractive workforce; two-fifths of Japanese investment into Europe comes to Britain and membership of the euro will not improve the attractions of Britain to overseas investors.

More typically from the left is the position taken by UNISON, that the Maastricht criteria, far from being a precursor to pan-European Keynesianism, are a triumph for monetarism against the public sector, taken from Thatcher's Britain to the rest of Europe. European Monetary Union threatens parliamentary sovereignty and removes the possibility of a radical Labour government being elected to implement a pro-public sector economic policy for growth.

The cases made above for and against the single currency are prescriptions for the management of capitalism. When Britain is considered they also become remedies to try and reverse the stagnation of industry or overcome its consequences. Familiar capitalist formulae are recast in a European context. The problems of speculation, short termism, currency volatility, unemployment, inflation etc. are not resolvable in the circulation of money or commodities, cannot be cured by management of public and private sector spending. These problems stem from the nature of production itself under contemporary capitalism and its tendency to over-accumulate and drive down the rate of profit.

It is this overriding tendency for the rate of profit to fall and capitalism's attempts to overcome it, that spur the drive towards monetary union and the creation of a powerful imperialist bloc. This bloc has to be capable of taking on the other imperialist blocs and contending more effectively than it has done on the world stage. It will necessarily be militaristic and parasitical in character and dominated by monopolies. Social democracy recognises that it needs a strong imperialist bloc if it is to survive amid conditions of relative social stability in Britain and Europe. The isolation of Britain from the imperialist power blocs would seriously threaten the conditions that have sustained relative social and political stability in this country since 1945. This recognition motivates Labour Party policy on Europe.

Although Britain's relative position as an imperialist power has declined this century, it can still offer the European project the valuable resources of its inheritance: the City, massive overseas investments and the military-industrial apparatus. It was Tony Blair who said he wanted Britain to become the Hong Kong of Europe; Hong Kong, along with Tokyo, is the financial centre of the Far East.

The City

It is precisely the predominance of the City and finance in the British economy that has reinforced the anti-European tendencies among British capitalists, giving them the illusion that Britain can go it alone or carry on with its 'special relationship' with the USA. The strength of this tendency was revealed in the battle over Westlands in 1985-86 (see FRFI 56) when Thatcher and United Technologies of the USA won out against Heseltine and a European Consortium for ownership of the helicopter company.

It was two years from the destruction of the Berlin Wall in 1989 to the signing of the Maastricht Treaty in 1991. The collapse of the Soviet Union and the reunification of Germany have reduced Britain's strategic significance to the USA. The strategic position and economic potential of Germany have grown. The relative weight of the US economy compared to that of Europe has slightly diminished since Westlands. This has been accompanied by an increasing European penetration of the City as German and European industry tries to combine with British banking and finance to strengthen its global position.

The City, on some estimates, generates 23% of Britain's national income. It employs about 650,000 people, almost as many as the entire population of Frankfurt (site of the new European Central Bank). London has over 540 banking companies, more than any other city in the world. It has the world's largest foreign exchange market, accounting for 30% of global currency trade or $470 billion a day - more than Tokyo and New York combined. The City has half the world's trade in non-local shares. In terms of foreign share dealing, London does 23 times as much business as Frankfurt and 125 times as much as Paris. London is the centre of the world's gold trade; it has the largest international insurance and shipbroking business; it ranks second only to Tokyo as a fund management centre; the LIFFE derivatives market exceeds that of the Chicago Board of Trade, and so on.

Over 50 of the world's 500 biggest firms are British, compared to 21 from Germany and 19 from France. Eleven of Europe's top 25 multinational companies are British and Anglo-Dutch. These are major world players and are at the centre of plans for Europe. Their representatives sit in the Labour cabinet (see FRFI 140).

The City has an awful lot to lose if exclusion from the euro should draw business across the Channel to Frankfurt and Paris and European capital has a lot to gain from integrating the City into its own orbits. European finance has been buying up British merchant banks and brokers: ING of the Netherlands bought Barings, Swiss Bank Corporation took SG Warburgs, Dresdner Bank from Germany took Kleinwort Benson, Deutsche Bank bought Morgan Grenfell etc.

British multinational capital and the City will bargain to ensure that the City retains its position as the financial centre of Europe and becomes the centre for euro-denominated deals. It cannot stand outside the move to a single currency without having its ability to subordinate potential European rivals undermined. At the same time, the drive to establish the euro as a rival to the dollar and to create a powerful European power bloc requires the City.

The move towards a single currency is part of a political and economic process that is unfolding; there is not yet an homogeneous European bloc with a centralised state power and coordinated European ruling class. Britain, in particular, carries with it capital's ties of yesteryear. It is not just a matter of Far Eastern, Middle Eastern and Latin American banks trading in the City as legacy of the Empire, the ties to US capital remain strong.

In 1993 approximately 30% of foreign direct investment earnings to British firms came from Europe and 30% from North America. That same year 35% of total accumulated UK investment holdings overseas were in Europe and 39% in the USA. In 1996 41% of direct US investment into Europe came to Britain. The nearest rival recipient was the Netherlands with 12.8% of the total. Britain received more US direct investment than the Netherlands, Germany, France and Italy combined. Again this underlines the specific character of British capitalism, drawn from its legacy of being the world's oldest modern imperialist power.

This particular relationship of British to US capitalism is viewed with suspicion in Europe today as it was in the time of de Gaulle (see FRFI 140). It remains Britain, under Conservative or Labour governments, that is the most willing to deploy military force in the Gulf, that offers diplomatic defence for Israel, that is most energetic in attempting to integrate Turkey into European institutions, all with the blessing of US imperialism. As yet US and German foreign policy differences, for example in the Balkans, have not forced a major dispute between the USA, Britain and Germany, but the potential is growing as Germany looks east and south. In Africa the British have opportunistically sought to benefit from the contention between the USA and France in west and central Africa, without engaging in the competition.

Significantly, as the Balkan conflict demonstrated, the USA remains the major military power in Europe since the collapse of the Soviet Union. US troops are stationed in over 100 countries. European economic power is not matched by military power. Consequently, France has persisted with nuclear tests to demonstrate its usefulness to Germany and the European project and to assert its position among contending imperial powers. Britain, the world's second biggest arms exporter, with Europe's two largest arms manufacturers, British Aerospace and GEC, and one in ten of its manufacturing workers employed in armaments, offers the prospect of enhanced military capacity that a truly powerful European bloc requires.

Merger mania

1997 closed with the merger of Union Bank of Switzerland and the Swiss Banking Corporation. 1998 opened with the announcement of the intended merger of two of Germany's most famous names Krupp and Thyssen. The new banking megalith will have assets of nearly $600 billion or more than triple the size of Turkey's and Indonesia's Gross Domestic Products. It will be Europe's biggest bank and the world's second biggest.

On one day in October 1997 five mega-mergers in Europe were announced. Their combined worth of $130 billion exceeds the Gross Domestic Product of Portugal. By mid-October 1997 merger and acquisition deals totalled $245 billion for the year, compared with $253 billion for the whole of 1996. Lazards merchant bank, in which the Pearson group is a major shareholder and which is also a major shareholder of Royal Dutch Shell, Europe's biggest firm, tripled its merger and acquisitions business in 1997.

These mergers and takeovers are necessary for survival against US competition and to drive down costs. They are the consequence of the need of capital to raise the rate of profit and for European capital to establish monopoly positions in order to fend off US and Japanese multinationals.

This year France's number five retailer bought up Belgium's biggest grocer; Marks and Spencer has announced that it is buying 30 locations in Europe. When the German firm Rewe took over Austria's Billa chain it commanded nearly half of Austria's food market. Such concentrations of ownership are to be the norm for Europe and they are the financial manifestation of an enormous concentration of power in the hands of a handful of capitalists. All talk of making the European Union more democratically accountable, of reforming its institutions to achieve a responsible Europe, such as we hear from Ken Livingstone and sections of the left, are delusions for as long as these monopolies exist.

A mirror to the future

'The wind of competition has become a storm and the real hurricane lies ahead.'

Heinrich von Pierer, head of Siemens

The European working classes can look to Britain over the past two decades to see their future if they do not resist. The rise and permanency of unemployment, the weakening of trade union power, destruction of welfare provisions and rights at work, temporary employment as the norm, this is the future that is upon them now.

Between 1991-94 over 1 million jobs were lost to west German industry. From 1991-95 300,000 jobs went from the German auto industry, with no loss in output. Volkswagen intends to shed up to 8,000 jobs in four years, raising productivity by 30%. Half of its Polo model is made outside Germany. In 1995 Bayer, Hoescht and BASF, chemical monopolies, recorded their highest-ever profits, having shed 150,000 jobs in the preceding years. The threat of redundancy and transfer of production abroad is being used to drive down German wages and increase the working week. Membership of the German trade union federation, the DGB, dropped by a fifth from 1991-96. Attacks are being mounted on sickness pay, minimum wages and the right to strike; familiar enough to British workers.

The concept of a pan-European social democracy preserving conditions of life for workers, of British workers sharing the benefits of their European counterparts looks increasingly like a lie as European capitalism gears up to do global battle in the pursuit of markets, resources and profits.


Many European workers can see they are facing a club of bankers and multinationals; resistance has emerged. As the Maastricht criteria for monetary union began to bite, Italian workers took to the streets against pension cuts in 1994. In autumn 1996, 350,000 German trade unionists demonstrated in Bonn against proposed public spending cuts and changes to employment protection laws. On 17 October 1996 a third of all French public sector workers struck in defence of jobs and incomes. Spain and Greece have also had large protests against the effects of preparations for monetary union.

These workers should examine Britain to see the perils ahead. As in Britain, many are now confronted by social democratic as opposed to conservative governments. These are the enemy that is closest to them and can do them most harm. As in Britain, they are the wolf in sheep's clothing, enfeebling the working class, all the better to proceed with the monopolists' and bankers' plans.

Simultaneously, in Europe we see the disproportionately high number of young people voting for fascist parties in France, Austria and Denmark as the conventional parties of the working class fail them.

In Britain, the greatest allies of the energy multinationals and ruling class during the 1984-85 miners' strike were the Labour Party and trade union leaders, excepting the miners' leader, Arthur Scargill, who was consequently isolated and left the Labour Party. The defeat of the miners opened the way for the kind of capitalist rampage that faces the European working class. There can be no question of a successful resistance to the poverty and oppression that is intended for Europe's workers unless social democracy is confronted and replaced as the leadership of the working class by independent working class organisations that resurrect the socialist cause. There can be no possibility of a civilised and progressive Europe until the multinational bankers and monopolies are the ones that are dispossessed.

First published in Fight Racism! Fight Imperialism! No. 141  February / March 1998