Making the working class pay for the EU Crisis


By Nicky Dempsey

The latest European Union summit highlighted the divisions among the national political leaders. But they are unified on one point – the working class and the oppressed of Europe will pay for the crisis.

The summit agreed that national governments would submit to a new process which aims to reduce structural budget deficits to 0.5% of GDP. There will be reinforcement of the existing provisions of the Maastricht Treaty which limit the actual budget deficits to 3% of GDP.

This changes the Maastricht targets into a budgetary process overseen by the same European Commission which is the principal architect of the savage attacks on pay, jobs, services and public spending in countries such as Ireland and Greece. This regime will probably now apply to all 26 members who are set to sign up to the new regime.

If left unopposed it will lead to the dismantling of the welfare state in Western Europe and any vestiges of social provision not already destroyed by the reintroduction of capitalism in Eastern Europe.

The exception is Britain, where David Cameron vetoed a Treaty of the existing 27 members of the EU (and soon to be joined by Croatia).

Of course, this was not done to protect welfarism in Britain – his government is busy dismantling the NHS amongst other attacks. Instead, Cameron demonstrated that ‘British national interests’ are reduced to protecting finance capital in the City of London – and he has probably failed even to achieve that.

He was not arguing against the highly damaging and irresponsible content of the proposed Treaty amendments but against Britain having to sign up to any changes – because he cannot hold his own party together on any EU Treaty amendments at all. Many of the Tories instead call explicitly for the disorderly break-up of both the Euro and the EU and the bankruptcy of countries like Greece.

National divisions

The farcical repetition of the failed proscriptions of the Maastricht Treaty highlight the effective paralysis of the EU national leaders in the face of the crisis.

This paralysis arises because they are stuck as representatives of separate nation states. They represent the interests of competing national bourgeoisies who are failing to wrestle with the supranational problems of the EU economy. As a result agreements are struck on the basis of the lowest common denominator.

In this case, the sole common position was that public spending must be cut and cut on a permanent basis. That is, the working class and the oppressed must pay for the crisis through lower government spending.

Not only is this a new assault on the working class and its allies, but previous advances agreed or proposed have been abandoned. So, where Greece’s creditors received a modest cut in the value of their bond holdings, further losses for the private sector are now ruled out.

This is courtesy of Sarkozy as French banks are the most exposed in the whole of Europe to the Mediterranean crisis-hit economies.

Similarly, further bond-buying by the European Central Bank has been ruled out by Draghi, its new President, even though previously the ECB has bought some of the bonds of the crisis countries in an effort to cap the rise in yields. This ban was at the insistence of Merkel, who correctly judges that the ECB would soon need new capital if it were to act as a lender of last resort to a host of European countries – and that Germany would be obliged to provide the bulk of the new capital.

Crucially, the entire preceding discussion had been of the need for a fiscal transfer union, where there is a more or less automatic flow of funds from the richer to the poorer regions as a necessary condition to keep the Euro Area together. This summit offers only a fiscal union, no transfers. A pressing requirement for funds has been replaced with regulations to control spending.

Unwilling to analyse the situation in pan-European terms and unable to act except in their own national interests, the EU political leadership can only unanimously agree that the working class will pay for this crisis.

Real world intervenes

It is entirely feasible for the national governments to co-ordinate an attack on the working class of Europe. But it is not possible to determine the economy by a series of edicts.

Any economy in which the government relies in part on taxation for its spending is dependent on private agents, both households and businesses for that income. If consumers cut their consumption, perhaps because their incomes are falling, or if businesses refuse to invest, as currently, their reduced spending will in turn reduce the taxation levels which form the income of government. The EU plan is doomed to failure.

But this paralysis means that the latest phase of the crisis may be imminent. This may come in the form of a banking crisis as year-end caution is added to the widespread suspicion that many European banks are insolvent. The recent stress tests by the European Banking Authority reveal a huge capital shortage of nearly €115bn among Europe’s leading banks, which they will have to borrow to make good.

In addition the European Financial Stability Fund, which is supposed to provide the needed financial firepower for further bailouts of creditors, has already failed to sell a modest issue of bonds, just €3bn in November. The plan to increase the EFSF’s borrowing significantly is dependent on the access to markets which is doubtful following the failure to increase government revenues.

In addition, the credit ratings agencies have already signalled likely downgrades of both EU banks and EU government borrowers.

Large countries like Italy are still able to borrow directly from financial markets – for now. But a downgrade or rising yields could force an Italian exit from the markets, and given the size of Italian borrowing requirements this would immediately overwhelm the firepower even of a souped-up EFSF.

European solution

It is clear that the national governments of the EU are proving incapable of resolving the crisis.

It may be that the German and French leadership of the EU will finally choose to pay for a continental economy from which their companies benefit so much. But the system adopted at this summit codifies a neo-liberal response to the crisis which will only exacerbate it.

It is equally clear that a European crisis requires European solutions. The advocacy of defaults, devaluations, and exits from the Euro cannot form an EU-wide solution to the crisis even if they become unavoidable for countries like Greece.

As the EU is effectively in a trade balance with the rest of the world, devaluation can only be to the benefit of one EU country at the expense of another. It cannot be an EU-wide solution. It would also exacerbate the trend towards nationalism, xenophobia and racism which is already growing in Europe.

The only agency capable of an EU-wide crisis to the solution is the working class, which can lead the whole of society out of the current impasse. Unfortunately too many of its parties are already infected by the reactionary trends in Europe, where Islamophobia is tolerated or anti-immigration policies are adopted under the guise of opposing ‘social dumping’.

Instead, what is required is the building of alliances across Europe on the basis of an EU-wide solution to the crisis. This would begin with opposition to the policy of making the working class pay for the crisis. It would include all those proposals and ideas which aim to shift the burden of the crisis towards the rich and to big business.

But it can only lead European society as whole out of the crisis if it embraces the idea of removing from the capitalists some proportion of their savings and the state deploying these through investment.

This is the content of the slogan which opposes cuts and counterposes state-led investment. It would mean removing some portion of the means of production from capital and putting them in the hands of the state, which is why it is fiercely opposed and every other solution is being proffered. But it is the only solution that will work.