Socialist Alternative

It’s the End of the European Union as We Know It

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The future of the European Union is currently expressed in the battle over resources such as masks and ventilators and about how to handle the economic crisis. But the reasons are rooted in the concept of the EU itself.

Sonja Grusch, Sozialistische LinksPartei (ISA Austria)

Nearly 70 years after its birth the EU seems to be in its biggest crisis ever. Former President of the EU-Commission, Jacques Delors, spoke back in March about a “deadly danger for the European Union”. This is expressed in the battle over resources such as masks and ventilators and the struggle about how to handle the economic crisis. But the reasons are rooted in the concept of the EU itself.

A project rooted in the cold war and capitalist competition

In April 1951 the treaty implementing the European Coal and Steel Community (ECSC) was signed by representatives of six European Countries: France, West Germany, Belgium, Italy, Luxembourg and the Netherlands. In 1957 this was followed by the formation of the European Economic Community (EEC) by the same six countries. This was at the time of the unfolding “Cold war”, with the USA becoming the Western superpower, politically and economically. In 1948 the USA and Canada together accounted for around 30% of world trade, while the former superpower Great Britain had declined to around 10%. Germany, due to its defeat in WW2, accounted for less than 2% of world trade. The whole of Western Europe only had a slightly bigger share of world trade than the USA plus Canada, while Asia was only responsible for around 10%.

The 1970s, and even more the 1980s, marked a fundamental change in the post-war period. The long economic boom that followed the war was untypical for capitalism. It was due to the need to rebuild Europe after the massive destruction of WW2 and to the existence of the Stalinist states, which forced the imperialist countries to “prove” that capitalism would be “better” by making big concessions to the working class. This led to.rising living standards for big parts of the population at least in the advanced capitalist countries, but this period could only last for so long. This boom came to its logical end. This acted as an important incentive for the coming together of the different imperialist powers in Europe. In the year of the first oil price shock, in 1973, the project was significantly broadened by bringing Denmark, Ireland and Britain on board.

Other economic crises followed, such as the second oil crisis in 1986, the recession in the US at the beginning of the 1980s, the debt crisis in Latin America, and many more. While world trade expanded, new competition arose with Japan, and later China becoming major players.

The European capitalist countries followed with various treaties and more countries joining the joined European project. The economic mantra, written down in the Maastricht Treaty, followed the then dominant monetarist, later known as neoliberal, dogma: the deficits of nation states must not be more than 3% and the national debt not more than 60% of GDP. What was to become the European Union (EU) had broadly two main tasks. The one was to form an economic bloc that would be able to compete with and overtake the other blocks, particularly the USA and Canada on one side, and the developing Asian powers on the other. The second was to help the national European governments to implement the neoliberal agenda in its respective states. The EU succeeded for quite a long time in doing both — but for the whole time it was a project built on chicken legs.

The United States of Europe?

In dealing with the question of the state and its role, Marxists have explained that there is no such thing as a neutral state, but that every state is an instrument of the respective ruling class.

The same goes for the bourgeoisie of each European country. This does not rule out them working together when it is beneficial, but it does mean that they cannot overcome the national limitations of capitalism, of nation states and so on forever. It follows that a capitalist EU can never fully overcome the existence of the nation states and competition between them.

In dealing with the question of the “United States of Europe”, Lenin explained back in 1915: “From the standpoint of the economic conditions of imperialism—i.e., the export of capital and the division of the world by the “advanced” and “civilized” colonial powers—a United States of Europe, under capitalism, is either impossible or reactionary.” He then goes on to say, “Of course, temporary agreements are possible between capitalists and between states. In this sense a United States of Europe is possible as an agreement between the European capitalists … but to what end? Only for the purpose of jointly suppressing socialism in Europe, of jointly protecting colonial booty against Japan and America, who have been badly done out of their share by the present partition of colonies, and the increase of whose might during the last fifty years has been immeasurably more rapid than that of backward and monarchist Europe, now turning senile.” If one replaces “colonies” by “neo-colonial countries”, then the analysis is still valid.

So the EU project could not last forever, its survival is always dependent on economic developments and on the simple calculation whether at any time it is more profitable for each state to put the national interests ahead of all-European ones or not. This calculation was and is different for each European country given their respective economic structure, how much they depend on foreign trade and business connections and with which countries within and outside of the EU.

Our International, today known as the ISA, but then called the CWI, discussed in much detail about the possibilities for the development of the EU, the Euro and especially the question of how long it would last. One important reason why the EU project survived longer than we originally expected was the collapse of the Stalinist states. This helped the capitalist world economy to escape the looming economic crisis by gaining access to new markets and cheap and well trained workforces. Given its geographic location, European capital benefited much by reaching out to new “colonies”. The feeling of people from Eastern Europe of being second class “Europeans” has material reasons. Even 30 years after the restoration of capitalism, and in some cases decades of membership in the EU, living standards are still lower in Eastern Europe.

EU Crisis: Corona is not the reason

The crisis within the EU is not new. On the contrary the EU seems to stumble from one crisis into another, hectically trying to put out the various fires as they arise.

This was also reflected by an increasingly skeptical and critical mood against the EU, especially amongst older layers, seen in low turnouts in EU elections and even more dramatically, in the Brexit vote. It was represented by the “heavy hand” used against Greece after the 2007 crisis and in relation to Brexit in an attempt not to prevent examples for others to follow being created.

Aware of its own crisis, the EU was already making plans before COVID-19, such as the Conference on the Future of Europe, announced back in 2019. The economic crisis that was triggered and intensified by COVID-19 is turbo-charging the centrifugal forces that have always existed in the EU. Before the virus appeared, public debt in the Eurozone already amounted to 84% of GDP — and was already much higher than it was before the crisis of 2007/8. At the time of writing we see a series of economic forecasts that have to be adjusted and adjusted and adjusted…

EU is more vulnerable

By acting as an economic block, European capitalists have been able to improve their position on the world market. But at the same time competing interests have remained. In the unfolding crisis, the EU and its member states are especially vulnerable because they depend on exports much more than any other economic region. In 2019, exports of goods accounted for 35.7% of the EU’s GDP, while total exports, including services, accounted for 49.4%. The respective figures for the US are 7.8 % and 11.8% and for China around 20% for total exports. The process of de-globalization that has been going on for quite a while, and now the coronavirus-related problems affecting supply chains, production, tourism and exports have hit Europe much harder than the rest of the world economy.

Within the EU, different countries have different trading partners and economic relations. While some EU countries trade mostly with other EU countries, some economies export more outside the region. And some are highly dependent on exports, such as most of the Eastern European states, Ireland and Belgium. Some are in the middle field, such as Germany and Austria, and some depend less on export, such as Italy, France, Greece and Spain. Of course, the economic differences lead to different strategies about how to overcome the crisis.

The devil is in the detail

The EU leaders create the illusion they are very active in fighting COVID-19 and the economic crisis. They meet, they discuss, they decide. But a closer look at their main measures reveals the reality of what they have planned and/or decided. At the time of writing, three main packages have been created, for a total of 2290 billion euros. This sounds like a lot of money — but a closer look reveals a lot of smoke and mirrors, but little real assistance.

The first package — 540 Billion euros

At the beginning of April, the Finance ministers of the EU states agreed a package worth 540 billion euros. However, this is not fresh EU money to tackle the crisis, but a combination of the relabelling of already agreed money with guarantees for loans from the European Investment Bank and as part of the European Stability Mechanism (ESM) to be provided to the EU countries. These loans are bound to conditions which would force national governments to partially give up their national autonomy. Considering that interest rates are at a historical low, this can lead to a situation where states look for loans on the financial markets without such political conditions attached.

In addition, it must be stressed that 540 billion euros is far from enough. According to some estimates, the amount of money Italy alone needs to prevent a dangerous chain reaction on the financial markets is around 500–700 billion euros.

The second package — 1,000 billion euros

In their fourth virtual meeting since the start of the COVID-19 crisis, the national leaders discussed and decided on a “European Recovery Fund” (ERF) worth over 1,000 billion euros. The name is certainly no accident, since it points to the European Recovery Program (ERP)” after WW2 — better known as the “Marshall Plan”, which was implemented to rebuild Europe as a market and ally for the USA in the cold war. It is 75 years since the end of WW2 and the propaganda machine of the ruling elite, which is trying to link the current crisis with the idea of “we all rebuilt Europe together after WW2, we will succeed this time as well”. But it should not be forgotten that the cost of the war and the rebuilding after had to be paid by the working class!

But for now the details of this plan are unclear. But it will be linked “very closely” to the EU budgets for 2021 to 2027, it might well end up with a relabelling of the EU budget. A closer look at the figures shows that in 2020, the current budget planned is 172.3 billion euros, so over seven years it will total 1,206.1 billion euros, close to the over 1,000 billion euros for the ERP. President of the European Commission, Ursula Von der Leyen, announced her European Green Deal in the autumn of 2019 in an attempt to boost the stuttering economy and help it catch up technologically. Similar attempts will exist now given the fact that, for example, the car industry, which especially Germany is highly dependent on, is in serious trouble.

The third package — 750 billion euros

As early as 18th March, the new head of the ECB, Christine Lagarde, made clear she would do “whatever it takes” to rescue the EU and the euro. She is following the line of Mario Draghi, who tried to fight the crisis in the aftermath of 2007 with Quantitative Easing (QE). The concept is that with the Pandemic Emergency Purchase Program PEPP the ECB buys a fresh batch of bonds, as many as necessary, Lagarde states, to stabilize the national economies and the capital markets in general. In the last crisis of 2007, QE had a somewhat stabilizing effect on the cost of exploding public debt.

More debts, more instability

All these measures are more than vague. What is clear is that they are largely based on loans and will therefore increase the debt burden, which is already much higher than it was before the crisis of 2007/8. This risky scenario is even more dangerous given that, to make access to credit easier, some of the safety measures for the financial markets that were implemented after the financial meltdown in 2007 are now being lifted. Following a decision of the EU finance ministers, the European banking regulator, the CEBS, can now handle the rules for the financial sector with “flexibility”. A planned stress test has been postponed. The ECB has even decided to buy junk bonds from states and companies in a desperate attempt to stabilize national economies.

This move takes the ECB into a dangerous situation, in which it is piling up junk bonds. A number of EU countries have decided to provide guarantees to banks, which grant loans of up to 100%. They have asked the banks in advance not to pay out dividends or invest in the buyback of their own shares in order to keep the equity ratio at a certain level to reduce future risks. A number of banks have already rejected this request. Although the reasons for the economic crisis are rooted deeper in the contradictions of capitalism, highly vulnerable financial markets are a symptom, but can also act as a trigger for such a crisis.

The European fight club

The unfolding crisis is now broadly accepted by bourgeois economists to be the worst for 100 years. In such a crisis, each bourgeois state will resort to defending “its” own national capital. This is reflected in the discussion, or rather the quarrels, within the EU about what measures and plans should be on the table. A lot of general points are made in press conferences, but concrete results are few. There are several potential fields of conflicts:

Since the beginning of the current crisis the idea of “Eurobonds” has been supported mainly by the weaker southern economies, who argue that if the EU as a body borrowed money, the conditions would be better. But the stronger economies, including Germany, Austria, Finland and the Netherlands have blocked the idea, not wanting to be held responsible for the debts of others. The former French-German axis seems to have been severely weakened. All the propaganda about solidarity in the EU means nothing if there is no economic benefit to be had. French support for the southern economies, for example, is rooted in strong economic ties, as French banks are heavily involved there.

The debate over whether to issue Eurobonds or use the EMS centers on several issues: whether EU money is given as loans, and if so, whether it will have to be paid back and when, and of course, whether access to the EU money will be bound to conditions.

EMS rules link the granting of aid to conditions, which as we saw in Greece were used to smash the welfare state and reduce national sovereignty. Objections, especially from Italy, to the EMS and their demand for Eurobonds are linked directly to the fear of losing independence. This threat is exploited by right-wing and far-right politicians like Salvini, who use the example of how the EU Troika squeezed and suppressed Greece, and especially the Greek working class.

This battle over the nature of loans or transfers and any associated conditions, and which should be binding for which country, is a minefield and will lead to clashes within the EU. The German federal constitutional court has denounced ECB measures dating back to 2015, including the Public Sector Purchasing Program (PSPP), as violating the constitution. This reflects the more traditional neoliberal policy of Germany and puts a common financial policy into question as it is unclear what the German Bundesbank will now do. EU propaganda, which links the money to the acceptance of “EU values” by its member states, is just a cover up for the imperialist intentions of some of the economically stronger western European states in Eastern and part of Southern Europe.

But the sixty-four billion euro question will be how to finance this extra money.

Von der Leyen has approved the proposal to increase the ceiling of the EU’s own resources from 1.2% of the EU’s Gross National Income (GNI) to 2% at least for a number of years. Currently the main sources of EU income are tariffs, which might decline, given the process of de-globalisation, trade conflicts and especially the coronavirus-related reduction in trade, VAT, which unless the rate is increased, will go down as consumption declines due to the economic crisis and “membership fees” of the member states, which already accounts for around 2/3 of EU income. If countries are asked to increase their financial contribution to the EU, which German Chancellor Merkel has said is highly unlikely given the economic and social problems in the EU countries, populists, often far right populists, will exploit this for their benefit.

Unlike in the period after WW2 when the US financed the “Marshall plan”, there is no obvious external source of finance today. The possibilities include Russia and increasingly China, which has already been trying to sink deeper roots into Europe before COVID-19 with the Belt-and-Road Initiative. Although the BRI was put on ice due to the pandemic, this could change now that China is reopening its economy, in advance of the US. As it now has the pole position in this race, the influence of China in Europe could increase in the coming period. The attempts by different national states to lean on external partners, whether the USA, China, or Russia are and will increasingly be a source of conflicts within the EU. It should not be forgotten that Greece was the first EU country and Italy the first G7 country to join the BRI, and that Russia and China have economic influence especially in the Balkans and Eastern Europe and political influence at least on various far right parties in Europe.

The Schengen and Maastricht Treaties are dead

These potential conflicts boost the centrifugal forces that have always been present in the EU. Already some of the seemingly eternal pillars of the EU have simply disappeared. The Schengen treaties, first agreed in 1985, ensured the free movement of goods between EU countries, i.e. without being checked at borders and without tariffs. When the German government this year blocked the export of medical products to Italy, using the argument of the coronavirus pandemic, and then France blocked the transportation of masks to Spain and Italy, it became clear that the Schengen treaties have been severely undermined.

Even before COVID-19, the question of refugees was used to limit the free movement of people within the EU. As the coming economic and climate crises unfold, followed by an escalation of state debts and an even bigger social crisis in the neo-colonial world, more people will be forced to flee their homes. Now the borders between the different EU states have been resurrected within hours, showing that this was always an option for the ruling classes.

Now too, the neoliberal dogma of the EU written into stone by the Maastricht treaty has been abandoned overnight. Maastricht placed strict limits on budget deficits and state debts. Now as a result of the latest decisions by national governments and the EU, it is certain that the 3% and 60% limits will be greatly exceeded. It is unlikely that sanctions will be implemented if this happens, not just on some of the weaker European countries, but on the main European powers like Italy, Spain or even Germany.

As a result of the problems with supply chains revealed during the COVID-19 crisis, there is a discussion about the need to relocate production to Europe. This will not happen on the basis of European planning of what, where and how much is needed, but within the chaotic competition of capitalism, in which each country tries to help its own capitalists to be quicker, better positioned and provided with the best conditions as far as state subsidies, as well as legal and environmental regulations are concerned.

This possibility was opened up in March, when the EU decided de facto to lift all restrictions on state aid to companies. This will cause a race to the bottom for wages, working conditions and environmental standards and, as a result of the attempts to hastily re-open the economy at any cost, will be at the cost of human lives. The chaotic way that production is organized will also mean that in some sectors too much will be produced, while in others not enough. Economists call these inefficiencies a “pork cycle”, when capital rushes into profitable fields — but if all do that, it leads to overproduction, a drop in prices and further redundancies. The situation in which there is a lack of medical equipment and the incapability to provide enough masks and ventilators in Europe has made it very clear that the market does not solve the problems of supply and demand, but that democratic planning is needed.

Even before Covid-19, there was a shift in economic policy, with strong calls on states to intervene and safeguard companies and banks. This shift away from what is commonly known as “neoliberalism” was boosted with COVID-19.

There is widespread support for the various measures taken by governments to reduce the immediate economic effects, such as higher unemployment money, wage subsidies to keep people in jobs, or even elements of helicopter money. A survey in Austria showed that 75% agree with the EU-suspension of the budget and deficit rules, with only 12% against. This shows that decades of neoliberal propaganda have not had a long-lasting effect on consciousness. But none of these measures will be able to stop the deep economic crisis and its dramatic effects.

The alternative capitalist models, variations of Keynesian or neo-Keynesian politics, also fail to go to the root of the economic problems, and therefore neither show a way out of the crisis, nor act in a more society friendly way than the (neo)liberal economic models. But what the Austrian survey shows in a distorted way is the widespread demand for a different type of politics that does not limit itself to capitalist needs. Numerous other surveys, and not least the mass protests of the last years, point in the same direction: capitalism is increasingly questioned; there is a demand for something better.

While some politicians still try to suggest that we will face just a short recession that will quickly be overcome, the working class has a far more realistic view. In one survey, the majority of people in 10 out of the 15 countries surveyed said that a quick economic recovery was unlikely. No trust in a quick recovery was strongest in the hardest-hit European countries: 76% in Spain, 72 % in France, 68% in Italy, 67% in the United Kingdom and 64% both in Russia and Japan. In another survey in the G7 states, 72% of respondents confirmed that their personal income had already been or will be impacted. These and many more figures point to the explosive developments to come.

The End of the EU as we know it

The EU has already survived many crises and it will survive this one. The EU has existed for quite a long time, has developed its own apparatus, and the simple fact of its existence is a stabilizing factor in itself. However, it is highly unlikely that it will continue in its current format; instead it is likely to undergo severe changes. The idea of a European core around Germany, including Austria, Belgium, Luxemburg and the Netherlands is not new. Given the increased tensions between Germany and France and the attempt of Macron to build a block against the German-led block of four, this is becoming increasingly an option.

The dominance of Germany is nothing new in the EU. In the second half of 2020, Germany will hold the EU presidency, the President of the EU Commission Ursula Von der Leyen, the Chief of the European Stability Mechanism Klaus Regling, the chief of the European Investment Bank Werner Hoyer, the chair of the Single Resolution Mechanism (SRM), one of the pillars of the EU’s Banking sector, Elke König, the President of the European Court of Auditors ECA Klaus-Heiner Lehne, the General Secretary of the EU parliament Klaus Welle, the General Secretary of the European External Action Service (EEAS) Helga Schmid and the chair of the biggest political faction, the conservative, right wing European People’s Party (EPP), Manfred Weber.

Rejecting the conspiracy theories of a “German take-over plan”, there are, nevertheless, strong links between the politicians and big business. As economic pressure and therefore tensions increase, national interests will come to the fore and overtake the “Europe Idea”.

While for a period, propaganda in favor of “helping” Eastern European countries to catch up was prominent, this will be pushed aside, elements of neo-colonialism which always existed will gain more ground. To meet the needs of Western European economies, health and care workers as well as harvest workers from Eastern Europe have been taken from their countries with extra charter flights. Workers currently needed in their own countries, which are also suffering dramatic crises, are being taken to places such as Austria, Germany or Britain, to serve as cheap, and often unprotected, labour.

Such moves will further feed tensions, in addition to those that already exist, but which, for a time, have been buried. National questions are being exploited, particularly by right-wing governments such as Hungary’s Orbán regime, with its policy of a “Greater Hungary”, which is trying to take over the population and territories of neighboring countries.

Earlier we also saw proposals to establish alternative currencies instead of, or alongside the euro in Greece, Italy and other countries following the crisis of 2007 and the brutal Troika measures. This will come up again. It is possible to list only some of the various tensions within the EU, but it should be stressed that they are all being exacerbated, becoming more and more an obstacle to the EU as it exists today.

No to the EU — yes to a socialist united Europe

The ISA (formerly known as CWI) has a proud tradition of standing against the EU. Although conditions differ from country to country, some being part of the EU, some not, some joining and with different trends of opposition against the EU from far right to the left, we have always made clear that the EU is a capitalist project which we reject.

Our alternative is neither to strengthen the illusion that the EU can be improved through institutional changes, nor by turning towards national solutions. We have had much discussion about the possible developments within and around the EU as well as about our position towards Brexit. We understand the changes in consciousness with at least one generation of youth only knowing life in the EU. There is enormous hope and support for the idea of a united Europe. This is something that socialists can and have to build on. It proves once again that feelings of solidarity and coming together are a basic human emotion that brings people to left-wing, socialist and internationalist ideas. Only if the left and the working-class organizations fail to take them up and give them an organized framework, and fail to offer a program and a strategy to fight and to win — only then will the far right and their nationalist and racist false “solutions” be able to sink roots.

The year 2019 was a year of mass protests: millions of youth came onto the street for “climate justice”. In all parts of the world we saw mass movements, strikes, protests and even uprisings. These were put on hold by COVID-19. But the foundation for that development is still there and lies in the inefficiencies and the dangerous and deadly consequences of capitalism. COVID-19 changed a lot. It showed who does the really important work. It showed the negative effects of austerity. It showed how much money is there. Discussions about the reduction of the working week, of extra money for the “heroes”, about a millionaire’s tax, about the planning and organizing of production — these and many more discussions are happening at this moment. And they point in the direction of the alternative to capitalism and the alternative to the EU: forward to the socialist states of Europe, forward to a socialist world.

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