Britain - Crab-walking into the euro

Jan/Feb 1999

January 1st saw the launching of the euro. The new "euro- zone" includes eleven European Union countries (Austria, Belgium, Finland, France, Germany, Holland, Ireland, Italy, Luxembourg, Portugal and Spain). The four other member states of the Union (Britain, Denmark, Greece and Sweden) are to stay outside for the time being, as well as the only two other Western European countries which are not part of the EU (Norway and Switzerland).

Initially, the launch of the euro will not change much to the day- to-day lives of ordinary people within the euro-zone. They will still have to use the old national currencies to do their shopping, although they will be able to use cheques and credit cards to pay their bills in euros, if they wish to do so. It will take another three years before coins and notes in euros replace the old ones, on 1 July 2002.

For the time being, the change concerns mainly the financial sphere. Since January 1st, the eleven currencies of the euro-zone are locked together, with each of them having a fixed exchange rate against the euro. The value of financial assets (such as shares, government bonds, etc..) is to be measured in euros and companies are to use the euro for trade, accounting and tax purposes. Financial transactions within the euro-zone and between this zone and the rest of the world are to be made in euros without any reference to the old national currencies.

In other words, the launch of the euro brings to an end the uncertainty caused so far by unpredictable exchange rates variations between the eleven currencies involved. In that sense, the euro introduces a degree of rationalisation in the anachronistic operation of the capitalist economy within the euro-zone, just as the launching of the Single Market had done, in January 1993, by ending the main barriers to trade within most of Europe.

The need for such rationalisation has been felt for a long time by the European bourgeoisies. Attempts in this direction go a long way back, as far back as the end of the 19th century. But they failed and as a result the development of the European economy was limited by the survival of obsolete national barriers and inte-state rivalries which acted as a brake on the circulation of people, goods and capital within Europe.

The emergence of the USA as a major economic power during World War I owed much to the fact that, unlike its European rivals, the American bourgeoisie was not crippled by such remnants of the past. Not only could US companies tap the enormous human and natural resources of the large US territory - comparable in size to the whole of Europe - but the size of the American market allowed them to maintain gigantic productive facilities - and therefore produce at lower costs - even when there was a slump on the world market. This left the European bourgeoisie at a disadvantage in front of their US rival, which only the richest among them - the French and the British - could compensate for, by plundering their large colonial empires. When these empires began to crumble, at the end of World War II, the European bourgeoisies came under increased pressure to seek a substitute for the large domestic market they did not have, by trying to overcome the atomisation of Europe into rival national states. Hence, from the early 1950s, the drive which resulted first in the Single Market in 1993, and then the euro this year.

In any case, the euro has now been launched. It is designed, first and foremost, to serve the interests of the European bourgeoisies, including that of the British bourgeoisie. The fact that Britain remains outside of it for the time being does not mean that it will for much longer. In fact, by now, there seems to be little doubt that Britain will join the euro. If there was any substantial resistance to this move within the leading circles of the capitalist class, it has probably been wiped away by the financial havoc of the past two years and the diminishing role of South East Asia in the world market. Today, everything seems to point to Britain being brought into the euro-zone earlier rather than later - that is, of course, provided no major financial storm intervenes in the near future to derail the euro itself.

Of course, at face value, the apparent indecisiveness of British governments - past and present - on the euro issue, Blair's choice to defer any decision till 2002 and the tabloids' on-going anti- European campaign, would seem to indicate that the British bourgeoisie has a specific agenda with regard to the euro. However, beyond a few specific but not decisive reasons which set British capital apart from the rest of Europe, the saga of Britain's involvement first in the Single Market and then in the euro, is in reality a clear illustration of the very same contradictions and concerns affecting all European bourgeoisies, including those which have been at the forefront of the drive for the euro.

Indeed, in so far as it is carried out to serve the interests of each one of the bourgeoisies concerned, the launch of the euro cannot fail to come up against the contradictions and irrationality of the capitalist system as a whole. No matter how much effort is put into cobbling together a single economic entity from a historically disunited Europe, most of the old divisions remain rife. The new Europe which is in the making - assuming it is not stillborn due to the pressure of its own contradictions - will be ridden with rivalries, between individual companies and capitalists, of course, but also between its national bourgeoisies and their state machineries, which will remain in place. The convoluted policies of British governments, past and present, toward the euro, are primarily reflections of these rivalries.

Labour's politicking

According to the government's official line, continental Europe is now split into two camps - those within the euro zone and those without. In between, or rather above these two camps, Britannia "rules the waves" of... the Channel and intends to put British interests first by changing the European Union rather than adapting to it. Such is the language used by Blair ever since a "controlled leak" by Labour's strategists to the Financial Times, in October 1997, created a major stir by hinting at a possible early entry of Britain into the euro system.

Before Labour returned to power, the previous two decades of British policy towards Europe had been dominated by the Tories' ups and downs on the issue. For instance, John Major's ostentatious euro-scepticism in the run-up to the 1997 election - and his defeat - contrasted with the more open attitude which he adopted towards Europe after he took over from Thatcher up to the point when Britain joined the Single Market in 1993. In that, no doubt, Major reflected the changing balance of forces within the Tory party, with the euro-sceptic right-wing of the party gaining more and more ground in the last years of his premiership.

At the same time, the right-wing shift within the Tory party was itself an attempt to whip up nationalist feelings in order to tighten the ranks of its traditional electorate despite the growing discontent against its rule. As the results of the 1997 election showed, this attempt failed as many life-long middle-England Tory voters chose to censure the Tories' record.

But this electorate has not disappeared. A whole section of the small town and suburban middle-class is still permeated in some ways with the imperial prejudices of the past. Another section, or the same one, is worried that European Unification might end the low-tax regime awarded to them by Thatcher. Others still, among the huge number of tiny businessmen, are terrified that Brussels' bogeymen might bring in regulations which would sink them under a flood of red tape - not noticing that in this respect the world record is unquestionably held by London ministries - or on the contrary would bring their little scams to an end. Such are the petty prejudices that most tabloids and some "serious" papers, like the Daily Telegraph, believe they have to whip up in order to maintain their circulation. And, judging from what happened in the rest of Europe over the issue of Europe, it would seem that this particular constituency is rather larger in Britain than it is in most other European countries.

It was also this particular section of the electorate that Labour's strategists chose to target after Blair's arrival in office, in order to ensure its continuing support until the next general election. So, ever since, the main thrust of Blair's public language, whether on Europe or any other issue, has been aimed primarily at playing up to its prejudices. Hence the high profile given by Blair to his personal ties with Clinton, as a token of his determination to maintain the "special relationship" between Britain and the USA. Hence also Blair's much publicised meetings with Thatcher, designed to stress what was described as a "broad agreement" between them, and his insistence on standing by the so-called £2bn "rebate" won by Thatcher on Britain's contribution to the EU. Hence, finally, Brown's reiterated formula whereby Britain will only join the euro "if and when" it is in Britain's interest to do so - a formula which could hardly be vaguer!

However, what Blair and his ministers say is one thing, what they do is another. And what they do - leaving aside their tokenistic gestures - is not determined by the voters they woo but by the requirements of British capital.

The bosses and the euro

That the leading spheres of British capital have long been in favour of Britain joining the euro is well-known.

When Labour first announced its decision to defer Britain's entry in the euro-zone, in Autumn 1997, the Financial Times, the traditional mouthpiece of business, complained in an editorial: "Britain has a chance to join Europe in a period of historically low inflation and economic stability. Neither history nor the markets will forgive this government if it throws this chance away." And when Gordon Brown made pseudo-economic excuses for keeping out of the euro, the business weekly The Economist retorted that economic constraints could be accommodated, as they had been by the countries which intended to join the euro in the first wave, and that "joining the EMU (i.e. the euro) may ultimately come down to a question of political will"

These reactions more or less reflected the positions of the bosses' confederation CBI. Already, under Major, the CBI had criticised the Tories for their euro-sceptic stance and its general position in favour of entry has not changed. However, the CBI did not see fit to criticise Blair's and Brown's policy. In fact the CBI leaders knew better. Indeed, they had heard Brown's announcement to one of their conferences, in November 1997, that British companies were to be allowed to file their accounts in euro, have bank accounts in euro and pay taxes in euro, at the same time as their continental competitors. A few days before, France and Germany had agreed to leave Britain one of the six seats of the future European Central Bank's executive body - an offer which Blair had promptly accepted without referrring to any doubt as to Britain's future involvement with the euro.

In other words, Labour was obviously on track to join the euro at some stage and was doing what was needed to ensure that British companies would not lose out as a result of the delay. On the other hand, after years of vocal opposition to the euro by the Tories, the CBI assumed - probably rightly - that a lot of preparatory work still needed to be done, both in Britain and in terms of negotiating loose ends with the other European countries, and they chose to leave Blair a free hand to do his job without embarassing him with undue criticisms.

This does not mean to say, however, that British capitalists and companies are all equally enthusiastic about the euro. On average, Britain's large companies make a larger proportion of their profits outside the EU than their European rivals, with the possible exception of those based in Holland. Some of the largest British companies earn almost no profits at all in Europe - mining companies such as RTZ and Lonrho, for instance. Others have more than 70% of their assets outside the EU - among them financial conglomerates such as Jardine, Swire or the Hanson group, and two of the country's largest banks, HSBC and Standard & Chartered. There are companies which have good reasons to be worried that a further degree of European integration might jeopardize their very profitable relationship with the British state - particularly Britain's pharmaceutical giants which, despite their expansion in the US market, are still very dependent on NHS custom. Others still, particularly in finance, are afraid that London's City might lose its leading role as a result of the euro - as, for instance, this would spell the end of the dream years for the myriad of parasitic financial and legal consultancy firms which mushroomed in the Square Mile as a result of the "Big Bang" of the 1980s.

It is not a coincidence, for instance, if one of the most vocal opponents to Britain's participation in the euro is Lord Hanson, whose conglomerate has been built almost exclusively on using US funds to buy companies which were close to bankruptcy in Britain and the US, trimming them down to the bare bones and then selling them again at a high profit. So far, this economic vampirism has required only two conditions - a steady flow of US funds coming to London and a total freedom of action on the US market, which might both be put in question should Britain join the euro.

However, all the companies which have reservations about the euro do not campaign against it as Lord Hanson does - they are doing everything they can, more or less openly, to be in the best position to benefit from the euro-zone. Some have taken steps to extend their activities in Europe through mergers with other European companies - like the recent merger of the British pharmaceutical company Zeneca with Astra, its Swedish rival Astra. Banks which are moaning vocally today about the "enormous cost" that the shift to the euro would entail for them, have been offering accounts in euro to their affluent customers for months. In fact, one of the reasons for the wave of conversion of building societies into banks was precisely to take opportunity of the opening up of the European market to finance, in preparation for the euro. If Norwich and Abbey National, among others, have now set shop in Paris next to Barclays and a number of German rivals, it is precisely to try to capture a share of the new financial euro-market. But their attempts would be doomed to failure should Britain remain outside the euro and they know this all too well.

On the other hand, what all British companies expect from Blair's government is that it will bargain hard and win concessions which will protect their profits under the euro in exchange for Britain's participation.

Bargaining points

What are these concessions? It has often been claimed by euro-sceptics that one of the most "intolerable" aspects of joining the euro was that it would force British bosses to adopt "European labour standards", thereby increasing their labour costs. Symetrically, Blair's supporters among union leaders have long argued that European integration would, in and of itself, give British workers many new rights without the need to fight for them.

Both arguments are red herrings. This was shown graphically by the implementation of the European 48-hour directive last Autumn. The very loose formulation of the directive allowed far too many exemptions for it to be really effective. But translated into Britain's social context and adapted by Blair's legal experts, it became a non-event. To start with, most industries in which long hours are worked (transport, tourism, etc..) are exempted from the law. And in the industries for which there is no exemption, workers doing long hours regularly were often ordered to sign an opt-out. Given the fact that the only enforcement is through toothless, overworked industrial tribunals, few workers can expect any protection from such a law.

It is not European labour laws which British bosses are worried about. Indeed, they know very well that their European rivals are just as determined as they are to turn the screw on workers. When Ralph Robin, the chairman of Rolls Royce (by now owned by the German company Volkswagen!), threatened last November to switch manufacturing to the US "should Britain take on too many European social costs", he was referring to something else - the higher social taxes paid by companies in most European countries. But on this, European bosses have long agreed - they also want taxes on business to be cut and all European governments have been busy doing just that over the past two decades, regardless of European unification.

On the other hand, last December's European summit in Vienna sparked off a media campaign which illustrated the real issues that British capital wants Blair to raise at the negotiating table.

This campaign was partly devoted to urging Blair to stand by the rebate on Britain's contribution to the EU budget. As it happened, this issue was not even raised in Vienna. But even before anyone could know this, Giles Radice, the chair of the Commons' Treasury select committee and a close associate of Blair's, had said on the BBC that "of course, the UK would be prepared to discuss the rebate if there were a reform of the CAP (common agricultural policy)". In other words, if the EU was prepared to help the affluent and highly-mechanised British farming industry to put hundreds of thousands of small Spanish, Portuguese or Greek farmers out of business (by reducing the EU subsidy they get), Blair might be prepared to give up Thatcher's famous British rebate.

The other theme of this media campaign was much more decisive for many British companies - that of tax harmonisation.

This is an old hobby-horse for euro-sceptics. Time and again they have pointed out that tax harmonisation across the EU would mean an end to Britain's zero-rate VAT on food. Of course, this is pure demagogy as this zero-rate VAT does not prevent the price of food paid by British consumers from being higher than on the Continent, as many recent surveys have shown. VAT is a tax which hits the poor much harder than the rich and, as such, it is objectionable. But rather than a measure to benefit the poor, Britain's zero-rate VAT on food was primarily designed to be a hidden subsidy for the agro and supermarket industries. And it is this hidden subsidy which Blair is being urged to defend.

Another very sensitive issue in the field of taxes is that of company taxation and taxes on income from so-called "savings" (meaning not the few hundred or thousand pounds set aside by working class families for their old age but the millions put by the wealthy into speculative investment). Back in December 1997, like all 15 members of the EU, Blair signed a "code of conduct" opposing "harmful tax competition" and calling for some form of tax harmonisation to prevent member states from luring foreign investors and companies with the bait of more lenient tax regimes.

This is a sensitive issue for British business in that the total taxes paid by companies here (including NI contributions and other social taxes) are lower than in any of the richer European countries. It is an even more sensitive issue for the City as far as taxes on financial investment are concerned. Indeed the City owes its position as the world's second financial centre to the fact that, since the sixties, it has been the main trading place for foreign speculators trying to evade the scrutiny of the taxman in their own country - in particular by not requesting taxes on the income they earned from bonds in the City. Yet the European Commission is proposing that everywhere in the EU, all financial income should be taxed, there and then, at a minimum 20%, regardless of the nationality of speculators. Of course, this would mean the end of London as a tax haven for many foreign speculators and the end of guaranteed profits for scores of intermediaries in the City, including the biggest British banks.

As the euro-sceptic Lord Hanson pointed out cynically in a half- page anti-euro advert published last December in the Sunday Telegraph: there are some "unfair tax differences" but "some of these unfairnesses are presently to the benefit of the City of London." And while Blair has already showed his willingness to give some ground on the privileges enjoyed by the smaller British tax havens such as Jersey, Guernsey and the Isle of Man (although not on Geoffrey Robinson's other favourite tax haven, the Virgin Islands, for instance) it is likely that he will try to defend the City's chances to become in some ways at least, the euro-zone's tax haven.

Intensified rivalries

More generally, the issue of tax harmonisation is not just a technical one. A euro-zone with an uncoordinated maze of tax systems would only generate endless obstacles for the circulation of capital, produce a degree of instability and defeat its original purpose. But on the other hand, national tax regimes, just as national currencies, tariffs, legal systems, etc.., are instruments that each national bourgeoisie uses to protect and boost its market and its profits, at the expense of the working population but also at the expense of its foreign competitors. Tax harmonisation, therefore, is not just a bone of contention between the British government and the euro-zone, it is also one between the eleven members of the euro-zone. And Blair's wrangles with the euro-11 over taxes is just one expression of the on-going European rivalries - which will remain in one shape or another "if and when" Britain joins the euro.

Some recent developments illustrate these rivalries.

For instance, the setting up of the euro-zone required that all stock markets should be eventually linked at some point, so as to operate more or less as one big market in which speculators could buy and sell shares from any financial centre in Europe on the same terms. Originally, the French and German governments agreed to set up the first leg of this link and that it would become the centre of the future system. Work started on this basis until, in early July 1998, it was announced, apparently to the consternation of the French authorities, that London and Frankfurt had agreed on linking up their stock markets, effectively by- passing Paris. The agreement stated that by 2002, the two markets would be organically merged into one which would allow the trading of the shares of Europe's 300 largest companies (meaning over 60% of Europe's shares in value). This left all other European stock markets, including those in the euro-zone, only one choice - to link up with the future London-Frankfurt merged market. On this occasion, the original Franco-German alliance had switched to an Anglo-German alliance despite the fact that Britain was not even in the euro-zone yet.

On the other hand, another alliance has been formed, this time between Paris, Frankfurt and Zürich (another case of a partner which is not part of the euro-zone) to weaken the so far unquestioned domination of another vital part of the City, the LIFFE derivatives market (where bets on the future value of shares, bonds, interest rates, etc.. are traded). Up to 1997, LIFFE was the second largest derivative market in the world after Chicago, with Paris following far behind. Then London began to lose trade to Frankfurt in the run-up to the launch of the euro, while links were established between Paris, Frankfurt and Zürich. So that now this newly-merged market has replaced London as the world's number two.

The same kinds of rivalries and changing alliances are taking place in all sorts of fields, including in industry. The planned merger in the aircraft industry provides a graphic example of this. Of the three main participants in the consortium which builds Airbus - DASA (the aircraft subsidiary of the German-owned Daimle-Chrysler company), Aerospatiale (the French state-owned company) and British Aerospace, the first two had more or less agreed for a long time to share actual control of Airbus. Then this last Autumn, an attempt to turn Airbus into a company in its own right has led to the prospect of forming a much larger aircraft company - both civil and military - capable of matching the power of the three US giants in the field. This project has now resulted in a triangular confrontation between the German, French and British states. Each one of them tries, behind the scenes of course, to help its own aircraft companies to take the best position in the future merger. And in the first half of December it seemed that every day was bringing a new possible alliance between two of the players against the third one.

In any case, all this shows two things beyond doubt: first that none of the big players in the European capitalist classes seems to think one minute that the British bourgeoisie will stay outside the euro pack; and second that the concentration and rationalisation which goes together with the build-up to the euro intensifies rather than reduces the rivalries between the various national bourgeoisies, and that the game played by the British bourgeoisie is part of this intensification.

Remembering who is our main enemy

In many respects, the launch of the euro is not very different from the many other attempts made in the past by the bourgeoisie, more or less consciously, to rationalise its chaotic system - or, to put it another way, to overcome the built-in contradictions of its system. It is not designed to, and will not, on and of itself, improve the lives of working people - only their struggles will. But each one of these attempts has weakened at the same time the very foundations on which the capitalist system rests, while reinforcing the features which will make it possible for the working class to produce a new world out of the old one.

Earlier this century, the development of the world market by the imperialist bourgeoisies eventually produced catastrophic events, such as the Great Depression and the subsequent World War II. But it also welded the entire world together in an unprecedented way. It created vital links between continents and formed in every part of the world, even in the poorest, a significant industrial working class. As a result, the capitalist world market turned the proletariat into a class which exists, not just in terms of its historical potential, but also physically, on a world scale.

Likewise, the phenomenal concentration of finance capital of the past few decades has been the main factor behind the present on- going financial crisis. But at the same time, it has shaped a large part of the economy in a way which will make the development of central planning on a world scale a much easier objective to implement than could have ever been imagined before.

The launch of the euro is taking place against the background of a protracted world economic crisis. For years, like in every part of the world, the European bourgeoisies have been striving to turn the screw on the working class, in a drive to extract more profits out of the reduced value produced by a shrinking productive sector. This drive has already produced social wastelands across Europe and marginalised entire sections of the working class, pushing them into poverty. And no doubt, this drive will carry on under the euro.

So, we will probably see politicians or companies trying to impose further sacrifices on workers by alleging that these sacrifices are "required by the euro" or "demanded by Brussels" - as has been the case already in several continental European countries. The working class will have to see through such ludicrous claims and to remember that these sacrifices are the latest of a long series which had nothing to do with the euro or Brussels, but everything to do with the greed of our own British bourgeoisie. And the fights to be waged against these new attacks, today or tomorrow, will have to be targetted not at faceless bureaucrats in Brussels, at the European Central Bank or any other out-of-reach symbols of the euro, but at the familiar, arrogant figures who run the City in London.

At the same time, working people in Britain will have to remember that the same lies and excuses which are used against them, are being used across Europe to turn the screw on their European brothers and sisters. The obsolete national borders of Europe will be partly destroyed or in any case weakened by the Single Market and the euro. Links between working people will develop across Europe as economic ties develop. And although the planners of the European Union certainly never intended this, these links will unite the European working classes by providing them with common reasons and objectives in their fights against capitalist exploitation, and offering them a chance to join ranks as a single class in the struggle.

4 January 1998