FRFI 230 December 2012/January 2013
At the end of July Mario Draghi, the president of the European Central Bank (ECB), made a pledge to safeguard the future of the euro. ‘Within our mandate, the ECB is ready to do whatever it takes to preserve the euro’, he said. ‘Believe me it will be enough’. More than a month later on 6 September he came up with a plan, credible to the markets, with the offer to purchase short-term bonds (up to three years) of eurozone countries in the secondary markets.1 Since then the borrowing costs of Italy, Spain and other countries in difficulties have fallen. This has happened despite the fact that Spain, the main target, has so far not asked for help and the ECB has not taken action to buy its bonds. In addition, US money market funds have returned to the eurozone, increasing their exposure by 16% since the summer. With the immediate threat to the eurozone receding, the divisions and conflict of interests between and within the dominant European imperialist countries is, once again, taking centre stage. DAVID YAFFE reports.
The splits in Britain’s ruling class over European integration have intensified, with significant sections of the Conservative Party putting pressure on Prime Minister David Cameron to call an in/out referendum on Britain’s EU membership. The next period will see the conflict between Britain and the EU intensify, with heated disputes over the EU budget and the proposals for a eurozone banking union.
The ruthless austerity programmes imposed on the southern eurozone countries are not only taking their toll on their populations but are now starting to create serious resistance against the governments enforcing them. Mass demonstrations and general strikes are becoming more frequent and widespread. On 14 November, in coordinated actions, millions were involved in Europe-wide strikes and mass demonstrations with hundreds arrested during the inevitable clashes with riot police in Madrid, Athens, Lisbon and some Italian cities, including Rome, Milan and Turin. Class polarisation and civil conflict are escalating, with the rise of neo-fascist forces taking to the streets and receiving the tacit support of the police (see pages 6-7).
Divisions in the eurozone
On 10 October the plan to merge Europe’s largest aerospace company EADS with Europe’s biggest defence contractor BAE Systems, to rival Boeing of the US, collapsed. Government officials in London and Paris blamed Berlin for not supporting the €38bn merger. There were strong reasons to believe that Angela Merkel had vetoed the deal. The Chief Executive of EADS, Tom Enders, said in a letter to employees that he had ‘never imagined facing such opposition to the deal, particularly not from Berlin’. A senior French official said the deal failed ‘because the Germans have blocked it’. George Osborne, Britain’s Chancellor of the Exchequer, also blamed Germany for the collapse in the deal and said ‘we have been a bit disappointed primarily by Germany’s attitude, which in effect vetoed the deal’. A senior German official admitted that ‘clearly we were concerned about Germany being marginalised in the deal’. Other German officials and politicians said they were increasingly alarmed about German jobs if the defence business was run from London and civil aircraft from Toulouse, France (Financial Times 11 and 13/14 October 2012).
In an interview given to The Guardian and five other European newspapers on the eve of the European summit on 18-19 October, the French President, François Hollande, spelt out France’s differences with Germany in unmistakable terms. Dealing with the crisis, says Hollande, has to take priority over German-led calls for eurozone federation and political union. Solidarity has to come first, to be followed by deeper integration. Although he believes that the worst of the eurocrisis is over, he insists that: ‘Today, recession is as big a threat as deficits.’
Hollande suggested that the German Chancellor, Angela Merkel, who faces re-election for a third term in September 2013, was too preoccupied with domestic politics in her response to the crisis. He demanded that Germany reverse its opposition to the decisions made at the June EU summit where Merkel suffered a surprise defeat on the issue of a banking union. He was referring to the agreement to establish a single banking supervisory mechanism run by the ECB, and specifically the decision that the bailout fund could be used to recapitalise banks directly.2 He continued to argue that budgetary union should be completed by the partial mutualisation of debts through eurobonds, a position strongly opposed by Merkel. Hollande insisted that Greece should be assured of staying in the eurozone. Finally he poured scorn on Britain’s position. Arguing that a two-speed Europe had become a reality, he warned non-eurozone countries not to interfere: ‘Certain countries don’t want to join: that’s their choice. But why should they come telling us how the eurozone should be run’ (The Guardian 18 October 2012).
The October EU summit essentially papered over the cracks, leaving major decisions to later meetings. There was an agreement, after a very fraught meeting, to set up a single eurozone banking supervisor led by the ECB with a legislative framework to be in place by 1 January 2013. The ECB, as supervisor-in-chief, will have the power to intervene in any of the eurozone's 6,000 banks. Germany wanted to apply the brakes on banking union and much infighting lies ahead. ECB supervision will not extend to Britain but there is the threat of Britain being outvoted when decisions are taken on the regulation of banking and finance in the EU as a whole.
Greek debt is growing as a result of the brutal austerity measures imposed on its people by the neo-liberal troika of the EU, ECB and IMF. The total debt is expected to increase from 164.9% of GDP now to a peak of 190% in 2014. Next year the overall contraction of the Greek economy since 2008 could reach 25%. Greece is still awaiting a $31.5bn long overdue payment from the second $130bn bailout agreement with the troika in March. On 7 November the Greek parliament narrowly backed (by 153 to 128 with 18 abstentions) a fresh austerity package of €13.5bn demanded for release of the bailout loans. Six out of 33 parliamentarians in Pasok were expelled from the party for voting against the package and one from New Democracy for abstaining. The other party in the coalition government, Democratic Left, abstained. There were massive demonstrations and strikes against the government.
As we go to press, these funds have still not been made available to the Greek government. The IMF and EU are in conflict over how fast Greece must reduce its debt levels. The IMF is insisting that it will not release its tranche of the bailout fund unless Greek debt is cut to 120% of GDP by 2020 – its benchmark for ‘sustainability’. The EU wants to move this debt target to 2022 so that European official creditors – the eurozone rescue funds and the ECB – will not suffer losses on Greek debt. The IMF wants them to take losses on their official loans or bond holdings to help reduce Greek debt, a position strongly opposed by Germany. A further meeting is to take place on 26 November. Meanwhile the economic situation in Greece is rapidly deteriorating as millions of Greek people face further impoverishment. Its economy shrank at an annual rate of almost 8% in the third quarter of 2012.
Latest statistics show that the eurozone has followed Britain into a double-dip recession with a 0.1% decline in GDP in the third quarter, following on from a 0.2% fall in the second quarter. Unemployment in the eurozone is at a new record high of 11.6% with 18.49 million out of work. Youth unemployment in the eurozone has reached 23.3%, with a new high for Spain of an untenable 54.2%.
Britain and the EU
The British ruling class is not only divided on the issue of European integration, but even on membership of the EU. Pressure from eurosceptics within the ranks of the Conservative Party is pushing Cameron into positions that the dominant sections of the British ruling class have been trying to avoid. At the end of October Cameron suffered a significant blow when, in a blatantly opportunist move, the Labour Party sided with 53 hardline Conservative eurosceptics to oppose Cameron to vote for a cut in the EU budget over the years 2014-2020. Cameron had asked for Parliament’s support for an EU budget freeze.
There is much talk of a new negotiated ‘settlement’ with the EU with Britain pulling out of a ‘block’ of more than a hundred European justice and policing powers. The pressure within the Conservative Party to hold an in/out referendum on the EU after the next election is growing. In a recent opinion poll some 56% of British voters said they want to leave the EU. Michael Gove, the Education Secretary, told the Mail on Sunday that he would be prepared to vote for the UK to leave the EU if a referendum were held.
Cameron would argue for a new negotiated settlement with the EU but would be against a UK exit, seeing it as detrimental to Britain’s overall economic interests. However, in his fight to prevent the City of London coming under the supervision of a European Banking Authority and his threat to use Britain’s veto to prevent any expansion in real terms of the EU budget, Cameron is seriously damaging relations with other EU members. Both Hollande and Merkel believe a two-tier Europe with Britain on the margins of the EU could now be a real possibility. It is not one that the more conscious representatives of British imperialism want to accept.
At the recent CBI annual conference the CBI President and Centrica chairman, Sir Roger Carr, said in regard to Britain’s relation to the EU that the ‘cold business logic of partnership for self-interest must prevail’. He continued by saying that as Europe’s countries bind together for salvation ‘we in the UK must work harder to avoid the risks of isolation’. Europe, he said, was the bedrock of Britain’s international trade and the launch-pad for expanding its global trade, not ‘the landmass from which to retreat’. The voice of British business should be loud and clear in extolling the virtues of future engagement should there be an in/out referendum. This position was supported by Labour Party leader, Ed Miliband, who committed his party to fight to preserve Britain’s membership of the EU and said that he would not let Britain ‘sleepwalk towards exit’. Leaving Europe, he said, would be bad for prosperity and a betrayal of Britain’s national interests. ‘We would be left with an offshore Britain competing on low wages and low skills in a race to the bottom’ (Financial Times 19 and 20 November 2012).
Infighting among the European countries continued at the 22-23 November summit, with talks on the EU budget breaking down. Four of Europe’s net contributors to the budget – Germany, Britain, Holland and Sweden – rejected a compromise position put forward by the EU president Van Rompuy. They wanted larger cuts. France fought to protect the subsidies for its farmers. In the end the gap between the net contributors and those that received most from the EU budget – the poorer recipient countries – was unbridgeable. Further attempts to settle the budget will continue at meetings next year. Before then there is a continuation of the discussion on banking union on 13-14 December. Britain can expect a much harder time.
Britain’s position of being in Europe but not run by Europe will become increasingly untenable in the months ahead, as the dominant European imperialist powers step by step overcome their differences in the process of forging a European imperialist bloc capable of challenging US imperialism’s global dominance.
1. See David Yaffe ‘Relentless austerity: the price of a European imperialist bloc’, in FRFI 229 October/November 2012 on our website at http://tinyurl.com/czjcdgj
2. See David Yaffe ‘Edging towards a European imperialist bloc’ in FRFI 228 August/September 2012 on our website at http://tinyurl.com/8d2tu5e