Can Europe be one? A Marxist perspective on 1992

1992: Can Europe be one? James Wood

ideas appear tired and outdated, '1992' offers an opportunity to look constructive, progressive and cosmopolitan. To be pro- European in 1989 is to be modern, even fashionable.

In the camp of the right, by contrast, the countdown to I January 1993 and the drive towards a single Europcan market эG01 have tended to cause conflict and disagreement. This is most obvious in Britain, where the most secure and longest-running 9n0 Conservative regime in Europe has been plunged into internal strife over 1992. "We must set the agenda for the Community" begins the opening paragraph of the Conservative Party's manifesto for the June Euro-elections. But the Tory manifesto nearly missed the bus itself, having been held up by innumerable changes introduced as a result of wrangles between Thatcher's 10 Downing Street HQ and Howe's foreign office. The week before it was published the Economist declared a rift of historic proportions in the Tory ranks: *The split in the Conservative Party over the future of the European Community may turn out to be its most significant rupture since Sir Robert Peel repealed the Corn Laws. The party is swirling with speculation; factions of all shades are plotting. Already, Europe looks like the rock on which—one day—Mrs Margaret Thatcher's premiership may founder.? In just a few days in May, Thatcher: • hinted she would take the Brussels Commission, the influential Community central bureaucracy, to the European court over its insistence on prominent and strongly worded health warnings on cigarette packets; • attacked the ECs Lingua programme, under which British schoolchildren would be required to learn two European languages other than English; • denounced the commission's programme for a 'social dimension' to the single market as 'going back to Marxism'; • warned that any relaxation of Community border controls could result in a plague of narcotics disease in Britain; • most significantly, accused her loyal chancellor, Nigel Lawson, of picking up' another disease —"the inflationary tendency'by hitching sterling to the exchange rate of El: DM3 in 1987 and early 1988. Over Europe, the bitter conflict between Thatcher and former party leader Edward Heath reached new heights of acrimony. In the past, often isolated in his attacks on the leadership, Heath attracted substantial support inside the Conservative Party for 112

his pro-Community stand against Thatcher's aggressive defence of British sovereignty. He ridiculed Thatcher's ire at 'creeping socialism' from Brussels, noting that eight out of the "Twelve's" national governments were run by Conservative parties.

In May 1989 Michael Heseltine, who resigned from the cabinet after Thatcher ruled out his "European option' in the Westland helicopter row, published a firmly pro-EC book, The Challenge of Europe. Heseltine invoked the Europeanism of wartime Tory leader Winston Churchill and called for monetary convergence through the European currency unit, the Ecua Heseltine went on to warn parliament, in relation to 1992, that Thatcher's hostility to Europe could 'detach British industrial and commercial management from the venture! Leading Tory MEP Lord Plumb spoke out for faster European integration.

Compared with Labour's wholehearted commitment to Europe, Tory policy appeared thoroughly incoherent.

In fact, however, Europe is not quite as problematic for the Tories as it seems—-nor is it the easy winner Labour would like to latch on to. In her distaste for the schemes of François Mitterrand, Felipe Gonzalez and Andreas Papandreou, Thatcher can count on an historic ally: the USA. She can draw, too, on Britain's longstanding antipathy to Catholic southern Europe and on anti-German sentiments nurtured through two major wars and generations of popular films, comics and football contests. In dismissing Tory Europhile Lord Cockfield from his commission responsibility for the internal European market, she installed, in Sir Leon Brittan, a man who could be counted on to push for a deregulated Europe in Thatcher's own image. All is far from lost for the Tories on Europe.

Thatcher's sabre-rattling against Brussels may look like a pathetic attempt to find a new substitute for the Falklands Factor' that she manipulated so successfully in the early eighties.

Yet it also reflects the insecurity of the British government at the potential damage that a European free market might do to the feeble British economy. Britain's economic decline, and in particular the £6 billion trade deficit it ran up with West Germany in 1988, makes it essential that Thatcher turns up the volume of her anti-Europeanism. By politicising diplomatic relations in the EC, Thatcher hopes to make up for the weakness of British capital. In practice Thatcher is not about to pull Britain out of the EC; even in her abrasive Bruges speech in September 1988, she pointed out that 'our destiny is in Europe, as part of the Community. Thatcher's tirades are aimed at 113 playing to the gallery in Britain and-just as important-at

driving hard bargains in Brussels.

Led by retiring Institute of Directors director-general, John Hoskyns, the right-wing Bruges group' cabal is a useful device for Thatcher to make the running with on Europe. It can, for instance, point up the widespread fraud surrounding Community spending programmes-and leave the fact that it is national governments who are responsible for allowing this to the small print. By contrast, Labour's line on the EC lacks consistency: only five years ago Labour was demanding withdrawal as fervently as it champions unity today. Kinnock now wants to be pro- European, but fears being outflanked by Thatcher as a patriotic upholder of national interests. Labour favours the 1987 Single European Act, but wants increased scrutiny of EC initiatives on the part of Westminster. It has no inspiring vision of Europe: 'Our approach, nods its policy review, Meet the Challenge, Make the Change, sagely, "will be a pragmatic one'. Indeed, Labour's approach is so pragmatic that it cannot even bring itself to make the European Convention on Human Rights into British law. The Socialist International's consensus in favour of European unity has only recently been achieved and it remains fragile.

Thatcher's position on the other hand, reflects the resilience of an institution much more securely founded than the Twelvenamely, the capitalist nation state.

Do, however, trends toward European integration reflect a progressive development of the international division of labour, and should they thus be applauded?

Many commentators think so. As America's Fortune magazine puts it 'the symbolic impact is nearly as important as the programme itself..and the momentum is building.® From the left, Marxism Today editor Martin Jacques agrees: "The rhetoric of national sovereignty, he writes in the Sunday Times, 'is increasingly irrelevant:? John Palmer, the Guardian's influential correspondent on EC affairs and a prominent figure in the Socialist Society, takes a similar view. It is time, he writes, for the left to break down traditional suspicion of supranationalism's Is European supranationalism' really something we should welcome-and, is it indeed, something that can ever be realised?

What is the significance of the Single European Act, and of the trends towards a distinctively West European defence system?

How do we explain Labour's conversion to Europeanism, and what should be our line on 1992? This article explores 114 these questions.

•Big European companies were early champions of the idea of a unified market; they felt they needed wider, less red-taped horizons than their individual home markets could provide. The world market? No: a big sheltered European market was what they had in mind, and that is what The ancient capitalist economies of Europe are heavily dependent on obsolete agriculture and traditional manufacturing industries. Community mainstays have long been the Common Agricultural Policy, whose guaranteed price levels protect Europe's archaic small farmers against American and third world competition; and a range of subsidies for European coal, steel and shipbuilding, designed to ward off cheaper foreign imports. Even in more advanced sectors, Europe needs protection: EC trading regulations, for instance, enforce a common external tariff of 14 per cent on imports of semiconductors. The main impetus towards 1992 comes from the continuing decline in European competitiveness on the world economy and the consequent need for tougher measures with which to insulate the Part of the purpose of the Treaty of Rome, signed by the six original members of the European Economic Community in 1957, was to strengthen trade within Europe. In the booming sixties the Community succeeded, and even in the recessionary early eighties, it ensured that intra-European trade grew still further in significance compared with exports elsewhere. By 1985, 54 per cent of a much-expanded Community's exports went to other EC countries, and a further 12 per cent to the rest of Western Europe; only 10 per cent went to the USA, and just one per cent to Japan.!° A basic rationale for 1992 is that the EC has had to turn towards freeing its own market as its exports to the USA and to Opee countries have declined. Europe relies on Europe for trade. The EC wants a more porous ('single) European market because, increasingly, its commodities have For all the importance of intra-European trade, it failed, in the early eighties, to expand as rapidly as overall world trade.

Further, it proved unable to import to Europe the kind of growth it had done in the sixties. The result has been that, on every measure, Europe has fallen behind America and Japan."!

The EC is also in the wrong industries. Between 1979 and 1985 its share of Organisation for Economic Cooperation and 2. Fortress Europe: the protectionist dynamic to 1992 Europe's declining competitiveness 115 they are now demanding.° EC from more dynamic capitalist economies.

nowhere else to go.

Development (OECD) exports rose two per cent in sectors like metals, minerals, construction materials, textiles and clothing—sectors which enjoy only one per cent rates of growth in demand a year. But in sectors of high growth (six per cent annual increase in demand) —that is, in electrical equipment, information technology, office equipment, chemicals and pharmaceuticals the EC lost nearly three per cent of its share.!?

Likewise, in 1986, Western Europe ran a $14 billion deficit in electronic products, one which the Economist reckons will reach nearly $30 billion in 1992.'3 In terms of international competition, then, Europe is weak. It is not, however, on the point of collapse. We should recall that Jean-Jacques Servan-Schreiber's doom-laden bestseller on Europe's prospects, The American Challenge, was published in 1968 at precisely the time that Europe began to put the heat on the USA. But Europe's declining competitiveness is particularly apparent in expanding sunrise industries which rely on research and development (R&D) and new technology. In reviewing Europe's performance here, we meet a rationale for 1992 which goes beyond the simple encouragement of intra-European trade, but focuses, rather, on the creation of Euro-sized firms that can offer competitive technologies worldwide.

Despite its 'smokestack' associations, the international auto- A hi-tech flying motive industry represents a sunrise sector of manufacturing. It fortress depends on product innovation, robotics and more and more—on electronic components. Here, however, Europe is in some difficulty: vehicle production 1946 1970 1985

USA 79 28 26

Japan 0 18 27 Western Europe 13 40 28 Source: M Pemberton, The world car industry to the year 2000, ETU, September 1988 It is a similar story in R&D. From 1977 to 1983, the EC'sshare of industry-financed R&D in the capitalist world dropped from 35 to 30 per cent. Per head, private R&D in the EC grew consistently from 1967 to 1983, but has lagged behind American and Japanese figures since the mid-seventies. The EC spends 1.9 116

per cent of GDP on R&D, compared with 2.6 per cent for Japan and 2.8 per cent for the USA. European R&D is less than American even when defence-based expenditure is exeluded, and it is also more state-subsidised. 4 In some hi-tech sectors, it is true, Europe retains a strong position. However, the EC will only spend £320 billion on research in the five years to 1991, 'a long way in per capita terms behind the £700 billion planned by the US and Japan's €230 billion"'5 Overall, Europe's laboratories are slipping behind.

One of the central aims of 1992 is to arrest Europe's decline in hi-tech manufacturing. In drafting the Single European Act, the EC provided not just for the freer circulation of commodities, but also for the easier building of large, hi-tech companies on an all-European basis. By encouraging the centralisation of capitalmergers and takeovers both within and across national boundaries, 1992's partisans hope to build a leaner, fitter EC. They hope that a more integrated European capitalism will be better able to see off imports from America and Japan, penetrate their home turf, and catch up with or stay ahead of them in the third world. The argument is that, through acquisitions, mutual minority shareholdings and joint ventures, European companies can reap economies of scale not just in production, but also in R&D costs. As a consequence, they can acquire the critical mass with which to cover all three markets of the "Triad' areas-North America, south-cast Asia and Europe and so remain profitable "global players' 16 Thus, even without the EC imposing protectionist controls on inward-bound goods and services from New England and Osaka, it has designed the run-up to 1992 as an aggressive riposte to these powers. Fortress Europe is here now— and it is a Flying Fortress, not a stationary one. By means of a competition policy, run from Brussels, which waves through each new hitech merger, the EC hopes to take the fire back to America and Japan. Will less restricted intra-European trade and the smoother creation of hi-tech Euro-monopolies really save the EC? In fact the Fortress Europe project nurtures as many snags for the Twelve as it does advantages.

Many commentators have already noted that it is North Trade: Fortress Europe as a America and Japan which are, in the short term at least, likely to Trojan Horse be the main beneficiaries of more liberal trading arrangements within the EC. American giants such as IBM, Digital, Texas 117

Instruments, Xerox, Ford, Caterpillar and Black & Decker already treat the whole of Western Europe-not just the EC—as a single target. They are much more spread across Europe than are ICL, Philips, Siemens, Renault, Peugeot, Fiat, JCB and Bosch. In food and drink, Coca Cola, Mars, General Foods, Heinz, Kellogg, RJR Nabisco, and other US concerns account for 17 of the EC's top 20 companies.!?

Because America and Japan already operate extensively within Fortress Europe, 1992 will not secure a genuine protection of European-owned industry. While Brussels is still debating the dimensions of the common external tariffs that will emerge after 1992, sales from US multinationals operating on EC terrain are already six times higher than direct US exports to the Community. Similarly, while product standards can no doubt be drawn up to exclude American and Japanese goods, "mutual reciprocity' of technical standards within the countries of the EC—a key aspect of the 1992 programme— will make life easier for every high volume producer outside Europe's shores.

It is precisely because their fears of a Fortress Europe are well-founded that American and Japanese firms have stepped up their presence within its walls. In anticipation of future EC import controls, annual US investment in the EC rose nearly 40 per cent to about $20 billion between 1986 and 1988, while the Japanese annual figure nearly doubled over the same period —to $6.5 billion.' Today's business press is full of reports of Japanese and American direct investment into the EC. Toyota, Japan's biggest carmaker, is to open its first European car plant in Derbyshire.

In electronics, Fujitsu has reputedly decided to set up a $100m wafer fabrication facility on Wearside, and Toshiba and Hitachi- Japan's second and third largest chip-makers-have plans to follow the industry leader, NEC, into the EC. Toshiba has already promised to build Japan's first computer factory in Europe, producing laptop machines at Regensburg, West Germany. Meanwhile, Texas Instruments is to build a $250m wafer fabrication plant in Italy, and Sony has confirmed that it will invest a further E36m on expanding its TV production factory at Bridgend.!° All these developments make it certain that EC protectionism in trade, just like national protectionism, can only change the form of the capitalist crisis and its effects in the sphere of competition. Fortress Europe, in sum, risks turning Europe into a Trojan Horse for the more efficient producers of Japan 118 and America.

Behind the There is much discussion about the spread of merger mania" hype about across the borders of Europe. But what enthusiasts for 1992 take "merger mania' as a sign of increasing unity and dynamism on the part of the EC in fact reveals a very different picture.

Between 1986 and 1987 the number of cross-border deals in the EC rose from 227 to 303. But two main sectors in which cross-border mergers were prevalent-speciality chemicals and food/drink show that these mergers denote not growing strength, but moves made out of weakness. Of the 303 deals made in 1987, no fewer than 71 were in speciality chemicals.20 Yet, in Europe, this is a sector which can only survive through illegal price-fixing cartels. Mergers are a response to desperation, not a reflection of Euro-dynamism. Similarly, in food and drink, there is no evidence that a confident unified European capital is in the making. Of 46 top European food firms, only half have strong brands outside one or two countries.?! In food and drink, the impulse to acquisition is born out of adversity; producers are fragmented, markets saturated and competition intense. Though it is true that mergers within national limits are today often undertaken as a springboard to wider European operations, it is striking that national mergers are more than double the number of cross-border ones.

What is more, a large number of EC cross-border mergers revolve around services. The names involved? Italian media magnate Silvia Berlusconi; French insurers Compagnie du Midi, retailers La Redoute; water utility Lyonnaise des Eaux; West Germany's Deutsche Bank; Britain's Nat West, Bupa and hoteliers/retailers Mountleigh.

The fundamentally hidebound, low-tech and superficial character of the main sectors prone to merger mania in the EC highlights how deep Eurosclerosis runs. Europe is now catching the American disease of short termism: the use of money capital, not for productive investment but for speculation. Given the choice between a long slog to improve low profitability factories and snapping up a foreign plastics, food or service concern, stripping it of its assets and selling it for a quick profit, EC firms are more and more taking the latter option. In turn, this trend is of a piece with another- the fact that, in mergers as with joint ventures and foreign direct investment, EC companies prefer to consort with America and Japan than with each other.

Though the number of EC mergers with non-EC companies is small, EC-US tie-ups tend to involve much larger sums of money. For example, Fiat has spent $300m buying US insurers 119

Fireman's Fund, and Pirelli paid $200m for American Armstrong Tyre. These Europe-to-America mergers, in contrast to Europe-to-Europe manoeuvres, are truly colossal in scope; and Britain's conduct in particular shows how vital it is to keep EC cross-border arrangements in perspective. The average British acquisition in Europe is worth only S10m. In 1988, British firms spent £2.6 billion on companies in the EC, double the amount for 1987—but no match for the $32 billion they spent in the USA in each of those two years.??

Finally, when we look at foreign direct investment, it is clear that America, not Europe, is the EC's main target. In 1986, EC investment in the USA amounted to $106 billion more than 60 per cent of total EC foreign investment.23 For the EC, America is not just the land of opportunity, it is the gateway to the Far Eastern markets. Prospects within the EC are not nearly so alluring. Even in the case of German investment in Britain, one of the most celebrated cases of direct intra-EC investment, the cumulative total of overseas assets amounts to but £3.6 billion.24 The moribund nature of European capitalism, then, makes a Flying Fortress of merged, hi-tech Eurofirms both necessary and highly unlikely. All the evidence confirms that EC member states regard each other more as customers for exports than as partners in the joint, cross-border accumulation of capital.

"Europe' thus exists in the first place as a target for sales; its chief importance, for itself, lies in the sphere of realising alreadyproduced values—in circulation. In the sphere of production, Europe has no confidence in its abilities, and the prospects of achieving greater unity appear remote. In production, Europe's priorities lie outside Europe: with America, Japan and the third world. Fortress Europe is, however, designed to safeguard European capitalism against its more dynamic rivals. Let's take a closer look at the EC's relations with the rest of the world economy.

In December 1988, at Montreal, the 1986-90 Uruguay Round' Fortress of talks under the General Agreement on Tariffs and Trade against America (Gatt), ended in acrimony. Other states would not agree to the USA's two-year old demand for the total abolition of all tradedistorting agricultural subsidies —the so-called 'zero approach.

Then, on New Year's Day 1989, the EC imposed a ban on $ 100m worth of annual exports of American beef, on the spurious grounds that it had been injected with unsafe hormones,25 The USA replied by slapping a 100 per cent tax on $100m worth of 120

EC special hams, tinned tomatoes, coffee, fruit juices and lowalcohol drinks. The EC in turn prepared a second $100m package of sanctions, this time against American sweetcorn, nuts and dried fruit. Though there are important trade conflicts between the EC and America, it is important not to exaggerate their scale.

Brussels and Washington have in fact set up a joint task force to try to resolve the row over beef hormones. A Gatt meeting in Geneva in April 1989 pulled the trading system back from the brink of disaster", though it warned that increasing protectionism among the Twelve in the run-up to 1992 could make the second half of the Uruguay Round 'casily crumble 26 It is worth remembering, too, that disputes on hormones and other commodities (steel, citrus fruits, spaghetti) in total involve only around $400m.27 Such sums do not count for much against a total US/ EC trade flow of S160 billion.

Why, then, all the fuss about trade wars"? Why, when the main impact of EC/US agricultural disputes on Britain is a cost of El.1m to the petfood industry, do such disputes make front-page headlines? The answer lies in the wider context of the decline of American capitalism and its determination to resolve its massive deficit problems, at least partly, at Europe's expense. America's parlous overall balance of payments position makes disputes over seemingly irrelevant agricultural commodities a cipher for much bigger rows over manufactures.28 In 1988 the USA ran a trade deficit of $137 billion,2 Given that the EC is responsible for a good tenth of that, even S400m burdens congress greatly.

With US exports worth an unprecedented 14 per cent of GNP, and those to the EC worth S53 billion as against S45 billion for Canada and $26 billion for Japan, every last dollar exchanged with the Europeans counts.30 Again the example of cars is telling. In 1985, America ran a trade imbalance of two thirds of a million cars with the EC.31 We live in a world economy that is increasingly exportoriented. After stagnating between 1980 and 1983, world exports rose by 20 per cent between 1983 and 1987.32 Yet these figures aply to trade volumes: the value of world trade is actually declining at present. In these circumstances America, a major exporter, has no choice but to be tough on its biggest export client: Western Europe. In trade and investment, as we have seen, America is deeply bound up in the EC.33 Washington deeply resents the slightest Community challenge to its ways of doing business: why else 121 would US commerce secretary Robert Mosbacher have the

nerve to demand, in carly 1989, that the USA be given a seat at the EC's top 1992 negotiating tables? America wants the EC to: • import more manufactures from the debt-ridden third world, to case the USA's political position there; • open up its telecommunications markets for US concerns to penetrate; • stop complaining about Boeing aircraft being unsafe, and instead end the $10 billion of subsidies enjoyed by Airbus Industrie, the loss-making European airspace consortium; 34 • continue to accept US insistence that almost any piece of technology exported by Western Europe to the Eastern bloc could be a security risk, despite German efforts to get a relaxation of the export controls applied by Cocom, the Coordinating Committee for Multilateral Exports,35 Forall Ronald Reagan's free trade rhetoric, US protectionism rose rapidly during his two terms of office. The USA's 1988 Trade Act, with its Super-30l' provisions, threatens retaliation against 'unfair' trading partners: they were told to open their markets to US exports, or sanctions—not negotiations would follow. In addition, more and more exporters to the USA have to agree to voluntary restraint. All this spells trouble for the Community. For its part, the EC cannot live without the USA. But there are increasing cases of EC hostility to US 'dumping' and demands that the products of EC-based US multinationals meet exacting levels of local content'. Another anti-American catchphrase is reciprocity. In banking, the commission last year proposed that non-EC firms operating or wanting to operate inside its territory be allowed to do so only if their parent countries granted equal access to EC financial institutions in their home markets. In October 1988, the commission backed down from this suggestion, saying that reprisals would be neither retrospective nor universally applied. Since then the prospect of EC restrictions on US banks has prompted formal complaints from companies such as JP Morgan and Merrill Lynch. 36 Transatlantic tensions over Fortress Europe reflect the growth of protectionism on both sides. However, the issue goes much further than pure economics, as the issue of East-West trade and joint ventures reveals. In 1988, West German exports and imports with the Soviet Union totalled but $5.4 billion, or 1.6 per cent of its total foreign trade. Bonn's exports to Moscow rose 20 per cent that year, compared with an increase of 66 per cent recorded by America.

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Of 143 Western/Soviet joint venture deals signed, just 12 are in operation. Soviet management inefficiency, deteriorating terms of trade on Soviet oil, Comecon indebtedness and lack of foreign exchange—all these factors ensure that, for the EC, the East remains but a 'tantalising vision"" At $22.1 billion in EC exports in 1987, future growth, though continuing, "will not match the dynamism of the early to mid-eighties".3 Nevertheless, West Germany's limited trade with the East enrages America. It is not just that US exports are only half West Germany's, or that the USA has signed but eight joint venture agreements with the Soviets. Rather, American hawks squawk about what they term the "Genscherisation' of Europe the trend for West Germany in particular to foster links with the Eastern bloc regardless of US anxieties on 'security.

The hawks argue that German exports, in which factory automation equipment figures noticeably, will free Soviet resources for arms production and allow the Kremlin to slow the pace of reform. They point out that, by contrast, US exports largely consist of grain. They criticise the offer of $1.7 billion of credits by a consortium led by Deutsche Bank, even though this is aimed at the modernisation of Soviet consumer goods industries, and even though it has yet to be taken up in full. They are particularly aggrieved about the sale, by Siemens and the Swiss/ Swedish group ABB, of a $250m high-temperature nuclear reactor. For them, the fact that 70 per cent of known violations of Cocom rules are attributable to West Germany, Austria and Switzerland is part of a pattern —and they want the pattern stopped. West Germany is incensed by US interference. In the short term, it seeks to bolster its flagging economic growth by trade with the East; in the long term, it would like reunification. For West Germany, US demands to rein back its exports square with the costly burden of supporting American troops on its soil, with the disruption caused by annual wargames played out across its countryside, with the inconvenience of low-flying US fighter jets, and-above all-with Pentagon instructions that the shortrange nuclear weapons stationed with it be modernised.

Fortress against America, then, is not merely a quarrel over hard cash. It is one in which both sides find economic differences spilling over into confrontations of much wider political and ultimately military significance. The 1992 adventure can only accelerate this process. 123

*It is necessary to distinguish clearly between Japan and the USA. With Fortress the Japanese, a policy of the utmost firmness is necessary. But with the against Japan USA it is different. Occasional confrontations must not prevent us from being close friends and allies. "39 It is important to put Jacques Delors distinction in context. By comparison with exchanges with America, trade with Japan counts for little with the EC: Two-way EC trade, 1988, $ billion Japan: 55 (of which 40 is Japanese exports to the EC)

USA: 145

EFTA: 200

Source: J Delors, Second thoughts about 1992'40 However, while Japan is at present a much smaller force in the European economy than the USA, its influence is growing fast, especially in hi-tech sectors. On the other hand, the EC is keen to make some headway at last in the rapidly expanding Western Pacific. As a result Europe is often more hostile towards Japan than it is to the USA. Although companies such as VW, Philips, Siemens and GEC/Plessey have announced some important deals with China, the EC is generally on the defensive in Japan's backyard: it only invests about $1 billion there. But against EC-bound exports of Japanese photocopiers, typewriters and weighing scales, Brussels regularly levels charges of dumping. It would dearly like to see the back of Fujitsu, Hitachi and Matsushita. In an important move last year, the commission prepared draft plans to limit Japanese car imports into France and Italy.

Renault and Peugeot, relatively weak French car firms, were in the forefront of the fight for this measure. In addition, more and more major EC employers have spoken out against European governments subsidising Japan's creation of a few highly capital-intensive jobs around what are derisively termed 'screwdriver' assembly plants. They contend that, by aiming to cut manufacturing unemployment with the aid of Japanese-owned green-field factories that are reliant on Japanese-made components, the EC has given Tokyo an excellent weapon with which to get round protectionist barriers to its imports. As early as August 1987, the commission had Japanese-owned EC plants for the manufacture of ballbearings, excavators and other products under intensive surveillance.

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Such is the penetration of Japanese commodity exports and production facilities around the world, however, that EC unity against Japan is easier talked about than enacted. For all the Twelve's hatred of screwdriver plants, there is intense competition among EC states to attract them. For example, French and Italian manufacturers have until recently insisted that Britishmade Nissan Bluebirds be counted as Japanese until such time as they reach 80 per cent local content".

Japan is a threat to the EC because it has the clout to set the Twelve at each other's throats. By the same token, the ECs local content blast against Japanese cars built in Europe reflects fears about the superiority of Japanese technique. Only seven per cent of Japanese cars sold in Europe are built here. But what Renault, plus Peugeot, Rover and Fiat all surmise is that the unrivalled productivity of Japanese plants in Europe could help Japan double its share of the S180 billion European car market to 22 per cent — and allow it still to meet local content provisos,4 That is why Fiat's managing director, Cesare Romiti, told a European parliament conference in March 1989 of the need for a "European defence policy against Japanese cars. It is this, above all, that explains Delors' macho stance on Japan; and it is this which suggests that, in the nineties, anti-Japanese sentiment in Europe can only increase.

Fortress Whereas Europe is largely on the ropes in its fight against the against the USA and Japan, it is still strong enough to pursue ruthless third world policies against third world competitors-policies that have catastrophic effects for the poorest producers of primary agricultural goods. Already the Common Agricultural Policy costs third world exporters twice as much as they gain from EC "aid. Meanwhile, as firms like the Midland Bank bleed Latin America dry through debt, the third world finds business with the EC tougher than ever. Between 1981 and 1987, exports to the EC from Latin America and Africa stagnated at $35 and S25 billion respectively, and the rise in Asian exports from $25 to $40 billion was outweighed by the drop in those from the Middle East, which was from $80 to $35 billion.42 The EC is out to get Singapore, Thailand and other Asian countries, where Japanese-owned firms export components to their compatriot companies based in Europe. The EC wants to stop south-east Asian small-screen colour TVs, has railed against its vegetable oils-a key export—and, in services, has recommended fines against South Korea's Hyundai for charging 125

unfairly low freight rates. It is hitting out at Argentine farms and has taken anti-dumping measures against Brazilian steel and fibres. Bananas, sugar and rum, which provide some Caribbean states with 90 per cent of their foreign exchange earnings, are also in the firing line. Even the 'newly industrialising countries are in no position to defend themselves against the EC. This is graphically illustrated by the miniscule scale of South Korean and Brazilian investment in the EC. Although Korea's Samsung, Daewoo and Goldstar make VCRs in Britain and West Germany, the capital bound up in these ventures is negligible: in total, South Korea has only $150m tied up in Western Europe. As for Brazil, its main sphere of influence is Portugal where, annually, it sinks the grand sum of S4m. For the third world 1992 spells further protection. Indeed, while Brussels accuses it of dumping, the Common Agricultural Policy allows EC farmers to dump their products around the planet—and at the third world's expense. 1992 means intensified exploitation and redoubled oppression for the workers of the backward capitalist countries.

The relative stagnation of European capital on the worke economy is the principal backdrop to 1992. But the new internationalist cohesion of Europe exists only to protect i from the rest of the world in trade, and as an abortive attempt u fasten together Euro-sized capitals in the cause of world plunder The drive toward greater European integration represents, not a progressive development of the international division of labour, but a self-centred, reactionary effort to take all non-Europeans to the cleaners. Out of the 'Eurosclerosis' of the early eighties has risen the edifice of Fortress Europe. On its battlements, we can already discern the flags of Eurochauvinism.

3. Europe divided Though the European powers are keen to unite against the rest of the world, they are divided among themselves. As 1992 approaches, the internal conflicts are becoming more apparent than trends towards greater unity.

Significant advances have been made towards integration There are more EC laws, policy statements and declarations of principle. The institutions of the EC have also been made more effective. Above all the act establishing a single European market has been in effect since July 1987. In addition to setting 126

the 1992 project in motion, the act has streamlined the ECs decision-making procedures, preventing single member states from using their powers of veto in a number of different policy areas. Yet, despite all this, every step towards EC unity today re provokes intra-EC conflict.

It is important to recognise that the July 1985 EC white paper, Completing the internal market, which first recommended the 1992 deadline then codified in the 1987 act, was but the latest in a long line of attempts to achieve an unimpeded business Europe.

However, in setting a deadline for the free movement of goods, IP services, capital and people, the white paper was a triumph for the goals proclaimed in the original Treaty of Rome. The re example of standards shows what has been achieved.

m Before the white paper, the EC had always tried to get round "technical' barriers to visible exports by prolonged and fruitless d, efforts to standardise the EC's 100 000 different product al specifications. Since the white paper, by contrast, EC states have moved to grant each other's standards 'mutual recognition' in the case of many products. In other words, though product specifications will still differ, such differences will provide less justification for imposing non-tariff barriers to imports from other member states. An electric shaver deemed safe in West Germany is one that France will have to accept, and so on.

it To the extent that trade in goods is no longer made to wait for standards committees to reach unanimous conclusions on product design and performance-to this extent trade is liberalised and the EC has moved toward a genuinely single European market. But there are other effects of the Single European Act (SEA) on EC unity: • the commission of 17 'independent' civil servants to the EC has gained new powers in monetary, social, environmental and residential affairs. • the 518-MEP European parliament at Strasbourg, a body directly elected since 1979, has now gained powers at the expense of EC meetings of ministers. This gives European laws an EC- St wide legitimacy that they lacked in carlier, more nationalht ministerial times. • Strasbourg now has the final say on commercial deals with non-EC countries. It has already delayed three council of n. minister trade protocols with Israel as a gesture against repression on the West Bank.

re • Strasbourg also has the final say on the enlargement of the in Twelve. Applications from Austria, Norway, Turkey, Cyprus 127

and Malta have all been suspended until after 1992.

In addition to these direct results of the SEA, the European Court of Justice in Strasbourg, another Euro-forum reputedly free of the national prejudices that dominate meetings of EC ministers, now has more and more intra-EC disputes referred to it. Taken by themselves, all these developments present a rosy picture of convergence on the part of the Twelve. But, as soon as we broaden our perspective to the full range of issues covered by the SEA and the white paper, the limits to EC unity become apparent. The SEA proposed action in the form of 300 major directives, and set deadlines for carrying them out. Here we immediately get a sense of the first problem with the SEA. Europe is running behind schedule. The EC should have implemented more than 160 directives by the end of 1988; in practice, it only agreed 121, and had judiciously cut the total on the agenda to 279.

SEA proposals take three years, on average, to become law (some take a decade). A third of all subsequent rulings made by the European Court are still ignored, chiefly by self-styled enthusiasts for 1992 such as France and Italy. Together with customs and tax problems, breaches of the SEA already account for more than half of the infringement cases pursued by the commission.43 From here on in, all informed commentators agree, the going for 1992 will get a lot harder. A glance at three issues— product standards, public sector procurement and state aids to industry-shows why. Standards, Mutual recognition in product standards may boost intraprocurement and European trade. But as a tool with which to beat US and state aids Japanese competition, it fails, as two British journalists-Owen and Dynes-have noted: *No amount of mutual recognition will...enable a three-pin electrical plug to fit into a two-pin socket. Mutual recognition will not by itself establish the kind of European-wide industrial standards needed to create the economies of scale that would be offered by Communitywide industrial standards. 44 It could take decades fully to harmonise EC standards, Owen 128 and Dynes continue. They suggest that progress in the ECs

£17.54 billion telecommunications market will be slow and patchy'. Technical standards for the Twelve's €70 billion construction products sector will not be ready by 1992. New an EC-wide pharmaceuticals tests and certification procedures for the Community's £18 billion pharmaceuticals market will also C not be ready. es Free trade within the EC is not just a matter of common technical standards. It is also very much about liberalising public sy sector procurement-something which alone accounts for 15 as per cent of the Twelve's GDP. So pervasive is the doctrine of market forces among the Twelve that all member states are obliged to pay lip-service, at least, to letting foreign competitors pitch for national business.

Opening up public procurement reflects the desire of hardpressed EC states to minimise unnecessary state expenditure.

Yet even despite this, progress toward an open, pan-European En market is as slow as it is with standards. Following up the white paper, the commission's public supplies directive, already in force, requires all supply contracts worth E134 000 or more to be open to cross-border competition. A similar directive for public works contracts above €3.3m is also planned. But nationalistic purchasing policy and a wasteful plurality of monopoly suppliers are still the rule in pharmaceuticals and railway stock, and, more importantly, in telecommunications, shipbuilding, aircraft, mainframe computers and energy.

Some liberalisation in the EC's £5 billion market for telephone exchanges is possible, dominated as it is by 11 EC Ct suppliers selling seven different systems. But for any member of LO the Twelve, to lose the ability to extend and maintain the state telephone network is to lose the very entrails of national sovereignty. With merchant marine, aerospace, information technology and energy we are also dealing with sectors which, though 'civilian", have a grey-area national security dimension to id them. Will Italtel win major telecommunications contracts north of the Channel? In a Britain where every employee of British Telecom has to sign the Official Secrets Act, the chances are remote. Untrammelled free trade within the Community implies that state aids enjoyed by uncompetitive national producers must fall. But this is a white paper ideal, not a practical possibility. The commission was successful in forcing a cut in government subsidy to British Aerospace, as a condition for its takeover of Austin Rover. But the amount involved-f250m—was relatively small, and indeed the sum total of state aids barred by 129

the commission in 1987 was less than double this.45 We can be certain that BAe will go on enjoying 'state aids' in the form of government defence contracts. We can be certain, too, that commission checks on a £9.7m subsidy paid by the Italian government to the state-owned carmakers Alfa Romeo will not make Alfa's new owner, state-protected Fiat, lose much sleep.

Leon Brittan has promised to attack state aids in the EC with a vengeance. But France, to take one example, often refuses even to declare its state aid to Brussels.4° In West Germany state aids are rising: subsidies to car producers, provided by the Federal Republic's Länder, are particularly generous, and are jealously guarded against Brussels interference. State aids are also widely used to prop up overcapacity in steel. In 1981, state aids as a percentage of industrial output looked like this: Over 15%: Belgium Over 10%: Ireland Between 5 and 10%: France, Belgium, Denmark and Italy Between 2 and 5%: West Germany, Netherlands and Greece Of particular interest are the figures for German manufacturing, whose relatively standardised products are traded very intensively in the EC: State aid to German manufacturers, 1984, DM billion† Electrical engineering 2 Steel 2 Mechanical engineering 1.8 Food, drink 1 Aerospace 0.7 Textiles, clothing 0.3 Total 13.5* +143% 1973 figure *7% mfg investment Source: J Pelkmans and LA Winters, Europe's Domestic Market, 1988, pp32-3 National standards, public procurement and state subsidies are three phenomena that underline a simple fact: the nation state and its expenditures are a dominating political and economic 130

reality today. For all the internationalisation of the world and be of European economies, the national public sector' still plays a at vital role shoring up manufacturing, the infrastructure and an welfare services. Despite the promises of free market governments, little serious progress has been made in reining back state intervention. Indeed, EC-wide national state intervention, finth anced by corporate taxes which drain corporate profits, has en lately forced capitalists into raising their prices causing the ids average rate of inflation in the EC to rise above five per cent. The ral expanded role of the nation state in the capitalist economy in the post-war period, and in particular since the onset of the ely recession in the seventies, is a critical barrier to the closer integration of Europe. In the EC, the proportion of member state GDPs taken by National public expenditure climbed dramatically from the seventies largesse, bother at Brussels According to Herbert Giersch, the right-wing Kiel university professor who first coined the term "Eurosclerosis, national ce public sector largesse rose as follows: 1g. 1973 1982 UK 41 46 France 38 52 Italy 38 55 W Germany 40 50 EC 40 51 US 31 35 Source: H Giersch, Eurosclerosis —what is the cure?, European Affairs, Winter 1987 Since 1982, the weight of public expenditure in West Germany has been rolled back"-but by only two per cent.47 Indeed the major trend of the eighties has been for state-provided benefits, a key part of state expenditure, to grow throughout the EC.

Between 1970 and 1983, state benefits rose from 18 per cent of 8. the EC's GDP to 27 per cent.* Since 1983 state benefits have grown alongside rising unemployment and the ageing EC population. As a result, it is truer than ever to say that Europe remains a collection of national welfare economies. The nation re state cannot be dismantled by even the most ruthless Brussels te deregulator. 131

It might appear that the growth of the EC budget discloses a trend away from national public sector support and, instead, toward supranational dispensations. But in fact the power available to Brussels is big enough only to cause conflict within the EC. Let's look at this point more closely.

Since 1980, the EC's budget has risen from about Ecul5 billion to about Ecu40 billion. However, much of the increase has been to do with the enlargement of the EC: as a proportion of the Twelve's GDP, Brussels expenditure has only just topped the one per cent mark. As we have noted, the bulk of EC funds goes on the CAP. The cash spent on regional aid and on hi-tech collaboration shows how strict the limits to joint EC action are.

At the Brussels summit of February last year, northern EC states, led by Britain, won stricter controls over farm spending in exchange for their agreement that higher sums should be spent on regional aid. Nevertheless, such north-south 'cohesion' funds remain small. Under the 'Delors package" of February 1987 money for the European Regional Development Fund (ERDF) will rise by 100 per cent by 1993; but even then it will not reach EI0 billion a year, out of a general EC budget of E37 billion.*9 Moreover, such 'structural funds' must stretch not just over the Mediterranean countries, but over Ireland andat Thatcher's insistence-Britain too.50 If Brussels' generosity toward backward regions within the EC is limited, that afforded for hi-tech cooperation is derisory.

Under the 1987 Framework' programme for industrial research, Brussels put aside less than El billion a year until 199l.

Compared to the billions lavished on R&D by individual member states, this is chicken-feed.

The powers of Brussels are generally overestimated. The commission employs 11 000 staff, the council of ministers 2000, the parliament 3200: in total, EC institutions have the social weight of, say, local government in Edinburgh. Proposals to increase EC revenues over the next few years involve about 1.5 per cent of the overall tax revenues of the Twelve by 1993; this percentage, according to some experts, 'uniquely restrained in comparison with practice in all federations in the developed world:s! Clearly the Brussels apparatus of the EC lacks the financial wherewithal to dissipate national animosities.

Brussels is wracked by intra-EC strife. The social dimension, border controls, fiscal, monetary and environmental policy—all these matters are still the subject, not of majority decisions among the Twelve, but of unanimous votes or hung ones. On other issues, 'qualified majority voting' at meetings of the EC 132

ministers does not mean an end to nationally based spodling tactics. The dissident veto of a bloc of two large and one se member states is not hard to engineer, and one large and three small member states can also band together to put a stop to new legislation. This is because a qualified voting majority means 54 votes out of a total of 76, with West Germany, Italy, France and Britain having 10 votes each; Spain, eight; Belgium, the Netherlands, Greece and Portugal, five votes each; Ireland and Denmark, three apiece; and Luxemburg, two.

Every EC summit meeting is marred by dissension on the budget. Agreement, when it comes, emerges after all-night bargaining sessions only to be overturned and argued about again at a later date. Even the votes assigned to each EC country reflect the varying economic punches packed by separate national states. The smaller EC countries will never dislodge Germany from its secretaryship of no fewer than 31 of the 81 Community standards committees; Brussels will never dislodge Air France and Alitalia from their position as 'national carriers" nation state monopolies in air transport. The nation state cannot be disinvented, and Brussels is in no position even to try.

Trade, capital Because their industries are particularly vulnerable to Japanese mobility, fiscal competition, France, Italy and Spain are enthusiastic supporters of the protected markets of Fortress Europe. But, West Gerpolicy: more many, the EC's biggest and strongest economy, is not. Its export divergence profile is too global, its fear of retaliation too great for it to back aggressive measures against non-EC countries.

On the issue of trade, Britain sides with West Germany.

Britain's massive volume of capital export makes it vulnerable to any general increase in protectionism. However, when it comes to East-West trade, Britain and West Germany are at odds Largely frozen out of the new action with Moscow, Thatcher ended 1988 by denouncing Bonn for 'subsidising Soviet inefficiency' through the favourable terms it had offered the Kremlin on a new and important round of economic deals.

Altogether there can be no harmony among EC states over trade. The billion dollar trade deficits run up with West Germany by Britain, France and Italy confirm that the forces of divergence over trade policy affect the Twelve more than those of convergence. Over another goal specified by the SEA-the freedom of movement for capital in the EC-the Twelve are again divided 133

On July 1990, the eight richer EC states are committed t removing all restrictions on capital exports and imports.

Commission president Delors sets much store on free capit mobility: he justified the carly deadline "because in terms ‹ synergy and dynamism, this is the central decision's But, fo weak economies like France and Italy, completely unimpede capital mobility spells danger. The two fear that their economic will suffer capital flight, ballooning budget deficits and soarin interest rates. The persistence of different rates of corporate taxation acros the Twelve makes free capital mobility in the EC a stalking horse for tax evasion. Companies will be tempted to locate the factories, headquarters, equity and higher-profit activities i low-tax countries. Following examples already set by Wes Germany and the Netherlands, countries will be tempted to tr to attract foreign investment by lowering their tax takes.s• 1 short, national fiscal policy will make a mockery of fre capital mobility. The ways in which different EC member states levy taxes o firms and individuals vary enormously. The example of valu added tax (VAT) exposes vividly the national-fiscal obstacles EC unity. By levying a total of 37 different rates of VAT o different goods, EC states are able to use the tax as protectionist device. Yet the commission has made a rod for i own back by insisting that national VAT rates should be th subject, not of easy-going mutual recognition, but of ful blooded harmonisation. In the case of France, for example, a cu in VAT rates down to the levels proposed by the commissi would lose Paris S11 billion a year in revenues.

There are no easy answers on VAT. To remove the need fo checking goods crossing frontiers, the commission has propose a VAT clearing house. But, as City brokers Hoare Govett report this would only give rise to further conflicts: *There is a very real possibility that the clearing house will run deficit. How that deficit will be financed will no doubt be the subject o some controversy."s Nor is VAT the only fiscal obstacle to unity in the EC Harmonising excise duties, the sums payable on tobacco, drink etc, will be trickier than fixing VAT. Again, commission proposals for a 15 per cent 'savings tax' on interest or dividend on capital exported abroad, made in February 1989 with th intent of making tax evasion harder in the post-1990 EC, hav 134

angered Britain and Luxemburg. Here the deadline for agree- Over the export of commodities, the Twelve are at loggerheads. In freeing up capital exports, they risk spreading anarchy all around the EC because differential taxes on capital, like those on goods, strongly reflect the persistence of nationallydetermined fiscal policy. Once again, the nation state has the last 'Grudgingly, Bonn and London would be prepared to hand over merger control to the commission so long as they were sure it would act on competition grounds alone and not use the rules as a backdoor way of imposing an industrial policy. Yet most southern European governments, led by France, could only accept the plan if it were used as an industrial policy tool to encourage companies to link up against the The example of differing attitudes among the Twelve to Brussels control of mergers illustrates the strength of centrifugal tendencies within the EC today. It also illustrates the real basis for the counterposition of 'southern governments, led by France', and There is a 'north-south divide in the EC. But it is important to emphasise that this divide cannot be explained by Anglo-Saxon fondness for free trade or Latin sympathy for protection. We have seen that state intervention is worth nearly half Britain and Germany's GDP; equally, it is clear that Mitterrand, González and Papandreou are no less committed to free market capitalism than Thatcher and Kohl. The basis for north-south divergence on the purpose of merger control lies not in geography or temperament, nor even in the conservative or social democratic make-up of governments, but rather in the different forms taken What is required above all for the speculative wave of mergers and acquisitions now sweeping the EC is a thriving financial services sector. Despite the family-owned, conservative structure of capital dealings in West Germany, this is something that Frankfurt shares with the City of London. On the other hand Paris, Madrid, Lisbon, Athens and Milan lack comparable strength in high finance. As a result, the national idiosyncrasies in the process of capital accumulation once again take pre- The Twelve can concur on some things and avoid the forces of fragmentation. Over the control of mergers, the commission last to $.52 tal of Tor led les ng

ASS

ig* eir In In ce* to Brussels control of mergers: behind the north-south divide 135 northern ones. competitive threat from the US and Japan. So by capital accumulation in the EC ment is not the end of 1992, but June 1989.

word in the uphill struggle for European unity.

cedence over the political will for unity in the EC.

year tabled a draft directive which would empower it to bless forbid most corporate marriages. Now, though West German France and Britain believe the agreed threshold of Ecul billic is too low, all three are more or less ready to hand over authori on the issue to the commission. Lord Young himself believes th agreement on the commission's formal supervision over merge is possible by the end of 1989.57 Yet London and Bonn's common, anti-southern line c merger policy is likely to keep Europe divided. The who historical development of British and German imperialism h given great weight to finance capital and to the banks—weig far larger than is the case in younger, still quite agraria economies of the Mediterranean. Electricals giants like GE and Siemens possess cash hordes running into billions. Thoug both, like France's state-owned Thomson-CSF, and the Nethe lands' Philips, are subject to protectionist mollycoddling t national governments, both want to go about their merge without interference from nation states. They have no interest i an EC 'industrial policy. Behind GEC and Siemens stan Barclays, Nat West, Commerzbank and Dresdner Bank, inte on the unhindered acquisition of banks in southern Europ where financial systems are fragmented, primitive and rip for the picking.SR North-south differences on merger policy, then, reflect th greater scope for wheeling and dealing in money capital th exists in the City and Frankfurt. The market capitalisations Europe's big four" stock exchanges spell this out well:59 City of London: $500 billion Frankfurt: $160 billion Paris, Milan: less than S100 billion The 'north-south divide in the EC, therefore, goes a lot furthe than differences in climate or in culture. It isn't, as busines commentators often claim, because Italians load their washin machines from the top and British from the front. The divid follows from the fact, rather, that capital accumulation international in direction and content, but profoundly nation in form. The nation state, not just national psychology, make "divides' of every sort inescapable for the Community.

136

The prospect of capital flight out of weak currencies when free capital mobility arrives on 1 July 1990 is already causing widespread alarm in Europe. There are sharply divided counsels both among and within different EC countries about how to confront the danger of financial chaos. In Britain last year the Economist, generally a staunchly free trade paper, called for a common European currency to be issued by an independent Bank of Europe, composed of a chairman and one person from each participating nation 60 Only a few days later, however, the Economist's long-standing heroine, Margaret Thatcher, took the floor of the EC's Hanover summit to declare, of a European central bank: "not in my lifetime!. What are we to make of such a striking disparity of views? First, we need to establish exactly how much movement the EC already has underway in the Given the collapse of the Bretton Woods system of fixed international exchange rates in 1971, the survival of the European Monetary System (EMS) is striking. Founded in 1979, the EMS allows the currencies of all of the Twelve except Britain, Spain, Portugal and Greece to fluctuate, by up to 2.25 per cent, on either side of centrally agreed exchange rates. It thus gives eight European currencies considerable stability: stability assured by the intervention, from financial reserves, of eight Unlike the currency 'snake' that preceded it from 1972 to 1979, currencies in the EMS fluctuate not around the dollar, but around the Ecu. This currency is defined as the sum of fixed amounts of all of the Twelve's currencies except for the peseta and escudo. The amounts are computed on the basis of the distribution of trade within the EC, the size of member states' GDPs and the percentage of those GDPs absorbed by trade in each member state. Computations are changed every five years to take account of changed trade relations, the last change occurring in September 1984 when the drachma entered the While the amount of deutschmark (DM), French franc (FFr), etc, is fixed within the Ecu, the exchange rate of national currencies against it fluctuates. As the DM has appreciated, for example, it has been revalued, to the extent that the fixed 0.719DM component of the Ecu has gained in overall weight, from being worth 32 per cent of the Ecu in September 1984 to being worth 35 per cent today. Clearly, since the DM is the dominant load in the Ecu, and since the seven non-German members of the EMS are obliged to intervene in foreign 5 or ny. Ion rity hat ers ole tht an EC gh by TS 12 4. For and against monetary integration 137 direction of monetary integration.

central banks, led by West Germany's Bundesbank.

EMS, and the next is due in September 1989.

exchange markets to ensure that their currencies keep 2.25 per cent either side of the Ecu, the EMS works in practice as a system for keeping some but not all-EC currencies tied to the DM.

Commentators attribute many successes to the EMS. First, the eight currencies in it have seen their variability' against each other halved over the years 1979-85 a period in which the variability of the pound and the dollar against the eight EMS currencies rose. l Second, the divergence in interest rates among EMS participants dropped from 7.4 per cent in 1974-8 to 4.1 per cent between 1979 and 1987. Third, while inflation among EMS members fell from 13 to seven per cent between 1975 and 1978, it dropped from 12 to 2.5 per cent between 1980 and 1986. Finally, growth has been concerted among EMS members: from 1979 to 1986, it was 1.8 per cent for Germany, France and EMS states as a whole. 2 Over its 10-year lifespan, the EMS has seen European monetary coordination grow. There is mutual agreement on central rates of exchange ('central" being distinct from day-today market rates). There has been a convergence in economic policies. Every day, the foreign exchange departments of the participating central banks hold conferences, by phone, at least four times. Every month, at the Bank for International Settlements, governors of central banks meet to concert arrangements.

At a meeting of the EC's council of finance ministers in 1987, the scope of central bank intervention in foreign exchange markets was lengthened in duration, doubled in terms of overall ceilings, and allowed to be executed before fluctuations get out of hand rather than after. More important than any of this, however, the relative stability of EMS members' exchange rates has done much to make trade and cross-border investment within the EC a more predictable business.

Many claims are also made for the Ecu, which, on 1 January 1981, became the EC's official unit of account. The Ecu is used in the EC budget in setting agricultural prices; it is used, too, in the accounts of EC institutions such as the commission and the European Investment Bank (EIB).63 In addition, the Ecu is a reserve asset employed to settle debts incurred by European central banks as a result of their interventions on foreign exchange markets. Apart from this kind of 'official use of the Ecu, the commission and the EIB encourage an important "private market for the currency Although no central bank actually issues Ecu, borrowers in weak-currency EMS states favour drawings in it because they can take advantage of the low interest rates offered on it by 138

per central banks. At the same time, the relative stability of the Ecu em offers both weak-currency borrowers and weak-currency in- M. vestors a hedge against domestic currency depreciation.

rst, Private Ecu deposits are growing. On the banking market, ich reinvestments in Ecu soared from 6.7 billion in December 1982 the to 75.1 billion in March 1987. At two per cent of international AS banking assets, the Ecu is ahead of the pound and non-DM EC currencies 64 Further, the Ecu has recently moved to being a ng popular currency in which to denominate Eurobonds.6s Since IS 1987 the Ecubond market has been strengthened. First, the , it commission made a bond issue of Ecu500m on 8 June 1988.

ly, Second, the British treasury decided, in August 1988, to issue the first internationally tradeable bills denominated in Ecu, as a to les means both of diversifying Britain's reserves and of encouraging the development of an Ecubond market in the City.

an The use of the Ecu, however, does not end with financial institutions. Since 1980, France's vast steel and glass concern, St Gobain, has used Ecu for both internal and external trans- 0actions, a policy now also followed by Lesieur and Asystel. As he for Italy, more than 25 per cent of its foreign trade is Ist denominated in Ecu, and Fiat, which has 250 overseas subsidiaries, uses the currency as a hedge against exchange risks in ts. foreign countries. he To back the Ecu, France and Italy have exempted the purchase of foreign securities in Ecu from the general restrictions they applied to such deals. Britain, too, has urged other EC states to use the Ecu in foreign exchange reserves and in ne intervention. The Bank of Tokyo also favours developing the Ecu, believing that it will assist in maintaining the international ne currency system should the dollar fall precipitately. 66 Overall, there have been some successes for the EMS and the гу Ecu. But these successes provide little basis for the monetary integration to which many look forward.

in The first problem with the EMS is that its survival is a te symptom of Europe's integration, not a cause. The smoothing of European exchange and interest rates has much more to do with the pivotal role of the West German economy than it has with the emollient powers of the EMS parity grid. In the EMS, it is the DM that works as the main reserve and intervention currency.

B As for the Ecu, its significance is largely confined to private capital markets. у. To attribute the drop in EC inflation rates to the EMS is to explain a development in production-the slower growth of 139 commodity prices—by one in circulation: namely, the stability

of currencies. This turns reality on its head. In fact, the ECs relatively successful attack on inflation represents the success member governments have had in attacking the working class.

Thus when inflationary Belgium, Denmark, Italy and France have won realignments of their currencies in the EMS, the moves have been accompanied by the freezing or de-indexation of wages. Indeed, it was a big row between Mitterrand and Kohl over the realignment of the FFr in March 1983 that turned out to be the preface to Delors' subsequent imposition of discipline on the French trade union movement.

The convergence of EMS members' growth rates to 1.8 per cent between 1979 and 1986 shows, in addition, that they did not just gear themselves to Germany's low rates of inflation, but also to its sluggish economic performance. A 1.8 per cent annual growth rate was lower than that achieved by the rest of the world. Only West Germany's burst of growth in 1988 deterred France and Italy from complaining about the effects of the Bundesbank's continued policy of deflation. Any future rapid growth on the part of Germany, however, would bring further problems to its uncompetitive rivals. German expansion means rising German trade surpluses—surpluses which it enjoys with all other EMS members save Ireland. Greater German surpluses will mean a stronger DM, a greater German role in the EMS at the expense of other participants, and, inevitably...fresh EMS currency realignments. In its decade-long career the EMS has been through no fewer than 11 realignments. Though planned for 1981, the development of a European monetary fund, complete with Ecu as reserve and means of payment, never took place. In contrast to the currencies of the EMS's other members, Italy's lire remains able to fluctuate around central rates by six per cent either side, and Belgium's currency enjoys special dispensations too. As a result of all these difficulties, analysts have discovered that the EMS is 'incomplete and 'compromise-ridden. 6 In place of full monetary union after July 1990, the Economist now envisages the possibility of 'a far less rigorous EMS*6 •There is another snag with the EMS. So long as America continues to run a massive trade deficit, downward pressure on the dollar will make the DM appreciate-to the chagrin of EMS participants outside West Germany. Alternatively, to the extent that the US Federal Reserve Bank continues to protect the dollar by raising interest rates, Germany is likely to follow suit—again hurting its EMS allies. No wonder that the chief economist of the Dresner Bank writes articles titled Reluctant 140

DM has become the linchpin; or that a top Danish economist quotes many observers as seeing the dollar as a major threat to the stability of the EMS; or that, at the invitation of the commission, a group of economists and political scientists has called on the EC to formulate a common 'external' monetary policy; or, finally, that Belgium's foreign minister calls for Europe's trade in oil to be conducted in Ecus, not dollars.®) What applies to the EMS applies also to the Ecu. Although Ecu coins, travellers' cheques and visa cards exist, the Ecu does not exist as a genuine currency. No central bank issues it and it cannot be used as a real reserve, for the simple reason that it cannot be used for any purpose. It thus has no local status: it always has to be converted into something else. Furthermore, the presence of sterling within the Ecu—it has a weighting of 13 e per cent—has added to its volatility.

d Some 90 per cent of banking assets and liabilities in Ecu exist at the level of interbank transactions. Since banks are by nature d money-handlers, it follows that such transactions are characterised by low yields on deposits —so limiting the attractions of the Ecu. Thus the official market for the Ecu stagnates; and, though the private market has grown remarkably, it is still S minute. It is a quarter of the size of the European market for DM, and would have to be three times as large as the world DM market for it to make any difference to German monetary management.? Moreover, apart from transactions between banks, the Ecu is hardly ever used as an invoice currency. Between December 1984 and March 1987, for example, non-bank transactions in Ecu grew from 11.3 billion to 16.5 billion. In Italy, France and Denmark, residents actually lost interest in the Ecu, preferring to borrow their own currencies on the Euromarket. Britain is the only nation in which the growth in Ecu credits held by residents has been at all substantial-and these credits amount to little more than Ecul billion."!

The biggest problem with the Ecu is that, for all Germany's fulcrum position in the EMS, Bonn is highly hostile to it Though Germany made a gesture in 1987 by allowing people within its borders, for the first time, to run up debts in the currency, Bonn argues that a development of the Ecu market will lead to a position where it has to bail out banks who have lent too many Ecus. Given the microscopic size of the Ecu market, this fear is absurd. What is really at stake is Bonn's concern that the Ecu could one day supplant the DM. The Netherlands, too, fears a similar displacement of the guilder.

141

If there is to be a common currency in Europe, most exper agree, it will have to grow out of the Ecu, But given the Ecu chequered career to date, there is little chance of this happenin The private Ecu market is dominated by bankers from Fran (25 per cent), Britain (20 per cent), Italy (12.5 per cent) ar Belgium and Luxemburg (30 per cent).? As for the D becoming Europe's single currency, this-short of a Germa victory in an intra-European war —is just not going to happe The divided nature of the British response to moneta integration is not surprising. In favour of the EMS, as chancell Nigel Lawson himself has pointed out, is the fact that Britair trade with the EC is increasing. In addition, as Micha Heseltine has warned, staying outside the EMS will increase th chances that Frankfurt will become the financial centre Europe. Working in favour of the Ecu is the chance that the Ci has of benefiting from multiplied transactions in it. Thatche however, continues to oppose joining the EMS because it wou subordinate the Bank of England to the Bundesbank. It wou be the first step towards that loss of sovereignty which Britis capitalists fear would follow further moves toward Europea monetary union. That the Economist could ever take such an anomalous line favour of a European central bank is a measure of the anarch that it fears will follow the liberalisation of capital movement Already the EC embraces both the richest and the poore countries in Western Europe: West Germany and Ireland. Onc capital can move anywhere within the Twelve, all hell is likely t break loose. Look, for example, at the disparate nation alignments over the EMS and the Ecu: For Inside Outside, but against ambivalent EMS: WG Fr, Italy UK, Spain, P, Gr Ecu: Fr WG, Netherlands UK, Spain, P.

Italy, Bel, Lux There is no basic congruence of interests here; indeed in monetar affairs, nearly every EC member state has an axe to grind.

Any move by London to join the EMS would destabilise because of the volatility of sterling. Any move towards European central bank, though supported by France, threater 142 to centralise financial power still further with Germany—unles

the move is stopped at federal coordination of national central bank governors, which is what France wants. Kohl is cautious about a central bank; Hans-Dietrich Genscher wants one fast. In A central bank for Europe is impossible not just because countries such as Britain and Denmark are, in terms of the Single European Act, empowered to veto it. It is impossible because such a development in the realm of circulation could only follow, not precede, the laying out of an integrated, all-EC productive base. We have already seen that this is out of the question, if only because of the gravity of state expenditure and the anaemic character of cross-border mergers in Europe.

It is ironic that the Conservative Lawson should show a firmer grasp of the realities of production and circulation than the 'socialist' Delors. The fact that the latter believes monetary integration to be the forerunner of unified production only reveals how much monetarist dogma has overwhelmed what now passes for the left in Europe. Which, after all, came first- It is even more ironic that, if any country has lost economic sovereignty, it is Thatcher's Britain. Every day, international financial markets exert more and more pressure on the pound.

The worldwide, distended character of British overseas investments is one of the reasons why tying sterling to the DM through the EMS is not an option for the British ruling class; on the other hand, it means that the British economy is almost entirely exposed to the world economy. Outside or inside the EMS, there are no avenues of escape for British capitalism. As for the British working class, the choice between 'discipline' via the EMS or the repudiation of 'excessive' wage claims by the exchequer is no From product standards to the Delors report, Europe is in conflict. Everywhere the nation state refuses to bow down or give way; everywhere each fresh move towards integration heightens national insecurity and intra-EC distrust. Despite the subjective will for greater European integration, the objective realities of capital accumulation continue to tear it apart.

*The greatest achievement of the European Community is that war between its members is now all but impossible to imagine. It is no longer rash for Britain to buy its arms from France or West Germany or from British plants owned by Frenchmen or Germans. And, as Gaullist phobias fade, even the French accept that Americans are firm allies erts cu's ing. ince and DM nan зеп. сагу lor in's hael the of City er, uld uld fish can e in thy atS. cst ace Ito nal 5. The toughest tensions: 'Eurodefence' 143 short, mayhem rules. the dollar or the United States of America?

choice at all.

rather than potential foes... Now is the time for defence procurement to catch up with the ways of this changed world.??

The Economist believes that Western Europe will never again see hostilities break out within its confines. But at just the time that it has reached this conclusion, business language within the EC has taken a pronouncedly militaristic tone.74 For example: •Warfare is not too strong a word for what is going on in the world's £20 billion market for paints and coatings."5 The dynamic behind 1992 is at its most explosive in military and foreign affairs. Where there is joint financing of hi-tech military projects to keep abreast of rival armed forces, significant examples of European cooperation exist. Closer foreign policy collaboration among the European powers has strengthened Europe's hand in the Middle East and in wider third world affairs. However, the rising economic and diplomatic challenge from West Germany to the USA now threatens the whole basis of the post-war order. Gorbachev's concessions in Soviet military matters have deprived the Nato alliance of the putative external threat that ensured its cohesion for 40 years. Attempts to achieve greater European integration in defence are, therefore, constantly undermined, both by intra-EC tensions and by transatlantic rivalries. Before looking in more detail at the tensions in the European camp, let's look at what has been achieved in Eurodefence.

Five trends in First, take West European R&D efforts in sectors which, though favour formally of a civilian character, have important military applications: R&D in 'grey area' or 'dual-use' technologies. The major initiatives are as follows: •'Eureka", a £2.8 billion, 19-nation, 30-company West European programme of market-oriented R&D into information technology, high definition TV, lasers, robotics, biotechnology and similar fields. Publicised as a civilian effort, Mitterrand in reality launched it, in 1985, as a response to America's Strategic Defence Initiative and to Japan's race to build 'fifth generation' computers. • Esprit, a Brussels programme founded by GEC, ICL Plessey, Siemens, AEG, Nixdorf, Thomson-CSF, CGE, Bull, STET, Olivetti and Philips. Espirit benefits from the ECS "Framework' funding for R&D: it concentrates on information technologies. 144

LEO • the 13-nation European Space Agency (ESA). It aims to match America's faltering supremacy in space, concentrating on Ariane-V satellite launchers and the French-inspired Hermes Lin manned space shuttle.

TIC • 'Race', ; an Ecu550m Framework drive to develop integrated he telecommunications in voice, data, text and pictures over ile: broadband optical fibre.

he • 'Brite'/"Euram", an Ecu440m series of Framework projects in advanced materials and manufacturing techniques.

ch Second, take the joint production of weapons systems. Here we ig- have the most practical and lucrative example of Eurodefence so gn far: the multi-role Tornado combat aircraft. In July last year, th- after Thatcher's personal intervention, BAe concluded a deal to ild sell Saudi Arabia more than 100 Tornados worth between E10 ge and £20 billion. This move will benefit not only BAe, but also SIS Daimler-Benz's new partner MBB, as well as both Alitalia and set Fiat Aviazone. Even France will gain, for its own plane-making VC giant, Aerospatiale, has a 10 per cent stake in MBB. The European Fighter Aircraft, which is due to bring Britain, ге- Germany, Spain and Italy 800 planes by 1996, at a cost of E22 billion, is another example of joint production. No fewer than 400 export orders are expected. Yet there are still other an defence projects worth noting—in helicopters and naval equipment.76 Last year's British government defence white paper detailed 32 different projects on which Britain is collaborating with its gh European counterparts. Like France, Britain sees in joint weapons production a means of paring down its massive defence bill. For Germany, however, the merits of project-based Eurodefence are slightly different. Through participating in multination work, it can increase its arms exports to the third world without appearing to relax its traditional policy of not selling weapons outside Nato areas.

A third aspect of Eurodefence is the scenario of a single in European market in weapons. Faced with the spiralling cost of pic US arms technology and of indigenous R&D in weapons, with a- narrow national markets and with rising demands from the USA to pay their own way in defence, West European governments are now attracted to the idea of allowing contractors from all over Europe to pitch for business. No single European state, it is felt, can meet all its defence needs on its own.

West Germany and France at present spend only 10-15 per cent of their weapons budget abroad. The same is true, despite its 145

purchase of Trident and Awacs from the USA, of Britain. But since competitive bids-from all quarters-for ministry of defence business in Britain have risen from 38 per cent of all contracts signed in 1983-84 to 53 per cent in 1986-87, a change may be in the offing. Since March, indeed, France has joined Britain in publishing a bulletin on the defence contracts it has on offer. Through the Independent European Programme Group, Europe's 13 Nato members (the Twelve, less Ireland but plus Norway and Turkey) hope to put out a Europe-wide contracts bulletin by the end of the year.

The spread of monopolistic defence sector mergers within national boundaries has also increased the pressure on European governments to seek foreign if in general European— suppliers. In France, Thomson-CSF and Aerospatiale are to merge in avionics, creating an Ecu770m firm; in Britain, BAe has acquired Royal Ordnance PL.C, complete with 15 000 workers, for a knockdown price; and the forthcoming Daimler-Benz/ MBB deal will create a defence group so large and so diversified that it will take a 40 per cent share of German arms procurement.

Figures like this make the argument for a more open, pan- European market in defence a telling one.

This brings us to a fourth aspect of European integration in defence. For every step towards a single, free-for-all market in weapons, Europe's massively rich arms firms move into crossborder joint ventures, shareholdings or outright acquisitions—if only to protect themselves. That is why Daimler is talking to BAe, and, in France, to Aerospatiale, Sneema (engines) and to Dassault (fighters). It also explains the secret discussions between BAe and Thomson-CSF on the merger of the two firms' missile and defence electronics interests; and it accounts for media speculation about an alliance between BAe and Fiat's defence activities.7 However, the biggest, most publicised example of cross-border takeovers in defence is last year's £1.8 billion joint bid by GEC and Siemens for Plessey.

At the time of writing, it is unclear whether GEC and Siemens can meet the conditions on technological secrecy laid down for the deal by Britain's ministry of defence. But, whatever the final outcome, more bids between Europe's defence suppliers are certain to follow. As the Financial Times's defence correspondent puts it, Europe's defence industry has suddenly begun to look like a personal classified advertising column.?* A fifth and final trend toward Eurodefence exists in the joint formulation of'security' doctrine and practice. Under a separate title to the SEA, the Twelve are enjoined to build European 146

cooperation in the sphere of foreign policy', and to 'coordinate ut of their positions on the political and economic aspects of security.

all Already EC summits and councils of foreign ministers issue joint declarations with respect to non-Nato areas of the world, and ge the Twelve are supposed to vote together at the United Nations.

In fact, however, EC policy goes even further.

In 1980, at its Venice summit, the EC gave implicit recognition Ip. to the Palestine Liberation Organisation, demanding in return US that it acknowledge the state of Israel. This was a slap in the face of US policy, and reflected Europe's greater reliance on Middic in Eastern oil. In 1982, in the first ever appearance of the EC in a directly military role, Britain, France, Italy and the Netherlands 0despatched 300 troops to the Sinai desert as a 'peacekeeping' force. to In 1984 France revived the Western Europcan Union (WEU) in response to its concern about rising German 'neutralism'. This rS, 2/ defence organisation embracing France, Britain, Germany and the Benelux countries, had been in hibernation since its founed dation in 1948. Since then, the WEU has helped coordinate the at. activities of British, Belgian and Dutch warships in the Gulf, and nhas been enlarged, late last year, by the addition of Spain in and Portugal. in When EC foreign ministers met in October 1987, they jointly repudiated Gorbachev's offer to partly demilitarise the North -if Sea. There are further signs of inter-governmental cooperation on defence, especially along the Paris-Bonn axis. Under Mitterto rand France has changed its nuclear doctrine from protection of to its own national 'sanctuary' towards the protection of West nS Germany too. The Force d'Action Rapide can intervene in the as" forward defence of Germany without France rejoining Nato's Ог t's integrated command. Last year, Mitterrand and Kohl formally 8. renewed the 1963 Elysée treaty, which, among other things, r's provides for defence cooperation. They also established a highlevel Franco-German defence council to coordinate policy and created a 4000-strong armoured Franco-German brigade, based ns at Boblingen, near Stuttgart.

ог al Meanwhile, British and French defence ministers, George Younger and Jean-Pierre Chevenement, pursue their own re designs. They engage in regular talks on nuclear doctrine and Пtargeting policy. Beyond them, too, the EC continues to register to considerable cohesion over security matters. In March 1989, for example, it unanimously took diplomatic sanctions against Iran over the Salman Rushdie affair.

te The more Washington turns away from Western Europe 147

towards bilateral relations with Gorbachev, to the Pacific and to third world arenas, the more impetus there is to Eurodefence.

Yet, while it is vital to recognise the dangers presented by Euromilitarism, it is important too to see the limitations to this trend.

Defence, the ultimate means of enforcing national capitalist interests against rivals, is the most important responsibility of the capitalist nation state. It is not surprising, therefore, to find that national obstacles outweigh the tendencies to promote integrated Eurodefence. Stronger First, the sums laid out under Brussels-backed 'grey area' R&D trends against programmes are small compared with their national equivalents.

Moreover, the largest programmes immediately point up one of the basic features of Eurodefence: the lack of congruence of the groups of nations involved. Non-EC participants in Eureka and the European Space Agency are barred from joining in Esprit, Race and Brite. Further, Britain has played a spoiling role in the ESA, refusing, in late 1987, to contribute fully to its manned programmes. Among the different players involved in the EC, Nato, the WEU and the Independent European Procurement Group, there are certainly membership overlaps. But the disparities are troublesome. As sociologist Ralf Dahrendorf has admitted, 'In defence matters, Europe as an entity exists at best as a reminder of the complexity of issues!

When we turn to joint projects the problems multiply. There are economies of scale, but there are also the larger costs that inevitably emerge from complex, multinational management structures. Delays are endemic, and friends often fall out. For example, in 1987 Britain cried off from the NH90 helicopter project; while in 1988 the Anglo-German-Italian SP70 selfpropelled howitzer collapsed because, as Britain put it, of a 'bureaucracy gone mad. The most serious problems in joint projects have dogged the European Fighter Aircraft. First, France walked away from it after Rolls Royce beat Snema to supply its jet engines. Since then Germany has insisted on equipping the plane with American-designed radar put together by Daimler's EG, with backing from GEC-Marconi and others.

On the other hand, Britain, France and Spain favour a European radar alternative, lead-managed by Britain's Ferranti and backed by Siemens.! Intra-EC rivalries also threaten the emergence of a single European market in defence. When an indigenous defence 148 manufacturer loses a government contract to another European

concern, the chances are that it will also lose the momentum with which to keep up at all. As Electronics Times has noted of the EFA affair, 'the reason why this contract is being so bitterly 1. contested is that both Ferranti and GEC-Marconi know that the price of failure is exclusion from the airborne radar market for the foresecable future! Moreover, the loss of a contract means d the loss of thousands of jobs an unpalatable political prospect, even in today's free market times.

When it comes to "merger mania' in defence, conflicts erupt with a particular ferocity. Given the loss of Inmos to Thomson- CSF, the fall of Plessey Semiconductors, worth £120m, to GEC and Siemens calls into question Britain's ability to carry on the independent manufacture of chips-for GEC is not serious in chips, and Siemens loses money on them. More importantly, the e GEC/Siemens bid has nothing to do with new-found European unity, but a lot to do with an old phenomenon: the restructuring of European high technology industries. British academic analysts contend that this trend 'could degenerate into a form of 1 creeping cartelisation between large firms, stifling innovation, raising prices and increasing pressures to erect external trade barriers'"3 Cartelisation, a characteristic feature of moribund capitalism, is the real name of the game among Europe's defence contractors. But, given the sensitive nature of the sector they are in, they are playing for very high stakes. * Too great a move toward European suppliers would increase American anger with Europe, and also endanger US contracts previously won by BAe, Plessey, Alitalia, Agusta and Thomson. On the other hand, the pull of Europe is considerable. What we can look forward to in Eurodefence, therefore, is more Westland affairs-right across the Continent, and especially, such is its Euro-American schizophrenia, in Britain.*s What, lastly, about the joint formulation of security in Europe? Here progress is beset with problems. The EC failed to agree to support Britain during the 1982 Falklands War. The WEU is going nowhere: its permanent council, an executive body based in London, held lengthy talks on the status of an ambassadorial chauffeur, leaving ministerial decisions on defence cooperation a dead letter." No wonder Mitterrand recently admitted that he was at a loss to discern a way forward to strengthen the 'European pillar' of the Atlantic alliance.

The recent uproar between West Germany (backed by its European neighbours) and the USA (supported by France as well as its loyal British stooges) over the modernisation of battlefield nuclear weapons highlights broader fissures within 149

Nato and within Europe. Relations between Britain and France remain ambivalent. In January 1989 French prime minister Michel Rocard spoke out against what he termed the 'stag nation' of Anglo-French strategic relations. Since then, Britain has decided not to opt for French air-launched stand-off nuclear missiles as a replacement for its ageing freefall nuclear bombs instead, it is talking to the USA about an alternative weapon.

Because Europe's warmonger companies are so big-Daimler- Benz, for instance, will soon be the largest non-oil firm in Europe —mergers here involve much larger sums of money than those in the civilian sector. In this respect, then, defence is the field where European unity is strongest. On the other hand, defence companies are also the ones with the strongest ties to nation states: taking Daimler-Benz again, we are talking about annual subsidies from Bonn worth £8 billion. It follows that Eurodefence is the arena where intra-EC tensions are most acute. Every contract signed today contains the chance of major ructions tomorrow. At the same time the decline of the USA, the growing economic and political self-confidence of West Germany, and the reform of the Soviet Union have put reunification of Germany back on the agenda of European politics. This is an incendiary prospect, and it ensures that "Euro-Westlands', when they come, will lead to major upheavals both in domestic politics and in the forums of the Twelve.

Between rising defence costs and the maintenance of national sovereignty there is no easy escape. This is an iron law among the fragmented, inefficient economies of Western Europe. Today, Europe's nations are not on the point of fighting each other. But when we remember that the conflagration of 1914-18 was supposed to be 'the war to end all wars, then the complacency of the Economist is staggering. Those who would redraw the map of Europe should recall that the present borders were the product of two major wars. Their memories may be short, but we understand that the capitalist world knows no other way of resolving such matters. 6. Euro-reaction The inevitable impact of the freer operation of market forces in the EC will be to shake out jobs in the Twelve's more backward national economies. Permanent mass unemployment, together with the provision for a more fluid mobility of labour that is enshrined in the Single European Act, will give employers a 150 powerful lever with which to hold down wages and enforce more

nce intense exploitation. There has been much debate on the 'social iter dimension' of 1992 the promise of safeguards for workers in ag- workplace rights and welfare. However, vague codes of practice ain upholding trade union recognition, health and safety standards car and state security benefits will give EC workers little protection bs; against employers and governments desperate to raise profitп. ability and curb publie expenditure.

er- The EC's schemes for tighter, better coordinated security in against immigrants, ethnic minorities, subversives and criminals are much more specific than its social programmes. They show he that, behind the talk about worker consultation' in industry, a ad, carnival of reaction is in the making.

to HUt tat The jobs By promoting 1992, EC governments encourage employers to ast shake-out bring forward their plans for rationalisation. In West Germany, 1992 has reinforced hysteria over Industriestandort Deutschland whether the country can remain an industrial base ng without further cuts in wages. Even Germany's conservative nd official trade union movement has denounced hype about 1992 of as a cover for redundancy programmes. In Spain, 24 000 an sackings are anticipated in steel. The process of rationalisation is en also underway in Italian banking, which could shed 90 000 jobs fic in the next few years. West German road haulage, French building products and machine tools, British furniture and al kitchenware, Italian retailing—all these will face a ruthless he overhaul. Across the EC, sectors as varied as coal, power 1У. generation, textiles, car assembly and components, electronics, telecommunications, financial services, paper, construction, distribution, shipbuilding, retail banking, medical and railway equipment and boilermaking have all been noted to be ip "vulnerable'"7 Even the optimistic Cecchini report on 1992 speaks of re "medium-term' benefits preceded by a 'supply-side shock: In a cynical understatement, the commission admits that the first two or three years after 1992 will bring half a million redundancies in their wake.® What about Britain? British industry cannot match its Continental rivals. For example: while France and the Netherd lands each account for 22 per cent of West German imports, and Italy takes 18 per cent, Britain can only penetrate to 14 per cent —the same as Belgium combined with Luxemburg. In the critical sector of cars, Austin Rover's EC market share is three 151 per cent, compared with Fiat and Volkwagen-Audi's 15 per cent

each, and shares for Peugeot-Citroen, Ford, GM and Renault of more than 10 per cent each.% What holds for cars holds also for other branches of British manufacturing. British Aerospace's snapping up of Austin Rover shows what the dynamic of 1992 implies today- 4900 redundancies. These, Brussels rightly surmised, were what was required if Rover was to join other EC carmakers in a coordinated repulse to Japanese models. There then followed a further round of competitive shake-outs in both the aerospace and automotive industries. A few months after the merger, Ford announced the closure of its Sierra production line in Britain, and BAe shut weapons factories in southern England with the loss of 2400 jobs. The rationale in each case? In part, that 1992 made rationalisation inescapable. For similar reasons, capitalist opinion is unanimous that the country's major electronics employers need somehow to consolidate their fragmented operations, merge and slash their workforces," The same pattern is clear in food. Faced with tightening competition in their own European empire, and concerned that 1992 would intensify the pressure, confectioners Rowntree drew up a scheme for sackings even before Nestlé's successful takeover bid.

British services seem more insulated from 1992 than British industry. But appearances are deceptive. Britain's share of world trade in services has declined just as remorselessly as its share in manufactures. Since 1978, exports of British services have never returned to levels above £7 billion a year. Yet today, only the cry of 1992 is necessary for British service employers to try to reverse their plummeting competitiveness by dismissal notices. It was, for example, under the rubric of 1992 and the projected opening of the Channel Tunnel in 1993 that, last year, P&O Ferries dismissed hundreds of seafarers in a rush to introduce new, "competitive working practices. Again, Thatcher justified the withdrawal of the National Dock Labour Scheme in April 1989 on the grounds that the removal of restrictive practices' at British ports was an essential part of national preparation for 1992. Even the City is not safe from the turbulence that 1992 promises. As the brokers" magazine Acquisitions Monthly has noted, the snag with EC financial institutions is that they do not speak English and that, when it comes to handling money, they 'do not play cricket*? Thus while merchant bankers Warburg arranged 24 mergers and acquisitions in Europe in 1987, notching up £5 billion in the process, it was almost alone among British finance houses in doing well over the Channel. The aid it 152

f gave Jacob Suchard in the fight for Rowntree proved fruitless.

In European takeovers, it is US investment banks such as Goldman Sachs which call the shots. In 1988, over sums of more than $1 billion, US banks arranged about 10 deals; D British banks, none.93 The City has Greenwich Mean Time, the English language and the hi-tech office space of Broadgate and, shortly, Docklands' Canary Wharf. But the evidence for the UK having a natural advantage in financial services is, as one authority has it, "mixed". As the the Crash of 1987 showed, it takes but days to shift men in suits from one country's dealing-rooms to another's.

e While the City need not lose too much sleep over the growth of 2 Paris and Milan as financial centres, the possibility of a mass exodus to Frankfurt cannot be discounted. For the thousands of white-collar clerks who cross London Bridge to their jobs each weekday morning, 1992 spells insecurity and possible destitution. British capital is too senile to benefit from 1992. In services as in industry, workers will have to pay the price.

Opening up the European labour market offers employers massive reserves of unemployed or marginally employed workers, who can be exploited both intensively and flexibly. With overall EC joblessness at eight per cent for men and 13 per cent for women, the Twelve are awash with youth training schemes (Britain, France), youth and female unemployment (Italy, Spain) and the labour flexibility" of short contracts, shift work, part-time posts and temporary positions (West Germany, the Netherlands). While Italy still runs the biggest black economy in the EC, moonlighting is up in Britain, the Benelux countries and especially West Germany. It covers trades like design, architec- S ture and computer programming, and entraps everyone from children to 'illegal' immigrants*s The unhindered manipulation of the EC's reserve army of labour after 1992 will put every European employer in fine shape to drive down wages, undermine trade union organisation and impose inferior working conditions. The 'social In September 1988 Jacques Delors received rapturous applause dimension' at Britain's TUC conference for his views that social dialogue and collective bargaining were the pillars of modern democratic society. Delors' proposed European Company Statute a means of assisting EC companies in their pursuit of cross-border mergers by providing them with an EC-wide framework of company law—requires minimum standards of worker parti- 153

cipation throughout the Twelve. Delors has also called for EC minima in wages, educational rights and employment rights.

Moreover, the 'social charter' unveiled by EC social affairs commissioner Vasso Papandreou in May 1989 specifies 'decent" wages for the employed and a minimum wage for the unemployed; a right to workers' information, consultation and participation in employment; a limit to working hours; and a 'decent standard of living' for pensioners.

Thatcher opened her counter-attack against the Delors initiative at Bruges in September 1988. That same month, she went to Madrid to tell Felipe González to forget about the social dimension. In the run-up to the June 1989 Euro-elections, the Tories' hostility to Papandreou's charter became a major focus of debate. Yet, the fuss about the social dimension is a storm in a teacup. Thatcher's reactionary tirades are largely for domestic consumption and the angry responses of other European heads of state merely reflect this fact. As their domestic policies confirm, other EC leaders are as hostile as Thatcher to trade unionism; they are not concerned about protecting workers* livelihoods. That is why the commission's proposals merely ask member states to compare their national laws on social policy with EC standards, and why they contain little new legislation.

Similarly, registering under the European Company Statute will be optional, not mandatory.

Delors proudly proclaims that he has spent 30 years fighting Marxism. As the finance minister of Mitterrand's notorious U-turn to austerity in the early eighties, he was the man who applied 'rigour' to the French trade unions by slashing jobs and wages. No wonder he professes himself baffled by Thatcher's hostility to the social dimension. Yet Thatcher's stand is not entirely aimed at the Tory faithful. Such is the parlous state of Britain's economy that even the hint of de jure consensual management of "industrial relations' appears an outrageous breach of sovereignty. A final reason why Britain opposes a social dimension from Brussels results from the fact that British capital is specially well-placed to go acquiring in Europe. Thus while the commission itself has warned that a more open Europe would tempt northern companies to shift south, to take advantage of the low taxes, wages and benefits there, Britain is all in favour of such "social dumping. Thatcher opposes "creeping socialism' from Brussels, then, not only because it might deter exploitation in Britain, but also because it might have the same effect on British firms heading for Europe's 'sun belt: 154

The social dimension is the subject not of majority decisions among the Twelve, but of unanimous votes. It is one thing for the Twelve to agree broadly on the need for EC-wide merger policy: this concerns relations among capitalists. But it is another thing altogether for Brussels to govern relations between capital and labour. These are the province of judges, policemen, armies, intelligence services—matters for the nation state.* Border controls What has captured public imagination most about 1992 is the proposal for a Europe sans frontières, in which people can move freely across national boundaries. Already, however, the socalled "Schengen group' of 1992 enthusiasts France, West Germany and the Benelux countries has agreed on the following qualifying points: • ending frontier controls must be accompanied by a strict, EC-wide regime of internal controls on non-EC citizens; • non-EC seekers of visas and of political asylum must be particularly subjected to these internal controls; so should non- EC refugees, criminals, and 'security risks"; • the EC's police forces must cooperate more; • non-EC persons must only be allowed into the Twelve at fixed times and places, and provided that they have enough money and do not endanger public order or international relations; • a 'common deportation fund' must be set up.

Over the past decade all countries in Europe have been gripped, to a greater or lesser extent, by public panics about law and order, drugs and crime, terrorism and Aids. All these issues have also been used as a means of scapegoating immigrants for problems of unemployment, housing shortages and social disorder. The result has been a wave of prejudice and bigotry against ethnic minorities, backed up by more repressive immigration laws and racist police forces, and taken on to the streets by more or less coherent far-right organisations. By enabling all member states to 'take such steps as they consider necessary' in "security' matters the SEA will fuel the growth of racism. This can only lead to more brutal assaults on ethnic minorities, with bitterly divisive consequences for the entire working class.

Yet, while all the white tribes of Europe want to strengthen common bonds against the menace of aliens from other continents, this is not enough for Thatcher's kith and kin. Take 155 the Channel Tunnel. While France will check passports sur le

train, Britain will insist on lengthy customs procedures at Waterloo. Or take the formation of an EC-wide police agency.

Germany would like this and other EC states are broadly in favour. Britain believes, however, that such an agency can be no substitute for the maintenance of border controls.

However, there is a more substantial problem at the root of British concerns about border security: Ireland. Britain is the only EC country that has fought a colonial war within its own boundaries for the past 20 years. The fact that in recent years the Irish War has involved IRA attacks on British soldiers in West Germany and the Netherlands, not to mention SAS death squads operating in Gibraltar, gives it an important European dimension. Thatcher's hostile line on a Europe sans frontièresin her Bruges speech, she declared the maintenance of border controls a matter of 'plain common sense —follows from the nature of the 'United Kingdom'. Irish freedom fighters respect neither Britain's Channel ports, nor the Border separating the Six Counties from the Twenty-Six. Result? Because the SEA allows member states to veto the relaxation of border controls, the prospects for a customs-free Twelve by 1992 look 'distinctly dim." Once again, the realities of the imperialist nation state subvert the best-laid plans for EC unity.

Euro- As well as undermining workers' economic position, the rush towards 1992 promises to erode still further the ideological chauvinism independence of the working class movement. While Eurochauvinism secks to unite the workers of Europe with their bosses against the peoples of the rest of the world, mounting national chauvinism within the EC deepens antipathies among Europe's workers and weakens the resistance of labour against capital's 1992 offensive.

The drive towards 1992 identifies as our enemies the chip producers of Silicon Valley and Osaka. The EC politicians preach that workers in Europe have more in common with the bosses of the North Sea and of the Mediterranean than with the workers of the Pacific. As Carl Hahn, chairman of Volkswagen, puts it: *By the year 2000, Korea will be an automobile manufacturer of the size of Germany...[trade unionists at VW] know they have to compete with these countries to maintain employment."9° The politics of 'one Europe' cajole trade unionists into making sacrifices so that their employers can take on non-European rivals more effectively. They encourage workers to look upon workers of different nationality as competitors 156

rather than as potential allies in the common struggle for liberation. In France, 'humorous' government television commercials portray 1992 as a chance for European industrial bantamweights, complete with boxing gloves, to take on US corporations got up as hulking American footballers and win. In Britain, we are all supposed to be disappointed that repressive Oman and Jordan have dropped their interest in Euro-built Tornados; conversely, BAe workers are meant to rejoice that dictatorial Malaysia has decided to buy eight. More contracts for Europe! Fewer openings for Japan and the USA! These are the chauvinist messages bound up in 1992.

What if 1992 goes wrong, or leads to undesirable consequences for any of the Twelve? Then each member state's working class will be urged to put the blame on other nations, rather than the capitalist class at home. British workers will be told that the cheap labour of Greece, southern Italy, Spain and Portugal is 'stealing their jobs; the TUC can be relied on to do its patriotic duty and stir up chauvinist prejudice in the labour movement. Again, southern retail and banking workers will be summoned to conduct a nationalist vendetta against the predatorial British and Germans. The governments of France and Britain will rally public opinion in condemnation of Germany for not 'pulling its weight in defence.

The bright vision of 1992 is already being clouded by the universal suspicion with which Germany is viewed by the rest of the Twelve. Asked why the Germans should do her bidding on the modernisation of Lance missiles, Thatcher is reported to have replied, "After all they lost the war. In a similar vein right-wing ideologue Roger Scruton detects, in Germany's 'decisive turn away from the Western Alliance, what he calls the exorbitant spirit which spoke through Hitler. 00 Since German capital runs massive surpluses with the rest of the Twelve, underwrites the EC and is likely to set the pace for the rationalisations and redundancies of 1992, we can look forward to particularly brackish outpourings against Bonn, lederhosen and all the rest. Is the picture so bleak? Can we not hope that, aided by the European TUC, the Twelve's trade unions will forge links with each other and coordinate a response to Euro-austerity? In fact we cannot. So parochial are the institutions of official trade unionism in Europe that they organise solidarity within national boundaries all too rarely, and across them not at all. For the 157 most part, Europe's union leaders act as a bunch of nation states.

They will unite against Detroit or Seoul, but not against nationalism and Eurochauvinism. And the left? To the left we now turn. 7. The left and The drive towards 1992 has cruelly exposed the European left.

Whereas hostility to European integration is the most distinctive Europe position of the French Communist Party, the Italian Communist Party puts support for European unity at the centre of its programme. Defined by its anti-EC stand a decade ago, the British left is now firmly pro-EC. The incoherence of the left's attitudes to Europe is telling testimony to the ravages of nationalism: in every country the mainstream left takes its stand where it considers the true interests of the national capitalist class lie. Reduced to trailing in the wake of the nation state, the left has suffered a long-term decline in influence throughout Europe The traditional left was discredited by the inadequacies of its programmes and strategies in the first phase of the world recession in the early seventies and has everywhere lost working class support. In the mid-eighties, a new modernising left made a vague pro-Europeanism one of its principal defining features. In place of the bankrupt policies of the past-Keynesian state intervention at local and national level-it proposes for the future... the same policy, but applied at the level of the European Community and its institutions. A glance at the British Labour Party's line on the ECover, the years reveals the evolution of the nationalist virus that now afflicts the whole West European labour movement. Hostility to Europe was, for many years, a defining feature of Labour's U-turn on Europe left-wing radicalism in Britain. The Communist Party of Great Britain led the popular campaign against German rearmament in the fifties, and the Tribune group of left-wing Labour MPs was equally opposed. The traditional chauvinism of Britain's labour bureaucracy encouraged vehement left objections to imports from the EC into Britain. The Treaty of Rome smacked of papal power, the end of Commonwealth butter and loss of Westminster sovereignty in the face of the menace of the multinationals. 01 The massive 'yes' vote in Britain's May 1975 referendum on whether to continue membership of the EC marked a major defeat for the left. But for Labour's leadership the referendum 158

was merely a vindication of a policy laid out as early, in fact, as 1962. In that year, party leader Hugh Gaitskell told the party conference that being pro-Market would mean that Britain would end up 'a state (as it were) in the United States of Europe, such as Texas and California. Membership of the EC would mean 'the end of a thousand years of history' for Britain and the end, too, of the Commonwealth. 102 Gaitskell attacked the EC for its protectionist import levies on food from outside Europe.

Gaitskell's crudely chauvinist speech shocked fellow right wingers in the party who took a pro-European line; it won unfamiliar praise from the already staunchly anti-European left.

Yet he was careful to make clear that entry into the EC was possible if the terms were right. His terms were stiff: 'If we could carry the Commonwealth with us, safeguarded, flourishing, prosperous; if we could safeguard our agriculture, and our EFTA friends were all in it, if we were secure in our employment policy, and if we were able to maintain our independent foreign policy...[the EC] would indeed be a great idea. 3 Gaitskell's strict conditions on British entry into Europe reflected the caution that was widespread among British capitalists at the time. His speech registered Labour's rejection of the EC until such time as it was convinced that entry was in the interests of British capitalism. The anti-Europeanism of the Gaitskell leadership was a matter of tactics, particularly at a moment when it was in opposition to a crumbling (pro-Europe) Conservative government, not principle.

In 1962 America was lucrative to British capitalists and the Commonwealth was an important source of cheap food. British portfolio investment abroad, bound up with the City's global interests, had only as recently as 1959 been surpassed by the more manufacturing oriented foreign direct investment of an industrial bourgeoisie with interests in European trade. On the other hand, British small capital and agriculture-in 1962, a more important force than today—were unalterably opposed to EC membership. Above all, the whole ruling class in Britain was deeply perturbed by de Gaulle's behaviour in the EC. That its fears were well-founded was shown by his veto of British membership in both 1963 and 1967.

By the late sixties, however, large British industrial companies— of which GEC was a prime example had swayed establishment opinion firmly in favour of the EC—provided, as ever, the terms were right. The Labour leadership was quick to modify the 159

Gaitskell position and shift into line with the mainstream of British capital. Food was no longer a critical import item, while exports to the EC now exceeded those to the sterling area. Now in government, Labour leader Harold Wilson followed traditional Labour form in speaking the mind of British capital. He complained that Britain was subject to American industrial helotry and applied for British membership of the EC. He spoke of the need 'to make Europe strong, more independent, more decisive in world affairs" 104 Though its policy on Europe fluctuated, the Labour leadership was consistent in representing the national interest. Wilson found his desire for EC entry rebuffed by de Gaulle in 1967; he objected to the terms accepted by Heath's Conservative government when Britain finally entered Europe in 1973. By 1975 Wilson was back in government and back in favour of Europe, on terms little different from those accepted by Heath. He used the referendum to rout the party's leftist anti-Europeans with the full backing of a grateful capitalist class. Now that the British establishment's historic ambivalence towards Europe appeared a thing of the past, the Labour leadership became unequivocally pro-European.

When Labour went into opposition after Callaghan's defeat by Thatcher in May 1979, the issue of Europe came to occupy a central place in the ensuing inner-party struggle. The left, led by Tony Benn, blamed the policies of the Wilson/Callaghan/ Healey leadership for the party's setback at the polls. In addition to campaigning to make the party leadership more accountable to the activists, the left emphasised withdrawal from the EC as one of the key positions which should be included in any future manifesto. The party's 1981 conference voted that a future Labour government should not even hold a referendum on British withdrawal: it should just pull out. The virulently anti- European turn of Labour's conference was a crucial factor in the departure of the 'Gang of Four' who subsequently set up the Social Democratic Party. Roy Jenkins, Shirley Williams, David Owen and Bill Rodgers had been the leading figures in the 'yes' camp during the referendum campaign in 1975.

In fact, no sooner had Labour's right-wing pro-Europeans departed than some prominent left wingers began to get cold feet about the withdrawal policy. For those not entirely embroiled in Labour's internal conflicts, the intensity of the recessionary wave that devastated British manufacturing in the carly eighties confirmed that there was no hope for British capital outside of Europe. Indeed at the time of Labour's 1981 conference, the next 160

step noted: The irony is that some of the EEC's opponents take the maintenance of the interests of British imperialism so seriously that they are beginning to have qualms about withdrawal.os Within months, Communist Party economist Bob Rowthorn came to Labour's rescue, anxious to 'modernise" it in line with the establishment's pro-European position. Rowthorn argued that 'Britain's links with Western Europe, and in particular with the EEC countries are now, and will remain for the indefinite future, the central feature of our existence as a trading nation 106 Though Rowthorn was at first angrily repudiated by the left for his revisionist line on Europe, other radical intellectuals echoed his views. In 1983, a committee of eminent West European socialist economists published a detailed Europewide Keynesian reflation plan. 107 The significant feature of the book was not its economics, but the fact that it took for granted that the EC was the starting point of European socialist planning. This was also the point of view of Fred Halliday, who argued that the new Europe would have to 'develop forms of defence able to protect it against both major powers. ing By 1984 even Neil Kinnock had caught on. He called for a "new Messina conference' to reorganise the EC, but came out broadly in favour of it. The old Euro-right may have departed, but, as the party was refashioned in Kinnock's image, the new orthodoxy became increasingly pro-European. After a period of discreet silence on the whole question, the mainstream left jettisoned its anti-EC principles. Labour's U-turn on Europe, from the ultimatums of Gaitskell through the reservations of Wilson to the Euro-enthusiasm of Kinnock, was complete.

Euro-utopia Utopianism about Europe has become the last refuge of Britain's radical intelligentsia after a decade of Thatcher rule. 'Only by acting as part of Europe can Britain have any influence' writes Frances Morrell: 'As multinational companies have extended their empires and begun to organise production on an international scale, ignoring national boundaries, the means open to governments to influence economic development have diminished and become less effective. Companies like Ford, for example, plan Europe-wide. Separate national governments have little impact 0g The Communist Party's Sunday Times columnist Martin 161 Jacques agrees. He writes of the 'decline of the nation state, and

specifically the European nation state:!• Academic co-thinker John Keane goes further: both the internationalisation of capital and the political integration of Europe are, he contends, 'not just irreversible but even unstoppable!!!! In sum, the new radical wisdom is that Europe, if not on the verge of unity, is certainly on the way to it. Such is the pace of integration within Europe, the argument goes, that the prospects for socialism in Britain now revolve more around the institutions of the EC than they do around Westminster or British local government.

What does the British left really want out of the EC? John Palmer wants 'democratic control' of it: *Democratic control demands support for a vastly more powerful European parliament. But a coherent alternative European strategy will have to go beyond the obvious demands for improved transnational social provision and will have to grapple with the central role of European planning and new forms of supranational social ownership and what relation those have to national and indeed regional and community based forms of intervention, "12 Just as some Western left wingers today look to Gorbachev as a saviour, so Palmer seeks succour in Brussels. Palmer's alternative* European strategy amounts to a plea to make the institutions of the EC work along the lines of Ken Livingstone's Greater London Council. ''? Altogether, the faith of the British left has in the institutions of the EC rivals its attachment to the general elections and parliaments of British democracy. Palmer argues that there is a 'need for a far broader distribution of income and wealth within the European Community He goes on: Who is to effect that redistribution if not a more powerful, reconstructed community?!

Not for the left the reorganisation of production in Europe by the European working class: Brussels redistribution rules!

In its focus on EC institutions, the left vastly overestimates the clout actually wielded by Brussels. That the left has as its highest ambition the control of commission funds worth one per cent of the Twelve's GDP is a fitting tribute to the narrow horizons of Labourism today. The left's illusions in the possibilities of a Euro-superstate follow from its inflated expectations about how far the EC can integrate the capitalist economies of Europe. As carly as 1971 we find Rowthorn speculating on the prospects for 162 a fully unified Europe:

'At its widest, an extended Common Market might cover virtually the whole of Western Europe, and, at its most complete, so many cconomic and military decisions would be irreversibly centralised that the resulting "United Europe" would be a single nation."3 Yet, as we have seen, every step towards closer economic integration only reveals the obstacles resulting from the dependence of capital accumulation on the nation state.

The hopes the left holds in a European programme of Keynesian state intervention are equally ill-founded. Where would the money come from, if not from the exploitation of the working class to a level of intensity that would require another war and defeat on the scale of 1939-45 to achieve? Morrell for one is already prepared to connect the supposed decline of the nation state with the need for a tough Euro-line against all-comers: *What is needed is a framework at the European level for managing trade relations with the rest of the world, for negotiating with multinational companies and for regulating monetary conditions within Europe."! In the process of standing up to the rest of the world, particularly the USA, Morrell insists that Western Europe should maintain "adequate conventional forces for defence. The left is increasingly prepared to extend its support for Europe to approval of the trends towards European militarism.!!?

Illusions in Gorbachev and in the progressive potential of Euro-defence today allow Kinnockian apostasy over unilateralism to ride shoulder to shoulder with Euro-utopianism. Not only are Nato and nuclear weapons now the right thing for Labour, Ron Smith, Campaign for Nuclear Disarmament theoretician and economics professor, has discovered that a single European market in defence is OK too. Europe-wide competition in arms procurement, he writes, 'provides the weapons that are necessary at the lowest cost, reduces the political leverage of the military lobby, and increases the incentive for the arms firms to diversify out of defence'.!!

In a bizarre reversal of past hatred of the Germans, the left's schemes for Euro-defence have a strongly central European twist. Radical politics lecturer Phil Williams suggests that increased European cooperation in defence could bolster Nato and stave off US troop cuts. He wants the Western European Union and the Independent European Programme Group to be more active, and recommends that Britain and France link their 163

defence structures to Germany's. 11° Feting Gorbachev, Morrell wants Western Europe to develop a new 'Ostpolitik' towards the Soviet bloc: "A Western Europe which was ready to disengage from the USA and actively seek a new political, overall Eastern settlement to replace the "East of the blocs", set up as a result of the Yalta Agreement...could make a major contribution to reducing the threat to world peace. "120 In the British left, there is much admiration for the German SPD's encouragement of "pluralism' in Eastern Europe./21 But, at a moment when leading European institutions and financiers have called for a new 'Marshall plan for Eastern Europe', can we really trust West Germany's largest company, the mighty Daimler-Benz to 'make a major contribution to reducing the threat to world peace? Though Daimler's chairman, Edward Reuter, has been a member of the SPD since 1946, his firm does €2.5 billion a year in arms business.

*A stronger Europe could offer third world countries a more palatable alternative to dependence on the USA and the US dollar', argues the World Development Movement's Edward 122 Ask the people of India whether they would like to Mayo. repeat their experience of Europcan domination, or those of Algeria whether they would like to return to the European fold, or those of Central America whether they would prefer Europeanfinanced death squads to those backed by the USA! European imperialism appears more benign than US imperialism only through the rose-tinted spectacles of the European left, not in the eyes of the people of the third world.

From the point of view of the working class, there is nothing 8. 1992-Neither progressive about the 1992 project. The aspiration towards for, nor against greater international cooperation and harmony cannot be realised through the capitalist framework of the EC. Indeed, the drive towards closer integration of the European capitalist powers can only intensify tensions between Europe and the rest of the world as well as unleashing conflicts within Europe itself.

At the same time we cannot uphold the existing order, or any defence of national sovereignty, against 1992. The choices in this debate are simply choices among different ways of organising the relationships among the European capitalist powers. We are not interested in choosing among different forms of capitalist domination: our object is to overthrow capitalist domination in Britain, in Europe and in the world.

164

In the nineteenth century, the creation of nation states, a world market and an international division of labour was progressive.

Since the twentieth century and the age of imperialism, however, the nation state in the advanced West has frustrated democratic rights in the third world. Indeed, the whole extension of the world market and of the international division of labour by imperialism is a story which involves redivision of the world at the expense of the south. Some development of the productive forces has been achieved in the process, but only at the expense, not only of the oppressed, but also of the metropolitan working class, which enjoyed the fruits of a boom only after the Holocaust, Hiroshima and the whole mid-century period of reaction. Those who believe that the imperialist powers of Western Europe can now transform themselves into a progressive force in the world are deceiving themselves.

Europe, the cradle of capitalist 'civilisation", has long been outpaced by America. It came together in the Treaty of Rome in an attempt to deal with that problem. It attempts to move even closer together now to essay a rejoinder, not just to the USA, but to Japan too. The danger of Euro-chauvinism directed against these quarters is now a serious one. A further twist of the global recessionary spiral would sharpen it still further.

Europe can only achieve greater cohesion on the backs of the peoples of the third world. From Afghanistan to the Gulf, from southern Africa to Malaysia and the Far East, Europe poses as a liberator from despotism, Americanism and Tokyo ruleonly to enforce its own domination. To imagine that Western Europe, the cradle of imperialist barbarism, can use 1992 as a platform for Good Works in the third world is a childish fantasy.

The single European market can only mean the spread of intra-European phobias. A further slump will hit the countries of the Twelve differentially; anyway, each member state has its own inclinations about the world economy, as West Germany's preponderance in Eastern Europe confirms. Altogether the jockeying for supremacy that 1992 is bound to bring can only have a divisive effect on the peoples of Western Europe.

In new conditions, Europe is being Balkanised once more—at the same time as it is building a reactionary fortress of its own.

This means that popular aspirations for all-European unity cannot possibly be realised within the framework of the EC.

Indeed they can only be frustrated by 1992. To recognise this is not to indulge the equally reactionary defence of national sovereignty especially not in Britain, with its uniquely low (in EC terms) standards of childcare provision and its uniquely 165

incompatible railway gauges. 1992 shows that capital cannot How should the working class movement respond to 1992?

While the single market threatens deepening austerity in the medium term, the immediate consequence of the 1992 debate is to strengthen chauvinism and reaction. Throughout Europe issues of race and immigration provide a focus of repression and a key device for dividing and paralysing the working class movement. A common anti-racist struggle across Europe would be the most appropriate labour movement response to the 1992 debate. Instead of allowing ourselves to be dragged into taking sides in the squabbles among rival national capitalists and their political representatives, we can organise independently to unite the working class against capital, in each country and across national barriers. Such a campaign would not only challenge racism and nationalism, it would point the way forward towards the genuine unity of the peoples of Europe that can only be "The shape of Europe's trade", Economist, 3 September 1983 cent, compared to 19 per cent in the USA and 27 per cent in per cent in the USA and Japan; productivity figures show the same disparities: 24 per cent versus 29 per cent for the EC's transcend its national base.

Notes 20 May 1989. 2. 3 4. 5. 6. 7. 8. 9. 10. 1. 166 achieved through the supremacy of the proletariat.

Guardian, 17 May 1989. Daily Mail, 18 May 1989. Heseltine, The Challenge of Europe, 1989.

Guardian, 19 May 1989. "The coming boom in Europe, 10 April 1989.

"Little-Englander view of life from the slow lane'. Sunday Times, 23 April 1989. Trading Places, 1988, p192 'Completing the internal market, European Commission white paper, 1985. Between 1980 and 1987 the EC's GDP grew by only 12 per Japan. Investment rose by four per cent, against 30 and 31 rivals. Employment growth was negligible, while jobs in Japan spread by six per cent and in the USA by 14 per cent (Henley Centre for Forecasting, The united markets of Europe: Vol 1, June 1988, p14). While the USA has

244m inhabitants and a market worth $4.4 trillion, the EC has 323m mouths to feed, but counts for less: $4.2 trillion.

Japan is smaller but more dynamic: its population is 122m, its market worth $2.7 trillion. Figures, for 1987, from "Getting the map together, Time, 4 April 1988.

12. Commission figures quoted in Henley, op cit, pl5.

13. "Who turned out the lights?', Economist, 4 February 1989.

Western Europe has only I1 per cent of world trade in semiconductors and in memory chips it is even lower: four per cent, against 23 for the USA and 69 for Japan, See Business Week, 14 November 1988. In addition 'in 1978 seven out of the top 10 companies selling semiconductors in Europe were foreign, and five of these had substantial production facilities in the region. Half of the following 10 companies were also foreign and included, in the Japanese and South Koreans.

some of the fastest growing groups in the industry: See T Dodsworth, 'Semiconductor production: a glaring weakness", Financial Times survey on European high technology, 22 March 1989.

14. P Patel and K Pavitt, 'Is Western Europe losing the technological race?", Research Policy, No 16, 1987, pp63, 65, 80; K Narjes, "The state of science and technology in Europe, European Affairs, Spring 1989, p94.

15. Dodsworth, Battling for world markets" and W Dawkins, 'European rescarch investment: the debates intensify.

Financial Times survey on European high technology, op cit.

16. See Siemens and GEC chiefs Kaske and Weinstock, The importance of critical mass", Financial Times, 7 April 1989.

17. "Why predators like the taste of British food and drink", Financial Times, 26 May 1988.

18. See F Painton, 'Second thoughts on 1992', Time, 23 January 1989, pl4. Cumulative Japanese investment in European manufacturing is modest compared with American: in April 1987 it was $3.3 billion, against a 1986 US figure of $186.5 billion. G de Jonquieres, 'Concern over "Fortress Europe" after 1992', Financial Times survey of Japanese industry, 7 December 1988.

19. R Strange, "Hang out the flags for Japan's new wave, Electronics Times, 16 February 1989, p12; Guardian, 3 February 1989. 20. Financial Times, 3 June 1988.

21. Ibid, 20 May 1988. 22. J Grant, "Beware the last train out of town', Acquisitions Monthly, February 1980. 23. W de Clercq, Europe and America: brothers, yet foes?".

European Affairs, Autumn 1987.

24. *Lower wages attract West German investment to the UK: 167 Times, 17 December 1988.

25. In fact, there is a flourishing black market in hormone-treated beef in Europe; see "Beefing about the bush", Economist, 24 December 1988. 26. "Gatt: now for the hard part", Financial Times, I1 April 1989, p20. 27. See de Clercq, op cit.

28. Record bankruptcies among the farmers of the Mid-West, Bavaria and Latin Europe are another important factor in rising tempers. There are 3.8m farmers in the USA and 10m in the EC. Subsidies on both sides of the Atlantic amount to more than $25 billion a year, for, in the face of massive debt among the backward capitalist countries, surpluses of American grain and European dairy products have for more than a decade been difficult to unload on the third world.

Between 1980 and 1986, total US government payments to farmers rose from six to nearly 32 per cent of net farm income, up almost eight-fold from the highest levels reached in the seventies. See CF Runge, The assault on agricultural protectionism', Foreign Affairs, Fall 1988. As for EC subsidies, the Community's court of auditors has attacked the commission for manipulating' figures to hide the fact that they rose to 71 per cent of the Twelve's budget in 1987.

International Management, February 1989, p4.

29. Guardian, 18 February 1989, p8.

30. The figures are from de Clereq, op cit, and are for 1986, 31. Pemberton, op cit. 32. See the chart in Financial Times, 1 December 1988, p4.

33. De Clerca gives figures for overall US investment very much lower than those reported by de Jonquieres for manufacturing investment. He estimates that, of the $233 billion it had invested abroad in 1986, the USA had $82 billion based in the EC. See de Clercq, op cit. On the other hand, Business Week believes that US direct investments in the EC in 1987 amounted to $122 billion. See *Reshaping Europe: 1992 and beyond*, 12 December 1988, p17.

34. At the expense of overstretched and disaster-prone Boeing, and of McDonnell Douglas, Airbus recently won major orders for its jets from America's TWA and four other customers in the space of five working days. Airbus, which accounts for more than a third of the world's booming market for civil aircraft with more than 100 seats, makes no fewer than 11 A300 planes a month; US trade representative Carla Hills believes that it is the critical issue in US-EC commercial relations, and in March charged Bonn with "illegal" financial support under Gatt. See C Yeutter, 'We are not close to a trade war, European Affairs, Autumn 1987; Breaking the order barrier", Sunday Times Business News, 29 January 168 1989, pD7; P Montagnon, 'At the heart of the trade dilemma":

Financial Times, 10 March 1989.

35. On Cocom, see, for example, G Forest, 'US v EEC: hi-tech trade war", the next step, 12 February 1988. On Britain's inability to get clearance to sell transputers to the USSR, sec M McLean, 'Cocom thwarts UK/Soviet deal", Electronics Times, 27 October 1988. 36. Financial Times, 1 December 1988, pl.

37. Montagnon, lead article in Financial Times survey on East- West trade, 13 December 1988.

38. D Buchan, 'Reciprocity is the new buzzword", ibid. Other figures from D Marsh, 'Profiting from perestroika', Financial Times, 7 March 1989; and "Breaching the frontiers of Eastern Europe , International Management, March 1989, p19.

39. J Delors, in 'Second thoughts about 1992', Time, op cit, pl3.

40. Ibid. 41. JS Lublin, Japanese carmakers slip inside as Europe argues design of walls, Wall Street Journal, 23 March 1989, pl.

42. The figures, which are approximate, are from S Islam, '1992: getting into Europe, South, December 1988, p8.

43. Economist, op cit; Towards a single Europe, Financial Times survey, 17 November 1988, p3.

44. The Times Guide to 1992: Britain in a Europe Without Frontiers-A Comprehensive Handbook, 1989.

45. "Brussels orders repayment of Ecu747m in state aid", Financial Times, 3 June 1988. 46. Of all state aid measures logged by EC member states, the proportion that, illegally, fails to be notified to the commission rose from 11 per cent in 1985 to 18 per cent in 1987/8. See D Buchan and I Davidson, Brussels takes hard line on state aid", Financial Times, 16 December 1988. The chief culprit was France, which failed to notify Brussels on nearly two occasions out of every five.

47. H Giersch, ibid, p37.

48. M Emerson, "What model for Europe, p48. The figures apply to the eight who have been members since 1970.

49. Commission, 'Making a success of the single act: a new frontier for Europe, 1987.

50. In the first 10 years of the ERDF, which covered the decade up to the beginning of the 1992 process, Britain received E3 billion of Community support-one of the largest sums made available. Since then the British government has received. more than E0.3 billion of the EC's social fund to back its Youth Training Scheme. In 1985, maximum percentages of ERDF funds allowed to different countries were fixed. Again monies covered not just southern member states, but northern ones; and again, Britain in particular 169 came out with a generous allocation:

Maximum % ERDF funds allowed different countries (agreed 1985) Italy 29 Spain 24 Britain 19 Portugal 14 Greece 11 France 10 Germany 3 (Source: Owen and Dynes, op cit, pl73) Clearly Thatcher's cconomic 'miracle does not prevent her from demanding Brussels intervention when it suits her.

Even the much-vaunted "doubling' of the ERDF is not all it seems. Once the enlargement of the EC by Spain, Portugal and Greece is taken into account, the real increase in funds amounts to no more than 43 per cent (Pelkmans and Winters, op cit, p86). In terms of transfers to regions covering the poorest 30 per cent of the EC's population, funds will add but 10 per cent to the present level of gross capital formation (T Padoa-Schioppa et al, Efficiency, Stability and Equity: A Strategy for the Evolution of the Economic System of the EC, 1987.) 51. Pelkmans and Winters, op cit, p86.

52. Spain and Ireland are set to achieve free capital mobility by 1992, Greece and Portugal may take until the mid-nineties.

D Buchan and G Owen, Undimmed ambitions for unity in 53. Europe*, Financial Times, 14 March 1989.

54. R Waters, "Pan-European tax rates: chaos more likely than harmony, Financial Times, 13 March 1989.

55. M Cusack and L Harte, eds, /992: An Unworkable Utopia, Hoare Govett Investment Research Ltd, August 1988, pl7.

W Dawkins, "The dream is becoming reality, Financial 56. Times, 20 December 1988. 57. 'Young sees new EC merger role', Guardian, 17 February 1989. 58. Euromoney, June 1988.

59. Owen and Dynes, op cit, p10l.

60. *Lo! A central bank for Europe', 25 June 1988.

61. C Johnson, 'Nine years of the EMS and the private Ecu', European Affairs, special issue on the Ecu, March 1988, p17.

62. Ibid, p2l. The European Investment Bank is an organ of the EC which 63. both provides credit for EC projects in transport, energy, communications and regional development, and which grants third world countries long-term project-related 170

credits-in Ecus. 64. T Coussieu, The Ecu in the interbank currency deposit market, European Affairs, op cit, ppl33-4.

65. With French investment bankers Paribas as lead managers of Ecu bonds since 1981, followed by other French financial institutions, Belgian banks and, most recently, several Japanese and one or two American banks, Ecu issues have topped 30 billion since 1981, and currently run at about 7.5 billion a year. The salience of EC institutions and companies in weak-currency states is unmistakable.

66. T Takagaki, "The institutional investor and the Ecu as an international alternative to the US dollar-Ecu, as seen from Japan, European Affairs, op cit, pp112-3.

67. P Norman, "Success turns to uncertainty', Financial Times, 13 March 1989. 68. 20 May 1989. 69. See E Lipp, Financial Times, 1 June 1988; N Thygesen, The integration of Europe's financial markets and the role of the Ecu", European Affairs, op cit; Padoa-Schioppa, op cit; L Tindemans, "Which way to go with the Ecu. One Europe!', European Affairs, op cit, p77.

70. Thygesen, op cit, p62 71. Coussieu, op cit, p134, 72. Johnson, op cit, p22.

73. "Stand back, Whitehall", Economist, 14 January 1989.

74. For example: Speaking at a conference organised by the European parliament...the Philips president warned of "a global war" for supremacy in electronics technology."

(European business leaders seek EC support for firms, Wall Street Journal, 8 March 1988, p2.)

75. 1 Hamilton Fazey, "Victors spoil for empires, Paints & coatings: the war for world markets, Financial Times survey, 10 March 1989. 76. In helicopters, collaboration is rife. Aerospatiale works with MBB on the PAH-2 anti-tank helicopter; Britain and Italy share plans for a joint naval design, the EH 101; Britain, Italy, Spain and the Netherlands have teamed up on an army attack machine; and Acrospatiale, MBB, Italy and the Netherlands are building a naval machine and troop-transporter, the NH90. 77. "The last frontier", International Management, April 1989. p19. 78. Other cross-border activity includes the shares bought by GEC, MBB and Sweden's Wallenberg in Matra, the recently privatised French aerospace contractor; and the plans for an Aerospatiale/MBB joint operating authority in helicopters.

79. D Marsh, Further surprises forecast", 22 March 1989. Earlier 171 this year, GEC and the Dutch aerospace firm Fokker flirted

with buying Short Brothers, Northern Ireland's biggest employer; so, too, did MBB.

80. "There is no common market in Europe, European Affairs, Summer 1987, p42. The arguments over the European Fighter Aircraft are 81. revealing, not just because GEC and Siemens are on opposite sides in the chase for business worth £2 billion, but also because of the uncharacteristically pro-European stance of the MOD: The British argue that if the EFA is equipped with an American radar, it will mean the end of European radar technology: (J Adams and P Beresford, 'EFA heads for radar storm", Sunday Times Business News, 5 March 1989) Indeed, given the centrality of radar to modern air battle, buying American could lead to Europe losing the ability to build fighters altogether. 82. C Partridge, 'Defence watch", 16 February 1989, p.

83. K Morgan et al, The GEC-Siemens Bid for Plessey: The Wider European Issues, 1989.

84. The career of Sir John Cuckney, formerly chairman of Westland helicopters, aptly sums up the dilemmas inherent in cross-border defence deals. During the Westland affair, he stoutly defended the takeover of his firm by Sikorsky, a subsidiary of America's United Technologies. In carly 1989, however, he put together a bid with Plessey and, it is true, America's AT&T and GE-for GEC. This he did through a "shell company named Metsun. Leader of the company?

France's Thomson-CSF. Although Metsun's E7 billion bid to break up GEC proved abortive, Cuckney's switch from American to European sympathies typifies the turbulent atmosphere among Europe's militarists today.

85. Already, for example, Siemens is worried about the tie-ups GEC has made with GE. 86. E Hintermann, formerly assistant secretary-general of WEU, "European defence: a role for the WEU, European Affairs, Autmun 1988, pp32, 37. 87. *1992: the bad news", International Management, September 1988; Euromonitor, 1992: Single Market, 1988, p46; Fortune, op cit. 88. P Cecchini, The European Challenge: 1992- The Benefits of a Single Market, Commission of the EC/ Wildwood.

89. Department of trade and industry, publicity pack on 1992, 1988. The figures are for the year 1986.

90. While West Germany is, after Japan, the world's second largest car exporter, Britain is, after the USA, the world's largest car importer: at present, it runs a f4 billion deficit in cars, out of a £14.7 billion deficit overall. See M Pemberton, "The world car industry to the year 2000, Economist Intelligence Unit, September 1988, pp52, 54. This survey 172

covers the years up to 1985.

91. See for example McKinsey, Performance and competitive success: strengthening competitiveness in UK electronics: National Economic Development Council, 1988.

92. February 1988. 93. D Brierley, "American bankers lead 1992 charge", Sunday Times Business News, 5 February 1989.

94. Henley, op cit, page x.

95. "Making money on the sly, the "black economy accounts for 10 per cent of Europe's GNP, Newsweek, 30 June 1986, Similarly, social security systems within the Twelve differ in 96. level and duration of benefit, methods of finance, and in eligibility: fully harmonising them will, in the words of one bourgeois expert, be 'impossible'. T van Zweeden, "The "social dimension" in Europe...a continuing problem", European Affairs, Spring 1989, p32 97. R Norton-Taylor, 'EEC plans tighter controls on aliens, Guardian, 22 February 1989.

98. P Wilsher, "1992', Sunday Times Magazine, 23 October 1988, p19. 99. Financial Times, 13 March 1989 100. "Don't trust the Germans, Sunday Telegraph, 21 May 1989.

101. Labour Research Department, "The menace of the multinationals*, 1975. See also G MacLennan, 'Quit the market—join the world', Communist Party, 1975.

102. "Labour Party conference report, 1962, pl59.

103. Ibid, pl65. 104. Economist, 19 November 1966; New York Times.

9 May 1967. 105. November 1981. 106. 'Britain and Western Europe, Marxism Today. May 1982.

Until the carly eighties the EC was usually referred to as the EEC (European Economic Community).

107. S Holland (ed), Out of Crisis: A Programme for European Recovery, 1983. 108. The Making of the Second Cold War, 1983.

109. *Beyond one-nation socialism: an agenda for the Europcan left", Political Quarterly, July/September 1988.

110. 'Europe and nation: coming in from the cold", Marxism Today, April 1989. 111. 1992 and all that", ibid.

112. 'Eurosupermarket threat to Thatcher', Guardian, 28 July 1988. 113. It is striking that many in the left's Brussels fan club are former GL.C/Ilea functionaries—-including Morrell, Palmer, Robin Murray and Livingstone himself.

114. Trading Places, op cit, p192.

115. "Imperialism in the seventies: unity or rivalry?" New Left 173

Review 69, September/October 1971.

116. Op cit, p305. 117. For details of the left's new enthusiasm for Euro-defence, sce the special defence issue of the new intellectual liberal left paper, Samizdat, March/ April 1989.

118. 'Should an opposition defence policy encourage Thatcherite competition?", ibid, p17.

119. "West European security and troop withdrawals', Political Quarterly, op cit, pp320-321.

120. Op cit, pl30. 121. See J Palmer, Europe Without America? The Crisis in Atlantic Relations, 1988, p18.

122. Marxism Today, op cit.

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