Europe: Crisis for major euro economies

The run up to the Swedish referendum on the euro, 14 September, is coinciding with a crisis for the major economies within the currency union. This Spring can see a show down over the EMU’s ’stability and growth pact’. Germany has been ordered to come up with a plan within four months, by 21 May, in order to reduce its budget deficit. France, on the other hand, refuses to obey the orders. On Tuesday 21 January, the euro-zone finance ministers for the first time voted on the pact. While all other Finance Ministers voted unanimously to demand a cut in the French deficit by 0,5 per cent a year, the French minister voted against.

The pro-euro campaign can’t give any credible assurance that Sweden will be able to escape the same problems. The best chance for a No victory in the referendum lies with underlining the role of the euro in the capitalist crisis which hits workers in Europe and how they are fighting back. The outcome of the referendum will have particular effect in Denmark, where the government aim to organise a second referendum next year.

Deficits and debts are growing fast. European Commission prognosis for 2003 shows budgets deficits of 2.9 per cent of GDP for France and 3.7 per cent for Germany. The stability pact does not allow deficits over 3 per cent, and in fact demands balanced budgets over an economic cycle. Portugal too is close to a 3 per cent deficit, following a deficit of 4.1 per cent in 2001. Italy is a fourth government under criticism from the EU Commission over its state finances.


In Portugal, the terms of the euro pact has been used to introduce large-scale privatisations, a ban on councils increasing their debts, closure of more than 70 state institutes, increased VAT from 17 per cent to 19 per cent etc. This was met by two one-day general strikes at the end of 2002. The right-wing government of Barroso has promised to do "whatever it takes" to cut the deficit below 3 per cent of GDP. But with zero growth in the economy, more cuts may be demanded. "This is not what Portugal expected of the euro", wrote the Financial Times in a typical understatement.

These austerity measures in turn will cut demand and deepen the economic crisis. This in a world economy marked by crisis in the US and Japan, which could worsen further with a war against Iraq. The euro-zone is already expecting a growth of less than one per cent this year. Even the French finance minister, Francis Mer, stated that "This is not the time to create conditions where growth will be reduced by too sharp a reduction in public expenditure". Earlier, Italy’s right wing prime minister Berlusconi made similar statements.

They obviously feel the pressure from below, above all from the growing struggle of the working class. Last year’s general strikes in Italy, Spain, Portugal and Greece, alongside an upturn in the class struggle in Britain and Germany, plus several important disputes in France, showed the real strength of the working class, despite the limitations of its leadership. Another factor behind the obduracy of the French and other governments must be pressure from domestic capitalists, who fear the economic downturn.

This could lead to the break up of the stability pact, which even the president of the EU Commission, Romano Prodi, called "stupid". The key country in this respect, however, is Germany, which is in perhaps its deepest economic crisis since the Second World War. So far, the German government has paid lip service to the pact. At the meeting on 21 January it did not vote against the 21 May deadline.

At the EU summit in Seville in June 2002, all governments agreed to have balanced budgets by 2004. This was at the time seen a retreat from the stability pact. A certain deficit was being tolerated in a downturn. But the EU Commission has so far refused to go further. Germany "is not in a severe economic downturn", the commissioner Pedro Solbes stated on 20 January. He added that the EU can’t "spend its way out the trouble" and that France must fulfill its obligations.

Deregulation and privatisation

The European Commission, and the central bank, ECB, still stick to the original plan: A strict application of the stability pact and the EMU’s inflation target will force through ’reforms’ of the European economies. One way euro members have lowered their deficits so far has been through massive privatisations, amounting to around 400 billion euro in the last decade. Of this, Italy alone stands for a quarter.

But these are once-only measures which do not influence the budget next year, as the Commission says in the case of Italy. The Commission, and some governments, therefore stress the ’Lisbon process’ of ’fundamental reforms’ (agreed at the Lisbon summit in March 2000). On 20 January, the German and British governments proposed higher ambitions in this field, to be discussed at the Brussels EU summit in March. This means further deregulation och privatisation, attacks on union rights etc. Sweden was recently given high grades from the Commission on this field. One point in case was Sweden’s deregulation and privatisation of electricity, which has led to rocketing prices and enormous discontent from workers.

In Germany, severe austerity measures have already been introduced. Even the French government does not criticise the programme of the Commission, just the time-table. Behind the expected deficit in France is for example increased defence and the police spending. Another key reason is tax cuts, which have undermined public finances in several countries.

The growing pressure to "redesign the pact", which is how the Economist put it, will eventually lead to the old rules being scrapped. The pressure of the pact and the Commission will be used for further anti-working class measures, but the formal question of deficit rules and possible fines will most likely be changed, or totally ignored.

Crisis of the euro and the socialist alternative

This is also part of the problem with the currency itself. The straight jacket of the euro is at the moment exacerbating the crisis in Germany, but is of course not the main cause of the crisis, which is rooted in the capitalist system itself. The question is at which stage leading politicians will start to blame the euro in an attempt to save their own skins. This will probably demand a much deeper crisis and a further increase of workers’ struggles.

There are other problems, causing protests against the euro. The introduction of notes and coins led to price rises, which caused discontent, even if a majority still accept the currency, according to opinion polls. The strengthening of the euro against the dollar has held back growth. 36 per cent of the revenues of the euro countries come from outside the continent.

Sweden has already to a high degree converged its economic and monetary regime with the euro. But a formal affiliation would create new risks for attacks on workers right and the public sector. The strikes in Italy, Portugal, Spain, Greece etc underline that the only real opposition to the EU/EMU is the working class. Against the Bosses’ EU we put forward a socialist and democratic workers’ Europe.

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