European Union: No light at the end of the tunnel

Mass discontent behind Commission crisis

The new European Commission, led by José Manuel Barroso, will be reshuffled before it even gets to Brussels. The vote in the European Parliament on Wednesday was postponed, because a majority would have voted against Barroso’s original proposal. The lack of confidence was directed against the Italian commissioner, Rocco Buttiglioni, for his reactionary views on women, homosexuals and immigrants. But behind this new stage of EU-crisis lies the extremely weak economic performance of the euro-zone and the growing discontent against the European Union.

The criticism within the European Parliament, however, does not signify a change of policies. Comparing the issue with the US elections, Buttiglioni’s views are more similar to Bush’s, while those voting him out are closer to Kerry. Neither has a way out of the crisis and both will force the costs of their plans onto the workers. Those critical of Buttiglione have, in most cases, not objected either to privatisations or to the EU’s military projects.

Behind the present Commission crisis lies a crisis of confidence for the whole EU. The great schemes of the EU leaders – the single market, the euro and enlargement – have not produced any of the promised results. They have, on the contrary, aggravated the present economic crisis, because they have prevented governments from stimulating their economies.

Last year’s economic growth in the euro-zone was below 1 % and for 2004 the prognosis is below a growth of below 2%.

Instead of improvements, workers and particularly pensioners all over the EU have faced new, more severe attacks on their living standards. Austerity plans from governments have been supplemented or overtaken by a new wave of attacks from the big companies on wages, working conditions etc. This has led to an upsurge in discontent and protests, particularly in Germany and the Netherlands. In Germany, the Monday demonstrations and especially the actions of the car workers at Opel (General Motors) have shaken politicians throughout Europe.

More of the same

The general recipe against the economic crisis from politicians and capitalists, however, is only more of the same. The supposed president-in-waiting of the European Commission, José Manuel Barroso, declared "economic reform" to be his most important task. The make-up of his proposed Commission represents a shift to the right compared with the previous one. Barroso was praised in the Financial Times for selecting "free market-candidates" for the most important jobs in the Commission.

All EU governments are pursuing the general trend of attacks on workers’ conditions. The question is what role the EU itself will play. During recent years, there have been new signs of EU governments more openly distancing themselves from the EU itself. For the first time, the governments of the Netherlands and Germany are among those raising serious criticism of the EU. At the same time, they still need the EU to conduct the kind of "reorganisation" of European industry – mainly cross-border mergers, common standards, and common attacks on workers’ conditions – needed to compete with the USA and China. Even the EU-critical Italian PM, Silvio Berlusconi, has asked for an all-EU "pension reform".

Economic straight-jacket

The rules of the monetary union have deepened the present economic crisis. The Portuguese government, led by Barroso in the past, obeyed the rules of the "Stability Pact" and slashed thousands of public sector jobs. This deepened the recession and actually pushed up the public sector deficit instead of the intended opposite result.

In Germany, the austerity measures of ‘Agenda 2010’ caused a drop in domestic demand of 0.7% this year. This could drop even further with the recent redundancies announced at Opel and other companies. Even more important is the sharp drop in investment. Company profits are used for speculation or are leaving the country, not being invested in Germany. The weak growth of the second quarter was totally due to lower exports. The fall of the dollar and rising oil prices made the European Commission on Tuesday revise down its predictions to 2.0% growth for 2005.

For next year, the prognosis is for the German GDP to grow by only 1.5%. On the surface, a predicted French growth of 2.3% looks much better. But the French growth is based mainly on Finance minister Sarkozy’s variant of US economic policies. Household consumption has been stimulated. For the last three years, house prices have increased by 40% in France. But unemployment is still among the highest in the EU and the housing bubble will not last.

One additional problem is the common interest rates for the euro-zone, set by the European Central Bank. While the German economy needs lower interest rates to stimulate the economy, the French property market, as in the US, needs higher interest rates. So far, the ECB has been able to manage the tensions, but the problems will grow.

Both the German and the French governments have attempted to promote a "national profile" to save jobs (and profits). Sarkozy has condemned some of the new EU states for their low taxes and Schröder said that moving jobs out of Germany was "unpatriotic". Both governments have also asked for a common EU policy in the defence of jobs and national companies. In this are the outlines of new tensions and crises.

Stability Pact reform?

The European Commission has proposed a softening of the "Stability and Growth Pact". Last year, both Germany and France ignored the rules, which say that state budget deficits bigger than 3% of GDP should be punished. A majority of the EU finance ministers voted with them to avoid the threat of fines. Since then, Greece has been exposed with hidden deficits for several years of up to 5%. Germany, France and Portugal are breaking the rules again this year. Italy and the Netherlands are also very close. This trend will continue. For example, ‘Agenda 2010’ is reported to weaken the income to state health and pension schemes.

The new proposal, forced by necessity, gives more time for governments to balance budgets, particularly under undefined "exceptional circumstances". States with lower debt will also get more time.

The proposal has in turn led to sharp criticism from the ECB boss, Jean-Claude Trichet. He called the proposal "dangerous", threatening the "soundness" of the euro-zone. The Dutch Finance minister, Gerrit Zalm, spelled it out, in accusing Germany of exporting higher long-term interest rates to other EU countries. He has himself launched a neo-liberal budget with "structural reform" (both tax cuts and drastic austerity measures) – a budget which met with the recent 200,000 demo in Amsterdam.

The French government, on the other hand, discussed suspending the whole pact. France is predicted to manage a 2.9% deficit next year, but only thanks to money confiscated from the state electricity company, EdF.

The worries of the ECB are well-founded. Normally, public deficits in a country would cause higher interest rates, maybe a fall in the currency and inflation. In the euro-zone, this has to be shared by all member states. Why then should any country keep the deficit low? Of course, an under-balanced budget will not benefit workers, but mainly big business and the rich, as in the US.

Lisbon process

Romano Prodi, now stepping down as President of the European Commission, last week condemned the EU’s "Lisbon process" as "a big failure". The plans from the EU summit in Lisbon in the year 2000 basically aimed at massive privatisations, deregulations and anti-union measures. The US economy was held up as a model.

The "Lisbon process", however, has met big resistance and also disappointed expectations of increased economic growth. A report by former Dutch prime minister, Wim Kok, to be presented soon, shows that only five of 25 EU states met the deadline. That is economically less important countries – Belgium, Austria, Finland, Sweden and Denmark.

Gerhard Schröder and the French former IMF boss, Michel Camdessus, are among the strong voices that now demand a revival of the Lisbon process. "The German Chancellor’s plan, entitled ‘Seven chances for the single European market’, calls for the complete liberalisation of Europe’s energy markets by 2007, increased co-operation in defence industries and common standards for credit card operations and bank transfers", reports ‘’.

On top of those proposals, several other "reforms" are in the pipeline. The Schröder government still looks on the Anglo-Saxon economies as a model. "In Germany, the government has overseen steps to improve corporate governance and the workings of capital markets, for instance by encouraging the establishment of hedge funds", (FT 23 July 2004).

In France, the government introduces 1 million temporary job contracts, plus cuts in pensions and unemployment benefits. 10,000 civil servants jobs will be cut. Another trend is to "decentralise" parts of the state, putting the blame for further cuts on local authorities.


The role of the EU enlargement is also very clear. "The enlargement of the EU, and the knowledge that just across the border there are workers willing to do the job for far less money, has clearly acted as a spur for reform", the Economist wrote in a recent survey on the EU. The magazine continued, "A new element has been added by the arrival of the new central European members, who are anxious to preserve their competitive advantages: low wages, low taxes and light regulation."

The employers’ federation of the EU, Unice, made the same point, "Enlargement is a golden opportunity to boost competitiveness". The EU with 25 members will put the "competitiveness of companies first", Barroso stated when he was selecting his now failed Commission.

Enlargement is a major argument when companies demand lower wages and longer working hours. The European Commission is now preparing to water down the EU rules for the maximum working week. They were introduced in 1993 as a response to the unions.

New crisis

The failure of the Barroso Commission is not the only sign of crisis in the EU this week. On Friday, the EU heads of government will meet in Rome to sign the new EU constitution. That constitution, however, might not survive until October 2005 when it is supposed to be ratified by the member states. Eleven countries have so far declared referendums on the issue (Belgium, Britain, the Czech Republic, Denmark, France, Ireland, Luxembourg, the Netherlands, Poland, Portugal and Spain. Even Schröder is considering a referendum in Germany. Formally, no one country can block the constitution.

Generally, the EU-connected neo-liberal policies are being met with a growing fight-back. It is a question of time as to when leading politicians also attempt to openly blame the EU for their failure in relation to unemployment etc. The governments of Germany and the Netherlands are among those stating that they are no longer willing to pay more than others to the EU budget. A new budget from 2007 is now under preparation.

The mood against the EU is growing in the member states. In the recent Euro barometer poll, only 43% said they have a positive image of the Union. Only 39% in Germany thought the country benefited from EU membership. Politicians aiming to tap this mood will attempt to play a nationalist card.

The European Union is held together by the common will of the capitalists in Europe to slaughter the welfare states and attack the working class. But it is inevitably also pressurized by the national interests of politicians and capitalists. Either of the present crisis issues – the constitution, the Stability Pact, the coming EU budget – could lead to an EU with two or three different camps with different levels of integration.

The only alternative to the capitalist EU is a socialist Europe, which can only be achieved by the common struggle of the working class across Europe. The present signs of joint struggle in the factories of General Motors is a pointer to further, much sharper, class battles which will change consciousness and create new mass socialist parties.

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October 2004