Europe: EU leaders retreated on “Frankenstein”

Mass protests forced concessions, but no change of direction

The European Union summit before Easter was held in the midst of a storm of protest from workers around Europe, particularly in France. A general strike in Greece, the mass demonstration in Brussels and a build-up to trade union protests and strikes in Britain put further pressure on the politicians. The EU tops therefore decided to retreat somewhat, in words – at least.

The withdrawal of the “Frankenstein directive”, nicknamed after its creator, Fritz Bolkestein, and the extreme makeover of the stability pact symbolise the weakness of European capitalism as well as its ruling classes. It reflects the real relation of forces between the classes. The capitalists, with all their economic and state power, are again and again challenged by the working class. If the latter’s strength was consciously used by fighting trade unions and workers’ parties, the complete end of capitalism could be achieved

On the Bolkestein directive, ”the people on the No side have won the debate”, the pro-business EU Commissioner, Charlie McCreevy, had to confess. Just one month earlier, the Commission’s president, José Manuel Barroso, had declared, “At the top of the agenda is the completion of a single market in services” (Financial Times 2 February 2005).

Threatening clouds

Several threatening clouds hung over the EU summit 22-23 March. In France, the No campaign had taken the lead in the opinion polls ahead of the referendum on the EU constitution 29 May. The referendum offers an opportunity for workers to punish the government. A No victory in France risks an ”EU-political melt down” with “unimaginable consequences for the EU”, wrote the Swedish EU reporter, Ingrid Hedström, in Dagens Nyheter.

In Germany unemployment reached 5.2 million in March (12.6%). The increase is mainly a result of the enormous cuts packages launched by the Social Democratic and Green government. The cuts in unemployment benefits have reduced consumer demand. Instead of creating jobs by “encouraging unemployed to search for jobs”, the results have been more lay-offs. Germany is also heading for important elections this spring, in Nordrhein-Westfalen, the biggest state.

Despite these difficult circumstances, the politicians have other reasons to tread more carefully. Already a couple of years ago, the gap between politicians and ordinary people was bigger than at any time since the 1930s. It has now widened further as a result of the failures of the EU and new attacks on workers conditions. The economic growth of the euro-zone was only 1.8% last year and the Commission prognosis for 2005 has been revised down to 1.6% (with only 0.8% for Germany). Unemployment is rising and particularly high in the new Central and East European states, reaching a level there of 14 per cent. Company profits are increasing rapidly – a 22% rise this year in Germany according to one prediction – but it’s not being invested into jobs or growth.

The ruling classes have launched the euro, enlargement and the so-called Lisbon Agenda as means to overcome the crisis. But subsequent mass protests have forced politicians to distance themselves from this course. “Ultra-liberalism has become the communism of our days”, said the French president, Jacques Chirac, in typical populist style. In an attempt to save a yes victory in France and calm the protests the EU summit agreed to these retreats.

“Frankenstein directive”

The implementation of the service directive (Bolkestein/Frankenstein) was postponed. The purpose of the proposal has been that service companies should be able to act all over the EU with wages and workers’ conditions based on the country-of-origin principle. Laws in for example Slovakia would rule a Slovakian company in Germany. Trade union agreements on jobs and wages would be undermined in the name of competition. This threat was the reason for the 80,000 strong trade union demonstration in Brussels on 19 March.

Around the EU elections in June 2004 most politicians still supported the directive. But with growing protests, few of them defended it in the end, to the great disappointment of the capitalist lobby. To disarm the critics, both Chirac and Germany’s Chancellor Gerhard Schröder demanded a rewrite of the directive. Even the Swedish premier Göran Persson, whose Social Democrats in the European parliament supported the directive, started to make some critical points. This followed trade union action in defence of collective bargaining in cases with underpaid workers from Latvia and Poland.

The postponement at the summit, however, does not mean that danger is over. Schröder, Chirac and Persson are not suddenly siding with the workers. The concessions were “more apparent than real”, commented Financial Times in an editorial (24 March). “No one demanded that the service directive should be withdrawn. On the contrary everyone agreed that we need to open the market for free trade with services, underlined the Commission president, José Manuel Barroso” (from Dagens Nyheter).

The decision was to exclude public services and to “avoid social dumping”, both already mentioned in the original draft.

The stability pact

The summit also decided to modify the so-called stability pact. Germany and France, having broken the 3 per cent limit for the last three years, have already undermined the basis of the pact – that member countries with public sector deficits over 3 per cent of GDP and debts over 60 per cent risk punishment and fines.

A number of exceptions have now been introduced. Negative growth or “very low growth for a longer time” can justify larger deficits. Earlier demands for balanced budgets over an economic cycle have been replaced with “close to balance”. A lot of expenses are also excluded: research & development, some public investments, foreign aid and pension reforms. Even German reunification and probably military expenditure will be reduced before deficits are calculated. The only sharpening in the new proposal is some formulations against high levels of state debt.

The EU finance ministers called this an “improvement”, but it met sharp criticism from more fundamentalist economists. The European Central Bank issued an unusually sharp comment, declaring it was “seriously concerned”. “The rule system is in practice no longer in place”, commented Lars Calmfors, a leading Swedish economist. High debts in one member state can increase inflation and interest rates in the whole EU, he warned. Others pointed that “budget discipline” will be undermined. With the “stability pact” broken once, the system is open for new violations.

The decision recognises the fact that a number of member states are on their way to higher deficits this year: Greece, Italy, the Netherlands, Portugal, Poland etc. The forced austerity as a result of the pact has also been a brake on growth.

Increased budget deficits are however no solution for workers and youth, just look at the countries with high deficits, not to mention the US. Major causes for increased deficits will be tax cuts for the rich and companies, and from increased military spending. Finland, Austria, Greece and most recently Germany have all lowered company taxes this year.

Lisbon Agenda

The Lisbon Agenda has totally failed to increase growth and create jobs. But it has forced through generalised deregulation and privatisation, not least in Sweden. The electricity chaos, with increased energy prices and enormous profits for electricity companies is one result.

The Commission president, José Manuel Barroso, has aimed to abolish those parts of the Lisbon Agenda that cover employment and environment targets. These were ornaments anyway, used by trade union leaders to motivate their support. At the summit in Brussels, however, Barroso retreated and “again emphasised soft issues” (Dagens Nyheter).

Those governments pushing harder for privatisation and free competition claimed to be satisfied with the summit. The orientation of the EU, to continue with “reforms”, has not changed, stressed the British foreign minister Jack Straw. The British government, of course, preoccupied with its own election campaign, wanted to keep the EU summit calm.

The recent year or so has shown two relatively new features in the counter-reforms of the EU. First, the increased national profile of several governments, not least the French and the German, previously recognised as the engine of the EU project. These have been attempts to attract support from the growing EU skepticism in all member states. Secondly, big business launching their own attacks on wages and working hours, not least in Germany. The companies have taken advantage of the weakness of the trade union leadership.

Head-on attacks on the trade unions should if possible be avoided, advised Thomas Mayer, Deutsche Bank (Financial Times, 8 march). He advocated, “trade and capital market liberalisation, as well as privatisation of public enterprises, to expose economies to fierce international competition and force labour and employers associations to adjust”. This strategy, however, is not new and will not make it possible to avoid or postpone new struggles.

The maneuvers of the EU governments suits the trade union leaders, who themselves lack an alternative policy but are under pressure from the members to organise mass protests. What is needed are trade unions in the hands of the members and fighting, socialist workers’ parties all over Europe. The alternative to the neo-liberalism of the Lisbon Agenda is not the same policies, only slower. The EU of the capitalists must be abolished and replaced with a socialist Europe.

This is an extended version of an article from Offensiv 31 March.

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April 2005