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From Intercontinental Press, Vol. 17 No. 11, 26 March 1979, pp. 296–301.
Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).
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To counter the impact of an increasingly volatile world economic situation, a new monetary system was set in operation in Europe March 13. Under the scheme, the governments of West Germany, Erance. Belgium. Luxembourg, the Netherlands. Ireland, and Denmark are pledged to step up austerity and pool part of their reserves to keep the exchange rates of their currencies from fluctuating by more than 2.25% against each other. For Italy, the rate has been set at 6%. The following article traces the background for this move and the underlying contradictions it does nothing to solve. |
The discussions among the imperialist governments regarding economic policy at present focus on questions of monetary policy – the crisis of the international monetary system and the varied responses of the imperialist powers to it.
Karl Marx often noted that monetary phenomena are simply reflections of the overall evolution of the capitalist economy. The causes of monetary transformations, he noted, must be sought in the sphere of production and not in the surface movements of economic life. This approach to monetary questions is as valid today as it was one hundred years ago.
In light of the general economic crisis of 1974–75, this method has again shown itself to be the only valid one. At a time when the bourgeois economists and politicians are concentrating almost exclusively on monetary problems, as they also did in 1972–73, and while they discuss recipes such as the EMS (European Monetary System) to surmount the crisis of the world monetary system, a reexamination of the world economic crisis of 1974–75 is particularly appropriate.
The 1974–75 crisis was preceded by changes in the monetary realm that were similar in more than one way to the changes that are now taking place. And during the 1972–73 period there was discussion, as there is now. of different “models” for overcoming the “monetary crisis” – while largely ignoring what was taking place in the realm of production.
There is, of course, one “small” but significant difference between the monetary discussions of 1972–73 and those of today. Then discussion focused on the question “How do we create a new world monetary system?” Now discussions focus on regional solutions – especially within the framework of the Common Market, in partial relationship to Japan. They have practically abandoned the attempt to find an overall solution.
The international capitalist economy is much more shaken than it was in 1972–73. Despite a limited upturn, the economic evolution as a whole is marked by structural crises, deepening interimperialist competition, growing protectionism, and an increasingly pronounced inequality between countries and economic sectors.
The increasingly distinct possibility of a new recession in the United States threatens the international capitalist economy with a new generalized economic recession. The growth in the rates of inflation since mid-1978 and the growing disturbances in the currency markets are the initial signs of this.
At the moment we are between two economic crises. Since 1976 the principal imperialist powers have been in a “restrained economic upturn” – the two principal restraints being the accumulated difficulties in increasing exports and the relative lag in the purchasing power of the masses.
The European capitalist powers, in particular, have gained some maneuvering room in terms of moving toward the economic and political integration of capitalist Europe.
From the standpoint of the bourgeoisie, it is certainly to the credit of the Helmut Schmidt-Giscard d’Estaing duo that they have tried to use this interlude before the next recession to move toward economic and political integration by proposing a European Monetary System.
But their initiative is also explained by the special interests of the West German and French capitalist classes. It is not due, as some bourgeois newspapers would have us believe, to Schmidt’s “genius in economic policy” or to the “ease of discussion” between Schmidt and Giscard.
We should not forget that there had already been a previous attempt to respond to the breakdown of the Bretton Woods system (which had established fixed currency exchange rates using the dollar as the principal reserve currency of all the other capitalist currencies). This previous attempt was the famous “European snake.”
In 1972 West Germany, France, Belgium, the Netherlands, and Denmark set up a sort of “monetary alliance” within which the fluctuations in currency exchange rates were strictly limited to no more than a 2.5% rise or fall.
But this attempt to set up a “European Monetary Union” immediately revealed its fundamental contradiction. As long as there is no real supranational European state, as long as there are sovereign national bourgeois states developing at uneven rates (especially in terms of production, productivity, rates of inflation, and balances of payments), from the outset such a “monetary alliance” bears the seeds of its future decomposition.
The French franc proved too weak in comparison to the deutsche mark, precisely because of the uneven development just mentioned. Pompidou had to pull France out of the “snake” in 1974. What remained was a “residual snake” or “small snake.”
Although Norway then joined this “small snake,” the Benelux countries plus Norway and Denmark simply don’t have the weight to stand up to West German imperialism. The “small snake” was and remains essentially a “deutsche mark monetary zone” with satellite currencies of the relatively stable small capitalist countries.
The other “great” powers of the Common Market – France, Britain, and Italy – did not feel they could join the “snake” in the ensuing four years. In fact, the very survival of the “small snake” through the recession years was the best the European bourgeoisie could hope to accomplish during that period.
It is in the nature of the capitalist mode of production that bourgeois policy – and especially bourgeois economic policy – has to be reactive rather than active. It represents a reaction to the evolution of real economic relations that are spontaneously transformed behind the backs of the producers and other so-called “economic agents,” especially the bourgeoisie.
The same holds true for the EMS. This model is just a reaction to the precipitous decline of the dollar that began in the middle of 1977, In the course of this decline the rate of exchange of deutsche marks to dollars went from 2.34 to the dollar in June 1977 to 1.99 in August 1978, and to 1.77 in the beginning of November. This decline of the dollar was the starting point for Helmut Schmidt’s monetary initiative.
While the majority of bourgeois commentators do not understand – or do not understand fully – the real causes of this decline [1], they all agree on its consequences. Since the dollar continues to be accepted as the main medium of international payment, the United States can cover its enormous balance-of-payments deficit by throwing an additional quantity of paper dollars into international circulation.
This leads to a vicious circle. The more the inflation rate in the United States exceeds the rate in West Germany and Japan, the more the deficit in its balance of payments grows, the more the quantity of dollars in international circulation increases, the more the exchange rate of the dollar falls, the more the inflation rate in the United States increases, and so forth.
This vicious circle is further aggravated by two factors – speculation in anticipation of future declines in the dollar’s exchange rates, and the bourgeoisie’s increasingly pronounced flight toward “tangible assets” (gold, diamonds, art works, furnishings, etc.). This further accelerates the loss of the dollar’s purchasing power. (According to the September 7, 1978, Blick durch die Wirtschaft and the August 4, 1978, Wirtschaftswoche the value of diamond exports from South Africa went from 95 million rand in 1976 to 155 million rand in 1977 and 300 million in 1978.)
This confirms Karl Marx’s “orthodox” analysis, which says that the measure of the value of all commodities is the socially necessary labor time that went into producing them, and that in an economy of generalized commodity production this value can only be expressed through an exchange value. This exchange value – precious metals – is itself a commodity, a special commodity used as a general equivalent of that value.
In a period of prosperity the practical function of gold may effectively decline because, when the currency is stable, capitalists are not afraid that if they hold unsold commodities and paper money (or bank deposits), value will be slipping through their fingers.
But when the economy goes through successive periods of crisis, and people expect the crisis to worsen – a phase like the one we are now in – gold and other “real values,” which are the direct product of human labor and not scraps of paper, mere symbols of replacement of gold, increasingly regain their original function in capitalist circulation, accumulation, and hoarding.
But these changes in the monetary realm, the flight from the dollar to gold and “tangible assets,” can have a deflationary effect on international commerce. It is as if you kept decreasing the oil and grease in a giant machine. This would cause the machine to overheat through friction until, one after another, all the gears broke down. The principal West German bourgeois daily, the Frankfurter Allgemeine Zeitung, laid out an almost apocalyptic scenario of this danger in its August 9, 1978, issue:
The risks of a further decline (of the dollar) would be terrible ... The holders of dollars throughout the world are losing patience. A massive flight toward gold – a real value – has already begun. The price of gold has reached record levels. If the fear of an uninterrupted decline of the dollar takes shape, if the dollar’s exchange rate continues to fall, the point of no return could be reached ... At the end of this road lies the isolation [of the American economy], the economic isolation of all nations, the death by asphyxiation of world free trade.
That was the international economic and monetary situation in July 1978, on the eve of the “summit meeting” of the nine European Economic Community (EEC) chiefs of state in Bremen. That is what was behind Helmut Schmidt’s initiative. The outline of the EMS that had been secretly negotiated with Giscard d’Estaing was a response to this situation and to these dangers.
The European Monetary System that the nine EEC countries had “in principle” decided in July 1978 to set up, and which was later “concretized” (meaning severely weakened), at first represented an attempt, in the sphere of monetary policy, to set up a united capitalist Europe that can deal with its American and Japanese competitors.
In the original model, the currencies of the nine EEC countries would have been closely tied to each other. The permissible fluctuation in their rates of exchange would have been limited to 1%. Any additional fluctuation in a currency was to be countered by that country’s central bank through massive currency purchases or sales. A European Monetary Fund of $32 billion was to have been constituted, to be backed by currency reserves of $100 billion (440 billion French francs, or about 200 billion deutsche marks).
This fund would not have the power to put out its own European currency, but it could grant credits to the central banks of each country. Since West Germany holds 84 billion deutsche marks worth of foreign exchange, more than 40% of the total foreign currency reserves of the Common Market countries, it would provide the lion’s share of this European Monetary Fund – and would also exercise preponderant influence in it.
At the outset, Schmidt’s initiative ran into criticism from many sectors of the West German bourgeoisie. The reactions of the European bourgeoisie were not all that positive either, although it is true that Le Monde did respond to the proposal with praise:
West Germany, disappointed by the egotistic and rather irresponsible character of the economic policy of the United States, is now practicing an active European policy under the resolute leadership of the chancellor ... The birth of a powerful European monetary bloc represents a danger to the dominant position of the dollar, and also to the commercial dominance of the United States [July 9, 1978].
In reality, however, Schmidt’s plan is not soley motivated by the immediate economic situation. It also fits the medium-range interests of West German capitalism.
West Germany is now the world’s leading trading nation. But in contrast to its principal competitor, the United States, West Germany suffers from a double handicap. It does not have a large internal market. Because of this it is much more dependent on exports (which represent 25% of the West German gross national product and only 6% of the GNP of the United States).
This handicap could become the achilles heel of the West German economy. In the event of a future recession, which would lead to increased protectionism even within the Common Market and to a pronounced contraction of world trade, the extent of West Germany’s exports would be transformed from a factor of “relative strength” to a source of “absolute weakness.”
Schmidt is more or less conscious of this situation. Comments on “the world economy” are the preferred theme of his speeches. The only solution to this dilemma is for West Germany to assure itself a “large domestic market” through the consolidation of the Common Market, which already absorbs more than 60% of West German commodity exports, and nearly 60% of its capital exports.
A similar possibility is opened by the EMS or, in more general terms, by any step in the direction of a West European supranational state. From the economic point of view, West Germany cannot help but be the unquestioned leader in a consolidated Europe.
But politically, it would be on thin ice if it took on this role. The alliance with France allows West Germany to stifle the criticism that this is a plan to assure West German dominance. Schmidt has therefore deliberately chosen to play up this alliance with France. His proposal for the EMS should be seen primarily as a political proposal, whose “subjective” and “objective” goal is to strengthen the march toward an “integrated capitalist Europe” based on the joint dominance of two allied powers – West Germany and France.
In addition to this overriding political objective, there is also a supplementary aim. West Germany is trying to increase pressure on the other powers in the Common Market to increase the coordination of their economic policy within the Common Market, and especially to fight harder against inflationary tendencies through a “stabilization policy.” In particular this means getting the British and Italian governments to deepen their anti-workingclass austerity policy, which, it should be noted, is in accord with the intentions of the Italian government itself.
In addition, the initial plan for the EMS began from the somewhat justified hypothesis that a reciprocal linkage of all the currencies of Western Europe would make it possible to build a more solid dike against the devaluation of the dollar and the currency speculation that causes. But such a dike would clearly be of particular benefit to the strongest European economies, which are the ones most threatened by the decline of the dollar.
A reciprocal linkage of all European currencies and the creation of the ECU (European Currency Unit resulting from a balanced mix of the nine currencies) would moderate the rise of the deutsche mark, the Dutch florin, the Belgian franc, and even partially the French franc against the dollar because these strong currencies would be mixed with the weaker currencies in the basket. In this way the EMS aids West Germany’s exports by keeping down the value of the deutsche mark without having to resort to inflation.
The fact that, primarily as a result of the increased strength of the U.S. economy, West German exports have not yet suffered from the decline of the dollar (which makes American products cheaper on the world market), has done nothing to calm the uneasiness of the West German capitalists, who worry that this could happen in not too distant future. If, as part of the EMS, the deutsche mark and the franc rise less against the dollar than they would if they were autonomous, then the export industries of these two main participants in the Common Market could only profit from the move.
The EMS would also serve as a prudent brake on the expansion of West German (and European) capital exports to the U.S. This export of capital has been one of the main tendencies in the European capitalist economy over the past five years. Capital exports would, instead, be reoriented toward the member countries of the EEC.
Undoubtedly this reorientation is not in the direct and immediate interests of the large trusts and banks. But it does not go against their interests, at least their medium- and long-range interests, if it reflects actual increased opportunities for the export of capital to member countries of the Common Market.
Moreover this reorientation would strengthen the tendencies toward European interpenetration of capital, which would strongly stimulate European integration.
Looking back to the moment Schmidt pulled the plan for the EMS out of his pocket, one will note that the “Bremen summit” took place one week before the Bonn “world economic summit.” President Carter had already announced concrete demands that he would raise in Bonn. These did not please Schmidt and the West German bourgeoisie. Carter called on the West German government to present specific figures for the projected growth of the GNP (4% for 1978) and for economic pumppriming. West Germany was again to take the role of “locomotive” of the world economy, “in conformance with its strength.”
In practical terms this would mean the Schmidt government would have to eliminate basic aspects of its “stability policy” in order to carry out an inflationary reheating of the economy, particularly through increasing its budgetary deficit and relaxing credit policy.
The United States was not alone in making these demands. They also correspond to the interests of all the weaker imperialist powers, especially Britain and Italy. But by setting up a “European bloc” at the “Bremen summit,” Schmidt and Giscard d’Estaing were able to prevent Carter from successfully concentrating his fire in Bonn on West Germany’s economic policy.
The fact that in the end West Germany presented a moderate program of economic pump-priming allowed Carter to save face, as long aB he closed his eyes to the fact that Schmidt basically agreed only to tax reductions, which is the complete opposite of an expansion of public expenditures.
“The Bonn summit was not a success for the dollar,” the Frankfurter Allgemeine Zeitung said in September. Two months later it added, “the foreign exchange markets have lost all restraint” (November 1, 1978). In fact, the dollar again fell sharply after the announcement of the EMS plan. While it had still been fluctuating around 2 deutsche marks to the dollar in July, it fell to 1.7735 deutsche marks on the Frankfurt exchange on November 2, 1978.
It is possible that the announcement that the EMS would start functioning on January 1, 1979, directly exacerbated the decline by feeding speculation against the dollar, which was expected to deteriorate further against the ECU that would be created. But the fundamental causes of this deterioration remain what they were for the past few years.
But while Carter had been content to make hollow declarations about the decline of the dollar in the preceding phase, on November 1 he announced a more substantial support program. A $30 billion fund to support the dollar was established. A more restrictive credit policy was established in the U.S., with the prime lending rate being increased to 9.5%.
As yet too little time has elapsed to draw a balance sheet. But two conclusions seem justified. These measures will not suffice to stabilize the dollar over the medium term, even though at present it has risen to a little less than 2 deutsche marks to the dollar (which, in itself, cannot yet be considered a stabilization). Secondly, these measures increase the chance of a new recession in the United States.
Another event clouded the monetary horizon in October 1978. On October 19 the deutsche mark had to be revalued upward an average of 3% against the other currencies of the “small European monetary snake”: those of the Netherlands, Belgium, Denmark, and Norway, as well as against the Austrian shilling. The Deutsche Bundesbank, the West German central bank, had had to spend DM10 billion over the previous weeks to try to maintain the exchange rates of these currencies (i.e., it spent this amount to buy florins, Belgian francs, and Danish and Norwegian krones). Since it feared that this would inflate the money supply in circulation in West Germany itself, which would reheat inflation, it had to take restrictive measures that were very similar to those decided on at the beginning of November by the Carter administration, especially the restriction in the volume of bank credits.
The Deutsche Bundesbank was careful to make the point that this was simply a question of “prudent tidying up,” which in no way signalled “a change in the credit policy.” It wanted to avoid giving the impression that the West German monetary authorities were in the process of applying the brakes to the economy. This might be true up to now. But the situation gave rise to uneasiness. If even the “small snake” leads to such monetary disturbances, with more or less automatic repercussions on West Germany’s economic policy, what might be the inevitable consequences of the EMS for the central bank and Bonn’s economic policy, and eventually for other strong-currency countries?
Finally we should take note of a third monetary event that followed the announcement of plans to establish the EMS. At the end of September 1978 the International Monetary Fund increased its lines of credit for its 135 member countries by 50%. This increase must be linked to the increase in shares that was decided upon in 1977. The two increases doubled the volume of IMF “special drawing rights,” which have now risen to $58.5 billion or DM146 billion (Frankfurter Rundschau, September 6, 1978). This massive growth in “international liquidities” – which the West German government opposed in vain – will inevitably lead to a new soaring of international credits and international inflation.
The IMF is trying to reassert its importance – the importance of international public credits as against the growth in the international private credit of the large banks and the holders of “petrodollars.” This, then, was a measure designed to transfer to the public credit institutions some of the risks that the private banks had taken during past years in dangerously extending credits to the weakest imperialist countries, the semicolonial countries, and the bureaucratized workers states – often without adequate guarantees.
These private loans had been made without forcing concessions in terms of economic and monetary policy. But when the IMF extends credits, it generally imposes rigorous conditions. It forces governments that require loans to carry out “stabilization” and austerity measures.
Nonetheless, the overall effect of these IMF decisions is a worldwide expansion in the volume of credit. In this way they increase the explosive potential of a future recession.
The shadow that these three monetary moves cast on the capitalist economies of the United States, Japan, and Western Europe objectively reduces the maneuvering room of the European economic and monetary union. Schmidt and Giscard d’Estaing are therefore involved in a real race against the clock.
It is clear that a European monetary union would be difficult to set up on the eve of a new international economic recession, and would be impossible in the midst of such a recession. That is the conclusion that the West German and French governments draw from the experience of the 1974–75 crisis and the fate of the “large snake.” This reduced maneuvering room and the threat of a new recession explain Schmidt’s feverish attempts to establish the EMS before the end of 1978.
Schmidt was ready to go quite far to get the EMS off the ground. Given the massive resistance of the British and Italian governments to the initial proposal, he first announced that he was determined to go ahead with the plan even without including Italy, Britain, and Ireland “at the beginning.” He added that if the British government tried in the EEC Council of Ministers to block the plan to create the EMS, the West German government would be ready to reach an agreement on the question “outside the framework of the Community” (Frankfurter Allgemeine Zeitung, October 30, 1978). This would have subjected the EEC to a serious political test.
The Italian and Irish resistance or opposition to the EMS had been rather moderate and ambiguous. The EMS would, in fact, have somewhat contradictory consequences on the weaker economies of these countries. They would be subject to stronger pressure to carry out a so-called “stabilization” policy, meaning austerity. But this pressure would come from outside and it would therefore be easier to “sell” such a policy of wage restraint.
However, as compensation for this austerity program, there would be supplementary aid and credits from the European Monetary Fund, as well as the possibility of an influx of West German and French capital in the underdeveloped regions.
As a concession, the Italian lira was granted a supplementary fluctuation range within the new “snake” (its value could go up or down 6% instead of 2%). As regards Ireland, Dublin was not entirely displeased over the possibility of severing its currency from the British pound sterling for the first time since it won independence after the First World War. This was true even though the operation entailed risks owing to the fact that more than 40% of Irish exports go to Britain.
In Britain the question of joining the EMS was the subject of serious controversy and political disputes. In September 1978 the Labour Party congress came out against joining. This did not prevent Callaghan from going to meet with Schmidt at Aix-la-Chapelle to negotiate supplementary concessions that would permit British participation.
But Healy, the chancellor of the exchequer, remains an opponent of participation under the present conditions, and he expresses the view of the technocrats at the Treasury who, in a secret report, asserted that “joining the EMS would have dangerously deflationary consequences for Great Britain.” In addition the report suggested that the rate of inflation, output, and employment might all be adversely affected if Britain went in.
This position however is not unanimous in Britain. A faction of the British bourgeoisie fears that by staying out of the EMS, capitalism will continue to be more unstable in the United Kingdom than in the other countries of Europe. For example, the president of the Lloyds Bank, Sir Jeremy Morse, came out unambiguously in favor of Britain’s participation in the EMS (December 5, 1978, Le Monde).
But the biggest objections to the EMS were formulated in West Germany itself, particularly by the central bank and other sectors of finance capital. These objections concern the following points:
The objections of the West German bankers are not without foundation. Their vehemence surprised Schmidt, who had to make concessions to them and “remodel” his EMS proposal. It is clear that in some ways the creation of the EMS is an attempt to put the cart before the horse. Rather than first developing a common economic and commercial policy within the EEC, they begin with a common monetary system that will be subjected to sharp tests because of the disparity in the economic policies followed by the nine governments. not to mention the disparity in the economic situations. This is particularly striking with respect to the differences in the inflation rates:
Inflation Rate for
|
||
|
W. Germany |
2.0% |
(Oct.) |
|
Netherlands |
4.0% |
(Oct.) |
|
Belgium |
3.8% |
(Oct.) |
|
Britain |
8.5% |
(Sept.) |
|
France |
9.2% |
(Sept.) |
|
Denmark |
9.1% |
(Sept.) |
|
Italy |
12.0% |
(Sept.) |
It is impossible to develop a common trade and economic policy without taking decisive steps toward a common government – that is, a supranational state. Schmidt understands this quite well. But the obstacles on this road remain formidable. When Schmidt launched a timid trial balloon in the beginning of November, suggesting that the European parliament elected by universal suffrage could take on supplementary powers, the furious reaction of the Gaullists and the French “national Communists” forced Giscard himself to respond by also saying “no” to his “friend” Schmidt.
The evolution of the inflation rates appears, moreover, to be moving in the direction of a rise in inflation, which does not necessarily mean that the spread between the lowest and the highest rate – which is already 1 to 6 – will also expand. The projected rise in inflation rates can create multiple problems, especially if Italian inflation again becomes uncontrollable.
In addition, today West Germany holds more than 40% of the foreign currency reserves of the EEC countries.
In terms of the present model of the EMS that is being projected, the West Germans would provide it with $10 billion, which is nearly DM20 billion, or a quarter of its foreign currency reserves. But in return the Bundesbank would undoubtedly have preponderant influence within the European Monetary Fund.
Thus, on this point the criticism has less basis and is preventative rather than corrective.
But the third criticism is more serious. Unless there is a unification of commercial and economic policies within three years – which no one seriously expects to happen – the differences in these policies would in effect require the Bundesbank, as financially the most powerful member, to make the strongest contributions to halting the disparity in the exchange rates. This in turn would probably lead to more rapid expansion of the money supply in West Germany than what those responsible for the economic policy of the country feel is desirable.
The British, Italian, and Irish criticisms, and the “corrective measures” added under the pressure of the West German bankers, have given birth to a “new model” of the EMS. It is a real mongrel.
1. There is to be a “hard core” of the EMS and a “fringe.” The “hard core” will include the countries that are members of the “monetary small snake” as well as France. This simply means that France is returning to the “snake.” The lira will be allowed a large margin of fluctuation. “Conditions for the progressive integration” of the pound sterling, which will remain outside the EMS for now, are provided.
2. The provision for obligatory intervention when currencies either rise or fall past the projected limits of fluctuation has been dropped. These limits have already been enlarged to 2.25% from the original plan’s 1%. This should both discourage speculation and leave a larger margin for revaluations and devaluations of currencies before the central banks intervene.
The only thing that remains from the original plan is the creation of the European Monetary Fund – which is itself surrounded by difficulties stemming from the fact that the other elements of the initial plan have been dropped. The West German bankers have in effect called for guarantees that “the system will be able to resist crises for at least two years.” The new version of the EMS offers no such guarantees.
With the tacic abandonment of the idea of a real zone of monetary stability, the EMS no longer even offers the capitalists the advantage of fixed exchange rates within the EEC that could “jointly digest” the effects of the devaluation of the dollar and the revaluation of the yen.
Thus the EMS throws light on the real character of the Common Market. Given the international capitalist economy’s growing tendency toward crisis, the Common Market is not in a position to move effectively toward a supranational state. This means that in the context of the increasing interimperialist competition it cannot respond as a common front to American and Japanese imperialism. Its member countries have been hit too hard by the germs of the capitalist crisis to be able to completely abandon economic nationalism and protectionism.
At the Brussels meeting, the (momentary) refusal of Italy and Ireland to join the EMS was a bombshell. The blame was placed on the sharp opposition of the Italian CP to Italy’s joining. But the real reason for the last minute difficulties is more likely found in Giscard’s refusal to grant the “financial quid pro quo” requested by Ireland and Italy, respectively $1.3 billion and more than $2 billion in grants over a five-year period.
Foreign Currency Reserves of the EEC in mid-1978 |
||
|
Country |
Holdings |
% of total |
|
West Germany |
40.7 |
40.1 |
|
Britain |
17.3 |
17.6 |
|
Italy |
13.2 |
13.2 |
|
France |
11.6 |
11.4 |
|
Netherlands |
8.0 |
7.9 |
|
Belgium-Luxembourg |
5.9 |
5.8 |
|
Denmark |
2.7 |
2.7 |
|
Ireland- |
2.0 |
2.0 |
|
(Frankfurter Rundschau, October 20, 1978) |
||
The French refusal – which contrasted to Bonn’s more conciliatory attitude – will have strongly negative consequences on the French economy. Without the Italian lira, the “mean” level of the “snake,” around which the franc’s fluctuation is limited to 2.25%, will be higher. This threatens to harm French exports. Perhaps, in the guise of a compromise, the British pound, the Italian lira, and the Irish pound could be included in calculating fluctuations with respect to the ECU, even if these do not participate in the “snake.”
Andreotti can, moreover, reverse the decision not to join. There is very strong pressure on him from the Italian bourgeoisie to do this. And we should remember that the UNICE, the employers’ association of the EEC, has come out unanimously in favor of the EMS and of strict community monetary discipline (Neue Ziircher Zeitung, November 8, 1978).
At the first glance the debates over the features of the EMS may seem like purely intercapitalist disputes. But these debates pose certain dangers for the working class and the workers movement – dangers that are linked to the tendencies toward the capitalist unification of Western Europe and that underlie our rejection of the Common Market.
Just as changes in exchange rates are the result of uneven development among capitalist countries, the new EMS will accentuate this inequality of development. It will aggravate interimperialist competition not only between the U.S. and the EEC, but also within the EEC. At the same time, it will accentuate the pressure to equalize profit rates and access to markets at the expense of the working class. The EEC’s projected “opening” toward Greece, Portugal, and Spain is an attempt to assure enlarged “backward areas” for the Common Market’s heavy industry. At present these areas are made up of southern Italy and Ireland.
The European Monetary Fund itself plays an important role in the class struggle. Grants of credits to member countries would, to a certain extent, be tied to the conditions of economic policy, as is already the case with credits from the International Monetary Fund. Thus big business is trying to kill two birds with one stone.
On the one hand it wants to push forward the “stabilization” of the weaker imperialist countries (where the workers movement is generally more militant than in West Germany), by pushing them to step up their attacks on the standard of living of the working class, to boost the level of unemployment resulting from “modernization” of the economy, and similar measures.
On the other hand the EMF makes it easier for the governments to carry out this kind of policy against the resistance of the unions by making it appear that these policies stem from anonymous sources in the EEC and not from the governments themselves.
This model has already been applied with partial success through the IMF’s loans to Italy and Great Britain.
Finally, the establishment of the EMS will mean a strengthening of the imperialist power of the EEC countries and of the European bourgeoisie. The strongest factions of this bourgeoisie, with the West German bourgeoisie at the head, would profit the most. All this would weaken the European workers movement and would make it easier for the bourgeoisie to unleash more massive attacks against the workers movement when future, deeper, crises develop.
December 6, 1978
1. See Outlook for the World Capitalist Economy in 1979–80 by Ernest Mandel in the January 22, 1979, Intercontinental Press/Inprecor, and Carter Announces ’Bitter Medicine’ to Halt Plunge of Dollar by Jon Britton in the November 20, 1978, issue of IP/I.
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