[Socialism Today, No 20, July/August 1997, p. 21-28]
“The Euro is coming” was the verdict of Austrian Chancellor Viktor Klima at last month’s Amsterdam summit. But, says, Lynn Walsh the Euro is ‘going’ – down the drain fast.
In reality the summit marked a head-on collision between Germany, which is insisting on strict adherence to the Maastricht/Amsterdam criteria, and France, whose new Socialist government is pushing for measures to bring down unemployment.
This clash is the direct result of the sweeping defeat of Chirac’s right-wing government in France. Despite the public optimism of most European Union (EU) leaders and the apparent support of European financial markets, all the real problems remain. It is now extremely unlikely that European economic and monetary union (EMU) will go ahead according to schedule, in January 1999, although no EU government is prepared to take responsibility for the delay at the moment. Delay, however, will open the door to the disintegration of EMU.
Did the Amsterdam Summit resolve the outstanding problems for EMU and ensure that EMU will be launched in January 1999?
“All the stumbling blocks on the way to the Euro have been eliminated”, proclaimed the Austrian chancellor Viktor Klima, following the Amsterdam summit. This is blatantly untrue. Even though the treaty was signed, the summit resulted in a stalemate between France and Germany, the key country for the future of EMU. There was, of course, plenty of diplomatic window dressing to cover the cracks.
Before Amsterdam, the new French government called for a revision of the treaty which incorporates the stability pact. They were demanding more flexible criteria, which would allow national governments to implement policies to stimulate growth and create jobs. In the face of intransigent opposition from the German government to any revision, France backed down, accepting a non-binding resolution promising a commitment to measures to reduce unemployment.
France also called for a European economic government which would exert political control over the new European Central Bank (ECB) which will regulate the Euro and monetary policy. Germany opposed this, and nothing was decided. France also made it clear that they want Italy and Spain in EMU, but the issue of participation will not be decided until December. In the end, the French government signed the treaty without revision, but this will not be the end of the matter.
Following the summit, France’s European Affairs minister, Pierre Moscovici, said: “We need to see what the situation of our public finances is, and its in regard to that… situation that we will decide, or not, to participate in the Euro”. (Wall Street Journal, 18 June). In other words, the French government is reserving its position on EMU for the time being.
The Jospin government will not fulfil its election promises on bringing unemployment down, which would not be possible without taking decisive control of the economy through public ownership of its commanding heights. However, the French government cannot accept the stability and growth pact as it stands, which would enormously aggravate the unemployment situation in France as well as other countries. This was recognised by the Wall Street Journal itself, which ran the headline, ‘Statements by French ministers cast a new shadow over EMU’. They quoted an economist from the German institute for economic and social research as saying: “The real problems are still to come. There is a fundamental conflict between the monetary philosophy (of France and Germany), and that conflict still isn’t resolved”. Financial markets, commented the chief economist at the French finance house, Cheuvreaux de Virieu, are no longer the best barometer for EMU: “Its European people. They have to have the feeling that their anxieties are being addressed”.
The Blair government signed the treaty incorporating the stability pact. At the same, however, they signalled that Britain is unlikely to join EMU in January 1999, even if it goes ahead. Britain also insisted that its right to opt out (now described as a ‘opt in’) to the EU border controls should be written into the treaty. Britain additionally vetoed any moves, favoured by France and Germany, to upgrade the Western European Union into a common EU foreign and defence policy.
Contentious decisions over the make-up of the European Commission, the voting weight of EU members and voting rules (that is, which issues can be decided by majority as opposed to unanimous votes) were all postponed. This will become a much more problematic issue if the EU is enlarged to 19 or even 25 members in the next few years. An anonymous diplomat summed up the Amsterdam summit much more accurately than Klima: “At least it is not a disaster”. (The Economist, 21 June).
If EMU goes ahead, what will be its effects on the participating countries?
According to the present timetable, the currencies of the participating countries will be locked into fixed exchange rates in January 1999, when the Euro will be introduced. At first, the Euro will be used alongside the national currencies, until 2002, when the Euro will take over as EMU’s common currency.
The common currency, according to EMU’s proponents, will complete the EU single market, allowing firms to trade across frontiers without the costs and risks arising from exchange rate fluctuations. Cross-border transaction costs will be virtually eliminated, although this will be secondary (saving about 0.5% of the turnover of big companies) to the deepening of the division of labour and intensified competition. The most efficient producers will be able to sell goods and services throughout EMU, while customers will be able to take advantage of the cheapest European prices.
There can be no doubt that EMU will mainly benefit the biggest trans-European companies and the big banks, at the expense of smaller companies, which will be squeezed. There will be a redistribution of wealth, which will accelerate the polarisation, which is already quite marked, between the more _prosperous regions and the poorer, declining regions of Europe. The common currency will accentuate the divergence between living standards and social conditions in the different countries.
The single currency will deprive EMU governments of their ability to devalue their currencies – a key shock absorber when confronting slow growth, declining productivity, or economic crisis. For instance, a key factor in the recent ‘recovery’ of British capitalism was the devaluation of the pound after its ejection from the European Exchange Rate Mechanism in 1992 (reversed since 1995), which boosted British exports.
Before the Amsterdam summit, 331 prominent European economists issued a statement opposing EMU. They pointed out that EU governments have already given up key instruments of national economic policy. In practice, interest rates are now largely determined by the Maastricht criteria. Under EMU, not only will the ability to devalue national currencies be gone, but the stability pact will outlaw any significant increases in public expenditure. There is no provision under EMU for transfers of tax revenues from the richer countries to poorer countries or regions, while the ability of labour to migrate across frontiers in order to find work will remain very limited in practice. “This means’, they say, “that labour will be handed the bill for economic recessions, in the form of rising unemployment, falling wages, and still greater flexibilisation”. (The Guardian, 13 June).
Commenting on the effects of the stability and growth pact, the chief London economist of the National Australian Bank said: “One of the greatest threats to EMU survival is that it threatens to condemn large areas – probably entire countries – to devastating unemployment”. (Wall Street Journal, 16 June). Another financier commented: “There is a limited electoral tolerance to rising joblessness”. In reality, governments faced with rising unemployment and a social rebellion against EMU policies, would not be able to maintain the conditions of the stability pact. City financiers are increasingly warning of the crisis which will hit the EU in the next few years: “The EU could enter a period of policy paralysis and social strife so severe that it would call into question its ability to cope with the challenges of globalisation as an open economy during the 21st century”, says an economist from Zurich Kemper (Wall Street Journal, 16 June).
Does the ‘political will’ of the pro- EMU capitalist politicians guarantee that EMU will go ahead according to schedule?
Explaining the financial markets’ apparent confidence in EMU, despite the Franco-German conflict at the Amsterdam summit, the Financial Times (2 June) commented: “The political will behind EMU is so strong that, however convincing the practical arguments against it, nothing seems capable of derailing the project”.
The ‘political will’, however, took a severe battering from the landslide defeat for Chirac and the right in France, whose main aim was to clear the way for further austerity measures to meet the EMU convergence criteria. The French election result is just one manifestation of the massive opposition building up to EMU policies throughout Europe. At the same time, Kohl’s position in Germany has been undermined by his unsuccessful tussle with the Bundesbank and the strengthening of public opinion against EMU.
The ‘political will’ for EMU only survived the Amsterdam summit because of a ‘fudge-or-death’ approach by Kohl, who was determined to push through acceptance of the stability pact and the current EMU timetable. For its part, the new Jospin government, whose ministers were among the architects of the Maastricht policies in the Delors period, raised serious reservations about the stability pact and the role of the new European Central Bank, but stopped short of demanding modification of the treaty or delay in the implementation of EMU.
Some of the more far-sighted commentators in the capitalist press noted that this reflects a Euro-obsession amongst a section of capitalist leaders. Condemning the ‘woolly approach’ of many EU leaders, Sir John Hoskyns, head of the Burton retailing group, wrote: “We are not in the board room. We are in church”. (Wall Street Journal, 18 June). Commenting on the “uniformity among (the European) elite”, the Wall Street Journal said that “chancellor Helmut Kohl’s devotion (to EMU) is almost mystical”, noting that “in Germany, 80% of the top business and political personalities favour EMU, while 80% of the masses are opposed”. Writing in the Financial Times (3 June) Anatole Kaletsky commented that “the political elite’s obsession with monetary union has … given voters the impression their rulers are living in another world, far removed from the everyday concerns of ordinary people”.
This obsession is not merely a psychological aberration on the part of a number of the EU’s capitalist leaders; Support for EMU, particularly on the part of the French and German capitalists, reflected their foreign policy interests in the period after the collapse of Stalinism. For French capitalism, participation in EMU was seen as the key to extending their political influence in Europe, particularly given Germany’s greater economic weight. For German capitalism, integration in EMU was seen as allowing them to exert its economic strength and strengthen its political influence in Europe, without arousing fears of German expansionism. These complimentary aims, which were reflected in the Franco-German entente, have been increasingly undermined by the social and political revolt against the slow growth and high unemployment brought about by the imposition of Maastricht policies.
At the same time, the Euro-obsession reflected a policy based on the economic logic of capitalism in the period of increasing globalisation, with the multinationals and big business striving to dominate a European market – and at the same time to strengthen Europe vis-a-vis the US and Japan. But in reality, the economic logic is only one side of the capitalist equation. Capitalism is still rooted in the nation state, which is not an economic category but a social formation, with historical elements – such as territorial property and power, language, culture, national identities – which are not automatically moulded and changed by purely economic forces.
Big business strives to strengthen its position on European and world markets. But the capitalists do not form an international ruling class, but a series of national ruling classes, with rival interests. While each capitalist class will undoubtedly seek to create favourable global conditions for its national big business, ultimately it has to maintain a social and political base within its own national boundaries. In order to keep control of society, each national capitalist class has to attempt to maintain a social and political basis within the state. The landslide against Chirac in France is a warning of a growing revolt against the capitalist EMU policy.
At the same time Kohl – the foremost proponent of EMU – has faced mounting opposition in Germany. His attempt to revalue Germany’s gold reserves as a means of meeting the 3% budget deficit criteria has seriously rebounded on him. The plan was to force the Bundesbank to revalue its gold and transfer about DM12 billion ($6.95 billion) in ‘profits’ to the government’s budget. This, together with an estimated DM10 billion from early privatisation of Deutsche Telekom, would close the DM19 billion gap between the current budget deficit and the 3% EMU criteria. The Bundesbank, however, strongly opposed this move on the grounds that it was a mere accountancy ruse, and was in reality fiddling the figures. The row reinforced popular opposition to EMU, and brought about a vote of confidence, in the Bundestag, which the government survived but with its authority dented (the 1997 deficit is expected to be 3.2% of GDP). Kohl and his finance minister, Waigel, were forced to back down, although the Bundesbank subsequently agreed that the revaluation could take place next year.
Nevertheless, the incident reinforced opposition to Kohl’s policy. His coalition partners, the Bavarian CSU, have come out against any relaxation of the convergence criteria. Schroeder, one of the main leaders of the Social Democratic Party, has come out in favour of the immediate implementation of the stability pact (which would impose fines on any government breaching the criteria) even before the introduction of EMU. He is against any relaxation of the criteria. In practice, this is really support for delay, or what Schroeder terms ‘controlled delay’, of the launching of EMU, as it is actually impossible to implement the stability pact immediately. The former Social Democratic chancellor, Schmidt, denounced EMU as ‘currency fascism’, in other words the imposition of brutal deflation on the European economies, especially the weaker countries.
In France, Chirac’s attempt to clear the way for EMU resulted in a devastating defeat for his right-wing government. In Germany, it is now much more likely that Kohl will be defeated in elections next year. In the next period, the main political architects of Maastricht and EMU could be out of office. The ‘political will to push through EMU, already undermined, will not survive for much longer.
If EMU is about to be derailed, why haven’t the financial markets been plunged into turmoil?
Apart from a few jitters on continental bourses during the French elections (and a few hiccups provoked by falls on Wall Street), international financial markets have been quite calm recently. One of the main reasons has been the steady rise in value of the US dollar since 1995, and the resulting growth in international liquidity. There is plenty of money flowing through the markets at the moment, giving investors/speculators a feeling of confidence. This was not shaken by the problems for EMU raised at the Amsterdam summit. At the moment, EMU appears to be far more popular with speculators than it is with most of the European electorate. The prevailing view among market players is that EMU will go ahead according to the 1991 timetable.
Far from being upset by the Amsterdam fudge, the majority of market players appear to be pleased with what they presently judge to be the likely outcome – a broad EMU (including Italy, Spain and Portugal) with a weak Euro. Markets are driven by short-term profit opportunities. They have done very well, so far, out of the drive to enforce the Maastricht criteria. The reduction of government deficits has stabilised government bond rates (which determine long-term interest rates) and boosted share prices on European bourses (as shares have become more profitable as an investment than government bonds, rising 56% across the EU since January 1996). The recent stabilisation of European currency exchange rates, with a tendency for the European currencies to converge (mainly because of the strength of the dollar against the deutschmark which has tended to push the dollar down against the lira, peso, escudo, etc.) has reduced the risk of cross-border share dealing.
At the present juncture, however investors and speculators feel they will gain more from a broad EMU (in which, they calculate, the Euro will be weaker than in a narrow EMU dominated by Germany, Netherlands and the Benelux countries). This, they believe, will allow them to invest in government bonds and shares in the peripheral countries (Italy, Spain, Portugal) without any risk of big losses when they join EMU (for example, through having to exchange a weak peso for a strong Euro).
Moreover, financiers now favour a weak Euro because it would stimulate more economic growth in the core European economies – boosting profits and share prices. This is a cruel irony – for years, the financiers and bankers have pushed for strict implementation of the Maastricht criteria. Now, even they have had enough of savage deflationary policies – and favour some stimulus to growth, especially in the core EU economies.
Does this support from the markets boost the chances of EMU going ahead in 1999? Are the calculations of the market players correct? Despite the awesome powers currently attributed to financial markets, the answer must be No.
The market players are overestimating the ‘political will’ behind EMU, which has been seriously dented in both France and Germany, the key states as far as EMU is concerned. They have especially underestimated the far-reaching effects of the French election results, which signify not merely a change of government in France but the development of a profound, mass social movement against further austerity measures to prepare for EMU.
This was recognised by Le Monde (4 June): “Certain experts judge that the optimism of investors may rest on a misunderstanding: in London, New York, Tokyo and Frankfurt, but also in Paris, market participants are persuaded that the Socialists will not implement their economic project and will return to the orthodoxy of Pierre Beregovoy”. This assumption, commented the paper, would probably be proved wrong. The mass revolt makes it imperative for the Jospin government to modify the Maastricht policies.
The majority of market players are also highly optimistic in believing that a broad EMU/weak Euro will be viable. In the first place, the Bundesbank is strongly opposed to the participation of Spain, Portugal and especially Italy. The proposal for a broad EMU, moreover, will undoubtedly stiffen German public opinion against EMU. Even if a broad EMU were to be launched, however, it is extremely unlikely that the European Central Bank – under pressure from Germany, Netherlands, etc., and the international banks and speculators – would tolerate higher public spending in Italy, Spain, etc. In response to fiscal ‘laxity’, the ECB would raise interest rates – in other words operate a hard-Euro policy.
The majority of market players (banks, pension funds, investment funds), who operate on the basis of short-term tactics, are mistaken – they have not understood the new reality. Their inclination is to follow current trends, until there is a turn in the situation. In any case, one of the problems facing investors/speculators at the moment is that it is not clear how markets will pan out in the event of a delay with EMU, or its abandonment. Nevertheless, there is a significant number of investors/speculators who now seriously doubt whether EMU will go ahead on time – and some, even now, who are convinced that it will be blown apart even before take-off
“Before long”, commented the chief Strategist of the London-based Independent Strategy, “the volatility of European politics will find their match in European markets”. (Wall Street Journal, 12 June). Commenting on the commitment to the 1999 timetable by politicians and financiers, John Lichfield (Independent on Sunday, 8 June) said they were “going into what American psychiatrists call ‘denial’… It seems that the markets may, at least for the time being, have bought the line that any EMU is preferable to no EMU, because that way chaos lies. But that sentiment could change overnight if the markets decide that the EMU was a sickly creature that could be pushed around for profit. A weak Euro may have short-term attractions, but not a weak EMU that causes interest rates to rise when European industry has been promised lower interest rates: and not a Euro subject to speculative swirls on the international currency markets”.
The Wall Street Journal (12 June) warned that “a summer storm is brewing. The risk of turbulence amongst the currencies in the Exchange Rate Mechanism of the European Monetary System is the highest it has been for some time”. They warned that “the market will be tempted to test the (French) government’s resolve to keep its policies aligned with those of Germany”. Speculators have burned their fingers several times in recent years trying to undermine the Franc-forte and are still hesitant to try again. But as soon as there is any sign of a breach in the Franco-German entente, they will try again, possibly beginning with an assault on the lira as a exploratory foray.
The chief European economist of the National Australian Bank told the Wall Street Journal (4 June) that some market players doubted whether EMU would go ahead in 1999, but were reluctant, at the moment, to test the consensus view. “It is a classic market situation”, he said: “It will take time for a critical mass of market sentiment to be built, and then oomph’. It’s the ‘oomph’, said the Wall Street Journal, that is starting to cause worry.
In London, Howard Davies, the Labour-appointed head of the Securities and Investment Board, responsible for regulating the finance industry, warned financial institutions that they should make provision now for a possible collapse of EMU: “There has been a lot of convergence play activity in the markets recently. Well, that’s fine; it reflects the markets’ consensus views. But what if it is wrong?” (Financial Times, 5 June). An economist from Nikko Europe (The Independent, 3 June) agreed that the markets were split evenly between “those who believe EMU will go ahead but on a diluted basis and those who don’t think it will happen”. His view was that “the project will blow apart but not until next year”.
Will EMU now go ahead in 1999 as a ‘broad’ EMU with a ‘soft’ Euro?
Following the Amsterdam summit, this is the assumption of many commentators and the consensus among players in the financial markets. This reflects an element of wish fulfilment amongst a section of pro-EMU political leaders, who now hope that they can meet the EMU convergence criteria without more savage belt-tightening. At the same time, financial speculators welcome the prospect of Italy, Spain and Portugal being included in EMU, which would make investment in the Club Med countries less risky in the next period. Moreover, a soft EMU, they hope, will stimulate growth – and stock exchange profits.
At Amsterdam, the French finance minister, Dominique Strauss-Kahn, said that countries “must try to get as close as possible to the three percent” criteria for current budget deficits, but countries “that are getting close but aren’t necessarily there yet” should qualify for EMU. The new French government made it clear they support the inclusion of Italy and Spain in EMU. While signing an unchanged growth and stability pact, the French government also signalled its intention to pursue policies to improve job creation and economic growth.
The implications of this were clear to the financial commentators: “The flurry of conflicting statements confirms that the debate over European Economic and Monetary Union now is likely to shift to how to proceed with the project without key players strictly meeting the requirements, which include a budget deficit of 3% of growth domestic product”. (Wall Street Journal, 18 June). Moreover, “the market had already begun pricing in a soft Euro into the franc against the mark. ‘It’s nothing new – we knew they wanted more flexible criteria, but it’s another nail in the coffin of a hard EMU’, said Julian Jessop, chief European economist at Nikko Securities in London”.
A ‘soft’ Euro means that its value against external currencies, especially the US dollar, the British pound, and the yen, will be lower than if EMU were to be confined to Germany, Netherlands, and possibly Austria. In a broad EMU, the value of the Euro would be predominantly determined by looser, more expansionary public spending, tax, and industrial policies in France, Italy, Spain, etc.
A broad EMU would include eleven of the fifteen EMU countries. Greece, which comes nowhere near meeting the Maastricht criteria, would be excluded, while Britain, Denmark and Sweden, on present policy, would exclude themselves.
But is a broad EMU feasible? In reality, there is massive ‘denial’ of the real problems among pro-EMU politicians. In reality, a soft EMU is not likely to happen because (i) it will not be accepted by the EU countries with strong currencies, especially Germany; and (ii) even if launched, a ‘soft’ Euro would in practice be unworkable.
In Germany, the Bundesbank has always, in reality, been opposed to a common currency. Given Kohl’s dedication to the EMU project, the Bundesbank’s tactic has been to ensure the dominance of the deutschmark and other strong currencies. The Maastricht criteria, which largely reflect the Bundesbank’s demands, were designed, in reality, precisely to exclude Italy, Spain, Portugal and Greece. They view Italy as a country with a long history of fiscal laxity, whose inclusion will inevitably increase the dangers of inflationary pressures. Germany’s deficit, in their view, is ‘different’, because without the burden of German unification (which they also opposed) the German government would currently have a budget surplus of about 1% of GDP. Moreover, public opinion in Germany is two-thirds opposed to EMU, and this will inevitably be reinforced by the public perception of Italy as a country with a history of social crisis and high inflation. It is also doubtful whether the governments of other countries with strong currencies (Netherlands, Belgium, Austria, etc.) will accept the inclusion of the Club Med countries.
Even if the broad, eleven-member EMU comes about, it would be virtually impossible for the new European Central Bank (ECB) to operate a soft Euro monetary policy. The Jospin government has called for an EMU ‘economic government’ to exercise political control over the new central bank. This is strongly opposed by the German government, however, and there are no concrete proposals for any such institution.
The ECB will have an unprecedented degree of independence, even compared with the Bundesbank, the US Federal Reserve Bank, and the Bank of England. Alexandre Lamfalussy, head of the ECB’s forerunner, the European Monetary Institute (EMI), made clear his attitude. Unemployment, he said, is socially unacceptable, but “you can live in a monetary union with high unemployment … The real problem would be if policy divergence occurred – involving possible attempts to deal with unemployment through expansionary policy involving fiscal or monetary laxity. If this happened in some countries it would be a disruptive element now and in monetary union”. (Financial Times, 20 May). It is clear that his likely successor as head of the ECB, Wim Duisenberg, currently governor of the Dutch Central Bank, would counter any such expansionary moves by raising interest rates in order to exert deflationary pressure. In its recent guide, Preparing for EMU (28 May), the Financial Times warned that “the European Central Bank is more likely to err on the side of caution, at least in its first years of operation, in order to establish what central bankers refer to as ‘credibility’ with the financial markets. There are many observers who fear that there will be a substantially greater risk that the Euro will be ‘too hard’ than too soft”. A tight monetary policy would reinforce the tight spending and tax policies required by the stability pact: “If the combination of a tight fiscal and monetary stance were to lead to an overvalued exchange rate and a slump in exports, EMU could easily trigger an economic downturn. If downturn became a recession early on, EMU itself would be at great political risk”. There have been rumours that the French government is now pushing for Michel Camdessus, currently managing director of the IMF, as candidate for head of the ECB, rather than Duisenberg, on the grounds that he would be more sympathetic to the French government’s demands for a more flexible approach to monetary policy. Camdessus, however, will not be acceptable to the German government.
The problems associated with a ‘soft’ EMU mean that, in reality, delay is more likely than the launching of a broad, eleven-member EMU in January 1999. Will the start of EMU be postponed? If it is delayed, will EMU go ahead at all?
According to the current timetable, EMU should be launched in January 1999. However, which countries will be participating has to be decided by the end of this year, on the basis of recommendations from the European Monetary Institute. In practise, the decisions would be taken at a further Euro-summit in Luxembourg in December 1997.
The British, Swedish, and Danish governments have indicated that they are unlikely to join EMU in January 1999, and Greece will not be accepted. But it is far from certain whether the German government will accept the participation of the Club Med countries, especially Italy. Moreover, as France’s European Affairs minister, Moscovici, indicated after the Amsterdam summit, France is still reserving the right to decide whether or not to participate. Despite the fact that it signed the Amsterdam treaty, embodying the stability pact, it would not be able, given mass pressure against unemployment in France, to accept EMU on the basis of rigid implementation of the existing criteria.
Nobody wanted to take responsibility for proposing a delay at the Amsterdam meeting. But given the unresolved problems, and the growing social and electoral pressure against EMU, not only in France but also in Germany and other countries, how can EMU go ahead at the end of this year? According to current plans, the exchange rates of the currencies of participating countries would be fixed in relation to one another and external currencies from the beginning of 1998 – in effect, locking them into an EMU situation from the beginning of next year. As one commentator wrote in the Financial Times (14 June), “the chances of the single currency starting on schedule have almost disappeared. And a delayed EMU is a dead EMU”.
The economic conjuncture has been relatively favourable for the European Union over the last few years. The US dollar has been strong, stimulating world trade and reducing the volatility of world currency markets. Growth in the world economy, although still relatively weak and uneven, picked up after 1995 and is currently quite strong, although undoubtedly approaching the end of this economic cycle. If the major EU countries have not been able to resolve the problems of EMU in this relatively favourable situation, how can they possibly resolve them in a period of growing difficulties?
A new decline in the value of the dollar, which is inevitable in the next period, though the timing is uncertain, will bring renewed turmoil on international financial markets. The relative stability of EU currencies and their recent tendency to converge in value will be thrown into turmoil. Any marked downturn in the European economy, which has remained sluggish even in the ‘recovery’, will push up unemployment way beyond the current 20 million – with explosive political and social consequences. How could the EU countries adhere to the stabilisation pact under those conditions? They would strive to maintain the EU to defend their common interests against the US and Japan, but EMU would be finished – wrecked on the fundamental antagonisms embedded in the nation states of capitalism.
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