From its inception the European Union was an ambitious strategy to build an economic bloc which would serve as a counter-weight to the US’s global economic dominance. (1) One of the primary conditions of this overall construction involved the creation of a single strong currency, the euro, that could become the rival to the US$. This was not just a political question, it also involved financial, economic and possibly even geopolitical dimensions. The Germans in particular were involved in the EU blueprint ever since the initial Treaty of Rome or EEC Treaty, as it was called, brought about the creation of the European Economic Community (the EEC). The treaty was signed on 25 March 1957 by Belgium, France, Italy, Luxembourg, the Netherlands and (West) Germany, and it came into force on 1 January 1958. At the outset Germany was on board the launch and prepared to give up her much beloved Deutschmark (DM) in order to eventually adopt the euro. A European super-state was envisioned complete with its own currency and act as a counterweight to the US Leviathan.

EXORBITANT PRIVILEGE

Since the end of the Bretton Woods system in 1971 the US dollar had become the global currency – a pure fiat currency without any gold backing – and had been used widely and routinely by other states as international reserves; as monies circulating in the dollarized countries; and as a means of payment in international trade. Ever since the US had allowed its currency to float freely the US trade balance has been negative. Surplus European countries, but which also included Japan, had earned US dollars which at one time had only been redeemable in gold payments by the US. But this arrangement ended when Nixon took the dollar off the gold standard in August 1971. From this time on the surplus countries could only swap their dollars for US Treasury Bills, that is to say, American debt.

In this way the US has appropriated real goods and services from the surplus countries and exported debt back to those same countries.

In the trade this is called seigniorage.

‘’This term was used to describe the right of the medieval lord, or seigneur, to coin money and keep for himself some of the precious metals from which it was made. About $500 billion of US currency circulated outside of the United States, for which foreigners have had to provide the United States with $500 billion for real goods and services.’’ (2) This was an exchange of real value as embodied in goods and services, for fictitious value contained in little green paper substitutes. Nice little racket. Who says you can’t get something for nothing! This didn’t go down at all well in the European mainland and was described by the French politician Valery Giscard D’Estaing as being an ‘exorbitant privilege’. Monsieur D’Estaing certainly had a point.

The evolution of the euro has emerged as the only real challenger to the US$’s seigniorage. The preconditions to any such challenge rested on a dual criteria: The euro had to represent a real currency on the same scale as that of the United States, and, in addition, it had to be a strong currency, it needed to be strong even at its design stage. The birth-pangs of the euro underwent a long pregnancy, and it was not until 1999 that the EU monetary authorities announced the birth of the new currency. It should be pointed out that not every country in the European Union was/is a member of this currency union; some countries kept their own national currencies – e.g. the UK, Sweden, Denmark, and most of Eastern Europe, and that remains the case even today.

Germany was of course the key player in this process. The euro was to be a hard Teutonic currency which mirrored Germany’s powerful position as a globally competitive manufacturing base. It was envisioned that the euro currency would be extended to other parts of the eurozone. (3) However, the euro was unwisely broadened to include peripheral countries which were far from the levels of productivity – and thus of international competitiveness – needed to contribute to making the euro a strong currency. This was particularly the case in Europe’s southern periphery. These nations simply could not compete with Germany since their unit costs were too high and productivity levels were lower than Germany’s (and for the rest of the northern European bloc). Moreover, the get-out-of-jail ‘solution’ by Greece, Spain, Ireland, Portugal, and the Baltics, of a currency devaluation was closed since these states were all members of the Eurozone who had abandoned their old currencies and now used the euro.

In passing it could be argued that devaluation is not necessarily an optimal economic policy. Certainly, devaluation makes exports cheaper, and provides a breathing space for indebted states; but the obverse side of this practise is that it also makes imports more expensive. Imports which include strategic commodities such as oil, foodstuffs, drinks and tobacco, motor vehicles, chemicals, machinery and transport equipment, mineral fuels, and lubricants. The rise in prices in these imported goods and services may well lead to imported cost-push inflation.

Thus Europe’s southern periphery attempted to skirt around the devaluation problem with what became known as a policy of internal devaluation. This involved engineered austerity, whereby a country seeks to regain competitiveness through lowering wage costs and increasing productivity and not reducing the external value of the exchange rate. This enforced policy has resulted in what can only be described as a disaster as country after country in the southern bloc clocked up larger and larger trade deficits whilst the North European bloc including both members and non-members of the euro, e.g., Sweden and Denmark, clocked up big trade surpluses with the Eurozone in the southern periphery. In any case Germany had pre-empted this internal depreciation by its own earlier competitive devaluation as contained in the Hartz reforms.(4)

TRANSITION STATES

Things were not much better on the Eastern periphery. Present current growth figures for Czech Republic 0% Poland -0.1% Croatia N/A Hungary 0-1% Bulgaria -1.6% and Romania -4.4% all struggle with trade deficits.

At some stage during the 1990s, it became common to refer to these Eastern European countries as “transition states” or the ‘New Europe’ an interesting description by Donald Rumsfeld (See below).This implied an optimistic future, a linear progression, a transformation from a failed communist past to a stable western European future. Surely one of the most obvious lessons from the financial crisis and recession of recent years, however, is that the idea of such a transition is misplaced. If the societies of central-eastern Europe are indeed in transition, the mode of transit is that of the covered trailer, haphazardly attached to a juggernaut, driven by remote political and economic forces. And it is very unclear what the destination will be, given the continued economic upheavals and displacement across the whole of Europe.

The result of the transition so far seems to have been the creation of a low-wage hinterland, a border economy on the fringes of the highly developed European core, and this has had wider political and social ramifications for the entire European project – in effect shifting the goalposts of what it means to be European.

It is worth pointing out that, as is always the case, not everyone lost out. Shock therapy had its domestic supporters, people entranced by the ideas of neoclassical and Hayekian economics. Sometimes this was based on genuine intellectual engagement, as neoliberal western economists gained fervent followers in the universities and colleges of Warsaw, Prague, Bucharest, and Budapest. More often, however, the new disciples of neoliberalism were cynical converts from communism, the prospectors of a new capitalist order. Through incorporation into western institutions, such as NATO/EU, some of the new capitalists hoped to entrench their situations as the primary political arbitrators, a new elite of western-influenced reformers. All very reminiscent of the Yeltsin years. (5)

THE US INTERVENTION

US Defence Secretary Donald Rumsfeld’s ‘New Europe’ involved a geopolitical incorporation whereby the ex-soviet republics, and Warsaw Bloc allies were enrolled into the EU and more importantly were brought into NATO. Membership of the NATO was mandatory for all new EU entrants. Rumsfeld opined that “You’re thinking of Europe as Germany and France. I don’t. I think that’s ‘old Europe … If you look at the entire NATO Europe today, the centre of gravity is shifting to the East. And there are a lot of new members. And if you just take the list of all the members of NATO and all of those who have been invited in recently — what is it, 26, something like that? [But] you’re right. Germany has been a problem, and France has been a problem.”

If this was not a blatant intrusion into European affairs I stand to be corrected. This was the creation of a geopolitical beach-head militarily primed and ready to go; its purpose was to prevent any modus vivendi crystallising between Europe as a whole, and, in particular Russia. Central to this strategy …

‘’There was an overarching strategic concept of sorts in the double enlargement – strategic and economic – it was a strategy for Americanising the social structures of Europe within the NATO security perimeter whilst Americanising the hinterland beyond the perimeter. Firstly the Central European and Eastern Countries (CEECs) have become and will continue to be a significant middle-class market for western multinationals grabbing market share there at will, using the Single Market Rules embodied in the European Agreements to legitimise their market domination. Secondly, the CEECs will offer a limitless supply of cheap labour for western multinationals to use for the labour-intensive parts of the production circuits. Thirdly these attractions will be used by big capital in Western Europe to threaten to exit eastwards unless Western Europe Americanises its labour markets and turns the welfare state into minimal safety nets and allows British and American levels of social inequality, poverty, urban decay, and prison populations. Western Europe will then be distinguishable from the USA only by the virulence of its internal racist, neo-fascist, and xenophobic movements. (6)

WITHER GERMANY?

At the present time and at the beginning of a new and even bigger crisis in the global economy the future of the EU depends on the interests of the different factions of the German ruling elite. This is nowhere better instanced than in the Nordstream-2 episode. One faction, German big business, which has extensive investment in Russia together with other financially strong countries wants to reorientate its long-term strategies seeking an expansion of Germany toward China and Russia. There are several reasons for this;

‘’Firstly Both Russia and China have immense resources and reserves of raw materials. Secondly, the level of China’s economic growth and the size of its market are way above those of the EU. Thirdly, Germany’s technological superiority is the ideal condition for intra-trade appropriation of Chinese surplus value. Fourthly, if bi-lateral trade relations were to continue at the current pace Beijing will become Germany’s main trading partner by 2021. Fifthly, for China, Germany is the European state with the most optimal investment opportunities; China is the second largest non-European investor in Germany after the United States. Finally, China’s ultimately likely goal is to lessen US influence in Europe by forging its own close ties to the EU – and Germany is China’s strategic foothold in Europe. These are ideal conditions for German expansionism to scale down its interests in Europe and redirecting its attention to the East.’’(7)

The other faction in Germany are the geriatric Atlanticists, political, security (BND) and military elites, with the Greens in tow of course, who are apparently still fixedly stuck in an Americo-centric NATO bloc not knowing which way the wind is blowing and on which side their bread is buttered. The Nordstream-2 issue is crystallising these fault-lines among the German ruling elites with Frau Merkel being pulled hither and yon between Germany’s reactionaries and its more forward-looking business class which is enamoured of the pro-China-Russia siren songs. Moreover, given the centrifugal drift within the Eurozone there seems sufficient reason to believe that a new bloc of northern European states, grouped around Germany, Holland, Scandinavia, and possibly including the Tax Havens of Switzerland, Luxembourg, and Liechtenstein, could coalesce around the establishment of a new Northern Euro. This delinking from the ‘weak’ euro by the Northern bloc could well be the strategy that Germany, that is to say, its business elite, pushes – or at least does not oppose – the default of the weaker countries in the south and the east so that they leave the Eurozone.

At the present time this is conjecture, but the slow but inexorable economic and geopolitical underground shifts make change inevitable.

NOTES

(1) It should be noted in passing that this was never intended to take on the contours of a European geopolitical alternative to the American continental hegemon. That came later. At the time there was a school of thought that held the creation of a European alliance to act as a third force based upon social-democratic and unaligned neutrality which would act as a buffer between US imperialism and Russian communism, and as an alternative to the two heavily armed super-states. Alas that was not to be. The collapse of the Soviet Union was regarded in Anglo-American right-wing circles and their euro proxies – the UK, Poland, and the Baltics – as a wonderful opportunity to punish and over-run the prostrate and weakened Russian state. It almost succeeded as an enlarged NATO gobbled up ex-soviet republics pushing right up to Russia’s western borders.

(2) Barry Eichengreen – Exorbitant Privilege 2018 – pps3/4

(3) The Eurozone is composed of 19 out of 27 European States. The following use the euro as their currency: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Portugal, Slovakia, Slovenia, Spain

(4) The Hartz Reforms. These reforms involved the restructuring of Germany’s internal labour markets involving a lowering of labour costs and introducing ‘mini’ jobs wage and welfare cuts. So the reduced share of unemployed in the German work-force was achieved at the expense of the real incomes as those in work. Fear of low benefits if you became unemployed, along with the threat of moving businesses abroad into the rest of the Eurozone or Eastern Europe, combined to force German workers to accept exceptionally low wage increases whilst capitalists reaped an excessively big profit expansion. Real wages in Germany have fallen during the Eurozone era and are now below the level of 1999. This whilst real GDP per capita has risen nearly 30%.

(5) The accession states of Eastern Europe are simply an entrenched euro version of a US/Mexico periphery grouping on the border of the US southern states. These maquiladoras have certain tax advantages which make them attractive to US businesses. These US businesses can capitalize on a cheaper labor force in Mexico and also receive the benefits of doing business in the U.S. The presence of maquiladoras contributed significantly to the industrialization of the Mexican-American border.

(6) Peter Gowan – The Global Gamble – p.317.

(7) Guglielmo Carchadi – From Crisis of Surplus Value to Crisis of the Euro – A Global Analysis of Marx’s Law of Profitability. – p.419