Will Covid break the EU?

July’s EU coronavirus rescue deal was hailed as a qualitative step forward for European integration but, argues HANNAH SELL, has not overcome the fundamental contradictions of the bosses’ club – which the workers’ movement must respond to with socialist internationalism.

For a large part of the previous decade the European Union (EU) has teetered on the edge of disaster. Globally the last world economic crisis that began in 2007-2008 led to the authority of capitalist elites being severely undermined. For the EU, and particularly the Eurozone, it was an existential crisis.

The weaker economies of the Eurozone, Greece but also Portugal, Spain and Cyprus, were facing bankruptcy, unable to service government debt. The institutions of the EU and the International Monetary Fund (IMF) – ‘the troika’ – demanded vicious anti-working class austerity as a precondition for those countries receiving so-called ‘bailouts’. This was against the background of an already calamitous fall in living standards. As general strikes swept the continent – with upwards of 30 in Greece alone – and the Greek anti-austerity party Syriza was victorious in the 2015 general election, the existence of the Eurozone hung by a thread. Thanks to the capitulation of the Syriza government to the demands of the troika, however, the Eurozone survived at the expense of the living standards of millions.

Nonetheless, the crisis laid bare the limits of the EU. It is not a single capitalist state, but, fundamentally, an alliance now between 27 national capitalist classes based on a series of treaties. It was designed to create the largest possible single market in order to better be able to compete against the other major world powers, the three largest economies particularly – the USA, China and Japan. The existence of the Euro, now for over twenty years, is an indication of the integration that has taken place, but national barriers remain. From its inception capitalism has developed within the framework of nation states and every capitalist class remains rooted in their own, where their wealth and power are based. In addition, historically nation states have produced deep-rooted national consciousness, which cannot be fully overcome within the framework of capitalism.

When the Euro was launched in 1999, however, many commentators, including on the left, concluded that they had succeeded in doing so. We warned though that, on the basis of a new capitalist crisis, growing national tensions – of which Brexit was one indication – would threaten to shatter the Eurozone and even the EU. The development of a common currency without political or economic union actually exacerbated the scale of the economic crisis, particularly for the poorer countries of the Eurozone, and the accompanying increase in national tensions.

Now a new, more severe, capitalist economic crisis is sweeping the world triggered by the Covid crisis. Will this complete what the last crisis began and shatter the EU?

The coronavirus rescue package

Europe is currently facing the deepest recession since the second world war, with the second, third and fourth biggest economies in the Eurozone set to contract by more than 10% in 2020. At this stage more than 40 million workers in EU countries are still having their wages paid by the state, via various furlough-type schemes, but – as they come to an end – unemployment, already increasing, is set to soar even higher. Already a record 5.5 million jobs were lost in the second quarter alone. If, as seems overwhelmingly likely, new spikes in the virus lead to further economic disruption, it will deepen the crisis.

A superficial reading of the current situation, however, would suggest that this crisis is having the opposite effect to last time. This time the EU is being lauded for taking new unprecedented steps towards integration. The €750 billion coronavirus stimulus package agreed on 21 July was a first in a number of ways. In particular, funds for it will be borrowed collectively – by the European Commission selling bonds – rather than via individual countries. In addition a majority of it, €390 billion, will be distributed as grants rather than as loans.

In the aftermath of the agreement the Euro soared on the currency markets. Spanish prime minister Pedro Sanchez described it as “one of the most brilliant pages in EU history” while Italian prime minister Giuseppe Conte declared it would “change the face of Italy”. Temporarily it has given him an increase in popularity, with La Republica’s latest polls making him the most popular prime minister since 1994.

This deal came, however, from weakness not strength. Reaching agreement ran to the wire. The summit was the longest ever, lasting for five days, three days longer than scheduled. After days and nights of rows and table-thumping a deal was eventually put together because failing to do so would have clearly left the EU facing a catastrophe.

The divisions in the EU had been widened enormously in the course of the Covid crisis. The health service of Italy, the first European country to be engulfed by the pandemic, was overwhelmed at the end of February. PPE supplies for medical staff had completely run out and there was an acute lack of ventilators. They appealed to the EU for help and received nothing. It is a graphic illustration of the EU’s limitations that healthcare is organised on an entirely national basis, with no European-wide element other than committees to advise governments. When the European Commission’s Health Security Committee met in late January to discuss a response to the Covid crisis only 12 of the 27 countries bothered to send anyone. This may partly reflect that politicians had not yet grasped the severity of the situation, but it is also an indication of how – in a crisis – the capitalist classes of each country thought in national terms.

The political consequences of the lack of response were severe however. Polls in April showed 49% of Italians supporting withdrawal from the EU, compared to 28% at the end of 2018. Unsurprisingly an even greater number – 59% – said they thought the EU was ‘meaningless’. As the health catastrophe was followed by an economic one, affecting the countries of Southern Europe particularly badly, it was clear that the consequences of continued inaction would be disastrous. Even if Italy had been the only country affected the situation would have threatened the EU’s existence. Unlike Greece, the epicentre of the previous crisis, which made up a tiny 1.3% of EU gross domestic product (GDP), Italy is the third largest economy in the EU.

The situation therefore forced Merkel and Macron, representing the interests of German and French capitalism, to fight for a deal to prevent the fracturing of the EU. As Britain’s Financial Times put it, “if they did not act boldly, economic divergence within the euro-zone could become irreversible, threatening the currency’s viability while feeding populism and public disaffection with the EU across much of Southern Europe”.

Not a qualitative change

However, the deal was not, as some commentators try to claim, a qualitative change in the character of the EU. It has been compared to the US Funding Act of 1790, pushed through by the first ever secretary of the Treasury, Alexander Hamilton, where the Federal government agreed to take on and pay the individual American states’ debts remaining from the War of Independence. This did mark a qualitative step in the development of the US into one nation state, although this was not definitively consolidated until the civil war and its aftermath.

The EU deal is in no way comparable even to Hamilton’s Act. When capitalism was first in the ascendency one of the tasks of capitalist revolutions was the formation of nation states. That period is centuries gone, however. Today, capitalism is ailing and crisis-ridden. National questions that were previously considered resolved have resurged with a vengeance within existing nation states. Even in a period of economic upswing the EU never managed, for example, to take serious steps towards a banking union, despite decades of discussion.

This deal, agreed in a desperate crisis, is nothing of the kind. Participants repeatedly emphasised it was a one off. All existing debt remains the responsibility of individual nation states, and the new debt is not fully in common because it is not ‘joint and severally’ guaranteed. In reality the problem of how to repay it and who would be responsible for doing so has been left until later. Meanwhile the ‘frugal four’ – the Netherlands, Austria, Denmark and Sweden – exacted concessions which will fuel new clashes further down the road.

Governments receiving loans or grants will have to provide plans to show that they are planning to ‘reform’ – code for attacks on the working class. For example a likely condition of money paid to Spain would be a pledge not to reverse the attacks of the previous right-wing Partido Popular government on workers’ rights and pensions. The leadership of the ex-social democratic party PSOE, the majority party in the current government, have so far failed to pledge to reverse the attacks, and would no doubt be happy to be given an excuse not to. Whether the working class will be is another matter.

Or, in another example, the Financial Times reports rumblings of discontent from ‘investors’ that the Italian government is bailing out the Alitalia state airline and parts of the steel industry. The FT concedes that the Italian government’s bailouts are smaller than Germany’s but “Alitalia has not been profitable for 20 years” and, they argue, the Italian government’s interventions are motivated by saving the country from “financial disaster”. It is easy to see how these arguments could be used to try and force ‘reforms’ of the Italian economy and the anger that would create among the Italian working class.

Not only the European Commission but any individual nation member state will have the right to pull the brake on any other country if they do not consider them to be sticking to their ‘reform’ programmes. Alongside this major fissure between North and South there were also other tensions both between East and West, and between those countries (mainly the frugal four) who negotiated bigger rebates and those, like France, who lost out.

The deal still has to be agreed by national and European parliaments. Having got this far there will be huge pressure for that to happen. Far from a qualitative step towards political and economic union, however, this deal is kicking the can down the road while preparing the ground for the next round of conflict.

Contradictions unresolved

The growing crisis of capitalism is increasing the centrifugal forces pulling the EU apart, but it is also ramping up the centripetal forces pushing towards greater cooperation. While US imperialism remains the strongest power on the planet it is declining and is no longer able to dominate unchallenged. In this unstable, increasingly multi-polar world the need for the major powers of the EU to block together in order to be able to more effectively compete is increasing. The particular severity of the developing economic crisis in Britain post-Brexit will also act to push EU states to stay in the fold. The productive forces have grown far beyond national boundaries. Even if the EU was to shatter into pieces in the next period there would have to be new attempts at cooperation. More likely would be a fracturing and reconfiguring of the EU.

At this stage the leaders of the EU have responded to the crisis by increasing cooperation. Their attempts at collaboration are always however, on the basis of defending their national interest. The need for an EU block able to punch its weight in a growing trade war between China and the US is clear for example, but the different national capitalist classes of the EU do not have a common position on what attitude they should take. In regard to the use of Huawei telecoms equipment, for example, Hungary is doing so enthusiastically, Spain has also continued to do so, France does not, and Germany – while Merkel faces pressure in her own party to take measures against Huawei – has so far remained cautious, not least because China is Germany’s biggest export market. On this and all other issues national interests pull EU member states in different directions.

The scale of the economic crisis could qualitatively increase these pressures. There is a growing danger of a new sovereign debt crisis. This was nearly triggered early in the pandemic, when the head of the European Central Bank (ECB) Christine Legarde declared “it is not our job to close spreads” (referring to the growing gap between Italy and Germany’s costs for borrowing on the sovereign debt markets) and the cost of borrowing for Italy immediately soared. The stimulus package is an attempt to put a floor under that problem. For now it has done so.

However, the danger has not gone away, possibly arising from a new banking crisis. The worst-case scenario European banks were stress-tested to cope with, was for a 4.3% decline of GDP by 2022. This now looks extremely optimistic. Spanish and Italian banks still have around 10% of bad, non-performing loans. In addition Italian banks have a ‘doom loop’ with the Italian state because 14% of their total balance sheets are Italian government bonds. Spain and Italy’s state debts have already ballooned to 120% and 160% of GDP.

The ‘grant’ elements of the stimulus package for Italy and Spain are likely to be equal to 4.5% and 5.5% of one year’s GDP respectively, distributed, with conditions as explained, over years. However, the sums involved would be drops in the ocean if, for example, Italy’s banking system goes into melt down. The UK banking crisis had cost £850 billion by the end of 2009, for example. Such a development – against the background of a continent wide economic downturn, unpopular governments and mass discontent – would create an existential crisis for the Eurozone.

Fodder for the right?

It clearly benefits German capitalism, the strongest economy on the continent, for the Eurozone to continue. This does not mean, however, that there would be an appetite for limitless measures to maintain it. The decision in May by Germany’s constitutional court that the ECB’s bond buying programme violated the German constitution was an indication of the pressures that exist.

While Germany has fared relatively well in the Covid crisis to date, the economy is predicted to shrink by 6.8% this year, and sections of the working class are suffering severe hardship which is likely to worsen. Unemployment has already risen to 2.85 million and Der Spiegel reports that more than six million Germans are currently furloughed, disproportionately in lower paid jobs, which will “end in unemployment for many”. In these circumstances a government which defended spending huge sums to bail out the Eurozone while German workers face mass unemployment would face massive revolt and eviction from office. The same would be true in France, where Macron is already deeply unpopular.

Does this mean that opposition movements will be led by nationalist forces, by the right or even the far-right? After all, one of the plaintiffs taking the case to the German constitutional court was the ex-leader of the right-wing nationalist Alternative für Deutschland (AfD). In Britain, the forces leading the mainstream campaigns for Brexit were from the right of the Tory Party or UKIP. In France Le Pen’s party suffered setbacks in the recent local elections but still remains a significant electoral force as does the Italian far-right Lega, who are on around 23% in opinion polls, above other parties. In Eastern Europe right-wing nationalist forces are in power in Poland and Hungary. While these developments are primarily electoral phenomena, they nonetheless point to the dangers that exist.

However, it would be a serious mistake to conclude that the ground of a new wave of struggle belongs to the right. The last economic crisis led to a wave of militant working class action – uniting different sections of the working class. General strikes and partial general strikes took place across the continent, including Britain’s 2011 public sector general strike. Due to the absence of an effective and determined lead by the union tops, the majority of those struggles went down to defeat.

However, in the run up to the Covid crisis there were important indications of a new phase of struggle, particularly in France with the eruption of the gilet jaunes ‘yellow jackets’ movement followed by the revolt against Macron’s attacks on pensions. Even during the Covid lockdown there were outbursts of mass struggle which give a foretaste of what is to come, including the protests in Serbia against the government’s mishandling of the pandemic, and the magnificent Black Lives Matter movement which swept many countries in Europe.

As a new phase of struggle develops, there will also be new attempts to find a political voice. Last time around the first instinct of the working class was to look not to the right but to the left for a political expression of their anger. Syriza in Greece went from a 4.6% vote share in the 2009 general election at the beginning of the crisis to victory in 2015 as the working class looked for a means to fight back. In Spain Podemos also surged as if from nowhere. In Britain Jeremy Corbyn was thrust into the leadership of the Labour Party and came close to winning the 2017 general election.

A number of these new left formations, or potential new formations, are now discredited. None have developed into mass workers’ parties. They have been characterised by their formless transient character, often dominated by middle class ‘young professionals’, whose living standards and prospects were being driven down in the age of austerity, and without any deep-rooted support among the working class. They often have structures reliant on ‘horizontalism’ and online polling, rather than any form of workers’ democracy.

Nonetheless, all had the potential to develop into significant workers’ parties. The responsibility for their failure lies with their leaders. Syriza crossed the Rubicon first, betraying the Greek masses and implementing the demands of the troika. Podemos has now entered government with PSOE and has been punished in elections as a result, losing all six of their seats in the parliament in Galicia and half of their seats in the Basque country in the July 2020 regional elections.

Socialist opposition to the EU

The next wave of struggle will, however, create new opportunities to solve the crisis of political representation. Such parties are likely to be unstable. This era of crisis means they will be faced quite rapidly with both adopting – and fighting for – a clear socialist programme, of suffering splits and even implosion. One vital aspect of this will be a socialist approach to the EU.

Fundamental mistakes on this question have been an important aspect of the defeat of the first wave of new formations. All have limited their approach to calls for reform of the EU. The consequences were clear in the case of the Syriza government, who saw their role as pleading with the EU to behave better, in contrast to the Greek working class who showed with their Oxi (no) vote in the 2015 referendum on the troika’s austerity demands that they were prepared to defy it.

A programme to defy the EU, if it was to have led to an improvement in the lot of the Greek people, would have had to be linked to serious socialist measures. To protect the interests of the working class it would have required nationalising the banks and cancelling the debt held by foreign big business and financial institutions, while protecting the savings of working people. It would also have been necessary to take over the commanding heights of the economy (with minimum compensation on the basis of need) to ensure the supply of essential goods and services. Priority could then have been given to reconstructing public services such as health and education with decision making by bodies of democratically elected representatives from the trade unions, community organisations, and the wider public.

Such a stand by the Greek working class would have electrified the working class of Europe, also suffering brutal austerity. It could not be a self-sufficient solution but would be the first act in an international struggle for socialism, beginning with a voluntary socialist confederation of European states. (See Lexit Is Not Enough, in Socialism Today No.225, February 2019) This approach, however, was unimaginable to the leadership of Syriza who instead took the unforgiveable road of implementing vicious austerity.

A wrong approach on the EU was also a factor in the failure of Corbynism. The working class vote for Brexit in 2016 was a cry of rage against years of capitalist austerity. In his first serious retreat Corbyn, who had historically opposed the EU as a neo-liberal institution, gave into pressure from the Labour right, and behind them the capitalist class, and supported Remain. This left a vacuum which the nationalist right stepped into. Had he campaigned for a vote for Brexit – making clear he stood for a socialist Europe – the character of the referendum campaign would have been entirely different, and laid the basis for Corbyn’s election on a landslide. Further retreats after 2016 – away from a clear pledge to respect the referendum result – were a central factor in Labour losing the 2019 general election.

A socialist approach to the EU is the antithesis of nationalism. The productive forces have grown far beyond national barriers, but capitalism cannot overcome them. Only nationalising the commanding heights of the economy continent-wide would create the basis for a genuine collaboration of the peoples of Europe, enabling the development of a European-wide economy on the basis of democratic socialist planning. The same is true on a world scale. The first steps in that direction will take place on a national basis, however.

Supporting attempts to unite Europe from the top, in the interests of the capitalist class, is a fundamental mistake for socialists, as can be clearly seen from the lessons of the last period. Ahead are a new round of brutal attacks on the working class – often implemented in the name of the EU – which will lead to a new round of mass struggles. If they are to develop, new mass workers’ parties will need to stand clearly on the side of those struggles, opposing the EU as a bosses’ club, and fighting to build workers’ solidarity continent wide for a new socialist order.