Disharmony Over the Euro

Translated from Prometeo #15, June 1998

In December 1988 few people believed that European Monetary Union [EMU] would ever happen. Even the committee of central bank governors, presided over by the then Commissioner Delors and charged with the task of drawing up a plan to implement EMU, was sceptical. The committee envisaged three distinct phases lasting more than ten years and with the possibility of further delays. In fact such scepticism was not completely unfounded. How would states with different traditions, languages, and especially economies, be able to agree on the creation of a single currency without first achieving some form of political unification? Nor could it be forgotten that the same states had laboured for over forty years just to create a free exchange area.

The United States is only now starting to show signs of annoyance. Previously it was convinced that EMU would never see the light of day and for a long time assumed a quite sympathetic attitude, as if it was only dealing with a slightly up-dated version of the old Common Market, which the US had supported at its inception because of its anti-Soviet role. And when the European Council opened the first phase of EMU in Madrid 1989 the US wasn’t exactly tearing out its hair even though this led - between 1st January 1990 and 31st December 1993 - to the complete liberalisation of capital movement within the area of the Community. Nor did the US blink at the birth of the EMI (European Monetary Institute) which had the corresponding task of managing the first forms of co-ordination of the various political economies. All the doubts seemed to be fully confirmed when, on 7th February 1992, the Maastricht Treaty was signed.

Since the condition for entering EMU stipulated by the treaty was that the economic and financial policies of the adhering countries must match the same criteria for stability as those adopted by the German Bundesbank, it seemed impossible that any - other than Germany and her neighbours who were already within the orbit of the Mark - would satisfy those criteria. Even the so-called Club Med (Italy, Greece, and Spain) and France herself, could not meet the criteria. And a monetary union without Italy, Spain and France would be the best example of a damp squib.

Nevertheless, history offers a precedent which the United States and the sceptics should bear in mind. After the victory of Napoleonic France, England, defending its financial and industrial superiority, became an exponent of free trade in order to ensure a larger market for its goods, thus creating serious difficulties both for the whole of European as well as American industry. After an initial period of disorder the North American states replied by taking refuge in protectionism. Meanwhile in 1833, despite their long-standing and profound disputes, the numerous Germanic states created a customs union - the Zollverein - under Prussian initiative. Whilst facilitating the circulation of German goods this stemmed the Britannic invasion. The step from Zollverein to the subsequent political unification of Germany was in fact a small one.

Certainly, today times have changed. An infinite number of wars, two of which were world-wide; several revolutions, for example 1917 in Russia; and unprecedented technological development, have rendered capitalism something very distinct from those days. However today, as yesterday, it is still their material situation and interests which divide or unify men, States and peoples. Thus, just as the defeat of France allowed an open space to Great Britain and pushed her rivals towards protectionism, the fall of the Berlin Wall and the collapse of the Soviet Union, whilst granting undisputed supremacy to the USA, have forced upon the European countries a very stark alternative: either resign themselves to a secondary role and risk, despite their financial and economic power, a dangerous decline, or put themselves forward as an independent force capable of competing with their overseas rival.

Obviously, today free trade alone is not sufficient to explain the full extent of US hegemony. The magic word, the Abracadabra! of our time, which is supposed to put the world in order, is globalised economy. This term, it is claimed, represents a world in which “citizen-consumers” who are all able to compete under equal conditions on the great global market, will be finally able to acquire anything, anywhere in the world at the lowest price. Hence even the most forsaken areas of the world will be blessed sooner or later by the benefits of freedom. In fact ‘freedom’ means freedom for finance capital to impose upon everyone the best conditions for its own process of valorisation; and just as last century free trade ideology was the ideology of competitive capitalism, today the ideology of globalisation is the ideology of large-scale monopoly capital.

Financial Globalisation

The cycle through which capital increases its value is represented, as is known, by the formula M-C-M'. This represents the process by which an initial monetary capital (M) is transformed into machines, primary materials, etc. (constant capital) and into wages (variable capital) through the production of commodities, and returns to its original monetary form (M). The difference between the initial capital and the final amount, in the Marxist analysis, is a measure of the amount of unpaid labour extorted from the working class (surplus value).

In the formula M-C-M', M can consist of the entrepreneurs’, or the enterprise’s capital and/or the savings of others borrowed as a loan. The latter capital, whilst originating from previous cycles of M-C-M', differs from that belonging to the entrepreneurs or enterprises, because it is maintained by its owners not through directly exchanging it for machines, materials and wages but, in fact, by lending it out at a certain price.

The price paid when monetary capital is lent out is interest. The valorisation cycle of this form of capital, inasmuch as it is interest-bearing capital, or finance capital, even if at some point it passes through the form of commodity production, is, for its owners, M-M', differing from the monetary capital of entrepreneurs which is used to produce goods. In fact, if the person who borrows a certain quantity of capital does not directly use it to produce goods, but rather, for example, to build up a bank deposit to back up cheques paid out to other creditors, provided that this capital accrues interest, it still accumulates value for the borrower. In this case, however, the movement M-M' is a “fictitious” movement in the sense that the value accumulated by that capital has not been derived, either directly or indirectly, from the production of goods, but through paying loans with further loans, that is to say, through anticipating future value.

When the paying of loans with further loans is profitable, in the sense that this capital, however fictitious, succeeds in acquiring goods of a corresponding value, the contradiction implicit within the process of increasing the value of money by means of creating other forms of money without producing goods, remains hidden. Thus there is speculation, even for the borrower, if s/he succeeds in increasing the value of the money borrowed. (For example, lending it at a higher rate of interest than s/he paid, or engaging in some other form of successful financial speculation.) In so far as the gains are more than the amount to be paid back, the cycle M-M' will have been successful. Leading political and economic thinkers have concluded from this that all that is needed to generate wealth is for money to be allowed to circulate at will, even though it is only from the perspective of an individual capital that the cycle M-M' is a complete process of value increment. From the social perspective, the valorisation of money by means of money is an absurdity and has limits beyond which further growth is impossible. Monetary capital, as such, produces interest either by its use for the production of goods or as the starting point for the production of further monetary capital. In the first case, however, the process of production of surplus-value - the source of all interest, profit and revenue - is activated at the same time as interest matures; in the second case this does not happen and as such it is obvious that in the absence of the cycle M-C-M', valorisation can only be virtual.

Over time, so as to avoid an over-large quota of the total monetary capital from withdrawing from production and endangering the cycle M-C-M', various means to control the production of fictitious capital - i.e. money made by money - have been devised. At times this has been done by creating, in pre-determined proportions, reserves of precious metal so that their value had some relationship with the value of a commodity (money-goods in gold and/or silver). At other times, as in the period spanning the early 30’s to the early 70’s, capital has opted for a regulatory regime in which the creation of monetary credit was entrusted to a state monopoly and, only in certain cases, to the banking system. Yet, when the accumulation cycle slowed down, when the average rate of profit diminished, the control systems drawn up over and over again have collapsed and the tendency for the production of fictitious capital has taken the lead.

Today in the USA, for example, the production of monetary credit is entrusted to a State monopoly as far as the issue of non-convertible bank notes (dollars) is concerned and to the market in all its other forms (certificates of credit, deposits, financial options, etc.) As a result of the very serious crisis experienced by the capitalist system on a world scale this has favoured the expansion of the production of fictitious capital to the extent that by now,

... capital acts as the starting point of a speculative movement in which even the appearance of the real production of goods no longer exists. Business dealing only in certificates of share ownership (options, etc.), involving no movement, thus produces fictitious increases in value, which even formally have nothing to do with the real earnings derived from the consumption of abstract labour by enterprise. (1)

All this shows how refined are the parasitic forms developed by the strongest capitals to appropriate surplus value. We have already seen that the excessive growth of that part of finance capital which seeks to increase its value through the M-M' process brings about the relative reduction of finance capital destined to be transformed into industrial capital. It is from the USA, the primary financial power in the world, that the campaign for financial deregulation and for the globalisation of the market is most vigorously upheld. This, in order that expanding fictitious capital might interconnect with all parts of the cycle M-C-M' and have at its disposal a greater field for the harvesting of the surplus value globally produced (financial globalisation). At the same time this has also encouraged the extension of the cycle of commodity production over an ever greater area so that for the production of the same amount of goods there is an ever-increasing reserve of labour power alongside the increased labour productivity obtained by the introduction of micro-technology in the productive process. All this has made possible a spectacular reduction in wages both on the periphery as well as in the capitalist metropoles (industrial globalisation).

Thus, the contradiction between real production of value and fictitious production of value has not been overcome. This is evident from the fact that figures for both global debt and the quantity of financial transactions not linked to the actual movement of goods demonstrate constant and exponential growth. Nonetheless this is a contradiction which has extended over time and space, favouring big finance capital’s appropriation of a portion of the total surplus value necessary to compensate for the fall in the average rate of profit. In the long term the widening gap between real and simulated value production via the growth of fictitious capital is destined to explode and generate ever more acute crises, but in the medium and short term, and within certain limits, the latter provides the dominant fractions of global capital a formidable mechanism for the parasitic appropriation of surplus value.

According to the dominant ideology - which owes its own success to the strength of the strongest capitalist power - globalisation rewards the most efficient and it is possible for everyone to repeat the miracle of the feeding of the five thousand on a daily basis. In reality, however, fictitious capital needs much more than the free circulation of capital and a print-works to print credit certificates if it is going to be successful. As we have already seen, even the production process of fictitious capital cannot by-pass the existence of M. And since M, as Marx stated, is none other than “dead labour” or the means by which the value generated by the exploitation of the labour force is transferred in time, fictitious capital - inasmuch as it is a derivative of M - stands in the same relation to M as M to the abstract labour therein incorporated, itself being a derivative of previous successful cycles of M-C-M'.

The probability of successful valorisation of capital by means of fictitious values without the backing of a long series of M-C-M' cycles and a powerful economic and financial power, is close to zero. It is not simple chance, therefore, that the USA was the promoter of globalisation and that today it is its strongest advocate.

The Dollar’s Privileged Position

Thanks to its industrial power the USA has dominated at least two accumulation cycles and this superiority has ensured that the dollar not only became a strong national currency but, from the end of World War Two onwards, also an internationally accepted currency. The dollar is used, for example, in oil transactions and to pay for almost all raw materials; international loans are paid in dollars, and a great part of all central banks’ monetary reserves are in dollars. This constitutes an enormous advantage for the Fed which issues them. Normally, in order to avoid the creation of excess fictitious capital and thereby inflation, the amount of convertible bank-notes issued by each central bank is determined by the value and quantity of goods produced by the economic system, by money in the form of credit created by the banks and by both the public and private debt which is supposed to be periodically absorbed by the potential growth of the system’s productive forces so that the increase in M stays in line with the cycle M-C-M' - which also accounts for its future development (debt). However, since a portion of dollars and certificates denoted in dollars are used by foreign operators for transactions which have nothing to do with the M-C-M' cycle which occurs in the USA, the Fed can issue a greater amount of money than it otherwise would, it can service a greater debt than would be possible on the basis of the real power of the system alone. Therefore the USA finds itself in the enviable position of being able to produce greater amounts of fictitious capital than anyone else, knowing that somewhere in the world someone will produce that which she had only issued on paper.

The paradox that the growing deficit in the USA’s balance of trade is accompanied by a highly valued dollar can only be explained by the fact that imports are paid with dollars or credit certificates expressed in dollars which remain on the global financial circuit and are never used to purchase US merchandise. It is as if, besides the M-C-M' cycle within the USA, a portion of the surplus value extorted from almost every corner of the planet is crystallised within the dollar. Until the end of the 60’s, due to the high average rate of industrial profit and the limits imposed on the movement of capital on the international markets and on the creation of fictitious capital by banks and the various financial institutions, the hegemony of the dollar was accompanied by an enlarged productive base and thus in the cycle M-C-M' on a world scale. European and Japanese post-war reconstruction strengthened US finance capital considerably. Today, now that average rates of industrial profits are low, this hegemony takes on a malevolent character and has become a sort of universal tariff which everyone must pay every time they use the currency of the USA. Moreover, as financial income increases the tendency to substitute industrial production with production of fictitious capital is accentuated. This means more and more capital is taken out of the M-C-M' cycle, a cycle which needs to expand at an even faster pace than before in order to withstand the growing parasitic appropriation of surplus value.

The phenomenon has by now reached such proportions that it can be statistically measured. It has been calculated that the financial income that the USA reaps due to hegemony of the dollar comes to something like $500 billion per year, a sum equal to the entire Italian State deficit. On the other hand, the average annual growth of constant capital per man-hour in the USA, which until the end of 1973 was never less than 2.8%, became, between 1973 and 1989, 2.4%, and 1.4% in 1994. (2) Some authors claim that this is caused by the drop in wages over the same period, making the substitution of living labour with machines less attractive, rather than a disproportionate growth of parasitic activity. In fact though, despite the official data, unemployment in the USA is no less than, for example, in Europe and,

In 1995 under-employment - which is a better measure of lack of success on the labour market, and is a parameter rarely used by the mass media - increased by 10.1%. This statistical data ... refers to part-time workers and to “discouraged workers” who, having looked for work, have became disillusioned, left the active-labour market and no longer appear on the unemployment lists. (3)

In other areas, the same crisis which is now devastating the Asian world, in particular Japan and the famous Tigers has laid bare the fact that the oft-applauded development of the latter was really an unimpressive mess consisting of a ferocious exploitation of the labour force alongside a startling increase in fictitious capital. Thanks to this, both the local big shots and large-scale finance capital have been able to gorge themselves to a point beyond all imagining, leaving in their wake an area of the world so devastated by their pillaging that it has been calculated that it will take at least twenty years of hunger and misery before the public debt they caused can be settled.

The fact is that the weaker an economy is the more dependent it is on the dollar and so much harsher is the toll it must pay to make use of its indispensable services.

The Euro Versus the Dollar

The eleven countries which have given life to EMU comprise an area with a greater population than the United States and Japan combined, whilst their economic and commercial weight is equal if not superior to that of the USA. Trade between the eleven countries and the rest of the world is equal in volume to that of the USA and double that of Japan. However, considered individually they are dwarves. The currency circulated by each of them individually compared to the avalanche of dollars on the world market, is less than the proverbial drop in the ocean. In spite of their combined strength, on their own they are completely impotent to resist the recurring financial crises which by now assault the world economy on a regular basis as a result of the immense black hole opened by the pre-eminence of parasitic activity.

One only has to consider the 1992 crisis to understand the difference between their potential combined strength and their individual weakness. It only took a week for large-scale international finance, particularly from the USA, to shatter the European Single Currency. When such an avalanche of dollars was put in motion, despite large-scale intervention by the various central banks, the first attempt to launch a common European currency quickly faded like a dream at dawn, landing the speculators thousands of billions of profit. For example in order to compensate the sudden losses by the Bank of Italy and to avoid later attacks, the Italian government had to cut around 80 thousand billion lire from public spending and add to the public debt.

Even if there used to be a high price to pay for European weakness, in the past the economic and politico-military compensations made it acceptable, while a bloodletting comparable to the 1992 crisis would have been unthinkable. Even then parasitic appropriation of surplus value existed, but because both the movement of finance capital and the exchange rates between various currencies were linked, basically by the Bretton Woods agreement, to the expansion of the production of goods rather than fictitious capital, the increase in financial revenue was amply compensated by the increase in surplus value produced. But the crisis of industrial profitability and the added advantages which financial globalisation have allowed the dollar, have made that price increasingly unbearable, all the more so since the Soviet Union lost its claws.

It is pointless -- writes the economist Marcello De Cecco -- to pretend not to understand that Maastricht’s Europe, with all its contradictions and hesitations, has been conceived by its theoretical and practical originators as an alternative to the barbarous globalisation preached and practised on the other side of the Atlantic ... when there is only one currency for international reserves and transactions, the issuer has an excessive advantage, competing with no-one. The issuer easily loses all sense of proportion and succeeds in making the entire world pay for its own spending. (4)

But the Euro has not been born to prevent the USA from “losing all sense of proportion”. This entirely defensive perspective hides the fact that in the long run the uncontested domination of the dollar means a growing subordination to US interests, and that by now the profitability crisis has made increased financial income essential for Europe also.

In fact it is difficult to imagine, either in the short or long term, a Europe coming to the same end as the Asian Tigers. One only has to consider the difference in the volume of international trade carried out by the two areas to realise the differing degrees of dependency on the dollar which the two areas have. In the economy of South-East Asia, and to a certain degree that of Japan, exports to the USA have an exorbitant weight, to the extent that almost all the goods making up a deficit in the American balance of trade of more than a billion dollars come from that area, whilst Japan supplies a large proportion of the dollars which underwrite the treasury bonds which the Fed issues to finance the US public debt. In fact it was not simply the need to stem the dollar’s domination which pushed the various European States towards a single currency, but also the need to create for themselves a great financial centre capable of capturing the necessary quota of revenue to compensate for the fall in the average rate of profit. Their ambitions have nothing to do with putting an end to the piracy, but to take the place of the big boss.

Will [the European States - ed] succeed -- asks De Cecco -- in buying goods and services abroad, paying with money instead of other goods? (5)

A reply to this question probably requires still more time. If it is to be able to effectively take on the role of an international exchange and reserve currency, the new currency will have to satisfy a series of requirements which are still to be met. It is still not backed by a sufficiently integrated system of credit and the necessary institutions to be able to create the skeleton of a truly continental economy. As a consequence it still does not have a common economic or foreign policy; nor a military apparatus capable of intervening in its own interests; and to an even greater extent, lacks a sufficiently centralised state. Its rival, the dollar, (but also the yen, although this springs from a weaker economic power) is backed by all these requirements, besides a prolonged period of economic supremacy, spanning centuries. This means that for a more or less prolonged period of time, there will not be true competition between the dollar, the yen and the Euro, and it is not difficult to foresee that even if European integration was delayed, the dollar, despite signs of wear, will continue to be the preferred international exchange and reserve currency par excellence.

Meanwhile the Euro will function more as a dam against the turbulence of the financial markets, offering an alternative to the dollar, but also seriously modifying the inter-imperialist equilibrium. The outcome of the processes of European integration, themselves decisive for defining the hierarchy of command within the old continent, cannot be ignored as they will decide the future of the world.

New Scenarios

This uncertainty and the fact that there will still be a certain period of time before the world equilibrium is completely upset by the new currency, ensures a space for the economists and bourgeois intellectuals to draw up idyllic scenarios where the three currencies, dollar, yen and Euro, will coexist peacefully, where the competition between them will contribute to the completion of that globalised economy in which efficiency and freedom will allow the “citizen-consumers” every advantage: a sort of virtuous bi or tri-polarism which will fill the void created by the collapse of the ex-soviet empire. In fact the real reasons which gave rise to the birth of the new currency allow us to foresee the inevitability of new, more generalised conflicts. The Euro is not being introduced to reap the fruits of a new phase of expansion of the accumulation cycle of capital, but to gain, by making money with money (M-M'), a growing portion of the surplus value extorted on a global scale aimed at compensating for the fall in the average rate of industrial profit.

But since, as we have seen, at the same time as this type of appropriation becomes dominant, the tendency for financial capital to withdraw from the productive processes intensifies; a growing gap between the production of fictitious values and goods arises, and whilst the need to increase the former grows, the possibility of increasing the latter is restricted. On the one hand there is a tendency for the number of those “who buy goods and services abroad paying with money instead of other goods” to increase, on the other hand, this process removes the means to increase the production of those goods. Therefore, this is not creating a bigger cake to share, it only changes how it is cut. The epoch of “peaceful co-existence” between more plunderers is closed forever because the conditions allowing them to divide an adequate share of the loot are disappearing.

Already, in the immediate future, friction will cause the intensification of turbulence on the financial markets on the one hand, and on the other, push the rivals into establishing ever tighter and more intense relations with neighbouring economic areas in order to give their respective economies the greatest possible autonomy since the ability to ensure a supply of raw materials and cheap labour will be decisive. But for this same reason it is easy to foresee that tensions will intensify to the limits of all the strategic areas of imperialist domination of the world. They will be especially more acute in the area of the ex-soviet bloc and Russia herself as it is obvious that their partial or complete joining with the Euro area would give the European bloc - which already has, especially via Germany, put down firm roots in the Baltic and East European countries - the ace which could prove decisive.

No less involved will be the East, especially now that the effigy of old George Washington has disappeared from the reverse side of many local bank-notes, leaving behind devalued currencies, worth as much as torn paper. Along with the great push towards the concentration and centralisation of capital will be added the constitution of highly centralised mega-continental areas, within which the room for neutral positions will become increasingly restricted. In short, whether the European project reaches maturity or ends up in a cul-de-sac, anything can happen except a return to some new Yalta.

(1) R Kurtz - The end of politics and the triumph of money Manifesto libri - 1997.

(2) The Betrayal of the Economy, William Wolmaan and Anne Colamosca, Ponte Alle Grazie, 1997, p.112, table 4-1.

(3) Ibid page 85-86.

(4) La Repubblica, Business & Finance, 4/5/98.

(5) La Repubblica, Business & Finance, 27/3/98.