PASSWORD RESET

Magazine of the Socialist Party, Australian section of the CWI

Europe in turmoil – A socialist analysis

The crushing rejection of the proposed EU constitution in France and the Netherlands has had the effect of an erupting political volcano. It has already resulted in the fate of the euro being questioned; the ruling classes of Europe are distancing themselves from the ?EU project? with an increasingly nationalistic profile; big clashes have taken place between ruling classes of Britain and France; and the French government faces a seismic revolt of the working class. CWI International Secretariat The rejection of the constitution can set in motion a domino effect, threatening the survival of the euro and EMU, continued enlargement of the EU, and the entire EU ?project? of European integration. The strong No vote in these two founding members states of the EU will make it very difficult to even for a ?core group? of states. Moreover, the full repercussions throughout Europe and internationally have yet to be fully expressed.

These results represent the biggest defeat for the EU ?project? since the establishment of the European Union. They were also a clear rejection of neo-liberal policies and the political establishment. Capitalist politicians across the EU are demoralised and disorientated by the votes of the French and Dutch peoples.

Reflecting the consequences of this defeat, the British Financial Times began its longer than usual editorial, ?Crunch time for Europe?, by gloomily stating, ?Two weeks after the French rejected the European Union?s new constitution, Europe?s leaders are in disarray? (Monday 13 June). WDR ? the North Rhine Westphalia public broadcasting network concluded: ?It is like being on the Titanic. The ship is sinking but the orchestra continues playing? (06/6//05).

It is a far cry from the dizzy optimism with which Europe?s rulers launched the proposed constitution. One of its main authors, former French President, Valéry Giscard d?Estaing, told his fellow drafters: ?This is what you have to do if you want the people to build statues of you on horseback in the villages you all come from?.

Rather than build statues, the peoples of France and the Netherlands have voted to send these leaders packing. Jacques Delors, when he was President of the European Commission, argued that the EU was like a bicycle: you keep pedalling forward or you fall off. Europe?s political elite have now ?fallen off?, the question is – will they be able to remount?

At this stage, the proposed constitution in effectively dead and buried. Yet the revolt of the French and Dutch has not prevented some capitalist politicians threatening to revive the process ? if not immediately then in the future. As one EU official put it: ?We will have a language that puts the constitution in the fridge, but not in the morgue?. Almost unbelievably, French President, Chirac, urged other countries to proceed with scheduled referendums. This advice was declined by other European leaders, like Britain?s Tony Blair. He at least understands that any attempt to proceed with referendums in other countries would provoke rejection by even larger majorities than the French and Dutch results.

In Denmark the strong No votes in France and the Netherlands helped turn a Yes majority into a No majority within days in the polls. Even in Luxembourg support for the No camp has increased. To have a re-run in France or the Netherlands could be the trigger for a mass revolt of the working class on the streets.

Most capitalist commentators and bourgeois politicians expected a No vote in these referendums. Yet the ruling classes and their representatives have been shaken by the size of the No majorities and the class polarisation reflected in them.

A vote of the ?haves? and the ?have nots?

In both referendums the No vote was overwhelmingly comprised of the ?have nots?. The Yes vote was overwhelmingly made up of the ?haves?. One French teacher quoted in the British Guardian summed up the attitude of the French workers: ?We?re voting no. It is a constitution for the bourgeoisie, for multi-nationals, for bosses. It is only about the economy, competition, profits, the market and capitalism, we are against all that; we are communists. There isn?t any progress for workers. Most workers want to say ?merde?, to stick two fingers up at them. We are fed up with saying yes to the politicians?. (Guardian 28/5/05).

It was a massive miscalculation by the French and Dutch governments. Both failed to understand that the referendum would be seen as a plebiscite on neo-liberalism, the market and the anti-working class policies that both governments have implemented. The ruling elite under-estimated the overwhelmingly opposition that exists to privatisation, budget cuts and labour flexibility, which were introduced during the 1990?s. In France, the rising wave of struggle by the working class during February and March was also an important factor which gave an imeptus to the No campaign.

The defeat of the proposed constitution was a massive rejection of the hated ?Anglo-Saxon? economic model stridently defended by Blair and Bush. In response to the crisis, John Snow, US Treasury Secretary, urged European governments to push ahead with free market reforms. He also called on them to stop using ?anti-capitalist rhetoric or risk loosing US investment?. Although Blair won the British general election by playing on the fear of the return to power of the Tories, ?Blairism? (strident support for the ?Anglo-Saxon? neo-liberal economic model) was rejected by the French and Dutch electorate. Ironically, it was Blair who first advised Chirac to call a referendum on the constitution.

Following this defeat, however, the ruling class are determined to push ahead with carrying out further neo-liberal policies, such as privatisations and budget cuts. The new government in France has made this clear. Chirac has attempted to draw a line distinguishing his ?social model? from the programme of Blair and the British Chancellor of the Exchequer (Finance Minister), Gordon Brown. The only difference between the policies of these capitalist leaders is that Chirac favours Blair?s neo-liberalism, but in slow motion ? death by a thousand cuts. The British Financial Times made clear that neo-liberal policies must continue. Its editorial, ?Crunch time for Europe? also argued that, ?EU leaders must not abandon economic reform? and ?European leaders must commit themselves to making progress on economic reform?.

However, this policy will bring the capitalists into greater collision with the working class and is a recipe for greater social explosions. This policy of capitalism poses the need for a clear socialist alternative as the only way to resist neo-liberal capitalist policies.

Other factors in the No vote also played a role. These included the insecurity, uncertainty and allienation that modern day capitalism now means for those exploited by it. The fear amongst workers that EU expansion to the eastern states will result in a driving down of wages as employers exploit migrant workers from Eastern Europe as a source of cheap labour was one element in the political consciousness of some French and Dutch workers. They also fear that jobs will be moved to the new member states. These fears arose, in the main, not for narrow nationalistic or racist reasons but more a concern that enlargement is proceeding ?too soon, too quickly? with harmful consequences for jobs and conditions and that it is another weapon that can be used by the ruling class.

The class divide reflected in the referendum was most clearly seen in France where on a 70% turnout a decisive 56% voted No. An estimated 80% of blue collar workers voted No. Paris, with its large petty bourgeois ?bohos? (bourgeois bohemians), voted Yes along with the more affluent Lyon, Strasbourg and Bordeaux. Against were the strongly working class cities of Marseille, Nice and Lille. The same was true for the youth of whom 59% of 18-24 and 25-34-year olds voted No.

The same class polarisation took place in the Netherlands. In the poor districts of Amsterdam the no vote was crushing. In Amsterdam Noord 73% voted No. In Volewijck and Buiksloterham the No vote scored a massive 79%. The turn out in the Netherlands was higher than that for the European elections. This crushed the argument that a high turnout would secure a Yes victory.

The overwhelming rejection in France, like the Netherlands, was despite the fact that the ruling class and its institutions tried to mobilise everything to win a yes vote. The referendum, therefore, represents a decisive rejection of Europe?s political elite. Every conceivable threat and argument was used by the establishment. Romano Prodi threatened a No vote would lead to the ?fall of Europe?.

In France, the three largest political parties, the media, and international political leaders, were all mobilised for the Yes campaign but to no avail. All the main European leaders were drafted in by Chirac. Schröder, the German Chancellor, who is likely to be defeated in elections in the autumn, along with other representatives of European capitalism, visited France and spoke for the Yes camp. The sole exception was Blair, whose services were not required on this occasion.

In the Netherlands, which held its first referendum in 200 years, all the main political parties, including the Dutch Labour Party, the trade unions, the media, and all the institutions of capitalism, argued for a Yes vote only to be defeated by a massive 62% to 38%, an even bigger majority than in France. The radical Dutch Socialist Party was the only substantial party to argue for a No vote. The VVD (Peoples Party for Freedom and Democracy), a party in the right wing coalition government (Christian Democrats, VVD and D66), carried a television broadcast for the Yes vote, which showed the Auschwitz concentration camp ? warning that if the No vote was victorious the death camps would be the consequence! They were compelled to eventually withdraw this advert.

In both countries, the prospect of an upturn in struggle is now likely to follow. In the Netherlands, following the referendum, 15,000 local government workers attended a demonstration on the day they took strike action, as part of their campaign for higher wages. The trade union leaders only expected 10,000 to turn up. Negotiations between government and pubic sector trade unions over wages and conditions are fraught and more industrial struggles are possible. Even the police are considering strike action over wages and conditions.

France ? the end of the Fifth Republic?

The revolt against the EU constitution has exposed the depth of the crisis facing the French ruling class. One analyst, Dominique de Montvallon, correctly concluded: ?The country is now in such a state of paralysis, worry and anger that one thinks straightaway of May 1968?. One sociologist, Gérad Mermet, told the French daily paper, ?Le Parisien?, that the electorate had ?zero confidence? in the politicians. He possibly exaggerated a little but went on to warn, ?Things will radicalise. There is a real risk of explosion: we are in a pre-revolutionary situation?.

Following the referendum defeat, Jean-Pierre Raffarin was as French Prime Minister and replaced by the aristocratic Dominique de Villepin, whom Bernadette Chirac, (wife of Jasques), once compared to the Roman Emperor, Nero, following his advice to her husband to call early elections in 1997 which resulted in five years of Jospín’s Socialist Party led government. Villepin?s elevation to Prime Minister is more akin to rearranging the chairs on the Titanic rather than a serious attempt to deal with the crisis facing French capitalism.

Villepin, had an approval rating of a mere 41% after his appointment. This is the lowest of any Prime Minister for more than 20 years and this only a few days after being in office! Following the referendum Chirac?s own popularity ratings crashed to 26%. Even within his own party, the UMP, his popularity has slumped to 50%.

There has been massive erosion in the credibility of all of the bourgeois institutions and all the major political parties which are in crisis. The country is widely seen by the French people to be in the grip of a ?democratic deficit?. The very appointment of the aristocratic Villepin, who has never been elected to anything, as Prime Minister, illustrates the Presidential Bonapartist nature of the existing Fifth Republic ? established by DeGaulle in 1958.

?The Fifth Republic has run out of breath? declared François Bayrou, leader of the centrist capitalist party the UDF. Jean-Marc Ayrault, parliamentary leader of the socialist Party argued that: ?This is the end of a political cycle. There are parallels with the death of the Fourth Republic?

Villepin?s new government has initially attempted to present a ?softer image? and has promised that the priority will be defence of the ?social model?. He has promised 100,000 new jobs as home helps and child minders and 4.5billion euros for job related policies. Yet these measures will not prevent further attempts to introduce more ?flexibility? in the labour market. The government has also pledged that it will continue with its privatisation plans and that public spending will remain frozen. This is a recipe for a massive collision between the classes in France.

Despite his efforts to project an alternative image, 60% of voters think Villepin?s government will mean more of the same. The victory of the no camp in the referendum has boosted the confidence of the working class which confronts now a fundamentally weakened government. The strikes and protests of the metal workers, within days of the referendum result, indicate that strikes and mass protests are likely to now escalate. 70% in one poll indicated that they thought social struggles and conflict was now likely to increase in the coming months.

The collapse of Chirac?s government, and even of the structures of the Fifth Republic, is a possible perspective that may be one of the consequences of the political volcano which erupted on May 29th.

A crisis for European capitalism

The events which have followed the rejection of the proposed constitution are not episodic. They indicate the qualitative change which has taken place in the situation facing not just the French and Dutch capitalists but the ruling classes of Europe. The current crisis is a vindication of the analysis of the Committee for a Workers? International (CWI) that the European capitalist classes are unable to unify Europe to construct a capitalist ?United States of Europe?, as even some Marxists outside the ranks of the CWI believed.

The EU ?project? for greater economic and political integration was rooted in the pressure on the European capitalists from competition from US imperialism and, more recently, from China. This drove them towards increased collaboration and led to illusions that this would result in a politically unified Europe. This trend, along with the process of globalisation of the economy and growth of multi-national and trans-national corporations, illustrated how the productive forces have outgrown the limitations of the national state and to a certain extent have even outgrown continents. The big companies increasingly look towards the world market rather than simply their national or regional base.

Yet, at the same time, this process has its limits and comes up against the insurmountable barriers of the separate nation states and the national interests of the capitalists. In the aftermath of the referendum these factors have reasserted themselves, exposing clearly a clash of interests. Some thought that the process of EU integration and EMU represented the point of ?take off? for a unified capitalist Europe.

The CWI consistently argued that this was not the case. Our analysis explained that although the process of integration of the EU went a long way, further than even we originally anticipated, at a certain stage a recoil would take place. This would result in renewed national antagonisms and conflicts between the various national states. This process of unravelling would worsen in the event of a serious economic crisis, recession or slump.

The end of the euro?

The introduction of EMU and the euro was a political and economic gamble by the capitalists, pushed through in the teeth of some opposition from their own side, during the triumphalist wave which followed collapse of the Berlin Wall. Initially the Bundesbank opposed the introduction of the euro but was compelled to accept it in the light of the political pressure of the capitalist politicians who supported its introduction. The stability pact was introduced as a ?safety net?, which was intended to prevent governments resorting to ?profligate spending?.

Yet, the whole idea of the euro was tailored to a situation of continued growth of the European economies, with no real account taken of what would happen in the event of a slow down, stagnation or recession. The mood expressed in the referendums and recent workers? struggles also reflects disatisfaction that the economic growth, jobs or higher living standards promised with the introduction of the euro have materialised.

The ruling classes attempted to impose an economic union in the absence of an existing political union. As we explained at the time, this has never succeeded in the past. Without a political union, moving towards the establishment of a unified nation state, an economic union or currency could not survive indefinitely.

When the ?project? was on track the capitalists ignored the lessons of history. Now faced with today?s crisis, newspapers like the British Financial Times belatedly can warn that such contradictions cannot be reconciled indefinitely.

In an article which seriously questions the sustainability of the euro, Wolfgang Munchau pointed out: ?All large-country monetary unions that did not turn into political unions eventually collapsed. The Latin Monetary Union of 1861-1920 collapsed partly because of a lack of fiscal discipline among its members ? Italy, France, Belgium, Switzerland and Greece. A monetary union set up in 1873 between Sweden ? which included Norway at the time ? and Denmark failed as political circumstances changed. By contrast, Germany?s Zollverein, the 19th century customs union that developed into a monetary union, succeeded precisely because of the country?s political unification in 1871.? (FT, 08/06/05).

There is a vast difference between a federal state, such as the US, which can distribute funds to local state governments in a relatively easy fashion on the basis of an agreement and the EU. The distribution of resources or funds cannot be done in the same way, in a Europe composed of different nation states, as the current struggle over the EU budget shows.

The current EU crisis has revealed that the monetary union, rather than leading to a political union, has resulted in a political fracture between the national states. Partly, this is what lies behind the current spat over the EU budget, which was triggered by Chirac?s challenge to Britain?s rebate. This is a dangerous ploy, from the point of view of the French ruling class, because it has allowed Blair to raise the whole issue of the Common Agricultural Policy (CAP) in retaliation. France currently receives over 20% of farm subsidies from the CAP, which is a purely political decision to maintain support for the French bourgeoisie and Chirac amongst French farmers.

Chirac is attempting to use these issues to turn the underlying class vote of the referendum into a nationalistic conflict over the EU budget. Blair, dressed in the political gown of Thatcher, is also attempting to present himself as the nationalistic defender of Britain over the EU rebate. The German Chancellor, Gerhard Schröder, is aligning with Chirac, while his opponent in the forthcoming elections, Angela Merkel, from Christian Democratic Union (CDU), tends to support Blair. While some compromise on the budget is eventually likely this conflict illustrates the new increased national tensions and contradictions which are set to emerge in the coming months and years.

While an immediate collapse of the euro or the EU is not the most likely short term perspective, the sharp increase in political and economic tensions between the representatives of the various ruling classes will intensify. The conflict of interests is now driving the capitalists of Europe towards the establishment of a looser federation of national states which is contrary to the dominant tendency of the recent period.

However, the onset of a deep economic recession or slump or world financial crisis will sharpen these conflicts further and could provoke a relatively rapid collapse of the euro. The withdrawal of Britain from the ERM in 1992, on ?Black Wednesday? shows how diverging national economic conditions can drive the capitalist class of a country to break from a currency or monetary agreement. Although there are differences, and it will not be repeated in exactly the same way, the euro can break up, with one or more country withdrawing or even being expelled from it.

Even before the French and Dutch referendums, the question of the sustainability of the euro in the face of diverse growth and inflation rates was beginning to be discussed amongst capitalist?s strategists. At one private meeting, on May 25, involving the German Finance Minister, Hans Eichel, and Axel Weber, President of the Bundesbank, a representative from Morgan Stanley (an investment bank) Joachim Fels, expressed concern about the sustainability of the euro. According to the Financial Times even the extreme pro-EU lobby group, ?Centre for European Policy Studies? published a report in early June that raised the prospect of a collpase in the EMU. (8/6/05).

In the light of the referendums on the EU constitution, three Italian Ministers, members of the Northern League party, called for the re-introduction of the lira.

This is partly an attempt to embarrass Romano Prodi, de-facto leader of the centre-left opposition alliance, l?Union, and former Chair of the European Commission. Prodi took Italy into the euro zone, at what is claimed to be ?a too high rate.? Berlusconi shamelessly depicted the referendums in France and the Netherlands as a de-facto defeat for Prodi, despite the fact that Berlusconi?s government, in parliament, had approved the proposed constitution in April.

Yet, the very fact that the abandonment of the euro for the lira has been discussed by a ruling coalition party, reveals the constrictions the euro is placing on the ruling class in Italy and other countries. It is no accident that the strongest opposition to the euro is in the Netherlands, France, Italy and Germany ? countries either in economic stagnation (recession in the case of Italy) or suffering from high levels of unemployment. The euro, with a fixed uniform interest rate and state budget rules, has added to the deflationary pressures in these countries.

Within the EU, German capitalism has gained and strengthened its position. In the last year, exports have grown by 4.9%. This represented a rise of 9.9% in exports to other euro-zone countries and 7.2% to other EU countries. This compared with only a 0.9% increase in exports to the rest of the world. The increased dominant economic position of German imperialism within the EU has been at the expense of countries like Italy, which have been squeezed.

Italy ? the sick man of Europe

Italy is currently the ?sick man of Europe.? It is heading for the intensive care unit if it has not already arrived. Exports are in a steady downward spiral. During the first quarter of 2005, they fell 4.1% in comparison to the previous quarter, which in turn were down 4.5% on the preceding quarter. Italy is now officially in recession. With official unemployment at over 8%, and a ballooning public deficit, it has become the first country to face ?disciplinary action? for breaking the conditions of the stability pact. Italy?s public debt stands at 106% of GDP ? way above the EU 60% target figure.

Traditionally, Italy has used devaluation as a means trying to manage economic recession and indirectly cut living standards. This avenue is currently blocked for the Italian government which is tied up in a straight-jacket of single interest rate of the euro. In this sense, the EMU and euro is like the ?gold standard? of the inter-war period. This locked the currencies of countries to a particular exchange rate, even when it no longer reflected a new changed economic situation. The ?gold standard? was, therefore, deflationary, holding back production and, consequently, it eventually collapsed. The euro zone will face the same fate, for the same reason.

Fate of the euro linked to world economy

The perspectives for the euro in the short to medium term are inseparably linked to the world economy and the prospects for a major slowdown or recession. As we have explained in other material by the CWI the driving force in keeping the world economy out of recession is the continued consumer led boom in the US, which has been fed by export led growth in the increasingly powerful Chinese economy. Both these engines are reaching there limits of continued growth. The Chinese economy has been overheating due to the property bubble and investment boom which exists.

The US twin deficits (budget and trade) have reached unprecedented levels of nearly US$3 trillion ? compared to a surplus of US$360 billion in 1980. This development is clearly reaching its limits. While the US economy has slowed down in the recent period, it is still kept afloat by the influx of liquidity from China, Europe and Japan. The US current account deficit is soaking up about 75% of the account surpluses of Germany, Japan, China and other Asian countries.

The massive surpluses of the Asian capitalists are going into US government bonds, rather than being ploughed back into developing production in their own region. This has been at the cost of increasing unemployment and re-enforcing mass poverty in the Asian countries. They have done this because they were economically burnt by the meltdown in 1997. Prior to this, a massive surplus capacity built up a flood of goods which the market could not absorb.

The capitalists in Asia, therefore, do not want to repeat this experience, which would produce a glut at a time when a real economic crisis looms. Even with very low ?yields? on bonds, they prefer to buy them, which for the moment fills in the black holes of the massive US deficits. The ruling classes of the world are clearly desperate to prop up the US economy, for as long as they can, to avoid a world economic recession. However, they will not be able to do this forever.

A serious reduction in the inflow of foreign capital into the US is likely to provoke a further major fall in the dollar ? the most likely trigger for a world recession.

US imperialism is demanding that the China revalues the Reminbi to the dollar. The pegging of the Reminbi to the dollar is threatening US companies because of cheaper dollar price imports into the US. Yet, a seizable revaluation of the Chinese currency would weaken China?s competitiveness in relation to their regional rivals and would also increase their prices in dollar terms in the US market. This is why the Chinese regime has resisted pressure to adopt this policy.

These underlying contradictions are reaching a critical stage. They are further aggravated by the instability of the world financial markets and high price of oil. The speculative boom of the 1990?s gave rise to the growth of highly secretive ?hedge funds?. These are the most recent manifestations of the growth of speculative finance capital in the world economy, in general, and also in Europe. There is a tendency in the European economies towards a ?Rentier? type of capitalism, with a growth of finance capital at the expense of industrial capitalism. This process has gone furthest in Britain, and is now being strengthened in the rest of the EU economies.

According to recent reports, internationally, there are 8,000 ?hedge funds?. It is estimated that up to 1,600 of these funds are over exposed and could collapse in the next two years. Any such collapse could trigger a world financial crisis, such as developed with the collapse of LTCM in 1998. A collapse of this scale would be similar to a major banking crisis and could easily plunge the world into a deep recession.

A recession or slump would have major repercussions within the euro zone. Germany would be particularly badly hit by a slow down or recession in the world economy because of its increasing reliance on exports for economic growth and contraction of the domestic market. The onset of a serious recession will pose the likelihood of a breakdown of the euro. There could be a simultaneous collapse of both the euro and the dollar. Such a development will shatter the dream of the European capitalist analysts who hoped the euro could eventually rival the dollar as the leading world currency.

However, it is not necessarily Italy, or one of the weaker euro zone economies, that could torpedo a collapse of the euro. Commentators like Wolfgang Munchau, writing in The Financial Times, recently pointed out that France or Germany, in the event of a watered down stability pact and increased inflationary pressures, may eventually conclude they would be better off outside the euro zone, with their preference for price stability. In the event of these countries emerging with appreciating national currencies, their debt repayments would fall. One analyst from Deutschebank warned: ?The pressure to leave the euro zone will not come from it weak members but from its strong members.?

Indeed, it is from the strongest of the euro zone economies, Germany, that the pressure to leave could become greatest because of the dramatic social, economic and political crisis which has developed in that country.

Germany in political turmoil

Under the Social Democratic Party (SPD) government of Chancellor Gerhart Schr̦der, despite his previously trying to strike a radical pose by opposing the Iraq war, the coalition government carried out a vicious neo-liberal policy. With official unemployment standing at over 11% Рhigher than in France ? the working class is being faced with vicious attacks on its living standards. Over a twelve month period, more than 300,000 full time paid jobs were lost and replaced by so-called ?mini jobs?, with no job security and reduced wages and conditions.

Mass unemployment, privatisations and cuts in social services have shattered the post 1945 ?social consensus? that was established during the upswing of capitalism after the Second World War. Yet even this has not been enough for the German ruling class.

Fearful that pressure from the working class would strengthen the resolve of the ?left-wing? of the SPD in parliament, making his pro-capitalist government unreliable, the ruling class has apparently opted for Angela Merkel, the leader of the CDU, and backed early elections. As the Financial Times Deutschland put it: ?We tried to reform through the left and now we need to go back to classical right-wing reform. This will provoke social resistance which we have not seen for decades but we now need to prepare for.?

This could prove to be a major miscalculation by the German ruling class. A further round of attacks by a CDU led government is certain to provoke massive resistance by the working class. The ruling class are basing their calculations on the ability of the trade unions to hold back a powerful movement of the German working class under Schröder?s SPD-led coalition.

However, they will not be able to exert the control over the working class under a CDU government. Even during the last weeks of the Schröder government, groups of workers, such as those at Bosch-Siemens, in Berlin, supported strike action to fight redundancies, as they felt emboldened by the evident weakness of the government.

Germany faces a major political and social crisis. Although Schröder did not face a referendum on the EU constitution the regional elections in North Rhine Westphalia was the equivalent of Chirac?s referendum defeat. For the first time in 39 years, the SPD was voted out of office in this state.

This opened up a major political crisis in German society, which has begun to draw hundreds of thousands into the arena of political debate. Members of the SAV (CWI section in Germany) report a massive politicisation of German society. Politics is now widely discussed on busses, trams, and during meal breaks at workplaces.

This follows a verbal swing to the left by SPD Chairman, Müntefering, and others, who have denounced the arrival of the ?locusts? ? the big financial speculators. This attack on the finance capital reflected the strong opposition to the government?s pro-government polices and the beginning of an anti-capitalist consciousness amongst the German masses.

This has now been followed by demands from the SPD ?left-wing?, echoed by some government ministers, for the employers to increase wages. This is in the light of falling purchasing power of workers and increased dividends for employers. Twenty four of the largest companies on the stock market have increased their dividends and payouts to shareholders by 40% this year.

The demands for a change in policy by these ?left-leaders? of the SPD also reflects a section of the ruling class who have now concluded that neo-liberal policies have gone too far and that a change is needed.

The driving down in living standards has now gone so far in some countries that large sections of the working class cannot buy the goods they produce.

Voices have therefore been raised of a possible return to more ?Keynesian methods? of boosting demand. These could take the form of even lower interest rates or increased government expenditure – a further loosening of the EU?s budget criteria, as a means of boosting the economy.

However, such measures will fuel inflationary pressures and create new contradictions and further tensions. For this reason, the capitalists, in the main, will oppose these measures at this stage. In fact, they demand ?more of the same? from the working class and a further intensification of neo-liberal attacks. These policies can be presented in a more nationalistic dressing in the next period sometimes being packaged as measures to ?save social welfare?. However, they will prepare the ground for even bigger social explosions.

These developments in France, Italy and Germany are crucial for the working class and especially for active socialists and Marxists. The social, political and economic convulsions taking place in these three countries make them of decisive importance for the whole of Europe.

The crucial importance of developments in France, Germany and Italy for the whole of the European working class does not detract from big social explosions affecting other important countries. If Italy is in the intensive care unit then Portuguese capitalism is a basket case. ?The monster is back? ran a headline in in Lisbon daily papers refering to the massive budget deficit. It now stands at an enormous 7% of GDP ? the stability pact ?limits? budget deficits to 3%! ?Draconian cuts? are being demanded by economists and vicious attacks are being prepared on the 730,000 state employees. The wages of these workers account for 15% of GDP. These attacks and others are set to trigger a major struggle between the Portuguese working class and the ruling class.

One of the most important issues facing the working class is the need to build a powerful political alternative for the working class that fights against capitalism and for socialist policies. The absence of such parties has acted as a break on the development of the struggles of the working class in recent years.

A new party ? German workers move to the left

The recent decision of the former SPD Chair, Oscar Lafontaine, (an opponent of Schröder?s neo-liberal programme who is widely perceived to be on the left) to leave the SPD and to head an alliance of the PDS (Party of Democratic Socialism), together with the new, left-wing WASG (Work and Social Justice ? The Electoral Alternative), represents an extremely important development.

This alliance has been formed by the leadership of these two parties. Unfortunately, the leadership of the WASG has not opposed or criticised the cuts and other anti-working class policies implemented by the PDS in those states where it is in a ruling coalition, especially Berlin.

However, an election succes for this this alliance, headed Lafontaine, can become a first step towards the formation of new party of the German working class. Although the new alliance and WASG are not ready-made workers? parties with clear fighting socialist programme, these developments represent an important step forward. Lafontaine has publicly declared that he will join the WASG and this party now has an opportunity to grow and develop.

The recent decision to form this alliance has already provoked widespread political discussion and debate in Germany. For instance, according to the some reports up to two thousand people attended an anti-government rally in the eastern German town of Chemnitz to hear Lafontaine. This enthusiastic meeting was organised by the trade unions, the PDS and the WASG.

These possible steps towards a new party are forming a channel to allow the German workers and youth to begin to express itself politically. It is beginning to act as an umbrella under which workers and activists can debate the programme and tasks necessary to fight the neo-liberal policies of the ruling class. These developments represent an important step forward.

The German section of the CWI is actively participating in this process and fighting for to embrace the idea of socialism, as an alternative to capitalism, and to become a party of workers and young people, which fights to defend their interests.

Already, the first opinion polls indicate 8% will vote for this new party ? more than neo-liberal FDP and level pegging with the Greens. An earlier poll indicated that 18% are considering voting for the new left alliance. These developments are already beginning to have international repercussions and can assist workers in other countries to draw the necessary political and practical conclusions about the need for new parties to be built. If the new left German party develops into a stronger socialist force it can become an important catalyst for workers in the rest of Europe to begin the task of building new parties of working people that challenge capitalism and fight for socialism.

EU expansion can be stalled

The crisis in the EU, triggered by the revolt in France and the Netherlands, against the proposed EU constitution, will, in all likelihood, stall the process of EU enlargement. Chirac has already proposed a special EU conference to decide whether to go ahead with further enlargement.The turmoil at the heart of the EU and the draining of the reserves of the largest economy, Germany, now make it extremely unlikely that Turkey or the Ukraine will be taken into full EU membership.

The existing newer EU member states of central and eastern Europe have not gained from EU membership, unlike countries like Spain and Ireland when they joined. The eastern European member states are net contributors rather than receivers.

The threat of a stalling in the process of EU expansion has already caused concern in the Balkans; that ending the prospect of these states joining the EU would, once again, spark a series of ethnic and national conflicts that would inevitably spill over to the rest of Europe.

This threat is compounded by the re-emerging conflict in Kosovo. The ethnically mixed country has an overwhelming Albanian majority, and around 180,000 Serbs (one third of the pre-1999 war population), of whom most were pushed into a handle full of enclaves.

Once again the Albanian majority is pushing for full formal independence from Serbia, which US imperialism in now leaning towards supporting. Such a step would inevitably again increase tensions with Serbia and arouse the Albanian peoples in Macedonia and Albania, which could spill over into Greece.

It is clear that the current crisis in the EU will have repercussions beyond its existing member states.

The fears of workers in Western Europe about the threat of the influx of workers from Eastern Europe pose to wages, jobs and working conditions was a factor in the recent referendums. It is also an important issue for workers in all the EU countries.

Workers unite ? build workers? unity and fighting trade unions

According recent reports, up to 500,000 Polish workers are working legally outside Poland. The ruling class clearly see migrant workers as a potential source of cheap labour and a tool to force down wage levels. The trade unions across Europe must energetically take up the issue. A major campaign to oppose racism and to unite all workers is necessary. This must be linked to an audacious campaign to recruit workers from eastern Europe into the trade unions, which then must fight against slave wages and the gruelling hours which these workers are forced to endure. Such a campaign needs to be part of a general drive to recruit to the trade unions and to build fighting organisations that will struggle to defend the interests of all workers.

Migrant workers must be given full democratic and national rights and paid equal wages to the workers in the countries they migrate to. It is urgent that the trade union in all EU countries forge links, and organise joint struggles and campaigns to improve the wages and conditions of workers across the EU.

A part of this struggle is the need to fight to establish a living minimum wage for all workers in the European countries. In addition to these measures, links need to be established with workers in eastern Europe, to unite with them in a struggle against the multi-national companies and capitalist classes of Europe. This is the only way to combat divisions and to unite the working class, to stop the growth of racism and to prevent immigrant workers being used as a source of cheap labour for the capitalist class.

For a socialist Europe.

The unprecedented crisis in the EU has driven the continental bourgeoisie away from a tendency towards an international common approach to dealing with its problems back towards nationalism and defence of their own national interests.

Socialists and the CWI have consistently been opposed to the EU as an instrument of capitalism and opposed the EU constitution as an attempt to drive further the policies of neo-liberalism.

However, our opposition to the EU, and its institutions, has nothing to do with the narrow nationalism of the ruling class and far right. The working class of Europe has common interests and we stand for the defence of a united socialist Europe on a free, voluntary democratic basis.

The working class through struggle in some countries has been able to slow down the neo-liberal offensive launched by the capitalists. In 1995 the French workers were able to stop the Juppé plan. In Italy, Berlusconi was unable to implement his proposed pension ?reform?. In countries like France and Germany it has not yet been possible to carry through the attacks neo-liberal policies to the extent that the ruling class would like to. They have not gone as far as Thatcher was able to do in Britain.

Yet, the failure of the trade union leaders to organise massive resistance and offer a socialist alternative has enabled the capitalists to continue their offensive and attempt to drive ahead with further attacks. It is now urgent that a socialist alternative to the EU and neo-liberalism is fought for throughout Europe.

Workers throughout the EU and Europe need to establish links and open a debate about the alternative to the capitalist EU and its institutions.

Capitalism cannot unify Europe. The working class must unite across national borders to combat the threat of neo-liberalism and capitalism. The alternative to the crisis of the EU, and capitalist national conflict, is to fight for a democratic socialist federation of Europe. This is the only alternative to the turmoil and national antagonisms that are now breaking out in the EU.