Eu exit 2016

Britain and the EU What next?

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by John Foster

a Communist Party publication ÂŁ2

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Britain and the EU What next?

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H Britain and the EU. What next? | 3

February 2016 ISBN Š Communist Party Ruskin House, 23 Coombe Road, Croydon, London CR0 1BD John Foster is international secretary of the Communist Party and emeritus Professor of Social Sciences, University of the West of Scotland Reproduction of this text is permitted in part or full providing the source is acknowledged communist-party.org.uk

4 | Britain and the EU. What next?

Contents

1 2

The immediate challenge Cameron: imposing a right-wing agenda The agenda Cameron ignored The TUC’s warning to Cameron Can the EU be rescued?

The EU treaty: how the EU is structured to support big business Unemployment – the EU’s basic economic regulator The 2008 crisis, austerity and the attack on democracy Why the European TUC condemned the Fiscal Compact

3 4

Social Europe: can it defend working people?

5 6

The changing political balance in the EU

Peace and internationalism The Cold War origins of the EU Unequal international trade treaties and TTIP Ever greater integration with

Is there a viable progressive alternative outside the EU? Would leaving the EU lock Britain out of International markets?

Can a Left agenda be won?

What are the key components for Left advance?

Answering the questions

Britain and the EU. What next? | 1

Preface This pamphlet seeks to assess the challenges posed to the trade union and labour movement by Cameron’s renegotiation of British membership of the European Union (EU). This renegotiation, it is argued, will significantly worsen the impact of the EU on working people – not just in Britain but very probably elsewhere in the EU as well.

The question trade unionists now have to answer is whether the human costs and consequences of EU membership on these new terms justifies their continuing support. The pamphlet will consider: l How far ‘Social Europe’ delivers sufficient benefits to counteract the consequences of the EU’s austerity economics – and will continue to do so after Cameron’s renegotiation. l How far the EU has been, and still is, a force for peace and a guarantor of political stability in Europe. l Whether leaving the EU would deprive Britain of key markets and result in large-scale job losses. l Whether there are substantial economic and political gains to be secured from leaving – and how far EU austerity and privatisation rules would still apply to trade with the EU. l How far the Left in the EU still has the strength to change the EU from the inside. l How far the Transatlantic Trade and Investment Partnership (TTIP) is a oneoff project and can by modified and limited by the EU and how far it is in fact integral to the wider politics of the EU. The pamphlet concludes that whatever benefits may once have derived from EU membership, they are far outweighed by the negative consequences of continuing membership.

This pamphlet ends with a warning. The EU’s imposition of neo-liberal policies on all governments, including those led by the traditional parties of the Left, has resulted in the collapse of support for social democracy. In the coming referendum voters will be asked to support an even more neo-liberal and probusiness EU. Politically, such an outcome would pose an additional danger that Cameron would use it to argue that the electorate has voted in support of the EU’s so-called free market policies and therefore against Labour’s programme for public ownership and enhanced public spending.

This is why it is so essential to put forward and win a positive, progressive case against Cameron’s EU – a vision of renewed democracy, a restored welfare state and a redevelopment of public control over the economy, a vision that can combat racism, cynicism and division and unite all working people.

2 | Britain and the EU. What next?

1

The immediate challenge.

Cameron: imposing a right-wing agenda

In november 2015, Prime Minister David Cameron set out his negotiating terms in a letter to Donald Tusk, Chair of the EU Council of Ministers. This letter made it crystal clear that Cameron’s priorities have nothing to do with the interests of ordinary people. They are solely to defend the interests of big business and the City of London, to maintain Britain’s special relationship with the US and to protect Cameron’s position in the Conservative Party – all cynically wrapped in the Union Jack.

The letter was very short and had four main points.

The first, ‘economic governance’, is about defending the privileges of the City of London as the global centre for investment banking and financial speculation.

Cameron asks for Britain to be exempt from any EU banking union regulation, that the City and sterling as a currency should suffer no discrimination and that the British government should have prime responsibility for financial regulation.

The second, ‘competitiveness’, seeks a commitment from the EU to extend the Single Market and in particular a Capital Markets Union, a move that would further open EU financial services to British and US banks. It welcomes the new EU trade strategy and the pursuit of ‘potentially massive trade deals with America’ (avoiding mention by name of the unpopular TTIP). And finally, on EU regulation, it asks that the EU adopts a ‘target’ to cut ‘the total burden on business’. If agreed, this provides a green light for the subsequent removal of what remains of the ‘Social Europe’ legislation initiated by former EU Commission President Jacques Delors, something which big business across the EU has long wanted.

The third is ‘sovereignty’. This asks that Britain be exempt from further EU moves to ‘ever closer union’. Cameron wants the British government to be free to be able to continue to support the US on trade, financial and foreign policy issues even if the EU moves to full union.

The fourth point concerns immigration. This is to protect Cameron’s back in the Conservative Party and to protect the Conservative Party itself against the United Kingdom Independence Party (UKIP). Within EU rules Cameron's proposed ban on benefits for EU migrants would probably require a similar 'non-discriminatory' ban on workers in Britain, whether migrants or not, who have not served for the same period in the labour market – something Tory Chancellor George Osborne would certainly welcome.

The full letter to Tusk can be accessed at: www.gov.uk/government/uploads/system/uploads/attachment_data/file/475679/Donald_Tusk_letter.pdf Britain and the EU. What next? | 3

The agenda Cameron ignored Cameron made no mention of the EU ban on state aid for industry – used as an excuse by government ministers since autumn 2015 for their failure to rescue Britain’s steel industry, which itself is an essential requirement for the survival of our manufacturing economy.

He did not challenge the EU’s treaties and directives favouring the privatisation of basic utilities such as the railways, energy, postal services and communications – EU legislation that would be used to block the implementation of any progressive Labour Party manifesto.

He made no mention of EU ‘austerity’ rules that block the use of Keynesian spending policies to overcome economic crisis and unemployment – rules that have led to mass unemployment across the EU and the privatisation of public services and which Britain also has to follow in its EU-monitored UK National Reform Programmes.

Cameron did not challenge the EU requirement that our National Debt be reduced to 60 per cent of GDP (Britain’s currently stands at 84 per cent) or the EU accounting rules which stipulate that Housing Association debt must be included in this public sector debt – leading Osborne to impose the Housing Association sell-offs.

Cameron did not mention the EU 2020 Programme which requires each member state, including Britain, to ‘reform’ its pension provision, benefits and labour market regulations to maximise labour flexibility, minimise ‘disincentives to work’ (i.e cut welfare benefits) and prevent ‘early exit from the labour market’ (i.e. postpone the retirement and state pension age).

He did not seek to challenge those clauses in the EU Treaty about freedom of establishment and trade which underlie EU Court of Justice rulings that now prohibit trade unions and national and local government from seeking to enforce locally bargained conditions for workers brought in from another EU state.

Nor did Cameron raise any concerns about TTIP which the EU is currently negotiating in secret. As ratified by the EU Parliament, this would still allow companies to sue governments that exclude them from potential sources of profit-making activity or intervene to limit their market freedom.

Instead Cameron has set a purely right-wing agenda that gives the neo-liberal majority on the Council of Ministers every opportunity to make the EU even more closely aligned with the interests of big business.

4 | Britain and the EU. What next?

The TUC’s warning to Cameron In September 2015, the TUC General Council and annual conference issued a stern warning about Cameron’s renegotiation. It noted “the increasing domination of neo-liberal ideology within the European Union’ and warned of the danger that ‘these factors can only be exacerbated by David Cameron’s renegotiation of the terms of Britain’s membership’.

The motion deplored ‘the way in which European political leaders have put narrow sectional interests and the economics of austerity ahead of solidarity with countries facing economic crises – in particular Greece, but also Ireland, Italy, Portugal and Spain – as well as refugees like those fleeing oppression and war on Europe’s southern borders. We reject the European Union’s support for liberalisation and deregulation, including in trade deals like CETA with Canada and TTIP with the USA, both of which the TUC opposes, measures undermining collective bargaining in Eastern and Southern Europe and judgements of European courts that undermine negotiated sector level agreements providing minimum labour protections.’

The TUC motion ended with its warning to the Prime Minister: ‘Workers will not back or support a Europe that fails to protect and enhance the position of working people, citizens and civil society or one that solely works in the narrow interests of global corporations and finance capital. We hope that the Prime Minister’s efforts to weaken workers’ rights will fail but if they do not, we are issuing a warning to the Prime Minister: you will lose our members votes to stay in the EU..’.

It is for this reason that Cameron’s letter and the responses from EU ministers seek to avoid explicit policy commitments. Cameron wants, and needs, to keep the TUC on board. This is why his requests are very general. He asks the EU to adopt a ‘target’ to reduce ‘the total burdens on business’ – and the danger here is precisely in the lack of detail. The EU Council of Ministers will offer a general pledge to be incorporated into treaty changes at a later date and it will be the EU Commission under the arch neo-liberal Jean-Claude Juncker that will then implement them with more detailed proposals.

The result will be an EU that will be even more reactionary than at present.

And for Britain, and its component nations, Cameron’s EU deal will mean an increasing dominance by the City of London and further financialisation of the control of the British economy. Worse still, it will decisively limit our democracy. A referendum victory will enable Cameron to say that electors have backed the EU on the newly agreed pro-market terms and that any Labour Party programme involving nationalisation, traditional Keynesian budgeting and redeveloping social services is not just impossible within EU rules but now politically illegitimate. This is the trap that Cameron and Osborne are setting for the labour movement.

Britain and the EU. What next? | 5

Can the EU be rescued?

Many people in the trade union movement sill believe that the EU can be rescued as a socially progressive project, that over the past 40 years much of value has been achieved and that this needs to be protected. Such positive gains would include standard regulations for health and safety across the EU and the safeguards of the Social Charter including the Working Time Directive, TUPE, equality legislation and protections for temporary, part-time and agency workers. It is also argued that the combined strength of the EU gives us much greater bargaining power within a globalised market system and that, overall, the EU has been a force for peace – preventing the recurrence of wars that have twice scarred the European continent over the past century. And then, no less worrying, there is the question of what would happen to Britain outside the EU: politically isolated, losing its main trading partners and millions of jobs and probably dominated by right-wing and racist politics.

The argument here is that, although there may be some truth in some of this, the EU has never been a vehicle for progressive politics. The massive pressure for privatisation and cuts in public spending, the drive to weaken employment rights as well as the interventions in the internal politics of Greece, Italy, Ireland, Cyprus, Spain and Portugal are not accidental consequences of a particularly bad crisis. They derive from the basic economic organisation of the EU. We will look first at this economic hard-wiring of EU, its treaty structure, then at the gains of ‘Social Europe’ and finally at the EU’s changing international orientation.

6 | Britain and the EU. What next?

2

The EU treaty: how the EU is structured to support big business

To understand the EU’s neo-liberal character and why it enforces austerity so rigorously, we have to go back to the Single European Act of 1986. This set the legal framework for the EU as it exists today. The drafters of this Act were ministers from Thatcher’s government in Britain and the conservative government of Chancellor Helmut Kohl in Germany.

Each government had its own objectives. Thatcher’s ministers wanted to open up European financial services to the City of London, making London the European base for US banks. In this they were strongly supported from the US by President Reagan. Kohl’s ministers wanted to create an all-European market for Germany’s giant industrial companies at a time when the German economy was slowing. Both governments were ideologically on the right and were united in seeking to use the new framework to limit the scope for future social democratic governments to introduce progressive left-wing policies anywhere in Europe.

The stated object of the Single European Act (SEA) was to eliminate all obstacles to the free movement of capital, labour, goods and services within the boundaries of the EU. This included the elimination of public ‘monopolies’ created by state owned companies, any obstacles to the free flow of labour that might be created by exclusive national systems of occupational qualification, and any distortion of markets by state subsidies (i.e. by public sector investment in particular firms or industries) or by the contracting practices of local or national governments. The SEA also set the objective of a Single European Currency to ensure full transparency of pricing.

It was claimed that these objectives would maximise the size of markets, eliminate wasteful production and thereby increase growth and employment.

Indeed, the EU’s Cecchini Report (1988) promised that the completion of the Single European Market in 1992 would create up to five million extra jobs across the EU – though only if workers took advantage of the new freedoms to move to where the new jobs were.

In reality, however, the forecasts of extra growth and employment turned out to be hugely overblown. Economic growth was less than half the promised rate, while the number of jobs increased by just 1 per cent over the following decade. At the same time, the market free-for-all helped destroy millions of jobs in productive industry, many of them in Britain.

Unemployment as the new economic regulator The key but tacit assumption of the Single European Act (and in Britain of the Thatcher government) was that of neo-liberal economics: that unemployment would again become the basic regulator for the economy as it had been before 1945.

Britain and the EU. What next? | 7

During the post-war years European governments had intervened on Keynesian lines to boost demand whenever economic growth slackened. This produced three decades of high growth, full employment and mass consumer demand. It also secured a degree of income redistribution in favour of workers.

The provisions of the Stability and Growth Pact in the 1992 Maastricht Treaty put an end to such intervention.

Annual deficits had to be held below 3 per cent of GDP and overall National Debt to 60 per cent – far lower than during the post-war decades. The underlying assumptions were those of 1930s.. Unemployment should be allowed to rise unhindered. The economy would then rebalance itself automatically as wages fell and provided businesses with the incentive to reinvest.

Directives stemming from the Single European Act in the 1990s and 2000s required: H An end to the public ownership of basic utilities such as rail and road. transport, postal services, communications, energy and banks.

H An end to ‘state aid’ for industry.

H The introduction of compulsory competitive tendering in the public sector.

H An end to local government direct labour schemes.

H Introduction of private pension schemes.

H Ultimately, the opening of public services such as education and health to the private sector.

However, even on its own terms, the assumptions of the Single Market were fatally flawed.

The first flaw concerned free competition. In reality, production in the EU is not ‘free’ and competitive, but highly monopolised. Dominant producers are concentrated in a handful of core EU countries: industrial goods in Germany, Sweden, Austria and the Netherlands, utilities and luxury goods in France, financial services in Britain. The weaker economies of the southern and eastern Europe could not compete once their markets had been fully opened up. The Single Market simply meant further concentration of market control and ownership and, most dangerously, growing economic imbalances between different EU countries (see Table 1 below). The weaker economies became increasingly indebted.

The second flaw concerned banking and credit. The Stability and Growth Pact restricted public borrowing by governments. It did not control private sector lending and the creation of credit by banks.

In fact, the whole point of the Single European Act, at least for Britain, was to free up the operation of banking services. It wilfully ignored the fact that Europe’s economy was not just monopolised but was also becoming 8 | Britain and the EU. What next?

increasingly financialised. The privatisation of services, pensions and housing provision saw banking profits increasingly made through short-term speculative lending wherever risk – and therefore profits – were highest. Banks lent to the poor because the interest rates were higher – and they lent to the poorer countries in southern Europe for the same reason. And they did so at higher and higher rates of leverage – borrowing at lower rates from other banks.

The third false assumption concerned the nature of European labour markets.

These were not ‘flexible’, as assumed by the Single European Act, but among the most densely organised in the world. Collective bargaining agreements covered the great bulk of the labour force. So when unemployment rose, those still in work were generally able to defend their wages and conditions.

As a result the neo-liberal ‘recovery’ – through lower wages – did not happen.

Capital did not shift to the periphery. Nor did unemployed workers on the periphery move to the centre (or at least not on the scale that the neo-liberal model required).

Of the three false assumptions underpinning the Single Currency, EU leaders ignored the two concerning capital – both the monopolisation of production and the unlimited extension of speculative bank credit. Instead, they focused with increasing intensity on labour, labour mobility and what they described as the need to reform labour markets.

The chief measures have been introduced as follows: 2000: The Lisbon Programme.

Originating from a report commissioned by Tony Blair and the Italian Prime Minister D’Alema, it required governments to introduce National Reform Programmes which report on steps taken to create a ‘competitive’ and flexible labour market. These programmes have targeted benefit levels (‘disincentives to work’ in EU jargon), pension levels (‘sustainability’) and retirement ages (‘early exit from employment’). Britain’s current programme can be accessed at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/ 417890/UK_NRP_2015_final.pdf 2005: Updated Lisbon Programme.

This required annual reports on steps to secure competitive labour markets. In 2010, the programme was further updated as Europe 2020.

2006: Services Directive.

Covering over two-thirds of all EU employment, the directive sought both to open public services to private capital and, particularly, to enhance crossborder labour mobility. Companies were now permitted to employ workers in other member states at levels of pay and conditions below those which had been collectively bargained locally.

Britain and the EU. What next? | 9

2007-08 EU Court of Justice rulings: Viking, Laval, Ruffert, Luxemburg When workers sought to defend local employment standards by strike action, the European Court of Justice ruled that such action was in contravention of the ‘free movement’ prescriptions with the EU Treaty. The series of judgements in 2007-08 – Laval, Viking, Ruffert and Luxemburg – marked the first direct attack by the EU on the right of workers and national governments to take action against the super-exploitation of imported labour to undercut pay and terms and conditions of employment. The Viking and Laval judgements barred trade unionists from using collective action; the Ruffert and Luxemburg judgements barred regional and national governments from requiring the payment of locally collectively bargained wage rates.

2007: Green Paper on Modernising Labour Law. This set out guidelines for new contractual relations between workers and employers. These, it argued, should be individual and flexible. Collective bargaining and contracts that gave long-term security were, it claimed, excluding new workers from employment and directly responsible for rising unemployment. Instead, the new goal should be ‘flexicurity’. All workers, whether previously permanent or temporary, should have the same individual contracts combining flexible employment with a basic minimum of state provision when employment was terminated.

Meanwhile the imbalances within the EU economy increased. Table 1 shows the sharply deteriorating balance of trade between Germany and other EU economies over the 16 years immediately prior to the 2007-8 debt and banking crisis.

Table 1 Percentage increase in German imports and exports (by value) 1998-2006 based on euros at current value (selected countries) Country Percentage increase in Percentage increase German exports between in German imports 1998 and 2006 to from Greece 126 19 Ireland 120 15 Portugal 53 -2 Spain 123 56 Source: Eurostat, External and Intra European Union Trade: Statistical Yearbook 2008 edition: Table 5B The 2008 Crisis, austerity and the attack on democracy The inevitable crisis came in 2008-9. US banks speculating through the City of London in US housing debt went bust. Borrowing rates between banks in Europe shot up and banks in the debtor countries could no longer cover their borrowings – in Ireland, Greece, Portugal, the Baltic states, large parts of Eastern Europe and later Spain and Italy. The money was mainly owed to banks based in Germany, France and Britain.

10 | Britain and the EU. What next?

The response of the European Central Bank and the EU Commission was to make financial assistance conditional on these debts being guaranteed in full and transferred to the national governments of debtor countries. Ordinary people now had to underwrite the costs of repaying speculative private sector loans. The first instance was Ireland. The cost of the bank bailout from the ECB, the EU Commission and the IMF was €150 billion – more than the entire Irish GDP of €125 billion – placing Ireland far beyond the EU limit for public sector debt of 60 per cent of GDP. In consequence, Ireland was required to enter the Excess Deficit Programme and agree to mandatory cuts in wages, pensions, welfare payments and all areas of public spending. The same procedure was then followed elsewhere.

In November 2009 the European Commission gave a dozen EU member states including Britain just four years to reduce their annual deficits to 3 per cent of GDP. These savagely deflationary deficit programmes inevitably resulted in the failure of EU economies to recover. As output fell, so the relative sizes of deficits increased and so did the cost of servicing the bailout debts – pushing even more governments into financial difficulties. The outcome was the Eurozone crisis of 2011-12. Caught between unyielding markets and angry electorates, governments fell or were replaced – in Portugal, Greece, Spain, Ireland and Italy. In the case of Italy and Greece, caretaker governments were appointed with ‘technocrat’ leaders chosen by the European Commission. ‘Reform’ programmes of cuts and privatisations were then pursued with increased vigour.

This represented an unprecedented attack on the democratic integrity of member states and it was accompanied by a decisive move to consolidate the centralised power of the EU over national parliaments. In the wake of the crisis, the EU finally forced through the changes which had previously been blocked by democratic opposition within member states.

Back in 2004, the EU Commission had sought to secure an EU Constitution that drastically reduced the powers of elected national parliaments. The EU would have become a state entity in its own right with legal powers to override those of individual member states. These proposals were vigorously opposed by the trade union movement and defeated in referendums in France and the Netherlands in 2005. The referendums planned in six other member states, including Britain, were then called off.

Unabashed, the Commission and EU Council came forward in 2007 with the Treaty of Lisbon. As a treaty rather than a constitution, this did not require referendums across the EU – although it incorporated almost all the legal changes that had previously featured in the rejected Constitution. Only the people of Ireland were entitled to a referendum by their own constitution and Britain and the EU. What next? | 11

they voted No. A year later they were forced to vote again just after the financial crisis had struck. It was made clear that EU financial support would depend on a Yes vote. In these circumstances, Irish electors voted as they were told and the treaty became EU law at the end of 2009.

The Lisbon Treaty (now also known as the Constitutional Treaty) enables the EU Council to take binding decisions by qualified majority voting on virtually all matters apart from taxation and foreign policy. Previously, the individual member states, as represented on the EU Council, could exercise a veto on a wide range of issues. The new voting system, which came into full operation in 2014, enables countries with 65 per cent of the EU population to agree measures with binding force on all. At the same time the treaty also laid down new weights for voting which gives just five states with the biggest populations (Germany, France, Britain, Italy and Spain) over 63 per cent of the votes between them. The treaty’s prologue prioritises the legal status of competition over other rights including the right to strike.

In 2008, the British TUC annual conference voted for opposition to the Lisbon Treaty and warned that it would be used to undermine the democracy of national parliaments and attack trade union rights. Subsequent events have demonstrated the correctness of this judgement.

2011-12 saw the launch of a new EU Treaty for Stability, Coordination and Governance. This Fiscal Compact toughens the deflationary character of EU budgetary control still further. All 26 signatory states are obliged to run nondeficit budgets over the economic cycle and at no point allow the annual deficit on government spending to exceed 0.5 per cent of GDP. States with national debt in excess of 60 per cent of GDP are required to reduce it at a rate of 5 per cent a year. Legal provision is made to ’facilitate the adoption of measures under the excessive deficit procedure ... to encourage and, if necessary, compel the Member State concerned to reduce a deficit’. Member states are obliged to write these conditions into national legislation.

This latest Treaty was ratified on January 2. 2013, and its legal provisions are to be converted into EU law within five years. The first of these legal provisions was embodied in the Economic Governance Regulations which became law in May 2013: ‘By 15 October annually, each member state will have to submit its draft budget for the following year. If an examination of the draft budget reveals a serious non-compliance with the budgetary obligations laid down in the Stability and Growth Pact, the Commission will request a revised draft budget.’

Britain has to submit its annual National Reform Programme under the EU 2020 programme setting out measures to ensure that its deficit is reduced in line with EU guidelines. It is barred under Article 123 of the EU Treaty from allowing the Bank of England to buy government bonds in order to expand 12 | Britain and the EU. What next?

government funding. It is also bound by the 2010 European System of Accounting that stipulates the maximum proportion of public sector funding allowed for any infrastructure project not to be classified as public sector – a stipulation that recently overturned the Scottish Government’s Scottish Futures Trust. Again the EU seeks to squeeze down every aspect of public spending.

Britain’s current National Reform programme can be found at: https://www.gov.uk/government/publications/europe-2020-uk-national-reformprogramme-2015.

Why the European TUC condemned the Fiscal Compact The most recent EU legislation has therefore strengthened still further the Single Market’s founding assumption that unemployment must be the ultimate economic regulator. The usually pro-EU European Trades Union Congress puts it thus: Running as a red line through the programme of Economic Governance is the idea of turning wages into the main instrument of adjustment: currency devaluations (which are no longer possible inside the Euro Area) are to be replaced by a devaluation of pay in the form of deflationary wage cuts. To achieve this wage ‘flexibility’, labour market institutions which prevent wages from falling are perceived as being a ‘rigidity’ which should be eliminated.

The United Nations Trade and Development Report for 2012 was equally forthright. It condemned EU policies as penalising workers in the EU and also endangering recovery in the most impoverished countries elsewhere in the world. It sums up much of what is structurally wrong with the EU – and with the EU’s attempt to resolve its own capitalist crisis at the expense of working people and the rest of the world. It states that the European Union’s policy of unconditional austerity ‘is suffocating the return to sustainable economic growth’ and warns that ‘a further deterioration of economic conditions in Europe cannot be excluded’. It continues: An even greater problem for global recovery is Europe’s increasing dependence on exports. The whole region is, in effect, trying to export its way out of the crisis. This could exert an enormous drag on overall global growth and worsen the outlook for many developing countries.

The UN report then points out that rising fiscal deficits in Europe are but symptoms – not the root cause – of the Euro-zone crisis.

Underpinning the huge divergence of long-term interest rates in the Economic and Monetary Union (EMU) are the wide wage and price differentials and the related build-up of large regional trade imbalances among the members. These imbalances started to build up at the very juncture when the most important instrument to deal with such imbalances – namely changes in the exchange rate – was no longer available.

The UN report then condemns the very approach now being promoted across the EU: Britain and the EU. What next? | 13

Policymakers in developed countries, particularly in Europe, now appear to be pinning their hopes once again on ‘structural reforms’. However, those reforms are all too often coded language for labour market liberalization including wage cuts, a weakening of collective bargaining and greater wage differentiation across sectors and firms. The reasoning behind such a structural reform agenda is flawed because it is based on purely microeconomic considerations and ignores the macroeconomic dimension of labour markets and wage determination. A fixation on reforms of this kind can be dangerous in the current situation of rising unemployment and falling private demand. Moreover, asymmetric rebalancing that places the burden of adjustment solely on crisis-stricken current account deficit countries is bound to further undermine regional growth.

The outcome has been almost precisely as predicted by the UN in 2012. The EU economy as a whole remains in crisis. Overall growth remains minimal despite the reduction of interest rates by the European Central Bank to less than zero. But the economies of the developing world, after sustaining global growth for five years, have slowed very considerably and commodity prices have collapsed. In this way, the EU’s attempt to ‘export its way out of crisis’ has led to a still more protracted and potentially dangerous global crisis.

This, then, is the neo-liberal hard-wiring that lies at the heart of the EU’s structure. The EU’s constitutional framework requires unemployment to be used as the ultimate economic regulator – but, as in the 1930s, it does so in a regional economy dominated by the monopoly power of a few great companies and associated banks.

It should be stressed, however, that it is not ‘the EU’ itself that has somehow been the driving force for these developments. The EU is the creation of its member states and the dominant economic interests within them. This remains the case today. As in 1986, Germany’s giant industrial companies need the wider market of the EU and they need its labour to drive down costs. So do its immediate allies. At the same time, Britain’s City of London needs access to the EU’s banking system and savings to retain the presence of the US banks – while for the United States its presence in the EU through the City of London is essential for the continuing international dominance of the dollar.

Two figures can illustrate this. Table 2 below shows the economic disparities which exist within the EU between Germany and other nations. Table 3 shows just how far Britain is colonised by US capital compared with France and Germany.

The EU as a structure enables these competing interests to be accommodated – and then imposed politically on the peoples of Europe. But they are not ‘national’ interests. They are the interests of big business and the banks.

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2 Post-crisis economic performance: Germany and the rest Country

Percent change Unemployment Worker Worker in gross ďŹ xed 2012 Compensation Compensation capital investment as per cent of as per cent of 2008-2012 GDP 2008 GDP 2014 Britain -0.4 7.9 52.2 49.2 Germany +6.3 5.4 48.5 50.9 Italy -15.0 10.7 39.1 39.9 Greece -61.4 24.5 34.0 32.8 Spain -36.2 24.8 50.1 47.1 Portugal -35.0 15.8 46.8 44.2 Source: Eurostat http://ec.europa.eu/eurostat/tgm/refreshTableAction.do?tab=table&plugin=1&pcode=tec00013&lang 3 Stock of US Direct Investments in EU countries 2014 Country Total FDI $millions As per cent of host country’s GDP United Kingdom 587.9 22.8 Germany 115.5 3.1 France 76.8 2.9 Source: US Bureau of Economic Analysis: International Economic Accounts

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3

Social Europe: can it defend working people?

Jacques Delors, president of the EU Commission from 1984, launched his concept of a ‘Social Europe’ in parallel with the negotiation of the Single European Act. Delors, a European federalist and previously a minister in the Mitterand government in France, saw the European project endangered by political disenchantment with the intensified competition and unemployment arising from the Single European Act. His proposal for a Social Europe was presented as a way of preserving the social rights of labour in an increasingly neo-liberal environment. These rights themselves pre-dated the formation of the European Union and in most cases went back to the left and social-democratic governments elected in France, Britain, Germany and other western European countries from 1945 and reflected the strength exercised by trade union movements in the immediate post-war period.

It should also be noted that the legislative framework for employment, trade union, equal pay and health and safety at work rights in Britain had largely been achieved through a combination of industrial action by trade unions and parliamentary action by Labour MPs and governments. The EU played no part in securing any of these basic reforms (although it forced an amendment to improve the Equal Pay Act) – and did nothing to prevent Conservative governments eroding or repealing many of them from 1980 onwards.

Delors’ Social Europe sought to retain employment rights in a new way – principally through the creation of legal structures that enforced minimum standards of safety, working hours and contractual rights across Europe. This objective also matched other important objectives of French and German governments to ensure a ‘level playing field’ that preserved the competitive advantages of the European business model of capitalism against the development within an expanded EU of the largely non-union, flexible labour approach of the ‘Anglo-Saxon’ or US model.

In 1985, Delors spoke of the need to develop flanking policies to prevent ‘social dumping’ and the competitive lowering of standards. Subsequently he convened a meeting of ‘social partners’ – the European Trades Union Congress (ETUC) and the EU employers federation to launch a process which eventually produced the European Community’s Charter of Fundamental Social Rights, adopted at the Strasbourg meeting of the Council of Ministers in 1989 and which formed the basis for the Social Chapter within the Treaty of Maastricht (1992). This Treaty also mandated progress towards a European single currency.

In Britain, the Conservative government resisted the Social Chapter and secured opt outs from subsequent directives such as that on working hours.

Reflecting the interests of US investment banks based in the City of London, 16 | Britain and the EU. What next?

the Conservative government was also less than enthusiastic about a single currency and withdrew from the European Monetary Union in 1993 in order to retain the freedoms associated with sterling as a separate currency.

When the New Labour government of 1997 ended the Social Chapter optouts, this was caused by trade union pressure – not granted to workers in Britain by a benevolent EU. The same Blair government could equally have improved domestic employment and trade union legislation without reference to the EU, as it did when legislating for a national minimum wage, restoring trade union membership at GCHQ and extending rights to union recognition and to strike without risking immediate dismissal.

Some parts of Delors’ agenda for a Social Europe were implemented effectively. The most viable aspects tended to be those which were specific and finite. They included the Working Time Directive, TUPE (transfer of undertakings protection of employment), sex equality provisions (although wider pay differentials did not change) and health and safety provisions (limited to specific functions: wider health and safety legislation remained very variable across the EU). TUPE was essentially used to ease the privatisation of public services while the Working Time directive, as modified since, has been used to standardise hours at a higher level: 48 hours has increasingly been seen as standard – with subsequent amendments enabling even this to be exceeded if the average of 48 is maintained over a four month period. The collective bargaining rights of workers under TUPE have also been decisively limited by an EU Court of Justice ruling of July 18, 2013 (the Alemo-Herron case).

Nonetheless, these specific legal rights have been important and, at least for a period, had significant benefits.

By contrast, the more general arrangements for social dialogue and social partnership under the 1997 Amsterdam Treaty have had few practical results – particularly their workplace embodiment in European Works Councils (generalising existing German practice across the EU). The provisions for consultation and disclosure gave workers only meagre assistance in resisting the tide of factory closures that swept across Europe in the 1990s, in the wake of the Single Market reforms, while at the same time locking some workers into disabling partnership agreements with employers.

The key weakness of Delors’ perspective for a Social Europe was his social democratic faith in purely constitutional provisions and his failure to appreciate the importance of class organisation – that politics are determined by the relative balance of power between the opposing class forces of labour and capital. This balance swung decisively against labour during the ten years following the adoption of the Fundamental Charter of Social Rights and the Maastricht Treaty. There were four major reasons.

First, the Single European Act resulted in the privatisation of social provision and state owned industry in the old core of the EU. As a result, trade union Britain and the EU. What next? | 17

bargaining power was significantly lowered at a time when unemployment had, on average, increased by a quarter and causualised, part-time work by almost a third.

Second, the provisions for European Monetary Union introduced from 1992 were sharply deflationary. They contained the notorious provisions for limiting government borrowing which were later incorporated in the Stability and Growth Pact. Member states could no longer counter economic recession by boosting government spending and using the Keynesian intervention techniques that had helped maintain economic growth though the post-war period.

Third, the political dismantling of the socialist economies of the Soviet Union and Eastern Europe from 1989 onwards had a major impact on the cohesion of the Communist Left, previously very powerful in France, Italy and Spain, and consequentially on the character of European social democracy. In the course of the 1990s almost all European social democratic parties abandoned their commitment to progressive taxation, public ownership and economic planning and instead, to a greater or lesser degree, embraced neo-liberal perspectives.

Fourth and finally, the opening of Eastern Europe to capitalist investment and production placed major downward pressures on labour costs in the EU – as did intensified competition from the US where organised labour was much weaker and real wages had already begun to decline.

The combined results saw the influence of organised labour sharply reduced within the component nations of the EU – a loss politically reflected in the Lisbon Programme of 2000. In contrast to Delors’ agenda, it highlighted the need to increase labour market flexibility. The obstacles it identified were precisely what had previously been seen as key elements of the European social model: the legal strength of employment contracts, limits on working hours, pension arrangements that protected workers from poverty in retirement and unemployment benefits linked to previous income. From then on, these became the central target of EU regulatory attack – combining with the increased flow of labour within the EU, the provisions of the Services Directive and the rulings of the EU Court of Justice to limit the ability of trade unions and national or regional governments to insist on collectively bargained rates of pay.

Today, Article 153 the Treaty on the Functioning of the European Union expressly precludes any EU action to defend workers’ pay, trade union membership or the right to strike. Resistance to a new round of Tory antiunion and anti-strike laws will have to come from workers and their unions themselves – the EU will not be lifting a finger to help them.

What about the European Court of Human Rights? Doesn’t the ECHR still defend key principles of equality and social justice? It does. But it has nothing to 18 | Britain and the EU. What next?

do with the EU. It derives from the non-EU Council of Europe and its European Convention on Human Rights, jointly agreed between socialist and non-socialist states of Europe in 1950. Very considerable benefits have derived from the ECHR in terms of both equality legislation and trade union rights – where its judgements have usually been in stark contrast to those of the EU Court of Justice. This is because the EU Court of Justice and the EU Constitutional Treaty place the freedom of markets ahead of any collective or social rights and was why, in December 2014, the EU Court of Justice threw out proposals to accede to the European Convention on Human Rights. It did so on the grounds that the principles of the ECHR were incompatible with those of EU Treaty law.

Social Europe overwhelmed by the EU’s neo-liberal crisis measures The most authoritative assessment of the long-term effectiveness of the Social Charter comes from Bea Cantillon and Frank Vandenbrouke in Reconciling Work and Poverty Reduction: How successful are European welfare states?

(Oxford, 2014). Rather than looking at individual elements of the Social Charter, they examine overall results: how far measures to ensure minimum levels of income, employment security and social provision have actually reduced poverty differentials. For the pre-crisis period, they cite the EU’s own Social Protection Committee report of 2009. This found that across the enlarged EU, statutory measures had ‘largely failed’ to reduce poverty. For the post-crisis period, they find the picture to be ‘truly negative’ with poverty levels increasing within virtually all EU countries including those at the core of the EU such as Germany and France.

Other research by Jeffrey Sommers and Charles Woolfson, in The Contradictions of Austerity: The Socio-Economic Costs of the Neoliberal Baltic Model (Routledge 2014) examines in more detail the consequences of the EU reform programmes enforced after 2008. They find the provisions of the Social Charter to have decisively failed. The governments of the Baltic republics were required to enforce EU reform programmes involving an ‘internal devaluation’ of wages and conditions and the slashing of social spending. By 2012-13, wages were less than a quarter of those just across the sea in Sweden. Workplace rights and collective bargaining had all but disappeared and up to 30 per cent of employees worked within the hidden economy in which workers had no rights whatsoever. This was combined with a massive level of emigration among the skilled and educated. By 2013, 10 per cent of Latvia’s population had emigrated – representing up to a third of the entire skilled workforce.

For Greece, in Against the Troika: Crisis and Austerity in the Eurozone (Verso, 2015) Heiner Flassbeck and Costas Lapavitsas describe the devastation of the country’s welfare system with health spending slashed by a third and, according to UNICEF, half of all the households categorised as poor unable to supply adequate nutrition to their children.

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Possibly the most revealing evidence comes from the reports produced by the EU itself. Copied below is the 2015 EU Reform Programme for Portugal.

Though cloaked in the usual EU double-speak, it is clear that the EU imposed reform programme has resulted in a collapse in collective bargaining, cuts in benefits and pension entitlements and the casualisation of the workforce: To encourage job creation in open-ended contracts and address duality, severance payments for permanent contracts have been reduced, while the definition of fair dismissals has been eased. Working time has become more flexible to contain employment fluctuations over the cycle, accommodate differences in work patterns across sectors and firms better, and enhance firms’ competitiveness.

To facilitate wage adjustment, measures have been taken to increase scope for bargaining at firm level. Unemployment insurance benefits have been revised to increase incentives for a rapid return to work, while guaranteeing a sufficient level of protection and easing eligibility. Active labour market policies have been streamlined to make them more effective in supporting job creation, strengthening activation and providing more effective training opportunities . . . Three measures have been taken recently in the area of collective bargaining, but not all of them favour the alignment of wages and productivity at firm level. Law 55/2014, adopted on 25 August 2014, encompasses two measures. First, it reduces the survival of collective agreements that have expired and not been renewed; second, it introduces the possibility of temporarily suspending sectoral collective agreements at firm level.

The changes in the survival regime reduced the duration of collective agreements after their expiration from 18 months to one year. In addition, the law reduced from five to three years the time needed for a collective agreement that make its expiry depend on the existence of a new agreement to enter in a period of survival. A third recent additional legislative measure alters the criterion for extending collective agreements..

During the crisis collective bargaining has declined substantially.

The number of sectoral collective agreements fell from 172 in 2008 to 36 in 2012, while the number of extensions fell from 137 to 12 in the same period. Firm-level collective agreements also declined considerably.

The number of employees covered by collective agreements fell from almost 1.9 million in 2008 to some 225,000 in 2014. http://ec.europa.eu/europe2020/pdf/csr2015/cr2015_portugal_en.pdf

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4

Peace and internationalism

How far, then, can the EU’s wider international role be used to justify its existence - has it in fact maintained peace in Europe over the past 50 years? This is a powerful claim for a continent which saw two devastating wars in the first half of the 20th century as well as the rise of fascism.

On closer examination, however, It is a claim with very little foundation. For three reasons: l The EU’s founding institutions were created as Cold War instruments l Its international trade policy has been, and is, exploitative. l The EU’s neo-liberal structures have gravely undermined Europe’s mass social democratic parties. The resulting political vacuum has been increasingly filled by populist and in some cases extreme right-wing parties.

The Cold War Origins of the EU The European Union’s original institutions go back to the period immediately after the Second World War when the United States was seeking to stabilise Western Europe economically as a preliminary to the formation of NATO and the creation of a military bloc capable of defeating the Soviet Union. In 1947, the US-funded European Recovery Programme (ERP) was launched.

Conditions for membership included a commitment to free trade and the elimination of impediments to US imports and investment. Politically, they required the removal of Communist parties and their socialist allies from the Popular Front governments established in most European countries at the end of Nazi occupation.

In 1949, NATO was formed as the linchpin of US plans to exploit its temporary nuclear monopoly to militarily defeat and dismantle the Soviet Union – plans which also required massive conventional rearmament for which the reactivation of German heavy industry was deemed essential. French opposition was met by guaranteeing that this redevelopment was under the common control of a European Coal and Steel Community (ECSC). This was established in 1951. The next step was the creation of a European Defence Community to permit the full remobilisation of German armed forces. This, however, had to be abandoned after its defeat in the French parliament in 1954 by the combined votes of Gaullists and Communists.

The European Economic Community (EEC) was subsequently created by the Treaty of Rome in 1957. This brought together France, Germany, Italy, Belgium, the Netherlands and Luxemburg in a customs union. The same Treaty also created, as a separate institution, the European Atomic Energy Commission, Euratom. The three separate institutions, the ECSC, Euratom and the EEC, were formally merged by the Brussels Treaty of 1965The first President of the EU Commission from 1958 was Walter Hallstein, formerly a professor of law Britain and the EU. What next? | 21

under the Nazis who had played an active role in the nazification of the legal profession. Immediately after the war, he had been given a professorship at Georgetown University in Washington DC. Later, in 1955, as West Germany’s Secretary of State he enunciated the Cold War ‘Hallstein Doctrine’ – which refused diplomatic recognition to any state that recognised the German Democratic Republic.

The origins of the EU were not therefore particularly peaceful, but in fact based in preparations for nuclear war. Nor were its original members themselves role models for pacific international relations. France was involved deadly colonial wars in Algeria and Vietnam. The Netherlands, with support from the US and Britain, had been fighting a bloody rearguard action to hold on to its possessions in the Dutch East Indies and Belgium equally in Central Africa. The two other members were defeated fascist powers in which the US wielded disproportionate influence and did so in alliance with right-wing forces that had, in general, previously collaborated with the fascists. West Germany developed a massive spy agency, the Federal Intelligence Service, BND, to enforce the exclusion from public sector employment of left-wing sympathisers (the exclusions extended to employment in postal services, transport and every sector of education). This organisation was led by the former head of the Nazi military intelligence, Reinhard Gehlen, who remained its director until 1968.

In 1958, President Charles de Gaulle’s seizure of power in France resulted in a determined counter-attack against what was seen as US domination of EU institutions. De Gaulle saw the EEC as principally benefiting US multinationals in Europe that wanted the economies of scale which only a unified market could bring. Conversely, competition from these US plants was seen to be seriously damaging the less advanced national industries in Europe. De Gaulle called for a ‘Europe of the Nations’, pulled France out of NATO, put a hold on further economic integration in the EEC, successfully ensured Britain’s exclusion from the EEC as an US ally in 1961 and forced Hallstein’s resignation as President of the EU Commission in 1967. But De Gaulle was not a left-winger; he owed his elevation to power to right-wing forces in the army (and Algeria) and represented the interests of French national capital.

The EU cannot, therefore, be claimed as a force for peace. It was, in terms of its origins, a product of the Cold War and indeed of active preparations for nuclear war. If war was avoided, it was, on the contrary, because of the military balance of power achieved by the Soviet Union – particularly after it had been able to demonstrate its superiority in space and rocket technology in 1957. It was this balance, and the Soviet policy of peaceful co-existence, that maintained peace in Europe up until the end of the 1980s – even though, during the same period, the US and Britain waged devastating wars across previous colonial territories in Asia, Africa, the Middle East and, less systematically, in Latin America.

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Since the demise of the Soviet Union, Europe has again witnessed war – first in Yugoslavia and, more recently, in Ukraine. In 1991, it was Germany’s diplomatic and economic support for the separatist movements in Slovenia and Croatia that destabilised the federal structure of socialist Yugoslavia and precipitated the rise of nationalist politics in Serbia. Subsequent EU and US interventions, exploiting the excesses of Serb nationalism, led to the full break-up of the federation and the destruction of its still largely socialist division of labour. The 1999 NATO bombing campaign against Serbia itself, with very significant civilian casualties, was precipitated by the Rambouillet negotiations – in which Serbia was presented with an ultimatum not just requiring the annexation of Kosovo and the privatisation of public assets but also freedom for NATO troops to move at will across any part of Serbia.

In Ukraine, a key destabilising factor was the pressure for Ukraine’s associate membership of the EU in the run-up to the February 2014 coup which overthrew that country’s democratically elected president. Although the US and Germany pursued somewhat different agendas, the mobilisation of extreme nationalist and fascist forces in preparation for the coup had fatal consequences. Their subsequent dominance in the post-coup state apparatus, together with the EU agenda for privatisation, the elimination of state subsidies and the effective de-industrialisation of the eastern provinces, played a major role in precipitating a still unresolved civil war in which thousands have been killed and many more displaced.

Both episodes should again remind us of the neo-liberal economic logic of the EU. The EU needs to maximise the size of its market. It also needs to secure access to new sources of labour, particularly skilled and well-educated labour, and access to raw material and investment opportunities – needs which Peter Mandelson spelled out when Commissioner for Trade, in 2006 in the EU policy document Global Europe: More than ever, Europe needs to import to export; to trade in order to grow. Our supply chains are global. We need to be open so that we can insist on openness from others. In 2005, the renewed Lisbon strategy set out the steps we must take within the European Union to deliver growth and jobs. This internal agenda must be complemented with an external agenda for improving European competitiveness in the global economy.

Rejection of protectionism at home should be accompanied by activism in opening markets abroad.

Unequal international trade treaties and TTIP It is these neo-liberal principles that have directed the EU’s approach to external trade with developing countries, an approach which Oxfam has described as ‘aggressive’ in its drive to remove protection from local producers.

This has particularly been the case since 2003 when the developing countries, led by Brazil and China, frustrated attempts by the World Trade Organisation to impose detrimental free trade agreements on a global basis through the Britain and the EU. What next? | 23

Doha Round. Since then the big multinational companies have shifted their focus to the EU. Unlike the WTO, the EU Trade Directorate negotiates bilaterally, either with single countries or regional groups. It is therefore able to use the massive weight of its market power (60 per cent of Africa’s exports go to the EU) to ‘open up’ small under-developed economies. By doing so, it has been able to set precedents on issues such as privatisation that have directly undercut the Third World positions in the Doha talks.

Access to EU markets is made conditional on exactly the same terms as the EU’s Single Market: no government support for local firms, opening of all state provided services to competition, privatisation of state production companies, the free movement of capital and the opening of all resources to external investment. As Oxfam has pointed out, for developing countries state aid represents a key developmental tool. Once it is withdrawn, they face deindustrialisation and the loss of what few local industries they have. They also face the loss of control over their principal current assets, minerals and food production, as external companies are allowed to move in and buy them up.

War on Want’s EU Corporate Trade Agenda (2005) stresses the imbalance in power. Half the world’s largest transnational companies are based in the EU – not counting the US companies producing in Europe which are also key lobbyists through the EU Committee of American Chambers of Commerce and the Trans-Atlantic Business Dialogue. These companies are organised in the EU Round Table of Industrialists and they have actively used the Trade Commission to intervene in negotiations to press special interests, either directly or through sectoral trade organisations. Increasingly, too, pressure has been applied to open up publicly owned utilities and services such as water, energy, transport and telecommunications to EU companies, and to ensure access to land and water resources for EU agribusinesses at the expense of the water resources available for indigenous farming. It is precisely such pressures, and the resulting subsistence crises affecting North and Equatorial Africa, that have led so many people to seek to escape from hunger and starvation through migration into Europe.

Oxfam’s Partnership or Power Play (2008) describes how the EU threatened to end existing access agreements to EU markets to force a speedy conclusion to treaty negotiations in 2007 – imposing highly prejudicial conditions on countries such as Ghana, Namibia and the Ivory Coast. In 2009 Action Aid, Christian Aid and Oxfam issued a joint document along with War on Want’s Tackling EU Free Trade Agreements. It quotes the UN Conference on Trade and Development as condemning EU free trade agreements: they would ‘reduce or fully remove policy options and instruments available to a developing country to pursue its development objectives’.

Exactly the same principles underlie the Transatlantic Trade and Investment Treaty initiated in 2006 with the establishment of the Transatlantic Economic 24 | Britain and the EU. What next?

Council for Free Trade. TTIP, it should be stressed, is not something foisted on the EU by the US. It represents the joint interests of US and EU big business and is fully in line with previous EU trade initiatives. It is about the opening of markets to the biggest producers and minimising the scope for democratic institutions to intervene. It is a corporate power grab to erode the power of sovereign states, drive down labour rights and destroy health, safety and environmental standards.

Ever greater integration with NATO TTIP also reminds us of the close interconnection between international trade and power politics and the new more dangerous phase into which we now appear to be moving. Jointly with the Trans-Pacific Trade Agreement, TTIP will tie up over 65 per cent of world trade. An explicit objective is to impose trading conditions on non-members, notably China and its BRICS (Brazil, Russia, India, China, South Africa) allies, in a period when China is likely to emerge as a major challenger to the US. Militarily these trade treaties have been matched by the US’s ‘pivot to Asia’ – with a major strengthening of naval forces and troop numbers around China – and in Europe the advance of NATO bases to the borders of Russia from the Baltic States through Poland to Georgia and the Caucasus (see American Foreign Policy Interests, 2007/6 ‘The New Atlanticism: Broadening Horizons’) The EU’s own military programme was initiated with the formation of the European Battle Groups under the terms of the Amsterdam Treaty of 1997 which also created a High Representative for the EU’s Common and Security Policy. In 2004, EU defence ministers agreed detailed plans for a force of 60,000 which could be deployed outside the NATO sphere and would have naval (aircraft carriers and destroyers) and air support. This force is now operational. Since then there have been EU military missions in Bosnia, Moldova, Georgia, Guinea-Bissau, Somalia, Chad, Central African Republic and DR Congo.

In 2007 the Lisbon Treaty also set out the new obligations of member states to the EU Common Security and Defence Policy (CSDP) within Article 42: ‘Member states shall make civil and military capacity available to the Union for the implementation of the Common Security and Defence Policy. Member States shall undertake progressively to improve their military capabilities’ and ‘shall contribute to identifying and, where appropriate, implementing any measure needed to strengthen the industrial and technical base of the defence sector.’ There is also an enabling clause to permit the creation of a smaller group of member states with a higher level of military integration: ‘those member states whose military capabilities fulfil higher criteria and which have more binding commitments to one another .. shall establish permanent structured cooperation within the Union framework’.

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NATO and the US alliance remain integral: EU defence arrangements ‘shall respect the obligations of certain member states which see their Common Defence realised in the North Atlantic Treaty Organisation under the North Atlantic Treaty and be compatible with the common defence and security policy established within that framework’. These ‘certain member states’ now comprise the great majority of EU member states and in practice this clause means the full military integration of EU forces with those of NATO. In 2010, the Western European Union aligned with NATO was liquidated into the CSDP. Today we see some of the consequences of these EU policies. From Iraq, Syria, Afghanistan and also from Central and North Africa hundreds of thousands of refugees are fleeing war, famine and economic dislocation – in significant part the consequence of the EU trade policies condemned by the United Nations and direct military interventions by EU countries.

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5

The changing political balance within the European Union

Supporters of the EU argue that such collective security arrangements are essential in today’s world. EU countries face direct threats from enemies such as the self-styled ‘Islamic State’ (ISIS). In the longer run, they say, countries such as China and Russia have economic interests that will challenge those of Europe. And, moreover, these collective EU structures enable a restraining hand to be exercised on the sometimes over-hasty responses of the US. These arguments, though superficially plausible, are dangerously flawed for three reasons: l Most people in the Middle East and Africa see European countries as colonial powers and view EU economic policy as continuing the exercise of this imperialist domination. EU military intervention plays directly into the hands of those seeking to win support for obscurantist and reactionary ideologies like that of ISIS. l Movements opposing war do so most effectively when their campaigning is focused on directly elected national governments. ‘Collective security’ at EUNATO level insulates war preparations from these pressures. l Most worrying of all, the political balance within the EU is tilting to the Right.

The EU’s imposition of neo-liberal policy is fast eroding the mass base of social democracy – with the vacuum being filled mostly by the Right and the extreme Right.

This final point is an important one not just for the future direction of the EU. It is also crucial for understanding the challenges facing the labour movement in Britain and for this reason it is worth taking stock of these developments in a little more detail.

The six biggest EU countries (controlling over two thirds of the votes in the Council of Ministers) are: Germany 81 million; France 67 million; Britain 65 million; Italy 60 million; Spain 46 million; Poland 38 million.

The most recent elections show the Right to be increasing its support and social democrats fading – sometimes alarmingly. In Germany in 2013 the dominant party was CDU-CSU with 33.3 per cent of the vote. The Social Democrats were reduced to 23 per cent. In the 2015 French regional elections, the Socialists collapsed to 23 per cent in the first round - with the National Front securing 27 per cent and the conservatives 26 per cent. In Britain in 2014, the Conservatives secured 36 per cent and Labour 30 per cent – with UKIP the next highest being with 12.9 per cent. In Italy in 2012, the centrist ex-social democratic Democrats gained 29 per cent, the Right 29 per cent and the maverick populist Five Star 25 per cent. In Spain in 2015, the Conservatives gained 29 per cent, the Social Democrats fell to 22 per cent, the Left populist Podemos secured 20 per cent and the centrist Citizens party 16 Britain and the EU. What next? | 27

per cent. In Poland in 2015, the social democrats were all but wiped out and the right-wing parties combined (including the far right populist Kukiz) secured just under 70 per cent. Elsewhere, and particularly in countries were social democratic parties had previously been strong, extreme right-wing (and some cases openly fascist) parties have secured a mass base: Denmark (People’s Party) 21 per cent, Austria (Freedom) 20 per cent, Belgium (Flemish Alliance) 20 per cent, Hungary (Jobbik) 20 per cent, Finland (Finns Party) 16 per cent, Sweden (Swedish Democrats) 13 per cent and Netherlands (Freedom) 8 per cent.

Three conclusions would seem to flow from this. First, that within the current structures of the EU there seems no immediate or medium-term prospect of the two-thirds majority required to reverse neo-liberal treaty provisions in the Council of Ministers. Second, that social democratic parties, if they remain locked within the EU’s neo-liberal policies, will continue to lose their mass base and that significant numbers of working class voters will defect to right-wing populist parties. Left-wing populist parties such as Podemos, Syriza and Five Star may continue to emerge but they are not politically stable. They tend to depend on charismatic individuals and lack coherent policies – usually trying to combine opposition to austerity with continued EU and Eurozone membership. They are not based in the organised working class movement – nor do they seek to organise such class movements.

Politically, therefore, the EU seems poised to move towards more entrenched right-wing positions both domestically and internationally, rather than shifting in an anti-neo-liberal direction.

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6

Is there a viable progressive alternative outside the EU?

Many people are held back from supporting Britain’s withdrawal from the EU by fear of the unknown, the belief that Britain would somehow be isolated economically and politically and that major job losses would result.

Would leaving the EU lock Britain out of EU markets?

The biggest concern of most trade unionists is that British goods and services will be locked out of EU markets. Cameron claims that up to three million manufacturing jobs would be lost, externally-based companies would move elsewhere and foreign investment in Britain would cease.

Three points need to be made here. First, it is not necessary to be a member of the EU to trade successfully with it. The US, Japan, Russia and China, to name but four, are very major direct exporters into the EU who are not bound by EU regulations. Second, the EU would have every reason to want to negotiate a ‘most favoured nation’ trade treaty with Britain to safeguard its own exports to Britain. In 2014, EU countries exported goods and services to Britain worth £299 billion; Britain exported £243 billions’ worth to other EU countries – an overall deficit in favour of the rest of the EU of £56 billion. The balance in favour of particular EU countries for 2015 is shown in Table 5.

TABLE 4 Balance Table on trade in goods and services in 2014 Country

Balance on trade in goods Balance as per cent of total value and services with Britain of imports from specified country Germany £27.2 billions 38.6 per cent France £6.4 bn.

17.2 Italy £5.3 bn 24.5 Spain £11.5 bn.

44.2 Source: UK Government Pink Book 2015: http://www.ons.gov.uk/ons/datasets-and-tables/dataselector.html?dataset=pb EU exporters would therefore want to maintain existing terms of trade. And it should additionally be remembered that the fastest area of growth in Britain’s exports over the past decade has been outside the EU – which now takes half of the total.

The third point is more basic. Britain’s manufacturing has been shrinking disproportionately over the past three decades. Today it represents less than 10 per cent of GDP and levels of productivity, business investment and research and development are all much lower than those of Britain’s major trading competitors.

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TABLE 5

TheTABLE Loss of manufacturing

Year Manufacturing jobs Per cent of workforce Per cent Gross Value Added 1982 5.5 million 22 per cent n.a.

2002 3.6 12 12 2012 2.5 8 9.9 2015 2.6 8 9.7 House of Commons Research paper, Manufacturing: statistics and policy, Number 01942, 6 August 2015 To a very significant degree this results from that deal struck in 1986 by which Germany got access to EU-wide industrial markets and the City of London to EU financial markets. Since then British financial policy has been run to suit the bankers with sterling usually over-valued to the detriment of manufactured exports. Any attempt to develop coherent policies for industrial development has been abandoned. Ownership of major companies has increasingly been taken over by City of London-based investment banks looking for very shortterm profit returns and absolutely no commitment to particular localities or communities. They shift production to wherever profits are highest and labour cheapest. As EU ‘reform programmes’ have forced down wages and eliminated collective bargaining across much of Eastern and Southern Europe, factories have closed, jobs been exported and once thriving regional economies have been hollowed out and emptied of the skills, professional services and supply companies needed to attract new investment.

The latest closures in the steel industry provide a vivid example. Steel is a basic ingredient for any manufacturing economy and Britain was once a world leader.

Now the few last remaining plants are being closed. The EU bar on state aid prevented any financial help and also precluded public ownership. A key cost factor affecting the price of British steel was the price for energy charged by our privatised energy companies. Again EU competition rules precluded any intervention.

So, far from guaranteeing jobs, EU membership has already led to the loss of hundreds of thousands – and will continue to do so as long Britain remains a member.

Can a Left agenda be won?

This brings us to the more fundamental political questions about the alternative. If Britain voted to leave the EU, who would dominate the country politically, the Left or the Right?

The first point to be made here is that a popular vote to leave would deal a major blow to big business and its main political representatives in Britain and the EU. It would almost certainly bring down Cameron’s Conservative 30 | Britain and the EU. What next?

government. The extent to which the labour movement and the Left might benefit politically, in immediate terms, would depend upon the role that trade unionists, socialists and communists had played in the referendum campaign, and their responses to the referendum result.

If the Left and labour movement have campaigned to expose the class character of the EU and British ruling class support for it, they can press home their advantage, fighting for a new government.

Outside the EU, Britain would potentially be able to enjoy the potential freedom to adopt the economic policies it needs. It would be liberated from the prohibitions on state aid, public ownership and active policies for industrial growth. The government would be free to democratise the economy and start to undo the pernicious financialisation that has stifled and distorted all sectors of industry. It could take pensions back within the public sector, direct the movement of capital, control imports and invest in production and services. It would be able to borrow to invest in infrastructure and educational provision and scrap currently wasteful expenditure on nuclear weapons. EU Court of Justice restrictions on collective bargaining and against wage equality for imported workers would no longer apply and it would be possible to rebuild solidarity for all workers wherever they are from.

But for this to happen there would need to be a Left majority in the Westminster parliament – supporting the kind of policies currently being developed by the Corbyn leadership of the Labour Party.

This is why it is so important that the trade union and labour movement leads the campaign and sets its own progressive agenda, one of unity and solidarity – and does so in the awareness that whatever happens, politics will change.

Whether Cameron wins or loses the referendum, major divisions will open up within the Conservative Party. If Cameron loses the referendum, there will inevitably be challenges to his leadership and, with a majority of only 12, it is highly likely that he will face votes of confidence triggering an early General Election. Such an election, with the Tory Party at war with itself, represents a major opportunity for the Labour Party. But it can only be seized if the labour movement has already waged a positive campaign for progressive social and economic change outside the EU, one that can inspire a popular movement to isolate and defeat racism and chauvinism. Without such a campaign, there are grave dangers.

What are the key requirements for Left advance?

First, in terms of outcome, Britain and its democratically elected governments in London, Scotland and Wales must be fully free from all EU regulations.

Britain should use the size of its economy, the fifth biggest in the world, to bargain trade terms that do not restrict the democratic freedom of its government and also leave Britain outside TTIP. This means being outside the Britain and the EU. What next? | 31

European Free Trade Association (EFTA) and trading on the same terms as the US, Japan, China or Russia.

Second, the government should win a mandate for the democratic restructuring of the economy as outlined above. Savings should be in the hands of public sector banks, responsible to parliament, and able to invest these savings in the development of the economy. There should be an end to the crazy policy of a privatised Bank of England printing money that simply goes into further banking speculation. Many of the detailed policy proposals required for a progressive programme are already detailed in the People’s Charter as carried forward by the People’s Assembly and its People’s Manifesto, supported by the wider trade union movement.

However, the most important element for a Left agenda must be the creation of a mass movement committed to Left policies and which is able to redevelop the level of support for progressive and socialist change such as that seen in the 1940s and the 1970s. This means the redevelopment of class politics in the broadest sense. The trade union and labour movement must be at its heart, mobilising social and civic movements. But it must also be able to project its perspective for growth as fully ‘national’ to meet the needs of the small and medium businesses and service providers currently themselves exploited by the big monopoly concerns and skinned by the banks. And it must also proactively organise all working people – including those on the margins of the labour market and those bringing new skills to Britain as refugees and immigrants. It must finally identify the class enemy – the very small class of financial speculators who currently dominate our country, who seek to use fear, hatred and racism to divide and weaken working people and who are using the institutions of the EU and NATO to maintain their rule over both us and the rest of the world to boost their profits to obscene levels.

The victory of such an agenda would not just transform life in Britain. It would also help begin the process of political transformation in Europe – opening the prospect of wider political alliances as working people in other countries liberate themselves from rule by big business and the denial of their democracy.

Answering the questions This pamphlet began by listing the questions which are commonly asked about EU withdrawal. We can now attempt to summarise the answers: Does ‘Social Europe’ still deliver benefits?

Yes, a few. But they are minimal compared with the damage being done to welfare spending, pensions, benefits and public services across the EU and above all to workers’ rights and collective bargaining – always the ultimate determinant of how far working people are protected. These attacks are not accidental, but derive from the basic architecture of the EU. 32 | Britain and the EU. What next?

Is the EU a force for peace and political stability in Europe and the wider world?

No, it is not. In origin the EU was a direct product of US military planning in the Cold War. If peace was maintained then, it was because of the balance of power secured by the Soviet Union and its policy of peaceful co-existence. The original EU members were colonial powers fighting lethal colonial wars. Since then the EU and EU member states have been involved in military actions that have been gravely destabilising – in Yugoslavia, Afghanistan, Iraq, Libya and Syria.

The EU is an economic bloc driven by the need for markets and cheap labour.

Its trade policies and military interventions over the past two decades have been directly responsible for the humanitarian crises we now face across the Mediterranean and in Ukraine.

Would leaving deprive Britain of key markets and bring major job losses?

No, it would not. Japan, US, Russia and China all export massively into the EU and are not bound by EU regulations. EU countries, particularly Germany, have a massive trade surplus with Britain. There is no way they would want Britain ‘excluded’. Cameron’s ‘three million job losses’ – every single job sustained by EU trade – is a fantasy figure that simply exposes the poverty of his case. In fact, the reverse is true. Tens of thousands of job losses will result if we continue to be banned from providing state aid and developing an active industrial policy. As for the threats by some big monopolies to quit Britain if we leave the EU - we’ve heard it before, when companies said they would go if Britain didn’t adopt the euro.

Would there be any substantial economic and political gains from leaving – and wouldn’t EU trade rules still apply?

Yes, there would be benefits. EU rules would not apply if Britain was not in EFTA and traded on the same basis as Japan, US or China. Britain’s economy is much bigger than those of Norway and Switzerland and much less dependent on EU trade. Britain would be free to redevelop the public ownership of utilities and implement an active industrial policy without which many of our remaining jobs WILL be lost. More important still, Britain and its constituent nations would be free of EU austerity rules and the drive to erode the collective rights of labour.

Free from EU financial shackles, the British, Scottish and Welsh governments could finance public investment and infrastructure programmes by selling their bonds to the central bank – a form of people’s ‘Quantitative Easing’ explicitly outlawed by Article 123 of the Treaty on the Functioning of the European Union.

Without such freedom, no progressive Labour government could implement its policies – leading to precisely the same demoralisation and growth in rightwing populism we witnessed under New Labour.

Britain and the EU. What next? | 33

Hasn’t the Left in the EU the potential to change the EU from the inside?

No, it hasn’t. The electoral figures don’t add up. Across the EU, pro-business neo-liberal centrist parties, together with right-wing authoritarian parties, dominate electorally. But far more significantly, EU rules and treaties themselves mean that even if a Left party comes to office, such as Syriza in Greece, it cannot implement its programme. The EU is bound by Treaty terms that are themselves neo-liberal, preclude interventions in the market in favour of working people, and these cannot be changed without Treaty change itself.

These Treaty provisions provide the legal framework for EU law and for the operations of its European Central Bank – and they kill Left politics.

How far can the EU ‘save us’ from the worst aspects of TTIP? It hasn’t and it won’t. TTIP is as much the product of EU big business as it is of the US. The EU parliament has ‘suggested’ only cosmetic changes. It was not even allowed to see the working text of the treaty. It is the EU Commission that has the sole responsibility for negotiation. Inside the EU, there will be no escape from its terms. Outside the EU, Britain could negotiate mutually beneficial treaties with trading partners around the world, while also regaining its own independent place in bodies such as the World Trade Organisation.

For working people there are, in fact, no good reasons for staying in the EU and every reason for leaving. This is not so for big business and banking and for the global politics of the US. But for the trade union and labour movement, EU membership is a trap. This is why it is so important that a clear progressive case is put for regaining our full democratic rights - rights to implement policies that can win democratic control of the economy and secure solidarity and collectivism for all working people whatever their origin and ethnicity.

34 | Britain and the EU. What next?

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