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Coronabonds and the end of the EU

2020-04-08 | EU

Today's headlines report that the Eurogroup meeting was called off last night after the French finance minister, Bruno Lemaire, said to his Dutch counterpart: «"Stop this circus! It's a disgrace!". At the heart of it all lies the Eurobond fight, purely a matter of survival for several national capitals at a time when the ECB is telling governments that they have to increase spending by at least EUR 1.5 trillion. The EU is moving from tension to rupture and the North-South axis, which divides member countries by degree of capitalization and export capacity, is beginning to show signs of generating more than just negotiating alliances.

Towards a break-up of the EU?

Merkel, surrounded by German troops.

This happens because the epidemic is accelerating the development of all internal imperialist conflicts. The immediate impact of Covid on national capital is already beginning to be quantified: France suffered the largest drop in quarterly GDP since the 1968 strikes, by 6%, Germany is already predicting a 4.2% drop in GDP by 2020, and Spain would reach 9% and have four million more unemployed.

With that scenario and Brussels at a standstill, the ideology-making machine could not wait. "Franxit" or the «"Spexit" are not openly proposed, but in France the calls to "recover our lost sovereignty" and delimiting critical sectors, more or less state-owned, in order to gain production capacity in the territory are returning -and not from the "populist" fringes. In Spain, Sánchez's advisors compare Eurobonds to German war debts and the current negotiations to a new Versailles Treaty. The comparison is not innocent and links to the message, which the president repeats in each hearing, that the EU was born to avoid wars on the continent.

They are not threatening the Netherlands or Germany with military action, they are telling them that with their resistance to Eurobonds they are feeding what precisely the EEC and the EU sought to avoid: the contradictions between European capitals developing to a point that would end up putting the states to the north and south of the Rhine in opposite blocks.

González, the last politically active figure from the era of Mitterrand, Kohl and Thatcher, reminded them that they were "putting themselves in danger" by encouraging a new wave of nationalist petty-bourgeois revolts throughout the continent, which would end in a "return to irredentism and the loss of common values", that is, the decomposition and definitive break-up of the common market that is the basis of German exports.

And following González's line, the few more or less sound theoreticians of the petty bourgeois revolt are already sketching out a renationalization programme, recalling Sánchez, Podemos and Vox as well as Italy, that they cannot put up effective resistance in the negotiations with Germany if they do not at the very least pose a credible threat of an exit from the euro.

What Covid is changing

Angela Merkel presents the Charlemagne Prize to Emmanuel Macron, surrounded by imperial "Europeanist" symbolism. It was May 2018. And it is so remote today...

The basic point is that the EEC first and the EU later created a single market, but only occasionally did the big European capitals merge. That is why there is not a glimmer of European nationhood, let alone pan-European nationalism. The interests of national capitals are still different yet constrained by a market that is too important for them to abandon and a currency that is too expensive to abandon in financial terms to be worth even hinting at. Or at least that was the case until now.

The current recession puts the EU on the hook because the amounts of debt that governments are going to accumulate are so large that if there were no Eurobonds, the financing costs of the states would end up being so high that they would turn the state's accounts into a massive weight on national capital. A new - and foreseeably long - era of "cutbacks" and "austerity" would curtail the recovery of companies, and what is even worse for national capital, would endanger the banks and the entire financial system by devaluing their assets while delinquencies rise.

Gross income per person in Greece compared with EU-25 average.

The traditional solution to situations of over-indebtedness of this magnitude has been currency devaluation . Spain devalued its currency nine times before joining the European Monetary System, which served as a springboard for the euro. Devaluation not only generates competitive advantages in foreign markets and restricts imports, it also reduces the total amount of debt when issued in the local currency itself and translated into foreign currency. But within the EU the monetary sovereignty of states is ceded. Devaluation is impossible. The only way out is debt cancellation. And what this means was well seen in Greece: the establishment of a protectorate (the "troika") in charge of distributing the treasures of Greek capital among its main debtors ("privatizations") and obtaining payment of most of the principal in exchange for a cancellation and a ... refinancing. The result: a devaluation of national capital accompanied by a social crisis. Not that the latter matters too much to the bourgeoisie in itself, but its consequences, social instability, do matter.

Striking workers demonstrating in Athens in 2019.

And the threat is real. From both things. Because what national capital is not going to give up under any circumstances is the transfer of income from labor it requires to "recover" from the crisis. We only need to listen to the Spanish car industry today : after having put 350,000 workers out of work through temporary layoffs, they are calling for more "flexibility" (=precarization) and... direct government aid. In other words, state debt. They are not the only ones doing so and it is certainly happening not only in Spain. The attack on living and working conditions is at the top of the agenda. The massive and worldwide wave of Covid strikes warns them that if they want to avoid social conflict they have to gauge the attacks and seek, at least, forms of relief to distribute the attacks over time. But there they are once again faced with the difficulties of funding.

So, the accounts are no longer summing up for Italy, Spain, Ireland, Greece or Portugal. They don't even balance well for France. Their national capitals are beginning to see that the cost of access to the European market may be greater than the cost of exiting the common currency. Especially in the long term. That is why, even if an agreement on debt mutualization were reached today or in the next few days, what would follow would be a struggle to change rules, protect national sector-based markets and reduce the interdependence among national bourgeoisies. And so the EU would also dry up and the old reactionary dream of the United States of Europe would come to an end, not with a bang but with a whimper.