European currency debacle: Systemic expression of capitalism's crisis

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SOCIALIST ACTIO OCTOBER 1992 13 The European currency crisis may seem to most working people to be one of those things that titilates people who read the financial pages but leaves the rest of us cold. What's the big deal about the sudden rise or fall of a few cents in value of the currencies of European countries?

For most of us, it's as meaningful as the rise or fall in the prime interest rate. Unfortunately, however, like these other things, its effects on us can be very real-often making the difference between keeping a job (if we have one) or losing it.

What is the European Monetary System (EMS), which by all accounts has been dealt such a serious blow by the devaluation of the Spanish peseta, the Italian lira, and the British pound? And what are the real forces behind the current crisis?

The EMS is an agreement by nations participating in the European Economic Community (EEC) to maintain the relative values of their currencies within an agreedon margin in which their currencies may fluctuate in value. Thus, so many British pounds are worth so many marks, or pesetas, or lira-and if the agreement holds, currencies within their assigned ranges in the EMS remain stablized.

Such a stable system is desired by all capitalists so that each manufacturer can judge before investing in a new round of commodity production whether the goods that might be profitably produced in their own country can sell at competitive prices in other countries participating in the EEC. If they are surprised by a sudden change in relative currency values, it could mean losses leading to bankruptcy.

Stable currency is crucial The importance of a stable value ratio between currencies can be better appreciated when one is aware that the problem for capitalists is knowing in advance whether or not the things they produce are likely to arrive in the market place at competitive prices or not. (The time lag may be as much as six months or more between when production begins and when the products reach targeted markets.)

A mistake in judgment could mean a large proportion of products that will sell below their value or not be sold at all. That could be financially fatal.

A larger-or smaller—degree of this unpredictability is intrinsic to capitalist production. Hundreds or thousands of independent capitalist manufacturers cannot predict with any degree of certainty the total number of comparable and competing commodities that will reach the markets at the end of any given cycle of production.

If these independent capitalist producers—each estimating and making independent decisions on the quantity they will make of a product-overestimate expected demand and produce more than the market can absorb, then the price will tend to fall in direct proportion to the degree of overproduction, and vice versa. Such anarchy is inherent in capitalist production.

Despite some objective criteria by which capitalists may make a more or less close estimate of future market conditions-for example, how well the market is absorbing a given commodity-conditions can be changed by a variety of factors with dramatic suddenness.

The difficulty of accurate prediction for a local market is multiplied when deciding the scale of production for international markets. However, calculations on the future state of supply and demand in domestic markets for given commodities are more predictable, among other things, because a nation's currency serves as a more dependable measure of value within national borders.

But in the modern world, where paper has replaced gold and silver money, no one can tell for sure how much a nation's currency is really worth.

A coined ounce of gold or silver or copper is virtually immune to tampering (devaluing or overvaluing) by goverments and bankers. But the values of paper currencies-especially when not freely exchangeable for gold and silver, as is the norm today—are notoriously subject to tampering. These currencies can quickly and catastrophically collapse in value.

The European Monetary System was conceived as a hoped-for transitory step toward establishing a single currency for all nations participating in the EEC-and ultimately for most of Europe. This, in turn, is seen as a possible step toward a single European state; a sort of United States of Europe.

If such a unification of European states could be realized-or even just the achievement of a common currency-it could facilitate a new expansion of production inside a common European market (the EEC).

Moreover, a successful establishment of a European Currency Unit (ECU) would accelerate the rate of competition in the expanded common market. Many more inefficient producers, in an EEC tied together by a common currency, would tend to be forced out of business with the victors gaining a larger share of the market.

Furthermore, the rise in productive efficiency in the EEC would make its capitalists more effective competitors in the world market places against all other capitalists (the United States and Japan)intensifying competition on the world scale. However, the short-term effect could be an expansion in economic activity and gross profits.

The role of Germany The main beneficiary of the hoped-for gains of an expanded European market would be the German capitalists, whose already more efficient and competitive productive forces can quickly take advantage of the large-scale economy coming with an expanded European market. This advantage would also serve to make it a much more potent competitor on the world market against the world's other two capitalist powerhouses in Japan and the United States.

Japan is in the process of unifying the markets in its Asian spheres of influence, as is U.S. capitalism, with its project of unifying the markets of North Americaall in the course of preparation for a coming economic battle-royal between the three main contenders for economic supremacy.

(The underdeveloped world's markets have long since been conquered by the major imperialist powers and have little to say about terms of trade in each of the imperialist spheres of influence.)

To accomplish a common market in Europe—not to mention the far more difficult task of achieving unification of Europe into a single superstate—a United (capitalist) States of Europe-is easier said than done. The outbreak of Europe's currency crisis starkly illuminates the dynamic standing in the way of economic unification of Europe, not to mention unifying politically and militarily.

Last month, we noted that the Germans, the main force driving Western Europe toward the EEC, have been forced to risk destabilizing all of Europe by following a financial policy which runs counter to the needs of the rest of the EEC.

World capitalism is experiencing the most severe recession since it was stabilized in the early 1950s. While the rest of Europe desperately needs measures that could spark their slumping economies-such as sharply lowered interest rates-the German central bank, the Bundesbank, has kept interest rates high to fight inflation and to continue to attract badly needed capital for financing the extraordinary costs of German unification (as much as $100 billion every year until the end of the 20th century).

The episode culminating in the devaluation of the pound, and British withdrawal from the European Rate Mechanism, illustrates what stands in the way of capitalist cooperation needed to serve their common interests. Because each class of capitalists is in control over the commanding economic and political heights within its borders, each uses its govermental and state apparatus to effect a range of economic, financial and monetary policies in its own immediate interests.

Consequently, these separate states, which each national capitalist class must use to effect policies serving their interests, constitutes a centrifugal force capable of disrupting their efforts to unite in defense of common overall interests.

Speculation runs rampant

Compounding the problem is the fact that a convincing case can't be made for either one of the two courses of action required to fight inflation in Germany or recession in all of Europe.

Inflation in Germany, if allowed to run its course, could throw that country into a deeper recession, and tip all of Europe-and maybe the world-into a crisis worse than the great depression of the 1930s. Or the recession can tumble out of control and land the world in another 1929. Either way, this depression will be worse because world capitalism has been sinking into a mountain of debt, the likes of which has never before been seen.

This debt, which continues to mount even in periods of relative economic expansion, is destined to drown world capitalism in a sea of increasingly worthless paper currencies.

Adding further to the woes of the world's guardians of monetary stability was the successful assault on the pound by currency speculators. In the days just before its Sept. 16 collapse, currency speculators, seeing that some of the weaker economies in the EEC were under great pressure to devalue their currencies, rushed in for the kill. This led to a massive transfer of capital from pounds to marks. And when the German central bank, the Bundesbank, stubbornly refused to take measures to stop the stampede from the pound to the mark, the hordes of speculators, tasting blood, swamped efforts by Britain to support the value of its currency unit. The collapse of the pound gained speculators massive profits in a matter of days.

But most important, the world's "responsible" capitalist economists have learned to their dismay that the amounts of currencies traded in a single day can reach a trillion dollars-not much less than the amounts of cash at the disposal of the world's central banks needed to support currencies under speculator-attack.

As of this writing, the French franc appears to have been targeted by speculators. Even though the experts believe that the French economy is relatively sound and its currency is not overvalued, they wonder out loud if the central banks have the wherewithal to defend the franc against a sustained speculator drive to force down its relative value.

This, they say, is something new, arising from the revolution in technology that has made possible instant electronic transfers of huge amounts of capital from one currency to another.

But who are these "speculators?" The ones causing the most damage are not the legions of relatively small-time capitalist hustlers. They are the very same forces who have the most to lose if monetary stability is wrecked by their speculation.

Among those driven by the profit motive to assault the ramparts of their own system are to be found none other than the biggest capitalist financial institutions—who are unable to resist the temptation to make a quick buck.

Economic crisis is deepening The first thing that needs to be said is that the monetary crisis is only one aspect of a developing generalized crisis of world capitalism. Secondly, it is in large part a result of the entirely unexpected difficulties encountered by world capitalism in their currently unsuccessful attempts to cash in on the "collapse of communism."

But the far deeper cause is the strategy followed for half a century by world capitalism to forestall a repeat of the deadly crisis which almost swallowed up world capitalism in the 1930s—and precipitated the horror of World War I.

Keynesian deficit financing, which has allowed systematic budget deficits and arms spending to be used to "regulate" the boom-bust cycles of capitalist production, didn't come without a very heavy price tag. While capitalism bought nearly half a century of relative stability, the impending catastrophe is essentially history foreclosing on the Keynesian mortgage.

But who will pay the mammoth cost of half a century of "buy now, pay later"? The American capitalist class knew a day of reckoning was inevitable. So they began to make the American working class pay the price almost 25 years ago when the assault on living standards was launched.

But even though it now takes two breadwinners to maintain a lifestyle that only one wage-earner could support in 1968, the more drastic cuts in living standards capitalists must impose on us will lead inexorably to an explosion of resistance that will shake the world.

Now the German, French, Swedish, and other sections of the European working class, which have not yet experienced a major assault on their living standards, will also be pressed to pay for the unpaid bills piled up by their own ruling classes.

But an abrupt shift from relatively benign class relationships to a sharp and rapid reduction in European workers' living standards is likely to provoke explosive resistance very early in the game.

Such an explosion, undoubtedly, will have an effect on the consciousness of American, British, and Eastern European workers.

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Fourth Internationalist FIT's dissolution ist League.

The Association for Independent Socialist Politics, a group which split from Socialist Action at its August convention in order to participate in the Stalinist Com-