I WOULD first like to put the euro debate in context. There is a shocking disproportion between academic and public opinion in Britain on this question. Britain, for reasons of national identity, financial interest and memories of ERM, is a Eurosceptic country: a majority is unhappy with the EU and an even larger majority, especially in the working class, opposes entry into the euro. With half of Labour supporters opposed, Blair is constantly having to delay a decision on a referendum. Yet academic specialists – and there are plenty, thanks to subsidies from Brussels and the ambient liberal anti-nationism in the universities – are universally enthusiastic. The only criticism comes from a few outsiders like myself, a labour historian.

Many on the left justify the EU and euro in terms of an exaggerated and reductionist reading of globalisation. But the process of globalisation and liberalisation is more cyclical than linear or teleological; it has been interrupted and reversed by war and by economic crisis, which may soon curtail the current liberal cycle. Trade interdependence is no greater now than it was in 1913, especially when you consider that most trade passes through and between transnationals, which operate in organised markets, and that most of it is concentrated in the advanced world. The only explosion that has occurred is in money flows, but this can be guarded against by nation states as did Malaysia and Chile in the Asian crisis and France and Italy in the 1980s, and it is unclear how short-term speculative flows may affect long-term investment.

If the EC is a shield against liberalisation it hasn’t worked, contrary to conventional mythology, for it has produced 20 per cent less per capita growth per annum and 4.7 per cent more unemployment than comparable non-members. It enjoyed very little comparative advantage, because most of the founding members had similar economies and produced the same commodities. Its essentially intra-industrial trade increased the quality and brand range, giving access to luxury goods to the same class that reaped the benefits of higher rates of worker exploitation. Optimum scale economies were achieved in the first decade, exhausting the benefits of further trade. After 1973, manufacturing trade among the founding states actually declined. The claim that the EU is a shield against globalisation is contradicted by a recent study by Verdier and Breem. It shows that the EC has accentuated the liberalising effects of globalisation, making unions weaker and centralised bargaining more rare.

Still, the Blairites used globalisation as a reason for approving the euro in principle and also for keeping within Tory spending limits, while the idea is deployed by Trotskyists to justify their call for European or world revolution. In his dispute with Lenin over a United States of Europe, Trotsky found objective good in destroying the nation state and establishing a supranational one, even one controlled by reactionaries and directed against the Russian revolution. So also thought the right wing Socialist Guy Mollet, one of the founding fathers of the EU.

Marx left no doubt that the world revolution would begin with the conquest of power in the nation state by the proletariat, constituting itself as the "national class", as it reads in the original German. This is because the nation state is the political unit in which capitalist hegemony is organised and enforced. The class struggle takes on national characteristics depending on specific economic, social and political conditions: hence Marx in the Manifesto recommends different alliances and strategies for Communists in various countries. Since Marx, the conquest of democratic and social rights in the welfare and Keynesian state makes the struggle even more nationally specific, which is one reason why the co-ordination of policy in the Internationals failed. For example, whereas French workers could count on generalised strikes to improve their conditions, the Germans after 1947 were not allowed to strike during the term of a contract and had to depend upon central negotiations and the election of friendly governments.

While leading the national struggle, Communists, says Marx, must bear in mind the interests of the international proletariat. This was unproblematic in 1848 for Marx, who assumed that national differences were vanishing due to the expansion of the world market and the capitalist mode of production. The experience of the revolutions of 1848-50 and 1917 demonstrated that things were not so simple, that with combined and uneven development revolution could break out in a backward country and not be universal at all. Trotsky justified his call for a United States of Europe by characterising the European economies, on the contrary, as relatively interdependent, convergent and homogeneous. Following in his footsteps, Ernest Mandel in the 1970s argued that there was an objective need for a supranational Europe to develop computer technology. The same technological objectivism is used by Wayne Sandholtz and Alec Stone Street, the American specialists, to explain and justify the single European market.

Everyone knows that the ERT (European Round Table) is the most powerful lobby in the EC, but it cannot be taken as the unmediated expression of new productive forces as do Sandholtz and Stone Street. It is a grouping of CEOs from the largest European transnationals that was organised by the Commission to support its liberalisation projects and serve as its business constituency. Their main aim was less to get R&D money from the EU than to open up national public markets to their products. They were as much interested in joint ventures with American as with European firms. Americans benefited as much as Europeans from the single market. The EC became ever more dependent on US technology for its industry, and continental capital flowed increasingly off-shore and to the US.

If some high tech research required investment beyond the capacity of one company, it could have been carried out by the state – the French office was still on the cutting edge of telecommunications – or by a consortium of states, as for Ariane, Airbus and Eureka, the most successful European projects. State control of telecommunications might not have resulted in the rapid spread of mobile phones, but it would have spared the economy the waste of speculative bubble and bust.

As between the international and national levels the working class should concentrate its forces where it can obtain the most leverage. The EC, like most international organisations, is firmly dominated and controlled by capital. It is the first organisation to adopt the competitive market ideology of Adam Smith as its guiding principle. In the face of business lobbies united by the quest for profitability, the EC working class is fragmented and divided by national organisations and economic, political and institutional differences. Despite ideological differences, workers are much better united on the national level where they can make use of democratic and social rights that cannot exist in the EU.

One type of national leverage that the working class has been able to exercise has been on national fiscal and monetary policy. Marxists have been shy to articulate the difference that macro-economics makes to working class strength. Political economists like Hibbs and Franzese have confirmed the reality of a class macro-economic pattern in democratic states since the war. Left or working class oriented parties were willing to accept higher inflation in order to create more jobs and growth, while right parties tolerated higher unemployment, greater inequality and lower growth to boost profitability. In the long run, Republicans in the US produced 2% higher unemployment and 6% lower growth than the Democrats along with more income inequality. Similar results have been found within EC countries and between hard-money countries and soft.

Monetary inflation under certain conditions can be of enormous benefit to labour in terms not only of wages, jobs and conditions, but especially of organisation and mobilisation. In the EC in the 1970s there was a high correlation between inflation rates and union density, strike rates, nominal wage growth, and wage share. In France, a country with a unitary constitution, a politically responsible bank and Communist-led unions, the working class was mobilised to catch up and surpass price increases – hence a perfect correlation between inflation and wage share. Germany, in contrast, had been given a federal constitution, an independent bank, a juridicized system of labour relations and a subordinate social democracy that responded to unemployment and high interest rates with wage restraint. German interest rates were the least responsive to unemployment in the EC. The result was low inflation but also the worst record for job creation and unit wage growth. One argument for the German model on which the euro is built is that it produced low unemployment, but that is only because it repatriated guest workers and kept married women at home.

The EC was divided between the soft-currency states led by France, who expanded the money supply and ran budgetary and payments deficits, and the Germans and Dutch who ran surpluses and feared imported inflation from the others. France and Germany were unable to negotiate a compromise over the first EMU in 1970. The ERM of 1979 became a D-Mark zone with Germany allowing limited devaluation in return for budget cuts from the soft-currency nations. By the mid-1980s practically all member states had abandoned capital controls and realigned themselves with the Bundesbank. Domestic conservatives, central bankers, liberals and Catholics consolidated their rule with the help of the external leverage of the ERM and EC. The result was the doubling of unemployment to 10%, the sharp decline of strikes and unionisation and the freezing of wages one per cent below the rate of productivity growth. Profitability rose but productive investment, productivity increases and overall growth fell.

The decisive switch in the EC was that of Mitterrand. Mitterrand had come to power with a programme of nationalisation and economic revival borrowed from the Communists, but he was never really committed to it. Opposition came not only from the Right but also from Jacques Delors, his minister of finance, a Christian Democrat close to the monetarists, and the Germans. Mitterrand reappointed the old CEOs to head the nationalised firms, which meant more mergers and overseas investment. Having neglected to devalue when he came to office, he was forced to devalue three times under humiliating conditions imposed by the Germans, which essentially halted wage growth. By Spring 1983 he realised he had to make a choice between his programme and that of Delors and the Germans. He took up a mercantilist programme of industrial recovery that would have meant raising tariffs and floating the currency, but decided against it in face of the opposition of Delors and his Prime Minister and warnings from the treasury chief – Michael Camdessus – that France risked becoming a basket case for the IMF. Camdessus rose to become governor of the Bank of France, head of the IMF and financial advisor to the Vatican. I mention the Catholic connection because medieval Church doctrine has been an essential building block of the EC.

Mitterrand was probably aware that only 39% of the public wanted radical change and that workers would not appreciate the wage restraint involved in his mercantilist alternative. He may not have been aware of technical studies that showed leaving the ERM to be, despite initial political risk, the best way to recovery. Under the ERM, on the other hand, competitive deflation would take twenty years to produce positive results, according to another study, which turned out to be about right. France could manage a float or crawling peg because it disposed of capital controls. France and Italy maintained these controls until they traded them in for a single currency in 1988. They put an upper bound on the amount of capital that could leave in a crisis, enabling the French to hold domestic interest rates 7.2 and Italians 3.2 points below eurorates. The switch to monetarism had little to do with capital mobility and much more with domestic politics, Europhilia and the rightward swing of Christian and some Social Democrats.

The regime of the single currency with its anti-inflationary discipline is not compatible with democracy. Germany has used its political influence to avoid a warning from the Commission, but Ireland, Portugal and France have not been so lucky. As a result of tax cuts for the wealthy, the French Right look set to go way over their deficit limit – which may happen to all the members in a serious business downturn. Having contracted their budget for the sake of the EU, the German Social Democrats now face defeat in September. The euro virtually guarantees the defeat of centre left governments, who by complying with its rules are forced to renege on their pledges and disappoint their followers. Only Oscar Lafontaine and Gordon Brown among Social Democrats have voiced their defiance of the regime. So far six out of the eleven centre left governments which introduced the euro have been tossed out by the right, often in alliance with the extreme right.

In France, Jospin’s leftist reputation for the 35 hour week did not survive his policies of wage and budget restraint, massive privatisations and compliance with the EU over raising the retirement age. More workers than ever deserted the Left to vote for Le Pen as a form of class protest. Even though the Left is hurt more by EU economic policy than the Right it will probably be the strong men of the Right, unconstrained by EU sentimentality – Berlusconi, Chirac, Stoiber, Aznar, maybe Blair – who take on the Commission and Bank as the EU becomes ever more the right wing instrument of the major European powers.

This paper was presented to a meeting of the Conference of Socialist Economists, at Conway Hall, Red Lion Square, London, on 6 June 2002.