bonefeld - politics of european monetary union - class, ideology and critique

8/2/2019 Bonefeld - Politics of European Monetary Union - Class, Ideology and Critique

1/16

Politics of European Monetary Union: Class, Ideology and CritiqueAuthor(s): Werner BonefeldSource: Economic and Political Weekly, Vol. 33, No. 35 (Aug. 29 - Sep. 4, 1998), pp. PE55-PE69Published by: Economic and Political WeeklyStable URL: http://www.jstor.org/stable/4407126

Accessed: 08/10/2009 14:10

Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at

http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless

you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you

may use content in the JSTOR archive only for your personal, non-commercial use.

Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at

http://www.jstor.org/action/showPublisher?publisherCode=epw.

Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed

page of such transmission.

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of

content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms

of scholarship. For more information about JSTOR, please contact [email protected].

Economic and Political Weekly is collaborating with JSTOR to digitize, preserve and extend access to

Economic and Political Weekly.

http://www.jstor.org
http://www.jstor.org/stable/4407126?origin=JSTOR-pdfhttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/action/showPublisher?publisherCode=epwhttp://www.jstor.org/action/showPublisher?publisherCode=epwhttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/stable/4407126?origin=JSTOR-pdf


2/16

P o l i t i c s o f European Monetary U n i o nClass, Ideology and Critique

Werner BonefeldThe European Monetary Union has to be looked at against the background of the crisis-ridden development

of capital accumulation since the early 1970s. The attempt at creating a zone of monetary stability in Europeand the worldwide crisis of capitalist accumulation belong together. EMU amounts to an institutional attemptat buttressing domestic policies of austerity with a supranational anchor and the establishment of an anti-inflationary police force that seeks to protect member states from speculative runs by securing the rightof private property internally. It moreover seeks to de-politicise the attack on labour movements and toreinforce and exploit its regional anid national fragmentation.EUROPEAN Monetary Union (EMU) ismore thanjust an exchange rate mecha-nism. It substitutesparticipating urrencies'with a single currencyor, in other words,replaces several decision-making autho-ritiesbyasingle one: theEuropeanCentralBank(ECB).Thepreparationorthelaunchof the new European currency, the euro,hashelpedtojustifyausterityacrossEurope[Callinicos 1997]. Participatingcountrieswill lose control over monetary policy andwill no longer be able to use exchange ratedevaluation for adjusting productivitygrowthtoglobally competitive levels. TheECB is charged with maintaining pricestability across theEuropeanUnion (EU).Macro-economic adjustment in member-states will have to be based on greaterlabour lexibility andthat s on theachieve-ment of competitive labour unit costs.Adjustment, in other words, is expectedfrom the Europeanworkingclass throughhigher labourproductivity, wage restraintand 'neo-liberal' welfare reforms.EMU is conceived as a disciplinarymechanismthatencourages 'competition'on the basis of disinflation and increasedlabourproductivity.TheMaastrichtTreatyadopts tough convergence criteria. It laysdown boththetimetableanda set of targetsforconvergence inthefieldof governmentexpenditure. accumulated public debt,limits on inflation, andlimitson long-terminterestrates.ThecriteriaforconvergencetowardsEMU have been strengthened bythe Stability Pact which was negotiatedin 1996 to overcome German objectionsto EMU. The German government wasconcerned that fiscal expansionism es-pecially in the southern European stateswould make the euro weaker than theGerman mark. The Stability Pact toug-hened theconvergence criteriaandsoughtto make them permanent in EMU. Itempowered the ECB and the commissionto police member states' fiscal policy andto enforce fines upon member-govern-ments in case of 'fiscal profligacy'.

However, pact makes allowances toexemptby qualifiedmajorityvotecountriesrunning an excess deficit in case of com-pelling evidence of a severe economicdownturn.EMU, then, appears partly defensiveinsofar as it seeks to protect member-states from the risk of floating exchangerates that allow speculative capital to ex-ploit currency differentials. EMU, on thisreading, attemptsto reduce the vulnerabi-lityof theEuropeaneconomy tothewhimsof short-term globally mobile moneycapital. At the same time, EMU is anoffensive device that seeks to make theEuropean working class work harder inthe face of deteriorating conditions. Theprojectof EuropeanMonetaryUnion has,then,to be lookedatagainst hebackgroundof the crisis-riddendevelopment of capitalaccumulation since theearly 1970s. Itwasthis crisis that led to the 'emergence' ofglobally footloose money capital andnewforms of financial crisis. There is thus, asCarchedi (1997:102-03) puts it, "a clearlink between the present still unresolvedprofitability crisis and this new form ofmonetary turbulences", on the one hand,and the projectof EMU, on the other.Theattempt of creating a zone of monetarystability nEuropeandtheworldwidecrisisof capitalistaccumulationbelong together.

IIntroductionCommentators on EMU argue that it isdriven by politics ratherthan economics.Yet, while this claim is made, andrightlyso, there s surprisingly ittle n theliteratureconcerningthepolitics of EMU. Ofcourse,the political is emphasised in terms ofinstitutional politics and the division ofcompetence between the political insti-tutions at the supranational and nationallevels; and it is addressed in terms of thedemocratic legitimacy of the independentECB; inter-statebargainsandrivalry;andin termsof inter-imperialist ivalrybetween

the EU, the US and Japan. In short, theconventional view of 'politics' prevailsand therewith an understanding that the'political' andthe 'economic' are two dis-tinctly different forms of social organi-sation. Sucha view needs to be treatedwithsuspicion. For example, while the econo-mist treats human purposeful activity asa factor of production, the focus of thepolitical scientist falls on the democraticand legal constitution of the social andpolitical rights and duties of the citizen.However, the so-called human factor ofproduction is no less a citizen as a personendowed with equal rightsandconverselythe citizen is no less a factor of productionas a wage-labouring commodity. In short,conventional accounts of EMU take forgranted the bourgeoisie conception of asocial world where the social individualsare not divided according class. Rather,they are conceived to be divided withinthemselves as economic agents, on theone hand, andcitizens, on the other.Eachof these apparentlydistinct 'identities' isseen to derive from distinct political andeconomic structures and each of thesestructures is perceived to have its ownlogic of development. Although these'logics' interact- 'the fundamentalobjec-tives of EMU were political, the strategywas economic' [Grahl 1997:108] - thesocial world is nevertheless treated as afragmented thing where humanbeings donot exist as such. Their world is sharplydifferentiated between economic actorswho follow the logic of economic rationa-lity andcitizens who pursuetheirspecificsocial and political interests within ademocraticallyconstituted'politicalstate'.From this perspective, the notion thatEMU is apolitically driven projectallowsmerely for a discussion of the political interms of either institutional politicaleconomy or neo-realist accounts on theco-operation andconflicts between states,or moral and political judgments on theimpact of EMU. These judgments which

Economic and Political Weekly August 29, 1998 PE-55


3/16

derive, on the whole, from a Keynesianperspective, do not reject EMU as such.What stands rejected is the 'neo-liberal'design of EMU that, for the Keynesians,is seen to increase unemployment andsocial distress across Europe. However,has the recession of the early 1990s 'inEurope'reallybeen causedby thepoliticalproject of EMU: and would a Keynesiandesign of EMU help to create jobs acrossVui)lc 'The present article analyses the politicsof EMU. Politics is understood. here, asclass politics. In thedebate on EMU, classrelationsand class struggle appear hroughtheir absence. In other words, the con-ventional treatmentof EMU only appearsto treat 'politics' in 'conventional' terms.While orthodox accounts on EMU arepremised on the view that the economicand political are distinct, their focus onEMU's institutional arrangement and'economic' significance reveals the classcontentof EMU.Thus,as far as the contentof the debate is concerned, its focus isentirely on the 're-integration' of labour,theEuropeanworkingclass, into thecapitalrelation. EMU focuses the burden of'adjustment' exclusively on labour. Onthisissue, theconventionaldebateonEMUis unmistakablyclear. In short, the debateon EMU does indeed raise the questionof the political. While it ostensiblyespouses an 'institutional' view, its focusis on the subordination of social labourpower to the dictate of exploitation.The class content of conventional ac-counts is also explicit in the formaldiscussion of theinstitutionalarrangementsof EMU.These arrangementsareendorsedas if 'politics' has nothing to do withmonetary policy. There is no doubt thatEMU appears as an arrangementthat notonly takes the politics out of economicrelationsbut,also,depoliticises thepoliticalitself. In EMU, politics is initiated in thename of Europe, made through Europeanco-operation and, especially monetarypolicy, is presented as an institutionallyanchored device that leaves monetarypolicy to those who professionally havethe insights into, and possess the expertknowledge requiredfor the regulation ofapparently impartial economic mecha-nisms. However. the institutional set-upof, forexample, theECB, is notjust 'institu-tional' in thecommonly understoodsense.The language of institutional rationality,institutional egitimacy, optimumcurrencyarea, etc, disguises what amounts in factto a most important and radical attemptof the European bourgeoisie at providingan institutional 'solution' to the crisis ofcapitalist accumulation that has since the

late 1960s beset capitalistreproductionlike a cancer.Insum, heconventionalebate nEMUdisguises he class content f EMUeitherby focusing on the formal aspects ofmonetaryunionor by providingmoraljudgments n its impact without aisingits specificclass content.The contentofEMU stheprovision f institutionalhan-nels for thecontainment f the so-called'labourquestion' and, throughit, thepolitical guaranteeof the bourgeoisiepropertyights fexploitation. MU eeksto take 'politics'out of the makingofmonetaryolicyand oattemptsoremovesocial labourpoweras an activesubjectconferringncapital he realisation f itsimpossibledreamof exploitinglabouruncontested. owever,withoutxploitinglabour's productive power. and thuswithout onfrontingabour, apitalwouldbenothing nd husrenderedncapable fassertingtself as a 'self-valorisingalue'aswhich tpresentstself.Theconclusionsuggests that EMU institutionaliseshecontradictoryxistenceof capital, hat sitsdependencef labour's alue-creatingforce.EMU, hen, s not usta mechanismof socialcontrolbut alsoanarrangementthat transmits regional'class conflictsacrossthe EU.The followingsection summarises hehistory f Europeanmonetaryntegrationfromthe early 1970s. Then follows ananalysisof the capitalistcrisis of accu-mulation.Section IV examineswhy theproblemof 'economic' adjustment asbeen addressed n terms of the Euro-peanisation of specifically monetarypolicy.This ssuewillbeexaminedhroughthe lenses of the conservative risis-con-ceptionsof the 1970s.SectionV analysesthepoliticsof EMU.Theconclusion um-marises he argument nd suggeststhatEMU is notonly a response o thecrisisof capitalist ccumulationut,also,apre-emptive device for the discipliningoflabour,a device however that allows'regional'class conflicts to assert hem-selves acrossEurope.

IIEuropean Monetary Integration inHistorical ContextThe history of Europeanmonetaryintegrationince hesecondworldwar anbe schematised nto 5 differentphases,eachcorresponding ithmajordevelop-ments in the global politicaleconomy.During the 1950s, the internationalfinancialsystemof BrettonWoods wasnot nfulloperationsEuropeanurrencieswerenotreadily onvertiblento hedollar.Duringhisperiod,heEuropeanayments

Union EPU) upportedfforts fEuropeanpost-war econstruction.t was mainlyaclearinghouse for balanceof paymentsdeficits betweenparticipatingountries.By 1958,the convertibility f Europeancurrencieswas restored.The EPU wasabandonedndduringheI 960sEuropeanmonetaryntegrationworked hroughhesystem of BrettonWoods that tied theexchangeratesof Europeanurrenciesothe dollar. t wasby the late1960s,parti-cularly heearly 1970s with thecollapseof theBrettonWoodssystem, hat eriousattemptstEuropeanmonetaryntegrationstarted.Duringthe late 1960s, the dollar wasunder ncreasingpressuredue to the re-surgence of particularlyGermanandJapanese ompetitivenessnd he financ-ing of the Vietnamwarthrough n infla-tionaryupply f dollars.This upply cce-lerated he growing spill-overof worldmoney, the dollar, from financingtheproductiveaccumulation f capitalintofinancialmarkets. he nflationaryupplyof the dollarput pressureon Europeancountries,a pressurewhichwas debatedat that time as an exportof Americaninflationto Europe.Against this back-ground,he henEuropeanconomicCom-munity upportedheWerner lanof 1971that ought o establish Europeanystemof monetaryntegrationwithin he frame-work of the Bretton Woods system.However,as soonas the ink haddriedontheWererPlan, heBrettonWoods ystembrokedownbetween1971and1973.Thisbreakdownmeant hatthedollarwas nolongerbackedby gold and,more mpor-tantly,thatcurrenciesrather hanbeingtied to the dollarstarted o float againsteachother.Thedollar,however,was notdethronedfrom its position as worldcurrency, llowing he UStorespond,ormostof the1970s, ocompetitive ifficul-tiesand ocialdiscontenthroughxchangeratedevaluation nd nflationary evalu-ationof workingclass income.The nflationaryupplyof dollarsposedmajordifficulties orEuropeanountries.They oo hadrespondedo the remendouslevel of discontent hrough iscalexpan-sionism.Yet,thisresponsentensifiedhecrisisof moneyandproduction. his wasdiscussedatthetime n termsof thefiscalcrisis of the state and stagflation.Highrates f inflation,massunemploymentndsluggish economic growth coincided,leading to increasingpressureon stateexpenditure s the tax base erodedandclaims on the welfare state expanded.Duringhe1970s,Europeanountriessta-blished heso-called snake',a Europeanexchangeratesystem.In this systemthe

PE-56 Economic and Political Weekly August 29, 1998


4/16

participatingcurrencies fluctuated withinan agreed margin around each other andall fluctuated within a set margin againstthe dollar. Hence, the description of thesnake as a 'snake in the tunnel'.1The snake was a quite unsuccessfuldevice.Participating ountrieswereforced,time and time again, to suspend mem-bership ntheface of speculative pressuresthatresponded notjust to sluggish econo-micperformancebut,through t. toworkingclass resistance to the intensification ofexploitation and wage restraint. Duringmuch of the 1970s. the US authoritiessought to recoup internationalmarketsbyletting the dollar fall. This reinforcedinflationary pressure on European coun-triesandmade it harder orthem to bolstertheir reserves through export earnings.European countries found it thereforedifficult to fend off speculative pressures.The snake then hadto cope with domesticconflicts which compelled governmentsto commit themselves to existing labourmarket and welfare guarantees. At thesame time. financial andeconomic condi-tions deteriorated with hyper-inflationincreasingspeculative pressure.The snakefailed to provide an anchor for currencystability and. through it, disinflation.Inthe late 1970s, thesnakewas replacedbytheEuropeanMonetarySystem (EMS).Its central feature was the EuropeanExchange Rate Mechanism (ERM). Theinitiative forthe EMScame fromGermanyandFrance.Against thebackgroundof thepoundSterlingcrisis of 1976and the dollarcrisis of 1978, both governments saw itas a way of reducingcurrencyfluctuationsand as a means of confronting domesticdifficulties. The EMS was to replace thediscretionary nfluence on monetarypolicyby a rule-based system. For Germany, theEMS was a means of consolidating itseconomic position inEurope, andthroughit its global economic power. The EMStied the weakerEuropeancurrencies to theGerman mark. However, up until 1983,the EMS was a rather weak system andcurrency devaluation occurred regularly.

The early 1980s saw conflicting policyresponses to the power of the workingclass to demand conditions. In the US,during helastyearsof theCarteir dminist-rationand thenunderReagan,class politicsthrough inflation and dollar devaluationwere replaced by a politics of austerity.A similarpolicy of austerity wans doptedfirst by the British Labour governmentunderCallaghanand then reinforced underThatcher. In France. however, workingclass discontent had led to the politics offiscal and monetary expansion underMitterrand.Against thebackgroundof the

severe crisis of the early 1980s, both theFrenchand the Anglo-Saxon responses tothe so-called labourquestion were short-lived. In France, the experiment ofKeynesianism in one countryfailed as theFrench franc came under increasingspeculative attack, with public debt in-creasing and inflation devaluing profits.In the face of a deterioratingcompetitiveposition, the Socialist government soughtrefuge in a much harderEMS. The EMS,f-om 1983,transformed ntoadisciplinarydevice whose purpose was to contain the'labour question' on the basis of dis-inflation and fiscal restraint.In the UK and the US, the politics ofausterity was seen as a useful device notonly for disinflating the economy but,importantly, for deregulating entrenchedclass relations.Withmonetarypolicy beingtight.workingclass 'expectations' orwageincreases would be moderated by un-employment. Employers, to prevent therisk of bankruptcy,would have to increaselabourproductivitywhile thereadinessofthe working class to accept the intensifi-cation of its exploitation would beillcreased due to the threatof redundancy.However, the tightening of particularlythedollar led, on aglobal scale, to a severefinancial crisis. Banks suffered due to adramatic increase in company failure,public deficits soared due to an increasein unemployment and a decline in the taxbase, andhigh realinterest rates ncreasedthe cost of credit. The tightening ofmonetary policy transformed the credit-based economies of many countries intodebtoreconomies, leadingtotheso-calleddebtor crisis of the 1980s and beyond.Against this background, and in the faceof a potential breakdown of internationalcredit-relations, both the UK and the USabandoned Friedman's recommendationaccording owhichthecontrolof themoneysupply will encourage the working classtoabandon tsstruggle orbetter onditions.Instead, Hayek's version of market free-dom became more emphasised. Disinfla-tion was, after 1993, to be achieved by de-regulating abourmarketsdirectlythroughan attack on entrenched class positions.The aimwas to strengthen herelationshipbetween the money supply and labourproductivity through measures such aslabourmarketderegulation, abourprocessflexibilisation, privatisation; and welfarestate reform towards workfare. These'supply-side' policies, itwashoped,wouldadjusttherelationshipbetween themoneysupply and productive work through theinrease in the rate of exploitation andtherewithcapitalprofitability.At thesametime, the financial system that had been

dangerously exposed by the 'emergenceof the debtorcrisis, was refinancedthrougha huge American budget deficit. Thisdevelopment hasvariously been describedas delinquent or military Keynesianism.2In Britain, the attempt at disinflationthrough the control of the money supplywas abandoned in 1983.3 For most of the1980s, thethenchancellor, Lawson, soughtto enter the British pound into the ERM,much against Thatcher's outspokenopposition.4 Lawson saw the ERM as adevice that would support monetaristpolicies andenable government to absolveitself of the impact of tight money. TheFrenchgovernment endorsed theERM forsimilar reasons. After 1983, Franceembarkedupon apolicy of astrongFrenchfranc (franc forte) to secure and retaincompetitiveness on the basis of austerityanchoredby the German markthrough heERM. By sticking to a harder ERM,monetary policy would be protectedfromspeculative pressure and the impact ofdomestic class conflict on monetarypolicywould be reduced. Ostensibly, 'austerity'would be imposed by Europe and thesocial and economic consequences ofausteritywould be legitimised in terms ofinternational- European - commitmentsand requirements. For the Germangovernmeilt, the hardening of the EMSwas precisely what it hadbeen looking forsince thelate 1970s. IttransformedwesternEurope into a .W4-7one. The EMS sub-ordinated fiscal policy, ag :ell as socialand abour-market olicies. to theobjectiveof pricestabilityandprovidedanEuropeanmonetary anchorfor the so-called supplyside reforms of de-regulation, flexibi-lisation, privatisation, and welfare statereform.The EMS hardened further after thestock marketcrashin 1987. Realignmentsceased until 1992 when the Britishpoundwhich had enteredthemechanismin 1990,was forced out of the ERM.The EMS hadestablished the German mark as theEuropean anchor currency and, throughtheEMS, GermanyoperatedasaEuropeanhegemonic power. Against Germandominance. Francesought, in the wake ofGermanunification andat the startof thedeep recession of the 1990s, to transformthe EMS into a more collective systemwhere German economic power andinfluence would betiedtoFrench nterests.France's position was that the power oftheGermancentralbank,theBundesbank.was to be diluted by substituting it witha European central bank. France wouldthereby gain a policy-making influenceover European monetary policy. ForGermany, the EMS had worked we 11but

Economic and Political Weekly August 29, 1998 P E-57


5/16

it acceptedEMU to secure Frenchsupportfor Germanunification.Germany'saccep-tance of EMU was made easier by thestrict and tough convergence criteria formonetary union.5 The MaastrichtTreatywas signed in 1991. Yet, it was almostblown apartin 1992 and 1993 when firstBritain and then France, as well as Italyand Spain, were forced to devalue in theface of speculative pressure and to adoptwider margins of fluctuations against theGerman mark.Yet, the transition to EMUhas continued unabated, legitimisingausterity across western Europe.In conclusion, the breakdown of thesystem of BrettonWoods, rivalrybetweenthe US andEurope,andbetweenEuropeancountries,especially France andGermany,appear to explain a great deal of thecontinuouseffortsof integratingEuropeanmonetary relations. However, as the nextsection will argue, the treatment of thedevelopment of European monetaryintegration through the lenses of thestrategic interests of member-states failsto understandthat its principal feature isthe containment of class struggle andthatis the integration of social labour powerinto the capital relations on the basis ofprogressive productivity growth. Ofcourse, each of the European states in-volved in the creation of EMU have beenand continue to be concerned to obtain anarrangement that is most suited forimprovingtheircompetitive positions and,that s, forsecuring theacceptance of theirworking classes for the intensification ofexploitation. From this perspective, thecurrent onflict overthe choice of presidentof the ECB between France andGermanycan be approached. For France, a moreflexible interpretationof EMU by theECBis of course very much desirable in ordertoaccommodatethecurrentwave of labourunrest in France. For Germany, on theother hand, a hard EMU with a monetaryhawk at its helm would not only allow itto takeadvantageof France's currentweak-ness but, also, ensure German economicmight through tsrelatively morecompeti-tive unit labour costs. A weak euro wouldreadjust German conditions to those ofweaker states; while a strong euro wouldforce weaker states to adjust to Germanconditions. Besides, a hard euro wouldsupport Europe's global imperialist roleincompetition with thedollar,while asofteurowould subordinateEurope othe dollarandtherewithAmerican mperialistpower.However, the fundamental question isnot what differentiates France and Ger-manybut.rather,what unites their efforts.Their unity derives from common classinterests.Here,thebourgeoisie of notonly

France and Germany stand united, andhavehistoricallybeenunited.As Anderson(1996:135) comments, since 1983, "theattitude of the French elite has been aVichy-like subservience to Germaneconomic power".Moreover, as Carchedi( 1997:100-101) argues convincingly, "theeuro, and thus German leadership, isacceptedbecause the bill is paid by labour.At the same time, these policies appearasif they were dictated by 'Europe' in theinterestof the 'common good'." Further-more,as Carchedi (ibid) makesclear, "themore the EU countries are iedtoGermany.thegreater heexpropriationof value fromlabour" in order to remain competitivewithin Europe and, throughit, on a worldscale.Whyshould a 'domestic' bourgeoisienot wish that 'its' working class is madeto work harder and for declining wages,andto achieve this in a way which makesit appear as if'the bourgeoisie is not res-ponsible for the burdenplaced on labour?In EMU, monetary conditions appear tobe dictated by Europe and to derive fromexpertand mpartialjudgments oncerningthe best practice of economic regulation.In short, the conflict of interest betweenmember-states is only one of degree.

IIIClass and Crisis of CapitalistAccumulation6According to a recent estimate, "morethan $1 trillion [are] looking for a homeintheforeign exchange marketevery day"

so that "even a slight deviation from thestraightandnarrowcan invite a savaging"[Business Week,January16, 1995; quotedin Carchedi 1997:102]. This massiveamount of money by far exceeds the'money' required for global commoditytransactions and productive investments[Walter1993]. Where does all this moneycapital come from, a capital that appearsto increaseby investing into itself (M...M')dissociated from the progressive exploi-tation of labour throughproductive accu-mulation (M...P...M')? What is its sourceof value?Since the late 1960s, credit-relationshave been checked less and less by theexpropriation of value in production.Instead, credit expanded to finance thecredit-requirementsof productive capitaland nationalstatesatthesametimeasratesof profitsremaineddepressed.Credit, hen,pertainednot in the formof boom-lendingsupporting the progressive accumulationof productive capital but, rather, main-tained company liquidity through therecycling of difficulties. In short, capital,in the form of money, started to applyitself more andmore in financial markets,

seeking more secure returns than thosewhich could be obtained from directinvestment in the contested terrainof pro-duction. This development started in the1960s;therewas agrowthofn internationalfinancial market which existed outside theofficial financial system of Bretton Woodsand alongside the national, regulatedmarkets.Although thenew creditmarkets,the so-called euro-dollarmarkets,operatedoutside the regulative mechanisms of theBretton Woods system, all money in theform of credit existed as a claim on theUS-gold reserves. Under these circum-stances, the system of BrettonWoods wasthreatenedand t was eventually suspendedunderNixon between 1971 and 1973. Sincethen the dissociation of monetary accu-mulation from productive accumulationhascontinued unabatedandon anincreas-ing scale leading to recurring inancial andindustrialcrises suchasthe so-called Asiancrisis.How can one understand this develop-ment?Within the limits andcontext of thisdiscussion, only a brief explanation canbe offered. Firstly, the inflationaryexpansion of credit is anexpression of thecrisis of containing the productive powerof labour within the limits of capitalprofitability. By the mid-1960s, thecapita-list exploitation of labour had increasedthe productive power of labour to such anextent that too much capital was producedrelative to the capacity of the market torealise, with adequate rates of profit, thesurplus value expropriated from labour.Secondly, theexploitation of labourwasgetting more expensive because of higherwage demands, and importantly,becauseof technological change.The rise in invest-ment required o increase labourproducti-vity increases the cost of productionwhich,even under conditions of rising rate ofexploitation, tends to decrease the rate ofprofit. This is because of the rising valueof constant capital (means ol production)relative to variablecapital (labourpower).As profitsfell andasproductive nvestmentcosts increased,7 productive capital, onthe one hand, borrowed more money tomake up for falling profits so as to over-come difficulties and to invest in newmethods of production.Onthe otherhand,earnedprofits were increasingly placedonmoney markets, either because of the riskof productive nvestmentorbecauseearnedprofits were not big enough for instantreconversion into productive investment.Capital was thus suspended from pro-ductive accumulation andplaced, instead,in financial markets.This capital was usedas credit by productive capital andpoliti-cal authorities to support investment or

1P--58 Economic and Political Weekly August 29, 1998


6/16

borrowing requirements. Since the late1960s. depressedratesof productiveaccu-mulation and depressed rates of profithavecoincided with arapidmonetaryaccu-mulation. The growing divorce of mone-tary accumulation from productiveaccumulationcreated a spiral of debt, ex-pressed in an overexpansion of the creditsystem, speculative runs, bad debt pro-blems, and turbulent financial markets.Thirdly, hedisruptive strengthof labourmade itself felt, by the end of the 1960s,in resistance to the intensification ofexploitation and incomes policies. In theface of falling rates of profit and readilyavailable credit, governments respondedto labour discontent by expansionarypolicies that fuelled inflation and led tobudgetdeficits. In sum, the strengthin therelation between monetary accumulationand productive accumulation decreased.Furthermore, the contradiction in thisdevelopment is not only that the increasein the rate of monetary accumulation issupportedby a relative decline in the pro-ductive accumulation of capital but also,that the 'state' accumulates deficits thatareguaranteedby the 'state' in its capacityas lenderof last resort. Inotherwords, thestrength ntherelationbetween themoneysupply productive growth weakenedprogressively.The dissociation between productiveaccumulation andmonetaryaccumulationis intensely crisis-ridden. The accumula-tion of capital in the form of money(M...M') is anaccumulationof capital thatis suspended from the direct exploitationof labour (M...P...M'). There is thus thecontraction between a sluggish exploita-tion of labour, and therewith the expro-priation of surplus value, relative to theaccumulation of money. In short, the ac-cumulation of wealth in the form of moneyis an accumulation of monetary claimson surplus value not yet created by thecapitalist exploitation of labour.The moremoney accumulates divorced from pro-ductive accumulation, the less it is vali-datedby theexpropriationof surplusvalueandthe more claims on the futureexploi-tation of labour accumulate. The historyof the last 25 years suggests that capitalfound it increasingly difficult to adjusttherelationshipbetweenmonetaryaccumula-tion andproductiveaccumulation througha stronger link between money and ex-ploitation. For over a quartercentury,eco-nomic recessions and monetary turbu-lences have occurred at regular intervalsand neither has led to a readjustmentbetween productive accumulation andmonetary accumulation. Paul Mattick(1934), in his analysis of a similar situation

in the inter-war eriod,discussed uch adevelopmentn terms f apermanentrisisof capitalistaccumulation.8Thecredit-sustainedeproductionfthecapitalrelation ed to a situationwheregovernmentswere ncreasingly nable ouse inflationas a means of erodingrealwagesandof devaluingpublicdebt.Thisis becauseof theunregulatedharacter fglobal financial marketswith currencyexchange ates loating gainst achother.Theglobal peculationnforeign xchangemarkets sserts tself ikean 'internationalpolice force' [cf Marazzi 1995] wherespeculativepressure ncurrencies, r in-deed a run on currencies,respondsto'domestic'difficultiesncontainingnfla-tion hroughcloser inkbetweenworkingclass consumption and productivitygrowth. n otherwords, heabilityof thenational tateto devalue ts debtthroughinflation s severelyrestrictedhroughheabilityof financialmarkets o withdrawfrom uchacountry yselling tscurrency.Sucha withdrawalendersmpossibleheattractionf internationallyobilemoneycapital equiredo financepublicdeficits,including alance f payments eficits. naddition, and importantly, domesticdifficulties n guaranteeinghe propertyrightsof moneycapitalon the future x-ploitationof labour hreatens he globalstabilityof capital hroughhe defaultofdebt.Of course,a run on a currency ntailsthedevaluationf itsexchange atewhichmightwell improve he exportsector ofacountry.However,adevaluationf cur-rency lsomeans hat henationalurrencybuys ess nternationalalue, hus ncreas-ingthecost of imports nddecreasinghetotal urplus alue hat hecurrencysabletocommandntheworldmarketCarchedi1997].In short,while the devaluation ftheexchangeate ompensatesoradeclineintheglobalcompetitivenessf a nationaleconomy, t is a potentially iskydeviceto secure he national conomyas an at-tractiveerritoryor nvestment. or inan-cial markets,hecredibility f a nationalstatedepends huson the achievement finternationally ompetitiveunit labourcostsand hat son heeffective xploitationof labour'sproductivepower.Furthermore,s notedabove,nationalgovernmentsrespondedto the labourunrestof the late 1960s andearly 1970swithexpansionaryolicies.Theguaranteeof this credit restson the abilityof thenational tate oguaranteetsdebts hroughits roleas lenderof last resort.An infla-tionarydevaluation f statedebt wasex-tremely risky because of the policingpowersof speculative apital.Again,the

disinflation f the moneysupplyandthecontrol f publicdeficitsdependentn theability of the state to adoptrestrictivebudgetaryand monetary policies thatredistributencome rom heworkinglassto capital. Againstthis background,heso-called iscalcrisisof thestate, hecrisisof the welfare state, the shift from aKeynesian egitimatingof public policytothe monetarist ssertion f 'youcannotspend what you have not earned',theascendancyf thenotion hatpublicpolicyhas o be 'credible',healmostmissionaryespousalof a politicsof austerity, nd henewlanguage f 'economy', efficiency',and 'effectiveness', make sense. Theymakesense insofaras thecontainment fthe disruptivepower of labour hroughcredit-expansionhreatens he abilityofnational tates oguaranteeheirdebtsandtherewith he international alueof theircurrencies.Besides,as eachdebtor risismakes clear, domestic difficulties inguaranteeinghepropertyightsofmoneycapital nthefuture xploitationf labourthreatens he global reproductionf thecapital elationhroughhedefault fdebt.Insum,national tatesarenot nsulatedfromeachotherbutsubsistnand hroughthe worldmarketHolloway1995].Theircapacityo mposeausterityponhework-ing class is 'policed'through peculativecapitalmovements.While governmentsmighthave been tempted o inflate thedebtawayandthereby educe heburdenof debt on manyfirmsas well as erodingrealwagesandstandards f living,specu-lative uns ncurrency ouldhave esultedin a liquidity risis,reinforcinghe fiscalcrisis of the state and makingit moredifficult to finance balance of paymentdeficits.The resolutiono financial risisis a policy of austeritywhich aims atreducing heratioof debtto GDP. How-ever, such a policy is likely to provokeclass conflict eading o sustained pecu-lative attack.Governments ave thus toensure hede-politicisationfapoliticsofausterityhrough,orexample,nstitutionalreform uchascentral ankndependence9or, ndeed,Europeanmonetaryntegration.A politicsof stateausterity,hen,seeksto adjust he burden f debt n relationotheglobal imitsof capitalprofitabilityyguaranteeinghepropertyightsof capitalthroughhe controlof thatpartof publicexpenditurehat putsmoney nto hehandof workers'[cf Cleaver1995]. 'Adjust-ment'is muchmorethan usta technicaltermwhichdescribes hecontrol fpublicdebt. t meansapolicyof tightmoneyandthus the replacement f an inflationaryresponse o workingclass struggleby apolicy of state austeritywhich accepts



7/16

unemployment as a means of containinginflation. Furthermore,adjustmentmeansthe eradication of balance of paymentsdeficits through mproved exportearnings.Thus, 'adjustment' amounts to a policy ofreplacing deficits with sound financecontaining inflation by forging a strongerlink between the expansion of the moneysupply andproductive activity. A growthin deficits which is not matched by pro-ductivity growth sooner or later becomeshazardous, leaving investors with only onoption and that is to run. Interest chargeswill absorb a growing proportion of thenational product. In order to reduce theratio of debt to GDP, a policy of stateausterity aims at forcing workers to liveon less and to work harder.However, theincomes from which interest-chargeshaveto be paid has already diminished as aresult of weak capital formation andsluggish productivity growth in relationto the expansion of credit. In order toadjust consumption to productive work,standardsof living have to deteriorate andthe efficient use of resources, includinglabourpower n production,hastoimprove.The guarantee, then, of global creditrelations (M...M') goes forward througha policy of austeritywhich aims atmakingworkers pay tfor he repayment of creditthrough wage restraint, intensification ofwork and deteriorating conditions. Toadjust heratioof debt toGDP,theeconomyhas to generate large surpluses so that anet transferof resources pays the intereston accumulated borrowing. Failure toachieve real savings in state expenditureand lower unit labour costs, will onlyexacerbate the burdenof debt, and grow-ing inflationary pressure will lead tospeculative attackson currencyand drainson the reserves. In short. 'adjustment'entailsan attackon the cntrenchedrelationsof class power without provoking openclass conflict. Inresponse to such conflict,money capital has always fled to moresecurenationallydelimitedspaces - afraidthat he uncertainoutcome of such conflictmightthreaten its' wealth. The cumulativeeffect of such flight is usually calledfinancial turmoil where a global credit-crunch exposes the bad debt exposure ofbanks and companies alike. In short,financial crisis and industrialcrisis belongtogetheras two halves of the same walnut:the crisis of the capitalist exploitation oflabour.

Concerning European monetaryintegration, the hardening of the EMSfrom 1983 onwards supplied a supra-nationaldisinflationaryanchorthathelpedto protect national governments fromclass conflict over the bitter long-term

adjustment costs. For a government thatfound it difficult to impose monetarydiscipline, the ERM offered a goldenopportunityto have it 'implemented fromwithout' [Sandholtz1993:38].Thegovern-ment could be shielded from the un-palatable consequences of 'economicadjustment' by shifting responsibility onto an international egime[Busch 1994:84]thatsupportedgovernments' publicpolicyobjectives withoutappearing o bedirectlyresponsible for them. There is, of course,no institutionalor international fix' to the'problem' of inflation. However, againstthe backgroundof the global police forceof speculative capital, government policyhas to appear 'credible' so that financialmarkets maintain confidence in thenational'containmentof the 'labourques-tion' and so retain trust in the guaranteeof securityof their nvestmenton the futureexploitationof labour. nshort, he achieve-mentof counter-inflationarycredibility isof utmost importance [Helleiner 1994].Europeanmonetary ntegration mphasisesthe issue of 'credibility' and, tlihoughit,the guarantee of the property rights ofcapitalon thefutureexploitation of labour.A policy of austerityputsaheavyburdenon productive capital as interest ratesincrease and as, with EMU, the currencyexchange rate instrument is no longeravailable as a means of adjusting sluggishcompetitiveness to global conditionsthroughcurrency devaluation. Failure byemployers to respond to tight monetaryconditions through improvements in theexploitation of labour,might well lead toloss of competitiveness and bankruptcy.In other words, a policy of tight moneyforces employers toadjust heexploitationof labourtoglobally competitivestandards.The imposition of competitiveness'throughapolitics of austerityupon emplo-yers was well understoodby the Bank ofEngland during the membership of thepound sterlingin the ERM:"Thegovernorhasemphasisedthathenceforthcompaniescan have no groundsforexpecting a lowerexchange rate to validate any failure tocontrol costs. The greater stability whichERM membership offers sterling againstotherEuropeancurrencies should in itselfhe welcome to business as it will enabletirms to plan and invest with greatercertainty. If companies recognise thatthey are now operating under a changedregime the benefits of lower inflation willaccruesooner, and at a lower cost in termsof lost output, than could otherwise beexpected. But if they fail to recognise theconstraints under which they now operatethe outcome will prove painful to them"[quoted n Smith 1993:187]. However, the

adjustment of exploitation to the 'credit-superstructure'(M...M') entails not onlythe danger of higher unemployment andcompany failure but, also, the risk offinancial turmoil and crisis. A massiveindustrialcrisis means thatthevery sourcewhich 'validates' money as a claim onfuture surplus value 'recedes', disclosingthe bad debt exposure of banks throughindustrial default. In this context, EMUappears to provide a political guaranteefor the preservation of capitalist wealththrough the institutionalisation of itsproperty rights at a supranational level.

IVNeo-Liberalism, Crisis andInstitutional ReformDuring the 1970s, neo-liberal inter-pretationsof thecrisis of capitalistaccumu-lationfocused eitherexplicitly orimplicitlyon the crisis of stateauthority.Theyreactedin adirect mannerto the explosiveness ofthe then lass conflict and recommendedtwo distinctive solutions. One solution

emphasised that the economy was to befreed from political interference and thateconomic relations houldbede-politicisedto allow the marketto self-regulate itself.This view is associated with the liberal-economic thoughtsof HayekandFriedmanand theircritique of Keynesianism.10Theother solution focused more directly onthe 'state' and recommended that t shouldrecover its 'autonomy' from society so asto regain its capacity to make decisions[Crozieret al 1975]. This view is rootedin the theoretical traditionassociated withnotonly Schumpeterbutalso CarlSchmitt,thephilosopherof German ascism. Withinthe tradition of economic thought. theirconcerns are connected with the ordo-liberal tradition of the Freiburg school.This school stresses that the liberty ofeconomic relations should be guaranteedinstitutionally through a constitutionalframeworkof law. While economic libera-lism stresses the self-regulating capacityof unfetteredmarket reedom,ordo-libera-lism espouses the idea of aninstitutionally'embedded' economic liberalism.For the economic liberals, liberal demo-cracycombined withKeynesianeconomicconvictions poses a danger to the veryfoundationsof bourgeoissociety. For hem,the 'Keynesian' statepoliticised economicrelations and undermined market self-regulation and therewith the relations ofliberty. The politicisation of economicrelations was seen to place a growingburden of demands and expectations onthestate, leadingto conditions of 'plannedchaos' [cf von Mises 1944]. Politically,then, this view responded to the class



8/16

conflict by advocating the subordinationof social relations to monetary exchangerelations, to the market.It recommendedthe dismantling of the welfare state, theunderminingof trade unions and the res-torationof relations of economic compe-tition, including the deregulation andflexibilisation of the labourmarketand thelabour process.For theordo-liberals, liberaldemocracyin an 'open society' involves politicalparties seeking to outbid each other intheircompetition for agreatershareon the'electoral market'. This is seen to lead, onthe one hand. to the expansion of infla-.tionary expectations on the part of theelectorate, and to political conditions ofungovernability, ntheother.Furthermore,for them, the class conflict of the 1960sand 1970s had led to the democratisationof society and this democratisation wasseen to pose a serious risk to democracy.Inshort,the statewas seen to have becomevulnerable to 'society'. As Brittan(1976)put it, "excessive expectations are gene-rated by the democratic aspects of thesystem" (p 97) and "the temptation toencourage false expectations among theelectorate becomes overwhelming topoliticians" (p 105). The basic trouble,then, was "the lack of a budget constraintamong voters" [ibid:104]. In short, socialexpectations and demands were seen tohave overstreched the welfare-state,

creating a 'dependency culture'. In ad-dition, social conflicts were no longerconfined to the redistribution of wealth,with the tradeunions asserting the powerof specific social interests against thenational interest. There was, then, an'inappropriate' politicisation of socialconflicts that endangered the fabric ofsociety. As King(1976:12) saw it,govern-ment hadcome "to be regarded...as a sortof unlimited-liability insurancecompany,in the business of insuring all persons atall time against every conceivable risk".Inaddition, King rccognised thatthe levelofnon-compliancewith therightsof privatepropertyhad increased. As he put it, "theman dependent on his wife to drive himto workfinds increasingly thatshe refusesto do so" [ibid:23]. Regardless of whatKing's specific problemsmighthavebeen,thegeneral thrustof the approachwas thatthe political response to class conflict hadcreated conditions of ungovernabilitycharacterised by a disparity between the'volume' of claims on government's'sharing out function' and government'ssteering capacity [cf Brittan 1976].Both schools of thought, then, empha-sised the "economic consequences ofdemocracy" [cf Brittan 1977] in terms of

adeclinenthestrengthf therelationshipbetween consumptionand productiveactivity.In addition,both stress thatthepoliticisation f social relationshad ledto conditions of ungovernabilityandrecommended olutions hat are distinctonlyas variants f a common heme.Bothagreed hatthepoliticisation f the classconflictposes a threat o the bourgeoisf-agmentationf thepolitical nd conomicintodistinct ormsof socialorganisation.Inotherwords,class dominationhroughthe fragmentation f the political andeconomicwas seento be at risk and thatthis threatened he propertyrights ofcapital.The economic iberalsarguedorthe economy to be liberated orm thepoliticaloallow hemarketoself-regulateitself and therewithto safeguardthesubordination f social relations o themarket.Those emphasisinghe crisisofthe state recommendedhe 'autonomi-sation'of 'thepolitical' rom'society'tosecure hedecision-making owerof the'state'oversociety.Both, notherwords,andin theirown way,recommendedhe're-autonomisation'f theeconomicandthepolitical romeachother,reinforcingtheir bourgeoisfragmentation. or theeconomic iberals hiswasto be achievedby 'rollingback'thestate,reconstitutingthe freedomof market elations.Fortheothers, t was to be achievedby 'rollingback' hestate romsociety hroughnsti-tutional reform. The difference, then,between he two solutions s only one ofdegree:bothstressed heneedforthede-politicisation f economicrelationsandthede-politicisationf political elations.Bothattempts t 'rollingback'dependonthede-politicisationf classconflictandthat s on the fragmentationf class intoaneconomic actorof production,n theone hand,anda law abidingcitizen,onthe other.Only on this basis would allthose ndowedwith herights fcitizenshipbe ableto cherish heliberating otentialof hard abour.The ordo-liberal olution goes muchdeeper han hedogmatic all formarketself-regulation n the partof the marketliberals.The solutionssuggesteddo notonly nclude hepromotionf valuessuchas self-restraintanddisciplinebutalsothecreation finstitutionsf socialcontrolthat stand external to the democraticprocess.Theaimwasostensiblyo removecertainissues, such as the conductofmonetary olicy, romparty olitical om-petition.However,hereal arget freformwas the powerof the workingclass tocompel overnmentocommit oncessionssuch as welfare guarantees.In short,discretionary processes of decision-

making were to be replaced by rule-basedsystems. Institutional restructuring, hen,was to 're-autonomise' the most vitalaspects of the state by transferringtheminto 'extra-democratic' domains. Duringthe 1970s the focus of 'reautonomisation'fell, concerning the German politicalagenda, on the Constitutional Court and,also, the Bundesbank. Within the contextof EMU, the issue of the 'independence'and'autonomy' is very muchemphasised.As Emerson (1992:87) sees it, "a stableand credible monetary regime requiresanindependentcentralbankwith thestatutorymandate to guarantee price stability.Otherwise thepublic might expect thattheauthoritiesmightbetempted o usesurpriseinflation to temporarily ncrease outputortemporarily reduce the real interest rateon public debt." Despite splitting hisinfinitives, Emersonmerely confirms thata democratic society, and relations ofexploitation are incompatible.The guiding idea for institutional re-organisation is that there are, in a demo-cratic society, basic values that standoverand abovetheexpectations andaspirationsof the majority, that is the 'dependentmasses'. In other words, the institutionalrestructuringof the state was intended toreaffirm the limited character of thedemocratic principle of majorityrule.Thebasic 'values' of liberal democracy areseen to stand outside liberal democracy'spower of decision-making. These valuesare those of the rights of privateproperty.They posit the social constitution ofbourgeois society andconfine democraticlaw-making to the administration of theconstitutional rights of capital. In otherwords,theproposalforinstitutionalreformsought to assert the constitutional rightsof capitalbyinsulatingthemfromworkingclass aspirations. In the context of thisdiscussion, the purpose of institutionalrestructuringwastode-politicise monetarypolicy by removing it from the contestedterrain of class conflict. Central bankindependence, in this way, would providea framework within which social conflictmight take place withouthowever posinga risk to the conduct of monetary policy.For its advocates, institutional reformwould reduce the vulnerabilityof thestatetoworkingclass aspirationsand 'moderate'thecapacityof theworkingclass todemandimproved conditions.The neo-liberal view of the crisis of theauthority of the state is based on theconviction that the 'mob' had enteredgovernment. Similarviews had been airedduring the crisis of the inter-warperiodat the beginning of this century. BernardBaruch, a leading Democrat hadprotested



9/16

against Roosevelt's decision to abandonthe gold standard n 1933 by stating that"itcan't be defended except as mob rule.Maybe the country doesn't know it yet,but I think that we've been in arevolutionmore drastic than the French Revolution.The crowd has seized the seat of govern-ment and is trying to seize the wealth.Respect for law andorder s gone" [quotedin Schlesinger 1958:202]. For Baruch,correctly, the 'dependent masses' are themajority and a democratic system needsto defend itself against the majoritythrough, for example, extra-democraticdecision-making powers particularly inthe field of monetary policy so as to pre-serve the 'liberty' of bourgeois propertyrights.In this context, the work of Carl Schmitt(1932; 1934) provides useful insights. Heperceived the crisis of the inter-warperiodin terms of a decomposition of social,political, as well as cultural structures.Thisdecomposition was seen tobea conse-quence of the emergence of mass societyand caused by the influence it was ableto exert on the structureof 'the political'.Institutionally, parliamentarydemocracy,forSchmitt, caused and focused the crisis:'the political' was subjected, on the onehand, to pluralist demands and, on theother, to class-specific interests of socialequality and emancipation. In short,Schmittemphasised that heparliamentarysystem underminedthe abiliy of the stateto make decisions because 'society' hadsubjected 'the political' to class interestsleading to the fragmentation of 'the poli-tical' and therewith to the decompositionof the central institution that, for Schmitt,is able to maintain social harmony. Thestate was thus seen to have become'socialised' and the class-divided natureof society was seentobereproducedwithin'the political'. The 'socialisation of thestate', then, undermined the central andprincipal institution capable of makingdecisions. Hence Schmitt's call for therestoration of the political, of the state,emphasised that the state had to liberateitself from society and thatthis liberationhad to be based on the elimination of allforms of social conflict. Only on this basiswould the national interest and commonvalues be securedandguaranteed.In otherwords, the working class was not onlyasked to obey the rule of law, andthroughit the managementof its labourpower, butalso to love it.Schmitt's notion of the autonomy of'the political' outlived, in its importance,fascism. This is not because the 'economy'and he 'state'(thepolitical) are wo distinctentities of human organisation. Rather,

the bourgeois state's historic role of pro-tectingthe laws of private propertyentailsthe state as a bourgeois form of the socialorganisation of exploitation. Yet, as sucha form, it appears to stand outside socialrelations as an institution in its own rightwhose distinct purpose is to safeguard,through law, the properconduct of equaland free exchange relations betweenproperty owners. Hence, the attempts ofpolitical theory to construe the state as adistinct form of political organisation thatresides outside social relations and thatmerelyintervenes, from the 'outside', intosociety to secure and guarantee thefoundations upon which the society ofburghersrest:the rightsof property.Whatmakesthe 1970sdebateonungovernabilityand institutional reform significant is itsreconceptualisation of the autonomy ofthe political against the background ofintense class conflict. The proponents ofungovernability perceived the democrati-sation of society or, as they put it, thepermissive society, asa threat o theabilityof the state to secure the relations of eco-nomic liberty and recommended insti-tutional reforms to de-politicise, for ex-ample, monetary policy.In conclusion, the advocates of marketliberalism arguedfor the autonomy of theeconomic fromthe stateandtheproponentsof state reform argued for the autonomi-sation of the statefrom society. Of course,the two proposals overlap. Friedman'snotion that thepolitical authorities shouldconductmonetarypolicy independent romspecific social interests(i e, workingclassinterests) and that these interests wouldautomatically accommodate their bar-gaining behaviour to restrictivemonetarypolicy shows the overlap well.However, in ourcontext, Hayckis muchmore mportant. nthe 1930s, he advocatedthat national states should combine tocreate a federal-state system. Such anarrangementwas endorsed as preventinginflationarydemandswhich, forhim, werea consequence of the polarisation of classrelations within independent nationalstates.The establishmentof asupranationalpolitical framework was endorsed as ameans that would encourage competitive-ness, againstanationalpoliticsof economicprotectionism; upport hede-politicisationof economic relations, against the powerof'special interests'(i e, theworkingclass)to subject the national state to a politicsof inflationarydemand management; anddo awaywithrestrictionson themovementof capital, labour and commodities.Furthermore, supranationalism wouldnarrow the scope for the regulation ofeconomic life; discourage the solidarityof

the working class through its nationalfragmentation; and "render possible thecreationof common rules of law, a uniformmonetary system, and common control ofcommunications" [Hayek 1939:255].Supranationalism was thus endorsed as away of keeping the state out of economicconcerns. Better, it was endorsed as adevice thatwoulddisempowerthe workingclass to force employers andgovernmentsto moderate tsaspirations hroughwelfareand employment guarantees. The powerof the 'mob' to distort the relations ofliberty would thus be severely restrictedallowing the state to administer justice'impartially' and in tranquillity.Supranationalism, then, was espousedas "providing a rational frameworkwithin which individual initiative willhave thelargestpossible scope"[ibid:268].Nothing would stand in the way to what,today, is termed the deregulation andflexibilisation of the wage relation. AsHayek saw it "even such legislation as therestri-ction of child labour or of workinghours becomes difficult to carry out fortheindividualstate" ibid:260].He accordsparticular ttention o the circumstance hatwithin a supranational union, individualstates "will not be able to pursue anindependent monetarypolicy" [ibid:259].In his view, national governments cannotbe trusted with monetary policy even ifthey are committed to a policy of pricestability. Politicians, he seems to suggest,are always governing with the nextelection in mind leading even the com-mitted 'monetarists' to give in to 'popularpressure' leading to a politics of com-promise and therewithto anintegrationofthe working class into the capital relationon the basis of material concessions.Furthermore, monetary policy alwaysrequires an element of judgment andthusdiscretion thatgovernment might abuse toretain popularity. A supranationalopera-tion of monetary policy, with an indepen-dentbank removed fromdomestic conside-rations, would thus create a space for themaking of monetary policy that is rule-based and therewith protected from the'distorting' influence of workingclass de-mands. The removal, then, of the centralbankfrompolitical influence would accordit a quasi-judicial statusindependentfromthe established system of 'democraticgovernment', undermininga 'Keynesian'politics of class-compromise atthe nationallevel. Inshort,adomestic policy of austeritywouldbe anchored n asupranationalegime.Hayek seems to have foreseen the tra-jectory of theThatchergovernments of the1980s and to endorse the view of theformer chancellor, Lawson, who argued



10/16


11/16

falls on labourand as long as EMU makesit appearas if it is not responsible for theburdenplacedon labour.Inshort,for them'government' hroughEMU,andtherewiththe 'resourceful' exploitation of labourinGermany, is by far more profitable thantheprospectotfbeing subjectedto workingclass demandsfor improved conditions orindeed revolutionary demands for thetransformation f the meansof productioninto means of emancipation.Insum. Padoa-Schioppa's endorsementof EMU as a collective prince is apt bothin terms of the collective interest of theEuropeanbourgeoisie and in termsof thecentralisation of monetary policy at theEuropean level. The name of the princeis austerity, the purpose of the prince isthe depoliticisation of monetary policy,andtheaim of theprince s the achievementof greater "expropriation of value fromlabour" [Carchedi 1997:100].In EMt. labour market and welfarepolicy remainwithin the remitof nationalgovernment. Member-states will retain"distributiveoptions on - necessarily re-duced - expenditure within balanced bud-gets" [Anderson 1996:1301andaccordingto union fiscal recommendations. Thesubsidiary principle of EMU is hierar-chically structuredwith monetary policyat the supranational evel, fiscal policy atthe intermediate level, and labourmarketpolicies of deregulation, lexibilisation andprivatisationat the national level. Withinthis troika, the supranational level ofmonetarypolicy is decisive. EMU renoun-ces the "competitive instruments of thepoorcountries(inflation anddevaluation),it calls industrialcapital to task, and thusis functional for the greater creation of(surplus) value rather than simply for amore favourable redistribution of the(surplus) value created" [Carchedi1997:100]. Whether it wil be functionalremains, of course. to be seen. Neverthe-less, EMU makes clear that employerswill have to improve competitiveness onthe basis of lower labour unit costs andthat is through the intensification of theexploitation of labour'sproductivepower.Failureto exploit labourmore effectivelywill carrythe risk of competitive erosiosnand bankruptcy.

EURO)PEANCENTRAL BANKThe sole task of the ECB is to guaranteeprice stability. The proponents of EMUTargue that the more the central bank isremoved from political influence the lessit will be responsive to working classdemands. The achievement of sound

money is seen to be a credibility problem."Oneway to bolster the credibility of this

objective is to assign theresponsibility formonetarypolicy toaninstitution hat s notsubjected to political influence" [Padoa-Schioppa 1994:188]. An independentECB, then, is endorsed as an institutionaldevice that will take 'politics' out of'economics'. reinforcing the view thatpolitics andeconomics arenotonly distinctformsof social organisation but,also, thatthe making of monetary policy is in facta non-political 'thing'. Moreover, theinstitutionaldesign of EMU reinforcestheview that the economy, if left to its owndevices, is self-regulating and that theinstitution of the market is a class neutral- socially impartial - institution whosesole criteria are efficiency, economy andeffectiveness. The ECB. then, is endorsedas an economic institutionwhose decisionsdepend on technical expertise and therational administration of 'economicnmechanisms'. Thus. by removing themakingof monetary policy as far as possi-ble from the contested terrain of classconflict, it is expected that the politics ofausterity will be terrainof class conflict.it is expected that the politics of austeritywill be protected from the 'mob'. As theproponents of EMU maker clear,"expectationsareatthe heartof the inflationprocess" [ibid:21]. Maastricht, then, notonly "inscribed he monetaristprojectintothe EU's agenda" [Grahl 1997:129]. italso shows thatgovernments have learnedfrom the failure of monetarism in onecountry n theearly 1980s.Since, accordingto its advocates, inflation is caused byexpectations, and since economic relationsare self-regulating and since nationalgovernments areno longerresponsible formonetarypolicy, any part of the humanfactor of production to the "limits of themarket"or "the unreasonableness of theactors who get a wage" [Williams et al1991:221].In EMU. the "central bank cannot begiven instructions by any democraticbody...as if it were a court of law ratherthananinstrumentof publicpolicy" [Grahl1997:138]. TheECB, following Grahl,"isspecifically excluded from endingdirectlyto government at EU and national level"(p 121), and it is "obliged to avoid themonetary inanceof public sectordeficits"(p 131). The ECB is not "involved in anyway in the financial position of memberstates", because "financial markets mustbe convinced thatneitherthe central banknor any other community institutionimplicitly guarantees the obligations ofnational governments" [Padoa Schioppa1994:183]. In conclusion, the ECB isdivorced from national concerns and un-accountable to the aspirations of the

majority.Its institutional constitutionis sostructured as to make monetary policyappear as a non-political process and soconceived as to insulate national govern-ments from 'popularpressure'.At the sametime,nationalgovernmentsareempoweredto argue that they can do nothing otherthanpursuea politics of austeritybecausethis policy is imposed by the ECB. Inshort, what governments did not dare toimplement, or indeed failed to pursue ontheir own because of resistance. is nowimposed upon them, and this on their ownwill and initiative.The proponents of EMU do of courserecognise thatclass conflict might lead totensions on the labour market and 'exces-sive wage increases'. Would the ECB, inspite of its statutory duty, accommodateto inflationary wage pressures or wouldit maintain price stability? Thus, classconflict might threaten the legitimacy ofthe European project. For this reason. itis argued that the politics of the ECB hasto be 'legitimised' through "a degree ofdemocratic accountability" [Emerson1992:98]. As Emerson sees it, "regularreportsto the European parliamentmightthereforeactually facilitate the task"of theECB [ibid]. Padoa-Schioppa (1994:189)provides a more detailed account on thedemocratic legitimation of the ECB. Yet,longer though the account may be,Emerson's much briefer version is at leastless embarrassing.Nevertheless, the issue raised by theproblem of 'democratic legitimacy' is ofcourse most importantregardingthe poli-tics of class. In this context, the principleof subsidiarity is of importance.While thecentral aspects of EMU, monetary policy,is located at the supranational level,fiscal policy, whilerestrictedandsubjectedto supranational surveillance and co-ordination, is given some degree offlexibility to cope with 'local shocks'.The most 'decentralised' aspect of'subsidiarity' concerns the retention oflabourmarketpolicies and welfarepoliciesby the member-states. This arrangementretains, or 'offers' to labour,the 'nationalterritory' as the 'framework' for workingclass conflict. The idea, it seems, is thatmonetarysupranational ntegration,fiscalco-ordination, and national responsibilityfor 'labour' will reinforce the nationalfragmentation of the working class, soprotectingmonetarypolicy from sustainedclass conflict. The 'territorialisation' ofthe European working classes would ofcourse be helpful forfragmenting ts resis-tance to austerity across Europe; it wouldbe useful for addressing the requirementof higher labour productivity in terms of

PE-64 Economic and Political Weekly August 29. 1998


12/16

the 'national interest': and it would besupportive to containing discontent withdeclining conditions on the basis of'nationalist' sentiments. Whether EMUwill be 'functional' in this way, is ofcourse a different question and will bediscussed in the concluding section.

FISCAL POLICYEMU is robustabout the need for fiscalausterity as a corollary of and conditionfor the stability of monetary union.However, in EMU the ability of nationalgovernments to respondto labourconflictthrough fiscal expansionism is bothrestricted and increased. It is increasedbecause.as Garret 1994:49) reports,EMUposes "a strong incentive for member-states to free ride on the union runninglarge budget deficity". There is thus the'danger'thatnational fiscal expansionismmight pose 'a major threat to the overallmonetarystability' of theUnion [Emerson

1992:100]. Inaddition, thecosts of deficitfinancing would be shifted on to partici-patingcountries [Eichengreen 1994:188].The crucialquestion, then, for thestabilityof EMU is thatof fiscal policy, andthroughit, that of containing class conflict withinbalancedbudgetsacrossthe EU. As Padoa-Schioppa (1994:127) puts it, the questionis "whethermonetaryunion runsa seriousrisk of being undermined by independentand possibly un-coordinated budgetarypolicies by member-states".Therisk,then.isoneof moralhazard. 2Shoulda member-state that responds to class conflict withfiscal profligacy be stabilised by fiscaltransfers from other member-countries orshould the ECB, despite its brief not todo so, be allowed to monetise the accruednationaldebt? Were such responses legiti-mate, would this not 'invite' member-states to adopt 'unsustainable' fiscal mea-sures to combat working class struggles'?The debate on EMU focuses on thecreationof safeguardsto ensurethat fiscalprofligacy is renderedimpossible and themaincontroversyover Italy's membershipin EMU, and the quarrelbetween Franceand Germany over the President of theECB, is on precisely this issue. Germanyfavours a hard EMU with no obligationto stabilise or re-finance, for example.Italy through fiscal transfers. France, inthe face of labour unrest, seeks a moreflexible interpretation of Maastricht toallow scope for dealing with social dis-content. Besides, a more flexible arrange-ment, and therewith a softer euro. wouldof course mean thatGermanywould haveto adjust to the conditions of labour pro-ductivty pertaining in France. However,a softer euro is anathema not only to

Germanybecause 'softening' wouldderailthe project of monetary integration at adomestic level and on a global scale. Thedifferences, then,between the FrenchandGerman conceptions are distinct only asvariants of a common theme and that isthatmonetaryunionneeds to be buttressedwithfiscal restraint. nEMU, fiscal policyis to support monetary union and not toweaken the value of the euro throughinflationary pressure.In EMU, fiscal policy resides formally.with the member-states. At the same time,the union has the power of co-ordinationand surveillance, and the ability torecommend modifications of fiscal policyandtoapplysanctionsagainstgovernmentsthathave nottaken herecommendedsteps.Inshort,theunion hasthepowertoenforceupon member-state fiscal discipline. Adifferentsolution to theabilityof member-states to adopt expansionary responses toclass conflict would have been thetransferof fiscal responsibility to the union. Thiswould have led, constitutionally, to justthat sort of fiscal federalism that Hayek,and with him the proponents of EMU.feared. However in EMU "subsidiarity,not the Leviathan, is the catchword forEuropean political union" [Padoa-Schioppa 1994:191]. Yet, subsidlaritymightbe the catchword, thecontent of thefiscal policy arrangement is clearly theloss of fiscal demand management as ameans of containing labour conflict inmember-states.Boththetransitionarrangement oEMU,that is the convergence criteria,andEMUitself seek to guardagainst"unsustainablebudgetary policies in a member-state"because these are seen to lead to either"default rdebtmonetisation"which would"be a majorthreatto the overall monetarystability"[EuropeanEconomy) 990:100].In thisview, and ndeed astheconvergencecriteria of Maastrichtmake clear, any risein debt whatever the objectives of the ex-penditure, s 'unsustainable'. As Emerson(1992) makes clear, "fiscal discipline isdefined as the avoidance of an unsustai-nable build-upof public debt"(p 107) andthe transition to EMU "amplifies thedomestic effectiveness of national fiscalpolicy for stabilisation purposes"(p 115).requiringa tight control of member-statesif "fiscal expansion were systematicallybeggar-thy-neighbourincharacter"(p19).Inshort,"surveillance will have to correctpossible tendencies for budget deficits tobecome too large" and EMU relies on"fiscal policy to reduce budget deficits"(p 100). EMU, then. seeks to renderobsolete anti-cyclical fiscal policiesassociated withKeynesianism andconfers

on fiscal policy the task of controllingpublic expenditure. EMU.discourages apolitics of fiscal equalisation from rich topoormember-countries.Anyfiscaldemandmanagement, as the proponents of EMUsee it, involves the "risk of weakeningincentives for production activity andcreatesstable welfare dependency"[Euro-pean Economy, 1990:2271.Thus,memberstates are encouraged, in orderto qualifyfor membership in EMU, to 'modernise'theireconomies through privatisation,de-regulationof labourmarkets, lexibilisationof labourprocesses, andthelike, includingthe containment of welfare state expen-diture despite an increase in redundantlabour.EMU, then, is endorsed as a"frameworkof incentives and constraints" that will"conditionnationalbudgetarypolicies, forwhich the keywords will be autonomy (torespond to country specific problems),discipline (to avoid excessive deficits).andco-ordination(toassureanappropriateoverall policy-mix in the Community)'[Emerson 1992:1 1]. In sum, the retentionof fiscal powersbynational statesismerelyformal at the same time as the union hasno fiscal responsibilities. Its task is tomake sure that member-states pursue apolitics of fiscal restraint.The union, then,has the power to discipline fiscally laxmember-stateswhile member-statesretainthe power to implement a 'responsible'fiscal policy byvirtueof theirown politicalsovereignty. Subsidiarity. hen,meansthatthe union decides on what is fiscally per-missible while member-states retain thepower to adopt a responsible fiscal policythat redistributes income from labour tocapital. Thus. EMU does explicitly rejectfiscal federalism. It merely empowers theunion to police the fiscal stance of itsmembers.This, then,creates aproblemforthe reformist labour movement in thatneitherthe nationalgovernment(s) nor theunion appearresponsible for fiscal policy.Forits proponents,EMU means thattheworking class can no longer expect suchconcessions of extensive welfare supportmechanisms. EMU is seen to providestrong incentives for labour to move fromareas of unemployment to those whereemployment might be gained. Increasedcompetition within theEU mayalso 'resultin an increased responsiveness of wagesto unemployment', with 'labour marketflexibility, and most importantly wageflexibility,...the mostimportantadjustmentinstrument' [Emerson 1992:149]. Yet, asEmerson and others recognise, suchadjustment on the part of the workingclass, that is its transformation into aneconomic, effective and efficient human



13/16

resource,mighttake time. For this reason,the retention of fiscal policy by nationalstates is endorsed as a means of enablingnationalstatesto respondto 'local shocks'in order to achieve 'short-term stabili-sation' for the purpose of 'medium termadjustment' [ibid:100]. However, whilenationalgovernmentsmayusefiscal policymeasures to absorb 'local shocks', thesehaveto be co-ordinatedwithothermembercountries.Importantly, he fiscal responseto 'shocks' is to ensure the maintenanceof price stability and wage discipline. AsEmerson (1992:103) sees it, the purposeandaimof fiscal policy is to offset increasesin domestic demand because price andwage adjustmenttakes time due to a lackof wage discipline on the part of theworking class. The aim andpurpose, then,of national fiscal policy is to induce realwage adjustment. The stability of EMUdepends, hen,on the readinessofEuropeanlabourto support he achievement of pricestability across Europe through an im-proved utilisation of its productive powerin exchange for deteriorating conditions.

ADJUSTMENTAND LABOURAdvocates of EMU endorse it as a devicethat will readjust monetary accumulationto productive accumulation on the basisof a stronger link between working classconsumptionandproductivitygrowth.Theconvergence criteriaand the Stability Pactsubordinatecountries with relatively highlabourunit costs to those with low labourunit costs. With currency devaluationrendered obsolete and fiscal policy dis-ciplined by EMU, the "wage-price flexi-bilityremains he basic adjustment hannelas a substitute for the nominal exchangerate" [Emerson 1992:102]. In addition,labourmigration is expected to adjusttheburden of unemployment on national'budgets. In short, EMU inscribes ininstitutional form what capital and itsnational state(s) have sought in vain overthe ast two decades.Nationalgovernmentsuse, as Grahl (1997:228) puts it, "Maas-tricht as an alibi for their own projects to

establish more restrictivewelfareregimes,tointensifymarketdiscipline and to favourparticular social strata".EMU focuses on the politics of de-regulation, lexibilisation, wage discipline,labour mobility, and particularly lowerlabour unit costs, as the basis throughwhich the European economy will haveto adjust. Lower labour costs are "a con-dition to the relativepricedecrease neededto restore the competitive position of[member states] and to bring output andemployment back into equilibrium" and"factor mobility, in particular labour

mobility,maysolve theproblemhroughmigration'Emerson992:147]. hebeliefis that"wagebargainerswill be affectedbya crediblemonetary nion" s thevwillrealise hatexcessivewageriseswill notbe underwrittenydevaluationsibid:24).Inotherwords, he costintermsof outputandemploymentmightnotbe highif theworkingclass submits o wage restraintand f it is willingto letitself beexploitedmoreeffectively,efficientlyand econo-mically. n heabsence fsuchwillingness,unemployment illfollowand he'need'to migrate might arise. Employersthemselveswillbehelped yEMUbecausefailure o confront heir abour orces toachieve ower abour nitcostswillmeanloss of competitiveness.Thus, EMU isseen ospur mployers ntogreaterffortsto increase he rateof exploitation.Thisassessment f the 'adjustment'hatEMUwillinspirewaswellexpressedbyBritishcommentatorsuringhepound'smember-ship n theERM.As Stevens 1991:26-27)put tthen,"arguablyhemostdisappoint-ing featureof the past eleven years ofattempted ricerestraint asbeenthe factthat wage inflation has persistentlyoutstripped eneralinflation...It s nowclear hatmerelyaportion f thesegreaterlabour ostswasjustified y mprovementsinproductivity.nlyaexchangeatepolicy...can constitute a sufficiently obviousdiscipline,even for the dullestof wagenegotiators, o break this trendthat hasbedevilledusformore hanageneration."In sum, the politics of subsidiarityenvisagesthat the institutionalisationfpricestabilityat the supranationalevelwillsupport ational overnmentsn theireffort of achievinga full scale 'marketi-sation' of the 'factorlabour' and forceemployerso maintainompetitivenessyconfrontingthe working class in thecontested errainf productiono increaselabour roductivity. his s not tosaythatemployers avenot confrontedheirwor-kers n thepast.Yet,withthedevaluationof exchangeratesrendered bsoleteandwith heECBseekingprice tability ttheEuropeanevel divorced rom 'national'concerns, the room for compromisetowardsand concessionsto labourhavedecreasedignificantlyjust astheHayekof the1930s houghtt would.WhileEMUis an attemptat makingthe Europeanworking lasspayfor the containmentfinflationand the controlof deficits, itappearsat the same time as a merelytechnicaldeviceand,importantly,s therealisationfEuropeanarmonyeplacingits onghistory fbloodywarand onquest.EMU, it appears,seeks to justify theintensificationof exploitationand the

deterioration of conditions through theabsence of war.In EMU, the definition of monetarypolicy as a merely technical device bestleft to experts that have apparently nointerest in politics and the elevation ofmonetary policy to the supranational evelseems indeed to vindicate Padoa-Schioppa's view of EMU as resemblinga modern version of Machiavelli's prince.Its court is fiscal policy that is located inthe twilight zone between the nationalstate and the union. The subjects of theprince are the European working classeswho are territorially regimented in thefiefdoms of their national states. As acitizen, the 'human factor of production'appearsin EMU's design in the form thathas been visited upon the 'dependentmasses' since Roman times. It appearsasthe plebes. The metaphor of the prince,then, entails the transformation of thenational boat into the Europeanhome: themajority rowing, the minority navigating.Yet, as has been argued,EMU needs tobe seen against the background of thecrisis of capitalist accumulation since thelate 1960s. Since then capital and itsnational state(s) have failed to re-integratelabour into the capital relation as aneffective factor of production whoseexploitation guarantees the global credit-superstructurein the present and whoseconsumption is within the limits ofproductivity growth.EMU has not causedthe deep recession of the 1990s nor hasit forced governments to deflate theireconomies. EMU provides an institutionalframework for coping with the labourquestion through the institutionalisationof a deflationary regime that imposes, ontheir own initiatives, upon nationalgovernments a policy they either failed ordid not dare to implement due to fear oflabourunrest. There is however neither aninstitutionalfix totheproblemsof inflationnor an institutional solution to the labourquestion. Class struggle has to be foughtand, of course, the institutionalre-organi-sation of political power at a Europeanlevel is an important aspect of this fight.However, as the conclusion argues, suchre-organisation reproduces the contra-diction it ostensibly sets out to resolve.

CONCLUSIONThe article has argued that EMU ispolitically motivated and that t is as mucha response to domestic as to global condi-tions. Both of these conditions are intrin-

sically linked in andthroughthe capitalistcrisis of exploiting labouron anexpandingscale. Thiscrisis asserted heproductivepower of labour that capital found



14/16

increasinglydifficult to contain within thelimitsof profitability.Since the late 1960s,the growth ratesof monetaryaccumulationhave outstripped those of productiveaccumulation. Monetary accumulationdissociated fromproductiveaccumulationpresentsaclaim on surplusvalue still to beexpropriated from labour. As a conse-quence the strength of the relationshipbetween 'money' and exploitation dec-lined.Instead,claims on the futureexploi-tation of labour accumulated and thestrength of the relationship betweenconsumption and productivity growthweakened. Moreover, national states lostthe ability to erode real wages throughinflationbecause of the speculative threatto currency exchange rates.In this context the search for counterinflationary credibility is of paramountimportance. Counter inflationary credibi-lity, however, is not just some sort of atechnicalthing.Itinvolves thecontainmentof class conflict on the basis of austeritythat seeks to strengthen the link betweenconsumption and labour productivity. Inshort, a politics of austerity means aprolonged periodof notonly living on lessbut also of working harder, longer, moreintensely, and more 'flexibly' in the faceof declining conditions. Against thisbackground, the convergence criteria ofEMU and the Stability Pact (1996) makerevealing reading. They institutionalise apolitics of austeritybycalling for astrongerrelationship between consumption andlabourproductivity throughthe control ofmonetarypolicy (austerity), iscal restraint(the control of budgets); and the loss ofexchange rate devaluations as means ofadjusting sluggish domestic competitive-ness to international conditions. Hencetheattemptto demonise the workingclasswho, it is argued,threatens o fuel inflationthroughdemands for higher pay thathavenot been earnedthrough increased labourproductivity. However, while focusingadjustmenton the workingclass, govern-ments have to be careful not to provokesustainedclassconflict to avoiduncertaintyand thus to maintain credibility. Theattempt, hen,atde-politicising themakingof monetary policy is of vital importance.The neo-liberal recommendations forovercoming the crisis of the state focusedprecisely on this issue.EMU amounts, then, to an institutionalattempt of buttressing domestic policiesof austerity with a supranational anchor.Institutionally, social and labour marketpolicies remain"national n nature,allow-ing for the labour movements to be frag-mentedrather hanintegrated n a pan-Europeanbasis" [Gill 1992:1731.EMU

provides the institutional framework fora comprehensive re-structuringof labourrelations and erodes "the conditions ofexistence of the welfare-national state"(ibid). Most importantly, t creates a hugeintegrated market where countries withlowproductivityratesrelative to themajoreconomic powers in the EU, will faceintense competitive pressure.Adjustmentmnechanisms, ther than a direct confron-tation with labour, are rendered obsoleteby EMU. It has been argued that theEuropean bourgeoisie is supportive ofEMU because the burden of adjustmentis carried by labour and it has beensuggested thatEMU is so structuredas tode-politicise themakingof monetarypolicyand to insulate monetary policy fromworking class demands.EMU, then. appears to amount to theinstitutionalisation of an anti-inflationarypolice force thatseeks to protectmember-states from speculative runs by securingthe rights of private property internally.Furthermore,EMU not only seeks to de-politicise the attack on the labourmovement butalso toreinforceandexploitits regional and national fragmentation.Hayek, in the 1930s, advocated supra-nationalism for this very reason. For him,inter-state federalism would dilute classpolarisation, decompose entrenchedpositions of class power andde-politiciseclassstruggle. Insteadtherewouldemergecomplex andchangingrelationsof conflictbetween the classes. For Hayek, classconflict would be replaced by competitivepluralist relations, segmenting workingclass struggle and disempowering sus-tained resistance to the politics of moneyat the centre.EMU, it has been argued, is aninstitutional arrangement "designed toinsulatekeyeconomic agencies, especiallycentralbanks,frominterference'by lectedpoliticians" [Gill 1992:168]. In qualifi-cation to Gill, the most intriguing aspectof EMU is notthe insulation of key econo-mic agencies from political interferencebut, rather,the institutional assertion thatthepolitical and economic are two distinctforms of social organisation. Central bankmonetary 'policy' is directly political innature and EMU's effort to make themlook un-political presentsthemost impor-tant aspect of the de-politicisation of thepolitics of class.13However, it would be quite wrong tosuggest that,before EMU, there hadbeendemocratic control over monetary policyconferring influence on the labourmove-ment. With EMU, the "concentration ofunaccountable decision-making liesprecisely in those areaswherethecapitalist

nation state itself has always resisted de-mocratic encroachment most trenchantly:monetary policy" [Gowan 1996:97]. Thesupranationalcharacter of EMU, then, isimportant not because it makes demo-cratically unaccountable what previouslyhad been democratically accountable. Theimportance is rather that national states,on their own initiative, will no longer beable toaccommodate class conflict throughcredit expansion or currencydevaluation.Instead, EMU places binding "constraintson state power" [Gill 1992:178], institu-tionalising a supranationalanchor for thesubordination of labour to the disciplineof the market. EMU, then, amounts to anarrangement hatpre-emptively undercutsexpansionary responses to labourconflictand unrest. Ma'astricht, followingAnderson( 1996:131), "leadsto anobliter-ation of what is left of the Keynesianlegacy that Hayek deplored, and most ofthe distinctive gains of the westernEuropean labour movement associatedwith it". Maastricht, then. inscribes theneo-liberal policy of market freedomassociated withHayekthrough hecreationof constitutional devices associated withordo-liberalism.Howe

bonefeld - politics of european monetary union - class, ideology and critique

Documents