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Will the Macron–Merkel Agreement Save the EU from a Debacle?

In the early hours of July 21, leaders of the European Union agreed to what the New York Times called a “landmark spending package to rescue their economies from the ravages of the pandemic.” This article is a thoroughgoing political economy analysis of the effort to save the European Union from the pandemic and the economic crisis that had already been forecast before the virus struck, originally published in French in May.

Juan Chingo

July 24, 2020
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Photo: Mar Ned-Enfoque Rojo

In the early morning hours of July 21, leaders of the European Union agreed to what the New York Times called a “landmark spending package to rescue their economies from the ravages of the pandemic.” Details of the stimulus agreement, totaling some 750 billion euros, can be read here, in a brief analysis by the comrades who publish Izquierda Diario in the Spanish State. The present article by Juan Chingo was first published in Révolution Permanente in late May, when French president Emmanuel Macron and German chancellor Angela Merkel first proposed the basic structure of the agreement. It is a thoroughgoing political economy analysis of the effort to save the European Union from the pandemic and the economic crisis that had already been forecast before the virus struck. The translator has made some small adaptations. — Scott Cooper, Translator

The heads of state of the 27 countries of the European Union opened a summit on Friday, July 17, to determine how to recover from the economic crisis through loans and subsidies. The Covid-19 pandemic, with Europe as one of its epicenters, has widened the gulf between the countries of the continent’s south and north. The plan first proposed by French president Emmanuel Macron and German chancellor Angela Merkel in May was supposed to be a way to right the EU ship, but the summit — where the plan was largely adopted — instead exposed the deep political crisis that is shaking the EU, with the economic crisis strongly rekindling latent elements of the political crisis.

The German daily Die Welt, for example, reported that the “chaos summit” put an end to the “EU illusion” of unity between states and openly increased tensions and disagreements between them. In France, Le Monde reported “fists pounded on the table and slamming of doors.” On the table was the question of 750 billion euros in loans and subsidies to states, with the so-called “frugal” countries (the Netherlands, Denmark, Sweden, Austria, and now Finland) wanting conditions: to reduce the amount allocated to subsidies as much as possible, exercise strong control over the countries that would benefit from them, and make them subject to austerity reforms. Other obstacles included conditions on democratic rights aimed at reactionary right-wing governments in Hungary and Poland, as well as conditions with respect to a carbon emissions reduction program. Even the European budget for 2021-2027 was up for discussion.

Beyond the immediate issue, there was above all the problem of the growing crisis of the European Union that became even more pronounced with this summit. The meeting was supposed to end on Sunday, but was continued. An impasse was unacceptable. It would have been a scathing admission of impotence, first and foremost for Macron and Merkel.

This article, first published in late May, asks whether the Macron–Merkel agreement can save the European Union from a debacle.

The EU at the Brink of the Abyss

Already hard hit at the peak of the pandemic, the lack of solidarity and differences between European countries could deepen in the context of the economic crisis that is brewing and the recovery plans each country plans to put in place to save its own economy. Indeed, the lack of a common response risks favoring national, uncoordinated, or even opposing solutions. This is a new situation that threatens to resurrect the euro crisis, which has never really been resolved. The single currency has failed to strengthen cohesion between Europe’s north and south, just as the measures adopted in the wake of the sovereign debt crisis (2010–2012) that quickly followed the opening of the 2008 global financial crisis have failed.1Translator’s note: In 2008, Iceland’s banking system collapsed, sparking a crisis that spread to several other European countries — primarily Greece, Ireland, Italy, Portugal, and Spain, which also saw financial institutions collapse. The cascading effects included bailouts, high government debt, downgrading of several Eurozone countries’ debts (including Greece’s debt being moved to “junk” status”), and rapidly rising bond yield spreads in government securities. Overall, it provoked a deep loss in confidence in European businesses and economies. The crisis was contained only through the intervention of wealthier European countries providing financial guarantees, and the further intervention of the International Monetary Fund — all aimed at preventing an overall collapse of the euro and financial contagion. The loan agreements behind these bailouts included requirements for severe austerity measures. However, unlike then, the current crisis affects all countries, including the most powerful. The various states have announced national recovery plans, which are necessarily unequal, and thus run the risk of exacerbating differences within the European Union and thus increasing the fragmentation of the Eurozone.

As John Springfor, deputy director of the Centre for European Reform, explained in the Financial Times

There are several reasons why Covid-19 is more damaging for southern Europe.

Italy and Spain were hit first by the pandemic. The severe toll exacted there gave other countries the chance to lock down more quickly, thereby limiting the outbreak and shortening their lockdowns. As our research shows, Germans will be able to go back to work sooner than Italians and Spaniards. Every month of restrictions reduces a country’s annualised gross domestic product by 2 to 3 per cent.

The lockdowns are also more painful in southern Europe. More regions in Greece, Spain, Italy and Portugal have large tourism or manufacturing sectors — sometimes both — than in northern countries. Office workers can work more easily from home, whereas those in factories or leisure sectors must work together or in proximity to customers. Tourism is far more seasonal in Mediterranean resorts than northern cities. Even though Greece wants to open its tourism sector soon, lockdowns across Europe are likely to persist into the summer when southern Europe’s revenues are usually at their highest.

In addition, southern European countries have more limited fiscal ability to support furloughed businesses and workers. The European Commission is already concerned that Germany’s vast loan guarantee programme to its companies might undermine the single market.

Because southern EU countries tend to have higher debt levels and borrowing costs, that will make them less able to use their national balance sheet to protect companies from bankruptcy or to stimulate recovery. That means northern companies will be in a stronger position to take larger market shares across Europe when the pandemic ebbs. It will also sap growth in southern Europe relative to the north.

These divergences mean public debt will also rise sharply, making it more difficult for countries already in debt to borrow to fuel their stimulus programs. We cannot rule out the worst-case scenario: the common currency exploding following a new speculative attack on Italy that spills over into Spain and France. Even if the European Central Bank tries to avoid such a situation by continuing to intervene in the markets, the depth of the crisis calls into question the effectiveness of that strategy. It is in this critical context that the reaction of the Franco-German axis, which includes a turn by Chancellor Angela Merkel, must be analyzed.

Merkel’s Turning Point: A “Hamiltonian” Moment in Europe?

Berlin has long resisted the ambitions of Paris, the flag-bearer of the countries of the South, for a better distribution of the tax burden, remaining unshakeable in the face of arguments pointing to the future danger to the stability of the Eurozone. In this context, the Franco-German proposal for a 500 billion euro recovery fund to help respond to the economic impacts of the coronavirus pandemic, which includes in principle direct transfers of money to the most affected regions rather than loans, financed by a common EU debt, is an important concession that says a lot about the seriousness of the crisis.

For some, it is a “Hamiltonian” moment — an allusion to the first U.S. Secretary of the Treasury, Alexander Hamilton, who succeeded in mutualizing the debt of the U.S. states whose coffers had been emptied by the War of Independence against the British Crown between 1775 and 1783. This was the historical reference chosen by the German Finance Minister, Olaf Scholz, to defend the Franco-German plan in an interview with Die Zeit. It is clear that, for the first time, the Eurozone’s two largest economies have come together to propose a “common debt tool” and that to secure the hundreds of billions in new loans, the EU will need to increase its tax revenues. That means that to obtain additional resources, the EU will need to collect new taxes for its own accounts — specifically, pan-European taxes based on cross-border economic activities, such as taxes on carbon emissions or financial transactions.

But, as this is Europe, let’s not get ahead of ourselves. First of all, this is not a guarantee of solidarity between European states on past debts, but rather about access to 500 billion euros of new money to fight the health, economic, and social consequences of the coronavirus crisis. More importantly, the money will not come without conditions. According to France and Germany, EU support will require beneficiaries to follow “sound economic policies and an ambitious reform program.” Nothing could work better to dampen the hopes of some southern European leaders, such as Spanish Prime Minister Pedro Sánchez, who might have thought the EU would save the Spanish State without any quid pro quo. In fact, while the money will not be repaid directly by the governments that use it, and they will not be indebted to the markets, the amounts paid out will still come from loans made by the EU (through the European Commission) that will have to be repaid. Italy, for example, which will be one of the main beneficiaries, will have to contribute to the repayment, although to a much lesser extent than Germany (11% versus 27%, respectively). More generally, as the Financial Times wrote, “In multiple respects, however, the plan falls well short of Hamiltonian nation-building. There would be no mutualisation of outstanding debt. The recovery fund is intended to be a temporary measure. And other member states may yet water down the proposal.” And further,

To constitute a real “Hamiltonian” moment the member states would have to go a long way and confer significant taxation powers on the EU, said Shahin Vallée of the German Council on Foreign Relations. Nothing in the agreement approaches that now.

The commission’s plans, likely to be unveiled next week, will probably contain proposals for it to be granted additional “own resources”, officials say. Already the EU is partly funded via own resources including customs duties, but additional revenue streams could help service the commission’s new debt. A truly decisive step towards fiscal union would require much larger quantities of own resources to be handed over. This would also require unanimous agreement from the member states, and would be anathema to many national treasuries. …

A fiscal union would normally have a single finance minister responsible for borrowing and spending. But the Franco-German plan would do little to change the EU’s hybrid governance system. As well as approving the EU budget every seven years, national capitals also have the final say on new EU-wide taxes.

The EU Is Stuck Between Internal Fissures and a Global Geopolitical Battle

The reality that prevents progress towards a federal state is that the differences within the EU are structural. The north-south divide is the continent’s deepest divide, and Italy is now the weakest link — which, because of that country’s weight, jeopardizes the entire European edifice that has been built to date. As the former Italian prime minister and former European Commissioner Mario Monti has said, “This is not la dolce vita, but a matter of life and death” for the EU. He was referring to the accusations levied by some northern European countries against an extremely indebted Italy for its excessive spending.

The coronavirus has fallen along the same tectonic fault that helped shake the EU during the euro crisis, the debacle in Greece at the time serving as a spectacular warning for the future. The reality is that, as the heterodox economist Juan Laborda2Translator’s note: Laborda teaches financial economics at the University of Carlos III and money and banking in Syracuse University’s program in Madrid. In the academic field of economics, heterodox economics is the name given to the study of economic principles considered outside of mainstream or orthodox schools of economic thought. As these are determined mostly by bourgeois economists, it includes Marxism, feminist, anarchist, and other left-leaning schools, as well as post-Keynesian (not to be confused with New Keynesian) and other schools. put it, “The euro, in short, and in contrast to what is generally assumed, has in reality meant a subsidy from southern Europe to Germany, by transforming itself into a mere creditor-debtor relationship.”

Laborda writes further,

However, the basic problem of the European Union is deeper, since [in] its origins it was tailor-made for Germany. On the one hand, the entry of southern Europe into the Euro, with the consent of its own elites, ended up destroying our industrial sector which was not prepared for the free market … But that is not all. To this day, Germany still does not want to reduce its current account surpluses through policies that facilitate greater consumption by its families. Nor did it want to assume the consequences of the price risk of its banking sector after the 2008 financial crisis. These banks had channeled German savings into activities and assets without carrying out a corresponding risk analyses, forcing the Spanish and Irish, for example, to later rescue them by socializing bank losses. To top it all off, Germany is still not taking on a fiscal union that would involve a mutualization of debts within Europe and not imposing a resolution mechanism in bank rescues at the expense of taxpayers, as was the case in 2008, instead being paid by the creditors who were responsible for the crisis.

The euro, in short, and in contrast to what is generally assumed, has in reality, in the end, meant a subsidy from southern Europe to Germany, as it has become a mere creditor-debtor relationship.3Translator’s note: For this and other quotations from Laborda piece, the translation is from the original Spanish and not from this present article in French.

In this unequal relationship, the Netherlands says out loud what Germany thinks but does not say. Indeed, the Dutch economy is entirely devoted to exports, which account for up to 84 percent of its national wealth, compared with 31 percent for France and Italy, the lowest values in the European Union. Northern Europe, with the exception of Finland, has export rates higher than the average GDP and is also a net contributor to the Brussels budget. They are fully integrated into the German economy, as is the case with the Netherlands — with much of the steel for the automobile industry or consumer goods originating through the port of Rotterdam, a real German port of call on a par with Hamburg. Like Berlin, and perhaps even more legitimately, The Hague therefore has no incentive to change the status quo.

Laborda calls out Dutch prime minister Mark Rutte as well as former Dutch minister of finance Jeroem Dijsselboem, and quotes the economist Paul De Gruawe, who said that “each and every one of these politicians maintains anti-Spanish, anti-Italian and, in general, anti-Latin and peripheral country prejudices. They are convinced that with their savings they are financing the Spanish fiesta and the Italian chaos.”

The flipside of their “moral recommendations” is that the Netherlands is a country with a tax system that would be the envy of the Caribbean —  a tax haven in the heart of Europe. “When they channel the profits of their subsidiaries through the Netherlands before that money returns to the parent company’s accounts, multinationals save millions of euros that should be in the state coffers of different countries,” according to El Confidencial.4Translator’s note: These translations from El Confidencial are from the original Spanish, not the French of the present article. Arjan Lejour of the Netherlands Bureau for Economic Policy Analysis (CPB), who is also a professor of taxation and public finance at Tilburg University, explained that the Netherlands is responsible for 15 percent of global tax evasion. “Assuming that global corporate tax evasion is around US$150 billion, some US$22 billion is diverted through the Netherlands,” he told the reporter.

How is this organized?

With the Dutch sandwich. Money flows through letterbox companies in the Netherlands — physical offices with no employees or real activity — that have been created by the multinationals themselves. These funds enjoy a “tax reduction laundering” that is totally legal in the eyes of the state. Since most European countries have rules that make it difficult to send profits directly to tax havens, companies first move them to the Netherlands, where they are taxed — but much less than they would be had they been declared as income in the country of the actual headquarters or in the other subsidiaries established in other countries. And once they are legalized in this way, the profits can then be transferred to the tax haven chosen by the company, where they will swell coffers of previously laundered capital. The sum of these lost taxes amounts to at least 22 billion euros.

However, compared to the 2010–12 crisis, there is a difference within this structural framework, and it is significant. At that time, the epicenter of the crisis was the “peripheral” countries: Portugal, Greece, Ireland, and Cyprus. Given that, Germany tried to limit the rescue plans to what was absolutely necessary, and had much more bargaining power to impose reforms in exchange for “aid.” With the current crisis affecting the whole of Europe, Germany has to strike a difficult balance. On the one hand, it must facilitate the distribution of liquidity within the EU, especially towards the south, in order to save the single market — which is the instrument that allows it to export so much. On the other hand, it must minimize the distribution of debt in order to preserve its role as guarantor of last resort.

Merkel’s turning point seeks to solve this difficult equation. That is why, with the French press praising Macron as the initiator of the deal, Merkel has once again confirmed that Germany is the EU leader thanks to its unique ability to strike agreements in Europe because of its size, geographical location, economic success, and the strong internal consensus in favor of the EU. The much-vaunted resurrection of the Franco-German axis only masks, with Parisian accents, Germany’s growing dominance of the EU. Alongside this more global element, the prospect of a collapse of industry in Italy’s north (machine industries, chemicals, pharmaceuticals), which is integrated into German value chains, represents a danger for the latter country’s major manufacturers, beginning with its automobile industry. Nevertheless, and for the reasons mentioned with respect to the Netherlands, four EU countries — Denmark, Austria, Sweden, and, specifically, the Netherlands — presented a counter-plan to the proposals of Merkel and Macron, without changing the overall picture.

But while these elements within the EU undoubtedly have influenced Germany’s decision, the ongoing geopolitical battle, accelerated by the pandemic, may have been a decisive factor. The crisis has accentuated earlier trends: the return of Keynesian public spending, the tendency to relocate certain production deemed strategic, the intensification of the confrontation between China and the United States. This makes Germany’s balancing act aimed at preserving both markets (in terms of supply and outlets) more difficult. While Merkel, as recently as last year, hoped Germany would better protect the EU’s interests by reaching an agreement with China, Covid-19 has demonstrated that such an agreement is impossible. Similarly, the election of Donald Trump to the U.S. presidency had already shown the chancellor how unreliable an ally the United States has become.

In this framework, the declared objective of France and Germany is not simply to enable the EU to surmount the economic crisis caused by the Covid-19 pandemic, but “to weather this crisis together and come out of it stronger than before.” To that end, they intend to act “together as Europeans” and “join our forces in ways we have not used before.” Thus, together with the new proposal for a recovery plan and mutualized debt detailed above, the Franco-German plan argues that the challenges of the future require the EU to develop “a resilient and sovereign economy and industrial base as well as a strong Single Market” and proposes that the Union should be the true global advocate of an “ambitious and balanced free trade agenda with the WTO [World Trade Organization] at its core.”

Even more decisively, as one can read in Politico,

France and Germany on Monday made a rare top-level political push for the creation of European industrial champions as part of the coronavirus recovery, putting themselves on a collision course with the European Commission’s antitrust police.

Paris and Berlin are smarting after Brussels blocked a rail merger between Siemens and Alstom in 2019. To France and Germany, that potential tie-up epitomized the sort of European giant that could stand up to Chinese industry, while Brussels warned such a dominant company would be a bad deal for Europe’s consumers and smaller supply companies. 

Rather than surrendering to Brussels, Paris and Berlin are now doubling down on demands that the EU change its competition rules.

The European Commission has to adjust its industrial strategy to recover from the coronavirus and “in particular modernize European competition policy by accelerating the adaptation of state aid and competition rules,” a Franco-German statement said.

“We will also think very specifically — and I think after this crisis we will do this even more specifically — about how to create European champions,” said German Chancellor Angela Merkel at a joint virtual press conference with French President Emmanuel Macron, adding that EU competition rules have been applied in a way that was “very focused” on competition in Europe.

“We have seen that others, whether the United States of America, South Korea, Japan or China, have relied very heavily on global champions, and I believe that this approach is the necessary answer. We must not be afraid to have global champions, but we must work towards them,” she said.

However, despite these pompous statements that show a new willingness on Berlin’s part to extricate itself from certain obstacles, there is every reason to believe — given Germany’s contradictions and strategic limitations both internally and externally — that this process will be very slow and fraught with other obstacles.

In summary, the EU is under pressure from a variety of internal and external forces on which its future and, to a large extent, inter-state relations will hinge for years to come. While the fierce geopolitical battle is bringing European states closer together, internal forces, such as nationalist impulses and the more narrowly defined economic interests of individual member-states, are dividing the EU. The internal forces remain extremely powerful and will not be easily overcome. At the same time, while the Merkel-Macron alliance strengthens them immediately on the domestic front — particularly the French president, who has been hard hit internally by the Yellow Vests revolt and the strike against his pension reform plan, as well as by his government’s catastrophic management of the health crisis — it raises a number of contradictions for the coming period that can be exploited by the proletariat, if it sets out with independent politics.

This is Not Our Union: For the Expropriation of the Banking Sector, from the Standpoint of a Worker’s Europe

As soon as the declaration of the Merkel-Macron tandem was made public, the DGB, the German trade union confederation, and the five French trade union confederations — the CFDT, the CFTC, FO, the UNSA, and the CGT — issued a joint statement calling for critical support for the Franco-German initiative.5Translator’s note: These are Deutscher Gewerkschaftsbund (DGB) the German Trade Union Confederation; Confédération française démocratique du travail (CFDT), the French Democratic Confederation of Labor; Confédération française des travailleurs chrétiens (CFTC), the French Confederation of Christian Workers; Confédération Générale du Travail – Force Ouvrière, or simply Force Ouvrière (FO), Worker’s Force; Union nationale des syndicats autonomes (UNSA), the National Union of Autonomous Trade Unions; and Confédération Générale du Travail (CGT), the General Confederation of Labor. It expressed regret for “the lack of concerted action between member states at the start of the pandemic which could have led to uncoordinated decisions being taken, or even to the detriment of each other,” and stated, “We strongly condemn the xenophobic incidents which have occurred on the Franco-German border and which remind us with dread of one of the darkest chapters in our history.”6Translator’s note: The coronavirus has raised tensions on the French-German border, particularly in the Saarland region, where the border is often a narrow, country road. There have been racist attacks both physical and verbal. But the main thrust of the statement by these trade union leaders is based on the “need for an effective recovery strategy, which must go beyond the 500 billion euros announced by France and Germany. The recovery plan must be accompanied by an ambitious new multiannual financial framework of at least 2% of European gross domestic product (GDP).” Taking advantage of this strong return of the Franco-German axis, the trade union leaders continued to maintain the reactionary illusion that it would be possible to “deepen social Europe,” an illusion that has shown its true face in recent years and that could prove even more harmful in the months to come.

The statement continues, “The recovery plan announced by the European Commission must be based on the Franco-German initiative and must leave nothing behind with respect to the ambitions of the Green Deal for a socially just ecological transition and an economic model that is fairer, more sustainable, and puts people back at the center.”

This sort of reformism and class conciliation reinforces the idea that there is possible unity of interests between the large multinationals, for whose benefit the EU governs, and labor. The function of these bureaucrats is to give cover, with a social “patina,” to the European Union’s reactionary role — one it will not fail to deepen in the current crisis. Once again, we say loud and clear, in opposition to the bureaucratic role played by the European Trade Union Confederation (ETUC), that the EU is an association of countries whose interests are diametrically opposed to those of the workers. There is nothing progressive about its structure, and there are no circumstances under which it can be reformed. In other words, it is impossible to improve the European Union without radically changing its class content. That would mean, at the same time, liquidating the imperialist character of the EU from which the countries of central and Eastern Europe suffer — they have been integrated into the bosom of Brussels in the manner of semi-colonies, following the disintegration of the former Soviet Bloc — along with the peoples of the peripheral capitalist countries, who are forced to emigrate because of the policy of plunder practiced by the various European imperialisms and who find themselves, once they reach the EU border, facing “Fortress Europe.”

Faced with the reactionary proposal to “reform” the EU or to call for a “more social Europe” as a response to capitalist globalization, the various proponents of sovereignty believe their theses are fully confirmed. But the economic patriotism of the old imperialist powers will, as in the past, only lead to more conflicts and wars. Just as the great bourgeoisie has internationalized its capital and embraced the banner of globalism — while never renouncing its national bases — the sovereigntists present the idea of nationhood as a great novelty. And yet, as Leon Trotsky pointed out in the face of the rise of reactionary nationalism in the 1930s,

Patriotism in its modern sense – or more precisely its bourgeois sense – is the product of the 19th century. … But the economic development of mankind which overthrew mediaeval particularism did not stop within national boundaries. The growth of world exchange took place parallel with the formation of national economies. The tendency of this development — for advanced countries at any rate — found its expression in the shift of the center of gravity from the domestic to the foreign market. The 19th century was marked by the fusion of the nation’s fate with the fate of its economic life; but the basic tendency of our century is the growing contradiction between the nation and economic life.7Trotsky, “Nationalism and Economic Life” (1934).

This contradiction is even more acute today, after the phenomenal process of internationalization of the productive forces in the period after World War II — a process that has accelerated in recent decades. It is no coincidence, moreover, that whenever European leaders such as Merkel or Macron speak of “sovereignty,” the term applies not so much to France or Germany as to the European space in general. Believing that it is possible to return to national borders within the framework of the major poles that dominate the world economy is as illusory for the organization of production as it is for an effective closing of borders like that demanded by the right-wing sovereigntists to prevent the spread of Covid-19. Real advances such as the degree of Europeanization of the productive forces, supranational connections at several levels, and the trend toward cultural unification cannot be sacrificed on the altar of the nationalism, protectionism, and the militarism that goes with it.

In the same text, Trotsky asked,

How may the economic unit of Europe be guaranteed, while preserving complete freedom of cultural development to the people living there? How may unified Europe be included within a coordinated world economy? The solution to this question may be reached not by deifying the nation, but on the contrary by completely liberating productive forces from the fetters imposed upon them by the national state.8Ibid.

Only the proletariat, as a truly universal class, is in a position to carry out this task in a progressive way and at the service of the whole of humanity, allowing for an expansion of technological advances while respecting ecological balance and in a way that reduces considerably the human burden of labor. This is the full meaning of our fight for a united and socialist Europe, for a Europe of workers.

In the coming period, given the centrality that the issue of the debt burden will acquire and given the parasitic rents reaped by the financial system, we must defend the demand to expropriate the large private banks, investment funds, and large capitalist insurance groups, and to nationalize the credit system. Given the enormous and monstrous development of financial capital, which is one of the facets of the current crisis, one of the sections of the 1938 Transitional Program becomes even more relevant than ever:

Imperialism means the domination of finance capital. Side by side with the trusts and syndicates, and very frequently rising above them, the banks concentrate in their hands the actual command over the economy. In their structure the banks express in a concentrated form the entire structure of modern capital: they combine tendencies of monopoly with tendencies of anarchy. They organize the miracles of technology, giant enterprises, mighty trusts; and they also organize high prices, crises and unemployment. It is impossible to take a single serious step in the struggle against monopolistic despotism and capitalistic anarchy — which supplement one another in their work of destruction — if the commanding posts of banks are left in the hands of predatory capitalists. In order to create a unified system of investments and credits, along a rational plan corresponding to the interests of the entire people, it is necessary to merge all the banks into a single national institution. Only the expropriation of the private banks and the concentration of the entire credit system in the hands of the state will provide the latter with the necessary actual, i.e., material resources — and not merely paper and bureaucratic resources — for economic planning.

The expropriation of the banks in no case implies the expropriation of bank deposits. On the contrary, the single state bank will be able to create much more favorable conditions for the small depositors than could the private banks. In the same way, only the state bank can establish for farmers, tradesmen and small merchants conditions of favorable, that is, cheap credit. Even more important, however, is the circumstance that the entire economy — first and foremost large-scale industry and transport directed by a single financial staff, will serve the vital interests of the workers and all other toilers.

However, the state-ization of the banks will produce these favorable results only if the state power itself passes completely from the hands of the exploiters into the hands of the toilers.9Trotsky, “Expropriation of the Private Banks and State-ization of the Credit System, in The Transitional Program (1938).

A campaign for the expropriation of the banking sector by the forces the make claim to being far Left would consolidate an independent position against both the bourgeoisie and its parties, whose aim is to maintain the current system of domination of finance and big capital — as evidenced by the Merkel-Macron agreement. It would stand against the nationalists who are content to blame Brussels for following, in the last instance and in the worst case, exactly the same neoliberal policies Matteo Salvini was able undertake when the Northern League was part of the Italian government.10Translator’s note: Matteo Salvini is a former deputy prime minister and minister of the interior of Italy and a leader of the Lega Nord (Northern League), now known simply as Lega. Salvini is a “Eurosceptic” famous for calling the euro a “crime against mankind.” A current member of the European Parliament, he has notably worked with Marine Le Pen, a French right-wing leader, and Geert Wilders, a Dutch right-wing leader. It would stand against those on the Left who claim “French sovereignty” against Berlin, which amounts to defending the French capitalists as if they were not taking advantage of the situation and not participating in the exploitation of the peoples and the despoiling of the colonies and semi-colonies. A campaign of this type, which in France could be led by the New Anticapitalist Party (NPA) and Lutte Ouvrière,11Translator’s note: Lutte Ouvrière (Workers’ Struggle) is an important Trotskyist current in France that traces its origins back to 1939 and to a group founded in 1956. would reinforce within the working class the idea that only a workers’ government can offer a solution to combat the catastrophic situation that is fast approaching and in the face of the various agreements and plans that have come out of the European summits between capitalist governments that are preparing to redouble their offensive in the coming period.

First published in French on May 25 in Révolution Permanente.

Translation by Scott Cooper


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Juan Chingo

Juan is an editor of our French sister site Révolution Permanente.



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Peruvian Fishermen Block Highway after Devastating Oil Spill

Hundreds of residents and fishermen living in the areas affected by the oil spill in Peru mobilized over the weekend demanding that the government immediately sanction Repsol, and require the company to compensate those affected by this ecocide.

Cecilia Quiroz

January 24, 2022