The currency’s stability has been undermined from birth because of the conflicting interests of the rival capitalist ruling classes it pretends to yoke together. At the same time, European capitalists continue to rely on it as a common unit to conduct business among each other more effectively and to trade with countries in eastern Europe and elsewhere.

Concerned about the impact of the devaluation of this currency on the world economy and their own economies, the central banks of all the so-called Group of Seven countries--the United States, Germany, Japan, France, United Kingdom, Italy, and Canada--had together purchased about 6 billion euros September 22 to drive up the European currency. On October 5 the European Central Bank pushed interest rates up one quarter of a percentage point to 4.75 percent, its seventh increase in less than a year.

The rate increase came as a surprise, as it threatens to undercut the upturn in the business cycle in France and Germany, the major economies in the euro zone. The same week, France had registered its biggest single-month slump in consumer confidence in five years, with that index dropping to its lowest level in 14 months. In Germany business confidence fell for the third consecutive month in August.

The declining euro has contributed to a rise in annual inflation in the euro zone to 2.8 percent in September--well above the 2 percent goal of the European Central Bank (ECB). Rising dollar-denominated prices on oil, which have tripled since the launch of the euro, was a major factor in the inflation in the "euro zone," which imports all its oil.

In early November the European Central Bank again intervened in the currency market and bought some 1 billion euros. The ECB said it acted "owing to concern about the global and domestic repercussions of the exchange rate of the euro, including its impact on price stability." The Group of Seven governments did not intervene this time, and intervention was even discouraged by U.S. treasury secretary Larry Summers, who said Washington stood by its long-standing "strong dollar policy."

The ECB was supposed to underpin a slight rebound of the euro with its intervention by purchasing the one billion euros, as growth figures for the U.S. economy released for the third quarter were weaker than expected. Bad news for the U.S. economy has been good news for the euro in the currency markets, but with the influence of the U.S. economy on the rest of the world, a slowing U.S. economy will slow down European growth too. The decline of the euro since its launch actually sparked an export-led spurt in growth, especially in Germany and France, which make up about half of the euro zone’s economy, as goods produced in Europe became cheaper on a booming U.S. market.

The main reason for the decline of the euro is that over the last two decades the U.S. rulers have been more successful than their European rivals in getting concessions from unions, enforcing speedup on the job, and holding the line on wage increases. With the partial exception of the United Kingdom, the capitalist powers in Europe are years behind the U.S. rulers in "downsizing" and imposing what the employers call "labor flexibility." They remain behind in extending working hours, slashing wages, and implementing multi-tier wage agreements.

Recent government attacks on workers’ social wage in Germany and France, masked as "tax reforms," have not changed this longer-term trend of U.S. capitalism’s competitive edge over its European rivals.

The competitive edge of the U.S. capitalists is illustrated by the capital flows from Europe to the United States. European capitalists purchased $210 billion worth of U.S. stocks and corporate bonds in 1999, according to figures from the International Monetary Fund. These portfolio investments have been supplemented by increasing direct investments. In August 2000 alone, the net outflow of direct investment from the euro zone to the United States was $46 billion.  
 
EU has no common foreign policy
Washington’s economic might is backed up by its military predominance over the European capitalist powers, which cannot act as a bloc with a common foreign policy because of conflicting interests among each other. Divisions over foreign policy among the major European imperialist powers are now being played out over relations with the governments of Israel, north Korea, and Yugoslavia after the downfall of the Milosevic regime.

A United Nations General Assembly resolution condemning the Israeli regime’s violence against the Palestinians was backed by the representatives from France, Greece, Spain, and Ireland. The delegates from Germany, Britain, Sweden, Italy, and the Netherlands abstained. Meanwhile, French president Jacques Chirac, who currently holds the revolving presidency of the European Union, undermined the Clinton administration’s efforts in Paris, where U.S. secretary of state Madeleine Albright sought a cease-fire while pressuring the Palestinian leader Yasir Arafat to rein in protests in the occupied territories.

According to an article in the October 26 International Herald Tribune titled "Deals and Nationalism Hobble EU," Chirac "dressed down [Israeli prime minister Ehud] Barak, and told Mr. Arafat to hold out for more than he was getting from the Israelis." Paris’s actions, of course, are guided not by sympathy for the Palestinians but by its efforts to increase French imperialist influence in the Mideast.

At the same time, both Berlin and London moved to recognize north Korea without informing Paris, causing further tensions between these imperialist governments.

And in recent budget talks within the European Union, the governments of Mediterranean countries, led by Paris, refused to accept a reduction in what they receive from EU funds to cover some of the funding that is supposed to go to Yugoslavia.  
 
Dependence on U.S. military might
"My fear is we will see European nations construct a new bureaucracy," U.S. defense secretary William Cohen told a high-level transatlantic security conference in Munich, Germany, earlier this year. Cohen said the EU could not field a 60,000-strong "crisis reaction force" by 2003 as decided in Helsinki last December, if the member states continued to cut military spending. He acknowledged they could save money by downsizing Cold War military structures, but unless the savings are spent on new rapid deployment forces, "we will not see the capabilities talked about so passionately," Cohen warned the EU.

Proportionally the imperialist governments in Europe spend on the military about two-thirds of what Washington does. But their military capabilities are nowhere close. Aside from Washington, only London can fire cruise missiles, and even the few held by the Royal Navy are made and loaded in the United States. Only the U.S. government has satellite-guided bombs, airborne battlefield reconnaissance, and other such sophisticated weaponry. Of the 2,000 targets chosen by NATO in Yugoslavia , all but one were selected by U.S. intelligence.

To really challenge Washington, the European powers would have to increase their military spending considerably. The fact that the U.S. rulers spend $36 billion a year on military research and the rest of NATO only $10 billion illustrates the gap in military power. In contrast to the United States, where the Clinton administration has increased military spending, the debate in Europe is mostly about restructuring the military forces within the existing budgets. Germany, the state representing the biggest share of the EU’s economy, spent 1.3 percent of its gross domestic product in 1999 on the military, down from 1.6 percent in 1997 and well below the 3.4 percent of the United States.

Cohen expressed the U.S. rulers’ demand that the European powers take on their share of the responsibility for the imperialists’ attempt to police the world, an operation that is overwhelmingly led and funded by Washington. That is one of Washington’s main concerns. As political powderkegs continue to explode in the post–Cold War world, Washington is increasingly acting alone in deploying its military. It is not only that the imperialists in Europe don’t have the military forces strong enough to intervene and lead military operations around the globe. They also constantly divide over where and in what numbers to deploy troops--from the Balkans to the Middle East to Asia.  
 
Potentially destabilizing effect
The euro represents a set of social relations that reflect the relatively weak standing the ruling classes in Europe have with respect to both the working class at home and their capitalist rivals in other parts of the world--especially the United States--on the military, political, and economic fronts.

As with its military strength, U.S. capital is alone in its capacity to use its relatively strong dollar to avert financial crises around the world. The strong dollar is the product of the relative success of the bipartisan policies of the Clinton administration, and the prospects for the U.S. rulers to continue that policy hinge on a strong dollar in the years ahead.

The creation of the euro has not meant that a potential world currency has been created that could replace the U.S. dollar in the way the dollar replaced the pound sterling after World War I. Instead, the euro has a potentially destabilizing impact on the whole financial system that was built around the U.S. dollar after World War II. The fact that the euro has fallen 30 percent in relation to the U.S. dollar contributes to imbalances in the U.S. economy and the world capitalist system, such as the enormous U.S. trade deficit. The euro is depressing earnings of some major U.S. companies like Intel, whose shares fell 20 percent--knocking out $80 billion of its market capitalization--after a report in later October warned of weak profits.

Sooner or later, some of the weaker European imperialist governments will have to leave the euro as they prove unable to implement the fiscal policies needed to be in it. The rulers of Germany are leery about Greece joining soon because they know in the end they have to foot the bill for the weak spots in the euro. In the wake of the September referendum in Denmark, in which voters firmly rejected the euro, the European capitalist governments that from a position of relative strength have not joined the euro--the United Kingdom and Sweden--are now postponing a decision on it. The declining currency is certainly not attractive to them.

The euro cannot replace the U.S. dollar as a world currency, but European capitalists will try to rival it. A sharp drop in the U.S. stock markets or a slowdown in economic growth in the United States would hurt the dollar, and capitalists in Europe would try to take advantage of that to strengthen the euro. Fears that more oil-producing nations will join Iraq in demanding payments in euros rather than dollars can set off movements in jittery currency markets.

As the International Herald Tribune reported in late October, "Some economists note parallels between the euro’s decline and the fall of European currencies against the dollar in the early and mid-1980s. That shift led the U.S. current-account deficit to balloon, they note, creating tensions between Washington and European capitals that contributed to the global stock market crash in 1987."

Carl-Erik Isacsson is a member of the metal workers union in Södertälje, Sweden.  
 
 
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