Controversy: the Future of the European Union

Collage compressedPublished: 20 November 2014
Intro by: TSN Editor
Author: Christakis Georgiou

The following article was written by Christakis Georgiou just before the European elections last May and formed the basis of his speech to the Historical Materialism Conference just finished in London. It analyses the driving forces behind the development of the European Union from a marxist standpoint and draws conclusions on what position socialists should take today towards the EU.

What is to be done about European unification?
The European elections of 25th May are a good occasion for revisiting, from the point of view of the long-term tendencies of its development, the question of European unification and the attitude of the Left towards it

The election is taking place in a context of economic and political crisis in the Eurozone. This crisis, although it has started to recede over the past year or so, has rekindled the debate within the Left over the attitude that needs to be adopted towards the European Union. In its current form, this debate is cast in the concrete terms imposed by the crisis of the Eurozone. Various Left currents put forward diverging, if not outright conflicting, perspectives on this issue. Some have taken up the cause of federalism, fiscal in particular, with the aim of organising a system of transfers from the countries of the North of Europe to those of the South. Others argue for a withdrawal from the Eurozone, or even from the EU itself, and for a strategy of economic development centred on the Nation State(s) in which the radical Left can come to power.

The point of approaching the issue from a long-term perspective is that it allows us to situate ourselves at the level of the fundamental tendencies which determine the development of the process of European unification. Far too often, the debate on the Left is tainted by voluntarism; this leads to brushing aside precisely these essential tendencies that should, on the contrary, be the starting point in the debate.

The issue of European unification first became the key issue in the historical development of the European continent towards the end of the nineteenth century, shortly after the unification of Italy and Germany. Condensed in a single sentence, the issue is that of the growing inadequacy between the politico-economic framework of the Nation-State, such as it developed in Europe after the advent of capitalism some two centuries earlier, and the further development of the productive forces beyond the bounds that had been reached by the early twentieth century. Another way of saying the same thing is that as of the beginning of the twentieth century, the material progress of the European nations became dependent on the organisation of the social division of labour on a continental scale. The alternative was between, on the one hand, the politico-economic fragmentation of Europe synonymous of stagnation and relative decline and, on the other, the advent of a European economy and a European political community and the pursuit of progress.

To understand why this was so, it is necessary to digress for a moment and look at the dynamics of capitalist economic development. Marx identified various elements and tendencies that make up the capitalist mode of production. One such element is the exploitation of labour through the wage mechanism, which allows for the extraction of surplus-value and the accumulation of capital. A second element is the structuring nature of competition between units of capital, which spurs them to invest in means of production with the aim of raising the productivity of labour and thus earning higher profits compared to those of their competitors. A third tendency is that of the falling rate of profit which is the ultimate cause of capitalist crisis. But as far as what concerns us here goes, the most important tendency analysed by Marx is that of the growing concentration and centralisation of capital. By concentration, Marx meant the expanded accumulation of means of production within a single unit of capital (the tendency of capitalist firms to grow bigger by investing their profits). By centralisation, Marx meant the fact that units of capital can merge into a single unit, thereby increasing their size while at the same time the number of competing firms in a single branch of the economy is reduced.

The development of the productive forces under capitalism proceeds through the combination of these four tendencies. Competition on the market spurs firms to invest, and when crises break out the firms with low productivity, and therefore low profitability, go bankrupt and are bought up for a fraction of their pre-crisis value by the surviving firms. In this way, it is an inherent tendency of capitalism that progress (the development of the productive forces), other than that it is interspersed by regular and painful crises (abrupt stops and retrenchments of production), comes with the development of ever bigger and fewer industrial, commercial and financial organisations. This race towards economic gigantism generates additional benefits: the bigger a firm, the more it is capable of reaping so-called ?’economies of scale?. The greater the volume of production the lower the cost per unit of output produced. And the bigger a firm, the greater its capacity to raise the vast resources that are necessary for investing in the development of new technologies.

This dynamic necessitates, if it is to fully flourish, a market (a set of natural and human resources) big enough to allow for the emergence of large firms and, at the same time, to avoid the creation of monopolies in each sector of economic activity, which suppress the incentive for firms to raise their productivity through investment and allows them to earn rents. A small economy like Switzerland could never function in isolation from the world surrounding it and enjoy the same level of prosperity. Small economies, by the way, tend to be very open precisely for this reason.

The politico-economic fragmentation of the European space at the end of the nineteenth century acts as a break to the development of this process. The national unifications of the same century create the basis for capitalist development that transforms the rural societies that constitute the legacy of feudalism; the same unifications consequently become an obstacle to the pursuit of the development of the productive forces. This is the context in which the issue of European unification takes centre-stage. It consists in coming up with a way of solving the problem of fragmentation.

The failure of the attempt to unify Europe through force
A comparison between the development of the United States and that of Europe in the years 1870 to 1945 perfectly illustrates the European problem.

At the end of the American Civil War, the industrialists of the North of the United States achieve the politico-economic conditions that both establish their political domination over the American federation and facilitate the further development of the firms under their control. The political system becomes much more centralised and the domestic market more unified. Fairly quickly thereafter emerges what has come to be called ?Big Business? – vast industrial, financial and commercial firms, mainly situated on the East Coast and the region of the Great Lakes. However, in the early years that follow the end of the War, these firms, aiming to prevent the process whereby certain firms have to be absorbed by others when a crisis breaks out, organise themselves in ?trusts? and cartels. This allows each one of them to survive as an independent unit by means of agreements that stabilise market shares and suspend competition among participating firms. This situation leads to a quasi stagnation of investment and the under-utilisation of productive capacity. However, the centralised structure of the American political system allows the federal administration to organise as of 1890 (the date of the famous Sherman Act) an anti-trust policy (today one would speak of a competition policy) forcing firms to continue competing with each other by breaking up these restrictive agreements. This policy is applied across the territory of the United States. The size of the American market is far greater that that of any of the national markets in Europe. The trusts and cartels are “busted?, a wave of mergers and acquisitions takes place between 1890 and 1905, productive capacities are rationalised and American industry quickly accomplishes new leaps forward symbolised by the coming about of the assembly line pioneered by the Ford Motor Company. As early as the twentieth century, the United States becomes the principal industrial power in the world, and shortly after the principal power tout court (without qualification ? ed).

Europe follows a Different Path
Germany too, shortly after national unification in 1871, is transformed by a process of massive industrial development. The large industrial firms of Rhenish Germany and the great universal banks (the Deutsche Bank is founded in 1870) that still dominate German capitalism today date back to that period. Very quickly, these firms find themselves constrained by the narrowness of the German domestic market and launch an assault on the other national markets of Europe. However, the other European powers, chief among them France, are not willing to allow German industry to penetrate and dominate their domestic markets. They strongly resist the idea of European unification under German leadership. France?s diplomatic objective is the dismemberment of Germany and the return to the pre 1871 situation. At the commercial level protectionism preserves and deepens the fragmentation of the European economy. Anti-competitive practices become generalised across Europe – this allows each Nation-State to preserve its own firms. The most famous of these restrictive agreements is the international steel cartel agreed in 1926. There is simply no political force that stands above the national sovereignties and that has the capacity to intervene in order to put an end to these restrictive agreements. The French Left – both the Social-Democrats and the Communists – start denouncing the trusts and the cartels and accusing them of ?economic malthusianism?.

The rising European power makes an attempt, carried out twice, to overcome this fragmentation through force. The two world wars of the first half of the twentieth century are essentially European wars, triggered by Germany with the aim of enlarging the domestic market at the disposal of her large firms so that they can go on growing bigger and thereby keep up in the competitive race that is pitting them against American big business.

This attempt fails because the declining power of the time, Great Britain, succeeds in forging an alliance with the United States with the aim of preventing Germany from dominating the continent. Great Britain is much more afraid of a European super-power led by Germany and sitting next door to her than of the United States, whose traditional isolationism leads the British bourgeoisie to believe that her American counterpart will accept to share the world with her.

Trotsky and the strategy of the revolutionary Communist International
The conflict between the European powers – unable to come to an agreement enabling the peaceful unification of the European economy – devastates European societies and generates a revolutionary wave that starts off as an anti-war movement before it morphs into an organised challenge pitted against capitalist power. This is the context in which the Communist International is born.

The communist leader who most clearly grasped the link between the issue of European unification and the possibility of a social revolution is Leon Trotsky. The perspective that he puts forward in a short book called War and the International 1 forms the basis for the strategic perspectives that the Executive Committee of the Communist International formally adopts at its conference in June 1923 (summed up in the slogan of the United (Socialist) States of Europe).2

In August 1914, the European labour movement is plunged into an unprecedented crisis. The Social-Democratic parties rally to the banners of their respective national bourgeoisies. The task of the oppositional Social-Democrats is to craft a policy that takes up the banner of internationalism that had been so frequently proclaimed by the Socialist International before the war and that breaks with the policies of the national bourgeoisies. Trotsky’s most important piece of writing on this issue is precisely called The Programme of Peace.3

The starting point of Trotsky’s reasoning is precisely the development of the productive forces. 4 ?The motor force driving to war was this, that the capitalist forces of production had outgrown the framework of European national states.? The tariffs that fragment the European market are the commercial equivalent of militarism. Germany has triggered the war with the aim of unifying Europe under its leadership. But the military balance of forces that is arrived at after the battle of the Marne (September 1914) leads to a stalemate.

The policy of what he calls the ?third power? – the independent revolutionary action of the European labour movement – cannot run counter to the fundamental tendencies of historical development. ?While fighting against the imperialist form of economic centralization, socialism does not at all take a stand against the particular tendency as such but on the contrary, makes the tendency its own guiding principle.? Trotsky attacks all those Social-Democrats who advocate a return to the pre-war political status-quo (i.e. the preservation of the pre-war national States and borders) as the condition for peace. He considers that if one way or another (a German victory or a Franco-German agreement following a ?draw?) the European bourgeoisies succeed in moving towards unification, this would constitute a step forward for the labour movement But he also considers that the diverging interests of the national bourgeoisies render this a utopian perspective. From all this he comes to the conclusion that ?Hence, it is that the economic unification of Europe, which offers colossal advantages to producer and consumer alike, and in general to the whole cultural development, becomes the revolutionary task of the European proletariat in its struggle against imperialist protectionism and its instrument – militarism.? The programme that the revolutionary proletariat has to fight for can thus be summed up in the slogan of the United States of Europe. The building of socialism in a single country is excluded because the development of the productive forces necessitates the unification of the European market. Trotsky holds that the difference between the Communist International and the “social-patriotic? Social-Democracy precisely stems from the fact that the Communists formulate their strategy by making the analysis of the fundamental tendencies of historical development their starting point and not the characteristics of the particular national situations in which each national group of Communists find themselves.

Trotsky’s analysis is at the basis of the strategy of the international communist movement during its revolutionary stage. The Communist International is conceived of as the organisational expression of the ”third power? whose task it is to extend the Russian revolution to Western Europe. Unsurprisingly then, as of 1924 and the rise of the Stalinist counter-revolution, this revolutionary strategic perspective is called into question. The slogan that sums it up is replaced by that of the construction of socialism in a single country in 1927. Progressively, the Communist International becomes the instrument of the foreign policy of the USSR which, having jettisoned its earlier internationalism, now formulates its foreign policy in the same way as the other capitalist states in the inter-state system. The policy of the communist parties unfolds at the whim of the shifting alliances forged by the USSR.

The coming about of the utopian scenario
The failure of the Communist International opens the way for the tragic events that are well known to everybody. However, at the end of the Second World War the preponderance of the United States prevents a remake of the treaty of Versailles. America’s influence strengthens all those who, in the manner of Jean Monnet, advocate a Franco-German agreement that can form the basis for a gradual coming about of European unification through partial and negotiated compromises. The treaty of Paris in 1951 that creates the European Coal and Steel Community prevents the repeat of the French occupation of the Ruhr of 1923 by unifying the Ruhr’s coal production with the steel production of Lorraine. The Treaty of Rome follows in 1957; it lays out a plan for the progressive elimination of intra European tariffs and thus accomplishes a crucial step towards the unification of the European market. The instigators of these two treaties are also the same people responsible for the importation of the American anti-trust policy in Europe. Jean Monnet initiates this policy while at the head of the French Planning Commission in 1947 and insists that the European Coal and Steel Community should have similar powers to break up trusts and cartels.

However, this does not mean that the interests of the national bourgeoisies no longer conflict with each other. This is essentially the reason why the process of European unification is a gradual forward movement, interspersed by compromises that are the result of bitter negotiations between the European bourgeoisies on the basis of the balance of forces that obtains between them. 5 This is why, during a period of about thirty years, the anti-trust policy in Europe consists of busting trusts and cartels and in promoting the centralisation of capital within large national firms (so-called “national champions?). Each European state, especially France which has fallen behind Germany, actively pursue a policy of building such ?national champions? whose development is focused on their own national market to which they have privileged access, all the while they begin to timidly Europeanise their operations. In a similar manner, the weakness of French capitalism relative to German capitalism results in the politics of Gaullism. France accepts European integration and German competition but rejects the prospect of a quick transition to a highly centralised European federation, which is the stated policy of the first president of the European Commission, the German negotiator of the Treaty of Rome, Walter Hallstein. The French bourgeoisie (together with the Jacobin and ?social-patriotic? Left) is afraid that in case she abandons the instrument constituted by the Jacobin state, she will not be able to intervene in favour of her own large firms in order to promote them in the context of intensifying intra-European competition.

The second stage of the process of unification ?from above?
Between 1951 and 1986 the unification of the European market progresses but remains only partial. Despite having eliminated tariff barriers, the European bourgeoisies continue to have recourse to other kinds of barriers such as regulations and different types of standards in order to preserve a privileged access to their national market for their own firms. Moreover, macroeconomic policies (monetary and fiscal) remain decentralised. All this is called into question with the Single European Act of 1986.

The Europeanisation of the ?national champions? starts to really take off during the seventies and their managers begin to campaign for a renewed impetus in favour of integration. Through this process a specifically European big bourgeoisie takes shape. 1983 is the founding date of the most powerful business lobby operating in the European Union – the European Roundtable of Industrialists. It brings together some fifty Chief Executive Officers from the biggest and most important large European firms and indefatigably advocates the complete unification of the European market.

Moreover, the centralisation of capital during the previous period creates monopolistic situations in each one of the separate national markets. This reduces the benefits that stem from the increase in the size of firms. This means that the anti-trust policy must now move up a scale and operate across the whole of Europe. The Single European Act strengthens the Commission’s powers to impose competition among the various ?national champions?. By doing so, the Commission operates to the detriment of the least competitive (i.e. the least productive) firms (mostly localised in France, Italy and the other Mediterranean nations). Following the Single European Act a wave of mergers takes place within Europe, first during the second half of the eighties and then during the second half of the nineties. The result of this wave is that during the noughties there appear in Europe ?European champions?, i.e. large firms operating across the whole of the European Union that are no longer narrowly dependent on their national market of origin.6  The previously separate national economies now become totally interdependent. Their financial and trade openness (the ratio of their exports and imports to their GDP) rise to new highs. This is the reflection of the fact that the ?European champions? now disseminate across the whole of the European Union their productive capacities. One can no longer speak of national economies with the capacity of organising within their borders the entire set of productive tasks necessary for social reproduction.

The coming about of the single European market stimulates the integration of macroeconomic policies. The same social forces are at the driving seat. The Association for the Monetary Union of Europe is founded in 1988. It is composed by more or less the same CEOs as the European Roundtable of Industrialists. plus some heads of large banks and insurance firms. Their rationale is that now that their firms have become pan European, they need a single currency in order to avoid the monetary instability that is induced by the variations of exchange rates among European currencies. This is expected to further reinforce the integration of the single market. Moreover, with the deepening of the commercial and especially financial integration of the European economies, European monetary policy is, de facto, conducted by the German central bank, the Bundesbank. The Bundesbank issues the most stable of the European currencies, the deutsche mark, which quickly becomes the reference, anchor currency in Europe. When the Bundesbank, for example, raises its interest rates the other national central banks in Europe have to immediately follow in its stead. Otherwise, they expose themselves to destabilising capital flight. It is this German preponderance in monetary matters that leads France to shed its traditional distrust of federalism and to negotiate the creation of a federal European Central Bank to replace the Bundesbank. However, France has no intention of federalising fiscal policy too, which would entail a substantial strengthening of the Commission and the European Parliament, and thus rebuffs the recurrent German overtures in favour of a federal leap forward (reiterated by chancellor Merkel in 2012). This is why the euro is born in 1999 with a wobbly architecture.

The faulty design of the Eurozone is a factor that aggravates the impact in Europe of the capitalist crisis that breaks out in 2008 in the United States. The crisis is such that the prospect of the implosion of the Eurozone is openly debated (especially in the Anglo-American financial press) and this triggers a violent wave of financial speculation between 2010 and 2013 whose object are the public debt securities of the least competitive member states of the Eurozone. But precisely because the attachment of the European bourgeoisies to the process and the ultimate goal of unification is the product of a fundamental historical tendency, the Eurozone crisis ends up acting as a catalyst for the further deepening of the process. This is why in September 2012, through the intermediary of the president of the ECB Mario Draghi, a very clear message is conveyed to the speculators that the Eurozone will not implode. At the same time, the path is cleared for the next stage in the unification process, which has already begun with the so-called ?banking union? (i.e. the centralisation of public control over the European banking system, a far from negligible affair) and which during the next decade or so will concern fiscal and political union (this refers to the control by the European Parliament of the new centralised fiscal policy that will be instituted).

While it is indeed the case that the crisis has shaken the political equilibrium of European capitalism, it has not even come close to threatening it with rupture. The comparison with the thirties is instructive: five years after the outbreak of the crisis in 1929, the Nazis were firmly in control in the most important continental European power of the time: five years after the crisis of 2008, their political descendants are being suppressed by the justice system in the only country of the Eurozone in which they have succeeded in making a modest breakthrough, that is Greece, a country at the margins of European capitalism. The same can be said about the labour movement. In 1936 France was shaken by an insurrectionary general strike while in Spain the organisations of the labour movement were at the vanguard of the republican camp. In 2013, apart from the wave of general strikes that hit Greece between 2010 and 2012, the only feat of arms of the European labour movement has been a pan European day of action with varying modalities of action in November 2012.

What should the attitude of the Left be towards the process of unification from above?
If one believes that the legacy of the revolutionary Communist International is the most precious of the experiences at the disposal of the European labour movement, then an answer to the above question must involve a confrontation with that very experience.

Trotsky made many mistakes in his analysis of the development of capitalism, especially when he predicted the system?s ?final agony?. But the historical experience of the decades that followed the Second World War has proven him right on a central element of his analysis presented in this article: the labour movement?s policy cannot contradict the fundamental tendencies of historical development. The most closely related to this postulate of all of Trotsky’s struggles has been his fight against the strategic perspective of building socialism in a single country. The monstrosity of Stalinism and the defeat that it represented for the European labour movement, for long incapable of ridding itself from the strategic and ideological sway of the Stalinist bureaucracy, are perfect illustrations of how correct Trotsky’s position was.

The most important difference between the current situation and the strategic perspective put forward by Trotsky is self-evident: the scenario that he judged to be utopian until the end of his life has materialised. Mechanically, the strategic conclusion that he derived from this and which he summed up in the slogan of the United Socialist States of Europe (?only the revolutionary labour movement can accomplish the task of European unification?) becomes obsolete.

Nonetheless, Trotsky proposes a perspective in case the utopian scenario should materialise.
?If the capitalist states of Europe succeeded in merging into an imperialist trust, this would be a step forward as compared with the existing situation, for it would first of all create a unified, all-European material base for the working class movement. The proletariat would in this case have to fight not for the return to ?autonomous? national states, but for the conversion of the imperialist state trust into a European Republican Federation.? 7

Once again, the issue is not to oppose the fundamental tendencies of historical development but to fight in order to give them a progressive form.

The coming about of the unified European market and what this entails – large industrial, commercial and financial organisations deployed at a continental scale, the definitive interdependence of the national economies that make up the European market and the growing unification of macroeconomic policies – mean that any perspective of isolated national economic development is definitively illusory and much more so than this was the case a century ago when Trotsky was writing.

Likewise, the Eurozone crisis provides a concrete illustration of what a Socialist European economy would look like. Indeed, the only progressive way out of the current crisis that divides the Eurozone entails big productive investments (including in education and vocational training) in the least competitive countries of the Eurozone with the aim of raising the productivity of labour at the levels that prevail in the countries in the North of Europe. Exiting the Eurozone, providing that this is possible without wreaking havoc in the quitting economies (a highly dubious proposition), wouldn’t make a difference in this. However, these investments can only potentially come from the countries of the North of Europe and following a political decision given the fact that private investors are not positively disposed towards such a prospect This not only entails intra-European solidarity and a certain political organisation of a federal nature but also a certain amount of planning of investment at the European level. The same applies to a whole series of economic sectors like transport telecommunications and probably most importantly energy, which would operate much more efficiently should they be organised according to a pan-European plan. Such a policy would, by the way, also put an end to the economic crisis since it would entail kick-starting investment again.

By Christakis Georgiou

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2 Lenin, who disagreed with Trotsky’s perspective for tactical reasons in 1915 (see his article ?On the slogan tor a United States of Europe? rallies to Trotsky’s position shortly after the Russian revolution.


4 This is particularly clear in his article ?Is the time ripe for the slogan: ?The United States of Europe’??

5 This is, by the way, the analysis of European integration that has been developed by one of the major schools of thought in American Political Science, ?liberal intergovernmentalism”. See the book by Andrew Moravcsik, a professor at Princeton university and former trade negotiator at the department of Commerce of the federal administration during the Clinton years: The Choice for Europe: Social Purpose and State Power from Messina to Maastricht, Ithaca. Cornell University Press, 1998.

6 See Alan Rugman, The Regional Multinationals, Cambridge, Cambridge University Press, 2005.

2 thoughts on “Controversy: the Future of the European Union”

  1. The final Note 7 is missing from the end of the text. It is Trotsky: ‘The Programme of Peace’ (1919)

    The article focusses on the successes in moving towards European economic and financial integration but does not adequately address the remaining tensions and obstacles in the way of its completion. It mentions the judicial suppression of the Greek Nazis (Golden Dawn):

    “five years after the outbreak of the crisis in 1929, the Nazis were firmly in control in the most important continental European power of the time: five years after the crisis of 2008, their political descendants are being suppressed by the justice system in the only country of the Eurozone in which they have succeeded in making a modest breakthrough, that is Greece, a country at the margins of European capitalism”

    Yet the article fails to mention the existence of mass anti-EU far right parties in many other Eurozone countries. Indeed the FN could possibly take power in France very soon.

    The notion that the wealthy north European countries, or the EU as a whole, would invest in the poorer southern periphery is far fetched in my opinion and displays illusions in the predatory nature of European capitalism.

    “However, these investments can only potentially come from the countries of the North of Europe and following a political decision given the fact that private investors are not positively disposed towards such a prospect. This not only entails intra-European solidarity and a certain political organisation of a federal nature but also a certain amount of planning of investment at the European level.”

    Intra-European solidarity is something that only the European working class can achieve and the slogan of a ‘Socialist United States of Europe’ is thus as valid today as it was in Trotsky’s time.

    Consequently, I disagree with the author that Trotsky’s notion that ?only the revolutionary labour movement can accomplish the task of European unification? is obsolete. European integration under neo-liberal capitalism has its limits and is presently at an impasse. The completion of European economic and political union is the task of the European labour movement led by a workers’ international party.

  2. “The notion that the wealthy north European countries, or the EU as a whole, would invest in the poorer southern periphery is far fetched in my opinion and displays illusions in the predatory nature of European capitalism.”

    I really think they will, because raising the standards of the less well off countries will raise ours too in the longer run. We should not let US get too firmly entrenched as that would hinder any hopes of a united Left Europe. Europeans must help each other as we have to live in close proximity. An American Ukraine would not be too welcome as a new member of EU.


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