All Socialists Now

T he triumph of the French Socialists following so close upon Tony Blair's victory has suddenly focused attention on the preponderance of Left governments in Europe. Except for two countries "� Germany and Spain "� all governments in the European Union have Left parties in power solo or in tandem. They are meeting in Malmo, Sweden. It will be quite a celebration but is will also be fraught with challenges. Socialist seldom ever enjoy harmony but this time there are serious differences of approach between the different parties "� all members of the Socialist International.

Few will remind themselves in Malmo that the Socialist International is the Second International. Lenin derided it during the First World War and set up the Two and Half International. After 1917, the Bolsheviks set up the Third International. Much was expected of the Third which was going to see the Second into oblivion. Alas the Third International is no more and nor are the powerful Bolshevik Parties which so raised hopes as well as fears during the 1917-1989 period. The death of the philosophy which spawned the Third International is the traumatic event which marked the end of the sort Twentieth Century.

 

The Second International survived by working out a compromise with capitalism rather than rejecting it outright as the Communists did. Even today the parameters of that compromise are always in dispute. This comes out very clearly in the debate on the single currency. Until a month ago, the UK was the odd man out. France and Germany were leading the march towards the single currency and it seemed eight or nine other countries were also going to join, so that by 1 January 1999 the Euro would have come into being. UK and Denmark had won an opt out at Maastricht and so they could choose to join or not.

The single currency programme was seen as a visionary one for the European Union. In all European Union (EU) countries except the two already mentioned there was an all Party commitment to go ahead with it. There was however a snag. The Maastricht Treaty said that only those countries could joint the single currency which satisfied certain convergence conditions. These were: budget deficits of less than 3 per cent of GDP, Debt-GDP ratio of 60 per cent and a low, stable inflation. Since most of the countries except for Italy and UK were in the ERM exchange rate, stability was already assured. It seemed in 1992 when the conditions were proposed that convergence would be non problematical. Left and Right signed up to creation of a European Central Bank which would be totally independent of and unaccountable to any of the political institutions of the EU.

Thus European socialists had agreed to a very deflationist arrangement since it seemed that European Union would be furthered by it. Then in late 1995 disaster struck. Germany had been insisting that the convergence conditions would have to be strictly satisfied to weed out weak currencies from joining and weakening the Euro. It turned out that German deficit for 1995 was above 3 per cent and its deficit for 1996 was also going to exceed that amount. Countries were going to be judged on their performance on each of the criterion during 1997. So a severe deflationary policy became necessary for Germany. But since Germany is still adjusting to the shock of reunification, there is a recession and unemployment started mounting. France had been maintaining an overvalued currency in the hope of being seen to be as good as Germany. Its unemployment is 12 per cent while German unemployment climbed nearer to ten per cent.

Still the Left kept quiet and did not challenge the single currency programme. Further deflation was on the cards if Germany and France were to qualify. Italy with its new Left coalition government was determined to cut its deficit from seven percent to three in two years in order to qualify, while Germany kept on hinting that Italy would be a weak currency to be kept out of the First wave. The European Left had abandoned its full employment aspiration in all but name to climb aboard an anti-inflation wagon. The extreme Right opposed the single currency on grounds of its cost to workers but it also blamed immigrants for the troubles. In the UK the conservatives went Eurosceptic and at the same time their flexible labour market, ie, orthodox non Keynesian policies had led to a fall in unemployment. New Labour under Tony Blair adopted this economic package of flexible labour markets and non intervention. It also remained sceptical on single currency.

Suddenly in March President Chirac saw the oncoming difficulties of severe deflation and wanted a fresh mandate despite his overwhelming majority in the National Assembly and called an election. While the Socialists did not reject the single currency proposal, after all Jacques Delors and Francois Mitterrand "� two leading Socialists "� had launched it, but they questioned the austerity. Whispers began to be heard about redefining the convergence conditions and even of delaying the Euro. All this was denied by EU officials and Germany seemed to be solid. Both Italy and France had resorted to peculiar public operations to bring down the deficit. But Germany poohpoohed such acts.

Then disaster struck ten days ago. France seemed on the verge of rejecting the Chirac cabinet. The German finance minister decided, quite legitimately, though, as it turned out, foolishly, to revalue German gold reserves at nearer the market price. This would have meant a profit in the annual accounts of the Bundesbank and that profit transferred to the Budget would have solved the deficit problem for 1997. There was an outrage on the part of the Bundesbank and all the orthodox German citizens. This seemed like an Italian style fiddle unworthy of the Germans. The finance minister had to climb down and narrowly survived a no-confidence motion.

At Malmo, therefore, we have at least two visions of the economy. The British socialists who don't even like that level very much are riding high on a programme of labour market flexibility and adopting a right wing economic package at best suited to the globalising world economy. The French are pining for more job protection and tarrif barriers to preserve and create jobs even though this may lead to high deficits and slow growth. The single currency may have to be delayed if the convergence conditions are taken to be strictly imposed. Or there could be a fudge and single currency could start without convergence. The UK has ruled out a fudge. Since it will have the Presidency of the council in the first six months of 1998 when the issue will be decided, it has some clout. There is a serious prospect that the only to create permanent jobs and prosperity in EU may abandon cherished socialist policies and embrace Thatcherism as New Labour has successfully done. This is Revisionism with a vengeance. But the

Euro socialists may yet see sense and go for UK style policies rather than risk social cohesion by deflating the economy further or opting for a sclerotic protectionist policy. Either way there will be painful adjustment to be made. In one case it is the party leaders who have to adjust their views. In the other case the leaders can stick to their views and it is the people who pay the price.