Monday 2 November 1998

GERMANY SHOWS THE WAY FOR EUROPE

Paul Anderson, Tribune column, 2 November 1998

I have a sneaking suspicion that historians will come to see the election of Gerhard Schröder’s red-green coalition in Germany as a turning point for British politics.

Far more than Labour’s victory in Britain last year, the coming to power of the German Social Democratic Party has transformed the European political landscape. A little more than a month after the Bundestag election, it is already clear that the new German finance minister, Oskar Lafontaine, and his French counterpart, Dominique Strauss-Kahn, share the view that European macroeconomic policy needs a radical shake-up. Germany will be lining up with France to push for stronger political control over the policy of the European Central Bank and for growth-oriented policies at the European level. Jacques Delors’s early-nineties schemes for Europe-wide public works programmes – blocked by the British Tories in 1994 – are being dusted off again. Contrary to what Tribune and other left Eurosceptics would have us believe, Eurokeynesianism is back, and this time it’s serious.

The Murdoch press is not altogether pleased by this – and nor is the British government, despite Tony Blair’s declaration of support for concerted European action to create jobs at last month’s European summit meeting. Although Gordon Brown flirted briefly with the idea of Europe-wide counter-cyclical economic policies in opposition five years ago, the general thrust of Labour thinking about the economy has been hostile to Eurokeynesianism. Rather than revive Delors, the British government (like the Murdoch press) would go for deregulation, stricter competition policies, labour market flexibility and so on.

The problem for Labour, however, is that its views on economic policy do not carry much weight with its partners in the European Union. This is partly because some continental social democratic parties – particularly the French – are justifiably wary of what they see as Labour’s “neo-liberalism”. But it is mainly because Britain is not joining the European single currency in the first wave. In the past few weeks, it has become embarrassingly obvious that, for all Blair’s talk of “leading” in Europe, Britain is desperately chasing the EMU pack. In such circumstances, it really doesn’t matter how many well-received initiatives the Labour government comes up with on defence policy or the environment.

Which goes some way to explaining why the government has all of a sudden decided to make a start on persuading the electorate that Britain should join the single currency. Until recently, Labour had little of substance to say about economic and monetary union. Of course, it wanted it to work. But it would make up its mind on British membership of the single currency in the fullness of time. Britain would join only if the government thought conditions were right and if voters backed the single currency in a referendum.

Now the message has perceptibly changed. In the past couple of weeks, both Peter Mandelson and Gordon Brown have made it clear that British participation in EMU was now less a matter of “if” than one of “when”.

Last week, Mandelson told a group of businessmen that the creation of the single currency “will be a major step towards the creation of a genuine European single market. Across the whole euro area – by far Britain’s most important trading partner – prices will be quoted in the same currency. There will be no hiding place for high charges and consumer rip-offs.”

This week, Brown told the Confederation of British Industry conference that the Government had “decisively and unambiguously put this country on a new road of constructive engagement with Europe”. In January, he went on, he would be publishing a detailed plan for British entry into the single currency.

For many on the British left, this is not good news. Some, including most of the Campaign Group, are simply stuck in a seventies time-warp, antipathetic to anything to do with the dreadful capitalist conspiracy that is the Common Market and oblivious to the constraints imposed by globalisation on a medium-sized state’s economic policy. Others, mainly on what used to be called the soft left, are more sophisticated. They have no objection to the idea of a single currency in theory. But they believe that the European Central Bank will inevitably impose a severe monetary regime that will have dire effects on employment.

I disagree, because I am optimistic that France and Germany will succeed in putting in place the mechanisms necessary to ensure the bank’s anti-inflation brief is not the only determinant of European macroeconomic policy. The irony is that the main reason for my optimism is that Britain is not in the first wave of EMU and so cannot sabotage the continental Eurokeynesians’ efforts. Strangely enough, by staying out for now, Labour has increased the likelihood that the euro zone will be something the left will want to join in 2005.