As one might have expected, the prospect of an early election, generally expected within the next few months, has brought the issue of Britain's entry into the euro back to the top of the political agenda.

Paradoxically, it was Blair who shot the first round in an attempt to keep the euro out of the election campaign. He stole a eurosceptic march on Hague with statements like this one, made to a journalist at the Euro-Asia summit in Seoul, last October: "If you came along to me with an opinion poll and said Do you want to join the euro today?', I would say no". Then came a careful media build- up to the Nice European summit, in December, where Blair was duly portrayed as a true British bulldog, standing firmly for "British interests". Up to that point the Tories seemed to have been wrong-footed by Blair's anti-euro shift. Besides, Hague had to take into account the influential pro-euro faction within his own party and the electoral damage that could result from an open rift. However, there are already signs that the Tories are hardening their anti-euro stance in order to counter Labour's move. So the odds are that there will be more tabloid- type anti-euro campaigning in the coming months.

But far more than the politicians' overbidding, the economic developments of the past year seem to be raising the issue of Britain's entry into the euro - particularly the massive wave of redundancies in large-scale manufacturing, which have all been blamed, one way or another, on the gap between the pound and the euro. And it is not just the big companies responsible for these job cuts, who are raising the issue - something which can only be met with suspicion since they would use any pretext at hand to justify cutting costs. Union leaders are also now presenting Britain's joining the euro as the only way to stop the present job drain in manufacturing - which is of course, another way of dismissing, yet again, the need for a counter-offensive against the bosses which the union leadership dread more than anything else. In any case, because of all this, it is worth reconsidering the issue of the euro in the light of these latest developments.

A not so "common" currency

First, one should ask what the present state of the euro is. It is already two years since the currencies of the 11- country euro-zone were tied together by fixed exchange rates. And the deadline for the actual replacement of these currencies by the euro is only one year away. So has the euro been transformed into the "common currency" it was meant to become?

In this respect one can only make a statement of fact: the euro is not anywhere close to playing the role of a common currency across Europe - that is, not in the sense that the dollar is a common currency for all the states which constitute the USA. In Western Europe alone, six countries are still outside the euro-zone. Among these six countries, five seem set to remain outside it in the immediate future: Switzerland Norway and Iceland, which are not even part of the European Union; Denmark, where the electorate voted against joining the euro last September (although this may be reversed by another referendum, at some point, as was the case in the past for a referendum over joining the EC); and Sweden, even though its government seems to be still keeping its options open. But, of course, the main weakness of the euro as a European currency is the fact that British imperialism, one of the four European heavy weights, remains out of the game.

And this is not due to some kind of "parochialism" on the part of British capital. After all, the British capitalist class pioneered the expansion of its activities to the rest of the planet. And today, it is one of the most dependent on the world market. Why should it be more wary today about jumping into the euro lake than yesterday into the ocean of the world market? Or is this reluctance due to the fact that British capital shares the populist obsession with the pound displayed by some of its politicians? Certainly not. British companies make a very large part of their profits in dollars, yen and, in fact, euros. For British capitalists, the pound is only a means to an end - a weapon in their economic war for markets and profits against their imperialist rivals. And the only relevant question for them is whether the euro and the framework it offers can give them more effective weapons.

The wavering of past British governments over the euro is not, therefore, just due to the twists and turns of their electoral policy. Above all it reflects the fact that, on balance, the advantages of joining the euro are not so clear-cut for British capital.

The euro's poor performance on the financial markets since its inception can only bolster the scepticism of British capitalists. In fact it is even giving cold feet to some of the euro-zone's leading politicians. Indeed the fact is that the euro has lost 25% or so against the dollar since January 1999. Moreover, given this 25% loss, it is not surprising that the euro has failed to make any progress towards becoming a new reserve currency like the dollar and the Japanese yen. This means that despite the considerable weight of its economy, the euro-zone cannot gain the same kind of privileges as those enjoyed by the USA - such as the ability to repay its debts in euros and to have the exchange rate of the euro supported permanently by the world's central banks. All this does not help to generate confidence in the euro's future.

The lions' den

Besides, by now, what used to be the main argument in favour of the euro - the advantages of tightening up economic links on a European scale - may no longer be considered substantial enough by some capitalists, compared with the disadvantages involved.

By now, companies, particularly very large ones, may consider that they have gained as much as they could gain in Europe and that the real game is elsewhere anyway - mostly in the US market. It is significant in this respect that out of the huge wave of mergers and acquisitions of the past period, hardly any new European-wide giants have emerged, like for instance Ford or General Electric, with their ubiquitous presence in the US market. The fact is, that rather than acquiring European rivals, the big European companies have been mostly busy buying stakes in American or Japanese companies - i.e. entry tickets into non- European markets.

Besides, even without the euro, the European Union provides for a degree of economic integration. It was built at great pains, over many decades, in order to overcome the fundamental weakness affecting all European companies - the survival of outdated national borders which prevented them from being able to rely on a domestic market comparable to that enjoyed by their American rivals. In the process which led to the transformation of the European Community (EC) into the Single Market in the 1980s and the setting up of the EU the following decade, there were many crises and setbacks. And all had the same cause - the rival interests of the European "partners".

In the end, the institutions that came out of this process, were primarily a framework designed to allow governments to defend the interests of their respective capitalists. And of course, in such a framework, only one thing counts - the relationship of forces - just as before, but in a relatively more "civilised" fashion (for the time being at least). The big guns call the shots, while the lesser partners have no option other than to follow. Only the four main powers have any real bargaining power, and they use it like thieves sharing the loot of their last hold-up. The fact that they sit together in these institutions has done nothing to soften the rivalries between the European capitalist classes. On the contrary, the disappearance of most (but not quite all) barriers to the circulation of goods and capital has intensified these rivalries.

The Nice European summit gave a graphic example of how this works. The four biggest players (Britain, France, Germany and Italy) ensured that they would have a de facto veto on any decision made by the council of Ministers (the only EU body with any real power) even after the planned enlargement of the Union to Eastern European countries. The smaller players, like Belgium, Austria, Luxemburg, etc.., were told in no uncertain terms to put up with their reduced say and shut up. In fact this "rebalancing" of voting rights in favour of the larger countries was the only substantial decision in the "agreement" that came out of the Nice summit. Not one of the contentious items between the major countries was resolved. Blair's "victory", as it was presented here, in avoiding majority voting on issues such as tax and social security and preventing the Charter of Rights from becoming legally enforceable in each member state, are just two examples of the unresolved bones of contention left over after Nice, and there are many others.

If such is the state of play among the EU 15 member countries, it can only be even worse among the smaller number of euro-zone partners. And it is not hard to imagine that as a result, some countries may feel that they would rather remain outside. Denmark is a case in point. Despite being largely inside the deutschmark's economic sphere, this small country has chosen to remain outside the euro (at least for the time being) - not because it wants to sever its links with the German economy (it has little choice anyway) but to avoid being bullied into obedience by the big players. And there is no guarantee that others, including among the present euro-countries, will not follow Denmark down this road.

But it is not just in the smaller countries that the capitalists might prefer to stay outside the euro lions' den. British capitalists may do so as well, if they feel that, overall, their profits will be better protected outside, especially if the euro is weakened even further due to the general economic context, or because a growing number of countries choose to opt out.

It is therefore pointless to risk any prognosis as to whether British imperialism will eventually choose to join the euro or not. All the more so because the capitalist class acts more according to short- term concerns - which are by their very nature volatile - than to long-term strategies. The only certainty is that it will try to have its cake and eat it - as it has always done in the past with respect to Europe, like each of its main European rivals.

Euro-City - a British tax haven

If there is one area in which British capital certainly is having its cake while eating it, it is the financial sphere. Far from suffering from the introduction of the euro and losing business to Continental financial centres, the City is thriving more than ever, and in many ways this renewed affluence is actually a by-product of the euro.

One might have expected that with the merging of the eleven euro-currencies into the euro, the volume of deals involving these currencies would shrink significantly after January 1999, since there would no longer be any need to exchange deutschmarks for francs or lira for pesetas. As a result, the City's foreign exchange turnover should have been somewhat affected. But in fact, according to the Bank of England, currency transactions between the euro-zone and the rest of the world have increased so much overall that this loss of business has been more than compensated. In any case, the City has retained a large share of the euro currency deals, which account for one third of its foreign exchange business. And without this boost, London would not have strengthened its position as the world's largest foreign exchange centre. In fact, it might even have lost it.

The same is true for the banking sector. One of the stages in the run-up to the introduction of the single currency, was the adoption of a European directive, in 1994, which allowed any bank registered in one of the EU countries to operate everywhere else in the EU without the need for further authorisation.

Once again, the City was the main beneficiary. Between 1995 and June 2000, the number of EU banks holding assets in the City doubled to 275 while the number of British and other non-EU foreign banks both decreased. Asset figures are even more eloquent: during the same period the assets held in London by EU- banks increased by 280%, while their share of all banking assets held in the City went up from 18% to 28%. A fact which is possibly even more significant was that the combined share of US and Japanese banks in City assets went down from 29 to 14% over the same period. So much for the eurosceptic fairy tale which says that the City owes its affluence exclusively to its links with Wall Street. This might have been true in the 1980s, but no more. In any case the euro has been good for them - that is for all the British financial intermediaries who service the City's ballooning banking sector.

Another area in which the British finance industry has made a killing thanks to the euro is the stock and debt markets. Euro- zone shares account for no less than 40% of the London stock market turnover. Moreover 60% of all so-called "eurobonds" (i.e. debt certificates in euros sold to the public) are issued on the London market - and each issue represents millions of pounds in commissions for the cohort of British financial advisers, insurers and brokers involved.

Of course, there is a reason for all this financial business to come to London instead of going to Frankfurt, Milan or Paris. And it is not just a question of available facilities and skills. It is a question of tax. Of all EU financial centres (with the exception of Luxemburg which is very small), London is the only one to impose no tax at all on the financial profits made by foreign residents holding assets in the UK. In short, it is a tax haven - and it has been one for decades already. This is why first Thatcher, then Major and now Blair, have put up such resistance to the EU's attempts at introducing a tax system designed to make it impossible for capitalists to make tax gains by moving their capital to a different country. Of course, such a system would have deprived London of its main attraction for European capitalists. So, instead, Blair negotiated a "compromise" whereby his government pledged, with all due "honesty", to feed all available data on financial profits made by EU companies or residents to their own governments. Except that in unregulated Britain, everything to do with business is based on self- assessment and there is an army of financial advisers, out there in the City, eager to help anyone with the right amount of cash to massage figures. Of course Blair can pledge to be "honest" about what his own taxman does not even know! So euros will continue to flow from all over Europe into the City in order to play on financial markets tax-free and British finance companies will carry on lining their pockets with their cut of this bounty.

The pound - strength or instability?

Does this mean that British big business is wholeheartedly in favour of maintaining the present status quo - i.e. trying to get as much out of the euro as it can while remaining outside? Not necessarily, if only because there is no guarantee that this position can be sustained forever, not even in the finance industry. Already, new electronic quoting systems linking continental financial centres are offering convenient ways of by-passing the City. And who knows what may happen? After all, both Germany and France could lose patience in front of Britain's parasitism on the euro. They might try to undermine the City in order to put pressure on the British government. And between them these two countries would probably have the means, if not to dethrone the City, at least to seriously damage its dominant position. If they were successful, not only would the British finance industry lose out, but also many large British companies which rely on the vast amount of capital available in the City for their borrowing requirements.

Besides, as some economists argue today in hindsight, the flow of capital from the euro-zone into London has turned out to be a double-edged sword. It may have allowed Blair to boast of improved figures for Britain's current account and helped the finance sector to make considerable profits. But it has also contributed to widening the gap between the pound and the euro - with the pound now 18% higher against the euro than in January 1999.

Moreover, argue the same economists, because this flow of capital is subject to hectic movements, it has amplified the ups and downs of the pound's exchange rate, not only against the euro but also against the dollar. And while the fall of the euro against the pound affects mostly companies which export goods and services to Europe, the instability of the pound against the euro as well as against the dollar, affects many more British companies operating in Europe or in dollar zones such as South East Asia, thereby putting them at a disadvantage against their euro-zone and American rivals.

Of course, Blair's ministers and the media have been telling us a rather different story. According to them the pound has been following the dollar on its rising curve because the British economy was following the US economy in its "successful" expansion. Except that this rosy picture is not borne out by actual exchange rate figures. This led the Financial Times to write, last September, "In recent years it has become popular to believe that Britain is an offshore branch of the US economy and the pound a sort of surrogate dollar(..) Not any more. This year the pound has lost 15% against the dollar (..) During 2000, the pound has actually been more stable against the euro than against the dollar." In fact, one should add that although being more stable against the euro, the pound's monthly average rate has nevertheless been going up and down continuously within an 8% band - which means significant risks for the companies operating with both currencies.

The pro-euro camp and its reservations

This is why, for instance, a number of large British- based, companies, including some operating on a world scale, such as Toyota or Unilever for instance, now require their British suppliers to bill them in euros, as a way to reduce their exposure to the ups and downs of the pound.

In theory, companies can cover their currency risks by resorting to various insurance devices. But for the very big companies, the sums involved are so large that it is more difficult. This is why a bosses' organisation like the CBI, or an unofficial mouthpiece of big business like the Financial Times, has been campaigning for a policy aimed at ensuring greater stability for the pound's exchange rate, against the euro in particular. How this is to be achieved is another question.

For the Financial Times, this stability can only be achieved if Blair's government makes decisive steps towards joining the euro. For this newspaper, Brown's "five tests policy" and its reliance on the behaviour of the financial market, is nonsensical politicking. As it stated last October, "the pound's entry into the single currency cannot be left to the markets (..) Currencies are capricious and unpredictable. If the government is serious about the benefits of greater stability against the euro, then it will have to show some commitment in joining.(..) Not until the government takes a lead can the markets be relied on to follow".

This position is largely shared by a very active pressure group - called "Britain in Europe" - which, ironically, was set up with Blair's open support in late 1999. What is probably more significant than anything else about this group is the fact that the list of its governing members and official donors reads like the Who's Who of big business. In this list, one can find big exporting companies such as ICL, BAE Systems, Kellogg's and Xerox, but also importers such as Sainsbury, service companies such as British Telecom, British Airways and British Midland, finance companies such as KPMG and several multinationals such as BP, BAT (whose vice-president is none other than former Chancellor and prominent pro-euro Tory, Kenneth Clarke), Nestle, Philips, Unilever, etc.. In addition comes an impressive cross-party array of businessmen (including the former CBI director general Adair Turner) and politicians (including several former Tory ministers under Thatcher such as Lord Cockfield, David Curry and Geoffrey Howe).

Does this mean, however, that British business has made up its mind about the euro and that the only obstacles to Britain's joining the euro are political - i.e. the Blair government's own reluctance to take the jump? Probably not. On the one hand there is a whole layer of capitalists linked to smaller businesses operating mainly in the British market or its appendages in the Commonwealth, which is probably not just against the euro but even in favour of a withdrawal from the European Union. However, these smaller capitalists have probably little influence compared to the big companies.

On the other hand, the position of the CBI, which represents a large proportion of British companies of all sizes (although not necessarily the biggest, judging from a recent survey published by the Financial Times), is much more nuanced. It has been very vocal in its exposure of the pound's instability. But after months of campaigning for an early entry into the euro, the CBI decided last year to stop intervening publicly on this issue, allegedly to avoid being drawn into the euro-controversy between the main parties.

However the CBI's subsequent interventions seem to indicate that this decision was above all a consequence of the CBI's internal division on this issue. Since then, it has waged a two-pronged campaign. On the one hand the bosses' organisation has been consistently whining about the "excessive red-tape imposed on businesses" - meaning by this the very limited rights conceded to workers in terms of working hours, paid holidays and parental leave, as a result of the implementation in Britain of European directives. On the other hand, the CBI has been demanding that the government should take financial measures to help out businesses affected by the instability of the pound and that it should adopt a policy "designed to prevent such instability" (and this includes closer collaboration with the euro-zone financial authorities). In passing, this shows that contrary to their claims, the bosses are not opposed to "red-tape" (i.e. state intervention in business) in principle - so long as it does not affect their ability to turn the screw on workers and allows them to line their pockets. In any case, if the CBI's present campaign shows anything, it is probably that the bosses are in two minds about the euro.

Job slaughter in manufacturing

Throughout the year 2000, tens of thousands of jobs were cut in manufacturing, all under the same pretext - the high rate of the pound against the euro.

The main target so far has been the car industry, with massive cuts announced and already implemented in part, at Rover, BMW, Ford, Land-Rover (after it was bought by Ford), Nissan and finally Vauxhall. Of the remaining four car companies operating in Britain, Honda had already cut production by half in April, Toyota is said to be considering a large production cut at its assembly plant near Derby and Peugeot is putting into question a project to build a new paint shop in its ageing factory near Coventry. Only Jaguar (also owned by Ford) seems unaffected so far.

But it is not just the car industry which is affected. Sony, Hitachi, Matsushita and Panasonic cut over 2000 jobs in electronics at the end of the Summer. Textile was badly affected too, with the country's largest manufacturer, Viyella, cutting one fourth of its workforce. Not to mention Corus, the privatised British Steel now merged with the largest Dutch steelmaker, which cut 4,500 jobs last year - some in the form of compulsory redundancies - and is said to be preparing a much larger round of job cuts for the beginning of this year.

To be sure, the pretext of the high pound and Britain's failure to join the euro has already been used many many times to justify job cuts. In fact it was used even before the introduction of the euro, back in April 1998, by Vauxhall. At the time, Vauxhall used this pretext to blackmail its workers into agreeing to drastic tightening of conditions, threatening to close down its Luton assembly plant otherwise. In addition, Blair's government was called in to provide the company with an undisclosed amount of cash. As a result, among other concessions made to the company, new entrants had their wages cut by 18% and lost part of their entitlement to paid holidays for thee years. This did not prevent the T&G automotive chief negotiator, Tony Woodley, from boasting: "We have given our people an opportunity for a long term future." But just three months later, in July, Vauxhall disclosed large investment plans for its Ellesmere Port factory - proof that, after all, the weakness of the pound was not a problem for the company. But at Luton concessions had already been made and jobs cut! As to the "long term future" heralded by Woodley, well, the Luton workers are now going through the bitter experience of what exactly this meant - the closure of their plant.

There is no doubt that the companies which used the level of the pound and the euro as a pretext to cut costs in order to boost profits in the late 1990s, were lying through their teeth, just like Vauxhall. They would have used any pretext at hand. It so happened that the issue of currency rates was a convenient and topical one. The exorbitant level reached by company profits during these years is testimony to the bosses' lies.

Today, however, the situation may appear somewhat different. Despite all the talk about an "economic boom" in the USA, commentators are now admitting that the American heavy industry is facing serious difficulties, possibly the beginning of a crisis. Given the worldwide scale of operation of the US car manufacturers, this is leading to restructuring across the planet and particularly in Europe - and it fuels bitter competition within the industry.

In addition to this, as the deadline for the full switch to the euro approaches, all the big companies strive to take positions which will help them to win the largest possible share of the market and take the biggest share of the profits to be made. For all these companies every change in the manufacturing process (like a new model in the car industry) and every investment intended to renew worn-out equipment is seen as an opportunity to reassess their position in preparation for the big game. And, of course, having to pay the cost of the differential between the pound and the euro is not an attractive option. After all it was Britain's lower labour costs and tax overheads which attracted most foreign manufacturers to Britain and prevented British manufacturers from moving out. What would make them want to remain here, far from the Continent where the real game is taking place, if the high pound is reducing these past advantages to nothing?

What protection for jobs?

But does this mean, as the TUC leaders are now claiming at every opportunity, that if Blair took the jump into the euro-zone, this would stop the present slaughter of jobs, or indeed bring new ones - and in fact that this is the only way for British workers to defend their interests?

Obviously if the exchange rate of the pound against the euro was locked at its present level, keeping plants in Britain would be just as unattractive as it is today for the big companies. But on the other hand, a drop in the value of the pound, more or less back to its 1999 level against the euro - which is what some euro fans are proposing - would mean a sharp rise in the cost of all imported products, including many items used day-in and day-out by most working class families. In short, it would mean a significant cut in the standard of living of the working class.

At the same time, one can easily imagine the sort of arguments that we will hear to justify the need to tighten our belts. The governor of the Bank of England, Eddie George, gave a foretaste of these in an article published last November: "we would have to look more to fiscal policy (..) and that would involve recognition by the people of this country that their behaviour would have to be driven by the need to control inflation" - in other words, it would mean what governments usually call "wage restraint", that is cutting the real wages of the working class in order to cut costs, since they never ever consider the possibility of cutting profits first.

But then, of course, this would not be very different from the song we have heard over most of the past two decades - that wages and conditions had to be constrained to maintain "competitiveness".

As to the issue of jobs, one has only to listen to the statements made recently to the press by a company like Corus to understand what the score really is. For Corus' directors, the situation is simple: labour costs are "too expensive" in Western Europe - whether in Britain or on the Continent - so they intend to source an increasing proportion of their steel from Eastern European countries where there are plenty of unused production facilities and even more unemployed workers. But from this point of view, being inside or outside of the euro-zone will change nothing for the British working class, unless they agreed to allow the bosses to reduce their conditions to the same level as in Eastern Europe - and no doubt, there will be employers cynical enough to use this argument to extract even more concessions from their workforces in Britain.

Of course, the euro was never designed to improve the lot of working people in Europe. It was always intended to be an instrument to allow rival capitalist classes to overcome some of the limitations imposed on their profits by their rivalries, but not to suppress these rivalries. This is why, assuming that the euro-zone survives for any length of time (and this is a big "if"), it can only fuel even more bitter rivalries between the companies operating in Europe. But these rivalries will not stop at the euro- zone borders. The European market is too large for any sizeable capitalist class to choose to ignore it and the big European companies are already too big to confine themselves to the euro- zone alone. The intensification of capitalist competition within the euro-zone will affect every country within its reach.

This is why the question "pound or euro?" presents a false choice for the working class. Because it is a choice between two faces of the same exploitation, with the same consequences whatever the outcome. British workers can count neither on the benevolence of their own bosses nor on the so-called "job dividend" of the euro heralded by the TUC leaders. What they can count on, however, is their own forces, if they decide to take matters into their own hands.

Contrary to the repeated assertions of British trade union leaders over the past decade (and at what cost for the working class!), there is no possible common ground between the interests of the big companies and those of the working class. But while it may be impossible, whether within or without the euro-zone, to stop multinationals from considering jobs and factories as pawns in the profit game, it is not impossible to ensure that when they do this it costs them so much that they will think twice the next time round. Nor is it impossible to seize and hold their assets as a guarantee against their attempts to deprive workers of their wages. It is a matter of balance of forces, and only the working class with its millions of members and its collective experience has the capacity to do it.

2 January 2001