How the EU uses the single market and monetary union to bolster corporate interests

by Elisabeth Klatzer

The Economic and Monetary Union (EMU) lies at the heart of the neoliberal European Union. It consists of two essential elements: the single market project, which includes all member states, and the euro-based monetary union, which currently includes 19 member states.

According to the EU Treaty, the four freedoms of the single market (freedom of capital, goods, services and people) and the closely coordinated economic policies of the EMU are dedicated, first and foremost, to the principle of an “open market economy with free competition”. The EU enjoys far-reaching competences in this regard and has the power to enforce them by majority vote. In contrast, tax, employment and social policies are assigned only a minor role. The EU has limited competences on these matters, and unanimity is often required in order for action to be taken.

It is these factors that establish the basis for the biased unilateral orientation of EU economic policy in favour of business interests (camouflaged by the “open markets” rhetoric), the liberalisation of financial markets, the reduction of social and safety standards (“deregulation”) and increased competition among workers.

Although the idea of a “social EU” is frequently invoked, it is the very neoliberal alignment of the EU that facilitates the curtailment of social and welfare states in Europe and the weakening of people’s, workers’, consumers’ and environmental interests in favour of capital and corporate interests. Democratic mechanisms would potentially make this difficult to enforce on an individual country basis, which is why the EMU concept – whose decision-making mechanisms largely circumvent democratic structures like the European Parliament and national parliaments – is the key instrument in this regard. Of course, it is not only European capital groups that play an important role in this process, but national ones, too.

The euro as catalyst for Europe’s economic and political cleavage

The neoliberal foundations of the monetary union were enshrined in 1992 in the Maastricht Treaty. In principle, there were a number of positive options available to those who designed it: a progressive monetary union could have expanded the scope of action for economic policy, detached state financing from the power of the financial markets and promoted balanced regional, economic and social development. To achieve this, the European Central Bank (ECB) would have needed to be committed to these goals and legitimised via democratic means. Direct state financing could, under certain criteria, have been an important element in curtailing the power of the financial markets. But a functioning monetary union with the goal of high standards and a good life for all would have required a coordinated and progressive fiscal, wage and tax policy.

Instead, the political decision was taken to pursue a form of monetary union that would deprive the member states of budgetary scope for action and thus undermine the existence of the individual welfare states. From the very beginning, the financial compensation mechanisms provided to compensate for regional differences within the EU were limited, with economic divergence between countries and regions simply being accepted as unavoidable fact. Price stability was the primary objective, with economic and social development pushed to the background. Wages were deliberately utilised as the preferred adjustment mechanism for economic imbalances, which whipped up a wage-related race to the bottom.

The ECB was established as an allegedly independent centre of power, preventing the exercise of democratic influence over monetary policy. At the same time, lopsided influence increased: it is not by chance that the current head of the ECB is a former Goldman Sachs banker. The monetary union enshrined the prioritisation of the free movement of capital and the dominance of the financial markets. The ECB’s explicit ban on the financing of state budgets was designed to put public budgets under pressure.

The specific design of the Economic and Monetary Union has exacerbated the emergence of imbalances between member states. By definition, within a monetary union, it is impossible to reconcile divergent levels of economic development through the devaluation or revaluation of currencies. This leaves the sole option of offsetting via wages. Since wage development is not coordinated, the EMU has fuelled a dynamic of wage cuts and wage competition. This is exactly the spirit the neoliberal creators of the monetary union intended, and it pushes competition between European locations to its extremes.

Real wages in Germany, for example, were falling even before the crisis (specifically, with the beginning of the “red-green” coalition in 1998), sparking a downward spiral of competition. As German products became comparatively cheaper at an international level, high surpluses and profits were achieved in foreign trade. Germany established its economic supremacy at the expense of workers in many low-wage industries and at the expense of other member states. In Southern Europe and France, trade deficits increased. In addition, Germany’s high surpluses and profits drove the search for quick profit opportunities and the subsequent speculative bubbles that arose in other member countries, such as the real estate bubble in Spain. Finally, EU structural and regional funds are repeatedly used to finance transnational construction investment – most notably road construction in the interests of export industry – rather than being invested in productive industries or social infrastructure. This has added to economic divergence within the euro area. In this sense, the EU is not an engine of integration, but of economic cleavage. We are now witnessing how this economic cleavage can lead to social and political disintegration.

After the crisis: The economic policy straitjacket is tightened

With its one-sided focus on budget discipline and price stability, the Maastricht Treaty was responsible for the early introduction of stranglehold criteria that limited the scope of economic policy. It did this by blocking particular budget and monetary policy paths aimed at pursuing the primary goal of balanced economic development. The Stability and Growth Pact prescribes pre-balanced budgets for the medium term and sanctions for non-compliance. With its introduction, the scope for an active fiscal policy to increase public investment or combat crises was drastically reduced.

This economic policy straitjacket was further tightened in the wake of the global financial crisis – yet it was not the liberalised financial system and the speculators responsible for the crisis who were asked to pay. They were rewarded by state bailouts, while the vast majority of the population were left to bear the burden in the form of austerity policies. At the same time, it was not Germany – whose low-wage policy had fuelled unequal economic development in the EU – that was subject to sanctions, but the countries that had suffered most from this development.

The economic governance regime, which was introduced hastily in 2011 as a kind of a shock therapy, didn’t just serve to consolidate an incorrect and disastrous formula – it also expanded into new areas. The Fiscal Compact and Six pack packages locked down new options for enforcing budget discipline and established permanent rules for reducing public debt and initiating further cuts in public spending and social benefits. On top of that, the new rules enforced mandatory “reforms” – in other words, deterioration – in public security systems and labour law. They also enforced wage cuts, with a strengthened system of surveillance and sanctions in the form of fines. In this context, “reform” actually meant deregulation, liberalisation and reduction of benefits. Furthermore, the surveillance rules related to “excessive imbalances” and “competitiveness” served merely to increase pressure on wages and to force the reduction of workers’ rights and weaken unions.

This economic governance is proving to be the most effective weapon in the neoliberal, authoritarian power shift. A small, male-dominated economic and financial elite in the EU Commission, Council, Ministries of Finance and ECB has increased its power and influence with no effective democratic control and is pursuing a neoliberal mission of serving transnational capital interests. It is therefore not surprising that outsourcing, cuts and privatisation in the public sector – including in health, pensions and social affairs – have had a negative impact on large parts of the population and have increased inequality. It is often women who are required to compensate for cuts in the social sector in the form of unpaid work, with the result that and social and gender inequality and insecurity are increasing dramatically. Even as this occurs, additional funds are being directed towards the male-dominated police and militarisation programmes favoured by the EU Commission and most governments.


The debate over the Economic and Monetary Union has always been touted as a conflict between the interests of individual member states, especially those of Germany and France. In reality, however, it is a conflict between the neoliberal interests of the wealthy and corporate groups on the one side and the interests of the general population (in good public services and high labour, social and environmental standards) on the other. The quintessential neoliberal orientation of the Union is currently not up for debate; on the contrary, the proposals for “completing the EMU” and the EU’s future seek to exacerbate the neoliberal constitution and the sanction mechanisms. Such proposals further propel the authoritarian restructuring and militarisation of the EU – again, in the interests of the few, not the many. Given the hard reality of EMU, the often-repeated and long-favoured rhetoric regarding the EU’s social dimension does nothing more than distract us and give rise to false hopes. We shall overcome!

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