Not long ago depicted as a paragon of international virtues, the European Union has become synonymous with never-ending financial instability, the words ‘euro’ and ‘crisis’ now automatically conjoined. Anglo-Saxons are impatient: the us and uk have succeeded in shoring up their broken banks and rolling over their debts through state recapitalizations, bond purchases, money printing and devaluation; why can’t Europe do the same? Merkel’s government has been accused of failing to grasp that this is a banking crisis, not just one of sovereign debt. Headlines clamour for the adoption of the latest trans-Atlantic palliative: first bail-out loan funds, ecb bond purchases, quantitative easing; now direct lending to banks, deposit insurance, regional regulation and eurobonds, or issuance of collective debt. Germany, given leave in crisis conditions to assume an open leadership role in Europe—a position the Maastricht Treaty was designed to neutralize—has naturally asserted its own interests in the process of exercising its hegemony. Loth to become the guarantor of other states’ bank and sovereign debt, it is determined to get as much as possible in exchange.

But the new hegemon has been a lame one, as Perry Anderson has argued.footnote¹ Berlin begrudges having to underwrite stop-gap measures to prop up the Eurozone’s over-leveraged banks, and thereby British and us ones, via its debt-burdened states; but it is incapable of implementing a decisive alternative programme to restructure the unsustainable banking sector, rather than patch it up. The flawed design of the euro, a currency without an accountable sovereign state, is coming under intolerable pressure, as Michel Aglietta describes below.footnote² But Europe’s oligarchies baulk at the genuine political union—a true democratic federation—that nlr and others have historically championed. Germany’s strategic aims in the crisis are more limited. It has fought for decades to safeguard its manufacturing base, battered (as was Japan’s) by us exchange rates in the 1980s and now challenged by the rise of China. The geo-political dimension of European monetary union, as a prospective reserve currency to rival the dollar, will not be abandoned lightly; it was one reason for opening the Eurozone to so many peripheral economies, despite the core states’ determination to avoid the federal social responsibilities that political union would bring. Berlin now aims to tighten the Eurozone system, to defend the gains it represents for Germany and to squeeze the bloc into a more competitive position vis-à-vis its rivals to the east and west. Beneath the hubbub of the headlines, this new European integration project is well underway. What political forms is it taking—and what opposition is it likely to meet?

As with earlier phases of European integration, the current one is structured by Community-level institutional design and nationally ratified treaties. But under conditions of emergency, it has involved more open political struggles between and within member states, as the scale of the transfer of wealth, from working populations to financial conglomerates, and of power, from economically weaker states to institutions controlled by stronger ones, becomes clear. The move was set in train with the European Financial Stability Facility in May 2010, its loans conditional on savage restructuring programmes dictated by officials of the European Commission, European Central Bank and imf. The terms of the Troika’s Memoranda of Understanding (mou) are well known; their formulae typically assert: ‘the amendments’—to amalgamate schools, reorganize local government, chop health spending, cut wages, etc.—‘will be presented to Parliament in Quarter 3 and adopted by Quarter 4’. Elected legislators in the target countries are reduced to clerks.footnote³ The European Stability Mechanism, currently being ratified by national parliaments, will turn this punitive emergency set-up into a permanent system. The esm directorate will constitute an in-house imf for the Eurozone, dictating macro-economic policy to states dependent on its loans. Underwritten in the final instance by Eurozone taxpayers (who also undertake to guarantee the interest payments and bankers’ fees), the loans themselves will be raised on the international markets, as those of the efsf have been.footnote⁴

The Fiscal Compact treaty, enshrining a balanced-budget rule in member states’ constitutions, is designed to bolster the esm ‘from below’.footnote⁵ Deficits must not be above 3 per cent of gdp, nor debt over 60 per cent. If the European Commission deems this breached, automatic correction measures will be implemented that need not be subject to parliamentary deliberation. The Fiscal Compact’s economic effects are nugatory: the rule can be dodged if a parliamentary majority declares the country to be facing ‘exceptional circumstances’, or by employing Special Purpose Vehicles. Its importance is purely ideological, demonstrating that a member state is marching in line behind Berlin. Thus Zapatero and Rajoy scrambled to ram a constitutional amendment through Spain’s Congreso de los Diputados at barely a week’s notice in August 2011, only the second time the Constitution has been amended. Sarkozy had tried to push a Schuldenbremse through the French National Assembly the month before. There was ill-concealed impatience in Brussels and Berlin when the Irish government declared itself obliged to abide by its own constitution and put the Fiscal Compact to a popular vote. The arguments of the Yes camp amounted to dire threats of still harsher budgets cuts if voters delivered the wrong answer. When the referendum was carried, by an underwhelming 30 per cent of the electorate, Kenny rang Merkel directly—so personalized has Eurozone decision-making become—to beg for some debt relief as a reward. In true colonial fashion, it came as a pat on the head—‘Ireland is considered a model bailout student’—and demand for payment in full.footnote⁶

Beyond this, designs are being drawn up by ec and ecb officials for a new Euro-group fiscal mechanism, headquartered in Luxembourg, and perhaps making some token nod to democratic principles through the inclusion on its board of the leader of the European Parliament, to control the issuance of new debt.footnote⁷ In essence this will take the form of an autocratic and asymmetrical oversight body, lacking any democratic accountability, to impose the diktats of northern states on the south. This is Berlin’s condition for any future eurobonds. ‘Control’ is the key word in Merkel’s pronouncements on this: ‘Solidarity is possible only with serious controls and collective oversight’—‘you cannot have guarantees without control.’footnote⁸

The official architects of the new fiscal body are the ecb’s Mario Draghi, European Commission chief José Manuel Barroso, Euro-Group chairman Jean-Claude Juncker and European Council president Hermann Van Rompuy. Their qualifications speak for themselves. Barroso had presided over the catastrophic collapse of the Portuguese economy, before gratefully accepting Blair’s nomination to the ec in 2004 as a reward for services rendered on Iraq—hosting the Azores summit in March 2003, from which Bush delivered the warmongers’ ultimatum. Barroso spent the summer holidaying on the yacht of Spiro Latsis, a Greek shipping billionaire whose company soon after received the Commission’s approval for state aid worth €10m. Draghi was famously a vice-chair for Europe at Goldman Sachs, a position that put him in charge of its ‘companies and sovereigns’ department, which shortly before his arrival helped Greece and its Central Bank governor Lucas Papademos disguise the state of its national accounts with derivative swaps on its sovereign debt; Draghi himself was an ardent proponent of governments’ use of derivatives. Juncker is Prime Minister of Luxembourg, a duchy notorious for the light regulation of its financial companies, among them Clearstream, a Deutsche Börse-owned clearing house with custody of €11 trillion of assets, and the subject of numerous money-laundering allegations, which the European Commission under Barroso has studiously refused to investigate. Van Rompuy, a right-wing Belgian Finance Minister in the 1990s, briefly in and out of the Prime Minister’s chair, was the anyone-but-Blair candidate for the eu’s unelected presidency, a relic of Giscard d’Estaing’s failed Constitution. His spectral presence testifies to the impasse of the Maastricht-model eu, swollen to an unwieldy 27 members, and the autonomous dynamic of the Eurozone.

The upshot of these processes has been the abrogation of sovereignty in successive member states and its accumulation in Frankfurt, Brussels and Berlin. In place of the Treaty of Rome’s ‘ever-closer union of the peoples’, it sets in place a series of structural inequalities between them. As Wolfgang Streeck has observed, the new integration drive represents an extension of the neo-functionalist ‘spill-over’ model: