Be it Euro, Central Bank or Constitution, tax or wage dumping policies: the EU bears the neoliberal handwriting of the current federal government and its leading lady Angela Merkel

On 1st May, Angela Merkel accepted the, perhaps, most renowned European prize: the International Charlemagne Prize of the City of Aachen that since 1950 has been awarded every year to politicians or institutions "for distinguished service on behalf of european unification". As the Charlemagne Prize Board of directors consisting of representatives of the city of Aachen, the general secretary of the conservative Konrad Adenauer Foundation as well as various representatives of economy and church, pointed out, Ms. Merkel received the prize for rendering "an outstanding contribution to advancing the integration and overcoming the crisis of the EU". After the project of a European constitution had first failed due to the resistance of the French and Dutch populations, Ms. Merkel "with courage and energy, purposefulness and negotiating skill" made it possible that now "the road ahead is open" again for the EU, thus the explanation by the directorate.

The speech of eulogy was held by French president Nicolas Sarkozy who on July 1 will take over the EU Presidency. Should France's president in his plans for setting up a Mediterranean Union pay sufficient heed to Merkel's interests, you might bet that Sarkozy within the next few years will also be awarded the Charlemagne Prize: for distinguished service on behalf of securing the fortress Europe against refugees and immigrants which in the sense of the awarding committee is certainly also a contribution to "European unification" (see jW of 18th April 2008, pp. 10-11). In any event, Sarkozy might fit very well into the list of the Charlemagne Prize laureates, among which you find anti-Communist hardliners, several kings as well as numerous conservative and neoliberal "pioneers".

But back to Ms. Merkel and to Germany's European policy of the last years that has contributed on a large scale to the rise of poverty and social exclusion on an EU-wide basis. From the treaty of Maastricht, by way of the introduction of the Euro to the Lisbon Strategy that was implemented in Germany under the name "Agenda 2010"; from the aggressive foreign trade and privatisation policy by way of the war against Yugoslavia up to and including today's EU policy of military and arms buildup. When it came to setting the course in the direction of a neoliberal and militaristic EU, German governments have participated in prominent place. It is because of this that the German policy also bears a large part of the responsibility for the crisis of acceptance of the European integration project that one now tries to tackle simply by preventing the European population from having a say on the EU Reform Treaty.

The German Model: Euro and Central Bank

It is advisable to begin an analysis of the more recent German European policy with a former Charlemagne Prize laureate, who like hardly any other illustrates the dubiousness of the prize as such: the EURO. "With the EURO, the Board of Directors of the Charlemagne Prize honours an initiative that has a stabilizing effect on the Community, supports a common foreign and security policy, and forms the basis for a coordinated economic and social policy as well as for other Community policies", could be read in the citation of the award committee in the year 2002.

Indeed the European monetary union and the foundation of the European Central Bank were important in setting the course in the direction of a neoliberal Europe. In that endeavour, the German government played a special role. That way, fears that the new European currency might turn out less stable than the German Mark were used to push through the German Central Bank as a model for the ECB. Particularly important in that context is above all its "independence" which means that any democratic control over European monetary policy is to be made impossible. Moreover, the ECB is tied only to the goal of price stability. Next to a policy of high interest rates, this means that the ECB appeals regularly to the trade unions asking them to please not react to rising prices and infamous company profits by correspondingly demnading higher wages. It is not by accident that the seat of the ECB is Frankfurt on the river Main, where most of the big German banks have their seats.

Upon German pressure, on the eve of the introduction of the Euro, the so-called stability pact that foresees upper limits for budget defitics was passed. Contrary to all economic reason, but very much to the advantage of the wealth owners and those profiting from starvation wages, the Euro countries even in economic crisis times are forced to austerity and reduction programmes, whereby economic downturns are prolonged and deepened. Of course, the Stability Pact was slightly modified in the meantime; nevertheless, until today, all political measures are subordinated to the goal of budgetary consolidation.

The macroeconomic regime of the EU, however, is based on yet a second false construction: While the responsibility for monetary policy was left to the ECB, it remains the member states that are responsible for taxation policy. The result is increased tax competition that destroys the income basis of the public budgets, in that respect favours especially enterpreneurs and rich people, while working people and consumers have to bear an ever larger part of the remaining tax charge.

Up front in the lowering of taxes

According to the EU Commission, capital and corporate incomes in Germany in 2005 were taxed on average at 19.3% and that way were clearly lower than in the "old" EU members states (EU-15) and even lower than in the average of the EU-27. By contrast, the income of employees in this country are taxed at 38.7%, which is double the average of the EU (19.4%). Of course, the nominal tax rate for corporations in Germany up to very recently still ran at 39% and the top tax rate on limited liability companies at 42%. Th effective tax rate – the rate which is really paid by the corporations – however already in the year 2005 with about 16% percent was not even half as high.


The German tax office puts on super-soft velvet gloves with regard to taxing the capital income of private households. With a share of these taxes amounting to 0.3% of the GDP, Germany stands at not even half of the average of the old EU countries (0.8%) and even below Eastern Europe (0.4%). It needs to be taken into account that there considerably more capital rentiers in Germany than in many other EU countries, let alone Eastern Europe. The same contrast – wealth far above averages and tax yields far below averages – exists with respect to private incomes in Germany. While the GDP share of all taxes on wealth (including inheritance tax) in 2004, according to the numbers of the OECD in the EU-15, lay at 2.1 percent and in the USA at least at 3.1%, the Federal Republic has a share of just 0.9 percent.

Only when it comes to the ever more far-reaching reduction of such taxes, Germany is quite in line with the trend. What's more: since the corporate tax reform of the Social Democrat/Green coalition in the year 2000, the Federal Republic belongs to those countries that massively push for Europe-wide tax dumping. By way of this project of then German chancellor Gerhard Schröder, the corporate tax rate was lowered from 40 percent to 25 percent. Taxes on sales were completely abolished. The consequence: in the year 2001, enterprises no longer paid any taxes at all, but only received 400 million Euro back from the tax office. Also in subsequent years, profit taxes hovered along at a low level. Exempting sales gains from taxes moreover was a promotional programme for "locusts" and private equity funds that earn money with the purchase, carving up and sale of firms.

The consequences of this tax policy are obvious. Where public revenues are missing and indebtedness due to the Maastricht criteria may not be extended, there must be savings and reductions "until they squeak", as they say. Necessary investments are lacking, employees are fired or pushed into precarious jobs. Since the tax burden is passed on to the consumers, the unequal distribution is growing, and domestic demand is stifled.

The Merkel government naturally has done nothing to counteract this trend – on the contrary: Not only that it has failed to place the question of European tax dumping on the agenda of its EU presidency. It distributed new tax presents to the rich and that way pushed European tax dumping (see jW of 2nd February and 1st March 2007). While the German companies were able to book record earnings in the last couple of years, they were made by way of the company tax reform 2008 a yet further present worth at least ten billion Euros. Added to that are additional tax reductions for rich people: let's think of the introduction of tax-subsidised real estate funds in the year 2007. On the one hand, those who paid for it were the consumers of whom were taken in the same way, by the 3 % increase of the value-added tax rate alone, about 20 billion Euros. Added to that were the lowering of the rate for tax-exemption of capital gains income, the reduction in deductability of commuter expenses as well as higher energy taxes. Unemployed people, pensioners, and low income earners that suffer most from consumption taxes such as the value-added tax that way end up paying the billions that Merkel's tax policy washes into the pockets of the stockholders and the wealth millionaires.

And additional tax reductions for rich people are planned: beginning in January 2009, capital yields are to be taxed at a general tax rate of 25 percent. Up to now interest rentiers at least had to pay taxes in accordance with their personal tax rate which at top-level amounted to 42 percent. Approximatively worth 2 billion Euros is this additional present to the upper ten-thousands who in addition may look forward happily to the inheritance tax reform.


Pioneer of wage dumping

The aggressive dumping strategy that is pursued by the German government in Europe can also be seen in other areas – let's think of the extension of the low-wage sector and the exacerbated pressure on the unemployed which has made it possible to push the wages in Germany down to an extent beyond comparison elsewhere in Europe. From the point of view of the German companies, the Agenda 2010 was a very successful programme for the increase of their profits and their capacity for international expansion. According to current data of the Federal Statistical Office, the nominal labour costs in the Federal Republic last year have again risen as little as in no other of the 27 EU member states. And contrary to the European trend, the unit labour costs – the wage costs in relation to productivity – have almost crashed in Germany since 2003. As an addition came the destruction of the legal pension and Hartz IV (the unemployment benefit cuts) thanks to which the "non-wage labour costs", meaning the social contribution duties of the firms could be lowered considerably: "According to the Federal Statistical Agency, in 2007 non-wage labour costs in Germany amounted only to 32 Euros per 100 Euros gross wages. That way, in the European comparison, Germany occupies fourteenth place – even behind Romania", explained the Frankfurter Rundschau of 23rd April 2008.


As far as real wages are concerned, things look even bleaker. Following calculations of the trade union institute WSI, the earnings of employed people since the turn of the millennium have only risen by around one percent and have steadily fallen in the last four years. Germany thus occupies the next to last place in the EU. On average, the real wages in the EU between 2000 and 2006 have increased by 6.2 percent – in countries such as Ireland, Great Britain, Denmark or Sweden even by more than ten percent.


Of course, the Federal Government led by Merkel would be able to do something against wage dumping. It could, for instance, introduce a minimum wage in Germany, the way it has been customary in 20 of 27 EU countries for a long time already. Following calculations by the Institute for Work and Technology in Gelsenkirchen today every fifth person employed on a regular basis earns less than 9.58 Euros (West Germany) or respectively 6.97 Euro gross (East Germany) per hour and that way lies below the low-wage benchmark. Taking into account the scandalous situation that forces seven million out of 31 million employed people to work at dumping wages, it is quite surprising that despite the obstinate refusal of the grand coalition to introduce a legal minimum wage no more violent public criticism should flare up.


Of course, low wages are an advantage for the German export economy. The companies that produce mainly for the internal market, however, suffer increasingly from the low mass purchasing power. However, the German wage dumping strategy has a negative effect on the European neighbouring countries. In foreign trade with the other EU member countries, Germany in the year 2007 achieved a surplus of 162 billion Euros – tendency rising. Thus the surpluses that the German economy alone achieves in trade with France, Great Britain, Spain, Italy, Austria and Poland rose between 2004 and 2007 from 105 to 136 billion Euros. In order to face up to the competition by German companies, these countries now in turn see themselves confronted with higher pressure to lower the wages in their own countries. This applies in particular to the countries of the Eurozone who have no possibility to compensate their loss of competitiveness by a devaluation of their currency.


Merkel and the "Reform Treaty"

Not only the German government, also the European institutions with their policies contributed to increased poverty and social dumping. As one example among many may serve the policy of former internal market EU commissioner Frits Bolkestein. The Bolkestein directive steamrolls an internal market also for services, which presupposes that services of general interest – from education by way of health up to and including water supply – are organised as markets in the first place or respectively transformed into commodities (see jW of 11th February 2006, p. 10/11). Instead of a Europe-wide harmonisation of social and environmental standards as well as consumer protection rights, the Bolkestein directive foresees a complete de-regulation: According to the country of origin principle (that was maybe renamed, however continues to prevail in its substance), a firm that is active in another EU country is no longer obliged to stick to the laws there, but merely has to observe the laws and regulations of the country where it established its residence. It is obvious that this leads to a race to the bottom for the lowest standards.


It was massive protests that led to the Bolkestein directive to be somewhat defused in that way that, for instance, areas such as health, transport, security services and time work agencies were excepted from the directive (which does not mean of course, that they are not being liberalised through the back-door by directives dealing particularly with these areas). However, this has not changed anything in the neoliberal thrust of the services directive. This is true even though the rejection of the European Constitutional Treaty in France and the Netherlands in the year 2005 can be retraced in larged part to the growing dissatisfaction of the people with the anti-social policies of privatisation and social demolition – let alone the tendency for an EU arms build-up to turn it into an aggressive military machine shaped after the US model.


The "reflection period" that Europe had called for after the failure of the EU constitution was of course not meant to reflect on a change of course. The European elites were concerned only with the question on how to "save" the neoliberal and militaristic contents of the European Constitutional Treaty under the changed conditions and impose them against all obstacles. And in this respect, the German EU presidency under the leadership of Charlemagne Prize laureate Ms. Merkel accomplished a lot: a few cosmetic changes were introduces, the name "constitution" was renounced to and the contents of the old constitutional treaty wrapped into a new envelope under the name of "Reform Treaty". In order to make sure nothing goes wrong, referendums on the treaty were simply refused. Certainly, there will still be a referendum in June in Ireland; however, it was already announced that one was not going to bother in case the treaty was rejected there. In case of doubt, voting will be repeated as long or respectively as often as necessary to make the result fit.


Up to now, 11 of the 27 EU countries have ratified the Reform Treaty. On April 24, the German Federal Parliament approved the treaty that on 23rd May still needs to pass the Federal Council. Only the Left Party in the Bundestag voted unanimously against the adoption of the Treaty of Lisbon. One may only hope that this clear refusal will also be reflected in the voting behaviour of the Social Democrat/Left-governed country of Berlin in the Federal Council.


Struggle for a different Europe

At the latest ever since the end of the socialism attempts in Eastern Europe, the policy of the EU Commission has followed a clearly neoliberal course shaped by the interests of the European companies and banks. As countless directives and policy moves prove, the EU has developed into a driving force in the imposition of privatisation and social demolition in the member states. A Left that is against this EU is therefore not "hostile to Europe". Left social demands rather require the strict opposition to a Europe where social rights are trampled on, that with ever less restraint leads wars in order to open up new markets and resources and where an intransparent and hierarchical bureaucracy that is linked closely with the lobbies of big business rules against the interests of a majority of the population.


The confrontation over the Treaty of Lisbon is therefore not finished by the decision of the Federal Parliament. Because a treaty where the right of capital to limitless exploitation has higher weight than the rights of employees and trade unions cannot be a basis for a social Europe. The neoliberal course of the EU is reconfirmed with every new judgement by the European Court of Justice. With reference to the freedom of establishment and services anchored in the EU Treaties, scrupulous wage dumping strategies by companies are advanced to the rank of a "basic freedom", while the possibility for resistance (be it in the form of strikes or in the form of laws on public procurement) are drastically limited or respectively declared illegal.


A Europe of big business, as the Reform Treaty foresees it, contradicts the interests and expectations of most people in Europe. They who want a peaceful, social and democratic Europe, therefore must commit to a complete revision of the EU Treaties. For instance, Article 63 of the consolidated version of Treaty of Lisbon that interdicts any control over capital flows and that way makes society the prey to the profit interests of finance capital should be eliminated without replacement. Moreover, the freedom of establishing one's residence and delivering services should be limited, so that these "freedoms" may no longer be used as justifications for pan-European wage and social dumping. And naturally all articles that oblige the EU to build up its armaments or allow the deployment of EU troops abroad (Art. 42 ff.) should be abolished and replaced by an unconditional order for peace.


Those who are commited to this, will have little hope of ever being awarded the Charlemagne Prize as Angela Merkel was. However, they will contribute to the growing protest and resistance against the unleashed capitalism of today's EU. Ultimately, this is the only way to change Europe for the better.

Sahra Wagenknecht is Member of the European Parliament for the party The Left. She is member of the EP Committee on Economic and Monetary Affairs (ECON).