Ceding Sovereignty


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Since the European Union entails the free movement of capital, fiscal and labour sovereignty had to be ceded. This was one of the most important criticisms from the left regarding the way a perfect European Union was being built for bringing an end to the welfare state of each one of its members. If you are able to set up a big firm in Spain or Sweden or Malta without any restrictions, you will do so in the country where you pay least taxes and where the workers have least rights to make demands from you. Thus there was a deliberate introduction of competition between States, which had to fight to be the one that imposed least taxes on big capital and offered the greatest possibilities for hiring workers at low cost and with few rights. That way firms would come, or at least not leave.

Does sovereignty also have to be ceded on matters of budgets and labour? Undoubtedly, from the beginning. But sovereignty is not just transferred between one territorial entity and another (each State ceding competencies to the EU). It can also be transferred vertically: from a small group downward (by democratising) or from the entire population to a small group (consigning whatever democracy there is to the bin).

And that is the problem with this weekend’s summit of the century. Besides not having the slightest concern for labour harmonisation (in sum, employment is not that great a worry in this crisis, what is important is public debts and deficits), the 23 countries that appear to have arrived at an agreement a couple of hours ago have placed portions of their sovereignty in fewer hands. So, what they appear to have agreed (at the moment there are very few solid details) is not even a fiscal centralisation, but rather what is being ceded is the exercise of veto over the budgets of each State before its approval. What until now was approved in parliaments will now be presented before them only if they get the nod from the European Commission.

What we are ceding is not national sovereignty to some new territorial entity, but popular sovereignty, which ceases to exist as such. If democracy in each State was already much weakened, in the European Union democracy has yet to show its face. And the old separation of powers is blown sky high: the Commission acts as a European executive power and it will be the Commission that controls the legislative powers in one of its most important functions -the budgetary function- instead of it being the parliaments dictating upwards how money should be collected and spent. Let us remember in addition that we have never elected a European Commission, either directly or indirectly, which is instead elected through horse-trading among the big European parties and governments, and the concoction is presented before a European Parliament which can veto only so that they go back to the horse-trading until they find a composition palatable to the Parliament. And it turns out that after a war like the one in Iraq, which nearly all of Europe abhorred, the Commission is presided over by a twerp who was the host at the Azores, the only one from that criminal get-together who has not stood in elections because his job is not subject to them.

Without democratic control decisions are controlled by others. The crisis is showing this very clearly: the tension is between the peoples and financial-economic oligarchies. A European Commission at the margins of democracy sits at the mercy of bankers. This is why it appears clear they would never veto the bad bank into which Rajoy seems prepared to put €100 billion of public funds (without the public deficit requiring the same austerity as when we talk about other spending, nor do we see the priority of stopping the haemorrhage of debt appearing here) but they would see it inadmissible that those €100 billion should be put to work in the creation of a proper welfare state, public industries and a public bank (100,000 million allows you to do a lot).

Transferring sovereignty from Spain to Murcia or from Madrid to Europe? Fine, no problem, whatever is most workable and just. What we must reject with all our might is that the scarce democratic sovereignty we have should be transferred to an iron oligarchic sovereignty, which is what we are approaching. It is not just a matter of democratic principles (though these are in short supply) but that the decisions made will benefit whoever governs: the people or economic power. That is the question.

Written by Hugo Martínez Abarca and originally posted today at Quien mucho abarca. Thanks to R for the translation. Photo of José Luis Rodríguez Zapatero as he rolled into the EU Summit last night courtesy of the Guardian.

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4 Responses

  1. michael burke

    December 10, 2011 5:58 pm

    “If you are able to set up a big firm in Spain or Sweden or Malta without any restrictions, you will do so in the country where you pay least taxes and where the workers have least rights to make demands from you”.

    This is a myth of the Right, which it doesn’t help to recycle. It is well-known that within the EU Ireland has the lowest corp tax rates at 12.5%. Germany has among the highest taxes between 30%+ to 33%+.

    But Germany receives much more Foreign Direct Investment than Ireland, as do many counries with far higher tax rates.


    This is because capital is attracted by prospective returns, not the ratio of profits to after-tax profits.

    That being the case, the entire argument that EU liberalisation of capital flows is inherently inimical to the interests of labour falls. Labour, like capital, can benefit from the innate tendency towards the international division of labour that FDI entails. The question is, how are those benefits distributed?

  2. Donagh

    December 11, 2011 11:22 am

    Thanks for that Michael. That link didn’t seem to work for me. However, I think this has the same info. It certainly shows that Germany receives more FDI than Ireland


    Kevin Doogan also makes similar points in New Capitalism: The Transformation of Work, which Conor reviews here: http://www.irishleftreview.org/2010/03/08/capitalism-transformation-work-kevin-doogan/

    He says in an article I linked to a while ago:

    Analysis of global foreign direct investment patterns also reveals two interesting and counter-intuitive trends. FDI expands during boom periods and contracts during recessions. To blame job losses on capital migration is questionable. Secondly the lion’s share of overseas investment goes to the rich rather than poor countries. Between 1980 and 2006 the developed economies’ share of global FDI inward stock has grown from 56 per cent to 70 per cent, consolidating their position as the prime target for overseas investment. In other words capital moves abroad to access rich markets rather than exploit cheap labour. This shows that fears of exporting jobs are not related to the actuality of capital relocation but to the threat of jobs going overseas. Research in America, where fears of overseas job loss have a much higher profile than in Europe, shows that companies use the threat of corporate relocation in order to maintain the compliance of trade unions during contract negotiations.


  3. michael burke

    December 11, 2011 6:37 pm

    Thanks Donagh.

    The flow of FDI towards rapid business expansion is only counter-intuitive if the motivation for capital allocation is forgotten:

    In a boom the purpose of capital is to expand capital and will therefore be drawn towards the highest growth rates.

    In a recession it is the preservation of capital via hoaarding it and not investing it which means capital is not invested.

    Therefore, put baldly,the best way of attracting overseas capital is not low wages/workers’ rights/corporate taxes but high domestic growth.

  4. Donagh

    December 12, 2011 10:46 am

    Thanks for putting it so baldly Michael. It’s curious that although we tell each other to be sceptical about the message given out by Rightwing governments how much of their arguments are accepted without question.