THE European Union has issued a call for a summit of the major economies to design a new system of global financial regulation, which EU leaders are calling “Bretton Woods II.” The summit is scheduled for mid-November this year.

But despite the apparent show of unity of the EU leaders behind thecall for a “new Bretton Woods” and a global trade deal, there is growing evidence of perplexity and the impotence of Europe’s leaders in the face of global recession.

The EU summit in October confirmed the plans of the European powers to bailout their major banks at taxpayer expense, approving the euro 2.7 trillion rescue package initially agreed in Paris last Sunday. But these measures and similar initiatives by the US have already failed to restore confidence in the markets.

The EU summit failed to agree to a unified plan to revive Europe’s economies, and there was no discussion on measures to provide relief for tens of millions of workers who will be devastated by a severe recession. “Restoring confidence to financial markets” was deemed to be the key to bolstering Europe’s economy, a theme that was stressed by Britain’s Prime Minister, Gordon Brown.

But with the cost of “restoring confidence” climbing to trillions of dollars, what is actually on the agenda for November are tax hikes, mass layoffs and cuts in public spending. The relaxing of the EU’s fiscal rules restricting budget deficits to three per cent of gross domestic product (GDP) will be used to finance banks in order that they can compete against their US and Asian rivals.

Officials say that budget deficits will be allowed to exceed this limit by “several decimal points.”

Any moves toward subsidising industry will have the same purpose—to bolster Europe’s competitive position in relation to its American and Asian rivals. The claims that Europe has spearheaded a coordinated international response to the crisis are empty. In reality, governments have carried out unilateral actions to prop up their national banking systems, with each such move forcing the hand of the other governments to follow suit, for fear of a flight of capital to those countries offering the most generous guarantees to their banks.

The response of the United States to the EU summit’s call for a new global regulatory framework was decidedly cool. “We will have an opportunity to discuss these—and the ideas of others—at the appropriate time,” said White House spokesman Tony Fratto.

Within the framework of the general principles agreed by the EU, moreover, each national government retains full latitude to act as it sees fit to prop up the banks based within its own borders, undercutting the banks of other countries.

In this struggle over control of dwindling financial resources, the bigger countries will naturally have a massive advantage over the smaller ones, which will not be bailed out by the EU. Germany and Britain have both made clear that they will not countenance the continuation of the subsidies that have hitherto been the bedrock of the EU project.

That is why, even prior to the summit, there is open speculation in financial journals regarding the continued viability of the euro currency and of the EU itself. Ambrose Evans-Pritchard wrote in the Daily Telegraph, “We have reached the watershed moment when Germany has to decide whether to put its full sovereign weight behind the [European Monetary Union] project or reveal that it is not prepared to do so in a crisis.... This is a very dangerous set of circumstances for monetary union.?”

Writing for the Associated Press, William J. Kole warned that “If the EU can’t forge a common response to a collapse that transcends borders, involves multinational lenders and has pushed the euro currency down to its lowest level in a year, some wonder: What’s the point of having an EU?”

Wolfgang Munchau in the Financial Times noted, “For Europe, this is more than just a banking crisis. Unlike in the US, it could develop into a monetary regime crisis. A systemic banking crisis is one of those few conceivable shocks with the potential to destroy Europe’s monetary union.”

Bretton Woods II : Financial breakdown, global recession and growing fault-lines within the foundations of the EU form the context within which the viability of European proposals for an overhaul of the world’s financial system must be judged.

Prime Minister Brown of Britain and President Sarkozy of France are both claiming credit for urging the establishment of a new world system of financial governance and regulation. But aside from rhetoric and proposals for a shared set of governing principles, neither has articulated a substantive plan.

Brown, stressing that “Global financial markets present challenges that no one nation can solve in isolation,” urged the adoption of a four-point agenda to “strengthen global co-operation and build a new global financial architecture for the years ahead—a new Bretton Woods, which recognises the globalisation of financial risk in the responsibilities of global institutions.”

His four points consist of “a global early warning system” to deal with future financial crises, “globally accepted standards of supervision and regulation,” “cross-border supervision” of the 30 largest banks and insurance companies, and “cooperation and concerted action” at a time of crisis.

He has called for reform of the World Bank, for the IMF to be rebuilt as “fit for purpose” and for other national regulators to work more closely together.

His proposals are to be put for discussion at the forthcoming November summit in which he wants to include China and India, which are expected, in return for their inclusion, to foot a part of the bill for future economic crises.

Brown’s scheme and his talk of a “Bretton Woods II” ignore the vast changes that have occurred in world economy over the past half-century.

The system of financial regulation established at the 1944 conference of allied powers in Bretton Woods, New Hampshire was forged under the financial hegemony of the United States. Conceived of as a means of ensuring against a return to the Depression of the 1930s and the unbridled economic conflicts between nations that had led to the Second World War, it proceeded from the vast and unrivalled economic resources and industrial might of American capitalism.

Under conditions of the wartime devastation of European and Japanese capitalism, the United States was in a position to sponsor the reconstruction of world capitalism, on terms favourable to its own interests. This was epitomised by the establishment of the dollar as the world reserve and trading currency, backed by gold.

Bretton Woods was an attempt to overcome the general historical decline of the world capitalist system on the basis of the strength and dominance of the US as the most powerful capitalist nation.

However, in rescuing Europe and Japan in order to ensure the markets on which its industry relied, the US inevitably set in motion processes that undermined its own economic supremacy.

By 1971, the decline in the relative position of the United States in the world economy was expressed in America’s inability to back its pledge to redeem dollars at the fixed rate of $35 per ounce of gold.

The US removed the gold backing from the dollar, and the Bretton Woods system collapsed.

In the ensuing decades, the US bourgeoisie sought to overcome its economic decline by turning to ever more grotesque forms of economic parasitism and speculation. Today, the industrial decline of the US and its transformation from the world’s leading creditor to its largest debtor means that, rather than being in a position to rescue the world capitalist system, the US is dragging its economic rivals into the abyss.

Neither can the role previously played by the US be assumed by a coalition of European powers. Not only have they travelled the same route as Wall Street into speculation almost entirely removed from the creation of real value, but they are also incapable of overcoming the national antagonisms unleashed by the economic crisis.

As for China, its economy has proved to be tied more than any other to crisis-ridden US capitalism, holding the bulk of America’s debts and relying heavily on the American market for the export of its manufactured goods. Its financial markets have lost fully two-thirds of their value since October last year.

Regardless of the all-round gloom and the now very real prospect of a US default on its debts as early as summer of 2009, the US-EU-Asia summit in November will be one to stay closely tuned to.