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EUROPEAN COUNCIL

(LONDON MEETING)

The Prime Minister (Mrs. Margaret Thatcher)

With permission, Mr. Speaker, I will make a statement on the meeting of the European Council under my chairmanship at Lancaster House on 26 and 27 November and which my noble Friend Lord Carringtonthe Secretary of State for Foreign and Commonwealth Affairs also attended. I have arranged for copies of the agreed statements issued by the Council to be placed in the Library of the House.

As chairman, I welcomed Mr. Papandreou, the Greek Prime Minister, who made a statement about the economic problems of Greece and his Government's attitude towards the Community. Dr. FitzGerald was also attending the European Council for the first time as Taoiseach.

We spent a lot of time discussing all the matters which arise under the mandate given to the Commission on 30 May 1980. As the House is aware, these cover, first the reform of the common agricultural policy; secondly, the development of other Community policies, in particular economic, regional and social policies; and, thirdly, the problem of the Community budget. A thorough examination highlighted four matters which will require further work. These are, first, the problems arising from the Community's milk surplus; secondly, the way to deal with Mediterranean agriculture; thirdly, the share of agricultural expenditure within the Community budget; and, fourthly, how to adjust the budget so that no member State is put into an unacceptable financial situation. Foreign Ministers will have a special meeting within the next few weeks to carry forward the work and submit recommendations to Heads of Government.

We hope that in this way it will be possible to reach an understanding on these matters before the next meeting of the European Council at the end of March. It is understood that agreement on each issue covered by the mandate is, and will be, conditional on an overall solution. There are important issues at stake for all member States and not least for the United Kingdom. It will take time and further effort to get a satisfactory answer.

The European Council also discussed the economic and social situation and the difficulties facing the Community at a time of continuing world recession. There was general endorsement for the views put forward by the Commission, in particular that the objectives of fighting inflation and unemployment needed determined policies to bring public deficits under control, to keep production, distribution and unit labour costs in check. Such policies would encourage interest rates to ease and would help productive investment to expand. The Council was agreed that special attention must be given to youth unemployment, which is of great concern to us all. We were agreed on the need for more training for young people.

Chancellor Schmidt and Signor Spadolini drew the attention of Heads of State and of Government to the ideas put forward by their Governments for a “European Act.” Foreign Ministers will now examine the ideas and report back to a future European Council. In this context, the Council also noted the London report on political co-operation issued by Foreign Ministers on 13 October. This embodies a stronger political commitment to co-operation on foreign affairs and strengthens the machinery for political co-operation. [column 22]

Heads of State and of Government also discussed a number of other important issues, including East-West relations and the Middle East. The Federal Chancellor told us about his important conversations with President Brezhnev on the occasion of the latter's recent visit to Bonn. We all agreed on the importance of keeping open the channels of communication between East and West. We welcomed the commitment of the United States, announced in President Reagan 's speech of 18 November, to achieve major mutual reductions in nuclear and conventional weapons systems.

As the agreed statements make clear, the Council also restated in strong terms its concern at the continuing Soviet occupation of Afghanistan.

My noble Friend gave an account of the visit of the Polish Foreign Minister to London. The Council confirmed its determination to continue to do what it could to support Polish efforts towards the recovery of the Polish economy.

Finally, the European Council reaffirmed its commitment to complete the enlargement negotiations with Spain and Portugal. I am glad that these have advanced during recent months.

It was disappointing that we were not able to make more specific progress on the major issues on the mandate. This was, none the less, a meeting which helped to lay the basis for the difficult and far-reaching decisions which have to be taken soon. We intend to make sure that those decisions, which will affect the future of the Community for years ahead, safeguard the interests of the United Kingdom.

Mr. Michael Foot (Ebbw Vale)

I thank the right hon. Lady for making a statement. I do not wish to cover all of the matters that she has raised. However, does she not think that it would have been better to have been completely frank with the House and with the country and to have acknowledged that no progress has been made towards achieving the objectives that she has set and that the House of Commons, on a number of occasions, has laid down in specific terms?

The right hon. Lady's statement has underlined that each country defends its own self-interest, that once again Britain has failed to get any lasting improvement on the financing of the CAP, on the budget, and on the transfer of resources from rich to poor countries, and that even when we have the Presidency of the Council we are unable to make any progress. That is surely what the right hon. Lady should acknowledge.

Is there any prospect whatever of fresh budget arrangements which will guarantee that, over a reasonable period, Britain is not a net contributor, and that there will be a real transfer of resources from rich to poor countries? Will the right hon. Lady at last take account of the resolutions on this subject that have been passed by the House?

Does the right hon. Lady really believe that the countries with vested interests will ever agree to the reform of the CAP and that she can properly reform it from within the Community? Will she give an undertaking that, unless the CAP is reformed, Britain will block any fresh agreement on agricultural price fixing this coming spring?

I come to what the right hon. Lady said about unemployment. Surely it is a most pitiful result that a meeting of this character should produce so few results on this paramount subject. Was anything agreed about [column 23]dealing with mass unemployment? Why did the British Government refuse to support the initiatives and proposals that were made by President Mitterrand on this subject and the programme of expansion on which he is seeking to get some other countries to agree? Why is our country one of those which is holding back?

Has the right hon. Lady had a chance to read the comments of her right hon. Friend the Member for Sidcup (Mr. Heath) on this summit? Does she think that the tactics that she employed in Dublin have had any effects in producing the negative results here? We in the House of Commons would be glad to support her if she would stand up for the resolutions that have been passed here, but so far she has failed to do so at any of these meetings.

Finally, I should like to question the right hon. Lady about the report that she says she was glad to receive from the Federal German Chancellor on his discussions with President Brezhnev and others. We are also glad to hear the reports. Does she agree with the statement made by the Federal Chancellor that he is quite convinced that the Soviet Government come to the negotiations eager to secure settlements? When we brought back that same information from Moscow, the Foreign and Commonwealth Office did not seem to understand. Now that the Federal Chancellor has said it to her perhaps the Government will be ready to acknowledge it. The Opposition want to see those negotiations succeed. We shall do everything in our power to help them to succeed.

The Prime Minister

At the summit we discussed the whole range of Community policies. Indeed, I have never heard so many matters, ranging across Community policies, discussed at any summit. They concerned each and every nation represented there, and, naturally, every nation fights its own corner. That is not surprising—we fight ours. On the whole, we have fought ours rather more vigorously than the right hon. Gentleman's Government did. We all have interests in common, and I believe that it is in our common interest that the Community should continue. Within that common interest, we also wish to secure the very best possible arrangements for Britain.

There are very difficult decisions to take with regard to the common agricultural policy. The existing policy suits a number of member States, but some find it inequitable and not at all sensible. We must continue to try to achieve a policy which treats their requirements reasonably and which, in the end, is much more sensible—towards a prudent pricing policy, prices which are nearer world prices, which produce fewer surpluses and, therefore, take a much smaller proportion of the agriculture budget. It will take time but we must continue to try to achieve that policy.

Almost every member nation is concerned because it has an unemployment problem. The right hon. Gentleman referred to French expansion, and I remind him of two things. First, even when France has expanded her deficit it is still a smaller proportion of gross domestic product than Britain's. I further remind him that, even with a very much smaller deficit than Britain presently has, France had to cut her capital expenditure programme by the equivalent of about £1.3 billion.

As to the suggestion that we did not get much further because of the attitude taken in Dublin, I remind the right hon. Gentleman that, had we been left with the budget [column 24]arrangements with which his Government left us, we should this year be paying about £1.4 billion to the Community budget. We got it well down in our budget negotiations and this year it appears that we shall be paying about £55 million. That is the measure of what the Conservative Government have done for Britain.

Mr. Foot

The criticisms of the Prime Minister's conduct in Dublin came primarily from her right hon. Friend the Member for Sidcup and it was in that context that I put the criticism to the right hon. Lady. I hope that she will read the article and see whether she agrees with it.

With regard to the expansion programme, the figures of the French budget and its borrowing requirements, the French Government are proposing an expansion programme such as some of the Prime Minister's right hon. Friends might wish to support. The Opposition want to know when the British Government will be prepared to undertake consultations with other countries—within Europe or out of it—on a programme of expansion. If the Prime Minister will not agree with the French Government on such proposals in the European Council, will she have bilateral discussions with President Mitterrand to see whether we can have a common programme to tackle unemployment instead of the British Government holding back?

The Prime Minister says that she still has hopes of reforming the common agricultural policy. Can she give us a date by which she thinks any real reform may be achieved?

The Prime Minister

No, because this is part of the continuing work on the mandate referred to the Foreign Ministers. There are serious and difficult problems. Yes, the interests of member States are different—on the budgetary chapter, on the CAP and on other policies. That is why we all said that we would not agree to any particular reform until we had an overall reform, so that each and every country felt it had a reasonable deal from all the changes in the mandate.

With regard to French expansion, if there is a very low deficit as a proportion of the GDP, there is obviously more scope for increasing borrowing and lending and therefore one starts from a much higher deficit. Even with French expansion, their deficit is lower than Britain's. Even on the programme of expansion that the French Government have announced, they have had to retreat from some of the additional announced expenditure on capital and to take back about £1.2 billion or £1.3 billion.

Several Hon. Members

rose——

Mr. Speaker

Order. I propose to allow 20 minutes for questions to the Prime Minister. It should be possible to accommodate everyone in that time.

Mr. David Steel (Roxburgh, Selkirk and Peebles)

The Prime Minister did not tell hon. Members in the statement what her attitude was to the proposals advanced by Herr Genscher and Signor Colombo for greater political co-operation in Europe. Is this not a timely proposal at a time of great European interest in the disarmament issue? Would it not have been opportune, during the British Presidency, to make moves towards joining the European monetary system? Will the Prime Minister respond to the specific assertion of her predecessor, who wrote in The Times this morning: [column 25]

“The other members of the Community were not prepared to reach agreement on matters affecting British interests directly because of the way they had been treated at the Dublin Summit on other topics.” ?

The Prime Minister

The Dublin and Luxembourg summits produced the best budgetary arrangements for the United Kingdom that any Government have been able to achieve since Britain entered the Community. I am sorry that Liberal Members do not like the fact that we got such a good deal. Clearly they could never have got it and they are jolly jealous that someone else did.

Britain's attitude towards the German and Italian proposals must be considered very carefully. They propose new arrangements for political co-operation—even on security matters—and that obviously does not suit all members of the Community, because at least one of them is neutral. They also propose some new councils—one for judicial and one for cultural matters—and I have not the slightest doubt that some will adopt different approaches to the prospect of having new councils. They also propose some increased powers for the European Parliament. I imagine that varying views will be taken, even in this House, about some of those things, and everything must be considered carefully by the Foreign Ministers before the matter returns to the European Council. I have not the slightest doubt that the House, in specialist Committees and on the Floor, will also wish to consider those matters carefully.

We were asked if we would join the EMS. However, the question of the EMS comes up at the next Council, because it will then be three years since it was started. Britain's exchange rate has fluctuated considerably because the United Kingdom has a petro-currency. In that respect we differ from other members of the Community. We should have to consider that very carefully if there were any question of our going into the EMS.

Mr. Geoffrey Rippon (Hexham)

I congratulate the Prime Minister on the patience and determination with which she has sought a restructuring of the Community budget and policies to the mutual advantage of all Community members. However, does she agree that the danger of summit conferences is that they raise expectations too high and that it would usually be better for detailed negotiations to be conducted by the Council of Ministers, as provided in the Treaty?

Will the Prime Minister be a little more optimistic about the prospects of Britain's joining the European monetary system? We are always told that we cannot join when the pound is too weak and that we do not need to join when the pound is too strong.

Will the Prime Minister also say whether any decision was taken about the establishment of the European Foundation in Paris, which was agreed by the Council in 1977 and 1978? It would be comforting if some of the Council's decisions could be implemented by those who are answerable for them.

The Prime Minister

The European Foundation in Paris was not discussed during the London meeting. We had many other things to discuss but I have taken note of my right hon. and learned Friend's point.

With regard to the EMS, Britain's exchange rate against the deutschemark and the dollar has varied considerably recently. One thing we should have to decide would be the rates at which Britain would go in. In view of the fluctuations we have recently had, that would be [column 26]extremely difficult. We shall be discussing the whole question of the EMS. Britain belongs, as my right hon. and learned Friend knows, to the support system but not to the exchange rate system. The future of the EMS will come up for discussion at the next Council.

I entirely agree with what my right hon. and learned Friend said about detailed mandates. It is not right for Heads of State and of Government to be discussing detailed matters about how much manioc we should import, about structural surpluses, about import and export policy and agriculture, details of wine, olive oil, and so on. I should have been extremely surprised had we been able to come to specific conclusions on these matters. I agree that it is much better if these matters can first be taken much further in the specialised Councils.

Mr. John Roper (Farnworth)

Will the Prime Minister accept that she has the support of the Social Democrats in the firm decision she has taken about the mandate of 30 May, although we are concerned that there was not better preparation in the matter? Will she also accept that we believe it is right to go for a long-term, comprehensive solution, which will take into account the interests of all member States, as the only way to achieve a satisfactory solution of Britain's special problems?

The Prime Minister

I agree with the hon. Gentleman. We were trying to get a longer-term solution last time. We thought that when the question of the budget came up again this time we would probably be nearer to the 1 per cent. VAT ceiling, and that therefore all member States would have an interest in securing a fundamental restructuring of the budget. We are not at the 1 per cent. VAT ceiling, and considerable further moneys have come in from co-responsibility levies. Therefore, there is no dire necessity on the part of all members to reconsider the restructuring. That makes things somewhat more difficult, and there is no shadow of doubt but that there will be a problem in getting a longer term commitment of the kind that we would wish to have, or a structure on an equitable basis as between the prosperity per head of member States. We shall just have to continue our efforts.

Mr. Robert Rhodes James (Cambridge)

Will my right hon. Friend agree that, although it is a perfectly fair point that under the previous Labour Government our contribution to the budget represented about £18 million per week and now represents only £1 million, and that that is a considerable achievement, there is far more to the EEC than the economic position and the budget?

With regard to the Geneva conference which is opening today, will my right hon. Friend agree that it shows the extreme importance of the principle of negotiation from strength, without which the negotiations would not have begun? Will she also agree the the zero option proposal genuinely represents one of the most solid and important possibilities for stability in Europe?

The Prime Minister

I agree, of course, that the Community means much more than economics, but, taking the whole swathe of Community policies, each State must feel that it gets a fair deal, as would be expected between partners.

With regard to my hon. Friend's points about the Geneva conference which opens today, and about the zero option and nuclear disarmament, I entirely agree that we can negotiate only from strength. Chancellor Schmidt had [column 27]been very forthright before President Brezhnev arrived in Bonn, having said that he was all for the zero option announced by President Reagan if it could be negotiated. Chancellor Schmidt also said that he would make it abundantly clearly to President Brezhnev that if the zero option could not be negotiated, and if there were no substantial advances in disarmament to keep the balance of power, the Pershings and cruise missiles would have to go into place at the due time in 1983. That was the right way in which to put the matter to President Brezhnev, so that he, too, would have a very strong incentive, as we all have, to have effective negotiations.

Mr. Ron Leighton (Newham, North-East)

The Prime Minister's gloomy and dispiriting story proves yet again that we shall never achieve a fundamental reform of the CAP. As the right hon. Lady said, the Heads of Government met in May and gave their mandate to the Commission, they considered the proposals in June, and they told their Ministers to consult intensively and get a solution by November. Does the right hon. Lady recall that the Lord Privy Seal told the House that

“it is accepted by all the countries that it is necessary to arrive in November at a position where the Council can take decisions.” —[Official Report, 29 October 1981; Vol. 10, c. 1047.]

Once again, the whole thing has ended in a debacle and, as Gaston Thorn said, there is no principle of compromise and solidarity. Is it not clear that we shall have better relations with the other countries only when we arrange our relations with them other than on the basis of membership of the EEC?

The Prime Minister

No, Sir. It would be highly damaging to the whole of industry and jobs in industry in Britain if there were to be any question of our leaving the Common Market. It is our biggest export market, and many jobs depend upon our membership.

With regard to the mandate, the hon. Gentleman is right in saying that we considered the procedure in June, following the report that we had received form the Commission. The matter was held up because of the results of the French election. The new French President said openly that he would not be in a position for some months to consider how to tackle the mandate. Therefore, the permanent officials' committee did not get down to work until September, so we lost the time from June to September. It is not surprising, therefore, that we have not been able to reach agreement this time.

The meetings in Dublin and in Luxembourg were difficult, but we had arrived at the precise time when decisions had to be taken, and the whole community knew that they had to be taken. They were taken, and Britain got a very fair deal.

Mr. Peter Mills (Devon, West)

Will my right hon. Friend, in any further discussions or meetings, consider very carefully the threat of the Community to withdraw regional development grants to Britain, particularly in regard to the South-West of England? This is a very serious matter. It is totally unfair. It would cause more unemployment in the South-West. May the matter be dealt with speedily, please?

The Prime Minister

I believe that that matter has not been finally determined. I know that my hon. Friend [column 28]worries about it. We had a long discussion about regional policy, because the suggestion had been that the quota section of the fund should be applied only to the four less prosperous countries, but it was agreed that no country could be excluded from the fund. I shall look into the matter.

Mr. Nigel Spearing (Newham, South)

Does the Prime Minister recall, and will she confirm, that the mandate for the budget agreed on 30 May was for two years, extendable to a third year, 1982? In the event of agreement not being reached in 1982, has the Council agreed that the arrangement should continue until agreement is reached?

The Prime Minister

No, because the refunds due for 1982 would not come in until 1983, and we hope to get very much further and to have a budget agreement before the end of 1982. The previous budget agreement was for three years, with a particular formula for the first two years, and then, in the absence of a general agreement, a similar formula to continue for the third year. I hope that we shall get an agreement on all aspects of the mandate, which does not cover only the budget; it covers the CAP and the other policies as well.

Mr. Peter Tapsell (Horncastle)

May I remind my right hon. Friend that the French do not usually include the borrowings of nationalised industries in their Government deficits, and that in that and several other important respects it is difficult to compare our PSBR with theirs? More particularly, and at the risk of creating another split, may I urge my right hon. Friend to continue to regard with considerable scepticism the arguments in favour of Britain joining the European monetary system?

In addition to the point that my right hon. Friend has already made about our petro-currency, will she bear in mind that everything that we could and should achieve as a result of membership of the EMS could be better achieved by our own national efforts and that, far from doing anything to weaken our inadequate influence on interest rates and exchange rates, we should be seeking to increase that influence?

The Prime Minister

I am very much aware of the differences in calculating the overall borrowing requirement. That is why I tend to use the term “deficit” as referring much more to the central Government deficit, because of the complications which arise once one goes beyond that.

I would need to be convinced that there was positive advantage for Britain in going into the EMS. I agree very much with my hon. Friend's reasoning. One of the reasons for having a European monetary system was that it would require all countries to run what I would call sound financial policies, and having that firm and stable exchange rate would make it that much more necessary to have such policies. That has turned out to be not altogether true. For example, Ireland and Belgium are running deficits of 15 per cent. of gross domestic product. They are already in considerable difficulties, and the inflation rate varies between about 5 per cent. and over 20 per cent. So that reason does not seem to be prevailing. It appears that, if we want a stable exchange rate and a stable Europe, we must return to the formula used by my hon. Friend. We have to run our own economies properly; there is no substitute for that.

Mr. Andrew Faulds (Warley, East)

In view of the unfortunate outcome of the conference with regard to [column 29]budgetary matters, and in view of the fact that the Arab summit at Fez terminated somewhat abruptly, is it not the more important for the EEC to continue its foreign policy initiatives, particularly the Venice declaration, regardless of obstruction by Israel and the United States Government, as a possible way of achieving peace in this dangerous area?

The Prime Minister

We are very well aware of what happened at Fez, but as we had issued a few days previously a statement, agreed with the Ten about our attitude to Middle East problems and to the Sinai force, we did not feel that we had anything else to say. The hon. Gentleman will be aware that we agreed to respond to the invitation of the United States and Egypt to offer a small contingent for the Sinai force under the terms of the Israel-Egypt treaty, but we said at the same time that we, the Ten, were signatories to the Venice declaration. That declaration persists, and we hope to take it forward. We had nothing fresh to say on top of that.

Mr. Robin Maxwell-Hyslop (Tiverton)

Did my right hon. Friend raise the matter of Greece, and were any decisions taken about Greece, in the light of the statement by Mr. Papandreou that his Civil Service would not enforce any Common Market regulations that might be to the disadvantage of Greece? Has it been made quite clear that if Greece withdraws from the EEC she cannot expect to keep any of the advantages that she had whilst she was a member?

The Prime Minister

We did not refer to that matter. Greece is still a member of the EEC, and is obviously trying to get as reasonable a deal as she can. Clearly she was particularly concerned with the debates and arguments about Mediterranean products. Mr. Papandreou took a considerable part in our discussions, and I imagine that Greece is considering her future very carefully, as it is clear that membership of the EEC offers clear advantages, not only for each country but for the EEC as a whole.

Mr. David Stoddart (Swindon)

Does not the Prime Minister agree that the Genscher-Colombo proposals for [column 30]greater political union are tantamount to suggesting a federal European State in which this country and this Parliament would lose much of their sovereignty? Is the right hon. Lady aware that there is no mandate in this country for such a federal union, that there is no support for it in the House, and that she herself has expressed opposition to it? So there is little support for it. As she has expressed her opposition to a federal European State on previous occasions, why did she not kill the proposal stone dead?

The Prime Minister

First, I do not believe that the proposals amount to a federal European State. Secondly, in my opinion, the idea of a federal European State would not have a ghost of a chance of getting anywhere.

Mr. Teddy Taylor (Southend, East)

If the lack of agreement on two major issues—contributions and the CAP—continues, will my right hon. Friend be prepared to consider proposing to resolve the matter by winding up the CAP, even if that means an alteration of the treaty? Secondly, as fishing negotiations will take place before the next meeting of the Council, can she give a clear assurance that this Government will never agree to an agreement which does not include a 12–mile exclusive limit?

The Prime Minister

The fishing negotiations were to be held this week, but they have been postponed until mid-December because of the election in Denmark. I cannot say what will finally emerge, but I am convinced that my right hon. Friends Peter Walkerthe Minister of Agriculture, Fisheries and Food and his Minister of State will get a fair deal for our fishermen.

My hon. Friend well knows that the CAP is of great advantage to a number of member States. It emerged from discussion that States were prepared to follow prudent pricing policies to ensure that European and world prices came closer together. If we can get agreement in that respect, we shall ensure that less money is spent on disposing of surpluses in the CAP. If it is further agreed that agriculture is run in such a way that structural surpluses are not created, many of the problems of the CAP will be considerably diminished.