HC Deb 07 December 1977 vol 940 cc1387-401
The Prime Minister (Mr. James Callaghan)

I will, with permission, make a statement on the meeting of the European Council in Brussels on 5th and 6th December, which I attended together with my right hon. Friend the Foreign and Commonwealth Secretary.

The Council began with an exchange of views on the current economic problems of Europe, including those caused by the low rates of growth in the econo mies of the member countries, and the high unemployment that exists throughout the Community.

I directed attention to the problems of international trade and payments and pressed for a co-ordinated Community response to them. The persistent deficits of many countries, which are the counterpart of the massive surpluses of some OPEC countries and Japan, are exerting deflationary pressure on the economies of the world and making it harder to pull the Community out of recession and reduce unemployment. This situation is increasing protectionist pressure in the United States as well as in the Community. The Community needs to take a position.

There was wide support for this assessment, and that future stability in oil prices would also be very helpful. The Council equally recognised the need for energy-saving policies. The President of the Commission was invited to intensify his consultations with the Japanese Government on these matters.

The question of budget contributions in 1978 and 1979 was resolved. We maintained our opposition to any change in our interpretation of Article 131 of the Treaty of Accession. In consequence, we and others will maintain our different interpretations of the article, and will pay accordingly. The resulting budgetary deficit will be filled by a contribution from all the member countries according to their own choice of one of four approved methods. If there is still a very small residual gap, it will be dealt with by Finance Ministers.

The contribution of the United Kingdom towards filling the gap is likely in 1978 to be £40.6 million out of the deficit of £265 million. In 1979 both the deficit and the United Kingdom contribution should be only about a third of those figures. On the basis of this agreement the Community will now construct its budgets from 1st January next on the basis of the new European unit of account.

The Council agreed to renew the Regional Development Fund with substantially increased resources totalling 1,850 million European units of account for the next three years. The combined effect of these increased resources and of the change to the use of the European unit of account is that the value of the Fund in sterling terms will be more than doubled. The net value to the United Kingdom and the benefit to the regions, including Wales, Scotland and Northern Ireland, will thus be increased. We retain about 27 per cent. of the Fund.

Approval was given in principle to a proposal by the Commission to establish a new borrowing facility of 1,000 million units of account to promote investment and support sectoral policies in the Community. This facility will be managed by the European Investment Bank.

The President of the Commission called for a re-examination of the ideas for instituting at some time in the future economic and monetary union. There was a general disposition to await the views of Finance Ministers on the Commission's suggestions before the European Council attempted to form a view.

The European Council took note of the current situation on direct elections.

It was agreed in principle to establish a European Foundation to promote contacts within the Community. Foreign Ministers will examine the proposals for a foundation, and report back to the European Council.

During the meeting the Council considered certain ideas for closer co-operation against terrorism, and discussed current international problems, particularly those of Africa and the Middle East. I took the opportunity to inform my colleagues of the wide-ranging discussions which I had with Mr. Begin at the weekend. During these Mr. Begin assured me of his determination to seek a comprehensive settlement and to find a just solution to the problem of the Palestinians. I informed Mr. Begin of the Government's support for continuing discussions on this basis between Egypt and Israel, leading at a later date to wider negotiations and a settlement.

Mrs. Thatcher

I assume that there will be a separate statement on fisheries policy, because the Agriculture Ministers were meeting on Monday and Tuesday. I should like confirmation that there will be a separate statement. I shall confine my points to the Prime Minister to three.

First, the Prime Minister said that the Council discussed the economic situa tion. Is it true that there was very considerable difference of view about how to tackle inflation and growth, and that those countries that have been most successful at tackling inflation were very loth indeed to risk the gains they had made by putting them in jeopardy if they reflated?

Secondly, the statement makes no reference to steel. Is the Prime Minister aware that many of us would find it very difficult to believe that the Ministers did not discuss steel, in view of the seriousness of the situation here and elsewhere? As the position is governed by treaties of the Community, will he say whether there is anything to report on steel negotiations?

Thirdly, with regard to the rather trite phrase that "The European Council took note of the current situation on direct elections", did the Council take note of the fact that, in the week of the Summit, the Government provided no days at all here for debating Europe, and that only 132 out of 308 Labour Members voted for direct elections, compared with 229 out of 280 Conservative Members? That shows the whole difference in attitude towards Europe. Is it the Prime Minister's intention to provide time for a genuine free choice on electoral systems before Christmas?

The Prime Minister

The Agriculture Ministers were meeting concurrently and therefore the Heads of Government did not discuss fisheries policy. I shall certainly have a word with the Minister of Agriculture about making a statement.

It has been a standing view of the Germans that they do not wish to be pushed into reflation if it is likely to endanger their monetary stability. At the same time, I think that the German Government, like other Governments, are becoming increasingly concerned about the rise in unemployment in their countries and the failure of their economies to grow, despite a low inflation level. I think that there was perhaps more of a meeting of minds on this occasion than on others. One of the interesting ideas which came forward and which I think will meet with a lot of support from my hon. Friends—

Mr. Skinner

Does that include us?

The Prime Minister

On this occasion yes. While we all want to see growth in the manufacturing sector and in the service sector, there is more that we may have to do in the public employment field in order to provide both services and work. We have not heard this view expressed quite so clearly before among a number of those who were present.

I raised the matter of steel, of course, because there are very direct interests here, but the discussions are going on separately. We reached no conclusion. Indeed, this is not a subject on which it would be possible for the Heads of Government to reach a conclusion, although the issues are extremely serious.

On direct elections, I notice that the right hon. Lady is constantly attempting to ensure that we are saddled with the responsibility for the delay. [Interruption.] Well, I am not denying it, so I do not see why hon. Members have to push it so hard. [Interruption.] The Opposition are so anxious to get a clear verdict on this. I have consulted the Leader of the House and, while I do not want to anticipate anything that he might have to say, I have a feeling that all hon. Gentleman on the Conservative Benches will have a chance of proving their virility before Christmas.

Mr. David Steel

Does the Prime Minister agree that the most important part of the discussions was what he calls "pulling the Community out of recession and reducing unemployment"? If, as he claims, the Council agreed with his assesssment, is he able to tell us any more about what action it agreed might be taken?

Can he confirm or repudiate the suggestion that appeared in the Press that he and the Foreign Secretary appear to have abandoned all prospect of meeting the deadline on direct elections?

The Prime Minister

No. I shall be interested to see how the voting goes when the issue comes up. If the House takes a decision before Christmas, that in itself will decide on what date the elections can be held. [HON. MEMBERS: "Oh"] Opposition Members should not be so sensitive about this. They will have a chance of taking a decision, although I am not sure that they are so keen about taking a decision now that we are coming up to it.

On the question of recession, the line to be pursued here—it is not the only line but it is a most important line—is that we are endeavouring to ensure that the discussions that have taken place between the United States and Japan are not concerned wholly with the relationship between those two great countries. The Community has a position on this, because the growth of the Japanese surplus is undoubtedly having a debilitating effect on the growth of economies elsewhere. I want to see these discussions broadened out as widely as possible.

No immediate conclusion can be drawn, but I asked the President of the Commission either to visit Japan—he probably will not do so, because he was there a few weeks ago—or perhaps to invite the Japanese to come to Brussels to discuss these matters more closely.

Mr. Noble

While discussing international trade did my right hon. Friend raise the question of the renegotiation of the Multi-Fibre Arrangement? Does he accept that there is some satisfaction about the renegotiation but grave concern about the transitional arrangements? If he did not raise it, will he take an early opportunity to raise the question of the transitional arrangement with his European partners?

The Prime Minister

This matter did not come up yesterday, but the Secretary of State for Trade is discussing these matters continuously and urgently with his colleagues in the European Community.

Mr. Kenneth Clarke

Is the Prime Minister in a position to say anything about the proposal that part of the resources of the Regional Development Fund are now to be applied directly by the Commission outside the national quota arrangement? When dealing with direct elections, did he explain to his colleagues that on the only day of the Committee proceedings so far, Ministers did not appear interested in making any progress with the legislation and Government business managers made no attempt to seek to close the prolonged debates largely maintained by Labour Back Benchers?

The Prime Minister

I have always understood that on matters of this sort it is out of order to discuss what happens on current debates or current Bills, whether at Question Time or following statements. If I am wrong, I stand to be corrected. The non-quota possibility arising out of the Fund was touched upon, but was not agreed. It has been left to the Finance Ministers or the Foreign Ministers to consider. In any case, it will only be a small proportion of the total Fund.

Mr. Stoddart

Has my right hon. Friend seen the report in the Financial Times on 3rd December indicating that the German Finance Minister expects British oil resources to be drawn into the Community? Did he tell the Council of Ministers that United Kingdom oil resources would remain under the control of the United Kingdom and that all financial benefits would accrue to this country? If he did not do so, will he do so now?

The Prime Minister

No emphasis is added by constantly reiterating a position that is well known. I did not actually see the report in the Financial Times, but I do not always believe all that I see, even in such a responsible and authoritative paper as that, especially when, as on this occasion, I was present at the meeting and know what was said.

Mr. Tapsell

Was there discussion by the Council of Ministers of the United Kingdom's obligations under Article 124 of the Treaty of Accession and Article 67 of the Treaty of Rome to make certain specific liberalisations in exchange control before 1st January next year? Is it the Government's intention to honour those obligations or to apply for a further derogation?

The Prime Minister

The matter was not raised.

Mr. Tapsell

What about derogation?

The Prime Minister

Since the matter was not raised at the Council, I cannot answer that question.

Mr. Jay

While I welcome the Prime Minister's success in limiting in some way the size of the United Kingdom budget contribution, can he confirm that, nevertheless, this year's contribution of about £700 million will rise by £400 million to over £1,100 million next year?

The Prime Minister

I cannot give the figures in total, but perhaps if my right hon. Friend puts down a Question he will get an answer. The actual increase in the United Kingdom's contribution to the budget will be £40 million out of a total deficit of £265 million. That £40 million will have to be added on to the contribution that we have already agreed.

Mr. Walters

Bearing in mind the enormous importance of the Middle East to the economic position of Europe and its economic future, did the Prime Minister take the opportunity of denying reports that he had been nudged by Mr. Begin into accepting that the EEC should take a less active rôle in the Middle East affairs?

The Prime Minister

No. I would not altogether deny that. Mr. Begin took the view—I have some sympathy with it—that at the present stage of direct discussions—now that for the first time the contestants have been brought face to face—it would be better if Europe adopted what in transatlantic terms is a supportive rôle rather than coming out with a solution of its own. That seemed to make a lot of sense. I put it to my European colleagues that we should not advocate solutions but should urge both parties into a proper negotiating position. I would certainly not press the Community to come out with more public statements. I conveyed that to my colleagues and I hope that the House will agree.

Mr. Watkinson

Can my right hon. Friend say whether he detects a weakening in the resolve of the German Government to expand their economy since the Downing Street Summit? Will he continue to press as diplomatically as possible upon the German Government the necessity for them to lead an expansion in Europe if we are to move out of recession? Can he also indicate what the attitude of the United Kingdom Government is to economic and monetary union? Is it still one of opposition?

The Prime Minister

I do not think that the German Government's resolve has changed, but I do not think that they had the success that they hoped for during the Downing Street Summit in May. Indeed, getting growth in the economy is a problem that is baffling all the members of the Community. I am bound to say—I hope that it will not be taken amiss—that this country is going to have a bigger improvement in its rate of growth next year than any other member of the Community, partly because of the success of the economic policy and partly because of North Sea oil.

My hon. Friend is right about having to proceed with some diplomacy in these matters, because we are concerning ourselves with the sovereign rights of another country. The German Chancellor understands our position on this and he has explained his position very clearly. I am quite certain that he would like to see a faster rate of growth if he can get it. I am sure that he and his Government will be working as hard as possible to get that and to reduce unemployment in Germany as, indeed, we all wish to see it reduced in France, Britain and elsewhere.

With regard to the economic and monetary union, I adopted the position that we have continuously adopted, namely, "Show me". Let us see how this new system can be of benefit to the United Kingdom in its recession as well as to Europe. I hope that it can be something more than another centralising unit. But so far I have not been able to see the relationship between the two. It is for the Commission and others who advocate this view to come forward and demonstrate this to us, if they can. If I were shown that this would be to the great advantage of the United Kingdom, we would want to look at it. So far, however, we have not seen that.

Several Hon. Members


Mr. Speaker

May I seek the help of the House? If hon. Members will limit themselves to one supplementary question each, that will enable me to call more of them. We are taking time out of a debate covered by a timetable motion.

Mr. Rees-Davies

Adhering to your advice, Mr. Speaker, may I ask the Prime Minister this question? In dealing with the Middle East, did he discuss the Cyprus problem, and is he willing to undertake an initiative in response to the letter and request of right hon. and hon. Members in all parts of the House for an initiative to try at least to go towards a solution of the problem?

The Prime Minister

No, Sir. We did not discuss Cyprus on this occasion. As regards the second part of the hon. and learned Gentleman's question, I refer him to the earlier answer that I gave.

Mr. Roper

Can my right hon. Friend say a little more about the 1,000 million units of account borrowing facility? Will this be lent to member States over a fixed period, or is it a revolving fund?

The Prime Minister

There is no time limit on the Fund. It will be handled by the European Investment Bank and it can be used for infrastructure as well as for direct investment in manufacturing and other industry.

Mr. Spearing

A few moments ago my right hon. Friend was optimistic about reaching some conclusion before Christmas on voting methods. Is he aware that the Committee is discussing only "Clause 1 stand part" and that it has only just started that discussion? Will he understand that his optimism will be interpreted as meaning that we shall have two days next week? Can he go further and tell us whether it will be a procedural motion or a two-day debate next week?

The Prime Minister

I am afraid that I cannot answer any of those questions.

Mr. Crawford

May I bring the Prime Minister back to the question of steel, which was raised by the right hon. Member for Finchley (Mrs. Thatcher)? Did the Prime Minister meet Industry Commissioner Davignon? Since Industry Commissioner Davignon said that there should be an increase in investment in the steel industry in the EEC, why are the right hon. Gentlemen's Government decimating the steel industry in Scotland?

The Prime Minister

I did not meet Commissioner Davignon.

Mr. Wrigglesworth

Is my right hon. Friend aware that the decision to increase the size of the Regional Fund will be welcomed in areas such as my own in the Northern Region? Can he say to what extent the United Kingdom will benefit from this proposal?

The Prime Minister

We have contributed about 21 per cent. to the Fund and we get back about 27 per cent. The net help to us will be about £30 million a year—perhaps £100 million over the three years.

Mr. Marten

As the Prime Minister discussed direct elections and as amendments on the subject which I wish to raise are out of order on the Bill before the House, can the right hon. Gentleman tell us what is the position about the pay and allowances of any directly elected Members? Is it for the Council of Ministers to decide the rate, or is it for the Assembly itself to do so? Certainly the Community is dragging its feet on this, and I am sure that no one on the Opposition Benches will vote for the Third Reading of the Bill unless we know the pay and allowances that are proposed.

The Prime Minister

Perhaps the hon. Gentleman will table a Question on the subject. We did not discuss it yesterday.

Mr. Dalyell

Is it premature to ask my right hon. Friend to enlarge upon what he said about some European rôle in the public services employment sector?

The Prime Minister

I cannot enlarge on that. It was one of the ideas which emerged from the discussion, but it was not made more concrete.

Mr. George Gardiner

When members of the Council were taking note of progress on direct elections, did the Prime Minister point out to them that the system proposed by the Government in the Bill was by no means inviolate and that, even if the House of Commons voted to accept a system of proportional representation, there was still considerable scope for argument about whether the economic planning regions provide the best basis for that and that, at the end of the day, in terms of the speed of implementation, there may not be very much difference between the systems proposed?

The Prime Minister

No, Sir. I did not point that out.

Mr. Flannery

When my right hon. Friend reported to his colleagues in Europe his discusions with Mr. Begin, was he able to convey to them that withdrawal from the occupied territories and a homeland for the Palestinians were essential prerequisites to achieving peace in the Middle East, because that is the only way in which we shall attain it?

The Prime Minister

The discussions with Mr. Begin, which I reported, were of great assistance to me in understanding the developments. For the first time, I found myself discussing with the responsible Israeli Prime Minister matters of substance instead of matters of procedure. I do not think that it would be helpful—indeed, it would not be proper—if I were to go into details about the nature of his approach to this problem. What is important now is that the two principal countries are meeting face to face and that we should encourage them to go on discussing these matters privately.

I have explained to Prime Minister Begin the view of Her Majesty's Government on these issues, and I am sure he will take that into account. I think that Mr. Begin and President Sadat, with whom I also had contact last week, will ensure that whatever discussions they have can be enlarged into a wider grouping of Arab States so that a comprehensive peace agreement can eventually be signed.

Mr. Crouch

Much as we admire the Prime Minister's achievements on the current economic problems of Europe, the Regional Development Fund and the budget achievement, is he aware that many Opposition Members are concerned at his failure to live up to the great traditions of British Prime Ministers to extend democracy in Europe and that, if anyone is dragging his feet today, it is the Prime Minister on this question of achieving direct elections next year?

The Prime Minister

The hon. Member for Canterbury (Mr. Crouch) always tries to be a fair controversialist, I know. As regards direct elections, there have been great difficulties in this country and in the governing party. Everyone understands that. I have the responsibility of trying to ensure that we observe our obligations to Europe and that I do not divide my own party and allow in the Opposition. That is a perfectly understandable position—

Mr. Skinner

A national objective.

The Prime Minister

—as well as being a national objective! I agree with my hon. Friend. In pursuance of that, I seriously invite those of my hon. Friends who are opposed to this to allow us to reach a conclusion on this matter—

Mr. Skinner

In the national interest as well.

The Prime Minister

I have given a lot on this, and my hon. Friend the Member for Bolsover (Mr. Skinner) has to give something, too. I think that we shall be able to reach a conclusion on this matter before Christmas. I understand that this is the prospect. In those circumstances, I hope that the hon. Member for Canterbury will not think too badly of me.

Mr. MacFarquhar

I congratulate my right hon. Friend on getting some generous concessions on the budget from our European partners. If his hopes of getting a resolution of the direct elections question are not borne out and there is little prospect of having them next year, will that mean that the other countries will go ahead, anyway, or will the remaining eight countries wait for us?

The Prime Minister

I understand that France especially would not want to go ahead unless we were there also. So I think that the consequence will be that, if we cannot meet the date, the elections will be postponed to 1979. I have said before and I repeat that that will not be the end of the world. After all, the Six waited for many years before we joined. It is now 20 years since the Community was established. I cannot believe that it will make all that difference if it is 21 years. What is important is that we should carry out these procedures properly. There is no great enthusiasm for European elections in any part of the country. What I think we have to do is to ensure, therefore, that there is a proper procedure and that the matter is properly carried through so that no one can complain at the end of the day that decisions were wrongly arrived at. But we have got to carry it through. We have all entered into an agreement to do so, and we must do so.

Mr. Rost

The Prime Minister referred to the discussions on energy conservation. When do the Government intend to bring forward some initiative so that we can do as much as is happening in Europe to pursue such policies?

The Prime Minister

It is an important question which is concerning the Government at present. I hope that over the next few months leading up to and perhaps including the budget some such measures may come forward. The Government have a series of propositions, and they have embarked upon a study of them.

Mr. Skinner

Will my right hon. Friend confirm that gone are the days when Prime Ministers came back to this House from Europe talking about the grand European design, with all the polished phrases and flourishes? Is not it significant that my right hon. Friend has nothing to offer and that all that he has been able to bring back is the demand for another payment to the Common Market? Is not it now apparent that only a large section of right hon. and hon. Members on this side of the House can stand up for the majority of the British people who are against the Common Market and want ultimately to get out of it?

The Prime Minister

That is the repetition of a well-known argument with which I totally disagree. One day, when my hon. Friend the Member for Bolsover occupies this Dispatch Box, as I do, and he joins with his fellow Heads of Government in discussing these matters he will find that there is great advantage both politically in the Community arriving at a common approach to many significant world problems and—as he knows in his heart but will never acknowledge—in the growing interdependence of our economies, which makes it much more satisfactory that we should handle matters in this way. On one point I go along with my hon. Friend—I am against the harmonising of affairs in the Community for its own sake. The EEC must prove to me that harmonisation is worth while. If it does, I am there. If not, I am almost as bad as my hon. Friend the Member for Bolsover, but not quite.

Mr. Speaker

I shall call the two hon. Members who have been rising throughout.

Mr. Adley

I agree with the importance of concentrating on major matters. In view of the difficulties which the EEC experiences in resolving major issues where there are conflicting interests, did the Prime Minister discuss the future of Europe's aerospace industry? If not, will he agree that there is a need for Heads of State to take the lead and form a plan to produce and maintain a European aerospace industry?

The Prime Minister

We did not discuss that and therefore I cannot add to what has been said in reply to Questions that have been put down. I agree that it is an important matter, but I do not know whether the Heads of Government meeting is the right arena for its discussion.

Mr. Newens

Can my right hon. Friend say how far it is now accepted that there can be no permanent solution to the Middle East problem without recognition of the national aspirations of the Palestinian people? What attitude is now being taken towards the Palestinian Liberation Organisation? Is there recognition that some representative voice of the Palestinians must be heard and must be present at any permanent peace conference?

The Prime Minister

I draw my hon. Friend's attention to a significant sentence that was inserted in Prime Minister Begin's speech on Sunday night about the position of the Palestinian Arabs. I do not wish to go further than that at present. He recognises the need for discussion.

I have made clear our position on the PLO. While it fails to recognise the existence of Israel and to deny that existence, I do not see how we can have dealings with it.