HC Deb 01 July 1981 vol 7 cc867-75
The Prime Minister (Mrs. Margaret Thatcher)

With permission, Mr. Speaker, I will make a statement on the meeting of the European Council in Luxembourg on 29 and 30 June, which I attended with my right hon. and noble Friend the Foreign and Commonwealth Secretary. The meeting also gave me the opportunity to have a first and very friendly meeting with the new President of France, M. Mitterrand.

At the end of the Council's meeting the Presidency gave a summary of the discussions on Community matters and we issued an agreed press statement on a number of international questions. I have placed copies of both these texts in the Library of the House.

The discussion on the economic situation provided a valuable occasion for hearing the views of all the Heads of Government, three of whom were attending the European Council for the first time. The Commission gave us a useful analysis of the prospects. The Council saw the first cautious signs of limited improvement in the business cycle, even though inflation and unemployment have by no means been brought under control. On objectives we were all agreed: we must overcome unemployment and inflation and return to a situation of economic growth, stability and satisfactory levels of employment. We recognised, however, that the major responsibility for tackling these problems lies with national Governments, because action needs to take account of the different economic situations in each member State. The differing levels of inflation, unemployment, balance of payments and budget deficits mean differing constraints and opportunities for member countries.

The effectiveness of action by national Governments can be increased by co-ordination within a Community framework. We were particularly concerned that full use should be made of the Community's financial instruments and of the facilities of the European Investment Bank to promote the flow of productive investment, including the growth potential in small and medium businesses.

We recognised that the changing patterns of world trade mean structural changes in our own industries. The focus should be on investment in industries with potential for the future rather than on economic activities that are bound to decline in importance.

There was agreement on the need to improve the Community's internal market for both goods and for services such as insurance and air fares, which are of special importance to this country.

We also reviewed the matters for discussion at the forthcoming economic summit meeting in Ottawa. The level and volatility of interest and exchange rates could retard economic recovery in the Community. Discussion will need to be pursued with the other major monetary powers.

On trade, the Council discussed the threat to the smooth functioning of the world trading system which comes from the excessive concentration of Japanese exports on sensitive sectors. Further, it stressed the need for the Japanese market to be effectively open to foreign trade. This will need to be pursued within the Community and at Ottawa.

We also approved the recent report of the Foreign Affairs Council on North-South policy. On the recent report of the Commission about the Community budget and changes in the common agricultural policy, a satisfactory impetus was given to further work. The first stage is to clarify the Commission's document to see, for example, how the budgetary proposals could affect each member State.

In September, a special group will be set up to assist the General Affairs Council to make thorough and timely preparations for the next meeting of the European Council, to be held in November under our Presidency. The United Kingdom assumes the Presidency of the Community today and it is our intention to do all we can to press forward with these discussions, which are so important for the future of the Community, with the objective of reaching agreement within the timetable laid down last May.

The European Council also discussed the Middle East. As the communiqué makes clear, the Ten must review the results of the contacts established by the Dutch Presidency on the basis of the Venice declaration. In consultation with the United States and the parties concerned it will be for the Ten to consider how best to make an effective contribution towards a comprehensive peace settlement in the Middle East.

The European Council approved and published a proposal on Afghanistan which has been in preparation for some time and is the result of a British initiative. The purpose is to establish the framework for a political solution that all the parties concerned accept as the objective. The proposal for an international conference in two stages builds upon earlier proposals and offers, we believe, a reasonable basis for the peaceful solution of a problem that remains an important cause of international tension. My right hon. and noble Friend the Foreign Secretary will fly to Moscow on Sunday for talks about the proposal with the Foreign Minister of the Soviet Union. An initiative designed to restore the independent and non-aligned status of Afghanistan is a constructive and distinctive way to mark the start today of the British Presidency of the Ten.

Mr. Michael Foot (Ebbw Vale)

May I put four matters to the right hon. Lady, starting with the last matter to which she referred—Lord Carrington's mission to Moscow. We wish him well in that visit. We hope that he will meet with even better success than he has cautiously hoped for in his description of the possibilities there. We hope that progress will be made, in the interests of the people of Afghanistan and in the light of what could be the effects elsewhere if such an agreement could be secured. Therefore, our eagerness to see success there is unqualified.

But does not the fact that the right hon. Lady and her colleagues discussed these other foreign policy questions make it all the more remarkable that apparently they had no discussion on the supreme question of disarmament and how we are to get disarmament negotiations going? Were there discussions on the subject? If there were discussions, does not the right hon. Lady think that the subject is of sufficient importance to justify her reporting to us on it? If there were not discussions, does she agree, on consideration, that the most important question is to try to have genuine, far-reaching discussions on disarmament, particularly in the light of the exchanges that have taken place over recent weeks between Mr. Brezhnev and others? With regard to the EEC questions, such as the budget and the reference to impetus to further work having been secured—nobody knows exactly what that means—will the right hon. Lady say what was Britain's net contribution to the EEC last year, and what we shall pay this year? Would not the Commission's proposal still leave us as a net contributor, even if the Community agrees with it? Could the right hon. Lady give us further and more enlightening information than she has so far given on that subject?

With regard to the general economic discussions, the more discussions the right hon. Lady has with President Mitterrand, the better we think it will be. It would appear that, at any rate in the communiqué, she has recognised, with the other Heads of Government, that the defeat of unemployment ranks even before the defeat of inflation. I do not know whether the change of language was produced as a result of President Mitterrand's advice, but we hope that the right hon. Lady, particularly in the light of her own references to the differences in the economies of the nations, will take account of what is being proposed by the new Government of France, as it offers far greater hope of dealing with these problems than anything that she has proposed.

The Prime Minister

I thank the right hon. Gentleman for his message of good will to my right hon. Friend the Foreign Secretary at the beginning of his mission to the Soviet Union on the Afghanistan initiative.

With regard to disarmament, defence is outside the competence of the EEC. Disarmament has been dealt with in NATO and we are agreed that discussions—particularly on the cruise missiles and the SS20s—should start with the Soviet Union by the end of the year.

With regard to the budget, the problem was that France is not yet ready to discuss the substance of the budget proposals and this naturally holds us up. It is, however, understandable that France should wish for a period to consider what position she will take on the matter. We could therefore determine at the moment only the procedure that we shall adopt to get full and proper proposals before the European Council by next November. The procedure is set out in the communiqué.

If my memory is correct, our net contribution this year will be of the order of £400 million—a great deal less than would have been the case if the regime left to us by the Opposition had persisted.

With regard to what the right hon. Gentleman said about M. Mitterrand, by far the majority view in the European Council was that more jobs depend on lower inflation. It was also the majority view that the way to fight for the reduction of unemployment was to fight for the reduction of inflation.

Mr. Foot

The right hon. Lady has replied on two matters. On the question of the budget, does she not appreciate that what the Labour Government wanted to do was to carry out resolutions passed by the House of Commons on the subject. The right hon. Lady and the present Government agreed to those resolutions. Why does she not advocate in the discussions what she and the Government agreed in this House?

It is, of course, true that the disarmament discussions take place through NATO. Is the right hon. Lady content, however, with the slow-moving arrangements whereby the discussions are not to start until the end of the year? As the Ministers in the Council discuss many foreign policy matters, and as disarmament touches upon foreign policy, why cannot she use her influence there to try to get the discussions brought forward to a much earlier date?

The Prime Minister

The Government did a great deal better in the budget negotiations than did the Labour Government. Thank goodness that we did. Otherwise we should be contributing vastly greater sums than we are. We are now considering a Commission document that takes into account not only the budget restructuring but also considers reforms of the common agricultural policy and the need to spend more on the economic and social fund. This is a major document. We approach it with the view that the result must be equitable to all partners. That seems to me a proper approach for any country that enters into a partnership.

Talks on disarmament are being continued the whole time. I assume that the right hon. Gentleman refers to the talks that will soon start on theatre nuclear weapons. The Soviet Union has a vast superiority in these weapons and would naturally wish to freeze the position as it is at present, with her being very superior in the numbers and position of the weapons and we having none in position. Talks on this issue will start as soon as possible. It is important that they should do so. We must finish those talks in a situation in which we on our side have sufficient capacity to deter the Soviet Union.

Mr. David Steel (Roxburgh, Selkirk and Peebles)

is the Prime Minister aware that we on the Liberal Bench wish the Government well in assuming the Presidency of the European Community and commend, in particular, the initiative already taken on Afghanistan, which we see as the development of a coherent European foreign policy? I hope that this extends to the initiative on the Middle East.

On the internal policies of the Community, is it not disappointing that the right hon. Lady's statement contains so much emphasis on the pursuit of national policies against unemployment when the development of the regional and social policies of the Community could help massively to decrease the level of unemployment in the community as a whole?

The Prime Minister

I thank the right hon. Gentleman for his message of good will about the Presidency and also for his remarks about Afghanistan.

The right hon. Gentleman referred to national policies. If he looks at the figures for the economic position of each country he will find that they are very different. The levels of inflation are different; the levels of unemployment are different. Other countries have a higher level of unemployment than this country. The budget deficits are different. The money supply is different. It was stated that each of us must make maximum use of the margin of manoeuvre that we possess. The countries that have high inflation felt strongly that they could not do anything about unemployment by reflating in the short run because that would not only increase inflation but, in the longer run, would increase unemployment.

Each has to find the best mixture of policies suitable to the differing conditions in our national countries. Nevertheless, a part of the press summary that is perhaps not particularly well expressed—the press summary is not agreed among all countries; it is a general summingup—shows that the financial instruments of the Community can help. We had particularly in mind the regional and social funds and also the resources of the European Investment Bank—the latter to get more investment started, particularly in the modern industries, and the former to help to relieve the social consequences of unemployment.

Several Hon. Members

rose——

Mr. Speaker

Order. I remind the House that this is a Supply day. A large number of hon. Members wish to speak in the debate on the car industry. There is also an opposed Ten-Minute Bill. I therefore propose to allow questions to run until 4 pm. If they are brief, it will be possible for a greater number of hon. Members to be called.

Sir Anthony Kershaw (Stroud)

Does the Prime Minister agree that the sentiments expressed by President Mitterrand about his country's attitude to Poland and to Afghanistan constitute a good augury for co-operation between our countries?

The Prime Minister

Yes. We all find the occupation of Afghanistan totally unacceptable. We are all agreed that the Poles must be left to sort out their own problems in their own way, as a sovereign country should.

Mr. Charles R. Morris (Manchester, Openshaw)

Is the Prime Minister aware that the whole House will be impressed by th enthusiasm of the Foreign Secretary and the European Council in seeking to persuade the Soviet Government to withdraw its 40,000 troops from Afghanistan? May we be assured that the Foreign Secretary and the European Council will demonstrate equal enthusiasm in persuading the Turkish Government to withdraw its 40,000 troops from the island of Cyprus?

The Prime Minister

I think that the right hon. Gentleman is not quite right about the number of Soviet troops in Afghanistan. The number is between 80,000 and 90,000. I am grateful for the right hon. Gentleman's expression of good will to my right hon. Friend over his initiative on Afghanistan. I have nothing to report about Cyprus, which is at the moment the subject of a United Nations initiative that we fully support, as I hope the right hon. Gentleman does.

Mr. Anthony Grant (Harrow, Central)

On the question of trade, can my right hon. Friend confirm that, while recognising the problems of Japanese imports in certain sectors, the Heads of Government nevertheless remain wholly committed against any wave of protectionism or any fragmentation of the West into pockets of silly, little siege economies as advocated by the Opposition?

The Prime Minister

I am delighted to assure my hon. Friend that we remain committed against protectionism. This country, which depends on exports for so many jobs, must rely on an open pattern of world trade. Our problems arise from the concentration of the Japanese on certain limited sectors and also the fact that hitherto the Japanese have dealt with European countries one by one. We think it better that we deal with the Japanese as an economic community.

Mr. Andrew Faulds (Warley, East)

I strongly endorse the initiative on Afghanistan, but will the right hon. Lady reassure the House that this initiative will in no way be used as cover for a retreat from the Foreign Secretary's earlier intention to get things moving on the Middle East by meeting Chairman Arafat, a matter on which apparently Conservative Members are receiving considerable Zionist pressures to get that hoped-for meeting cancelled?

The Prime Minister

We all hope that the Foreign Secretary's mission on Afghanistan will be successful. It could open a new chapter in East-West relations. I come therefore to what I think is the hon. Gentleman's true question about the Middle East. He will find the position of the European Community set out in a communiqué. We must take into account the contacts of the last Presidency with many Arab countries.

I make it clear that my right hon. Friend, in his capacity as Foreign Secretary of the United Kingdom, has never had the intention of meeting the leader of the PLO. In his capacity as President of the Economic Community, should there be an Arab-European dialogue or should the particular initiative on the Middle East continue in the same way that it has, he may have to continue the practice of meeting the leader of the PLO, but only in his capacity as President of the European Economic Community. It would seem that the majority of contacts have already been made, and we feel that we have to consider the results of the contacts before deciding what to do next.

Mr. Faulds

See the Zionist pressure at work. They know all about it. Some of them have had the letters threatening them.

Mr. John H. Osborn (Sheffield, Hallam)

Is it not a fact that economic stagnation, as well as unemployment, is a problem facing Social Democrat countries as well as Christian Democrat countries? Will my right hon. Friend indicate the extent to which more funds will go to the regional development fund and the social fund and towards solving the common energy problem which is currently facing all the energy-consuming countries?

The Prime Minister

Most of us would prefer bigger resources from the Community to go to the economic and social funds. The extent to which we are successful in that will depend on how successful we are in reducing the surpluses of the European Economic Community and therefore the proportion of funds that go to the common agricultural policy. The Commission paper is largely taken up with that possibility.

Mr. David Stoddart (Swindon)

Is the right hon. Lady aware that far from thinking that she has the right mixture of policies to deal with the economic situation we think that she has only one policy—mass unemployment? Did she take the opportunity at the summit meeting to discuss with M. Mitterrand the policies of reflation that he is embarking upon, combined with earlier retirement and a shorter working week? Those seem to be the policies that would bring down unemployment in this country.

The Prime Minister

Other countries in the Community have a higher proportion of unemployment than we have. During the economic debate, M. Mitterrand put forward his policies and he was in a considerable minority in the European Council. His policy of reflation, by increasing the budget deficit, would take his budget deficit from 1½ per cent. of GDP to only 3 per cent. of GDP. Ours is already 4½ per cent. of GDP.

Mr. Albert McQuarrie (Aberdeenshire, East)

I congratulate my right hon. Friend on her statement today and I wish her every success during our Presidency. Will she make it a priority during the Presidency to endeavour to obtain agreement on the common fisheries policy, which is essential to the fishing industry in this country?

The Prime Minister

Yes, gladly. It was one of the first things that I mentioned to M. Mitterrand. I believe that most of us would like a common fisheries policy. We wanted to get it sorted out before the French election, but that was not possible. We should like to get one sorted out as soon as possible. But the terms must be acceptable to our fishermen.

Mr. Dennis Skinner (Bolsover)

Is the Prime Minister aware that every time she goes on one of these Common Market junkets or summits, which she opposed when she was in Opposition, the unemployment figures not only of this country but throughout the Common Market rise? Did she tell the assembled guests at the summit about the time when the words were used: "It is sometimes said that Conservatives are associated with unemployment"? "That is absolutely wrong", said the speaker on that occasion. "We would have been drummed out of office if we had had the levels of unemployment that existed at that time." The speaker was the Leader of the Opposition, now the Prime Minister. The unemployment levels——

Mr. Speaker

Order. Will the hon. Gentleman bring his question to a conclusion?

Mr. Skinner

The speaker on that occasion was——

Mr. Speaker

Order. The hon. Gentleman is only stopping another hon. Member from being called because questions on the statement will finish at 4 o'clock. The hon. Gentleman is not asked to make a speech; he is asked to put a question.

Mr. Skinner

The date was 4 May 1977. The unemployment figure was just over 1 million. Cannot the Prime Minister hear the drum beats rolling telling her to get out?

The Prime Minister

That was a well-rehearsed supplementary question—very well rehearsed, and worked at very hard. I am not sure whether the hon. Gentleman is suggesting that British Leyland, British Steel and many other companies would have a better chance of being competitive if they were forced to take on twice as many people as they have now. They would not. They would have far less chance of being competitive. The best chance of getting better jobs is for each and every industry to do as Mr. Helmut Schmidt advocated—to be thoroughly competitive. Anything that the hon. Gentleman can do to increase that will be helpful, but I doubt whether we shall get much help from him in that direction.

Mr. John Farr (Harborough)

I congratulate my right hon. Friend on the initiative that she has announced. Will she assure the House that there will be no discussions on disarmament with the Russians until they have completely withdrawn their presence from Afghanistan?

The Prime Minister

I think that the NATO decision was that the discussions with the Soviet Union on disarmament regarding theatre nuclear weapons should start before the end of the year. Discussions on disarmament are continuing with the Soviet Union pretty well the whole time, but the purpose of this initiative is to try to reduce and get rid of one of the worst sorts of international tension—the occupation of Afghanistan by the Soviet Union.

Mr. John Roper (Farnworth)

Is the right hon. Lady aware that Members on both sides of the House welcome the initiative taken by the Foreign Secretary and supported by the European Council, to go to Moscow to try to deal with the problem of the Soviet invasion of Afghanistan since it is an essential precondition for any improvement in East-West relations? Will she look again at the question of the Council's involvement on disarmament? In 1979 the then Danish President of the Community spoke on behalf of the Community in the United Nations special session on disarmament. I believe that the Community can, on appropriate occasions—

Mr. Speaker

Order. The hon.Gentleman must ask a question.

The Prime Minister

I believe that the proper body to deal with disarmament matters is NATO.

Mr. Robin Squire (Hornchurch)

Did my right hon. Friend enjoy the experience—somewhat rare these days—of meeting Socialists who are both pro-EEC and pro-nuclear deterrent? On reflection, does she not find it a little strange that the President with those views appears to have been elevated to the pantheon of Socialist heroes?

The Prime Minister

I never cease to marvel at the variety of views held under the banner of Socialism.

Mr. Bob Cryer (Keighley)

In view of the Foreign Secretary's initiative in going to Moscow, will the Prime Minister be recognising the initiative of those winning athletes at the Moscow Olympics who have maintained contacts with the Russians and restore those awards which were so churlishly withheld?

When the Ministers were discussing Japan and her successful trading policy, did they take into account the fact that Japan spends less than 1 per cent. of GNP on defence and is not allowing research and development and ability to be sucked into foolish prestige projects such as Trident?

The Prime Minister

I note that the hon. Gentleman is anxious for the continuance of the honours system. We did not discuss it at the summit.

With regard to Japan, that is a point which I have put to the Japanese and in particular to the Japanese Prime Minister. Since they spend so little on defence, we might reasonably expect them to spend an unusually large amount on help to the less developed countries.

Sir Anthony Meyer (Flint, West)

Does my right hon. Friend accept that there will be great satisfaction on both sides of the House about the excellent relations that she has clearly established with President Mitterrand? Will she confirm that it remains the policy of her Government to work for agreed solutions within the EEC which, rather than idle boasts about going it alone, are the way to secure results favouring this country in matters such as Japanese car imports and fisheries?

The Prime Minister

Yes, I confirm that. It is far better on trading matters to work through the Community, and on other matters I believe that we should work with the Community for a solution which is equitable to all partners and which is not unacceptable to any one of them.

Mr. Ron Brown (Leith)

On the question of Afghanistan, why is it that the Prime Minister rejected Babrak Karmal's offer to negotiate on the question of Soviet troops earlier this year? After all, she received my letter regarding—Interruption.] Is this some cynical game, perhaps thought up by Ronnie Reagan? Or is this, on the other hand, a genuine attempt by the Government to try to resolve the issue of Afghanistan? We are all interested to know, and certainly the Afghan leaders are interested to know. Why has not the right hon. Lady or her Ministers attempted to get in touch with those leaders? Are they not important?

The Prime Minister

The hon. Gentleman should be neither surprised nor hurt that I have more faith and confidence in my noble Friend than in the hon. Gentleman.