European Council (Hansard, 1 July 1982)

§ The Prime Minister (Mrs. Margaret Thatcher)
With permission, Mr. Speaker, I shall make a statement about the meeting of the European Council which I attended in Brussels on 28 and 29 June with my right hon. Friend the Secretary of State for Foreign and Commonwealth Affairs. That meeting of the European Council was dominated—[Interruption.]

§ Mr. Speaker
Order. The House should listen to the statement that is being made. There will be no questions on it if we cannot hear it.

§ The Prime Minister
This meeting of the European Council was dominated by external problems of a political and economic kind. The texts of a number of conclusions were agreed and I have placed copies in the Library. They deal with the hostilities in the Middle East, economic relations with the United States, and the economic and social situation.
As is customary, the meeting discussed current political questions, notably the Middle East. We shared the intense concern at the situation in Lebanon, where the present ceasefire must be preserved and used to secure first disengagement of the forces in and around Beirut, and thereafter full implementation of the recent resolutions of the Security Council.
In the broader Arab-Israel context we continued to see no alternative to negotiations between the parties, based on the two fundamental principles of the Venice declaration: security for all States, including Israel, and justice for all peoples, including the Palestinian people.

§ Mr. Bob Cryer (Keighley)
On a point of order, Mr. Speaker. Two hon. Members are talking so loudly that I cannot hear the statement.

§ Mr. Speaker
Order. Everyone in the House should settle down and listen to the statement.

§ The Prime Minister
The European Council's discussion of economic relations with the United States reflected the concern that all of us felt about certain decisions taken by the United States Government. Their actions in respect of steel imports and the Siberian gas pipeline could have serious consequences, which everyone in the Community wants to avoid.
The European Council agreed that representatives of the Community should immediately contact the responsible authorities in the United States to see if an acceptable solution could be found.
The discussion of the economic and social situation was relatively brief. The European Council had already decided at its last meeting in March that industrial questions and unemployment should be a major theme at the meeting to be held in Copenhagen in December under Danish Presidency.
During yesterday's discussion the Governments of the member States, the Commission and the Council of Ministers were asked to take certain specific steps between now and December so that the next European Council will be in a good position to review this whole area of policy.
The question of the enlargement of the Community was discussed informally and we did not seek to reach precise conclusions. It is agreed that the negotiations with Spain 1042 and Portugal will continue and the Commission has been asked to make a list of the outstanding problems and to propose solutions to them.
All member States recognise that there are problems that must be solved in these negotiations. The position of the United Kingdom is clear—we want these negotiations to succeed as soon as possible and we shall continue to work towards that objective.
Finally, the Greek Prime Minister made a statement of his Government's reactions to a recent Commission paper about the position of Greece in the Community. This paper, together with the earlier memorandum on the subject by the Greek Government, is now to be studied by the Council of Ministers.

§ Mr. Michael Foot (Ebbw Vale)
The Prime Minister referred to Lebanon in her statement, and it was also referred to in the communiqué. We fully support the proposition that the Security Council's resolution should be backed and sustained. Can the Prime Minister give us any information on the response of the Israeli Government on that subject?
I am surprised that the right hon. Lady did not refer to the operation of the Luxembourg compromise and the veto. Before she left the summit meeting, did she raise the matter with the other Heads of State, and if so, what response did she receive? The Foreign Secretary had led us to believe that the matter would be discussed at the meeting. In any case, does the Prime Minister think that if is right for the matter to be formally established before there is any further movement on the proposal to secure a fisheries agreement? The veto might arise in that connection.
With regard to trading policy, we were glad to hear what the right hon. Lady said in answers to questions on the steel industry. Is it not the case that in some of the reports it is suggested that she has sought to soften the representations that were made on trading policy matters? Is there not a real danger of a trade war between the United States and European countries? We have major interests in the matter.
In the last day or two a statement has been made by a spokesman from the Department of Trade, who said: What we are seeing is an attempt to export unemployment from the United States to Europe, through the unilateral use of a protectionist weapon based on what we regard as an unreasonable and arbitrary definition of subsidy. Is that not the view of the British Government? If it is, should it not be pressed with all possible strength, as our steel industry and other industries are seriously affected?
I have some questions to put to the right hon. Lady on what she said about more general economic matters. She or the Council seems to envisage that a discussion on unemployment in general terms is not to come forward again to the Council until December. However, the situation is extremely serious.
I hope that I shall not be thought indelicate or discourteous to the right hon. Lady in quoting the right hon. Member for Sidcup (Mr. Heath), who had something to say on this matter. He made a few remarks some minutes ago, but he was in equally explicit form yesterday. He said that what was happening at the moment in the United States was more misguided than what has happened in the history of the Western Alliance. He was talking about the policies that were being pursued and their relationship to Western Europe as a whole and the United Kingdom in particular.
1043 The right hon. Gentleman continued: The vicious spiral of increasing budget deficits and high interest rates is deflating the entire world economy, throwing millions out of work and provoking a desperate race by Governments to subsidise exports in order to cling to what they can of the world's dwindling markets. Does the right hon. Lady agree with her right hon. Friend? I am sure that she does on this matter. If she agrees with him, as I am sure she does—I am certain that she will be eager to say so—does she not think that more much more urgent action must be taken to deal with a matter of such seriousness?
We hope that, far from being content with this statement, which seems, incidentally, to dissipate all the prospects held out at the Versailles summit a couple of weeks ago, the right hon. Lady will bring to the House next week a policy and programme for trying to get British proposals accepted for dealing with this world-wide crisis at a much earlier stage than December.

§ The Prime Minister
Let me deal with the four main points that the right hon. Gentleman has raised. The first is the serious situation in the Lebanon. There obviously has been no response direct to the Ten from Israel, but, as the right hon. Gentleman will know, it looks as though there is some hope that the PLO will leave West Beirut without any further fighting. If that could be arranged it would be very welcome.
The Luxembourg compromise was discussed in detail at a special meeting of the Council of Foreign Ministers. There was a good deal of support for the view of the British Government that, where a member State considers that a very important matter of national interest is at stake, voting should be deferred. I am well aware that that arrangement has been broken once in practice, but if the right hon. Gentleman goes right back to the initiation of the Luxembourg compromise in 1966 he will see that it was never universally agreed, although when we went into the Common Market we assumed that all highly important decisions would be taken by unanimity and not on majority voting.
Trading policy was discussed mainly under two heads. We discussed, first, the countervailing duties on steel. I agree with the right hon. Gentleman that, as far as we are concerned, the countervailing duties seem to be wrongly applied, because most of the assistance that goes to the British Steel Corporation now is to help to reduce productive capacity. A great deal, therefore, goes to redundancy payments, and that cannot properly be called a subsidy to output. It has been treated in that way, we believe wrongly, and we are taking it up both bilaterally and through the Community itself. The Community is pursuing this matter with the United States very vigorously.
With regard to the Siberian gas line, we have an interest because John Brown has a contract to deliver a certain amount of equipment to the Soviet Union. With regard to the announcements made by the United States, the right hon. Gentleman will have seen that my right hon. and noble Friend yesterday made an order under section 1(1) of the Protection of Trading Interests Act 1980. British firms that are adversely affected by the measures taken by the United States Administration are invited to make representations to the Department of Trade. I must agree with the right hon. Gentleman, and we take what has happened very seriously. Whatever measures are taken by 1044 a nation as far as ordinary contracts are concerned, existing contracts should always be allowed to be fulfilled in the proper way.
With regard to interest rates and the United States financial policy, I am very much against high deficits. I hope that the right hon. Gentleman is. High deficits lead to high interest rates and high public expenditure leads to high deficits. I am delighted to have the right hon. Gentleman's support.
With regard to unemployment, we had a considerable discussion at the last European Council and at Versailles. The right hon. Gentleman will have seen in the communiqué that the Council confirmed the conclusion that it reached in March regarding a co-ordinated policy for combating unemployment by promoting productive investment. He will see elsewhere in the communiqué that that can be promoted only by transferring resources, usually from consumption to investment, and increasing competitiveness and productivity as well as developing a Community industrial strategy based on a technology and innovation policy. These issues were discussed in detail and published in European Council documents. They will be further discussed in December.

§ Mr. Foot
I must ask the right hon. Lady to amplify one or two matters. In view of the extreme importance of the questions raised about the economic future by the right hon. Member for Sidcup, we shall be happy to stage a debate in which all can participate. Certainly the questions are so serious, if what the right hon. Gentleman says is true, that much more urgent action should be taken, and we should discuss them before the House rises for the Summer Recess. That is one request that I make to the right hon. Lady.
I think it is most extraordinary that the right hon. Lady made no attempt to comment upon the veto in her original statement. She may have said that it was discussed by the Foreign Ministers elsewhere, but what she has said today is not satisfactory thereto and we want a statement about that matter also. As for taking action to protect ourselves and British traders from unfair action from the United States, the right hon. Lady will certainly have the strongest support from the Opposition. I hope that she will not weaken the representations that are made by other countries.

§ The Prime Minister
With regard to high interest rates, to which I think the right hon. Gentleman is alluding, they are caused directly by a high deficit coupled with a low savings ratio. They are caused by the fact that the market does not believe that the reductions in expenditure that are going through Congress will be sufficient. If they were sufficient, the deficit would come down and interest rates would fall very quickly. In my view it is important that interest rates come down. I do not see how there can be a major recovery in the United States with the present levels of interest that are charged. The other way is to put up taxation. That was the way that we followed during our second year of office. We have been correct in getting down those high deficits. I am delighted that the right hon. Gentleman agrees with us.
With regard to the Luxembourg compromise, I said that opinions were always divided as they have been since this issue first came up at the instance of the French President in 1966. If the right hon. Gentleman goes back to those papers, he will see that there was never unanimous 1045 agreement on the use of the compromise. The matter was extensively discussed. There is disagreement about it. We believe that it is in Britain's interests still to retain the Luxembourg compromise.

§ Mr. Roy Jenkins (Glasgow, Hillhead)
Does the Prime Minister regard 1984 for Portuguese and Spanish entry as having slipped? Will she confirm that it is still the Government's view that such delays are highly undesirable in the interests of democratic stability in an important part of Europe?

§ The Prime Minister
A number of us had hoped that Spain and Portugal would come in before 1984. Many of us think that it is extremely important that they both come into the European Community for the reason that the right hon. Gentleman has given, which is to keep democracy in both countries. I have no doubt that that would be helped by their being full members of the European Community. With the present problems, we shall be doing quite well if we succeed in getting them in by 1984, but the Government hope that they will be in by that time.

§ Mr. Peter Tapsell (Horncastle)
Will my right hon. Friend bear in mind the fact that whatever view we may take of current American trading and financial practices, some of us believe that the United States Administration are right in believing that the pipeline deal with the Soviet Union is a most profound mistake which will greatly weaken the West since most of the large amounts of foreign exchange which the Soviet Union will earn as a result of it will be spent on armaments designed to destroy liberty?

§ The Prime Minister
Many people would agree with my hon. Friend. However, at the moment that is not the point at issue. The question is whether one very powerful nation can prevent existing contracts from being fulfilled. It is wrong that it should prevent those contracts from being fulfilled. It is also ultimately harmful to American interests because many people will now say that there is no point in making a contract for materials, machinery and equipment from the United States if, at any time, that contract can be cancelled. It is not, therefore, in their or our interests to stop those contracts being fulfilled.

§ Mr. David Steel (Roxburgh, Selkirk and Peebles)
What policy action is the Council of Ministers prepared to take to register the Community's disapproval of the continued presence and activities of the invading Israeli forces in Lebanon?

§ The Prime Minister
We have issued vigorous statements on the matter whenever we or the Council of Ministers have met. A further vigorous statement was issued this time. The fact remains that the country that is likely to have the most influence with Israel is the United States. We also make our views known to the United States.

§ Mr. Jack Ashley (Stoke-on-Trent, South)
Does the Prime Minister agree that our friends in Washington recently have not sufficiently appreciated the economic anxiety in Western Europe and that unless they change their attitude there is a real danger of conflict between the United States and its allies in Western Europe?

§ The Prime Minister
They now appreciate our anxiety, which is on three fronts—first, the continuation 1046 of high interest rates in the United States. They will say that they are trying to deal with them by reducing public spending. That will depend upon the decision that their Congress makes. Of course, it is not for us to tell their Congress how to act. It would be counter-productive if we did. Secondly, they are aware of our dismay at the duties that they have placed on steel. Both we and the Community are taking that matter up. Thirdly, we issued a strong statement about the termination of existing contracts.

§ Sir Hugh Fraser (Stafford and Stone)
Whatever the rhetoric of United Nations statements or communiqués, I hope that my right hon. Friend agrees that the most important thing now is to avoid further bloodshed in Beirut. To that purpose, her statement is welcome. I hope that the PLO will now face military reality and remove itself.

§ The Prime Minister
My right hon. Friend knows that many efforts have been made during the past three or four days to make arrangements for the PLO to leave West Beirut and the Lebanon, possibly by boat, if necessary with small arms. As my right hon. Friend will be aware, the difficult questions are, where do they go to, who will accept them and will they go to those places? That has still to be arranged.

§ Mr. Ernie Ross (Dundee, West)
Does the Prime Minister agree that, however late the President of the United States' statement was, the statement that he made today warned the Israeli Government that they do not have the tacit approval of the Americans to continue the genocide in the Lebanon? Does she further agree that now is the time to implement economic sanctions against Israel until she withdraws from Lebanon?

§ The Prime Minister
I also heard the statement to which the hon. Gentleman refers, in which the President of the United States made it perfectly clear that any further Israeli action in Beirut would not have the consent of the United States. He also said that he, too, hoped that it would be possible to make arrangements for the PLO to leave West Beirut and for there to be no further bloodshed. On the hon. Gentleman's second point, the Community is not signing a financial protocol with Israel but there was not agreement on whether further economic sanctions should be imposed.

§ Mr. John H. Osborn (Sheffield, Hallam)
Will my right hon. Friend bear in mind that the revival of the economy is the concern of both the Council of Europe and the European Parliament and that revival means the elimination of unemployment? Will she therefore establish guidelines or urge that guidelines be established as quickly as possible to deal with the problem? Does she agree that unemployment is the cause of recession in the steel industry—a mutual problem between the United States of America and Western European countries? When the next discussions take place, will she ensure that the interests of the private sector steel industry are looked after?

§ The Prime Minister
My hon. Friend is absolutely correct. That is why, when we referred in our communiqué to the problem of unemployment and to the need for more investment, we made it perfectly clear that productive investment was needed. Most of that investment occurs in the private sector, although there is some in the public sector. The Commission will soon produce a paper. We 1047 are aware that we must not spend so much in the public sector that we deprive the private sector of the finances that it needs to expand its activities.

Several Hon. Members
rose—

§ Mr. Speaker
Order. I propose to call four more hon. Members from each side. Thereafter, we shall proceed to the second statement.

§ Mr. Ioan Evans (Aberdare)
Does the Prime Minister agree that the problem of high interest rates and deficit in the United States affects the European economy and that it was brought about by the massive arms expenditure in which the United States is indulging? Will she therefore examine the Siberian pipeline in a different light? Does she agree that it would be better to improve trading relations between East and West—for there to be peaceful co-operation between East and West Europe? What is the EEC doing to ensure that the United Nations special session on disarmament will be a success?

§ The Prime Minister
There is nothing that I can usefully add to what I have already said about high deficits and high interest rates. Getting the one down will lead to the reduction of the other. With regard to the high deficit being caused by arms expenditure, the hon. Gentleman will also discover that there is an enormous projected increase for social services expenditure. The President intends to deal with that increase at the same time as reducing the deficit for two or three years. With regard to the Siberian pipeline, the President has expressed his view and we have confined our comments to what I have already said—that existing contracts should be allowed to be fulfilled.

§ Mr. Michael Latham (Melton)
When my right hon. Friend gave a positive reply to the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) about Spain entering the Common Market, did she forget about Gibraltar? Did she raise that matter in the Council of Ministers? Did she make it absolutely clear that the people of Gibraltar will not be sold out and that there can be no question of letting Spain into the Common Market so long as the border remains closed?

§ The Prime Minister
We are fully committed to the people of Gibraltar. There can be no possible change in the status or sovereignty of Gibraltar without the full consent of the people of Gibraltar. That has always been our position. I agree with my hon. Friend that Spain cannot enter the Common Market as long as her side of the border with Gibraltar remains closed.

§ Mr. Nigel Spearing (Newham, South)
In an earlier reply about the Luxembourg compromise, the Prime Minister referred to a meeting of the Foreign Ministers where she said that there was a view that matters should be postponed or deferred if there was disagreement. Was that postponement or deferment indefinite or just until the next meeting? Was that the unanimous view of all the Foreign Ministers present?

§ The Prime Minister
The hon. Gentleman has taken the word "deferred" as referring to something else. I said that there was a good deal of support for the British Government's view that when a member State considered that a very important national interest was at stake, voting should be deferred. That refers to the language of the 1048 original Luxembourg compromise—one does not come to a conclusion so long as there is disagreement between the States.
The main discussion on the Luxembourg compromise took place on 20 June. Opinions were divided. They have always been divided on the Luxembourg compromise. We continue to discuss it. We believe that it is in Britain's interests to continue the Luxembourg compromise.

§ Mr. Anthony Nelson (Chichester)
Is my right hon. Friend aware that she will receive widespread support for what she has said about conditions of contract? Does she agree that the principle of upholding the obligations of contracts in international trade extends far beyond the immediate issue of obtaining the turbines order for the Siberian pipeline? Will she employ whatever diplomatic channels are open to Britain to impress a more considered attitude on the American Administration in addition to the representations that are being made by the Community?

§ The Prime Minister
Yes, I have already made my own views on this known directly to the President when I spoke to him. I entirely agree that ordinary commercial contracts should be fulfilled. The only exception to that is if there are hostilities or war breaks out. On such occasions, with regard to military arms, we have asked other countries to hold up the delivery of arms and have ourselves done so, but that is a separate question from an ordinary commercial contract.

§ Mr. Sidney Bidwell (Ealing, Southall)
Has the right hon. Lady looked at the standard practices in the EEC regarding womens' rights as they apply to foreign husbands and the right to choose whether to go to the husband's country or to stay put to raise their families? Is it not ridiculous that in some instances women citizens of this country have to go to another EEC country where equality of spouses is standard practice? Will she consider the immigration debate on Monday, in which this matter was highlighted, and stop acting against the interests of women in my constituency?

§ The Prime Minister
I have nothing further to add to what was said in the immigration debate on Monday The specific point that the hon. Gentleman raised was not discussed at the European Council, but with the presence of Madame Flesch and myself, our fellow heads of Government and Foreign Secretaries will have been in no doubt whatever that women have rights.

§ Mr. John Browne (Winchester)
Does my right hon. Friend accept that the stated American deficit of $100 billion is grossly understated, as, when off-balance-sheet items are added, it is almost $250 billion? Does she agree that it is grotesquely misleading to try to blame a deficit of that size on the current American Administration? The Reagan Administration were quite obviously locked in to many of those deficit expenditures by the policies of past Administrations?

§ The Prime Minister
My hon. Friend is correct. Many of the increases now taking place arise from decisions taken previously and it is they which are partly giving rise to the enormously increased deficit. I agree that there is also a certain amount of off-balance-sheet financing. Indeed, that is a factor that we should remember when people say that we could remove things from the public sector borrowing requirement. That would not help, because the money still has to be found.

§ Mr. Michael English (Nottingham, West)
With regard to the possible admission of Portugal and Spain to the EEC, which was raised by the right hon. Member for Glasgow, Hillhead (Mr. Jenkins), has the Prime Minister conveyed her own and the country's appreciation to Portugal, our oldest ally, for its attitude in our recent war with Argentina? In the opposite sense, has she also conveyed our view of the malign and mendacious attitude of Spain? Will she bear both those factors in mind in relation to future events in the EEC?

§ The Prime Minister
I have personally thanked Portugal for its splendidly supportive attitude throughout the whole of the Falkands crisis. It was much appreciated by all our people. In the same spirit, we felt very resentful of the attitude taken by the Spanish, and they are in no doubt about that.

§ Mr. Bill Walker (Perth and East Perthshire)
On this very important day for Scots who wear the kilt—the anniversary of the wearing of the kilt—does not the matter of John Brown show clearly how important it is for this country to maintain research and development facilities and manufacturing capacity in the high technology areas on which Scotland is so dependent for export orders?

§ The Prime Minister
Yes, it does indeed, but I think that it is common practice in almost every country to manufacture good, high technology products under licence from other countries. As my hon. Friend knows, that is what has happened in this case. Therefore, we still need the export licence from the United States.