European Council

– in the House of Commons at 3:32 pm on 21st June 2000.

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Photo of Miss Betty Boothroyd Miss Betty Boothroyd Speaker of the House of Commons

Order. Will Members who are leaving please do so quietly?

Photo of Tony Blair Tony Blair Prime Minister

With your permission, Madam Speaker, I wish to make a statement. Together with my right hon. Friends the Chancellor of the Exchequer and the Foreign Secretary, I attended a meeting of the European Council in Feira, Portugal, on 19 and 20 June. A copy of the Council's conclusions is available in the Library of the House.

I also had a series of meetings in the margins of the Council, with the Prime Minister of Belgium on illegal trafficking in people and football hooliganism, with the Prime Minister of Greece, Mr. Simitis, in the wake of the appalling killing of Brigadier Saunders, with the Spanish Prime Minister on economic reform, and with the French Prime Minister on French plans for their presidency.

The most contentious issue at the Council itself was the question of how best to tackle the problem of cross-border tax evasion within the European Union. For many years, the Commission, and indeed most member states, have argued that the best way to deal with that issue is through tax harmonisation—by requiring all countries to introduce a withholding tax on savings income paid out to non-residents. For our part, we have argued consistently that an EU-wide withholding tax would not only be seriously damaging for the City of London, but would be completely ineffective in tackling tax evasion. However, we have also made it clear through the long and complex negotiations that we fully agree with the objective of fighting international tax abuse caused by banking secrecy.

The outcome that my right hon. Friend the Chancellor and I achieved at Feira was fully in line with the principles and objectives we set out. It was, as I said yesterday, a personal triumph for the Chancellor. This is a comprehensive agreement, which fully protects the competitiveness of the City. All 15 countries have now agreed to accept exchange of information, not a withholding tax, as the way forward for the EU, and implementation of the European Union regime will depend on the progress made in agreeing similar measures with third countries and dependent territories. Even in the transitional period, only two of the 15 countries have said that they will definitely retain a withholding tax. This is an excellent agreement for Britain and for Europe, and it shows once again how the strategy of positive engagement in Europe both protects and indeed enhances the country's national interest.

That was also demonstrated at the last European Council at Lisbon, where we agreed a radical 10-year programme of economic reform for Europe. Since Lisbon, there has been progress in taking this agenda forward, including directives on electronic commerce and electronic money, agreement in respect of copyright, and new proposals on public procurement. At Feira, we agreed a charter for small enterprises, a new strategy on scientific and technological research and a hugely ambitious action plan on electronic Europe which will underpin efforts to create a dynamic knowledge economy in Europe. At the same time, we invited the Commission to accelerate work on the single market in financial services, energy liberalisation and aviation.

Heads of Government discussed the proposed charter of rights. I made clear my view that the charter should pull together in a single document the rights that European citizens enjoy, that it should be political in nature, not legally binding, and that it should not impose new legal obligations on member states. The House will welcome the fact that there was a good deal of support for that approach from other Heads of Government. The charter will be one of the main issues for discussion at the Biarritz European Council in October.

On enlargement, we agreed on the need to keep up the momentum in negotiations with the candidate countries.

On the European Union's preparations in the intergovernmental conference, we heard a progress report from the Portuguese presidency, setting out the options for re-weighting votes in the Council of Ministers in favour of the larger member states such as the UK, for reforming the size and structure of the Commission and for looking again at which issues should be decided by qualified majority voting.

We also discussed the arrangements agreed at Amsterdam to allow closer co-operation among a group of member states. Such arrangements of course already exist, for example in Schengen. We will need more such flexible co-operation in an enlarged European Union, but, in this context, the Council reaffirmed in its conclusions the need for coherence and solidarity in an enlarged EU.

We also made further progress on European defence. Close working links between the European Union and NATO are being put in place, together with special consultation arrangements with those European allies who are not in the EU. The priority now is on how Europe will deliver on the headline goal that we set ourselves at Helsinki, and that will be the focus of work in the next six months. We also adopted targets for the civilian aspects of crisis management, such as the provision of police officers.

Finally, we discussed a range of international issues—Russia, the Balkans, the middle east peace process, and Africa on which President Thabo Mbeki of South Africa addressed the Council.

The summit was, again, a successful one for Europe and the United Kingdom. I have no doubt at all that it is vital for British industry, British jobs and British influence that we continue the policy of constructive partnership with the European Union and, under this Government, that is precisely what we shall do.

Photo of William Hague William Hague Leader of HM Official Opposition, Leader of the Conservative Party

I start by welcoming several elements of the communiqué, including the commitment to the internal market and greater co-operation on tackling drugs. I congratulate the Prime Minister on one particular diplomatic triumph: after many years of difficult negotiation, carefully crafted compromises and repeated isolation, he finally got the Foreign Secretary and the Chancellor to talk to each other. Having said that he will not fight over every headline any more, he is leaving the job to those two, and they are extremely good at it.

I offer the Prime Minister our strong support for his reported attempts to stop incorporation into the treaties of the charter of fundamental rights. Must he not also ensure that it is not attached, even as an annexe, to the treaties; that it is not adopted in any way that could lead to it later becoming politically binding; and that it does not contain any new rights from those already discussed? Can he give all those assurances today? Will he comment on the fact that, while he has been trying to prevent it becoming legally binding, his Members of the European Parliament voted on 16 March to make it legally binding? When will he get an increasingly divided Labour party under control on this subject?

On the withholding tax, the Prime Minister has claimed success for the Chancellor over resisting something which, of course, he could have stopped at the very beginning. Has not a Commission spokesman said of the Government's comments that their "relentless spin" is "grossly misleading"? What a surprise.

Was it not a great mistake to continue at the summit down the path of an EU security and defence policy that is increasingly autonomous of NATO? The Prime Minister's assurances on the matter seem to be undermined by the comments of the French Minister responsible for European affairs, who said last week in connection with defence policy: We don't agree with the "Americanisation" of the world … We are saying that together we can build a new superpower … and its name will be Europe. Do not such comments suggest that those who say that there is no danger to NATO from the initiative are rather naive?

Will the Prime Minister comment on reports this morning that Turkey has indicated its intention not to allow NATO to lend weapons or equipment for the automatic use of the EU, and its statement that the decision taken at Feira is not the final one? Is there not a danger that the initiative is beginning to drive a wedge between members of NATO, of which we have always warned?

Midway through the crucial intergovernmental conference, was it not a unique opportunity to put the case for the type of Europe that the British people want to see? Was it not the ideal time to set out a comprehensive vision of a Europe that is more flexible, outward looking and reformed? Why did the right hon. Gentleman not stand up at Feira for the vision of a more flexible Europe in which nation states can work together? Is it not time that he put the case for greater flexibility, given that he was apparently ambushed by President Chirac and Chancellor Schroder, who told him that they would proceed with closer integration themselves, whether he liked it or not? Why does the Prime Minister instead continue to be carried further down the alternative, integrationist route? Why, after Feira, is a further loss of the British veto on European legislation still on the cards? Why is the French presidency still poised to launch an ambitious so-called social agenda, as it has promised? Why will rights and powers continue to be lost from our national Parliament?

Why, after the summit, is there still no specific timetable for enlargement? The Prime Minister claimed yesterday that the IGC agenda was focused on the reforms necessary for enlargement, so why is he not pressing for reform of the policy which, more than anything else, is holding up enlargement—the common agricultural policy? Why, after all the talk, is real CAP reform still not on the agenda?

One issue was noticeable by its absence from the statement: the single currency. The Prime Minister has now issued a helpful clarification, saying that he is in charge of the Cabinet; now that he is in charge, let him tell the country where he stands. Does he agree with the Foreign Secretary and the Secretary of State for Trade and Industry that the Government should be putting the case now for the euro; or does he agree with the Chancellor and the Minister for Europe that they should not? Does he agree with the Chancellor's assertion that the Treasury is the guardian of the so-called five tests, or with the Deputy Prime Minister, who immediately contradicted that assertion? Perhaps he agrees with the Secretary of State for Northern Ireland, who is reputed to have told friends that the Chancellor has a territorial fetish about the euro. All those Ministers agree that they want to scrap the pound, but they cannot agree on whether to do it openly or by stealth.

In the meantime, the cases for real reform in the EU and for flexibility are not being put, so the case for ever-further European integration is winning by default. While the Cabinet is busy tearing itself apart, Europe continues to move in the wrong direction.

Photo of Tony Blair Tony Blair Prime Minister

The one advantage of all that is that the right hon. Gentleman has tried to put forward some policies of his own. It is worth analysing them.

Incidentally, on the question of divisions among Members of the European Parliament, I spoke to one or two MEPs from both the Conservative and the Labour groups. The one point on which they were agreed is that there is no group less disciplined and more disunited than the Conservative group in the European Parliament.

Let me go through the right hon. Gentleman's policy positions. First, it is absolutely clear from his remarks that he would block defence progress altogether. He says that the defence initiative that we have undertaken is in danger of dividing people and pulling NATO apart. NATO has endorsed the defence initiative—it is in favour of the defence initiative—for a perfectly sensible reason: it is an initiative to be undertaken when NATO does not want to be engaged in peacekeeping and humanitarian tasks. It is fully accepted by everyone that that is sensible. If we opted out and took no part in the debate in Europe, it would be run by those who are hostile to the whole idea.

The right hon. Gentleman says that we never needed to fight the withholding tax. Only a few months ago, the shadow Foreign Secretary said: The debate is no longer about whether the withholding tax is going to be imposed on Britain. It is now simply about how much damage it will cause and to whom— so the right hon. Gentleman might have been a little more gracious. Now we see the important difference between our two parties. He would say that we should have vetoed the measure right from the start. It is true that we could have done so, but, as a result, on every other issue on which we needed other countries' support to get things done, we would not have had their support, because we would not have put our case positively or constructively, or argued for it, but simply wielded the veto and then found the veto used against us in ways that we did not like.

The right hon. Gentleman goes on about the policy on the euro being somehow by stealth, but the Government are committed to a referendum on the euro. He will not allow people a referendum on the euro in the next Parliament, even if it were in the interests of British jobs, industry and investment. If he rules out the euro on principle for the next five years, why not rule it out for ever? The truth is that he has a principal policy position, which is to rule out the euro for the next Parliament, but to contemplate it for the Parliament after that. I cannot imagine anything more foolish as a policy for this country.

The right hon. Gentleman wants us to go faster on enlargement—that is what he said. His policy is to renegotiate the treaty of Rome and to block the treaty on enlargement until that renegotiation is followed through. He is shaking his head, but the right hon. Member for Horsham (Mr. Maude) is nodding. The policy of the Leader of the Opposition is to block enlargement. To achieve that renegotiation, he needs every other state in the European Union to agree. Not one agrees with him. In other words, he would have to go to a European summit to block the very enlargement that he has the cheek to stand at the Dispatch Box and tell me that he wants more of.

As for the extension of qualified majority voting, we know why the right hon. Gentleman has come up with that policy. Let me ensure that I have it right: any extension of qualified majority voting results in a referendum. Is that right? [Interruption.] This is the only way to get policy out of the Conservatives. One has to resort to cross-examination. Therefore, any extension of that voting would result in a referendum.

The shadow Foreign Secretary also said that, if this Government agreed to a treaty at Nice, he would reopen negotiations if the Conservatives were elected and, presumably, he would have a referendum on that. Doing so would put the entire position in Europe in a state of complete chaos.

How come any extension of qualified majority voting deserves a referendum? When the right hon. Gentleman and other individuals on the Conservative Benches were all Ministers at the time of the Maastricht treaty, they denied the British people a referendum. The largest extension of qualified majority voting was agreed by a Conservative Government, first in the Single European Act and secondly at Maastricht—but there was no referendum. The Conservatives have done that because Mr. Sykes has come along with his money and made them do it. If anyone believes that it was a coincidence that that new policy was announced one day and that Mr. Sykes divvied up the money the next, they must be very naive indeed.

Now, there is one major difference between us on Europe, quite apart from everything else. The policy of the Labour party and of the Government is not for sale; the policy of the Conservative party is.

Photo of Charles Kennedy Charles Kennedy Leader of the Liberal Democrats, Leader of the Liberal Democrats

The Prime Minister shares the incredulity of many hon. Members of all parties that the much-vaunted new referendum come-what-may approach of the Conservative party did not even merit a question from the Leader of the Opposition between last week and this week, which probably tells us all that we need to know about consistency from that quarter where Europe is concerned.

On the withholding tax, does the Prime Minister agree that the welcome progress that the Government have made, both before and after the summit, must be followed up at a more global level as well as closer to home? What further proposals do the Government have to help to bring pressure to bear on offshore financial centres that operate within our jurisdiction to make good the progress achieved?

On the charter of rights, given that the right hon. Gentleman has said that the "gravity" of opinion is now swaying in a British direction, does he agree that, as the European convention on human rights has already been incorporated into Scots law—a considerable issue with which to grapple—and that that prospect is forthcoming for English law later this year, there may well be an argument for the EU as a body subscribing or becoming a high contracting party to the ECHR? If we are to move in that direction, rather than the charter direction, we believe that there is a strong case for a proper written constitution for Europe that clearly delineates the powers, responsibilities and jurisdictions of all levels within the EU. Does he agree, and is that something that the Government will further consider?

Finally, on the euro, if the message—largely credible—of the summit was that, where Britain engages rationally and positively, effective influence can be exerted, does not the same argument apply to the development of the eurozone and our participation in it? Given that our influence is virtually nil because we do not subscribe beyond the position already adopted by the Government, whose words have been mixed words of late, does the Prime Minister recognise that those of us who favour increasing engagement in the argument are worried that the headcase tendency wants to take this country out of Europe? Membership of the euro is but a fig leaf for that argument. The danger is that the prepare-and-decide policy espoused by the Government is beginning to look very much like the wait-and-see policy of the right hon. Gentleman's predecessor. Will the Prime Minister at all costs resist the temptation to follow his predecessor's lead, which we know ended in tears?

Photo of Tony Blair Tony Blair Prime Minister

Let me revert for a moment to the headcase tendency. I meant to say that it is truly bizarre that the Conservative party is committed to a referendum on any extension of qualified majority voting, even a minute extension, but will not offer an opportunity for a referendum on the single currency in the next Parliament.

On the withholding tax and exchange of information on tax issues, yes, it is important that we pursue that. One of the most important aspects of the agreement that was secured is that we are pursuing, in parallel, exchange of information at an international level with countries such as the United States and Switzerland. That is important. Exchange of information, greater transparency and an end to banking secrecy are all worthwhile objectives, because they help to make sure that people pay the tax that they owe. However, it is important that we do not end up with the EU adopting rules to that effect, and find that, in a global economy, money simply goes to tax havens elsewhere. That is why we must pursue the matter at an international level.

On the charter of rights, I do not take the view that the Conservative party takes. It is sensible that we have a strong commitment to human rights and liberties in the European Union. We need to make sure that that does not unintentionally result in new laws which we in this country have not had an opportunity to scrutinise properly. We must guard against that.

With respect to positive engagement, this country's position is far stronger in Europe than it has been for many years. [Interruption.] Conservatives Members said that we just give in. That is after a summit at which the others changed their minds on the withholding tax; we did not change ours. Conservative Members cannot get their minds round that.

On the eurozone, we play a constructive part now in European economic policy. In one sense, because of the Lisbon economic summit, we have been leading the debate on that, along with other countries. It is important that the five economic tests are met for successful British participation. The position of the previous Government was not the previous Prime Minister's fault. Some members of his party were in favour of the principle of the single currency and some were wholly opposed to it.

That is not the present situation. We are in favour of the principle of British membership of a successful single currency but, for it to work, the five economic tests must be met. That is a sensible, pragmatic position. It allows us to make the tests, as the vast majority of the British people would want. Moreover, by allowing people the final choice in a referendum, our position is democratic as well.

Photo of Mr Giles Radice Mr Giles Radice Chair, Treasury Committee, Chair, Treasury Committee

After the breathtaking lack of generosity on the Conservative side, may I congratulate my right hon. Friend and the Chancellor on their success in getting the European Union to accept that tax evasion should be tackled on the basis of exchange of information, rather than through a withholding tax? In his view, would the same excellent result have been achieved if, instead of using patient and tough diplomacy, we had threatened to use the veto?

Photo of Tony Blair Tony Blair Prime Minister

No, it would not. The tragedy of the Conservative party's position is that, despite what people say has been its tradition, for the first six or seven years, even under Margaret Thatcher, it was prepared in the single European market, for example, to combine effectively with other countries. Indeed, it gave up a larger extension of qualified majority voting power than has been done since, apart from under the Maastricht treaty, which it signed.

It is so obvious that when we are in co-operation and partnership with 14 other countries, the sensible way to get the best for one's own country is to form alliances, to engage constructively and to be positive. That approach yields results for this country.

The Conservative party would now be blocking the very enlargement that is the next focus of the European Union. [Interruption.] It is no good Conservative Members saying that they would not. They are committed to blocking enlargement unless they renegotiate the treaty of Rome, and they cannot point to any country that is prepared to agree with them on that. The dangers of a destructive approach are not only connected with Europe; a destructive, negative approach to Europe is a betrayal of the British national interest.

Photo of Peter Tapsell Peter Tapsell Conservative, Louth and Horncastle

Does the Prime Minister recognise that, although virtually no serious politician is advocating that Britain should leave the European Union, British public opinion is steadily moving in that direction, and that that movement will become an irresistible political flood unless the steady erosion of British democratic sovereignty is seen to be ended?

Did the right hon. Gentleman at the European Council over the weekend, and will he at Nice when the next treaty is being negotiated, make it clear that Britain will not permit any further extensions of majority voting, and that we shall retain our right to protect our vital national interests, as was promised to us in the 1972 referendum, by retaining our power of veto where we believe that our national interest is threatened?

Photo of Tony Blair Tony Blair Prime Minister

I suppose that it is of some consolation to the hon. Gentleman that increasingly he is the voice that represents where the Conservative party is today. He says that the tide of opinion is moving in the direction of withdrawal from the European Union. I do not think that that is true, and I believe that it would be disastrous for the British people.

Three million jobs are dependent on the EU. More than 50 per cent. of our trade is with the EU. When the hon. Gentleman says that any qualified majority voting is a bad thing, I beg to differ with him. It is important in certain instances, especially in the completion of the single Europe market. That could not be completed unless we had qualified majority voting rather than a veto. In areas such as tax, defence or social security, I shall fight hard to retain the veto. Elsewhere, I shall consider what is in the British national interest. I regard the Single European Act as being in the British national interest, as is the single market. It would be wrong for the United Kingdom to divorce itself from Europe. Whether that is popular or unpopular, we should continue saying it if we truly have the best interests of this country at heart.

Photo of Bill Rammell Bill Rammell Labour, Harlow

Does my right hon. Friend share my sense that Conservative Members have never been as quiet following a European Council statement, perhaps indicating that over the withholding tax their fox has been shot? Does he agree that having referendums on every issue that comes out of the forthcoming intergovernmental conference would bring the business of the European Union to a standstill and would delay enlargement indefinitely? Is it not the case that the Tory party's stance on this issue has nothing to do with national interest and principle and everything to do with the £20 million that is on the table from Paul Sykes?

Photo of Tony Blair Tony Blair Prime Minister

That is right. Mr. Sykes has made it clear that he believes—he is entitled to do so—that Britain should get out of the European Union. He has made it clear that he wants and requires a referendum on any extension of qualified majority voting and on any treaty that is agreed at Nice. The Conservative party has now agreed to those policies. However, they would be disastrous policies for the country. We would be a laughing stock in the rest of the world if we ended up saying that any extension of qualified majority voting would result in a referendum of the entire British people. If we went one further, which is what Conservative policy is now, and said that we would block enlargement unless there were a renegotiation of the essential treaty—[Interruption.] Conservative Members say that they will not do that.

The Conservatives' policy is to go for a new position under the treaty of Rome where, as the Leader of the Opposition said, one can pick and mix and match any policy one wants. I cannot think of even another conservative party in Europe that supports such a thing. I do not know whether any Opposition Members can. If there is not even a conservative party that supports that, and there is no Government who support that, it will not happen. Yet the right hon. Gentleman's position is that he would block any treaty on enlargement unless such a provision were agreed to. It is impossible to think of a more irresponsible and foolish policy. In my view, it is directly linked to those people who now fund the Conservative party.

Photo of David Curry David Curry Conservative, Skipton and Ripon

Is there any aspect of the eventual decision whether to join the euro that depends upon political as well as economic judgment?

Photo of Tony Blair Tony Blair Prime Minister

The short answer is that the tests are economic tests. We have resolved the political issue. Of course, there are political implications. There are constitutional implications. But each of those has been resolved by the Government. [Interruption.]

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Speaker of the House of Commons

Order. I wish that right hon. and hon. Members on the Opposition Front Bench would not cry out. I expect better behaviour from those on the Front Bench.

Photo of Tony Blair Tony Blair Prime Minister

In the Chancellor's October 1997 statement all those issues were resolved, which is why we have said that, in principle, successful membership of the single currency is in the British national interest. We have also said, rightly, that if the test is the national economic interest, those five economic tests have to be met. That is a sensible position. It allows us to engage constructively. I simply say—I imagine that the right hon. Gentleman agrees—that if the Government, or any Government, were to say that we were ruling out the single currency, there would be a flood of inward investment out of this country virtually overnight.

Photo of Mr Roger Casale Mr Roger Casale Labour, Wimbledon

Does my right hon. Friend agree with the conclusions of the report of the European Scrutiny Committee on the intergovernmental conference that, as institutional reform is an essential precondition of enlargement, the IGC should focus specifically on the institutional reform issues left unresolved at Amsterdam, so that enlargement can take place?

Does my right hon. Friend have an answer to the shadow Foreign Secretary, the right hon. Member for Horsham (Mr. Maude), who, in last week's debate before the Council meeting, asked what was the point of seeking constructive engagement, of trying to reach consensus and of further institutional reform of the EU at this stage? Many Labour Members were left with the distinct impression that many Opposition Members failed to see the point of the EU at all.

Photo of Tony Blair Tony Blair Prime Minister

The point of enlargement is clear. This country has entered into a binding commitmen to help enlargement. As the EU enlarges, it simply makes no sense whatever for us not to debate and then decide the key things that have to change to make enlargement work. If the EU expands from 15 to 20 or 25 countries, it will obviously be important to take account of that in the institutions of the EU. That is why the intergovernmental conference is necessary, and that is why it would be completely irresponsible to block it.

Photo of Michael Howard Michael Howard Conservative, Folkestone and Hythe

Why is the Prime Minister so implacably opposed to a flexible Europe? Why do we not say to our European partners, "We don't want to stop you doing what you want to do, as long as you don't make us do what we don't want to do"?

Photo of Tony Blair Tony Blair Prime Minister

I am not opposed to a flexible Europe at all. As I said in my statement, enhanced co-operation must be part of our discussions in the European Council in Nice. What I am opposed to, however, is Britain opting out to the slow lane in a two-speed Europe, and letting other countries determine the circumstances in which we can then join the fast lane. That has been one of the great dangers of British foreign policy towards Europe for a number of years. I am all in favour of enhanced co-operation, but I want to know its terms and rules, and I want to make absolutely sure that in determining that, we do not opt out of the debate and then find that others have determined how Europe develops, and that we have lost influence in it.

Photo of Mrs Alice Mahon Mrs Alice Mahon Labour, Halifax

Did any discussions take place on the increase in killings and kidnappings and the continued ethnic cleansing of minorities in Kosovo that was almost certainly carried out by the Kosovo Liberation Army, now called the Kosovo Protection Corps? Did any discussions take place on the discovery of the huge cache of arms approximately half an hour from Agim Ceku's headquarters? Will the KLA be allowed to ethnically cleanse Kosovo?

Photo of Tony Blair Tony Blair Prime Minister

There was an extensive discussion on Kosovo in the summer. There are significant problems with some of the extremists on the Kosovan side who attempt to drive Serbs from their homes. However, we should not ignore the fact that enormous progress has been made in Kosovo, despite its difficulties. We should never forget that if we had not taken action in Kosovo, 1 million more refugees—genuine asylum seekers—would be touring Europe.

We have much more to do; the United Nations force is working hard with the civil authorities, which are in a position to help to run the country. We are doing everything we can to prevent the sort of extremism to which my hon. Friend referred. However, it would be wrong for people to think that the whole of Kosovo was marked by such outrageous and wrong disturbances, and by elements of ethnic cleansing. On the whole, the new administration is settling down; elections will be held and there is every possibility of a stable future for Kosovo. It is obvious that the UN force will have to stay there for some time. However, I emphasise that if we had not taken action, the position would have been much worse.

Photo of Bill Cash Bill Cash Conservative, Stone

Does the Prime Minister accept how deeply the Turkish Government were offended by events in Feira at the weekend? Does he know that one of the greatest problems that faces European defence and security policy is the issue of secrets between us and the United States of America within NATO? How will he deal with that question? Has he discussed it with President Clinton? Has he reached a solution? In the light of increasing movement towards a common foreign, security and defence policy, how will he find the resources that should be made available for the sort of policy that he is pursuing? Average defence spending is 2.5 per cent. of gross domestic product, and to achieve the objectives, not only would that figure have to be increased to between 5 per cent. and 7 per cent., but the whole of Europe would have to be taxed on a massive scale.

Photo of Tony Blair Tony Blair Prime Minister

The trouble is that one knows that the hon. Gentleman is simply opposed to anything that comes out of Europe. The defence proposals are for peacekeeping and humanitarian missions in circumstances in which NATO does not want to be engaged.

Photo of Bill Cash Bill Cash Conservative, Stone

The Prime Minister knows that that is not true.

Photo of Tony Blair Tony Blair Prime Minister

It is true. It is sensible for the European Union to have that facility. It is extraordinary if we are always in a position whereby even if the United States of America does not want to be involved, Europe has no capability for peacekeeping and humanitarian missions. The matter will be decided by unanimity. We take the lead in that debate and we are shaping it in the right way. There are issues that relate to intelligence; I have no doubt that they can be resolved. As I said earlier, both NATO and the United States support the initiative.

If we did not support the initiative but turned our back on it, what would happen? There would still be a common defence policy and a common security policy in Europe, but this country, which probably has as much to contribute to such a policy as any other European country, would not be part of the debate and the discussions. I emphasise to Conservative Members a point that would be immediately recognisable to any Conservative Prime Minister of the past 30 or 40 years: if we do not co-operate positively and constructively in Europe, this country suffers. We gain nothing by isolation or by being at the margins. If we engage in such a policy, we undermine the very national interest that we want to advance.

Photo of Mr Tam Dalyell Mr Tam Dalyell Labour, Linlithgow

Was Wim Duisenberg right or wrong to suggest that there was a window of opportunity for entering the euro, and might a decision not to join now be an historic mistake of Messina-like proportions? Will my right hon. Friend look at the case study of the Inveresk Paper Corporation, which has plants in the Chancellor's constituency and in mine? The company is very efficient and used to export to Europe, but finds that the strong pound makes that impossible. Not only that, but its home markets are now invaded by Europe, driving people to extraordinary lengths to maintain a traditionally important industry.

Photo of Tony Blair Tony Blair Prime Minister

I do not believe that any issue concerning the exchange rate on a day-to-day basis can be a reason for joining or not joining the euro. We have to take a longer-term perspective and ensure that the economic tests and conditions that have been set out are met. The principal criterion is sustainable economic convergence. When one studies Wim Duisenberg's comments carefully, one sees that he believes, of course, that there is an opportunity for the United Kingdom to join the euro, but that it is important for the economic conditions to be right, and they are not right at the present time.

We have taken the sensible position, which is to prepare for the euro, to agree in principle that Britain should be part of a successful single currency, but to ensure that, as I said yesterday, we do not repeat the mistakes with the exchange rate mechanism and join in circumstances in which the economic conditions are not right. That is why our position is in the long-term interests of British industry.

Photo of Crispin Blunt Crispin Blunt Conservative, Reigate

When the Prime Minister tells us that he will agree to a charter of fundamental rights that is political in nature, but not to one that is legally binding, is he not being a little naive, as experience tells us that such politically aspirational documents are used by the European Court of Justice as a guide for the judgments that it makes?

Photo of Tony Blair Tony Blair Prime Minister

I think that at one point I was told that I was being naive over the withholding tax. The important thing about the charter of rights is that it is not legally binding. We will have pretty broad support on it from most other countries in the European Union Fifteen, and I think that people can exaggerate the dangers hugely. We have to deal with the question of whether the European Court of Justice could, by some side wind, end up extending our national legislation, or whether we can ensure that that avenue is closed off, which I believe we can.

Photo of Mr Paul Marsden Mr Paul Marsden Labour, Shrewsbury and Atcham

I welcome my right hon. Friend's statement and I congratulate him, the Chancellor and the Foreign Secretary on their achievements at the European Council. What progress has been made to bring to justice the killers of the British military attaché in Greece, and to prevent another such atrocity from being committed in the future?

Photo of Tony Blair Tony Blair Prime Minister

First, let me repeat what I said yesterday—that we extend every sympathy to the family of Brigadier Saunders following this appalling terrorist act. I had a long discussion with the Greek Prime Minister about the measures that Greece is taking to find those responsible. For our part, we have said that we will co-operate with the Greek Government in any way, including giving them help—as we, unfortunately, have our own experience of dealing with terrorists. We will give any help that we possibly can to bring those people to justice. Brigadier Saunders committed himself to his country and did very valuable work for it, and it is an absolute tragedy that his life was cut short in that way.

Photo of Mr William Ross Mr William Ross UUP, East Londonderry

Will the Prime Minister consider using the term "murder" instead of "killing" for such terrorist acts, because the word "killing" tends to sanitise them in a way that the people of this country will not understand?

Will the Prime Minister also reflect on the fact that, although our continental companion countries had a problem that led them to come up with the idea of a withholding tax, that is not the only means of cross-border tax evasion in the European Union? Is he aware of the huge sums that are being laundered following the cross-border smuggling of fuel between Northern Ireland and the Irish Republic, which is spreading, I believe, throughout the United Kingdom?

The problem of the differing rates of duty on tobacco and alcohol of late has led to similar problems in the south of England, at tremendous cost to the Exchequer. Has the Prime Minister discussed those matters with the Government of the Irish Republic over the past few days, and what action do the Government intend to take to end such smuggling operations?

Photo of Tony Blair Tony Blair Prime Minister

As the hon. Gentleman will know, the Treasury has published proposals to address the smuggling issue. Of course I understand the concern about petrol price rises—although it is not unique to the United Kingdom. It is fair to say that in the past year, the biggest rises have really had more to do with the price of oil than with fuel duties. None the less, there is a price differential between Northern Ireland and the Republic of Ireland. However, we have other benefits in our country. It is important to recognise that although it was painful to raise duties in that way, it was necessary to do so because of the very large deficit that we inherited. I do not believe that interest rates would be at 6 per cent. today if the public finances were not in such sound order.

Photo of Dr Alan Williams Dr Alan Williams Labour, Carmarthen East and Dinefwr

What is our European partners' view of Britain's membership of the single currency? Are they enthusiastic, or even impatient, that we join? Does my right hon. Friend agree that once we are well in line with the convergence criteria, there will still be interest rate and exchange rate problems that rule out early entry? Although the euro has strengthened by 10 per cent. against the pound in recent weeks, do we not need a similar strengthening in the next year or two? In a sense, would not the general election, and the referendum, be better later rather than sooner?

Photo of Tony Blair Tony Blair Prime Minister

The point that my hon. Friend makes is of course right, and shows why it is important that the economic tests are met. There is a convergence in long-term interest rates between us and the eurozone—between the United Kingdom and continental Europe. I think that this is the first time in my lifetime that that has happened. It has happened as a result specifically of the monetary and fiscal policy and measures that have put our country's economy on the strongest footing that we have had for several decades. However, there is still a short-term interest rate differential, and there are also the issues that my hon. Friend has raised. That is why, as I said, it is important that whatever the position in principle, in practice the economic tests have to be met.

Photo of Sir Geoffrey Johnson Smith Sir Geoffrey Johnson Smith Conservative, Wealden

The right hon. Gentleman seems to think that once the economic standards are met and we join the euro, that will be the end of the matter. In his mind, other tests—such as the political one, and, some would say, the constitutional one—do not seem to be a problem. Can he correct any false impression that he has given today that he does not realise that joining would entail such implications?

Photo of Tony Blair Tony Blair Prime Minister

Yes, I think that I can correct any false impressions. I am not saying that there are not political or constitutional issues. I am saying that as far as we are concerned as a Government and as a political party, we have resolved the constitutional issue in this way: we do not believe that there is a constitutional barrier to a single currency. If one believes that there is a constitutional barrier to a single currency, one's policy on joining should be "never". What is absolutely absurd is for Conservative Members to say, "Never—for five years."

I do not doubt that there will be a big debate, politically and constitutionally, on the single currency; of course there will. That is the very reason why, on an issue of this importance, we have said that there has to be a referendum. Therefore, if we recommend to people, should we be re-elected, that we should join the single currency in the next Parliament, there will be a referendum on that subject. I have no doubt that people will make their political and their constitutional points. All I am saying is that, as far as we are concerned, the key test is the economic one of whether joining is good for British jobs, British industry and British investment.

As I said, in my view, for any United Kingdom Government to rule out membership of a single currency would have a devastating effect on this country's power and influence and on jobs and industry within the European single market.

Several hon. Members: