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European Council

With permission, Mr. Speaker, I should like to make a statement about the European Council in Brussels on 15–16 December. The main issue at this European Council was the European Union budget for 2007–13, the first budget ever for the enlarged Europe of 25 member states, soon to become 27 with the accession of Bulgaria and Romania. This country can be proud of the part that we played in the enlargement of the EU. The countries of central and eastern Europe that for so long suffered under communist dictatorship are now free democracies and vibrant new members of the EU. I say that to have championed the cause of those new states, to have welcomed them into NATO and Europe and then to have refused to agree a budget that protects their future economic development, would have been a betrayal of everything that Britain has rightly stood for in the past 15 years or more since the fall of the Berlin wall. They are our allies. It is our duty to stand by them. But it is also massively in our national interest. These new member states have fast-growing, open economies, new ideas, human capital and a political vision of Europe that is close to ours. However, although they are catching up economically, they are still much poorer than most of the original European Union 15; their people half as wealthy as in the rest of Europe. The purpose of the budget is rightly to transfer resources from the wealthiest west of Europe to the poorer east of Europe. Over the coming years, within a broadly stable budget, funds for the new member states will increase from €24 billion to €174 billion, a seven-fold increase. In time, of course, this makes them prosperous and us too. If we look at the example of Ireland and Spain, bilateral trade with those countries in goods alone is now more than €60 billion a year. Investment in the future prosperity and stability of eastern Europe brings big and lasting benefits to this country. The reason that it was so important to reach agreement at the European Council is as follows: as all central and eastern European leaders made clear to me, it was essential to have a December deal to allow those countries to plan and prepare for using the EU funds when those funds start in 12 months’ time. It was clear that the prospects for a deal next year were negligible, and, if there were to be no deal, then in 2007 the European Parliament would take over the budget process. That would mean the Parliament setting annual budgets, on the existing financial agreements, which would have meant that countries such as Poland would have lost around two thirds of their EU funds. That is why they wanted a deal now. Of course, there is also a need for fundamental reform of the EU budget. As I said in June, what we need is to settle the budget on the basis of everyone paying their fair share of the costs of enlargement now; and then to open up the prospect of a radically reformed budget midway through the next budget period. The agreement reached on Saturday morning differed from that of the Luxembourg proposal in four key respects. The overall budget is smaller. The proposal in June was that the UK rebate should be reduced in commitment terms by about €22.5 billion; under this deal, the maximum we shall pay is €10.5 billion. In the review clause in June, the common agricultural policy agreement of 2002 was specifically endorsed. Now it is clear that all aspects of the budget can be examined in 2008–09. However, crucially for Britain, this agreement states expressly—unlike that of June—that the British rebate remains in full on all expenditure in the original 15 member states. It remains in full on all common agricultural policy market expenditure everywhere in the Union, including in the new member states. We have, however, agreed to disapply a proportion of the rebate on structural and cohesion spending in the new member states—in effect, on the spending directly designed for economic development. As I have said, the cost of this is up to a maximum of €10.5 billion or about £7 billion over the next seven years of the financing period. Moreover, because the rebate stays on all common agricultural policy and all spending in the original European 15, the rebate will rise, not fall, to an average of €5.8 billion in payments terms annually from 2007. Overall, the rebate will get us about €41 billion back in the next budget period—substantially more than in this period. That is then the crucial leverage for future reform. As the strongest supporter of enlargement among all member states, I strongly believe that it was right—indeed, essential—that the UK should contribute properly to enlargement. The fact is that if we support and, indeed, drive through a policy of ending the post-war division of Europe, we have to be ready to accept our fair share of the costs of that policy. Enlargement was never, and could never be, a cost-free policy, and this Government are prepared to shoulder their responsibilities in this area, because it is the right thing to do. In this context, I want to dispel one misunderstanding that has arisen—the impression that only the UK is contributing to the costs of enlargement. All wealthier countries are contributing. In terms of net contributions, our contribution will increase by 63 per cent. over the next financing period in comparison with 2000–06. France’s contribution will increase by 124 per cent. Italy’s contribution will increase by 126 per cent. Spain will lose in the region of €40 billion. Moreover, after some 20 years of our paying, under the original rebate, twice as much as France, UK and French contributions will, from 2007, for the first time, be in rough parity. Because the UK economy is now bigger than the French economy, we will, in fact, on the Commission’s figures, be contributing a smaller share of our national wealth. Alongside this agreement on support for the modernisation of eastern Europe, we also agreed on a fundamental review of all aspects of the EU budget, including the common agricultural policy, to be led by President Barroso, with the recommendation that it begin in 2008. As the language in the European Council conclusions makes absolutely clear, it is then possible for changes to be made to this budget structure in the course of this financing period. This will also allow us to take account of any changes agreed in the World Trade Organisation round, including the decision to phase out all export subsidies for agriculture by 2013. In addition, it was agreed that any CAP spending for Romania and Bulgaria—about €8 billion—should be fitted within existing CAP ceilings, which is a significant budgetary discipline. So to summarise, when people ask what we got for agreeing to pay our fair share of enlargement, the answer is an agreement that sees us, for the first time since we joined the EU, paying no more than similar countries, such as France and Italy; the rebate staying put on all CAP spending and rising, not falling, in value; and a process that can, in the years to come, lead to the necessary fundamental reform of both rebate and CAP that we all want to see. I should report briefly that the Council also agreed on a strategic partnership between the European Union and Africa, on a new and strengthened policy on illegal migration and on a counter-terrorism plan. We also agreed that Macedonia should be granted candidate status—the next step in its path towards membership of the European Union. As a strong supporter of Macedonia’s ambitions, I want to congratulate the Macedonian Government on the progress that they have made towards that goal. The European Council also unreservedly condemned the Iranian President’s recent remarks about Israel and warmly welcomed the 15 December elections in Iraq as a further step towards democracy and stability in that country. Over the past six months, the UK presidency has delivered the historic launch of accession negotiations—[Interruption.] It has delivered the launch of accession negotiations with Turkey and Croatia—a long-standing British objective. We have delivered a number of important pieces of legislation, including the REACH—registration, evaluation, authorisation and restriction of chemicals—regulations and the data retention directive, which is an important measure against terrorism. We have delivered reform of the EU sugar regime and a strengthening of the EU position on climate change—[Interruption.]