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Mr. Alex Salmond (Banff and Buchan): I agree with the Foreign Secretary that the European Union is and should be more than a free trade area, but may I bring him to the specifics of the intergovernmental conference? A few months ago, the Prime Minister told the fishing industry that resolution of the flags of convenience scandal was his first priority at the IGC. A few weeks ago, however, we were told that the 48-hour week had become the major priority. I wish to ask a simple question: if the Prime Minister succeeds in resolving the flags of convenience issue, will he still block agreement until he gets his way on the 48-hour issue?

Mr. Rifkind: We have spellt out a number of crucial objectives, of which the issue that interests the hon. Gentleman is one. It is not necessary to add to that now. We have said that those are crucial matters and the conference cannot come to a conclusion unless all members are satisfied with the outcome.

Even in the area of commerce, the EU is much more than a free trade area. But its benefits are also felt in many areas not directly related to the market, such as increasing co-operation in the fight against international crime, higher environmental standards and an increasingly confident European voice on the world stage. The common foreign and security policy does not replace national foreign policy, but complements it. That works to our advantage, as other European countries' views on many issues are very close to ours, and a common European policy where it applies can exert greater influence than the UK could achieve on its own.

Above all, the European Union is the basis on which we can consolidate democracy and prosperity across the whole of Europe, including our central European neighbours.

Opponents of British membership of the EU like to argue that we joined a mere common market that has insidiously developed a political agenda. That is nonsense. The European Union has always had a political as well as

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an economic purpose. Britain recognised that very clearly when we went in: indeed, it was a central consideration behind our application for membership.

Mr. William Cash (Stafford): Yesterday, my right hon. and learned Friend the Chancellor of the Exchequer said that he had no objection in principle to the idea of a single currency. My right hon. and learned Friend the Foreign Secretary, in reply to me in the European Select Committee in February when I pressed him on economic and monetary union, said that he did not follow my point that it was a question of principle. Does my right hon. and learned Friend not accept that there is a basic and fundamental inconsistency in the views expressed on the question of principle by the Chancellor and by himself? Does he agree that that is causing a great deal of uncertainty and confusion, that the matter should be resolved, and that it should not be construed as dissembling?

Mr. Rifkind: I have no doubt whatever that the question of a single currency and the possible abolition of our national currency would be a great historic decision. It would probably be irreversible, so it is right that it should be addressed as one of the most important matters to be considered by a British Government for many years. I believe that every member of the Government believes that it is of crucial significance. It is therefore right to ensure that the issue is addressed with regard both to its economic implications and its wider consequences--the national decision making that we currently enjoy and the extent to which that might be diminished in the event of a single currency.

Mr. Norman Lamont (Kingston upon Thames): I should like to return to what my right hon. and learned Friend was saying about the European Union's functions and ask him a question that an ambassador of this country asked me. He asked me to explain to him why it was necessary for the European Union to have more than 120 embassies--or "delegations" as they are called--around the world at a cost of £150 million per year. Is it really necessary, given the European Union's functions, to have that degree of representation?

Mr. Rifkind: I would not necessarily wish to defend the exact number as it currently applies, but the European Union has overseas aid programmes in many countries and needs to implement those programmes through local offices. It is also responsible for handling the external trade policies of all its member states. Those external trade negotiations cannot be conducted without a physical presence in countries such as Japan or many other countries with a crucial involvement in trade matters. So while I am not inclined to justify every area of expenditure or every office, I acknowledge that the European Union needs a significant number of overseas premises to conduct its proper business.

Several hon. Members rose--

Mr. Rifkind: I realise that an awful lot of hon. Members wish to speak in this debate. Although I do not intend to give way to everyone who wishes to intervene, I shall try to be fair.

Mr. Christopher Gill (Ludlow): Will my right hon. and learned Friend give way?

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Mr. Rifkind: Not at this moment, but perhaps later.

If Europe is more than a free trade area, it is less than a federal state and must remain so. The bedrock of the European Union is the independent democratic nation state. The European Union derives its legitimacy and functions from the powers freely given to it by its members. It can flourish only as a partnership of nations.

The Government have a clear view of what the European Union is, and how it should develop. It is a partnership of nations reconciled after centuries of rivalry and conflict. Those nations have a strong sense of shared purpose and shared values; they have created a single market open internally, and open to the rest of the world; they are committed to maximum co-operation in foreign and security policy and in such issues as the fight against international crime; and they have joined forces in the common enterprise of the European Union while retaining the separate identities that give Europe its richness and character.

Overall, and in its historical context, the degree of co-operation in Europe today is extraordinary and unprecedented. The European Union has been the focus of that achievement, but the quest for ever more institutional integration puts all that at risk.

If an hour of truth is approaching, it is perhaps for the integrationists in Europe, who need to define the limits of their ambition. Where do they see the process that they promote finding its natural conclusion? At what point will dynamism in the EU be measured in the use that we make of the institutions that we have created, rather than in their endless modification? At what point will integrationists accept that deeper is not always and necessarily better?

All sides decry the term "super-state". Chancellor Kohl agrees that independent democratic states are at the heart of the European project. Amen to that; yet if the EU is to be the basis of lasting peace and prosperity in Europe, and if people--not just in the UK--are to be reassured that they are not in the belly of some infernal machine that is running out of control, they need to feel that there is some logical conclusion to the process of European integration, short of a super-state.

That is why all the member states need to think hard about the purposes and limits of integration.

Mr. Hugh Dykes (Harrow, East): I am grateful to my right hon. and learned Friend for giving way at this stage, as he is giving a fair and objective description of what the European Union should mean in the future. Would it not be better for the British Government to avoid the use of the word "federal", as it is so misleading? Too many people fear that it means centralisation, whereas it has many different meanings in different countries. NATO was a federal treaty in every respect and all the way through its clauses. It would be much better to refer to the use of majority voting and greater integration to enable enlargement to take place. That is the aim of the process.

Mr. Rifkind: I strongly disagree with my hon. Friend. I do not believe that the term "federal" is inappropriate. Of course, if one starts with a single central state and then federalises, one is decentralising. However, that is not the starting point in Europe. The starting point is 15 independent nation states. If the attempt is to create a supranational institution with supranational authority at the expense of national Parliaments and national

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Governments, one is undoubtedly moving in a federal direction and, depending on the degree of integration that is conceded, one can end up with a federal state. Those who want that objective should not be so shy about using the term that properly describes their ambitions.

Mr. Nigel Spearing (Newham, South): The right hon. and learned Gentleman said a few moments ago that the European Union was something less than a federal state, or words to that effect. Surely it is already something more. A federal state has a separation of powers, whereas we already have a single court, a single Council, a single Commission, a single Parliament, possibly a single currency and a single central bank, and perhaps a single representation abroad on a single commercial policy. Does that not mean that, far from being federal, the EU is already centralised?

The Chancellor of the Exchequer said yesterday that he wanted to know what his colleagues abroad thought. In effect, they are asking for a single institutional state that would leave no real power for a national Parliament such as ours.

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