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Baroness Jay of Paddington: My Lords, that point is covered in the provisions which specifically relate to the interests of both carers and users. It is reflected in the inclusion of my noble friend Lady Pitkeathley in the reference group as a representative of the Carers' National Association. As the noble Lord rightly points out, those who are looking after the frail and elderly should be an important consideration. That point was reflected also in the comments of the noble Earl who referred to those people who have been compelled to sell their marital home when one partner enters long-term care. I am sure that that problem will be addressed and that the general issue which the noble Lord raises will be covered by the broad umbrella remit to look at the concerns of the carers as well as of the users of services.

Financial Consequences of Enlargement: ECC Report

5.5 p.m.

Lord Barnett rose to move, That this House take note of the report of the European Communities Committee on the Financial Consequences of Enlargement (10th Report, Session 1997-98, HL Paper 41).

The noble Lord said: My Lords, I do not think that I have ever been more delighted to be called to move a Motion. I have been asked, uniquely, to give an apology on behalf of my noble friend Lord Bruce of Donington. I have never had to apologise for my noble friend previously, but I do so now because he will be unable to speak in the debate. That apology applies also to my noble friend Lord Kennet.

Before turning to the Motion, perhaps I may welcome our two maiden speakers, the noble Lord, Lord Garel-Jones, and my noble friend Lady Young of Old Scone. I am sure that we all look forward to hearing from them.

I should like to take this opportunity to thank the witnesses who appeared before our committee. I am sure that those noble Lords who have read their evidence will appreciate how valuable those witnesses were in helping us to prepare our report. I should also like to take this opportunity--I am sure that members of my committee would want me to--to thank our Clerk, John Goddard. We have been especially fortunate in the quality of our Clerk in helping us to prepare this report. I thank also the members of my committee because, if we have been fortunate in our Clerk, we have been especially fortunate--I certainly have been fortunate--to have such brilliant and hard working committee members. They have helped to prepare what I hope your Lordships will accept is an excellent report.

We have worked to a tight timetable and I apologise to your Lordships for the delay in publishing the report. As I understand it, the report was available to your

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Lordships in the Printed Paper Office last Friday, although that was not generally known. The tightness of the timetable arises because we felt it right to try not only to get our report out, but to have a debate on the Floor of your Lordships' House, before the Luxembourg Council on 12th December which I hope will not only take note of, but act upon, the points made in our report. If your Lordships have in some way been embarrassed by not receiving the report quickly enough, I apologise, but I hope that when your Lordships have an opportunity to read it, you will realise why we have produced it in this way.

I start by speaking of the structure of our report. The introduction comes in Part 1, but perhaps somewhat unusually we have highlighted a sort of scene-setting paragraph, using the words "coming home" which is what the applicant countries of the eastern European area believe is what would happen if they could successfully become members of the European Union.

Part 2 contains the summary of our opinion and what might be called the bald points. We have put them up front because--I know that this does not apply to your Lordships--there are some outside this House who may not read the whole of the report and such points might help those who suffer from what might be called "report fatigue", of which noble Lords will be aware. Although, as I have said, there are some outside who do not necessarily read reports in their entirety, perhaps after they have read our main points, they will want to read the whole report--I hope so.

Part 3 is the factual background to the report. I hope that your Lordships will find it helpful.

Part 4 is the summary of the evidence of the witnesses to which I have already referred. Again, it brings out the important points in the evidence that we have received from some very good witnesses.

Part 5 is our full opinion, to which I now turn for the main part of my remarks. We believe that there is huge potential to be gained from enlargement in this direction. Successful enlargement of the Community will make for great advantages not only for the applicant countries, but for the existing 15 countries of the European Union. Equally, there is huge danger if we miss this opportunity. There could be a slide towards tension and instability in Europe among those applicant countries. We should like to see a successful enlargement. However, we believe that the financial consequences of enlargement have been inadequately thought through. That is a great worry.

I read with great interest the speech of my right honourable friend the Foreign Secretary during his visit to the Czech Republic. Naturally and quite rightly, he was very pleasant to his hosts. He clearly recognises the need to bring the Czech Republic and others into the Community. Much thought has been given to that by the Commission itself in the excellent report Agenda 2000. That sets out a realistic route for enlargement.

That said, we do not believe that the Ministers of the member states, including the UK, have seriously thought through the financial consequences both to the existing 15 members of the European Union and the countries that we hope will come in. My right honourable friend

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the Foreign Secretary was very enthusiastic and said many things with which I wholeheartedly agree. I am not sure that he discussed his speech with the Treasury. If so I would be surprised if that department had given any thought to the financial consequences, let alone give my right honourable friend any advice. Both in this country and many others within the European Union--I am worried because my noble friend Lord Bruce of Donington nods in agreement--there is concern in government about paying more or receiving a smaller rebate.

The Economic Secretary to the Treasury, Helen Liddell, gave evidence to the committee. She said that our rebate was set in stone. That took my mind back to another lady, Mrs. Thatcher, now the noble Baroness, Lady Thatcher, who said that Britain wanted its money back. I believe that that was the phrase she used. If every member state pursues that line, the chances are that financial success in enlargement will be pretty remote. We all know that it will be difficult. In some countries general elections are imminent. Nothing will be done before the autumn of 1998 and the German elections. I am sure that they would not agree to anything until those elections were out of the way. Win or lose, somebody will be in charge in that country who will I hope be able to make some decisions. Other existing members of the European Union will be holding elections at some time. There is a worry about the ability of the 15 countries of the European Union to reach agreement about successful enlargement of the Community. Even without imminent elections both the Germans and others will press strongly for an alteration to our rebate which many see as unfair. The committee did not discuss it in those terms. The committee wanted to see the UK do well within the Community. One is not speaking about fairness or unfairness in terms of rebates. The committee agrees with the comment of the Foreign Secretary that successful enlargement of the Community would be a great advantage to this country.

How will enlargement be paid for? There are probably three ways in which it can be done. No doubt noble Lords can think of others. The first is economic growth. That is usually regarded as the painless way of paying for a number of matters. Secondly, there is the possibility of raising the own resources ceiling, which at the moment is 1.27 per cent. of the European Union's GDP. To be utterly realistic, the likelihood of that occurring is pretty slim. (I wish that my noble friend would stop agreeing with me. It would be even worse if the noble Lord, Lord Marsh, began to agree with me.) Thirdly, there might be cuts in structural funds and the common agricultural policy.

As to growth, between the years 2000 and 2006 it is estimated by the Commission that the European Union's 15 will grow on average by 2.5 per cent. (I am glad to see that my noble friend is now disagreeing with me. This is not my view but the view of the Commission.) It is also estimated that the applicant countries will grow by an average of 4 per cent. I have never had much faith in forecasts, even weather forecasts. If a forecast were made about tomorrow I would be uncertain. Those growth forecasts for the period 2000 to 2006 may be achieved--I underline "may"--but the committee is

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uncertain whether they will be. The figures are spelt out in paragraphs 79 to 83 of the report. The committee views those figures with scepticism, although not the same kind of scepticism as is sometimes displayed in your Lordships' House.

One important section stands out. Even with an average growth of 2.5 per cent. among the 15 and 4 per cent. among applicant countries, it is estimated that it will take about 25 years for the latter to achieve 50 per cent. of the 15's average GDP. That gives an indication of the seriousness of what we are talking about here. To narrow the gap to that extent will require European Union assistance for at least a generation following accession. Therefore, the financial consequences of enlargement are very serious indeed. It is foolish to disregard the problems that it will create.

If growth does not achieve very much, I come to the other points: the structural funds and the common agricultural policy. We believe that those issues are pivotal to the financing of enlargement. That word is worth repeating because the committee spent some time discussing it. We believe that governments and Ministers have given insufficient thought to the full scale of the required reforms. As to the structural funds, the situation would be difficult enough without economic and monetary union. I do not intend to go into it. The fact is that there will be a significant impact on vulnerable regions within the existing 15 member states, including the UK, in terms of the level of structural fund grants. That will occur whatever happens, because there will be a requirement to cut down the areas within the European Union that are now in receipt of structural funds. I would very much regret that because some of those areas are not far from where I live. It is a fact that they will have to be reduced.

With regard to the common agricultural policy, the committee has deliberately not dealt with the details. It is not an agricultural sub-committee, and that will be dealt with by the appropriate committee. However, if we look at the financial consequences of enlargement, we cannot ignore the fact that the financing of the common agricultural policy as now cannot continue. There must be substantial reforms.

There is a further cost to the applicant countries which has not been considered in any way: NATO enlargement. In his speech in the Czech Republic the Foreign Secretary referred to the hope that some of the applicant countries would become members of NATO. Costs will be applied to those countries which are now applying for NATO and EU membership, but no one has given the slightest thought to them.

Equally, there will be a need to build strong and honest institutions in the applicant countries. That is crucial to the whole question of enlargement. I was pleased to see that we in the UK will be helping them to create decent, strong and honest institutions. There would be serious financial consequences if they did not have such institutions. Some members of my committee went to Athens and to Dublin and saw the difference in the way in which institutions manage sensibly to use the cohesion fund. The same will apply in the case of the structural fund.

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I turn to the opening of negotiations. There are two options. The first is to start bilateral negotiations with all 10 countries. For some reason that is called the "regatta" approach. Perhaps someone may know the reason for that. The second option is to have bilateral discussions at the outset with the five countries which we have listed, plus one; that is, Cyprus. It is anybody's guess what will happen there; I should not like to speculate. I am pleased to note that my right honourable friend the Foreign Secretary recommended that negotiations should start with the five countries. I hope that that recommendation will be accepted at the Luxembourg Council. If its members agree nothing else, I hope that on 12th December they will agree that.

There is a further important factor, to which the Foreign Secretary referred. The other five countries must not feel that they are being overlooked. It is vital that they are not thought to be overlooked. We must convince them that if they achieve the acquis communautaire they could overtake some of the first five countries in obtaining entry to the Community. That point was made to us by Commissioner van den Broek when we were in Brussels, so it is beginning to be recognised. The Commission believes that accession will most likely be in 2002. I believe that that is a little optimistic, given the difficult financial problems that we face.

In conclusion, I have missed much in our report and I am sure that members of my committee will fill in the gaps. I did not wish to take too long in opening the debate, but I believe that I have dealt with the major issues. The clear central issue is that we and other member states do not pay lip service to enlargement, but that we recognise the financial implications. The prospect of enlargement has already stimulated reform in the 10 applicant countries. Any delay and wrangling over what would be comparatively marginal costs to the 15 members of the European Union would do immense damage. Therefore, I hope that the tremendous opportunity of enlargement will be grasped. Indeed, my right honourable friend the Foreign Secretary--I am sorry to refer to him again, but he is the only Minister who has commented on the issue--intends to launch the European conference early in the spring in order to deal with some of these issues. I urge the 15 members of the European Union at their meeting on 12th December and at the conference mentioned by the Foreign Secretary to provide a positive response to the great challenge which enlargement provides. I beg to move.

Moved, That this House take note of the Report of the European Communities Committee on the Financial Consequences of Enlargement (10th Report, Session 1997-98, HL Paper 41).--(Lord Barnett.)

5.24 p.m.

Lord Garel-Jones: My Lords, I have listened to a number of maiden speeches since I came to this House. I hope that your Lordships will not think that it is a routine matter if I say that I and all other noble Lords who entered in what might be referred to as a "bumper bundle" are grateful for the warmth and courtesy of our

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reception from Members on all sides of the House and from the staff. It considerably enhances what would in any event be a great privilege. I and all the new Members are grateful for that.

I rise with trepidation to address your Lordships for the first time, not least because having had some responsibility for European policy I am well aware of the standing of the committee chaired by the noble Lord, Lord Tordoff, and the sub-committee chaired by the noble Lord, Lord Barnett. In another place I had substantial experience of their courteous precision.

Perhaps I may begin by making a few remarks which I regard as entirely uncontroversial; at least I believe them to be uncontroversial in your Lordships' House. The Treaty of Rome, the Single European Act and the Maastricht Treaty were all signed by Conservative governments. I do not regret that, nor do I resile from any of them. I wish to touch briefly on two subjects: monetary union and political union. Monetary union is a high risk strategy. The loss of exchange rate flexibility--the safety valve that has hitherto enabled nations to adjust to underlying divergencies--could exacerbate tensions to a point which would raise a question mark over the political project itself; not to mention a whole range of technical difficulties which must be overcome.

I have no difficulty whatever with the cautious enthusiasm which the Government have expressed for monetary union, hedged in as it is by the conditions laid out by the Chancellor of the Exchequer. Nor do I intend to lie awake at night--for a decade perhaps?--over the cautious scepticism put forward by the Leader of the Opposition. If monetary union works Britain will join. The Leader of the Opposition has left the door open, just, for such an eventuality, and I welcome that.

There are those, some of them in this very House, who believe that a single currency equals a single government. They say that they do not wish to see that at any price. Together with my right honourable friend the Leader of the Opposition, on balance I should prefer to wait and see what that price might be because sovereignty does not reside at any fixed address. Already in 1944, Professor Von Hayek said that the one thing which would undermine the prospects of peace and order after the war would be an attempt by nation states, large or small, to regain unfettered sovereignty in the economic sphere. That was true then and it is truer still today in the global economy in which we live.

If economic sovereignty is a moving target so, too, is political sovereignty. The difficulty is that the debate on Britain's place in Europe has been polarised. On the one hand, there are those who believe that the European Union is some kind of harbinger of a brave new world, where the individual and selfish aspirations of nations can be subsumed in a supra-national structure where Liberals lie down in peace with Social and Christian Democrats. Others have a vision of brave little Blighty sailing an independent course through these increasingly difficult waters.

Charting one's way through these noisy extremes is no easy matter. In recent years, your Lordships' House has been a consistent voice of sanity. This report,

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unlikely as it is to elicit much interest from the extremists, will be regarded as a serious contribution to discussion by those who have the worthy if unexciting ambition of trying to make the European Union work. For those of us who plough that particular furrow, the arguments involved are humdrum; the outcome is uncertain; and the compromises which must be made along the way are difficult. Not for us the simple either/or luxury enjoyed by the extremists.

But if we are to find a balance between the mechanisms for co-operation between nation states without burying that sense of belonging to nationhood which is so important, plough on we must. We must seek to entrench the inter-governmental pillars which emerged from the Maastricht Treaty. To do that, we must try to make them work. That means, for example, in the interior justice pillar, leading the search for new methods of fighting trans-border crime. In the common foreign policy and security pillar, in spite of all the set-backs and difficulties, we must contribute with enthusiastic realism to the search for common positions on foreign policy and security matters. It means sustaining the trans-Atlantic link through NATO and the US leadership of the NATO alliance; and yes, building the WEU but standing staunchly against those who believe that the WEU is some sort of Euro-friendly substitute for the NATO alliance.

In the first pillar--and I believe paragraphs 100 and 101 of the report refer to that--we must be robust, (I think that is the word) in advancing the case for more equitable voting weight to be given to the larger countries; for a reduction in the number of official languages; for annual presidencies led by a troika, headed by one of the large member states; and above all, in the first pillar, we must come forward with new and imaginative proposals for including the democratically elected parliaments of the member states in the legislative process. It is all very well to scrutinise draft EU legislation as we now do in this Parliament, and I wish that all other member states did that, but we need to find a way after that in which to insert the views of national parliaments into that whole complex comitology procedure that takes place between the Commission, the Parliament and the Council. That is crucial and Britain could be in the lead in such an area. The report makes it absolutely clear that, unless we have those bits of plumbing right, that alone could also undermine prospects for the European Union.

But having said all that, it simply is not good enough, as many do, to say, "Oh, I am in favour of a single market. I want a free trade area full stop". If you have a free trade area, by definition, you need regulations to define that area and by definition you therefore need a supra-national body capable of imposing its authority on those regulations by law. The Commission's right of initiative and the authority of the European Court of Justice should be defended staunchly by Britain because Britain is, and I think continues to be under this Government, the standard-bearer of free trade within the European Union.

This is a political project. It will be difficult to find the balance between sovereignty and lost sovereignty. But Britain has no need to subscribe to the dreamy

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idealism of some of our partners to influence the direction of the union. She only has to make up her mind once and for all that that is where she belongs. Once that is acquis, as they say in Brussels, then and then only shall we be in a position to exercise our full influence.

Those of us who have a settled opinion in this matter, as I do, believe that we enjoy one important ally in this matter; that is, the common sense of the British people and their unwillingness to relegate Britain, our country, to the sidelines. In that, as in many other areas, your Lordships' House has been very much in tune both with the interests and aspirations of the British people and I look forward to contributing to your Lordships' deliberations on those matters.

5.35 p.m.

Lord Dahrendorf: My Lords, few things could give me greater pleasure than to congratulate the noble Lord, Lord Garel-Jones, on his maiden speech on behalf of the whole House. The speech was elegant, good humoured and subtle. Those of us who have had the pleasure to know him expected that. It was also the speech of someone who might be described as a natural European, if such a thing exists: at any rate, someone who is at home in Europe, who knows the countries of Europe and who has been able to define his thoughtful approach to things European from the vantage point of his ministerial appointment in the Foreign Office. We look forward to hearing from the noble Lord on many future occasions.

Those of us who have served on Sub-Committee A of the European Communities Committee in recent years have been very fortunate. We have dealt with a number of important subjects. We have had the company of interesting contributors to the debate and, above all, we have had an extremely skilful chairman in the person of the noble Lord, Lord Barnett. We are all grateful to him.

One of his skills was to persuade the committee to agree unanimously on a report, although its members had a whole variety of views on what should follow from that unanimously agreed report. Your Lordships will find that my views on the cost of enlargement are not in all respects the same as those of our chairman or, indeed, I suspect of others who will speak.

I shall make four brief observations. The first is fairly obvious. Ever since I became involved in European Community matters in the 1960s, I have been unable to understand the contrast between "deepening" and "widening". In my view, there is no contrast between the two. Indeed, widening the European Union is an expression of the common interest of the members and in some cases an expression of a rather important and profound common interest.

When Spain, Portugal and Greece were welcomed to the European Community, the community made a small but not insignificant contribution to stabilising democratic institutions and the rule of law in those countries. I have felt since 1989 that we had and continue to have a similar responsibility with regard to the post-communist countries of eastern and central Europe. Indeed, I have felt and continue to feel that the

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European Union has not properly discharged its responsibilities because it is now eight years since 1989 and it should have been possible to hold this debate years earlier.

Indeed, I am one of those who believe that early membership of NATO for those countries is in some ways a substitute for what the European Union has failed to do. It would perhaps have been better if the European Union had been first to welcome the new democracies. In any event, I see no particular problem with respect to the five countries which we are now discussing for accession.

My second observation takes me to our subject, which is the subject of cost. At first sight the cost of membership for the new members or for the candidates is enormous. Those noble Lords who have had an opportunity to read the committee's report will have seen what the Polish negotiator told us. Perhaps I may say in passing that I believe that Poland is the test case among the five. In some ways Poland is the Spain of eastern Europe. It is a country of major importance but also of considerable size and therefore a very important addition to the Community if the negotiations succeed. Those who have read the report will have seen the figures given by the Polish negotiator, Mrs. Danuta Hubner. She has been quoted as saying, and has confirmed, among other things, that Poland would have to spend 3.2 per cent. of its total GNP for each of 10 years to achieve the environmental, health and safety standards alone which the European Union is setting. Indeed, we have not even mentioned the subject of agriculture in our discussions.

This is the subject of reaching the so-called acquis, the level which the European Union has set for its members. It is a large sum but, nevertheless, I cannot help observing that something quite odd is happening here. We say democracy and the rule of law; we say that we want to welcome these countries into a Community which is committed to those values; and we talk details--details which in some cases have literally nothing to do with democracy and the rule of law. The cost that we are talking about so far as concerns the accession countries is, in large part, a burden which is not visibly related either to the stability of democratic institutions or to the functioning of a market economy.

I looked through details of the last entry negotiations and saw that days were spent on subjects like the training of dentists, the provisions for the conservation of wild birds and the introduction of fire-proof doors in houses of multiple occupation. Here we have the European Union, yet the entry negotiations will be concerned with such subjects. I have long found that hard to bear; indeed, it is nearly unbearable. In discussing detail I hope that we shall not lose sight of the objectives which we are pursuing--namely, to have the post-communist countries at the table with us in the context of the EU.

That leads me to my third observation. We also learned that the candidate countries are quite realistic. They do not expect the cost of what they have to do to be borne by the budget of the European Union. Nor, incidentally, do any of them expect there to be a change,

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an increase, in the ceiling of 1.27 per cent. of GNP which the Union is prepared to spend on its affairs. The changes related to the acquis will be brought about by policies which those countries are pursuing in any case, including changes in agriculture.

There are fundamental changes in the agricultural structure of these central European countries going on in any event. Poland is extremely inefficient agriculturally. It is not the great threat which some seem to think that it is to the vested interests of the present members. Some of those changes will be brought about by borrowing, and both the EBRD and the European Investment Bank are aware of the special task that they have in that connection. In other words, it is not the budget of the EU which will have to cover the cost within the candidate countries. No doubt there will be some derogations; indeed, in some areas the countries need more time than the period of negotiation itself.

Basically I can see no reason--I state this briefly and without having the time to produce all the back-up argument required--in terms of the acquis or other conditions why Slovenia and Estonia should not be members by the year 2002 and Poland by the year 2002, 2003, or some such time. Indeed, Slovenia could probably become a member in 1999 if we wanted it and if we thought purely of the necessary preconditions of membership in the terms that we are discussing today.

Of course, that will not happen; and I come now to my fourth observation. They will not be members by the year 2000 or 2002; indeed, I doubt whether they will be members by 2005, the reason being--and this in a sense is my key point--that the cost of enlargement is crucially the cost perceived by present members to themselves of enlargement. The real obstacle is not what potential new members have to do; they can do it. The real obstacle is what present members fear will happen to them; and that is partly political.

In some European countries there is a fear. The noble Lord, Lord Garel-Jones, is better placed than I am to confirm and discuss that aspect, but in Spain there is a fear that the whole European Union is moving north-east and away from the interests of countries in the south. In some countries, like Sweden and Denmark, there is a sense that it was wrong to single out Estonia and not include other Baltic states at an early point. Similarly, in France there is a strong sense that Romania should have been included among the first five.

Above all, there are fears that the cohesion fund money will no longer be available and that the structural fund money will have to be cut. Indeed, the noble Lord, Lord Barnett, gave us some indication of what might happen in parts of the United Kingdom. Then there is the great and almost metaphysical fear in France and in Germany that the common agricultural policy may have to be reformed. That is quite likely to be the case. I argue that that is a greater obstacle to the rapid conclusion of entry negotiations with the new candidate countries than the cost to those countries.

One must fear that the negotiations will be protracted. One must fear that the popularity of the EU will decline in the candidate countries. When the moment comes and referenda have to be held in those countries, one must

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wonder whether there will still be the kind of majority which one would like to see for such an important step for those countries.

I therefore conclude by saying that I very much hope that the UK Government at least will not only start these negotiations at an early date, but that they will also continue to press, after their EU presidency, for the continuation and rapid conclusion of the negotiations with those who are starting after the Luxembourg summit in a few days' time. I repeat what I said at the beginning of my remarks: we have a great responsibility to do what little we can, but to do at least that, in order to ensure that the enormous gain in liberty, in democracy and in the rule of law, which I link to the year 1989, is not lost for reasons which are quite minor in relation to the task.

5.49 p.m.

Baroness Young of Old Scone: My Lords, I very much value my first opportunity to speak in this House on such an important and lucid report. Perhaps I may, first, thank my noble friend Lord Barnett for his welcome and, secondly, for his valiant attempts to get my title right. It is infinitely preferable to be called "old scoon" rather than "old scone", as has sometimes been the case during the past few days. I should very much like to praise the work of my noble friend Lord Barnett and his colleagues. They have put their finger on exactly what is wrong with the Commission's Agenda 2000 proposals and the economics of European enlargement.

The report quite rightly points out that enlargement is vital for the security and stability of all the peoples of Europe. I declare an interest as Chief Executive of the RSPB, Europe's largest wildlife conservation organisation. As an environmentalist I have always thought that the European Union generally was a good thing. Much of this country's more enlightened environmental law and policy is drawn from European law. But I suppose that during the process of thinking about enlargement I began to wonder whether I was right as I thought about some of the costs and benefits of the European Union, and particularly the costs and benefits of the common agricultural policy which comprises half of the European Union budget. If one looks at it in the context of value for money, it is hardly a roaring success. The common agricultural policy is probably the single most significant cause of major declines in European Union wildlife and habitats over the past 30 years. It is closely followed in terms of poor value for money and adverse environmental impact by EU structural fund policy.

The report also recognises the environment as an essential element in the enlargement. If one looks at the accession states, the environmental record there is a bit of a mixed bag. In many cases outdated technologies under past regimes contributed enormous backlogs of environmental damage that will require attention. But in some ways it is the economic inefficiency of the former CEE states that has meant that, unlike the rest of Europe, land uses of forestry, agriculture and water management are considerably underdeveloped by EU standards. Almost by default the rural environment of the central and eastern European states is high quality if one

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measures that in terms of richness of wildlife and habitats which we are losing at a great rate elsewhere in Europe. I shall ignore at this point the pigeon-holing of the noble Lord, Lord Dahrendorf, in relation to the importance of birds when he ranked them with fire doors.

Before anyone thinks that I am talking about protectionism for the central and eastern European states in terms of putting their environments and agricultural and rural economies into aspic, and idyllically thinking of haywains and chaps with scythes, I assure the House that that is not the case. I am talking about economic growth both in the rural and industrial sectors of the CEE states having to be environmentally sustainable growth. If I may summarise the situation, we have expensive, environmentally damaging agricultural and structural policies in the existing 15 states of the European Union, with a fast declining natural environment, but a comparatively buoyant natural environment in central and eastern European states. I suggest that we cannot afford financially or environmentally--nor should we wish to--simply to export the policies that we have here in the west to the centre and east of Europe.

If enlargement is to be achieved in a way that is economically and environmentally acceptable, I believe that we must resolve three issues. First, the report rightly points out that reform of the CAP which reduces its financial costs is pivotal. I very much like those words of the report. Apart from needing to release money for other budget lines, the common agricultural policy is quite simply bad value for money. Yet only recently the European Commission has allowed an outline CAP reform to be agreed which will increase the total budget for the common agricultural policy over seven years. We see a proposal that maintains a high level of subsidy in the form of compensation payments to farmers for price cuts.

The CAP has to be made more affordable and more environmentally sound by reducing these compensation payments, by time limiting them and by redirecting some of the money to more positive rural employment and environmental schemes as part of a more extensive greening of the common agricultural policy. In enlarging the Community we must not simply extend this wasteful and environmentally damaging agricultural policy but develop lower cost and environmentally suitable alternatives that fit the economic stage of development of the central and eastern European states.

My second point which I believe needs attention concerns structural funds. Under enlargement structural funds must not be allowed to continue to be the "thugs" of Europe. There is substantial evidence that infrastructure dominated EU funded development such as roads, dams and irrigation schemes--old-fashioned concrete pouring schemes--which we have seen funded from structural funds not only cause environmental damage in existing member states but are often not even effective in terms of creating jobs or promoting regional development. The structural funds certainly get my thumbs down. When we extend these into central and eastern Europe they must be accompanied by much stronger environmental safeguards. Having wreaked

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wasteful destruction in western Europe, we must not let the structural funds do that in central and eastern Europe. In the rural areas particularly the model of big infrastructure development is uniquely inappropriate and damaging. We must focus on developing the special strengths of the rural areas and developing projects which are appropriate in scale and which draw on their skills and natural assets.

Thirdly, I touch on a point that the report rightly acknowledged; namely, that environmental protection is a key element of a functioning market economy. The report acknowledges the difficulties that the accession states will face in meeting the Community environmental obligations under the acquis. I do not believe that it is in the interests of the European environment, nor in the interests of an effective functioning of a single market, for environmental standards in the accession states to be lower than in the rest of Europe for any significant time. There needs to be considerable financial, technical and institutional development expertise injected into the CEE states using the loan process that the noble Lord, Lord Dahrendorf, mentioned, but also by using current aid budgets and certainly by effective targeting of the pre-accession measures.

EU enlargement is vital for the peoples of Europe, but so is a healthy environment. The current common agricultural policy and structural funds are financially and environmentally unsustainable. They must not simply be exported eastwards without considerable reform--reform which, I am afraid, has not been sufficiently robustly begun in the Commission's Agenda 2000.

5.58 p.m.

Lord Bridges: My Lords, it falls to me from these Benches to speak in the name of the whole House and to congratulate the noble Baroness on her maiden speech which I thought was accomplished, relevant and extremely thoughtful. This does not come as a surprise to one who has studied her curriculum vitae because she is a lady of remarkable accomplishments. She has revealed to us that she is the chief executive of the RSPB which I believe to be the voluntary organisation with the largest number of members in the country, which is an extraordinary tribute.

In addition, she has had a distinguished career in her role in the health authorities of this country. She was the chairman and president of the Institute of Health Service Management. She has served on the BBC general advisory council and as a trustee of the National Council for Voluntary Organisations. She is also a member of the Environment Secretary's round table on sustainable development. This is a career of extraordinary achievement and it is evident from her excellent speech today that she will play a prominent part in our deliberations. Perhaps I may be permitted to add that this extraordinary career of achievement makes her admirably suited to be a Member of these Benches. However, I do not hold that against her because her contribution will be to the House as a whole.

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I believe that the report prepared by the sub-committee chaired by the noble Lord, Lord Barnett, is essential reading for anyone who wishes to make a success of the British presidency of the European Union next year, as enlargement negotiations will be a large part of our responsibilities. I have for long believed that the future and character of the EU is more likely to be determined by the number and nature of states admitted to membership than by any other factor. The report is a guide to the problems and possibilities of a financial kind which we shall have to navigate if we are successfully to launch the enlargement negotiations. I shall cover a few of the salient points, and emphasise one or two key issues mentioned in the report, and some additional factors which I believe to be important.

First, I like the catch-phrase at the heading of Part 1 on page 5. It suggests that accession to the European Union is seen by the CEE states as "coming home". I very much agree with that sentiment. However, I agree also with the converse proposition that without the admission of the CEE states, the Union is not fully European. I regard those countries as being European, whether we are thinking in political, cultural or geographical terms. The strength of my feeling derives in part from personal experience, having spent about one-third of my professional life dealing with the countries of this region.

I began by studying the progress of communism in the infant German Democratic Republic when living in Berlin. In the 1950s, at the height of the Cold War, I spent four years in the Northern Department of the Foreign Office, which dealt with the USSR and its east European empire. After an interval of 15 years spent travelling first in Latin America and then in Greece, I became the counsellor at our embassy in Moscow during what the Russians now call Brezhnev's years of stagnation, an apt description. It was in Moscow that I began to ponder the Europeanness of Russia, a difficult but essential subject. Where does Europe end? In the west, we tend to think instinctively of General de Gaulle's well-known phrase regarding Europe "from the Atlantic to the Urals". But I am not sure that the Russians themselves would agree with that. In Moscow I looked up the definition of "Europe" in the large Soviet encyclopedia. I was surprised by the indeterminate, short and woolly article under that heading. That in itself was intriguing, as the whole point of the encyclopedia was to lay down the party line in a short and authoritative manner. Imprecision suggested uncertainty.

Perhaps I may be allowed to divert for a moment on a personal anecdote. The encyclopedia provided an occasional source of merriment--a real pleasure in that grim environment. One day the embassy received a letter from the publishers of the encyclopedia instructing all subscribers to remove certain pages from the volume dealing with the letter B. On inspection those pages referred to the life and career of the recently disgraced Beria. The letter told us that further pages would follow to fill that missing section. When they arrived some weeks later, they were found to contain an elaborate entry about the Irish philosopher Bishop Berkeley, who had not previously been thought to merit attention.

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That type of thought control could have its Orwellian moments. Some years earlier in Berlin there came into my hands a copy of a circular letter from the Ministry of Education in East Berlin sent to all the major libraries in the country instructing them to return for destruction copies of certain well-known classic German works which were now to be withdrawn from circulation. I do not recall all the books listed, but one was Fichte's classic and seminal work, Speeches to the German Nation. Above all, I remember the place to which those books were to be returned. It was called, "die Zentralstelle fuer Altliteratur". The address of all places, was, Weimar. That was really an Orwellian memory hole. It is worth recalling it at this moment.

I also recall discussing with Russian officials in Moscow the Russian relationship to Europe. Those people explained to me that the USSR was both a European and an Asian power. Of course, as the disciples of a world-wide creed they could not wish to limit their activities to a single continent, or even to two continents. Their mission was global in scope and ambition. Yet when one considers the components of Russian culture, it seems impossible to deny its European characteristics. Russian composers of this century and the last must be classified in that way, and so must the great writers in Russia of the last century. Pushkin, Gogol and Lermontov are all in the mainstream of European writing. I concede that Dostoevsky is more native Russian than European, but interestingly his reputation is less highly esteemed in Russia than in the west. Nevertheless, in a sense the Soviet officials had a point. Russia is too large, too much sui generis to be neatly categorised in one group or another. She is in a separate category of her own among the states in continental Europe--so vast yet oddly amorphous, and with great latent talent and power in every department of life.

I dwell on Russia in particular because there is just one sentence in the report which makes me ponder and pause for thought. It is in the first part of paragraph 1 which states:

    "If enlargement is successful the peoples of Europe could enjoy conditions of security and stability without parallel in their history".

In one sense that does not say a great deal. Those countries have enjoyed little of either peace or prosperity for two centuries or more. I certainly hope that enlargement will bring them stability and prosperity. But I suggest that security is another matter.

The key question is how the enlargement of NATO is to proceed. This is not the subject of the report, and discussions about the enlargement of NATO are proceeding separately. The cost of enlargement, as the noble Lord, Lord Barnett, reminded us, is mentioned in the report as another burden to be shouldered and taken into account. But it will be the NATO negotiation which will be critical to the security of Europe in the ordinary sense of the word security. It is a very thorny subject--thornier than any noble Lords have suggested in the debate.

All the CEE states want to join NATO as well as the EU so as to provide for their essential security needs. There is a vacuum in eastern Europe since the collapse of the Warsaw Pact. But there are obvious dangers also in

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extending the NATO umbrella so far as to include the Baltic states which are regarded by Russians as falling within their own sphere of influence, and even of belonging to the historic territory of Russia. The same kind of severe difficulties--although not to quite the same extent--occur in the case of Poland. In this debate it is relevant to pose this question. Do we want to extend NATO membership right up to the western frontier of Russia? That problem is not part of the European Union's enlargement negotiations, but it is closely connected. If we are to establish a new and lasting relationship with the CIS, as we should and must, we need to consider the security issue with great care and seriousness. This is the essential corollary to EU enlargement and should proceed in parallel with it. Indeed, I am almost tempted to call in my aid the extraordinary phrase invented by the late Aldo Moro, when Prime Minister of Italy, who described his effort to create a new and very precarious alliance with the parties of the centre left with their deeply felt historic antagonism, as a policy of "parallelismo convergente"--that is, converging parallelism. Moro's political style was virtually incomprehensible to non-Italians, and was ridiculed by many Italians. But his odd phrase conveys the essential difficulty of the task in front of us.

I should mention one other item on the hidden agenda in this process: the latent divergence between those seeking to bring about the enlargement of Europe to the east and others whose ambitions lie in the south. Some noble Lords have already referred to this matter. There is no doubt that Germany is strongly interested in the accession of the CEEs, where so many of her political and economic interests lie; but other member states--notably, France, Spain and Italy--wish the EU to be more active in the Mediterranean and to expend EU resources in North Africa. No doubt, in order to promote prosperity in the Maghreb, they would like to see us invest in such well known matters as steel mills and airlines. They hope by so doing to stem the flow of migrants from the Maghreb into southern Europe.

The EC's Mediterranean members are also reluctant to forgo the benefits of the structural and cohesion funds which have brought them such prosperity in the past decade. This subject is well discussed in the report and the sensible conclusion is that economies must be made to these funds in order to finance the changes needed in the CEEs to prepare them for accession. But these conclusions will be extremely unpopular in southern Europe, where it is felt that the richer countries of northern Europe should finance the accession of the CEEs. No doubt the recent proposal by the Commission to remove Ireland and the British regions from Category I eligibility for regional funds was made in order to show that the Commission is proposing a policy of equal misery for all.

Sub-Committee A has over the years produced a series of thorough and illuminating reports on key questions, and the latest report is a worthy addition to the list. I hope that the House and the Government will find it as valuable as I have done.

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6.12 p.m.

Lord Boardman: My Lords, I hope that the noble Lord will forgive me if I do not follow his line. He has vast experience of parts of the world of which I have too little knowledge to be able to do so and do it justice.

Perhaps I may start by thanking the noble Lord, Lord Barnett, for his chairmanship of the committee. He carried out his task with his accustomed style, experience and charm. He managed to lead the committee--which was not necessarily united on all matters relating to Europe--to produce a unanimous report. I join the noble Lord in the tribute he paid to our Clerk, Mr. John Goddard, who guided us with great ability and was of great value to the committee.

Perhaps I may make one criticism of this system of reports. That criticism does not apply to this report in particular, and I shall say why that is the case. On these matters much of the vital evidence that is required is only obtainable abroad, normally in Brussels: one has to see the commissioners in Brussels to obtain valuable evidence. The rules say--I do not know whether they are rules of this House--that only three or four members of the committee may go. We assemble and we hear valuable evidence from lots of people but we are not allowed to travel abroad to hear the key evidence, which most of us would like to be present to hear. I am sure that in the other place the whole committee troops off to see what is happening on the shores of Barbados, or wherever it might be. This is a matter which I believe deserves consideration. In the present case we were lucky. The noble Lord, Lord Barnett, and the Members who went with him to Brussels gave the committee very full and accurate accounts of what had taken place. I am sure we lost nothing in the process, although one felt that one would have liked to have had the opportunity to ask certain questions.

It became clear that all the applicants for accession are very keen to join. That is obviously because of the economic security that membership would provide, the trading prospects it would open up and the higher standards of living in the Community. I recognise that there are also considerable benefits to the 15 EU members. I should add the reservation that I am perhaps less enthusiastic than some members of the committee about some developments in Europe. I hope to have the opportunity to discuss later the views on economic and monetary union expressed by the noble Lord, Lord Garel-Jones, in his maiden speech. There are differing views, but none are relevant to this report. I was therefore only too happy to be party to the unanimous report.

Serious problems arise, both for the applicants and the 15 present member states. The Commission appears to have tried to cover these in Agenda 2000, referred to by the noble Lord, Lord Barnett, in his opening speech. However, it does not deal with them in depth in that report or say how it will resolve them. There are some very wide gaps, particularly in the financial field, with which we are concerned.

This enlargement is different from previous enlargements. The last one involved Austria, Finland and Sweden--relatively small, rich states without a

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large agricultural sector. The five candidates of the eleven candidates for accession which we have mainly discussed are all large and relatively poor and have very large agricultural communities. They are quite different from the previous candidates and will no doubt present serious problems with regard to the finances of the enlargement.

As the noble Lord, Lord Barnett, said, Agenda 2000 speculated on rates of growth: 4 per cent. for the applicant countries and 2.5 per cent. for the present members. We heard evidence that, even on those speculative projections--and who can say what the rate of growth will be five years ahead--it would be at least 25 years before the applicant countries would achieve even half the standard of living of the present members of the Community. Indeed, some evidence regarded that as a considerable underestimate. It will be a major problem. There must be either a considerable reduction in the benefits that the Community pays to its present members or a considerable increase in our own resources, fixed at the moment at 1.27 per cent. As I believe the noble Lord, Lord Barnett, said, there are only three options: first, to cut down what is being paid out; secondly, to expect the applicant countries to pay the difference between their rates of growth and that of the present members; or, thirdly, to increase our own resources above the 1.27 per cent. One of those options--that concerning the rates of growth--is purely speculative and the other two are very unattractive.

The committee did not deal with the CAP; agriculture was not within its remit. Time did not permit it and the sub-committee was not the appropriate one to deal with the subject. About half the outgoings for the Community are for the CAP. The next highest item is the structural and cohesion funds, which we were unable to go into in depth. Yet agriculture employs something like a quarter of the working population of the applicant countries. For the EU15 it is 5 per cent or under. Agriculture provides 9 per cent. of GDP of the applicant countries; for the EU15 the figure is 2.4 per cent. There is clearly a massive problem in trying to adjust one to the other. Such evidence as we had made it clear that the applicants would not be prepared to accept a second-grade agricultural policy. They do not want to see us continue to enjoy the fruits of the present CAP, albeit reduced by the lower level they would be taking. It is a very real difficulty which must be sorted out by the member states before we can look seriously at how we are going to finance the problems.

The other major areas of finance are the structural and cohesion funds. They are the second largest part of Community finance. The noble Lord, Lord Barnett, referred to it as being "pivotal" and the noble Baroness, Lady Young of Old Scone, in her maiden speech, endorsed that word. I was one of those who said it was "critical" and not "pivotal". I am not sure what the distinction is but I am happy to accept that the way in which we deal with the structural and cohesion funds is nevertheless extremely important.

None of the 15 member states of the Community will willingly accept reductions in their share of the structural and cohesion funds. As has been said, Germany has an election next year and will not

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contemplate any reduction of any kind, and most of the 15 will be having elections during the period when adjustments will be necessary. I therefore find great difficulty in seeing where any saving will come under those two funds.

On a previous occasion the sub-committee was given evidence and formed the opinion that funds from the cohesion fund were only payable to nations whose average GNP was below 90 per cent. of the average of the Community; and it was not payable to any of those if they were also eligible to join monetary union. It now appears that the Commission is having second thoughts and considering that even those who are joining monetary union may be permitted to receive cohesion funds. We could perhaps speculate as to why this sudden change of opinion--if it be that--has come about at this time when support is needed on a variety of matters.

My conclusion is that unless the gross national product of the applicant countries is much better than forecast or the existing members are prepared to give up larger slices of their subsidy from the CAP or from the structural and cohesion funds, or we are all prepared to increase the own resources figure of 1.27 to something higher, serious financial problems will occur. I do not see that they will be easily resolved. It is necessary that the applicants, the members of the Community and ourselves, give whatever thought we can to the problem of resolving those difficulties by sharing fairly in the benefits that would flow from their membership and at the same time persuading our fellow members to accept some of the sacrifices, which I believe will be extremely painful.

6.23 p.m.

Lord Desai: My Lords, I join other noble Lords in first thanking our chairman, my noble friend Lord Barnett, for keeping us in order and making us sign up when he wanted us to sign up, only allowing us occasionally to declare our dissident views from what we signed up to. I therefore greatly welcome this opportunity for debate. I also want to join my noble friend Lord Barnett and the noble Lord, Lord Boardman, in paying tribute to our clerk--Mr. John Goddard--for his excellent helpfulness not only on this report, but also on previous reports.

Today we heard two excellent maiden speeches, both of which were well-informed and detailed. I am sure that those maiden speeches tell us that these new Members will be a great addition to our Chamber and we look forward to hearing them in the future.

On 13th March 1996, the noble Lord, Lord Wallace of Saltaire, introduced a debate on enlargement. I believe that I was the only person to say, at cols. 866 to 868 of Hansard, that I was not sure that it was a good idea. I have always felt that people go into enlargement in a rather emotional, romantic way. The fall of the Berlin Wall following the tremendous misery suffered by the eastern European countries somehow brought about the idea that Europe should be one. We are very explicit in the first paragraph of the report when we say that it is all about "coming home." Indeed, I wanted the report to be called, "The Cost of Coming Home". It is the aspect I shall discuss this evening.

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My noble friend Lord Dahrendorf said that he could see no contradiction between deepening and widening. I see huge contradictions between the two. When enlargement was first pushed powerfully by the UK, among other countries, it was precisely to weaken the deepening of the Community which was then on order. The retreat from the deepening of the Community, which we have seen paradoxically since the Maastricht Treaty, will be further damaged by widening. Some of the problems that we are discussing--problems for the 15, not just for the five coming--are caused because, in order to sell the Maastricht Treaty, certain limitations were accepted on the size of the budget.

I know of no confederation of such a large size that can survive on 1.27 per cent. of GDP. Wasteful though it may be and full of fraud, it is one of the cheapest confederations in history. The total budget of the EU in 1999 will be less than 70 per cent. of the social security budget of this country. The CAP costs less than the interest the UK Government pay on their debt. Wasteful though it is, we must keep it in perspective.

We are accepting this arrangement without having even yet sufficiently absorbed the three newcomers, Spain, Greece and Portugal. The doubts we have about the structural funds indicate that. We are going to add five, plus one other country with perhaps another five standing in the background. It has been difficult enough to absorb four poor countries among 15. If we look at the full expansion--we can leave Cyprus out for the time being--it means that there will be 14 poor countries out of 25.

I see no public financial arrangement which can, on the one hand, say, "We are not going to spend more money on the total budget", and, on the other, "We will still absorb these countries." Indeed, as is well known, before the Second World War there was no idea that Europe could be a political union. After all, the British Prime Minister thought Czechoslovakia was a far away country with which we were not concerned. Now suddenly we feel that union is urgent--imminent and urgent. It is not just that it is a good idea; it is imminent and urgent.

As many noble Lords pointed out, the difficulty is not with the five or the 10; the difficulty is with the 15 that exist. One of the saddest consequences of the Maastricht Treaty has been the strains of convergence. I was a wild single currency enthusiast, if I can put it that way. Over the years one has seen the costs of convergence, which were not foreseen, place a tremendous strain on the Community spirit among the 15. That is not only why the UK is always conscious of its rebate and what it gets out of the system, but also why Germany announced that it too is not sure that it is getting enough out of the system.

No federation can survive when all the members of the federation want to be net debtors to the general budget. The simple idea that the richer countries should voluntarily make a positive contribution to the budget has eroded already, even before we consider enlargement. Therefore, all the various things we list about the difficulties of enlargement have to be seen from the perspective that, as we prepare for enlargement

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in a rather uncritical and enthusiastic fashion, which troubles me very much, the communitarian spirit has eroded very badly. Indeed, we have seen in the dash for convergence that countries have not co-operated at all. They have followed separate deflationary policies. They have run beggar-my-neighbour policies. And that is among the old six; it is not among the 10. If the old six now run economic policies with no community spirit, as we have seen, we shall put a great strain on the Union.

However, I think enlargement will go ahead. I have spent a lifetime thinking that things should not happen and they then happen. What I think will happen is that the budgetary constraints will be acute. It has not yet dawned on many local authorities in the United Kingdom and elsewhere that they will not receive any structural funds. They will have to start zero budgeting. I said that to a local authority conference about four months ago. I had to talk about a report on structural funds. The people there looked at me as if I were a mad man. I said, "I've seen the future and I am telling you. You are not going to get any money and you had better start preparing for zero budgeting." The days when East Anglia could be classified as a region deserving European aid are numbered. I do not think the UK should get structural fund aid at all. Certain areas will get it because that is how the European Union works. But I do not think that it should work in that way, certainly if we are to absorb 100 million extra people.

The European Union 15 will have to get their acts together if they think that within the current budgetary constraints they will be able to absorb the new countries. As there is no climate for expanding the budget, we shall have to fall back on the prospect of cutting the structural and cohesion funds or cutting the money spent on the common agricultural policy. I wake up every day surprised that the CAP was not abolished the night before. The Berlin Wall has fallen but the common agricultural policy goes on. It is no less an injustice not only for Europe but for the third world as well. There we are. It is in the politics of the Union that the reform of the CAP will not be done if only to make members agree to enlargement. That is the paradox of the situation. And, of course, the CAP benefits the richer countries of the Union.

I do not want to go on with this long and sorry tale. What the report points out--I hope the Government will take note of this--is that there is serious trouble ahead if we are to take enlargement on board. Unless we say early on that the cohesion funds have to go--except perhaps for Greece--and that the structural funds will have to be drastically re-ordered so that only deserving regions get them, and unless we say that the common agricultural policy should be halved, if not totally eliminated, by the year 2002, enlargement will not be an easy process. In an ideal world we would all see enlargement as being of great benefit. If it were only a political union, there would be no problem. If it were only a union to encourage democracy, there would be no problem. But it is an economic union. There are serious consequences from having an economic union. I do not believe the major players have recognised what the consequences are.

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I shall make one more point. We have not considered the economic consequences of enlargement. We have considered only the financial consequences. The idea of getting 100 million more people in a single market with free movement of labour will have drastic consequences for the labour markets of western Europe. One is absorbing 100 million relatively cheap but skilled labourers. Wages in western Europe will suffer. It may still be that enlargement is a good idea, but people who talk about it should say that this is one of the likely consequences. We have to be prepared for it. If we are to have enlargement, we have to prepare now for that consequence. With that happy thought, I shall sit down.

6.36 p.m.

Lord Haslam: My Lords, having been ceremoniously transferred from Sub-Committee A to Sub-Committee B before my former colleagues started on this study, I knew they would produce an excellent and readable report. It has in fact exceeded even my high expectations. As ever, the masterly chairmanship of my noble friend Lord Barnett shines through.

I shall be brief as I have only one point to make. I agree wholeheartedly with the main conclusions of the report, but would particularly like to emphasise the views already expressed by the noble Lords, Lord Barnett and Lord Desai, that the reform of the common agricultural policy, with the objective of reducing its costs, is pivotal to the financing of the proposed enlargement. It seems to me that enlargement creates a splendid opportunity for a root and branch review of the CAP, and that this should not be missed.

The process of enlargement will undoubtedly add to the existing serious unemployment problems in the European Union. With this in mind, I believe that the opportunities should be seized to boost the finances of the structural funds at the expense of the CAP, with the outcome that the former funds will quickly exceed the latter. I was somewhat perturbed, therefore, when I read on page 13 of the report that the financial framework proposed by the commission for 2000-2006 in no way represents such a radical re-shaping, and indeed the two funds barely converge during this period.

As has been evident in many member states, and particularly in Ireland, Portugal and Spain, the structural and cohesion funds can obviously be deployed on a much broader canvas and for much more deserving causes in generating durable employment opportunities. This was very apparent to me as a member of Sub-Committee A when we studied the structural and cohesion funds earlier this year. In contrast, the CAP is focused on a narrow front, in what I believe has always been a very privileged sector for far too long. One has the feeling that the Commission's financial framework reflects too much what it believes it can persuade the German and French governments to accept, and thereby, I believe, does not meet the really radical approach that is so badly needed.

Finally, as a naive industrialist, and as a non-farmer, I have never understood why agriculture should uniquely benefit from a form of permanent state aid whereas industries and other businesses have constantly

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to re-shape their activities to respond to their evolving competitive environment. This strengthens my belief that the current CAP should be the pivotal contributor to the cost of financing enlargement.

6.40 p.m.

Lord Grenfell: My Lords, I begin by once again thanking my noble friend Lord Barnett for his chairmanship of the committee. It is always a pleasure to work with him. He does it extremely skilfully. He has a very good, human way of holding our noses to the grindstone. We usually end up, certainly under his chairmanship, with a very good report, with a great deal of thanks going to our Clerk, John Goddard, whose support to us has been absolutely vital.

I also preface my remarks by endorsing what my noble friend Lord Barnett said about what really worries us, which is that the financing has simply not been thought through. It worries us because of what we wrote in paragraph 7 of the summary of the opinion of the committee:

    "Enlargement, if successful, could lead to unparalleled security and stability for the peoples of Europe. If the opportunity is missed there could be a slide towards the tensions and instability which have so disfigured Europe in this century".

That is not just something merely to be desired; it is an absolute imperative.

So the question of financing has to be taken extremely seriously. The Secretary of State of the German Foreign Office came to see us and reminded us that the German taxpayers had so far forked out 176 million deutschmarks to help pay for crisis management in the successor states of Yugoslavia. He sensibly added a comment that if enlargement made these crises less likely, it was a bargain at half the price. I thoroughly agree with him.

That brings us to this question: will the much talked about 1.27 per cent. ceiling be enough? That depends on who one talks to. If one talks to Treasury Ministers of the net contributor countries, one will be told that they will insist that the cost to the EU budget for all 10 applicants up to the year 2000 will be under the 1.27 per cent. ceiling. That is very much the view of our own Treasury.

The Commission is a little less dogmatic. Part III of Agenda 2000 contains this statement:

    "There are various indications that it should be possible to cover the development of priority measures to be financed from the Community budget over the period 2000 to 2006 without raising the own resources ceiling".

It is to be noted that it refers to the priorities and not the total cost.

But let us now turn to what the genuinely sceptical have to say. The European Parliaments Committee on Foreign Affairs produced a working document in which it said:

    "Do the financial resources required for enlargement exist or will the ceiling need to be revised? The probable reply is that they do not exist. It would appear extremely difficult to cope successfully with the impact of the accession of 11 countries which have such widely varying levels of development and are lagging so far behind the current levels in the member states unless the appropriate financial efforts are made".

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The subsequent draft report of the committee says that it believes:

    "that the gulf between the political, strategic and economic importance of enlargement and the exiguous resources available to carry through this large-scale operation, which will change the face of our continent and the Union's position on the international scene, are just too exiguous".

The Budget Committee of the European Parliament also had something to say on this which is in much the same vein. It said:

    "The existing margins for financing enlargement are to a large extent based on virtual savings bound with an uncertain decision-making process spread over a period of time".

When one sets that against the insistence of Treasuries that the 1.27 per cent. ceiling cannot and must not be broken, one can see that there is not exactly a consensus.

Of course, governments will have the last word. But that does not mean to say that they will not in the end be proven to have made a disastrous decision. No wonder Hans van den Broek in his evidence to us said in connection with the funding:

    "This discussion, in fact, is still developing and I find it difficult to see where exactly we are going to end up".

I do not blame him! The cost is probably not calculable. But at least the basis on which the availability of funds to meet those costs is calculated should be realistic and transparent, and it is not.

What I find interesting is that, if one looks back to recent enlargements, the financial packages were accompanied by the raising of the own resources ceiling as a result of an assessment of the requirements. But this time there seems to have been a reversal of approach. Rather than being the outcome of a process, the ceiling has become a given "a priori", and worse, to be financed with a package of uncertainties.

The European Parliament's Budget Committee working document of September 1997 put the matter this way:

    "The existing margins for financing enlargement are to a large extent based on virtual savings".

I repeat that from my earlier quotation. It is important to bear in mind that it is talking about virtual savings. As my noble friend Lord Barnett has pointed out, two-thirds of the expenditure within the ceiling is to be met from supposed economic growth rates of 2.5 per cent. in the 15 member countries and 4 per cent. in the applicant countries. As we point out in the report, that is highly speculative.

Some IMF figures quoted in today's Financial Times show that the annual average GDP growth in the OECD area between 1990 and 1995 was 1.9 per cent. But now of course we have the Asian crisis. There is now serious restructuring to be done in those affected countries and their economies. The transition will be lengthy and painful. It is bound to have an impact on western economies, as demand for imports weaken in Asia and Asian currency values fall.

We should also be on the alert for a possible liquidity crisis and higher interest rates as the stabilisation programmes mop up money on a massive scale. After all, 55 billion dollars for Korea is certainly not chicken-feed. Let alone the EU 15, the central and

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eastern European applicant countries and the Baltic states need the spill-over effects of this crisis like a hole in the head. We should not count on 2.5 per cent. or 4 per cent. Of course, they may turn out to be achievable rates. But why are we gambling the security and stability of an enlarged Europe on such a string of uncertainties?

The remaining one-third of the costs are to be met from the reform of Community policies, as we have been told. We examined that in some detail in the report and I shall make only a couple of brief comments. First, we had better get on with these reforms. Time and again I have heard officials and parliamentarians from the applicant countries expressing their fears that foot-dragging on reforms which, as the report points out, must take place before the accession of new members is in fact a tactic to delay enlargement. The EU 15 must demonstrate their good faith in this matter and show that that is not so. It was pretty depressing to hear President Chirac say in Salamanca the other day, at the Franco-Spanish Summit, that he was not willing to accept an EU which called into question the interests of France and its farmers. He had the grace to go on to say after that that we should have the courage to put the reforms through. But the two different remarks did not sit too well together.

The German Agriculture Minister is reported to have said that the Community's proposals on reform of the common agricultural policy are simply unnecessary. So far, Chancellor Kohl has not refuted him and probably will not do so until after the elections in 1998. So much for the sense of urgency!

Here, in parenthesis, I draw the attention of my noble friend on the Front Bench to a matter concerning the cohesion fund which needs settling since we are talking about the fund. It had long been understood that the cohesion fund was a convergence fund. That was the popular interpretation of what it was all about. It was there to prepare countries to enter monetary union. That has been the belief. As we recorded in the report, when we were in Brussels and spoke to Commissioner Liikanen, the Budget Commissioner, he said that the lawyers in the Commission had now come to the conclusion that it was not a convergence fund. If that is so, the countries that are entering EMU will be allowed to continue to draw on the cohesion fund--I repeat, "if that is so". However, it is very important that we get it clear once and for all. Her Majesty's Government would do well during their presidency to insist on that being clearly, finally and definitively settled.

There are just too many doubts about the financing of the enlargement. The report sends out some clear warning signals. To be so uncertain how resources will be mobilised to meet a known cost is bad enough; so clearly to underestimate the cost, as I am convinced is the case, only makes it worse. It is simply not good enough to say that the European Union will have to be satisfied with whatever measure and quality of enlargement can be bought within the 1.27 per cent. ceiling. As our report insists in paragraph 84, the financial perspective to be agreed for 2000-2006 should contain a provision for review before 2002 of the own resources ceiling. Of course, I accept that there will be

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other sources of finance from the international financial institutions. But the 1.27 per cent. ceiling looks to me to be pretty fragile.

I turn now to two non-financial aspects of enlargement: the time-frame and the negotiating process. Applicants are naturally in a hurry. As the noble Lord, Lord Dahrendorf, pointed out, all this should probably have happened long ago. Many countries have populations which will all too easily turn against the idea of accession if it is seen to be pushed off into the distance, but in their own interests they need to be given a more realistic assessment of the timescale. Hungary's Foreign Minister, Laszlo Kovacs, says that negotiations with his government can be wrapped up by 2000, with accession one or two years later. However, Commission officials are saying that negotiations with Hungary could well take not two but three or four years.

Poland's Prime Minister, Buzek, says that negotiations can be completed by 2000, with accession the following year. His president says that it will not take even that long. However, the Commission is saying that Polish entry by even 2003 is an ambitious target. The chairman of the European Union Parliamentary Foreign Relations Committee agreed with that when he met us. Again, Prime Minister Buzek says that five years will be enough to complete the agricultural transition in Poland. Commission officials are unofficially saying that it might take up to 10 years.

Those are just three examples of widely varying perceptions. We need greater transparency, more realism, but no unnecessary foot-dragging, which could be highly counter-productive and eventually more costly. With negotiations beginning at the end of next March, we can reasonably expect the first accession or accessions in 2003. But even that does not leave much time for the EU's own reforms to be completed.

What of the negotiations themselves? As my noble friend Lord Barnett and other noble Lords have pointed out, our report endorses the five-plus-one approach. I endorse it too, but with some misgivings. From a practical point of view, for the EU 15 it makes sense, but it lays a heavy responsibility on them and on us to ensure that the remaining five are not left feeling out in the cold. That, unfortunately, is what they do feel and it is essential to counteract it. It is essential to minimise the damage to their efforts to achieve regional solidarity. The Madrid decision to select a few starters does some damage to those efforts. Moreover, as those countries say, it goes somewhat against the spirit of what was earlier agreed in both Essen and Copenhagen.

A country like Bulgaria knows that it is not ready for accession--and it says so--but why, it asks, cannot a serious negotiating process start now. The so-called "structural dialogue" proved to be no more than embarrassing formalities and empty exercises in protocol observance. That is Bulgaria's view. Why is not the European Union more directly and continuously involved in helping to prepare those countries for an eventual start to negotiations? As a former Foreign Minister of Bulgaria put it to me last night at a meeting in Paris, "Must the European Union keep us at a safe distance until others, like the IMF or the World Bank,

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have declared us economically fit to be considered ready to start negotiations? This is politically divisive in a region of vital importance to Europe's stability". I agreed with him that the proposed European conference must serve to include the next wave in a meaningful, substantive process, leading to the opening of negotiations at an appropriate time. Such countries must be on this side of the door waiting to come to the table, not on the far side of the door in the corridor, waiting for the door to be opened to them. That, to my mind, is a political imperative.

I yield to no one in my conviction that enlargement is an imperative, not an option. This is surely the most significant, complex and absolutely necessary enterprise that Europe has undertaken in its long process of post-war construction. In this continent's long history, the great geo-political enterprises have always had both winners and losers. Indeed, many had that as their objective. However, in this case we are in an enterprise where there are supposed to be only winners. If we fail to finance the enterprise appropriately, promptly and adequately, there will be losers--perhaps all will be losers, even those who think they are at least temporarily winners. The effect will be felt far beyond the borders of the Union and for far longer than any of us is here. We simply cannot afford that.

6.56 p.m.

Baroness Ludford: My Lords, I very much welcome this debate today and the fact that it is taking place on the eve of the Luxembourg summit and the United Kingdom's presidency of the European Union during which the first negotiations are expected to start. The committee has done this House and the European Union a great service by the speed of its deliberations, considering that the Agenda 2000 document was only published in July.

As has been said, it is now almost exactly eight years since the tearing down of the Berlin Wall. I was unable to visit Berlin at the time and had to be satisfied with watching events, transfixed, on the television. I therefore treasure as no other a gift that I was given by a friend in January 1990--a tiny piece of concrete from the demolished Berlin Wall. So I plead guilty to the charge expressed by the noble Lord, Lord Desai. I have an emotional wish to bring such countries home to Europe.

It is because I grew up on Cold War rhetoric and believed what we said about liberating central and eastern Europe for freedom and democracy that I believe that we have a moral duty to complete a successful enlargement. However, even that is not the major reason for expanding the European Union. The principal motive is our own self-interest in stability and security. We also need to change for our own sake. We need to change the European Union to be more democratic, more relevant and more effective. We should therefore welcome the dynamic impact of enlargement towards those ends.

The report does not pull its punches, noting that enlargement is a challenge of momentous consequence, but that national governments do not appear to recognise its sheer scale. The report warns of the absence of the

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political will that is needed to accomplish the necessary reforms to the policies and institutions of the European Union. The committee commends the realistic route plotted by the Agenda 2000 document, so the task is to persuade our member state governments to face up to the implications and for them to persuade our citizens that enlargement must happen.

While Agenda 2000 may be a route to the start of negotiations it is not a strategy for the accomplishment of a reformed European Union. It is perhaps an overworked cliche that history will not forgive us if we blow this opportunity, but I believe that it would be a misjudgment of huge consequence if we failed to seize the chance to reunite Europe and lay the foundations for unprecedented peace, prosperity and partnership on our Continent. Far from being an opportunity that is difficult to afford, it is one that we cannot afford to bungle if we really care about making our citizens safe. Here I disagree with the noble Lord, Lord Bridges. Security does not encompass merely military security through NATO; it includes economic, environmental and civil security through the European Union.

One of the points made in the report is that the institutional reforms must be agreed before the first accessions are ready. One of the major disappointments of the Amsterdam Treaty was that the heads of government ducked such issues as the need to streamline the Commission probably to one per member state and reweight the votes in the Council. Mr. Tony Blair was reported at the time as saying something to the effect that institutions were boring. I take issue with him since a citizens' Europe must mean effective, democratic and transparent decision making as much as tackling unemployment or crime. It is strange that a government who at home are rightly keen on constitutional reform, because they believe that that leads to better government, should be so shy of it on a European level. We know that the European Union will simply seize up if there is no streamlining of the institutions.

I was encouraged by the reports of the speech of the Foreign Secretary Mr. Robin Cook in Budapest on 26th November. In terms very similar to the committee's opinion, he said that,

    "without reform, enlargement will remain beyond reach".

He urged all member states,

    "to accept that our common interest in a modernised and expanded Union outweighs narrow national interests".

We know that words must be translated into reality. However, according to reports, his speech was calculated to convey a message of complete and unequivocal British support for enlargement. The Foreign Secretary indicated that it was the intention of the Government not only to push hard the Agenda 2000 package of reforms but to shake up the decision-making machinery. I hope that he includes the machinery of the common foreign and security policy because enlargement will make that even more important.

Further, I am glad to note that the Foreign Secretary distinguished this Government's approach from that of the previous Conservative Government. The latter was suspected of promoting widening of the EU through enlargement only as a Trojan horse to scupper

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deepening in a federalist direction. One matter to note is that if monetary union fails enlargement will be derailed. I add that the Foreign Secretary did not say that. While I am sure that unfortunately it is wrong to conclude that the Foreign Secretary is a closet federalist, I admit that his approach to enlargement causes my regard for his somewhat austere intelligence and integrity to recover after his decision to continue the delivery of Hawk aircraft to Indonesia.

Many noble Lords have said that reform of the common agricultural policy is top of the list of policy reforms. In particular, I congratulate the noble Baroness, Lady Young of Old Scone, on her maiden speech. I am a mere townie, but I listen avidly not only to "The Archers" but also "Farming Today". I admit to being bemused by the operation of the CAP. I have enormous sympathy with the terrible difficulties being suffered by beef farmers, made worse by yesterday's announcement, apparently related not only to the frustrations occasioned by the BSE crisis but also to the collapse of prices.

Perhaps it is time that we townies had greater leverage over the CAP. Where on earth do all of these subsidies go? The CAP costs taxpayers £28 billion a year. To the noble Lord, Lord Desai, that may not be very much, but it is £28 billion. We have some clues. Since 1992 cereal farmers have received up to £12 billion excess subsidy due to a failure to anticipate record high cereal prices. The annual cost of set-aside--paying farmers to produce absolutely nothing--is almost £1 billion.

It is perplexing to read these figures and then hear of the undoubted distress of small farmers. It does not take any great agricultural knowledge to work out that the money is not going to the right places. Very little of it appears to be going to support rural development, small family or hill farms, organic production or environmental improvements, and rather too much goes on another Mercedes for the cereal barons or the City types who own the big farms. I understand that we also spend £715 million a year to subsidise tobacco production. That demonstrates a somewhat bizarre conflict with today's meeting of EU health Ministers considering a ban on tobacco advertising.

We cannot carry on like this. I commend my own party's proposals for replacing price support with targeted income support and countryside management contracts to encourage sustainable farming and land management responsive to the concerns of taxpayers who foot the Bill. These reforms are vital in themselves, but unless something radical is undertaken the rapacious financial demands of the CAP will torpedo the chances of successful enlargement. There must be headroom in the EU budget to ensure sufficient aid for accession. That aid must be directed especially to infrastructure investment such as transport networks. I accept the point made by the noble Baroness, Lady Young, that it must be sustainable and environmentally friendly investment. We must help them to meet environmental standards and build up the quality and capacity of public administration and law enforcement as well as the financial and banking services in the applicant states. But we must be able to demonstrate to all citizens in

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the existing 15 member states that the European Union delivers value for money. We must be able to squeeze value out of every last penny of expenditure and see what can be cut, reformed or funded differently.

In his tour of Hungary, Poland and the Czech Republic the Foreign Secretary made clear that the UK supported the view, which the committee also expressed, that negotiations should be commenced with the five-plus-one rather than adopt the regatta approach. It is vital that even if there is differentiation in the timing of the talks it should not be permanent differentiation. To borrow a phrase usually used in the context of European Monetary Union, they must be "pre-ins" rather than "outs". There should be no velvet curtain to replace the iron or concrete one; otherwise, the confidence necessary to attract the direct private investment which is so vital will not be present. The European conference of all the applicants which is to be launched in February is designed to demonstrate the inclusiveness of the enlargement process and must not be a public relations exercise. It must be real.

The enlargement of the European Union is an investment in our future. We will boost our prosperity by the enlarged trade opportunities and assure our own security if our close neighbours and partners are democratic, prosperous and respectful of the rights of minorities. This debate is about financing enlargement, but the cost to EU countries and the United States of the Bosnian war is a reminder of the expense of instability and conflict.

I am grateful that this debate has taken place today. I hope that the message we send to the Foreign Secretary, other existing member states and future member states is that we are determined and enthusiastic to make a success of enlarging the European Union to almost 500 million people. But the United Kingdom Government must have a firm strategy for the kind of European Union that it wants to achieve. As all noble Lords have recognised today, this issue is highly political rather than technical. It may be 10 to 15 years before all of the current candidates are fully integrated. We had better get cracking and keep up the momentum. A successful enlargement offers the prospect of a transformed European Union and a major contribution to European stability in the 21st century.

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