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Lord Grenfell: My Lords, the noble Baroness has spoken eloquently of the vast complexities of reforming the CAP, the structural funds and the institutional arrangements in the European Union. In doing so, she has revealed the true intent of this clause. That is simply that it would be far better to use this argument as an argument for delaying the ratification of the Amsterdam Treaty on the grounds that clearly these reforms will not be completed very fast. So the cat is rather out of the bag on this one. To put it charitably, the framers of this clause may have been seduced by the wishful timetable that one reads about, which basically states that the CAP reforms should be in place before the world trade negotiations start next year; that the reform of the structural funds must inevitably be completed before

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they in effect run out in 1999; and that the institutional reforms must be in place before the enlargement actually happens.

I certainly agree that the institutional reforms, CAP reforms and reforms of the structural funds need to be in place before the enlargement can take place. That is perfectly clear. However, let us not underestimate the amount of time that it will take, first, to get the reforms through, and, secondly, to complete the enlargement process.

Agenda 2000 sensibly stated that it did not want to use the enlargement as the vehicle for driving through these reforms. It was smart enough to realise that these are complex reforms and that they need to be made in any case, whether or not enlargement takes place. The overhauling is absolutely necessary. Whether the enlargement is to 20, 25 or whatever the number may be, the reforms must take place.

It would be a tremendous pity if we were now to say in accepting this amendment that the very sensible measures proposed in the Amsterdam Treaty should be held hostage to a dual process of agreed reform to the CAP, the structural funds and institutional reforms, and the extremely complex negotiations on enlargement. They will simply not come about that quickly. If for a moment we could divorce in our minds the reforms that we want to see achieved from the process of the actual enlargement of the European Union, and concentrate on the reforms, get them through and then move on to the enlargement process, that would be the sensible approach. The reforms have to come about before the enlargement.

As I said in Committee, we should remember that the reforms that we want to see put through are necessary to the enlargement. But they cannot be hurried. We have waited a long time for them; however, their complexity is such that they must be handled properly. Many of the applicant countries that want to enter the European Union--both those that are on the accession list and those that are not--are in my view gravely underestimating the amount of time that it will take for their negotiations with the European Union to be completed--we have only to read in today's Financial Times the reports of the tremendous difficulties that Poland is having with the European Union over the use of aid funds made available to that country so far. If that is any indication of what the problems are to be in the negotiations, the process will be much more drawn out than those countries unfortunately believe.

However, it gives us time to get proper reforms through. What one must not do is to hold up the ratification of the Amsterdam Treaty until the reforms have been agreed. There is no reason to do so. As we have said so many times on this side of the House, the Amsterdam Treaty is not highly controversial. There are sensible measures in it to try to get the European Union to work more efficiently. Many of the measures put forward are those which meet many of the interests and requirements of this country. So let us not try to hold up the Amsterdam Treaty and simply wait until the long drawn out and complex series of negotiations on reform have been completed.

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As the noble Baroness rightly said, there are very tough decisions, fraught with problems. That is absolutely right. So let us take the time to get them right and get the solutions through and not hold up the Amsterdam Treaty.

10.30 p.m.

Lord Howell of Guildford: My Lords, since the Committee stage, events have marched on on this front as well as the others we have discussed today. I am grateful to my noble friend Lady Rawlings for the amendment which gives us the opportunity to review the situation again. It is changing fast.

Enough has been said by the noble Lord, Lord Grenfell, by my noble friend Lady Rawlings and by others in earlier speeches this afternoon to remind us what an appallingly drawn out process this has been, is being and will be. It is amazing to reflect that it will probably be 15 or 16 years after the fall of the Berlin Wall before the new democracies, who thought they were rejoining Europe when they got rid of the Soviets, come to be likely to get into the European Union. That is assuming that no new obstacles are raised against them, which is quite a tricky assumption. That is for the fast track, whereas the prospects of the other five of the 11--the five plus one plus five--those who are considered not yet properly prepared, are disappearing into the blue yonder of the never-never land. I can see no hope for them at all at the moment and it seems to be getting less all the time.

We have not discussed this evening--and I do not want to give any time to it because the hour is late--the question of the handling of Turkey. It was mentioned earlier, I know it is difficult: many people in Europe do not want Turkey in the European Union. They talk of involving millions of Moslem people in the Union. So their feelings were expressed in, I thought, an extremely clumsy exclusion of Turkey from the whole process. I know Turkey was supposed to come to Lancaster House and did not turn up, but the country was more or less told that it was not on the list. That has caused great ill feeling in Turkey, there are very dangerous undercurrents and we shall all pay a frightful price for it in due course.

As we know, the official position on enlargement is set out in Agenda 2000, to which the noble Lord, Lord Grenfell, referred. I think on the surface it sounds reasonable. The five plus Cyprus will be negotiated with: negotiations are already supposed to have started. The other five will be left on the slower track. But if one wants to understand the real approach, the real philosophy driving enlargement, it is better to look at the pre-accession strategy rather than the Agenda 2000 document, which contains some high flown aims for reforms. None of them has got under way. But the pre-accession strategy was clear in numerous councils and European summits. The new applicants were told two things precisely. One was: "Marketise your economies, turn them into free market economies. Get rid of the remaining barriers and create the conditions in which you can trade fairly with the existing European Union". The second was to accept the acquis, lock, stock and barrel. The difficulty which many of the east

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and central European governments have been pointing out ever since, rather mournfully, is that those two diktats, or requirements--perhaps "diktats" is too crude a word--are contradictory.

It so happens that the eastern European economies are rapidly emerging as the most dynamic, free-market economies on the European continent. They are moving ahead of many parts of western Europe. They have liberalised at a fantastic rate. Perhaps it is because they started under Soviet authoritarianism. But they have now leap-frogged to the point where a country like Estonia has no tariffs at all--none--with anybody in the external world.

They are highly liberalised countries. Poland is racing ahead; Hungary has done brilliantly; the Czechs have had a hiccup over some of their privatisation difficulties; but those are already market economies. Yet now they are being told to adopt the acquis and the acquis is not by any means totally informed by market economics. It has got all sorts of requirements for new regulations and new standards said to be part of the necessary arrangements for trading with the existing European Union but which in effect raise barriers, raise costs and remove the very advantages which those countries have exploited so well so far--being highly skilled countries, with low labour costs, and having considerable dynamism and the ability to attract enormous outside investment, which they are rapidly doing, both portfolio and direct investment.

One can therefore see that from the western European point of view it is essential to make sure that the acquis is accepted, though the price that will otherwise be paid by the interests and lobbies of western Europe will be extremely high and that is a price that they do not want to pay. I find all that understandable. As the amendment says, it is a question of structural and regional funds. But if one is in the existing Union enjoying those benefits, one does not want to see them go east. If one is in the existing Union, one does not want to see direct foreign investment--private investment which is poured into the Iberian Peninsula and into some of the Mediterranean countries--diverted, as it is being diverted, into the gigantic new motor manufacturing electronic works in Poland, Prague, the Czech Republic and Hungary.

One can see what the real forces in this game are. Many people in western Europe are anxious that enlargement will take away the enormous benefits that have been enjoyed. And that is not all. Western Europe is reeling under the impact of Asian competition, which is about to get much worse, of course, as much lower cost, devalued currency imports pour into Europe. As the Berliners rather sadly say, "We are threatened with Asia only 40 kilometres away, behind our backs". At the Polish border we are going to be dealing with Asian levels of competition; labour costs one-tenth of those in western Germany, or indeed in Germany as a whole, because of the unification procedure, and very high quality goods as well, all of which are a direct threat to western Europe.

One must therefore be realistic in recognising that the motivations for pushing for enlargement are extremely limited and not at all at the root of popular opinion in

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western Europe. On top of that, we have the problem of the common agricultural policy. Eastern and central Europe are dominated by agriculture, much of it extremely competitive. Hungary alone could probably feed the whole of western Europe; certainly Poland could. That creates the ultimate impossible dilemma, as was outlined brilliantly in a House of Lords European Select Committee report two years ago. The dilemma is perfectly simple: if the present levels of subsidy are to be maintained and applied to eastern Europe, then the entire budget will blow up. We are talking about trebling or quadrupling the budget, or more.

If the subsidy levels for the new entrants are reduced, then we are creating a two-tier system, with the poorer farmers of eastern and central Europe having to compete with the richer farmers of western Europe who will be receiving larger subsidies. It is hard to think of a more divisive formula for undermining the sense of European unity, which many of us thought we were supporting.

Finally, there is the question put so eloquently by my noble friend Lady Rawlings that if one is sitting in eastern Europe wondering what they are doing in the treaty reforms to accommodate and prepare, and we look at the Amsterdam Treaty--I am not arguing with the noble Lord, Lord Grenfell, about delaying the treaty--we find it is, in the words of my noble friend Lord Moynihan earlier this afternoon, blind. It has nothing to say at all in the way of institutional preparation for enlargement. That is not very encouraging if we look at it from Warsaw or Prague.

No changes in procedure therefore are contemplated, and there are no changes in the law-making procedures, which my noble friend Lord Renton, in a brilliantly perceptive article in the Statute Law Review two years ago, said were absolutely essential before we could begin on the serious and bona fide process of enlargement.

One is therefore left feeling a little downcast about the whole enlargement story, and I fear grave disillusion ahead on this entire matter. These are small nations. They say yes to being in Europe of course; that is perfectly understandable. They want to be reassured by being part of the European family. But they are not so keen on losing their national identity, which they have only just got back after a hideous 40-year struggle. They are clearly not going to qualify for EMU because their economies are not convergent. There is, therefore, a real set of difficulties ahead, on top of the fact that there does not seem, under the surface of rhetoric, to be very much enthusiasm in western Europe for enlargement at all.

We have much in common in this country with these small countries, and they look to us with great respect. We helped bring some of them into being. We brought Estonian independence into being through the Royal Navy in the 1920s; Hungary sought British leadership between the wars; we went to war for Poland in 1939. We were seen as the champion of these countries and, in my view, we should resume that championship, and it is not a moment too soon to do so.

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