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Lord Tordoff: My Lords, I am grateful to the noble Lord for giving way. It may set his mind somewhat at rest, though it does not answer all the points that he has been so wisely making, that our new Sub-Committee C is devoting its activities to CFSP and has already produced a report on the integration of WEU.

Lord Owen: My Lords, I am pleased to hear that. I hope the committee will look at these questions and the detailed wording of Articles 21, 23, 18 and 27. I hope also that a debate in this House will take place in time to influence the Government's stance at Nice. People in this country have not begun to understand how crucial this question is and of what importance it is to NATO.

I turn to Article 43 of the Amsterdam Treaty on enhanced co-operation or flexibility. I was shocked to hear the speech of the noble and learned Lord, Lord Howe. As a Foreign Secretary he spent much of his time, like myself, in negotiating inside the European Union. He must know that when we have a veto in those small hours of the night when some crucially important wording is under dispute, we are taken seriously. If we do not have a veto and are having the matter dealt with by qualified majority voting or enhanced qualified majority voting, the nature of the discussions and the dialogue is that our representations will carry less weight.

I happen to believe that the flexibility clause is a good clause. But in the treaty of Amsterdam--it was only ratified a year ago--there is a veto. I see it now has this rather strange name of the emergency brake mechanism. But let us not talk in euphemisms; that is a cover for a veto. The issues on flexibility could be of fundamental importance. We know that some people want to use the flexibility clause on the issue of defence. I challenge the noble and learned Lord. There is no way that we should concede that enhanced co-operation on defence over and above that which we are now tentatively spelling out and moving towards should be able to be introduced if we in this country, with our strength and our commitment, felt that it was challenging our national interest. That is not paranoia; it is not suspicion. We know the French aspirations on defence. The noble and learned Lord knows them extremely well. They do not share our view on defence

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and the way our successive governments have safeguarded, over a number of decades, NATO's position on this delicate question.

Lord Howe of Aberavon: My Lords, I thank the noble Lord for giving way. He must have misunderstood my position, or I failed to make it clear. I do not wish to see any change in that position. Indeed, it is my anxiety that inadvertently the Conservative Party proposals would allow selective opt-outs from future changes and might diminish our influence in the overall role, even in the area to which the noble Lord referred. Clearly, any changes in the Amsterdam position should require unanimity and I hope I reassured him on that point.

Lord Owen: My Lords, I am grateful and apologise for misinterpreting what the noble and learned Lord said. Whatever honest and genuine differences of opinion we may hold about the euro, I respect his contribution over the years. I know that his attention to detail as a negotiator has often saved us from adverse wording. He knows it is the detail that matters. This is not a time for talking in grand, general phrases. The detail is everything in this whole area.

Those are my two major issues. There are some other questions associated with the treaty, but perhaps I may come to the more general question as to the way we handle the politics of the European Union. I woke up this morning to be told that the Government felt that the Danish referendum was irrelevant. That is a strange way to behave for a government who have been telling us for the past week that they were a listening government. The first test seems to have been lost at the first hurdle.

There are important implications to be drawn from the Danish referendum. Of course our countries are different. Denmark has been content to sit within the ERM. It has not had our disastrous experience. The size of our economies are different. But the nature of the debate which took place was that it was an open and democratic one. There were certainly lessons for all of us to learn about that and the way that it went into the constitutional and democratic implications. After all, this is a country with which we have had centuries of deep friendship; it is a country whose judgment we do not want to dismiss merely because it is a small country. Denmark is a country which has been our ally and our friend and at the very least this Government owe it to themselves to re-examine their policy.

Mention was made of the German and French demand for a constitutional conference in 2004. Somebody tended to dismiss it. Experience shows that when those two countries set their head at holding a governmental conference on EU constitution, they will succeed. It may be pushed off to 2005 but I suspect that it will be 2004. I cannot see how any country can make a rational choice on the euro when hanging over it is an EU constitutional conference of that importance.

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I am no longer what I call a party politician; I am not bound by having to make a decision as to whether we have a referendum in the next Parliament or the one after that. But I look at the landmark decision points in the European Union, and that constitutional conference will be a landmark. It is only after we have looked at that and seen the outcome that we will be in a position to make a rational, sensible, national decision about whether or not we should go into the euro. It would also have the advantage of giving us more economic space to see how euroland succeeds. It will give us time to assess the relevance of our previous economic cycle, with its greater alignment with the North American continent than that of the Europeans.

This is not the time to discuss the euro and I do not wish to do so. But I for one wish to say that I believe the democracy in Denmark was shown to be working at an extremely effective level yesterday and I certainly do not wish to disparage its democratic decision. This Government will be wise to listen carefully to that debate. We in this House ought to remember that the parties do not represent public opinion in this country. There is a solid view--69 per cent plus--of people who are making it quite clear that they wish to be members of the European Union. There are very few who wish to pull out. But they do not wish to join the euro or do not wish to be hurried into a decision on the euro.

This House owes it to the country to try over the next few years, following the model of the Select Committee, to go into these deeper political, constitutional and democratic implications and not accept the Government's position that this is predominantly an economic decision; that the constitutional implications have already been weighed and a decision has already been taken. The Government and all of us have barely begun to weigh the profound constitutional, democratic and legal implications of membership of the euro.

12.18 p.m.

Lord Tomlinson: My Lords, I am sure the noble Lord, Lord Owen, will forgive me if I do not follow him too far in his arguments, because there are a number of points I want to make about the IGC report. But I will just follow him on one small item in relation to the Danish referendum.

Of course it is an important Danish decision. But before we read too much into it, we should also recall that there are substantial differences with regard to a decision made in a country that already ties its currency to the German deutschmark and accounts for 2 per cent of European GDP and ourselves. Therefore I do not feel inclined to follow him too much in his argumentation, my instincts and sympathies being much more in line with those of the noble and learned Lord, Lord Howe, in that respect.

I congratulate my noble friend Lord Tordoff on his sterling work in steering what was very much an ad hoc working party through its difficult task to its conclusions. IGCs--call them inter-governmental conferences if you will--sound boring, technical and routine. Yet the reality is that this inter-governmental

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conference is both highly political and deeply divisive but at the same time essential. It is highly political in all those aspects he has described to the House. I do not propose to rehearse all the arguments relating to the fight over the size of the Commission, the weighting of votes in Council and the extension of qualified majority voting--those highly political arguments which are taking place in the build-up to decisions which must be made.

However, the conference is deeply divisive. That is shown by the fact that the issues have been on the agenda since Amsterdam, following a failure to agree at Amsterdam, and the power struggle between small and large member states continues.

Boring and divisive such conferences may be but they are essential, because those three problems, or rather their resolution, are the essential precondition of a successful enlargement of the European Union. We have said to the countries of central and eastern Europe that they have duties and obligations laid out in the Copenhagen criteria. My noble friend Lady Scotland in an earlier debate stated that the Government would insist on those Copenhagen criteria being fulfilled.

Our side of the bargain was to reform our institutions so that we were a community capable of working with possibly 25 member states. That enlargement is not a process to be entered into lightly, but to many of the applicant countries the fulfilment of our obligations looks exactly that. The process of democratisation has, with our help and assistance, unleashed hopes and expectations of the roles of previously oppressed peoples to join the community of democratic nations through membership of the European Union. We created such hopes and expectations. We, the member states of the EU, nurtured them. We widened the range of countries which we encouraged and if we fail them now the consequences will be dire and the political price incalculable.

The governments and peoples of the EU have obligations and if we fail them on the basis of failure to agree the Amsterdam leftovers, that would be seen as such a dereliction of duty that our hopes and aspirations for a new millennium of peace, prosperity and security could be dashed.

Yet not all the omens are good. We have only to look at the banner headline in this week's European Voice, which reads:

    "France risks plunging treaty talks into crisis".

That reflects the kind of arguments which took place last week during the meeting of foreign ministers. Perhaps I may quote from Simon Taylor's lead article in the European Voice, where he quoted a diplomat as saying:

    "If they want to provoke a mini-crisis for Biarritz, they are going the right way about it".

Normally, my instinct concerning reaching agreement is that it is better to get it right than to get it quick. Between the special council at Biarritz and the inter-governmental conference at Nice, we do not have the option of vacillating further. Getting it right now

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involves getting decisions quickly. Since Amsterdam, too much time has been lost to too little purpose, other than to foster a feeling in the applicant countries that our ardour and enthusiasm for the process of enlargement is on the wane.

If governments fail to agree, what message does that send to Yugoslavia as it shakes off the shackles of Milosevic? What message does it send to Poland, Hungary, Slovakia, Slovenia, the Czech Republic, the Baltic states and everyone else whose aspirations have been encouraged? The European Union encouraged those ambitions and fuelled them at every stage. The EU has not settled its internal reforms to allow an enlarged community to work. That is the simple but historic duty of the IGC.

All those other questions which have been talked about as possibly for inclusion on an IGC agenda, whether it is the organisation of the European Court of Justice, the charter of fundamental rights or common foreign and security policy, may be important, but if at any stage we are a party to allowing other governments to use them as diversions from the obligation of reaching agreement on those three fundamentals, we will have seriously failed the enlargement process. Those other items cannot be used as diversions from the imperative of agreement on the basic questions, basic to enlargement.

Therefore, the report of the Select Committee is timely. I believe that the Government's response is reasonable, bearing in mind that no government should fully reveal their negotiating position. However, I am sure that we shall hear from my noble friend Lady Scotland, when she replies to the debate, that there is no way in which any British Minister proposes to return from Nice without those essential treaty reforms being agreed so that we have fulfilled our obligation. I am sure that my right honourable friend the Prime Minister needs no reminders about the imperatives of the agreement being fully secured. That is why I so much welcome the Prime Minister's impending visit to Poland and look forward to his speech in Warsaw, a speech which I hope shows a pragmatic way forward without getting too far into unnecessary diversions such as European constitutions, second chambers or legalistic arguments about charters of fundamental rights when we already have a perfectly good Article 6.2 of the Treaty of European Union which is already fully justiciable; and without drifting into flirtations with extensions of inter-governmentalism at the expense of community decision-making processes.

On that basis, I welcome the report. Again, I congratulate the noble Lord, Lord Tordoff, on his work. I welcome the broad outline of the Government's response and I look forward to being able to welcome a successful resolution of our duties to all the applicant countries by our work towards the securing of an agreement at Nice; an agreement which might not be the most exciting in the world but which is one of fundamental and basic necessity.

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12.28 p.m.

Lord Lamont of Lerwick: My Lords, it is a great pleasure to follow the noble Lord, Lord Tomlinson, who has a deep and profound knowledge of European matters based not least on his membership of the European Parliament. I agreed with his strong comments about the necessity of accelerating, and taking a more urgent approach to, enlargement.

I was pleased to be able to participate in the discussions and working of the committee. It was a most pleasurable experience. I join others in paying tribute to the noble Lord, Lord Tordoff, for the way he chaired the committee. He subtly directed us towards the right questions and defused disagreement on occasions. I want to thank him in particular for the indulgence he showed towards myself, who sometimes had jarring views compared with the rest of the committee. I fear that I may have to ask the whole House to exercise similar indulgence towards me today, too.

I had not intended to speak in today's debate, but I was recently reminded that I had disagreed with one of the recommendations of the report. That is the point to which I want to direct my remarks.

The report is about the institutional consequences of enlargement. I strongly support and believe in enlargement. As a Eurosceptic, I believe that the main value in the European Union is the enlargement process. If it must exist, that is what the European Union is there to do.

I spend a good deal of my business life outside this House in eastern Europe, in particular in Romania. The goal of enlargement is the basis of reform, change, and the restructuring of institutions in those countries. If enlargement was not possible, it would be a disaster for those countries. To have European institutions that covered only half of Europe would be a denial of the meaning of the term "Europe". I share the views expressed by other noble Lords about the slow progress on enlargement.

When we started our discussions I was worried that on a large number of issues I might not be able to agree with other members of the committee. I was particularly worried about qualified majority voting. Three or four days ago, I wondered whether I had signed up to something with which I did not really agree. Would I have to go along to the House of Lords and say that I shared collective responsibility? I decided to say that I adhered to collective responsibility, in the same way that Clare Short supports the Dome. I thought that perhaps I should say something similar about qualified majority voting. However, on reading the conclusions, I find I am in agreement with them, which is a great relief.

Like the noble Lord, Lord Tordoff, I agree that any extension of QMV will be extremely marginal. I am not a supporter of qualified majority voting on a wide basis. I do not accept the argument that enlargement means that of necessity there must be more QMV. We were always being told--for example, by M. Santer in his term--that Europe should do less, but Europe

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never does do less. One way of forcing it to do less is to make life a little more difficult for it by having no extension of QMV after enlargement.

I agree with what has been written and said about the proposed European Union Charter of Fundamental Rights. A better route would be to try to get the European Union itself to become a signatory to the charter. We are now told that the charter will be merely declaratory, but it is difficult to believe that it will not strongly influence courts and be taken into account by judges. There seems to be little point in having yet another charter when we already have the European Convention on Human Rights and the instruction to the working parties on the proposed EU charter is, "Do not go beyond it. Incorporate the same rights but please put it in slightly different language". That is utter nonsense.

As to enhanced co-operation, I took a different view. I was outvoted nine to one but was highly encouraged that there was one abstention. I believe that I made some progress. I agree with the noble Lord, Lord Tordoff, that when we listened to the German and French Ambassadors it was difficult to see specifically in what areas they wanted enhanced co-operation. But we delude ourselves if we believe that the French and Germans are not serious about it. I very much agree with the observations of the noble Lord, Lord Grenfell, about Germany and France having enhanced co-operation outside the institutions of the European Union.

If a group of countries wishes to press ahead with faster integration, we should not prevent it. I remember having this argument with Eurosceptics at the time of the Treaty of Maastricht. A number of people whose views on Europe in general I shared nevertheless strongly argued that when I was involved in the negotiations on Maastricht I should have vetoed the whole thing to try to stop Europe moving at all towards a single currency. First, it would not have worked; secondly, I do not believe that it is the right thing to do. We do not have the right to stop other countries integrating in more detail at a faster rate if they wish to do so.

The whole idea of a convoy in which everybody moves at the same speed and in which eventually there must be agreement merely means that we end up agreeing to things that we do not want to do. However, because we must have agreement, we agree to those things because we are part of the convoy which is moving at the same pace. I believe that that philosophy, which is deeply embedded in the Foreign Office, poisons our relationship with Europe. In this country as a whole there is a different view from that of continental Europe as to where we should be going in Europe. There are differences between ourselves, but as a whole this country has a different view of where it wants to go and the kind of Europe that it seeks to build. That view is very different from that which pertains, for example, in the Benelux countries.

I strongly disagree with the observations of my noble and learned friend Lord Howe about the Conservative Party's draft manifesto on flexibility.

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I believe that it is an excellent proposal. The way ahead for Europe is more flexibility, variable geometry, multi-dimensions and multi-speed. One can draw subtle distinctions between these jargon terms. I believe that that is the correct approach to Europe.

For that reason, I very much welcome the outcome of the Danish referendum which I believe is a brave decision. The Danes have rejected a lot of scare tactics. I saw some of the propaganda put out about Denmark being marginalised and a massive loss of jobs. There was much debate in Denmark about what life would be like outside the euro but in the European Union. The probable effect of the Danish referendum is that there will not be an immediate referendum in Sweden. There will now be a group in the EU comprising Sweden, Denmark and the UK, with Switzerland and Norway outside it, that is not part of the euro.

I was rather interested in the comments of the noble Lord, Lord Thomson of Monifieth, about the second division. He did not appear to like the company that we would be keeping. I hope that he will not think me impertinent if I say that the tone of his remarks reminded me of the observations of J K Galbraith about Winston Churchill when he was Chancellor of the Exchequer and the latter's views on the gold standard. Galbraith observed that Churchill appeared to be more impressed by the imperial quality of the gold standard than by its economic consequences. It does not much matter with whom one keeps company in a currency zone; what matters are the real consequences; for example, freedom to set one's own appropriate interest rate. That is why I am puzzled by the comments of my noble and learned friend Lord Howe about the stability of the euro compared with the volatility of sterling. I do not see great stability in the euro now; nor do I see lasting stability in Ireland with its utterly wrong interest rate which will lead to considerable boom and bust in that country.

The Danes have seen the euro as the political project that it is. The Danish Government have made exactly the same mistake as our Prime Minister in believing that the debate can be confined purely to an economic discussion when it has very profound political consequences. I agree with the noble Lord, Lord Owen, that we are some way along the road to the creation of a kind of European federation which increasingly has the characteristics of a state. My noble and learned friend Lord Howe asks: who are the people who believe in this? I have met plenty of people who believe in it and say so quite openly. I have never met a Benelux politician who does not believe in it passionately. Signor Prodi and M. Delors believe it as, I believe, did Chancellor Kohl.

Europe already has a supreme court, a kind of passport and foreign policy and a currency. It is well along the road towards many of the characteristics of a state and yet it does not have proper constitutional arrangements for its government.

I was amused to be told that Danish voters have no importance; they represent only 2 per cent of EU GDP, so what do they matter? But I thought that the point about being in the EU is that it gives one more

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influence. Apparently it gives one influence only if one agrees with what everyone else in the EU is doing. I think that the argument about influence in the EU is one that can be overstated.

I was very interested in what Sir John Coles, a former permanent secretary at the Foreign Office, wrote about that. It seems to me that the argument that in the EU you increase your influence--you gear it up--applies only on the assumption that you always have the same objective. People often say to me, "Oh, we have more influence in the GATT negotiations because we are a big group". You do not have more influence if you are disagreeing with the group all the time about what you are trying to do. In the last GATT negotiations in which I was involved we spent more time arguing with the French than we did with anyone else. At the end of the day our position was an approximate position, not necessarily one that reflected entirely our own interest.

I remember my right honourable friend Peter Lilley once going to a discussion in Paris about agricultural policy. It was a meeting of the EU and other countries. When he returned, I asked him, "What was the meeting like?" That was before Sweden joined the EU. He said, "Well, only Sweden had any influence because Sweden is not a member of the EU. Sweden could say what it thought". The argument about influence is very overstated. We ought to think in a clearer way about it. I do not wish to digress too much. I agree with the thrust of the report. I agree with the conclusions. I even agree with most of the comments of the Government in reply to it.

12.41 p.m.

Lord Shore of Stepney: My Lords, we are discussing very great issues today. The fact that we are discussing them is in itself a very valuable contribution, particularly when--I say this with great regret--the Nice conference is early in December and the Biarritz predecessor conference will have taken place before the House of Commons has reconvened. It is above all in the House of Commons that the fate of the nation is decided. But the issues that are emerging at Nice are certainly important to the future of this country.

I should like to say a few words about the events that occurred in Denmark yesterday. I am very pleased indeed, and not just because of a jolly sort of partisan feeling. I have great respect for the Danes. They have a sense of identity and of independence and they value democracy in a way that none of us should in any way seek to disparage. I really felt that the noble and learned Lord, Lord Howe, fell below his normal standards of performance when he indicated that in his view the Danes had simply been taken in by rhetoric and had not understood the reality. If we had had a five-month referendum campaign I think that we would be entitled to be somewhat enraged if after the most mature consideration and debate we were told that we had fallen for rhetoric. It is particularly inappropriate when I think about the British experience with Europe and the one referendum that we had. I remember the whole campaign that preceded

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our membership of the common market. It was one in which the noble and learned Lord played a very conspicuous part. At the end of the day people felt that they had not been told the full truth about the implications of the treaty and the legislative surrender that was then involved.

I have probably said enough about the Danes, except to say that they have once again given us an additional breathing space, as they did at the time of the Maastricht Treaty when the result of their first referendum was a no vote. We then had an extended debate in the House of Commons, which would otherwise not have taken place. It was a long slow process of going over the content and implications of that treaty, which in my view was one of the most important educational experiences that we have had in our Parliament. It was particularly educational for the governing party at the time, the Conservative Party, which experienced the simultaneous expulsion of sterling from the exchange rate mechanism. It went through a profound and, for many of its members, agonising reappraisal, which led to a party with a different posture and position. I think that the value of debate has been fully demonstrated.

We have the substance of the report--the particular focus on the so-called leftovers from Amsterdam. I do not in any way say that they are unimportant. The three issues were the Commission, weighted voting on the Council of Ministers and the possible extension of qualified majority voting into areas where the veto still stands. Apart from the third of those, they do not seem to be issues of paramount importance. What I think is of paramount importance--it is my main criticism of the report--is how the question of--it is unbelievable that so important a matter is expressed in such innocent words--closer co-operation or enhanced co-operation is to be treated and is treated by the Select Committee. Like others, I always welcome Select Committee reports because they add to the sum of our knowledge. However, on this central issue I believe that the Select Committee missed a trick and indeed came to a fundamentally wrong conclusion in stating that there was no reason to worry about the potential removal of the emergency brake.

As we all know, closer co-operation is surrounded by a number of rules in the Amsterdam treaty. Those rules are important. They include the fact that you have to have a majority of countries in favour of a closer coming together. The essential power that we have is that we can veto that through the so-called emergency brake. Where the committee has failed hopelessly to judge its importance is in how it has in a way failed to understand what the Franco-German thrust, and indeed that of the founding six and a few others, is all about. It is about closer political co-operation and the formation of a semi-state.

I am glad to follow on from the noble Lord, Lord Lamont. He is of course right. We delude ourselves, and worse still we delude our people, when we deny that this is in fact the end game. The bargain that France and Germany will insist on at Nice is that if enlargement is to take place, they are given this veto bypass, this lifting of the veto on the emergency brake

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so that they can go ahead and form that far closer integrated political union which otherwise would be hindered and delayed and might even be prevented by the admission of another 13 states and with others coming up behind. Enlargement is the link for them. That is what the Nice treaty is basically about.

I understand the ethical case for enlargement. I welcome it and have argued for it ever since I came into Parliament. In fact, in 1964 I formed a group called The Wider Europe, so I am not a newcomer in that respect. Yes, of course, I want to bring those countries in, but we must not put ourselves in a position where we can be blackmailed into surrendering our interests at Nice in order to get the agreement of the French and the Germans, who are not necessarily very keen on enlargement, to make that possible. It is important that we bring those countries in, but the whole range of issues and complications involved with the doubling of membership, with the effects of that on the institutions, mean that it will not work. Of course it will not work if we have 30 or 40 members. One must take account of the fragmented Yugoslav states which are yet to join and of a number of the countries of the Commonwealth of Independent States around Russia itself.

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