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Lord Campbell of Alloway: My Lords, it is a rare privilege to follow the noble Lord, Lord Radice, particularly as I really do not have the expertise to do so. But I wish to compliment the noble Lord and all the members of his committee on the report, which should command the gratitude not only of your Lordships but also of heads of state and their advisers, who are due to attend the June summit.

This comes in the wake of the visit to Berlin by the Franco-German axis. I declare my interest as a committed Europhile and a committed Francophile. This report has an extraordinary merit because, as I see it, it identifies the means and the manner in which the extended EU may survive and prosper. It will do so not by adopting default mechanisms, which were referred to in that most interesting article of the noble Lord, Lord Rees-Mogg, in the Times today. It will be achieved only by accepting the proposed system of economic co-operation based on a single market, which all the peoples of Europe will accept, but will not accept much more.
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That involves retaining, in substance for a while, the extant legal and constitutional structure, pending an agreed revised framework that is acceptable to all members of the enlarged European Union. One hopes that a phoenix will arise from these ashes, but it will take some time.

I agree with the noble Lord, Lord Radice, that the treaty should be put in storage. I agree that we have to face up to realities, and I agree that part of the problem is the budget. To what end are we to set up seven or more referendums? Surely it is not with the past that we are concerned, but with the future.

The report on the financing of the EU, in the wake of the reports on the future status of the EU charter and the future role of the European Court of Justice, hoisted the danger cones on ratification of the EU constitutional treaty. The Government ignored the warning. Ratification was take-it-or-leave-it. Amendment was not on offer, and your Lordships' House was deprived of a vote on the Bill.

I cannot speak save subject to what may be being said in another place at the moment, but, as at present advised, the Government appear to remain committed to a referendum before ratification, if not to be suspended, in breach of the legal obligation of unanimity.

France, Germany and Italy in particular are in recession, having suffered from an overvalued euro. That could have been alleviated by timely selling by the ECB of euros for dollars and yen. The euro is now at an eight-month low. The stability pact has been breached, and wittingly breached, contrary to the borrowing limits, which were supposed to be legally enforceable. The question of reverting to the franc, the lira and the mark has already arisen. Restoration of the EU and its economy is wholly dependent on the introduction of a disciplined, agreed financial policy. That is why this report is of such immense value.

Mismanagement of fiscal and monetary demand; failure to adopt an appropriate financial perspective; the ineptitude of the ECB; and a surfeit of bureaucratic power for the Commission stifled stable growth, slighted the economy and fostered unemployment. There were no doubt other reasons for the "No" vote of France, which came as no surprise. The treaty, fatally wounded, was slain by the reasoned, measured "No" vote of the Dutch on grounds such as loss of identity, euro inflation, the conduct of the Commission, immigration and the accession of Turkey, which is supported by the United Kingdom. The vote came as no surprise.

Since June 2003 the ECB has made no financial move, during a period in which the Bank of England moved interest rates in either direction six times and the Federal Reserve moved them nine times to sustain economic viability and growth. At the June summit, the heads of state must reject the Berlin proposal of the Franco-German axis, and they must accept that neither they nor the politicians are able to be at the heart of Europe, which belongs to the peoples of Europe whom they represent.

Some urgent questions of common concern, relating to this marvellous report, have arisen for attention, quite apart from the questions of our budget rebate, which
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could suffer long-term adjustment in negotiation, and the protection levies of the EU. Most though not all these matters are dealt with in the report, and they include an appropriate financial perspective, which excludes pre-emption by the Council of disproportionate allocation of resources, and review by an independent panel; the purpose and structure of the budget, subject to scrutiny by an outside body; curbs on the powers of the Commission and control of certain functions, identified in this report; removal of the mandate of the independence of the ECB, and perhaps removal of the board of management; and a reduction in the interest rate, at once, to 1.5 per cent, as advised some time ago by the OECD. There should also be an appropriate voting procedure, which could enable the enlarged EU by agreement to gather momentum. All those relationships and matters should be dealt with in concert with the European Parliament, so that an acceptable general resolution may be had.

In conclusion, is it not apparent that since Messina the political concept of an integrated, indissoluble superstate favoured by the Franco-German axis, somewhat akin if not identical to that proposed by the EU constitutional treaty, has ever haunted the scene? What happened was a compromise to secure the ratification of the Rome treaty and subsequent treaties, such as Maastricht. All member states, so that they would be induced to sign those treaties, accepted that the concept of the superstate—which many of them retained in their mind—should be excluded from the drafts of any treaties. That concept has been rejected by the people of France and the Netherlands. It could no longer be acceptable to the peoples of Europe, if indeed it ever was—and they were never consulted until the French and Dutch referendums.

3.33 pm

Lord Kerr of Kinlochard: My Lords, it is with some trepidation that one makes one's first intervention in your Lordships' House. In my case, a particular degree of trepidation may be appropriate, given what we may be about to hear in the Statement—the fate of a piece of homework on which I spent some time working for three distinguished Members of this House and 200 other elected politicians, in the EU convention that produced the first draft of the constitutional treaty. That is not the subject of our debate today, but, like the noble Lord, Lord Radice, I may be drawn into referring to it. I shall of course say nothing remotely controversial.

The motto of the clan Kerr is sero sed serio, which, if any of your Lordships' Latin were rusty, I should have had to translate as "Late, but in earnest". It is said that the motto was acquired from the clan's habit of being rather late for the battle, but in earnest about the division of the spoils. That is appropriate to my role on the committee chaired by the noble Lord, Lord Radice, as I joined it when it had already done all the serious work and taken all the serious evidence, including from one very distinguished Member of this House, and was reaching its conclusions. I therefore
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can say that I agree with its conclusions, and believe it to be an admirable report. I agree with what has just been said about it.

I shall add only three points: on perspective, on balance, and on equity. On perspective, I started work on European Union financial matters about 20 years ago. At the time, the large majority of member states believed, among other things, that the European Union should grow via a growing budget. Only a very small number of member states took a different view. It may not be wholly coincidental that only a very small number of member states were net contributors to the budget; indeed, 20 or even 15 years ago, there were only two net contributors—the United Kingdom and the Germans. Today there are eight or nine net contributors and, as the report which was so well presented by the noble Lord, Lord Radice, brings out, the debate is now about whether the resources of the European Union should be just over or just under 1 per cent of the gross national income of the European Union. The Commission's opening bid was 1.14 per cent; the large net contributors prefer not to go above 1.00 per cent.

There is plenty of room for real and sharp debate, but the perspective is that we are no longer talking about building a supranational entity via a budget. We are, incidentally, no longer talking about creating a taxing power for the European Union. Twenty years ago, a majority of member states believed that the European Union should be given the right to levy taxes. It is the case now that no member state wishes to concede it that right, although the Commission still asks for it.

The idea of a superstate, which lay behind some fears about the constitutional treaty, needs to be seen against the perspective of an entity which is allowed, by levies from the member states, a maximum of about 1 per cent of GNP to work with, and is allowed no taxing power. Those arrangements have to be changed only by unanimity. All those three elements would have remained the case had the constitutional treaty been ratified.

My second point is about balance. The noble Lord, Lord Radice, has drawn attention to the absurdity, as it seemed to him and his committee, that about 50 per cent of the budget of the European Union should be spent on the common agricultural policy, when agriculture represents only about 4 per cent of gross national income in Europe. It may be no coincidence that about 50 per cent of the budget of the European Union is not subject to the full rigour of scrutiny in the European Parliament. That 50 per cent—dépenses obligatoires—includes the agriculture budget. I am not saying anything remotely controversial, but one passing advantage of the constitutional treaty would have been to extend the Parliament's full scrutiny across the full range of the budget. I refer of course to the distribution of the budget, not to the size of the budget—the size would have remained a matter for the member states, but the distribution would have been subjected to the full scrutiny of the European Parliament.
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I believe that over time the interests of the urban majority would have played on that extraordinary imbalance, with 50 per cent for agriculture. However, that is not to be. It may be that the point that I have just made was a component in the French "No" vote. It is certainly the case that France is by far the biggest single recipient of funds from the common agricultural policy, with almost twice as much as comes to the United Kingdom.

I believe that aménagement de territoire—looking after and caring for the countryside—is an entirely laudable aim. The beauty of the French countryside is a wonderful thing, but it should be paid for by the French taxpayer, not by the British taxpayer, let alone the east European taxpayer. That does not make sense and over time it will have to change.

Here I come to my point about equity. Will it change now? Will France concede changes to the common agricultural policy which could be called real reform? I think that the chances verge on zero. They probably were zero before the referendum; they certainly are zero after the referendum. The committee chaired by the noble Lord, Lord Radice, concluded that so long as the CAP's predominant weight in the budget remains, the UK abatement is justified. That seems to me to be plainly and clearly the case. Even after abatement we remain the second largest contributor to the Union budget.

Of course, there will be bluster about how we need to change our position—there always is. Of course, we shall be isolated on this issue. It stands to reason that we are isolated. We were isolated in 1984 when we secured the abatement. We were isolated in 1988, and in 1992, and in 1999 when we secured its renewal. We shall be isolated again, and it will be renewed again.

I wish to say two more words about the constitutional treaty. A no is a no. An American might add that two noes are a real "no no". I do not for a moment dispute that there is no point whatever in proceeding with a ratification process in this country. Indeed, I cannot understand the motive underlying pressure from Paris, Brussels and Luxembourg for a macabre ritual dance of ratification and referenda to proceed. I see no point in it. If the French were to make a case, they would have to explain whether—this seems to me to be implausible—it was the intention of the Elysée that the question should be put again to the French voter on the basis of the same treaty. That is conceivable, but it seems to me to be wildly implausible. Or—this is the only other possible explanation—the French plan is to propose changes to the treaty, or some additional measures, which will in some way qualify or adjust the treaty. In which case it is absurd to ask the Polish, British, Danish or Irish voter to answer a question that has become entirely hypothetical, because the package on offer would in that situation not be the one which is on offer today. It follows that there is no point in continuing the dance.

On the other hand it seems to me that there is a lot of point in trying to learn a lesson or two from what has occurred. One obvious lesson from the French and the Dutch campaigns and their result, and from the campaign in this country to the extent that we have
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had one, is that the EU, which was created for motives of reconciliation and reassurance—very worthy motives—has paradoxically come to seem threatening. Its institutions have come to seem extremely remote and obscure. A further paradox is that the treaty, which was rejected partly for those reasons, would have done something to remedy those defects. Therefore, the question is, could any of the reforms which happen to be in the treaty be implemented without the treaty?

Some plainly cannot be. For me, the most important reform for the long-term health of the EU is that it should have a voting system which is democratic in the sense that there is a clear correlation between population of country and voting weight in Council. That is not the case with the present situation—the situation to which we are driven back, and have to operate with the present tangle of treaties, including the Nice Treaty with its absurd and incomprehensible voting system, which has such a low correlation between population and votes.

It is, of course, the case that had the constitutional treaty been ratified, British voting weight in the Council would have increased from about 9 per cent to about 13 per cent. However, the reform was an acceptable outcome because everyone could see that it was more democratic to have some closer correlation. One day we shall have to have it, but to introduce it now would mean amending the treaties. Clearly, we are not amending the treaties so we cannot have it now.

However, there are one or two things that we could conceivably have now. I shall give just two examples. If the constitutional treaty had been ratified, the Council would have been required to legislate in public. There is no treaty so there is no such requirement. However, the existing treaties do not require secrecy. To some, like me, it seems in principle odd to legislate in secrecy. The act of legislation should in my view be done in front of the citizen. The Council could decide of its own volition and its own accord to open its doors, to let the cameras in and to legislate in public. I hope that it will do so.

I give a second example. If the constitutional treaty had been ratified and had come into force, the Commission would have been required to give national parliaments a first look at draft legislation and the Council would have been required not to look at it until national parliaments had had a chance to do so. With no treaty there is no such requirement. But why not? The Commission could decide of its own volition to operate the procedure that was laid down in the treaty. The Council could decide of its own volition to give the Commission the time to do so. I hope that it will.

Some may say that this is wicked "cherry picking" of the treaty, underhand and unacceptable. However, would they really argue that it is best that the European Union go on seeming remote and obscure, and that attempts to make it more transparent and to build a closer link to national parliaments are bad just because they happen to have been encapsulated in the draft treaty which clearly we are not going to ratify? Perhaps they would, but in that case let them say so openly, because their motive could only be that they wished the European Union to remain unpopular. I repeat that I am determined to say nothing remotely controversial.
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The quality of the report on EU future financing, which the committee chaired by the noble Lord, Lord Radice, produced, and the quality of the speakers who will follow me, show how serious and substantive a contribution this House could make to EU legislation were it to be given a greater opportunity to do so. I thank your Lordships for your patience regarding my contribution; and I warmly commend the report to the House.

3.47 pm

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