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Next, the eurozone: Britain is not in the euro and-let me be clear-we are not going to join the euro. However, a strong and successful eurozone is vital for the British national interest. Already about half our exports go to the EU, fourth-fifths of this to the eurozone. However, as this House is aware, with the situation in Greece and the need for a support package from other eurozone members, there is no doubt that the eurozone as a whole faces real challenges. I was generally supportive of the Council's efforts to strengthen the eurozone governance arrangements, but I was equally determined to ensure that our national interests are protected.

On budget surveillance, let me be clear: the UK Budget will be shown to this House first and not to the Commission. Of course, we will share projections and forecasts, just as we do with the IMF and other international bodies. Co-ordination and consultation, yes; clearance, no-never. On sanctions for those who breach their economic obligations, the Council agreed that:

'Member States' respective obligations under the Treaties will be fully respected'.

Because of this and because of the special opt-out negotiated by the last Conservative Government, under the current framework sanctions cannot be applied to the UK.

Sorting out the eurozone and adding to its governance arrangements are clearly vital for Europe. There may well be significant changes coming down the track. Whether they require treaty changes or not, our position will be the same. We will back measures that help to sort out the eurozone. We will not back measures that pass power from the UK to Brussels and, as we are not a member of the euro, we will not back measures that draw Britain further into financial support for the euro area.

On the G20, the Council discussed our priorities for the upcoming meeting. As well as taking action on the deficit, the Council also agreed about the importance of reforming the financial system. It is vital that the meeting in Canada backs the right action on reserves and capital.

On the issue of a banking levy, the Council conclusions were helpful. We wanted the European Council to endorse the idea of countries introducing a levy on financial institutions to ensure that they make a contribution to rebuilding public finances. We did not want the Council to mandate a particular form of levy or how the money raised should be used. I am pleased to say that the Council conclusions reflect that approach.

On Iran, we have argued that it is time for actions, not just words. Following the UN Security Council's recent adoption of Resolution 1929, the Council agreed to step up the pressure, issuing an unequivocal leaders' declaration. This refers to measures including restrictions on trade, banking, transport and the oil and gas industry. Final agreement will be reached at the Foreign Ministers' meeting.

The Council also reached important conclusions on Iceland's application to join the EU. This country should be a good friend to Iceland and a strong supporter of EU enlargement, but Iceland owes the UK £2.3 billion in respect of compensation paid by the Government to UK investors following the collapse

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of its banking sector. We will use the application process to make sure that Iceland meets its obligations, because we want that money back.

Finally, it is important that, even in difficult times, we should be supporting people in the poorest countries suffering from severe poverty. The Council reaffirmed its commitment to achieve development aid targets by 2015 and, supported by the UK, to review this annually.

This was a Council that delivered good outcomes for Britain. Our citizens do not want new structures to talk about things; they want a new resolve to actually do things, such as getting to grips with our massive budget deficits, developing the single market and building the conditions for strong, sustainable and balanced growth. That is what this Council was all about".

I commend this Statement to the House.

5.10 pm

Baroness Royall of Blaisdon: My Lords, I join the Leader of the House, in repeating the Statement made by the Prime Minister, in paying tribute to the two soldiers who lost their lives, Trooper Ashley Smith from the Royal Dragoon Guards and the Royal Marine from 40 Commando Royal Marines. As the Prime Minister said, 300 members of our forces have now given their lives in Afghanistan in the service of our country. We pay tribute to their bravery, we honour their sacrifice and our thoughts are with their families. I strongly agree with the Leader about the cause for which our soldiers are fighting in Afghanistan. They are fighting there to keep our streets safe here. That is why the Opposition are united with the Government in support of our troops and their mission. As we approach Armed Forces Day, let us remember all our service men and women, whether they are stationed abroad or at home. Their skill and courage are unsurpassed.

I thank the Leader of the House for repeating the Prime Minister's Statement. I start by welcoming the continued EU focus and government commitment on two important issues. First, on Iran, I endorse the support for the European Council's declaration, which again shows that on issues of international concern, we who are EU member states have a bigger impact when we combine our efforts. Does the Leader of the House agree that while the threat of a nuclear-armed Iran remains a matter of utmost concern, the international community is now more united than ever before in searching for a peaceful solution; and that the very act of EU diplomacy that we have seen in recent years has played an important part in this? He says that the Prime Minister tells us that it is time for action, not just words; is there a timetable for further EU action on Iran? Can he confirm the importance, not only of sanctions and diplomatic pressure, but of international engagement with the people of Iran? Will he therefore give an undertaking that the BBC Farsi service will be protected from any cuts in the BBC World Service?

Secondly, I also welcome the strong commitment of the EU summit to meeting the millennium development goals by 2015. The terrible crisis of drought and food shortages in Niger is a vivid reason why there must be international action on development. Will the Prime Minister be a stronger voice in the EU for the whole

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EU to make development a priority, if his Government continue to prioritise development? Following our Government's commitment, the European Commission recommended that all EU member states should consider legislating to enshrine the 0.7 per cent aid target, which we established. Will the Government now take forward, in this Session of Parliament, the Bill we introduced to make the 0.7 per cent legally binding?

Is it not the case that you can only be effective in Europe if what you say and do there is matched by what you do and say at home? In that regard, I commend the Leader on the Prime Minister's reference in his pre-summit article to the shocking inequality of women in many parts of Europe, and the urgent need for change. If the Prime Minister recognises shocking inequality of women elsewhere in Europe, can the Government act on it here? Will the Prime Minister show the rest of Europe that he means at home what he says in Brussels by giving us a commitment that he will implement the Equality Act as soon as possible, and commit to pressing on with the plan to make employers publish their gender pay gap?

I welcome the fact that the summit adopted the European 2020 strategy for growth. The summit said:

"Priority should be given to growth-friendly budgetary consolidation strategies".

It also said:

"Increasing the growth potential should be seen as paramount to ease fiscal adjustment in the long run".

In other words, do not undermine growth when you are cutting borrowing and need growth to bring borrowing down. According to the official summit conclusions, one of its main objectives is to,

That is what the Prime Minister signed up to in Brussels. However, he is doing something rather different at home. On growth, the Leader of the House said that the Government will continue to press for the real stimulus that the European economies need, but the reality from the Government here is very different. How does it help growth to cut business investment support? How does it help unlock the EU's growth, starting with energy, to cancel the loan to Sheffield Forgemasters to build the next generation of nuclear power stations? Does this not mean that Europe, as well as the UK, will lose out to South Korea and Japan as they take this work forward? On the important question of financial services, we welcome the intention to implement a new system of levies and taxes on financial institutions, and the intention to explore an international financial transactions tax. Will the Government commit to maintaining the UK's strong leadership in advocating these reforms?

This was the Prime Minister's first European Council. The Leader of the House, in repeating the Prime Minister's Statement, says that the Prime Minister believes that this is a Council which delivered good outcomes for Britain. The Prime Minister is no longer the leader of the Opposition, grandstanding to his Back-Benchers. He is now representing our country in Europe, so perhaps it is time for him and the Government as a whole to have a sensible think about continuing to

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exclude themselves from the grouping of centre-right political leaders. The European People's Party includes President Sarkozy, Chancellor Angela Merkel and the Prime Ministers of Sweden, Italy and Poland. However, instead of meeting with them to prepare for the summit, the Prime Minister had a meeting with one Polish MEP to prepare for Britain's contribution to the summit. The election is over. Will the Prime Minister now put aside his pandering to his Europhobic Back-Benchers and agree with his Lib-Dem coalition partners on this vital issue of Europe? That is in Britain's interests and would be a good outcome for Europe and Britain. We on these Benches invite the Conservatives on the Benches opposite to join the Liberal Democrats on the Benches opposite-and, indeed, we on these Benches-by getting serious about Britain's interests in Europe and putting practicalities and policies ahead of prejudices and politics. That is what Europe needs from Britain. That is what Britain needs to do in Europe.

5.16 pm

Lord Strathclyde: My Lords, I thank the noble Baroness for welcoming the Statement, at least in part as I accept that she became slightly less welcoming as she continued her speech. However, she started extremely well by congratulating the Government and the Council on our position on Iran. She was right to do that because our position on Iran is unequivocal. It underlines the clear view in Europe that Iran's pursuit of a nuclear weapon is unacceptable. Europe has asked Iran to return to the negotiating table and has made clear that the alternative is further isolation. I am unable to give the noble Baroness the timetable that she sought, but my understanding is that we await the next Foreign Ministers' Council, where final agreement will be reached. I am hopeful that there will then be quick action to put in place the various sanctions that have been recommended.

The noble Baroness asked me rather a good question about the BBC Farsi programme. If I had an answer to that, I would give it to her, but perhaps I can write to her on that point. The Government have rightly been congratulated on continuing with the millennium development goal commitments, as the noble Baroness recognised. In our view it is very important that these commitments talk about European countries meeting and achieving their targets by 2015. There has certainly been no slippage on that on our part. Even in difficult times when we are having to make tough decisions in our own economies, it is important that we should support people in the poorest areas of the world suffering severe poverty. It is important that we maintain that commitment. The European Council reaffirmed its commitment to spend 0.7 per cent of GDP on development aid by 2015, and agreed to monitor progress towards this target annually. I cannot at this stage give a commitment on the legislative proposals that we will make as regards the 0.7 per cent target, but it is our intention so to do.

The new European 2020 strategy is focused on promoting conditions for growth and improving the single market. A stronger European economy is overwhelmingly in Britain's interests, given that around half of the UK's exports go to the EU. However, noble Lords will no doubt agree that action in Europe

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clearly needs to recognise the different circumstances faced by different member states and strike the right balance between European and national action. The conclusions that we came to at the Council thus make clear that the strategy will not affect member states' competencies on, for example, education. However, it will help Europe recover from the crisis and come out stronger internally and at the international level by boosting competitiveness, productivity, growth potential, social cohesion and economic convergence. It was kind and thoughtful of the noble Baroness to show her concern about the EPP. I assure her that we are happy with the current arrangements.

5.19 pm

Lord Higgins: My Lords, I welcome the forthright attitude taken by the Prime Minister regarding the eurozone, but clearly the situation there presents considerable risks to the United Kingdom, even though we are not a member of the euro. Are we to understand that there was no detailed discussion at the Council on the widespread discussions taking place outside on the possibility that some members of the eurozone might find themselves in a position whereby they have to withdraw? Indeed, it has recently been suggested that it might be disruptive in that context if Germany were to withdraw, rather than the countries in the weakest position. At all events, the scheme was designed to prevent people withdrawing and it is important that we should not hide our heads in the sand regarding that possibility and we should make contingency plans. In particular, there is a major practical problem. Is there not perhaps some case for setting up a contingency fund of what we might call euro-exit notes and coins, which would be used if a particular country had to withdraw? Surely it is better that we should plan for that possibility, whatever our position might be on whether it is likely to happen, rather than suddenly finding that we are in a situation where nothing can be done because of the practical point that I mentioned.

Lord Strathclyde: My Lords, my noble friend raises an important and interesting issue. The eurozone is of course extremely important to the British economy. We want a strong and competitive eurozone area, but it is clear to anyone who has been following this subject in recent months that there are substantial problems with the euro and, most notably, with Greece. However, I am not in a position to speculate in any way on what may or may not happen in any other eurozone country or, indeed, on what contingency plans are envisaged over the next few months. The G20 has recognised that countries with serious fiscal challenges need to accelerate the pace of consolidation. In that regard, we welcome the recent announcements of further consolidation plans by the Governments of Spain and Portugal. It is important that to rebuild confidence all Governments implement in a rigorous manner the measures that they have announced. It is that confidence which will provide strength again to the eurozone. That in the long term will be to all our benefits.

Lord Hannay of Chiswick: My Lords-



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Lord Dykes: My Lords, I thank the Leader of the House for repeating the Prime Minister's Statement in the other place. He highlighted the fact that, on a number of occasions, the Prime Minister repeated that we were going to play an active and engaged role in working with our colleagues to solve the international financial and economic crisis that affects all countries. Even if, under the coalition agreement, we are not for the moment committed to joining the euro-and a lot depends of course on what happens to the euro-does the noble Lord agree that the logic of the single market means that a single currency is really necessary later on? Conservative Ministers frequently enunciated before 1997 that you could not have a genuine single market without a single currency. That reality prevails.

Does the noble Lord not agree that we in this country should be careful not to be too complacent or gleeful about the apparent crisis in the eurozone, given that we have the only currency that was driven out of the preliminary arrangements before the euro was created? A notable and spectacular devaluation ensued; in fact, we have had seven devaluations since the war. That was always the easy way out, rather than solving problems with a disciplined currency system. Does he agree that this is as much a crisis of the banking statistics and asset bases of the commercial and investment banks as it is of sovereign debt, and that we need to deal with both on an active basis? Will he therefore emphasise that the UK Government are supporting the suggestion of the Spanish Government that stress-test figures should be published in the second half of July showing the different states of various banks in the member states, within and without the eurozone, including, I think, five or six banks from the United Kingdom? Furthermore, as the Prime Minister was, quite rightly, warmly received in Brussels, does the noble Lord agree that that adds to the arguments for his party rejoining the EPP, as the shadow Leader of the House suggested?

Lord Strathclyde: My Lords, I can give my noble friend no encouragement whatever that we are about to join the euro any time soon-an answer that he may find rather disappointing. However, all the evidence over the past few years indicates that we were entirely right not to join the euro, as the former Prime Minister, when he was Chancellor, ensured would be the case. That was the right decision then, it is clearly the right decision now, and we shall continue with that. However, that does not mean that we should not play an active and engaged role, as my noble friend Lord Dykes said, and we will continue in the way that we started. Indeed, my right honourable friend the Prime Minister was very much welcomed in Brussels for his positive attitude and constructive approach to a whole range of extremely difficult issues that face Europe. I say to my noble friend, as I did to the noble Baroness the Leader of the Opposition, that the EPP issue is not one that we shall reopen.

Lord Hannay of Chiswick: My Lords, will the Minister accept my thanks for allowing a question from Benches other than the government Benches after six minutes?

I congratulate the Government on the confirmation of the millennium development goals, which I think is a very positive step. However, do they not recognise that some members of the European Union-not the

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United Kingdom-are not fulfilling their obligations to move to 0.7 per cent of GDP? To give an example, Italy is cutting back on its aid. Does that not demonstrate the necessity for proper co-ordination at the European level when these commitments are entered into and the need to ensure that they are followed? Simply saying all the time that we are not going to do this or that in co-ordination has its disadvantages when we are in the lead and other people do not follow.

The noble Lord mentioned education. Does he not recognise that our higher education sector is the leader in Europe, that we have four of the world's top 10 higher education establishments and that we are extremely well placed to give the lead in this essential part of making Europe more competitive? I hope that the Government will take that to heart and will see how, without transgressing any transfer of powers, we can make more of a reality of co-operation in the higher education sector and make it a more competitive part of the European economy.

Lord Strathclyde: My Lords, with regard to the millennium development goals, the Council reaffirmed its commitment to spend 0.7 per cent of GDP by 2015. The important point that I think will encourage the noble Lord is that the Council also agreed to monitor progress towards this target annually. Therefore, if a country lags behind, no doubt this will be brought to the Council's attention at the time and appropriate action will take place in that member country.

I agree with the noble Lord about the excellence of Britain's university education system and that we have a lot to contribute to this debate, at least by example. That is why we believe that this matter should remain firmly as part of the national competencies and not be raised to a higher level through command and control and instruction by the European Commission and others. That is precisely why we got the conclusion in the final report with which we were happy-namely, that education would remain part of those national competencies.

Lord Pearson of Rannoch: I share with sorrow the sentiments expressed from the Front Benches about the two latest deaths in Afghanistan.

Turning to the Statement, does the noble Lord agree that it really is beyond belief that the EU should presume to examine our Budgets before Parliament debates them when its own internal auditors have been unable to sign off its own accounts for the past 15 years? Can he comment on that? Will he also comment on Mr Van Rompuy saying last week that the Government's refusal to submit our Budget to Brussels is unfinished business? How will the Government react if they are outvoted on this in the autumn? Finally, and more widely, the Government's protestations of their innocence do not exactly chime with the wording of the Council's conclusions. I shall read three extremely briefly. First,

Secondly,

"All Member States are ready ... to take additional measures to accelerate fiscal consolidation".



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Thirdly,

"The crisis has revealed clear weaknesses in our economic governance, in particular as regards budgetary and broader macroecononmic surveillance. Reinforcing economic policy coordination therefore constitutes a crucial and urgent priority".

Which one is right-the Government's Statement or the Council's conclusions?

Lord Strathclyde: My Lords, the noble Lord, Lord Pearson of Rannoch, is right when he says it is beyond belief that the EU should wish to inspect our Budget before it is presented to Parliament. He is entirely right. In that there is not a cigarette paper of difference between him and the Prime Minister, or I suspect even the Opposition. We would all agree that the EU has no role and no place to look at our budgetary arrangements and, indeed, our parliamentary procedures. That position has been made entirely implicit in the Statement that I repeated a few minutes ago. It is not unfinished business; it is firmly finished business and we will be leaving it entirely the way that it is currently.


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