Prime Minister
Ladies and Gentlemen,
I am pleased to be able to report to you that the United Kingdom's long search for a fairer and more soundly financed European Community has at last produced a satisfactory result.
I, personally, have spent the last five years trying to achieve this. It has not been easy. Indeed, here in Fontainebleau, we have had an arduous and trying negotiation.
The important point, however, for both Britain and the Community, is that we have succeeded in constructing a satisfactory settlement out of what was initially a very unpromising situation. The way is now clear, not merely for enlargement by the accession of Spain and Portugal, but for completion of the Common Market in goods and services and for developing new policies which make the Community more competitive, and so create more jobs; and for exercising a wider global influence which the world's largest trading bloc should be capable of. [end p1]
We in Britain bow to no-one in our commitment to Europe and the settlement reached today underlines this.
I want to stress that I think the settlement is good for Britain and good for the Community. It is good for Britain in particular because it is far better than anything previously on offer. It is durable; that is, the decision can only be changed by unanimous agreement, since it is linked with that of the increase in own resources to 1.4%;. You know that the increase in own resources can only be increased by unanimity and by ratification in each and every national parliament.
We have killed off the ideas of any further years of ad hoc settlements after this year, 1984, when we shall have an ad hoc settlement of ECU 1,000 million; and also, we have killed off the notion that any corrective system should be degressive; that is, should give us a progressively lower rebate.
The system guarantees us a continuing 66%; refund of our VAT share expenditure gap. What is more, the system is based on the revenue side of the equation, as we have always insisted that it should be, so that it automatically reduces our contribution in the following year.
Moreover, the settlement ends the series of weary and debilitating annual wrangles to secure ad hoc rebates.
Finally, an essential part of the settlement is the unblocking of the ECU 750 million agreed at Stuttgart as our rebate for 1983. The Council of Foreign Ministers has just met and has made the regulation. [end p2]
It is not possible to quantify in Sterling or in ECUs the total benefit over the next few years for Britain. We cannot know precisely how the budget will turn out in future, but we shall certainly get far bigger refunds than in 1982/83.
Today's settlement will, of course, only be ratified—I must make this point—when measures necessary to guarantee the effective application of budget discipline are in place. You will recall that this is being done by the Finance Council.
We can now look forward, I trust, to a more vigorous Community.
I should like, finally, to thank President Mitterrand for the tremendous efforts which he made to try to secure a settlement, and also for the marvellous cooperation we received from Chancellor Kohl. Monsieur Dumas, of course, was working extremely hard with President Mitterrand in order to secure the settlement that we have now agreed upon. [end p3]
Question
Prime Minister, President Mitterrand, in his press conference, has just said that the percentage rebate to Britain is for a limited period of time. Is that your understanding of it?
Prime Minister
It is linked specifically in the communique to the own resources. The correction formula—that is the one I have indicated, 66%;—will be a part of the decision to increase the VAT ceiling to 1.4%;, their durations being linked.
Now, the point of that is that you have to have unanimous agreement to go up to 1.4%;, which we have agreed; it has to go through each national parliament; and there can be no change from 1.4%; unless everyone agrees to that change and it goes through the parliament; so, as you may imagine, if there is any attempt to change it from 1.4%;, there really would be strenuous efforts made to keep the existing system. Otherwise, we should stick to 1.4%;. That is why the system is durable.
Question (very faint)
President Mitterrand, Prime Minister, said that it was of limited duration for he said that when the 1.4%; was … ., the question of 66%; would be taken up on a new basis and that therefore this was a percentage … in other [end p4] words, the deal runs out when the Community gets the 1.4%; ceiling.
Prime Minister
No. The deal runs out when the Community changes the 1.4%; VAT ceiling to increase it. Any such change can only be made with total unanimity. Well, you cannot have unanimity that is not total. Any such change can only be made unanimously, that is, it includes a decision by Britain and the British Parliament. You would not therefore expect us to agree to a change from 1.4%; unless the system or an even more satisfactory system continued in its place. Therefore, 1.4%; endures until we agree to change it. We are not likely to agree to change it unless we have, as I say, a satisfactory system—either the same one or an even more satisfactory system—in its place. That is the point of getting it linked to the system. You cannot change the 1.4%; without our agreement.
John Dickie “Daily Mail”
Prime Minister, specifically, what is better in this deal than the one you chose not to accept at the Brussels Summit? [end p5]
Prime Minister
First, we had not got a durable system in the Brussels Summit at all, because others would not agree to it.
Second, they wanted two ad hoc years, which we disagreed with, and because we had not agreed on a durable system, we had not got agreement that it should come off the next year's payment of VAT; and also, there was a great argument about the VAT basis, and we have now got the VAT payments basis which we wanted, and was very important to us.
What we have today really was not on offer at Brussels.
Question
Prime Minister, in Stuttgart last year you commended the agreement limited to rebate in 1983 on the grounds that it brought the reduction in 1983 down to about two-thirds.
Prime Minister
65%;.
Question
You have got 66%; here … . have you not therefore done rather less well? [end p6]
Prime Minister
Yes, but you see, you will notice that our refunds were coming down year by year under the old formula, and that was because, in the first two years of the formula, we did very much better out of it than the Community expected us to, and therefore, they sharply reduced it in the third year, because in the third year the formula was not fixed and had to be negotiated; and when we had no formula, we came to the fourth year—last year—they took it right down, as you know, to ECU 750 million. By adding that to all the other three years and dividing by four, it averaged 65%;, but it was on a substantially reducing basis, and I am afraid, just could not have continued.
What we faced at the beginning of this Summit was the ECU 750 million not released; no refunds agreed for this year. So that would have meant that our total net contribution this year without refunds would have been ECU 2,000 million. Nothing agreed for next year or the following year, and even on the existing own resources, our contribution would have been of the order of ECU 2,000 million. So unless we got an agreement, we were facing enormous contributions for which we had no provision at all.
Now, we have come out of it with the ECU 750 million released; an agreed ECU 1,000 million for this year; and a system following from the beginning of 1986 and your 1985 refunds on the system, because your refunds are always paid one year in arrears. [end p7]
Question
Prime Minister … . you said earlier this year that one of the conditions for Britain agreeing to an increase was there should be strict financial control over … . I do not see this … I was wondering if you could … .
Prime Minister
That is in the other text which we agreed at Brussels and which is now before the Finance Council. It is a text which I read out in these terms:
“Today's settlement will, of course, only be ratified when measures necessary to guarantee the effective application of budget discipline are in place.” It goes back to this one from Brussels which is:
“The European Council invites the Council of Ministers for its part to fix at the beginning of the budget procedure a reference framework, that is the maximum level of expenditure which it considers it must adopt to finance Community policies during the financial year and so to proceed that the net expenditure relating to agricultural markets calculated on a three-yearly basis will increase less than the rate of growth of the own resources base.”
And the last paragraph of that agreement is:
“The European Council invites the Council of Ministers to adopt the measures necessary to guarantee the effective application of the principles referred to in the above paragraph.” [end p8]
It said: “By June 1984” . We have not, of course, got everything agreed by June 1984, so it is now in the Finance Council and we are asking them to take the necessary measures to implement the agreement, the phrase being: “measures necessary to guarantee the effective application of the principles referred to in Paragraph 2.”
Paragraph 2 is the total reference framework, the maximum level of expenditure and that the agricultural expenditure shall increase less than the rate of growth of the own resources base.
Question
(inaudible)
Prime Minister
As I said, today's settlement will, of course, only be ratified when measures necessary to guarantee the effective application of budget discipline are in place. That was part of the other aspect of the agreement. That has to be done through the Finance Council and is before the Finance Council now. We, Germany and France, of course, are very keen on that.
Question
(inaudible)
Prime Minister
West Germany was very anxious to get the settlement and was prepared to be very cooperative in securing one. [end p9] The Federal Republic will bear a considerable part of the increase in her own contributions. She will bear all the increase in her own contributions which is necessary to achieve this settlement. Others will have a reduction in benefits. West Germany takes an increase in contribution and I think France becomes a net contributor. She was actually this year.
Question
A question on financial discipline.
Does your definition of expected financial discipline involve legally binding agreements?
Prime Minister
The phrase we put in was “guarantee” . The phrase that is used is the one read out— “guarantees” . How they guarantee it is being sorted out by the Finance Ministers in the Finance Council.
Question
(Inaudible)
Prime Minister
We did not discuss the United States prime rate this morning. [end p10]
Question
Back on the British budget. Do you have any doubts at all about the durability and permanence of what you have agreed today? When it comes to 1988, do you think that Britain might have to use its veto were there to be any vote on an increase? Do you have any doubts at all that after 1988 you might not be returning to wearying and debilitating wrangles after that date?
Prime Minister
There will be people who will want to put up the own resources, of course, and indeed, in the own resources, it is said that it is likely to go up to 1.6%; by 1988. “May” is the word used. “The maximum rate of mobilisation of VAT will be 1.4%; on 1 January 1986. This maximum rate applies to every Member State and will enter into force as soon as the ratification procedures are completed, by 1 January 1986. The ratification procedures are that it must be approved by each national parliament.” “Then the maximum rate may be increased to 1.6%; on 1 January 1988 by unanimous decision of the Council and after agreement has been given in accordance with national procedures.”
So, for it to go up to 1.6%;, it has to be a unanimous decision of the Council—that means it can only go up with Britain's agreement and only go up with the agreement of the British Parliament—so it cannot get off 1.4%; without our agreement. It is not going to get off 1.4%; unless we get a satisfactory settlement for the future of a similar kind [end p11] to what we have now. If not, we stay on 1.4%;.
I can only just remind you, as I do sometimes remind colleagues, that the VAT system of itself should be a buoyant system. During a period of recession it obviously is not, but during a period of recovery the VAT system itself should be a buoyant system. Others are very pessimistic about how long the 1.4%; will last. That will also depend upon how far we are successful with being strict on expenditures. We put strict financial guidelines. It will depend upon not merely how strict they are, but how much they increase the public expenditure each time. Obviously, we will be trying to keep it down, so will Germany, so I imagine will France.
Question
Prime Minister, how much do you think you have had to compromise to get this budget settlement?
Prime Minister
Well, one would always have liked more but as I have indicated, today when I came, the ECU 750 million for last year was blocked; we had no agreement for refunds this year nor for next year, nor for the year after, even on the 1%; VAT. So we came in theory with ECU 750 million for last year blocked, with no agreement on 1%; VAT, our normal net contribution on that is about ECU 2,000 million. No [end p12] agreement—therefore it would have had to be paid in full. The same for next year and, indeed, until the thing was raised to 1.4%; and we got a different system. So to go from there to where we have got now was very much better than I expected at Fontainebleau and all things considered, a very reasonable and satisfactory settlement.
Question
That is what you have achieved and got out of it; what have you given up?
Prime Minister
I told you. I have not given up anything other than what I have told you. You can say that it would have been better to have got 100%;, but the chances of getting it were nil.
Question
Prime Minister, (Inaudible)
Prime Minister
Why did we agree? The VAT for German farmers is all being financed by West Germany and each and every one of us agreed with the communique which came out. It is not Community money. They have to get Community permission because it is a national aid, but it is not Community money. It is all found out of the Federal Republic of Germany budget. [end p13]
Question
Can I ask you, Prime Minister, your contribution to the discussion on European Union and what, in fact, the outcome of the discussion generally was?
Prime Minister
Well, we did not have a great discussion on European Union. As you know, we were going hard on the finances until about 3 o'clock this afternoon, when we broke for lunch; and since then, we have got rather rapidly through quite a lot of things and have set up, really, a working party to consider all of the things before the Community—including our own document—on how to go forward. But we have not come to any conclusions on that.
As you know, we have put in a paper ourselves.
Question
How long, Prime Minister, would we expect before this comes before the British Parliament for ratification and would you foresee a difficult job of persuasion?
Prime Minister
Well, first of all, this has got to be clothed in legal form, obviously. That is why I say there are still further stages to go through. We have got the unanimous vote of everyone on the Council. Now it has to go before each and every parliament. I think most [end p14] people will think it a very fair and reasonable settlement. Certainly, I did not expect to come away from Fontainebleau with a settlement like this. I was very very cautious in what I thought we would achieve.
Question
Prime Minister, you want to tie relative prosperity by GDP and your officials say that the percentage implies that division … come up with 66%;, taking into account that relative position. If … . you would prefer the British position in relative prosperity to go up, would you be prepared to have the percentage come down in future agreements?
Prime Minister
When we consider changing from 1.4%;, obviously everything will have to be taken into account, but we are not unreasonable in any way. But I can only point out that while we have had an income which is not among the top in the Community, we have nevertheless been expected to pay quite highly in our unadjusted net contribution. The Community has then adjusted it for us. But at the moment, the 66%; is linked to the 1.4%; VAT resources and the 1.4%; VAT resources cannot be changed without our consent.
Question
Do you think you will have problems persuading the British people that it is fair that, despite this settlement, the British will be paying more than they paid in 1983 … . [end p15] despite the ECU 750 million … far more than anybody else, when we still remain so far down the prosperity table?
Prime Minister
The Community says quite bluntly: “Look, these are the terms in which you came in!” and that is the truth; we did. And it is one of the things that I have had to face: that the moment the end of the transition period was over, then we faced the full contribution, which as you know, I said was much too heavy, and the only thing we were able to rely on was a general assurance given when we came in that unacceptable situations would be dealt with. But that is the only thing we could rely on. Of course, many of the other partners will say: “We have unacceptable situations; can ours be dealt with too?” So, erected on those unacceptable situations, we had the first two refunds which we got following a Luxembourg Council, but the third year the formula was not precise, and I think that anyone looking at what we have achieved will consider it very fair indeed, bearing in mind that we started on the arrangements agreed when we entered the Community, which would have given us at the moment, this year, something like ECU 2,000 million. This year, we have ECU 1,000 million refund—that is 50%;—rather lower than what we will have next year. [end p16]
Question
(Inaudible)
Prime Minister
But Britain has not been in the position of being the biggest net contributor. Germany has.
We got refunds, you see. There might have been only a few ECU between us, but that was never so in fact, because we got actual refunds.
Germany was ECU 1430 million when we were ECU 849 million. Germany was ECU 1526 million when we were ECU 1512 million on uncorrected. Germany was ECU 1684 million when we were ECU 1419 million. Germany was ECU 2,086 million when we were ECU 2,036 million. Last year, Germany was ECU 2,300 million when we were ECU 1913 million, so we have never overtaken them. She has always been the biggest payer.
Question
(inaudible) (re possibility of GB being the largest payer)
Prime Minister
No, because as I say, Chancellor Kohl has recognized the British position and whereas others may have to take slightly less in benefit—anything we get is divided among the Nine, divided by nine—others may take less in benefit. The Federal Republic will be actually paying more in contributions. The difference between the Federal Republic and ourselves has widened.
Question
(re 1984 budget overrun—very faint) [end p17]
Prime Minister
The 1984 budget overrun has not yet been solved. If you look at Article 199 in the Treaty of Rome, you will discover that the budget must be in balance. I do not know that there is power to raise very much of a loan.
What we have done is remitted the problem of the 1984 from the Foreign Ministers to the Finance Ministers. Any solution, of course, has to be in accordance with the law of the Treaty, and one of the ways, of course, of reducing an overrun is reducing public expenditure, and I think there are some ideas before the Commission from both ourselves and from the Netherlands and I think that … . has also reported that not all possibilities of reducing expenditure have been exhausted.
Question
Now you are getting a rebate, have you any idea in cash terms of the … .
Prime Minister
No, I cannot. I think it was because people tried to foretell the rebate in cash terms back in Dublin and Luxembourg that we got into difficulty. This time, we have got a much more satisfactory formula in a way, because it is a clear 66%; of a clear gap and I cannot tell you what the precise refunds will be. We only know that with the own resources going up, the expenditure is likely to have gone up, and therefore our unadjusted net [end p18] contributions would have been higher, but for the refunds. The refunds, I hope, will bring it down.
Question
Prime Minister, we have heard a lot today, particularly from the French, about a new era, but all we have heard being proposed today is things like pink passports and … . documents … . nothing on air fares, nothing on practical things … . just a lot of cosmetics.
Prime Minister
With all due respect, may I just correct you. We have got a settlement that we have been trying to get for five years. That is a very considerable achievement. I think there has only been one year when I have not had to have an argument about the British/budget, and that was the year on which we got a formula which lasted for two years. Apart from that, at almost every council we have had some difficulty about our own contributions and it really is a great achievement to have got that sorted out.
Now, do not complain, I beg of you, when we have got sorted out something which has taken five years.
Now, once that is sorted out, if you look back to the Stuttgart Agreement, there really were three parts:
There was the financial aspect, upon which the British contribution is one and the strict financial guidelines the other. There was then the Common Agricultural [end p19] Policy, which has already, as you know, started to reform and it is a very painful process. That whole aspect has been started, with your guaranteed thresholds, and of course, the reduction in the price of cereals for the first time.
You then go on to the new policies which is the third part and which will now go ahead, including, of course, the fact that we hope to get very much more cooperation in getting a Common Market in services.
May I point out that Nick Ridley and our Dutch friends did very very well on a new air service on air fares, so we have not even been standing still on that.
We were somewhat concerned that the lorry quota, which we thought had been agreed with Germany, now appears to have gone in abeyance, but we will pursue that again.
But the moment we got agreement on this other thing, all three parts of the Stuttgart Agreement are triggered, including the release of our own ECU 750 million in respect of last year.
Speaker From Platform
Could I add just one thing, and that is that all the texts on new policies agreed at Brussels are reactivated specifically as a result of the agreements reached today and they of course do make provision for a number of the matters you have mentioned including insurance and air transport.