Prime Minister
This Council really has been a completely different one for Britain from any we have had before. The main bone of contention has gone and therefore the atmosphere is completely different. We have been discussing fully and completely as welcome partners in whatever has been discussed. The general shape of the Council has been rather different. Instead of taking detailed discussions on an agenda we yesterday had a very general discussion on all aspects of economic affairs including the oil and energy situation, including money supply, inflation, unemployment, balance of payments, etc. But instead of going through it separately from one thing to another we put it all in one long omnibus debate which I think was very much more rewarding. And instead of a series of set speeches coming in from one delegation after another it did actually take the form very much more of a debate. One speaker replied to it and then a counter-replier and so on. And indeed I think some of our colleagues who have been here longer than I have thought that that really was an extremely good idea and probably one of the most valuable sessions they had had.
Towards evening we turned to have a preliminary discussion about the Middle East and then the Foreign Secretaries went off to continue that. We went off, as you know, to the customary dinner of Heads of Government and the main subject discussed by Heads of Government were East/West relations, with particular reference to foreign policy in the wake of Afghanistan; and of course the Olympics. And again we had the same kind of atmosphere at dinner, a genuine debate and an easy joining in of all of the countries there on that.
This morning we had some of the detailed work to do. I may say that with regard to the Presidency of the Commission, I think the problem was that we haven't done enough work bilaterally before, because there are at least two extremely good candidates either of whom could do it—could do it easily—but in the end we felt one had to have a much bigger consensus than we were able to get. This was only a preliminary discussion—preliminary perhaps isn't the word—the first discussion, and we have yet further discussion to do before we finally decide. It is not the absence of candidates; [end p1] it was the presence certainly of two very, very powerful candidates for it. So we have delayed the final decision to bilateral talks.
This morning, apart from that, the final things had to be done. The precision of the Middle Eastern communique,—I think you will find that the only other official text that is issued is something general about the economic and oil situation. Of course the oil situation is often the key to the future of the economic situation because if you look at the last time there was a rapid increase in the price of oil in 1973/74—a very sharp increase in the price of oil, five fold—we went into after that a world recession but that increase was limited in time. It occurred suddenly and then after that we had a period of years when the price of oil did not increase. In fact it went down in real terms. This time, if I might put it this way, we have had a period over which the price of oil has increased, seems still to be increasing—if not month by month, but short interval after short interval—and so far we seem not to have got to the end of that increase and we are a little bit fearful that there might be a new phenomenon that as demand slowly comes down in view of price increases so supply comes down and they can still put up the prices. And although Saudi Arabia fights against it there is a very considerable problem in the steadily increasing price of oil which we haven't yet sorted out. At the moment this second big increase which has taken place over the last year is likely to lead to a recession and how do we tackle that?
Now that is the broad shape of the thing. From your viewpoint I am afraid it means that there is not so much hard, precise news. That means that we all got on rather well, which isn't necessarily good for the Press but I think it is very good for international relations. The only communique we really went through in much, much more detail, first the Foreign Ministers and then ourselves, was the Middle Eastern one. Now I think it is best over to you. [end p2]
Q
Prime Minister was there much discussion of the West German budget problem?
PM
No. Very little. Helmut Schmidt merely indicated that they were going to be very large contributors and there was a problem. But he adhered absolutely to the settlement which we reached. And everyone was very glad that the settlement had in fact been reached.
Q
Prime Minister how soon can you get your Middle East soundings undertaken? Do you see this happening in the following month or do you think it will wait until autumn before you …
PM
I think it would obviously take a good deal more than a month. I think you will appreciate the problem. For years we have talked about the Palestinian people being able to decide their own future but no-one—apart from working out the options in theory—has really gone round to all of the parties and said “Now look, just exactly where does the future lie? What are the possibilities?” And I must tell you that it seems to me that that is quite a lengthy process. You have only to think of the possibilities and how we are going to sort them out to realise that it is a lengthy process.
Q
But when does this start, Prime Minister?
PM
We haven't agreed a precise date.
Q
Have you agreed the sort of mission that is envisaged? Numbers?
PM
No. There again you don't go into that amount of detail. You agree what you are going to do and obviously it must be done through the Presidency of the Commission.
Q
Mrs. Thatcher how would you categorise the political significance of the Middle East statement. President Giscard is reported to have said just now, referring to the Middle East declaration, that Europe is now emerging as an independent element with its own responsibilities in the Middle East area. Would this correspond to your view of foreign policies …? [end p3]
PM
… Europe inevitably is a forceful element. Look we are the biggest trading area in the world in view of imports and exports. Therefore we are a forceful element. But everyone there recognises that Europe's future is closely tied up with that of the United States and we are not trying to undermine anything that the United States is doing. We really are trying to supplement what the United States is doing. To do something very, very positive. To stop talking just in a few abstract terms and to try to clothe those terms with practical reality. That will take a time. At the moment the United States is ready once again to take a predominant and detailed role on what shall happen in the future. There should be more facts and information there ready to do so and we will do it as always in partnership.
Q
Who were those strong candidates which are referred to …
PM
Oh I am sure you have already deduced that for yourself, either of whom many of us would have backed.
Q
In your talks with the German Chancellor did you get the impression that he really was serious about the advance made in reform of the farm policy?
PM
But I didn't know you were there? I have many, many talks with the Helmut SchmidtGerman Chancellor. We have bilaterals. It so happens that we get on very well together. We both believe in sound money which is the only way to go for the future. Look, it is in the communique. We just have to go for a major reform of the Common Agricultural Policy.
Q
So you think you have an ally on that subject?
PM
Very much so. We can't go on just as we are now.
Q
Was there any change of emphasis in the economic discussion with your previous look at energy, unemployment and so on? [end p4]
PM
No there wasn't any basic change in economic discussion. We refer to the problems that are still there. But you know what is happening. Every time you get a sharp increase in one commodity the fact is that it leaves less of your income to spend on other things and that is what leads to a world recession.
Now what I think is worrying at times, what I tried to indicate before, is that we sometimes try to find something parallel between this oil price increase and the previous. Now the characteristic of the previous oil price increase at the end of 1973–75 was the while it was a five-fold increase, somehow it was over and you then had the problems of recycling the money—that is we are paying more for it to the oil states; they had money and the manufacturing countries borrowed it back. What happened to the underdeveloped countries who really hadn't the resources or interest rates to borrow it back? And we went very much into the difference between the manufacturing countries who have a very serious problem with the increase in the price of oil. It is a serious problem but one which we might be able to overcome. But the underdeveloped countries who, when they get these enormous increases in the oil prices, really have just no way of meeting them except to borrow either from the oil producing countries or from the manufacturing countries. However, at least that was a sharp, contained increase in the price of oil. Now what bothers us is the characteristic of this one is that we don't yet seem to have reached the top. As you saw from Algiers the other day, have we got a new phenomenon now that as the demand falls so they have learned to have the supply falling and yet still seem to get the same revenue by putting up the price. We were wondering how to deal with this.
Q
Do you think the world Summit next week can produce any new initiative on this energy question?
PM
Well you always talk in terms of new initiatives. I just think the first thing before you have any new initiative is to achieve a greater understanding and that the longer I am in politics the things that I realise is that economics is not only about economics—it's about politics politics isn't only about politics—it is [end p5] about human nature. And if you want to get at the economic increases for the price of oil you have got really to deal with the politics and therefore you have got to look at some of your human nature. But if you look at the big sharp increases in the price of oil the first one came at the Yom Kippur war, a political thing, the second one this time came from a really big political thing—the future of Iran. And therefore it is the politics you have got to look at as well as the economics.
Q
On East/West relations, Afghanistan and the other political questions which are likely to be discussed at the Summit of the Seven here next week, are there now common positions among the four countries which are attending the Summit and do you expect that the communique on those questions will emerge from the Second Summit?
PM
I don't know what communiques will emerge from the Second Summit. You know I am not a sort of strict communique person. I think it is more important to achieve the understanding. Certainly one after another of the countries here felt that Heads of Government and in most cases Parliament had endorsed the view of Heads of Government of “Please don't go to the Olympics” . One after another, I am afraid, we had a number of people who nevertheless go, but a number of us felt that the situation was changing because the position in Afghanistan is actually becoming clearer—the Soviet troops are in there to subjugate the Afghanistan people and of course we really have a tremendous number of genuine freedom fighters in Afghanistan—whether you call them freedom fighters or resistance—albeit I know the BBC wrongly calls them rebels. BBC take note of that.
Q
Ought they to be given military support?
PM
Ought they to be given military support? Well I think on the whole the freedom fighters themselves are really doing very well. We did not in fact go into the strict position of military support. [end p6]
Q
Do you feel your visit here has been marred at all by events in Turin last night and what is your attitude towards the rioting British fans?
PM
Well I don't think the particular visit here has been marred about that but I must tell you that when I heard what had happened I was very distressed indeed and I think the behaviour of some of the British supporters in Turin was disgraceful. When they come over here they are ambassadors for Britain but also I think it wouldn't help the team to have their supporters causing trouble like that. They are a splendid team and I think most of them stand for all that is best in Britain and I understand that it would have been extremely embarrassing for them—anything that fell below the best of British standards. I can't speak too strongly about it. When we go abroad we represent Britain. When they go abroad they represent Britain and it is up to them to back up jolly good teams to show the best of Britain and not to show her in the worst light. It was a very dark day when that happened.
Q
Prime Minister is the timetable for enlarging the Community slipping and if so …
PM
I must tell you that we did not have extensive discussions on the enlargement of the Community. Obviously we are very conscious that we have some fundamental, structural changes to do but certainly Lord Carrington and I will take the view that again there is no reason to delay negotiation for the enlargement of the Community. A community is about the free nations of Europe sticking together. Democracy is a fragile plant in Spain and Portugal and we must do everything that we can to nurture it.
LC
And the restructuring of the Budget which we agreed in Brussels the other day has obviously got to take account of the enlargement. [end p7]
PM
Of the enlargement but also it makes the restructuring even the more urgent.
Q
Are you attracted to the idea that Chancellor Schmidt and President Giscard have certainly put forward in the context of restructuring that there might be a ceiling on the net benefit enjoyed by member states from the Budget as there is …
PM
That is certainly a viewpoint which Helmut Schmidthe put forward this time and which President Giscard put forward before. And I think we really must understand that when you get one nation being a main principal contributor as we were, and now Germany has taken it over (we're still the second contributor) and it finds itself contributing to nations which individually are better off than the nation which is doing the contribution, that is likely to be a continuing irritant. And I believe it's a factor which we must take into account in the restructuring of the Budget. After all in a way it was the basis of our case—this isn't equitable. Now you can't plead equity for yourself and deny it to other people, and certainly I think that is a fact which simply must be taken into account. You see we are all asked to contribute and would expect to try and help underdeveloped countries. But when you find that a large part of your income transferred across the exchanges is going to countries which are better off than you yourself in income per head naturally it means we can't do as much as we would wish for other countries; naturally it means resentment particularly if it means increasing taxation to do it or as in our case taking economies in expenditure, extra economies to do it. And so certainly I would take that proposal very seriously indeed.
Q
You don't think it would lead to a switch of priority away from tackling what is wrong with the expenditure and concentrating what's wrong with revenue?
PM
No, I think you have got deal with both. Look, so far we've dealt with the symptoms with what is wrong as far as Britain is concerned. We've not yet dealt with the underlying causes. Now we've got time enough to deal with that.
Q
Prime Minister on returning to the question of oil for a moment, [end p8] did you consider at all the possibility of the reopening of dialogue between the Community and the Gulf producers?
PM
Not particularly on oil for the simple reason that any overtures that have been made in that before have not been very successful and a dialogue is a two-way business.
Q
Prime Minister I would just like to return to the Middle East for a moment. The content of the declaration, I imagine will not contain its surprises, therefore do you anticipate that it will be welcomed by President Carter and Prime Minister Begin as a useful contribution towards their efforts to …
PM
I think it's dealing with something that hasn't been dealt with before. You know some of the difficulty is that we tend to get hooked on phrases without working them out in terms of boundaries; in terms of what are the entities concerned; in terms of what the people think about specific propositions. Certainly it is a reconnaissance that has never been undertaken before and I think it will be profitable both for the United States and for Europe, and for Israel and all the Arab countries to undertake. I mean, I think you will find that those—what did we finally agree?
Contacts—we had great debates between soundings and contacts, to us they mean the same thing—will be profitable. But you know the difficulty in these things once you start to translate you can find a nuance you don't get otherwise. I think we ultimately agreed on contact, to us they are the same thing. Contacts with all the parties concerned as to what they think is something new and, like any piece of research it will take quite a time, but it is new and it means that we will together be able to have the requisite information as a sound basis to go ahead in the future. We are not trying to oust anyone else, we're trying to be helpful.
Q
Just to bring you back to my question do you think it will be welcomed by President Carter?
PM
I think Jimmy Carterhe could indeed find it welcome.
Q
Prime Minister when you say contacts with all parties concerned in the Middle East doesn't that imply recognition of all the parties i.e. the PLO? [end p9]
PM
Well, I never quite understand what you call recognition. I think it accepts that the PLO is one of the parties that must be associated in the talks-that by no means exhausts the representatives of the Palestinian people. For example I have not the slightest shadow of doubt that that they will want to talk to a number of Mayors on the West Bank and to a number of other groups of people who are a very important part of the Palestinian people. I think it accepts that the PLO will be one of the parties to be associated with the talks.
Q
Prime Minister following the settlement that was reached last month by Foreign Ministers, Britain will still remain the second largest contributor. Do you think that that is acceptable? Do you think it is something that should be considered in restructuring the Budget and following that, if I may, do you have any views about the 1 per cent limit on VAT?
PM
Yes, we're not necessarily accepting anything in the long run. That settlement at Brussels which Lord Carrington reached was for year one, for 1980; for 1981 and for a certain amount of negotiation for 1982 with the formula agreed. In the meantime it was agreed that the Commission must come forward with proposals for fundamental restructuring, so we're not accepting anything in the long-run. We are accepting that we have time now to do the restructuring in a way that makes sense for both agricultural policy and for the Budget for all the peoples of Europe. Now what was the other half of the question you asked. VAT?
In that same communique it was said that all the nations accepted that we must keep to the 1 per cent VAT ceiling and that, of course, is the main trigger to do the restructuring in addition to the agreement at Brussels that it should be done. But that is the thing that will really insist that the re-structuring will be done.
Q
Did the general discussions on inflation and interest rates alight on Britain's particular problems, and for instance in terms of today's RPI index could you say now that Britain's inflation [end p10] was peaked?
PM
No, in terms of inflation we agreed on the broad general lines that you have to take in order to tackle inflation. You have to get the money supply right. None of us like higher interest rates but sometimes you must go through a period. If you want sound money you've got to take the necessary steps to get sound money. Now today we had, where are we June, it's the May RPI figure I would hope that we are about peak. Well we've got one more month to go before we can be certain that it will come down because of the Value Added Tax increase falling out of the formula. I would hope, because as you know I am naturally cautious by nature.
Q
Just on the Budget, could you set our minds at rest that the Budget Agreement now being endorsed will mean that the full cash rebate agreed at Brussels will be in the British Government's hands by the end of the current financial year, that is the one relating to 1980/81?
PM
Well, I think if you are asking every single penny we couldn't … Let me tell you we expect that to be so. We have every reason to expect that the 1980 refund will be paid in the last quarter of our financial year which is the first quarter of 1981. The detail we obviously didn't do here. But I have always said, you will have heard me say many times, we do have that extra quarter on our financial year which they don't have on their calendar year.
Q
Prime Minister you mentioned the Olympics in the context of the deteriorating situation in Afghanistan. Does that mean you still want the British Olympics to reconsider their decision?
PM
Lord Carrington, you're going to see some of them again, are you not? You know just before we came the fencers said that they wouldn't go. You see, I think what is happening is that as the Olympics come closer and closer a number of people are beginning for the first time to look at some of the news from [end p11] Afghanistan and to see what is happening, and to realise that it is not different just because it is a far away place. What would we think if it happened to us, if other people then went to the Olympics and in Moscow. It's not just a far away place. They are human beings and they are just as much concerned as we are here. And they have had their country overrun and being held by force. I think a number of people are really beginning to assess the consequences and what that means for them because no-one can opt out of personal responsibility.
Q
Do you want them to reconsider again?
PM
No, Lord Carrington you will be seeing, is it next week, some of the … .
LC
Tuesday, I'm seeing all the Chairman of the Federations.
PM
Because you see Germany gave a very firm lead on this.