Statement on the Recent European Council Meeting

I would like to make a statement on the European Council summit that took place at the end of last week, which set new records for total inconclusiveness.

There were two main items of business: the fate of the European constitutional treaty and the European budget for the period 2007-13. Following the rejection of the constitutional treaty in the French and Dutch referenda of 29 May and 2 June, Jack Straw, the Foreign Secretary, announced that plans for a UK referendum would be halted pending a decision by the European Council on the treaty’s future. Denmark, Portugal, Ireland and the Czech Republic have also said that they are postponing their referenda.

Following the French and Dutch results, it became clear that the constitutional treaty could not be implemented according to the original timetable. The European Council decided to pause for a ‘period of reflection’, to use the words of Jean-Claude Juncker, the current European Union president. No time limit has been established for this stock-taking exercise but there is consensus that the union, as a whole, needs to investigate and consider why citizens have rejected the constitutional treaty and how best to move forward.

We as an Assembly Government have worked hard to influence the contents of the treaty. I believe the final wording includes ground-breaking language and commitments regarding the status and function of the regions of Europe, including Wales and the Assembly.

The treaty enables a new mechanism to monitor this question of subsidiarity, namely that of settling and discussing matters at the most appropriate level rather than at the highest level. The Parliaments of every member state, as well as regional bodies, such as the Assembly and the Scottish Parliament, and local government occcasionally, are part of the process of scrutinising legislation while it is in draft form and before the formal process of legislating has begun. Whatever the various parties in all corners of the Assembly think of this great question on the treaty itself, I believe everyone would agree that this element, that is, the transfer of power back to the Parliaments of member-states and democratic bodies representing the regions or countries at a European regional level, such as Wales and Scotland, would be of great benefit.

We should inject new energy into the process of developing these elements of the treaty in order to ensure that it is adopted in another form. All our experiences as European politicians over recent years have led us to the conclusion that we need more consultation with those who will be implementing policies or who will be directly affected by new legislation. That is the important lesson that everybody should learn.

On the European budget settlement, or the so-called financial perspective for 2007-13. Members will be aware that the council failed by a mile to reach an agreement on the budget issue. The parameters for debate are set between the European Commission’s proposal for 1.14 per cent of European gross national income, which is similar to GDP—I apologise because I believe that I said ‘of VAT’ when I last referred to this in the Assembly two weeks ago—and the view of the six largest budget contributors, including the UK and French Governments as this is one of the issues on which they do agree, is that the budget should be capped at 1 per cent of this GNI figure. In recent weeks, the presidency has floated a series of compromised positions but, ultimately, agreement was nowhere near being reached. The UK was not alone in rejecting the presidency’s final proposal; a number of other countries, possibly running into double figures, supports or is in tune with the UK’s view.

The UK rebate has attracted a great deal of comment in recent weeks. The Prime Minister has made it clear that he will discuss the British abatement, which is the technical term for the rebate, only in the context of wider reform of European spending. In particular, at present, the common agricultural policy accounts for around 40 per cent of EU spending, which is 10 times as much as the percentage devoted to spending on science, research and innovation. The Prime Minister’s position is guided by the Lisbon strategy for creating more jobs in Europe and competitiveness by boosting the knowledge economy and seeking a budget that is fit for the beginning of the twenty-first century, not the mid-twentieth century. Getting these issues on the table is in itself an achievement, and the summit debate has ruthlessly exposed the stark level of inequalities in terms of net contributions made by different member states.

In terms of Wales’s position, and in particular the two thirds of the country that are in Objective 1—and this is also the case for most of the 10 accession countries—it is clearly disappointing in some important respects that no agreement has yet been reached, although this does not necessarily mean that there will be a delay in the next round of programmes or a gap in funding for those EU regions that will continue to receive structural funds following 1 January 2007.

Funding for current programme projects will continue until 2008, and it is still possible that a reform package will be agreed in time for new programmes to commence on time in January 2007. I underline that the reform of structural funds, which covers the kinds of programmes and priorities to be included in the new programmes, is an ongoing, separate negotiation, which is well advanced, but could not have been concluded this weekend, regardless of the outcome on the budget.

The failure to come to an agreement on the budget means that there may be new and inconveniently positive GDP data available for use in allocating the structural funds from 2007 onwards. While the inclusion of 2003 data in the final statistics is unlikely to affect the status of the other UK regions with Objective 1 status, the borderline position of west Wales and the Valleys may revert down to statistical effect status, rather than to full convergence status, as we all expected before January and before the unexpected effects of the Eurostat rebasing exercise were felt.

This is now too close to call, but we have a curious situation. On the one hand, we should be pleased that the economic performance of west Wales and the Valleys improved in 2002, as was shown by the GDP per capita figures that we already have, and may have improved further in 2003. However, on the other hand, we would regret the loss of full prospective Objective 1 status for the next seven-year period, which would be available if the budget settlement were agreed this year.

Getting the right agreement has to be more important than getting agreement at any cost. If the British rebate were surrendered, then everyone, including Wales, would be worse off, regardless of structural fund receipts. The rebate is currently worth in the region of £3 billion per annum to the UK. If it were lost, public spending would have to decline by that amount or income tax would have to be raised by the equivalent of 1p in the pound in order to fill the gap. At that price, any short-term progress on a structural fund settlement would represent a pyrrhic victory.

In 10 days’ time, the UK assumes the presidency of the EU for the next six months, and the responsibility for trying to make progress on these vexing issues, and many others, will fall to it. I was heartened to hear Jack Straw say that efforts will be made to secure a resolution of the budget issue during the UK presidency. The Prime Minister, the Chancellor and Peter Hain are well aware of the significance of an early budget settlement for west Wales and the Valleys and, this week, I met the Chief Secretary to the Treasury, Des Browne, to reinforce our position.

It is, of course, not clear at this stage when the EU budget will be agreed. However, I continue to receive assurances from Des Browne and others that the UK Government will maintain its guarantee, as set out in the Government’s consultation document, that Wales will receive a level of resources that ensures that we do not lose out from the UK’s proposal on reform and repatriation, should it, in the end, prevail. My colleagues and I will continue to ensure that the needs of Wales are fully understood at the UK and EU levels, and we will continue to press for the best deal for Wales.