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The true danger faced by the Union at this time is stasis—the danger of standing still and the consequent loss of our citizens’ confidence that the Union has anything significant to offer. They will take it as read that we are not about to have a European civil war. They will not see the connection between our prosperity and the decisions that appear to be taken in Brussels. There is a danger of the whittling away of legitimacy and support for the Union.

We have seen that route tested to some extent by the Lisbon process, and its very limited successes must be recognised for what they are. What is working is what is customarily known as the Community method. The competition policy, about which the noble Lord, Lord Brittan, spoke, does deliver and requires the member countries to come together to empower the EU’s institutions to take decisions on behalf of their citizens collectively, not at the level of the lowest common denominator, allowing proper democratic debate in consideration of these issues.

I believe that the Council ahead has a great challenge to rise to. But we are fortunate in having the leadership of Chancellor Merkel, a clean mandate for the President of France, and some awareness of the seriousness of what is on option. Certainly, the parliamentarians in Brussels on Monday had no doubts about the nature of the challenge.

1.34 pm

Lord Hannay of Chiswick: My Lords, this is a good moment to be reviewing the UK's membership of the European Union. We are only a few days away from an important meeting of the European Council—perhaps a real turning point. We are passing through a period of change in the leadership of several of the large member states. Chancellor Merkel has already brought a welcome sense of direction and spirit of compromise to Germany's European policy and to its presidency of the European Union. President Sarkozy has just come on to the stage and the right honourable Chancellor of the Exchequer will be emerging from the wings in two weeks’ time. Experience tells us that the leadership of those three countries and their leaders’ ability—alas, in some cases inability—to work together will make a very big difference to the European Union as a whole.

The European Union seems ready to emerge now from the period of uncertainty that followed the defeat of the constitutional treaty in the French and Dutch referendums. The challenges that face the EU, particularly in its external policies—trade, climate change, energy security, Russia, the Middle East, Africa, Turkey and the Balkans—have seldom been more complex and more pressing. The noble Lord, Lord McNally, and the Liberal Democrat group as a whole have therefore chosen the time well for this debate.

It is fashionable to talk about the European Union being in crisis. Oddly enough, both strong supporters and visceral critics of the European Union reach for that overused word and deploy it for their own purposes. The truth is somewhat less dramatic and more complicated. It is rather hard to argue in any very convincing way that an organisation which has, in the past few years, carried out the geographically and politically most significant expansion of its membership, regulated the chemical industry, passed an admittedly incomplete first measure to free up the service industries, sorted out its finances for the next seven years, and, most recently, capped charges for international calls on mobile phones to the applause of a wide range of public opinion is somehow hopelessly deadlocked or in a moribund state.

However, it is equally hard to argue that an organisation which botched its last completed effort at constitutional reform in the Nice treaty, saw its next effort—the constitutional treaty—rejected by the voters of two of the original member states, is suffering from a painful attack of enlargement indigestion and having difficulty facing up to the demands of further enlargement, and regularly punches well below its weight in international negotiations has reached a point where further reform and policy development can be taken for granted or assumed to be unnecessary. As so often, hyperbole is a poor guide for future decisions.

In recent years, there has been a major shift in emphasis within the European Union from internal policy development to external policies—to the need to define Europe's global role and to adopt policies that will defend and further its worldwide interests. The great achievements in internal policy—the single market, the adoption of the euro by 13 member states with more to come, and the freedom of movement of our citizens—will remain the bedrock on which everything else is built. They will require plenty of political effort and will give rise to plenty of tensions in the years ahead—over the modernisation and refocusing of the budget, which is to begin next year, over issues of economic governance and over the still incomplete areas of capital markets, justice and immigration. They will require robust and effective institutions—the Commission and the European Court of Justice in particular—to guard against backsliding towards fragmentation of the market and the renationalisation of industrial policy.

The biggest future challenges will lie in the external field, and it is there that, so far, the European Union's performance has fallen far short of what is needed. I firmly agree with the noble Baroness, Lady Williams, on that point. That is where its present diffuse and confusing institutional and decision-making structures need most adaptation. A mere glance at those external challenges is a reminder of the steepness of the hill that remains to be climbed if the European Union is to realise its full potential. The Doha round of world trade remains suspended between success and failure. The cost to the European Union of failure to complete the round successfully, particularly if that failure is attributable in whole or in part to an effort to protect Europe’s still far too highly subsidised agriculture, will in the long run outweigh the damage to any of the other participants.

The post-Kyoto negotiations on climate change and limiting carbon emissions have as yet hardly begun. The European Union has given a lead with the March decisions of the European Council. Implementing those decisions and drawing in the main developing countries and the United States to agree a meaningful package will be much harder, although last week’s G8 summit decisions are at least a step in the right direction.

The European Union has adopted a strategy for Africa, although so far it is not much more than a strategy on paper only. The cases of Darfur, Somalia, Zimbabwe and the Democratic Republic of Congo show just how difficult it will be to turn that strategy into a reality—a work of years or perhaps decades, not of months.

Defining an effective policy towards Russia, whose policies so far seem guided more by post-imperial nostalgia and the precept of divide and rule than by a genuine wish to develop co-operation, will require a judicious blend of firmness and constructiveness which has not yet so far been achieved.

A case for further enlargement to include Turkey and a number of Balkan countries, which was recently fully debated in your Lordships' House, is unanswerable, and failure to answer it positively could have exceedingly damaging consequences, not least for Europe’s own security. The current problems over Kosovo and the travail through which Turkey’s reforming Government are passing are a reminder of the difficult decisions that lie ahead. As for the Middle East, the need for a settlement of the Arab-Israel dispute has never seemed more imperative and at the same time more elusive.

Every one of those external challenges has in common that all require a united European policy response and a concerted European effort if they are to be successfully handled. Not one can be managed by individual European states acting on their own in disharmony. So much for those who say that a common foreign and security policy is an optional extra.

In Europe, policy and institutional change have always gone together and this remains the case today. The case for functional institutional change, if those external and internal challenges are to be successfully met—for more coherent external policy formulation and decision-making, for a greater role for national Parliaments, and for a more equitable balancing of voting weights and a slimmed-down Commission—is surely hard to gainsay. This is not institutional change by blueprint but a response to actual policy challenges. That is the compelling argument for drawing out of the wreckage of the now defunct constitutional treaty those elements that address those challenges—for getting rid of the rotating presidency, giving more continuity and political guidance to the work of the European Council, and accepting more majority voting on a pragmatic rather than an ideological basis. There is an opportunity to negotiate a relatively modest package of institutional changes, which would respond to the interests of the European Union and this country and be good for both. I hope that that is the path on which this month’s European Council will set us.

At an appropriate moment, it will be necessary to consider how this country will ratify such a package of institutional reforms. I see no convincing reasons for moving away from the method of parliamentary ratification, which we employed for all previous amendments of the basic treaties—some of them a great deal more far-reaching than those that seem likely to emerge from any negotiations set in hand by this month’s European Council. The assertion that ratification by referendum is inherently more democratic than parliamentary ratification is completely unproven. Are the protagonists in the argument for referendums seriously arguing that Germany, which has set its face firmly against the use of such instruments, is acting undemocratically, or that the newly elected President of France, who won a sizeable majority on an electoral turnout that we can only dream about and on a platform which, unlike that of his defeated opponent, explicitly provided for parliamentary ratification of a reduced institutional reform package, is similarly planning to act undemocratically?

Surely what we need in this country is not another row about how we approve an as yet un-negotiated package of institutional reforms, but rather a coming together of all three main parties behind the policies and methods to which we would like to see the European Union committed. On this front, there seems much common ground. As one who has lived and often had to negotiate through all the main stages of Britain’s membership of the European Union, I unhesitatingly say that nothing has damaged us more than the endless chopping and changing of the two main parties’ policies towards Europe and the manoeuvrings for domestic political advantage, which have inhibited the definition of firm and consistent policy objectives. No other member state has suffered that disadvantage. It is surely time to end this long-running saga and define a non-partisan approach to Britain’s European policies.

1.45 pm

Lord Roper: My Lords, I certainly agree with the conclusions of the noble Lord, Lord Hannay. I would take a view about some of his earlier assessment of the preparations of the European Union to deal with the coming external challenges, but I would see things rather more as a glass half full than as a glass half empty. There is a potential within the European Union, which we have seen develop in recent years and to which I would like to return.

I begin by congratulating my noble friend Lord McNally on having given us the opportunity to have a debate in advance of the European Council. It is a pity we do not have one normally in advance of a European Council, as the House of Commons does, particularly given the quality of the knowledge of the subject that we have in this House, as other noble Lords have said. It is a privilege to be able to debate Britain’s relations with the European Union with so many of those who have played a leading part in it over the past 40 years. I know that my noble friend Lord Thomson of Monifieth, who had originally intended to speak in this debate, is particularly sorry that he cannot do so because of ill health.

Next week is certainly critical for the European Union and for Britain’s relationships. Throughout the 36 years in which I have spoken on Europe in Parliament, I have always made it clear that my reasons for wanting to see the development of the European Union was as an instrumentalist not an institutionalist. I support the European Union and British membership of it because it enables us to achieve our political and national objectives more effectively in a larger structure rather than because there is some sort of federal or confederal machinery. I also believe in the principle, which I think was put forward by Jean Monnet, of making institutional development in small forward movements rather than leaps. I hesitate to make the following point, speaking as I do between my noble friend Lord Maclennan and the noble Lord, Lord Kerr of Kinlochard, but I think that in retrospect the convention and, perhaps, the treaty were perhaps somewhat over-ambitious.

There were two things necessary to be done post-Nice. It was necessary to deal with the question of weighted voting, on which a fudge had been produced at Nice. It was necessary, too, to deal with the size of the Commission. Those are two of the most difficult matters in the European Union because of the divisions that the different interests create between the larger and smaller member states, rather than between faster and slower Europeans. I sometimes wonder, perhaps a little cynically, whether the size of the constitutional treaty was not to ensure that those difficult issues were not so obvious in the large mass of that text. I very much hope that agreement can be reached on these issues next week in Berlin, in spite of the noises that we have heard coming from Warsaw.

On the size of the Commission, the possibility of senior and junior commissioners might be a solution to be explored. There is one other thing that has not been referred to today but which I believe was a rather useful aspect of the draft constitutional treaty, which gives it an important flexibility—the way in which the passerelle or bridging concept was developed in the treaty. It took what had always existed—that there had to be unanimity among the member states—but added a very important parliamentary red card. If one Parliament were to object—apparently in this country the House of Commons—within six months of the passerelle motion having been passed, it would fall. That is a rather important parliamentary development. I accept the use of a red card there although I do not accept it in relation to the proposals mentioned by the noble Lord, Lord Harrison. I was interested to hear from the noble Lord, Lord Grenfell, that at the meeting which he and the noble Lord, Lord Maclennan, attended this week in Brussels not a single Parliament supported this idea, which was put forward by the Netherlands Government and, to some extent, I gather, supported by our own Government. This red card system for the normal process is a mistake. The yellow card arrangement, which was sorted out within the convention and the constitution, should be carried forward.

I enjoyed the 1975 referendum but have not become an addict. I did not believe that a referendum was necessary in the case of the constitutional treaty, and made my views on that subject known to the Government at the time. In spite of its name, that treaty was not significantly more substantial in its effect than many of the earlier amending treaties. I certainly see no case for a referendum on the treaty that is likely to emerge from next year’s negotiations and the subsequent IGC. I accept, of course, that some may wish to see what emerges before coming to a final view on a referendum. But in view of all that we have heard in this debate and in the current debate, it seems to me very unlikely. I can see no situation in which I would be prepared to vote for one.

There is an important paradox that while all the achievements which the noble Lord, Lord Hannay, pointed out have occurred in the past few months, the referendum decisions in France and the Netherlands have led to a malaise within the European Union. Further referenda, which could also result in defeats, could lead to further malaises. I would not call that a crisis in view of the considerable achievements, but at the same time as this malaise has occurred in the European Union—I say that despite the comments of my noble friend Lady Williams and the noble Lord, Lord Hannay—over the past two or three years it has been relatively successful in the development of its foreign and defence policies. Its High Representative, Javier Solana, has played an increasing role in the quartet. I refer to the agreement which the European Union reached this week with the Ministry of Finance in the Palestinian Authority in order once again to start building up its institutions. The European Union proposed a mechanism and then persuaded the rest of the quartet to accept it so that finance could continue to be provided to the Palestinian Authority. A certain amount has been achieved. I refer to the large number of members of the European Union which were prepared to provide forces in the Lebanon last year.

During its first 50 years the European Union concentrated on its internal policies. As we have heard, the challenges now lie outside the European Union in a variety of domains. We are responding to the situation in the Middle East and, to some extent, that in Africa. The European Union is largely paying for the African Union mission in Darfur. It was able to deploy at short notice into Aceh, Indonesia, when a conflict needed to be dealt with. I could go on but I do not have time.

The new challenges to our society posed by problems with the global environment, energy security and international terrorism all call for a collective European response. They are providing the new case for Europe and in many cases the response is already beginning, even if it is not adequate. If anything, Europe is becoming overwhelmed by requests from international organisations to provide forces for activities, possibly in Gaza and perhaps, at some stage, in Syria after a withdrawal. The European Union is responding to those issues.

In my closing words I should draw your Lordships’ attention to the interesting fact that this week the European Union is having its second military exercise, commanded by a British general, Lieutenant-General David Leakey, using its own autonomous operational headquarters for the first time. A few years ago that suggestion would have resulted in terrible trouble, but I am glad to say that the Secretary-General of NATO himself said last week that he thought that the European Union operations centre was a good idea and that he had nothing against it. The European Union is beginning to build the equipment which will enable it to face these international challenges, which I believe will be its primary justification. Let us hope that at spaghetti junction, or wherever it is that my noble friend said the meeting would take place next week, agreement is reached on a relatively simple number of changes which can be made, then taken forward and ratified in all member states, except perhaps Ireland, without referenda.

1.56 pm

Lord Jay of Ewelme: My Lords, like others, I congratulate the noble Lord, Lord McNally, on choosing Europe as the subject of this debate.

I must declare an interest as vice-chairman of Business for New Europe, business leaders who argue for a constructive British approach to European issues and for European reform. After 20 years of immersion in European negotiations—10 years under a Conservative and 10 years under a new Labour Government—I am convinced that positive, though when necessary critical, engagement with the EU is indeed in Britain’s interest. I believe, too, that our experience over the past 20 years indicates that we should have far more confidence than we often show in our ability to influence the development of the European Union to our and the EU’s benefit.

I give three examples: first, the single market, as others have mentioned. The Single European Act of 1986 gave real and much needed momentum to realising the four freedoms referred to by the noble Lord, Lord Haskel—goods, services, capital and people. The single market is not yet fully achieved despite the deadline of 1992, the further impetus given, again with British support, by the Lisbon Agenda of 2000 and, indeed, the agreement reached on energy liberalisation on—this is worth stressing—a British model earlier this year. But the creation of a substantially complete single market of some 400 million people is a boost to jobs, enhances European competitiveness and benefits British business—manufacturing and services. Britain has been for 20 years—and must remain—at the heart of that process.

Secondly, on enlargement, the Bruges speech delivered by the noble Baroness, Lady Thatcher, in September 1988 was not universally well received on the continent of Europe. But in one crucial respect it was ahead of its time and visionary: in recognising Budapest, Warsaw and Prague as great European cities even before the Berlin Wall came down. Britain’s consistent advocacy of enlargement over the past decades under Conservative and Labour Governments has helped to ensure that democracy and liberal market economics now dominate the European continent, and, indeed, that the original goal of the Treaty of Rome—ever closer union among the peoples of Europe: peoples, not states—is closer to being realised than Monnet or Schuman would ever have thought possible. Enlargement, too, is unfinished business. Difficult decisions over Turkey and the Balkans lie ahead. But Britain’s influence in this crucial aspect of Europe’s development is undisputed—and here again that influence remains essential for the future.

Thirdly, Britain has long argued for a more coherent and effective European foreign and security policy, not to replace but to build on and complement national foreign policies, including our own. Noble Lords rightly spoke of some of the failings of the common foreign and security policy. Like the noble Lord, Lord Roper, I believe that it is important to stress that there have been successes too. One recent success is Iran, where the constancy of EU diplomacy, led by the UK, France and Germany and, crucially, by the EU’s High Representative Javier Solana, has helped to keep the US, China, Russia and among others India and Egypt united in maintaining pressure on Iran. The CFSP too is work in progress. Greater coherence in the EU’s foreign policy must be in our interest. Britain has played a key role in its development so far and must continue to do so. Again, that is in our and the EU’s interest.

What is the result of those and other developments over the past decades? It is an EU of 27 increasingly diverse nation states, united by a belief in democracy and by market, not centralised, economics. It is an EU that increasingly recognises the diversity within it, through, in the jargon, variable geometry, the euro and the Schengen arrangements. I fear that I differ slightly on that point from the noble Baroness, Lady Williams of Crosby, in that I see those as sensible although not necessarily permanent constitutional precedents, which may indeed need to be followed in other areas too, as a way of finding that essential balance between supranationalism and respect for the nation state. It is an EU that increasingly sees the need to look outwards and to respond to global challenges, as we saw in the far-reaching agreement on climate change at the European Council in March. It is an EU whose hitherto excessively declaratory foreign policy is moving towards a more hard-headed approach over Iran, Kosovo and, I hope in the future, the Middle East.

It is also of course an EU with flaws; a still insufficiently reformed common agricultural policy, a budget tilted too far towards agriculture, a strong protectionist streak in WTO negotiations and a lingering attachment to over-regulation. As other noble Lords have mentioned, it is an EU that faces huge challenges; migration, terrorism and competition from the emerging economies. I am convinced that those are flaws and challenges that Britain, with allies, is as well placed as any in the European Union to address and so to continue to influence developments as it has the past. That is particularly so since, as the noble Lord, Lord Hurd, said in a recent speech to the Conservative Group for Europe,

“the European Union is not now evolving towards a united states of Europe”.

We really can and must lay that demon to rest.

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