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European Council

Volume 555: debated on Monday 17 December 2012

Before I make my statement, I am sure the whole House will join me in wanting to send our deepest sympathies to President Obama and the American people following the desperately tragic shootings in Connecticut on Friday. These are heartbreaking scenes. One can only imagine what the families are going through, and our hearts should go out to those families and the friends of all those involved.

Last week’s European Council discussed further economic and monetary integration for the eurozone. It endorsed new safeguards that will protect the interests of countries outside the eurozone. It also reached new conclusions on our response to the crisis in Syria, and there were discussions on growth and defence. This was the seventh European Council of the year. I would not describe it as a landmark Council, and I will try to address these points briefly.

The problems of the eurozone are driving heated discussions between its members and are leading to potentially significant changes inside the European Union. There are calls from some for greater solidarity and burden sharing, and from others insistence on tough rules for fiscal discipline. These arguments raise far-reaching questions of national sovereignty, and it is yet to be determined how far or fast the changes will go, but it seems likely that we will see a process of further integration for members of the eurozone.

Britain will not join the single currency—neither will we join the deeper integration now being contemplated—but these changes, driven by the eurozone, will alter the European Union for all of us, so they need to be done in the right way. That should mean flexibility over how Europe develops to accommodate the interests of all member states—those inside the euro, those that might one day join and those, such as Britain, that are outside, have an absolutely clear opt-out and have no intention of joining. It also means that as eurozone members make the changes they need, we in the UK will have the ability to argue for the changes that we need in our relationship with a changing European Union in order to get the best possible deal for the British people.

The banking union, elements of which were agreed last week, is a good example of that. A single currency needs a single system for supervising banks, so Britain supported the first steps agreed towards a banking union, but in return we and others demanded proper safeguards for countries that stay outside the new arrangements. The European Council therefore agreed a new voting system that means that the eurozone cannot impose rules on the countries outside the euro area, such as Britain, without our agreement. There is also an explicit clause that says that no action by the European Central Bank should directly or indirectly discriminate against those countries outside a banking union. That is vital for our financial services industry, which must continue to be able to provide financial products in any currency.

The Bank of England and the ECB will have a statutory memorandum of understanding that will ensure they work co-operatively and openly to supervise cross-border banks. The safeguards set an important new precedent in giving rights to countries that choose to stay outside the euro. In winning that argument, we have demonstrated how a change necessary for the eurozone can lead to a change for countries outside the eurozone that can help us to safeguard the things that matter to us in Britain, in particular the integrity of the single market. And as the eurozone makes further changes, I will seek every opportunity to get the best deal for Britain and for the single market as a whole.

On growth and competitiveness, this year we have already secured a proper plan, with dates and actions, for completing the single market in services, energy and digital, a commitment to exempt small businesses from new regulation, the establishment of a European patent court, with key offices in London, which will save businesses millions of pounds, and a new free trade agreement with Singapore. In addition, we have launched negotiations on a free trade agreement with Japan that could increase EU gross domestic product by €43 billion a year. The conclusions from the Council have the additional benefit of referring to Commission plans to “scrap” some of its own

“regulations that are no longer of use.”

We are taking action in Europe that will help with growth and jobs and with tackling unemployment here in the UK.

On defence, we are clear that NATO is the cornerstone of our defence and that EU co-operation should avoid costly new bureaucracy and institution-building. We will never support a European army. The focus of the Council conclusions is entirely consistent with this, referring to practical co-operation to tackle conflict and instability in places such as Kosovo and the horn of Africa. In addition, the conclusions welcome proposals to open up closed defence markets in Europe, which could be of benefit to Britain.

Finally, I turn to Syria. As a result of Assad’s brutality, a humanitarian crisis is unfolding in Syria on our watch, with more than 40,000 dead and millions in need of urgent assistance as a hard winter approaches. There is a moral imperative to act—and Britain is doing so, as the second-largest donor in terms of humanitarian aid—but there is also a strategic imperative to act. Syria is attracting and empowering a new cohort of al-Qaeda-linked extremists, and there is a growing risk of instability spreading to Syria’s neighbours and of drawing regional powers into direct conflict.

We therefore cannot go on as we are. The Council was clear, as Britain has been for many months, that Assad’s regime is illegitimate, and committed to working for a future for Syria that is democratic and inclusive, with full support for human rights and minorities. We will continue to encourage political transition from the top and to support the opposition, who are attempting to force a transition from below, and that will include looking at the arms embargo. The conclusions also make it clear that we must now explore all options to help the opposition and to enable greater support for the protection of civilians.

With progress on Syria, our objective on banking union secured and the principle established that changes in the eurozone require safeguards for those outside, I commend this statement to the House.

I join the Prime Minister in sending deepest condolences to President Obama and the people of the United States. The Connecticut shooting was an appalling tragedy, and all families affected are in our thoughts as they cope with their grief and their loss.

I wish to ask questions on Syria, the banking union and the wider European context. Let me associate myself with the Prime Minister’s concern about the ongoing loss of life in Syria. The international community must work together to end the atrocities immediately and speak with one voice in favour of a transition to a new Government. The Prime Minister mentioned the arms embargo, while noting that Syria is attracting “a new cohort of al-Qaeda-linked extremists.” In that context, will he go further and tell the House whether he is actively urging the EU to end its arms embargo, or merely amending its terms? Notwithstanding deep concern in the international community about the situation in Syria, does he recognise some of the dangers inherent in the approach of putting weapons into a zone in which there is already deep conflict?

On the banking union, the Opposition believe it is right for the European Central Bank to have a supervisory role in the eurozone. Does the Prime Minister agree, however, that the most important issue is not necessarily who supervises which banks, but who takes responsibility for bailing out failing banks in the euro area? That is what will deliver the firewall we need between bank and sovereign risk. Will he say whether he made the case for the urgency of agreement on that matter at the Council?

It is good that progress was made to protect the integrity of the single market. Will the Prime Minister say whether there was discussion on how the new voting system that he mentioned will cope in the event of changing circumstances, and in particular if EU members currently outside the eurozone join the banking union and the “out” group shrinks to three or four member states? Beyond questions of banking, is not the real continuing problem for Europe that of insufficient demand and lack of a proper plan for growth? In yet another Council we saw no progress on that, just as we saw no progress beyond banking union on wider eurozone political and economic integration.

All the Council did was set a timetable of June 2013 for setting a timetable. That is less than was promised—in other words, dither and delay. It is a bit like the Prime Minister’s long-awaited speech on Europe, which has been delayed again. First it was set for his party conference, then for before the EU budget negotiations. We now hear that he has delayed it again until the new year.

Of course, never knowingly undersold in his normal modest way, the Prime Minister says that it is okay because it is

“a tantric approach to policy making.”

Parliament’s answer to Sting sits before us, Mr Speaker. It is true that they have both fallen out with the police—[Interruption.] I am sorry; it is Christmas after all. I am sure I speak for the whole House when I say that none of us wants to be there to witness the tantric approach.

Perhaps the Prime Minister will answer three simple questions. First, the Foreign Secretary, who is sitting on the Front Bench, said on an in/out referendum that

“this proposition is the wrong question at the wrong time…It would create additional economic uncertainty in this country at a difficult economic time.”

I agree with the Foreign Secretary—does the Prime Minister? Secondly, the Prime Minister said last week:

“I don’t want Britain to leave the European Union.”

I agree with the Prime Minister on that, but why does he let member after member of his Cabinet brief that they are open to leaving the EU, including most recently the Education Secretary? Thirdly, as the Prime Minister will know, British business is deeply concerned that the drift in his party and the direction of his policy means that we are sleepwalking towards exit. I share that concern. Does the Prime Minister at least understand the concern of British business?

The Prime Minister ended last year with the veto that wasn’t, and he has ended this year with the speech that isn’t. In other words, he is stranded between party interest and national interest. The problem, however, is that nobody else in his party is holding back. Just in the past few days we have heard from the Immigration Minister, the former Defence Secretary, and now—always keen to help the Prime Minister out—the man on the zip wire, the Mayor of London. Is it not time to stop the dither and delay? Is it not time that he stopped following his party on Europe and started leading it?

Well, the jokes were better. The right hon. Gentleman has obviously spent a bit of time running through his old Police albums. Given his policy on Europe, I would recommend, “So Lonely”, and given his general approach to policy, he is going to have to get used to “I can’t stand losing”. [Interruption.] That was the best I could do given the notice. He should give me more warning next time—[Interruption.] Don’t stand so close to me—very good. The bed’s too big without you—[Laughter.] Let’s take this down.

On Syria, it is right to look at amending the arms embargo. We will be keeping the arms embargo on the regime. There are arguments on both sides, but we should have the debate and European Foreign Ministers will do so. My concern is that if the UK with others is not helping the opposition, and helping to shape and work with it, it is much more difficult to get the transition we all want to a peaceful, democratic Syria that respects the rights of minorities—including, as I have said, Christians—and human rights.

On banking union, the right hon. Gentleman rightly makes the point that the protections are set out when more than four members are outside the banking union. The new double majority voting is a big breakthrough. The idea that non-eurozone members should have a separate vote on proposals that could be damaging to us is a major breakthrough, and a lot of people said it would not be possible. If the number of countries outside the banking union falls below four, the issue returns to the European Council, where, of course, we decide things by consensus and would be able to put a stop to further progress.

The right hon. Gentleman makes his points on growth, but ignores completely that almost every country around the table has immense fiscal challenges and huge budget deficits. That is why we focus so much on the things that could help growth in Europe, such as the single market, free trade deals with other parts of the world, deregulation and getting costs down, and a good budget deal.

The right hon. Gentleman asked a series of questions on European positions. I do not think it is right to hold an immediate in/out referendum because neither of the two options is right. That is exactly what the Foreign Secretary has said.

On British business, the Conservative party and the Government are working to deliver all the things business has asked for. I note that, when the Opposition business spokesman was asked to name one single business that supported Labour, the best he could come up with was Waheed Alli, whom Labour ennobled about a decade ago.

On European policy, I will not take lectures from a party that signed up to the bail-out, gave away our veto and gave up the social chapter—on each occasion, it got absolutely nothing in return. That is the truth of the Labour policy, whereas the Conservative party and the Government have delivered. Three months ago, before the three European Councils, we were told, “You’ll have no allies on the European budget, you have no chance of amendments to the banking union, and you’ll be completely isolated on treaty change.” All three warnings given by the Leader of the Opposition and others have turned out not to be true.

My right hon. Friend says that the EU changes must be done in the right way. At Prime Minister’s questions last Wednesday, he stated in reply to me that

“it is the national parliaments that provide the real democratic legitimacy within the European Union.”—[Official Report, 12 December 2012; Vol. 555, c. 291.]

However, how is it that, in the European conclusions he signed on Friday, and despite a unanimous European Scrutiny Committee report calling on him to stand firm, the national Parliaments and the European Parliament are stated as being commensurate in respect of EU competences?

I should again make the point I made to my hon. Friend on Wednesday. Change in Europe cannot go ahead unless it has the support of national Parliaments. Clearly, the European Parliament has a role set out in the treaties—whatever one thinks about that, one cannot ignore it. When it comes to changes in the eurozone, Angela Merkel going back to her Parliament matters; when it comes to the European budget, my coming back to this Parliament matters. That was my point. In Europe, the Parliaments that matter are the national ones—this is the Parliament that matters to me.

I agree with what the Prime Minister said about the banking union. Like so many other things coming out of the eurozone, it looks a bit half-baked at the moment. Did he get any sense of how much money the banking union will have, and where it will get it from? Did he also detect any urgency being applied to sorting out the Spanish banking problem? It looks as though all the problems that have bedevilled us in 2012 are still going to be there in 2013.

The right hon. Gentleman makes an extremely good point. This is not a fully fledged banking union; it is simply the first step in terms of a single supervisor. A banking union as we in the United Kingdom would know it would cover the resolution of problems in banks and deposit guarantees. If a bank in England, Scotland, Wales or Northern Ireland has problems, it does not make any difference because we have a proper banking union. They are a long way from that in the European Union. The point I was making is that these discussions are going to go on for quite some time, because they involve big issues of national sovereignty, so it will take time before they get a banking union.

If we are to have growth in Europe, we need to have banking reform both to recapitalise the banks and to write off the bad loans and assets. Is there any timetable for raising the huge sums that the euro area will need to capitalise its banks, and when is the ECB going to make the Spanish and other weak banks in the system write things down to a realistic level so that we can start to trade away from the disaster?

My right hon. Friend asks an important question, which reminds me that I did not answer the former Chancellor’s question about the Spanish banks. There will be opportunities to deal with that, but in the light of the way in which this is being structured, further progress will need to be made under the banking union proposals before the sorting out of Spanish banks can take place. Many in the eurozone would argue that all those delays are damaging to the future of the eurozone. On bank recapitalisation, stress tests have been carried out in Europe, although some people argue about their robustness, but that was not the focus of discussion on this occasion. This was not so much about banking capital as about the process of a banking union.

May I ask the Prime Minister to expand a little on his view of the process towards a democratic, inclusive Syria, given that, although probably 70% of Syrians are wholly opposed to the Assad regime, about 30%—Christians, Alawites and others—are still committed to it? What further efforts are being made with the Russians to try to secure international agreement, however difficult that might be, given that Russia’s compliance and consent will be crucial to an overall settlement?

The right hon. Gentleman is absolutely right about this. As I explained in my statement, there are two ways in which transition can take place in Syria. One would involve revolution from below, if you like, while the other—which could be faster if everything went according to plan—would involve a transition from the top, and for that, we need the Russians to engage. My right hon. Friend the Foreign Secretary has met and spoken to them regularly, and I have discussed the issue with President Putin. There was a report on Thursday, while we were in the European Council, that the Russian Deputy Foreign Minister had made some interesting remarks about Syria, so we will read those with care. Clearly, everything we can do at the UN and with countries such as Russia to put pressure on the Assad regime is worth while.

Is not one of the lessons from the seven summits of 2012 and the successes of the year—the banking union that keeps our financial services industry protected, the patent deal that will probably reduce the cost of getting European patents by 80%, and the trade deals with Singapore, South Korea, Latin America, Japan and the US that are in the pipeline—that constructive and pragmatic engagement with our neighbours in the European Union is good for the UK, good for Europe, good for growth and good for jobs?

I would agree with a lot of what my right hon. Friend says. I would add to “pragmatic engagement” the words “hard-headed”, because in order to make progress on issues such as the patent court and the single market, we need to negotiate very toughly. These are our key interests, and other countries have their own. Across the seven Councils, we have made some progress.

Is it conceivable that the reason the Prime Minister cannot make his European statement that his Deputy Prime Minister thinks just the opposite of what he thinks? Is there any chance, now that they have started the practice, not only of the Prime Minister making a statement but of his allowing the Deputy Prime Minister to make one as well? I know it is nearly Christmas, but I am not against turmoil in the Tory party or in the coalition.

Let me wish the hon. Gentleman a happy Christmas. He is a good example of how there is not always a commonality of opinion within a party, let alone between two different parties.

The events of the past few months have confirmed that Britain has a number of allies in Europe and is not alone, but the case for Europe is drifting. Will the Prime Minister take an early opportunity to get on the front foot and set out his agenda before others fill the vacuum?

I am very happy to do that. My hon. Friend is right that we have allies in Europe. I note that in this morning’s German newspapers, the leader of the Social Democrats—Labour’s sister party—has accused me of having a Faustian pact with the German Chancellor, so there we have it. We have a very clear agenda: we have been pushing the single market, pushing for the patent court, pushing for the free trade deals, pushing for deregulation, and on every single one of those measures we have made some big progress this year in Europe.

The Office for National Statistics reported last week that the GVA—gross value added—output in the communities I represent in west Wales and the valleys is only 65% of the UK average. A cut in European structural funding would therefore be disastrous for the communities I represent. Will the Prime Minister assure my constituents that the British Government will make up the shortfall in funding for them, based on the British Government’s negotiating position on the EU budget?

I will certainly look carefully at what the hon. Gentleman said before we return to the European budget issues in February. Frankly, however, if we want a good deal for Britain in terms of the level of payments we make, we have to accept the fact that in an enlarged European Union—and we support enlargement—we are going to see a greater percentage of those structural funds go to the relatively poorer countries of eastern and southern Europe. I think we have to understand that when we take part in the negotiations.

On the issue of banking union, I wholly endorse the Prime Minister’s view that we were able to secure in Brussels the very best deal in the circumstances. Will he confirm, however, that the double majority arrangements now set some sort of precedent for the two-speed Europe that many believe is in the UK’s national interest—on this and related matters?

I would make two points in response. I believe it is possible to have different countries involved in different things within the European Union. I do not particularly like the expression “two-speed”, which implies that one is racing ahead and the other is not, yet in many cases I would argue that not being in the single currency is beneficial for Britain, and not being in the no-borders agreement is right for Britain. My hon. Friend is absolutely right to say that this was a breakthrough negotiation, showing it is possible to have a new set of rules to safeguard those countries that want to stay outside some European institutions.

I am sorry, but may I press the Prime Minister on his long-awaited European speech? I really do not think he has got it clear. Is it not happening because he does not yet know what he wants to say, or because he is not allowed to say what he wants to say?

I will be making the speech in the middle of January—[Hon. Members: “Ah!”] I am delighted that Opposition Members are so excited and are looking forward to it. The hon. Lady might have noticed that I have had a number of other things to attend to in recent weeks, but I have a feeling—knowing her views and the moves she has been making over the years as I have watched her in the House—that she may quite like it.

I congratulate the Prime Minister on the ground-breaking deal for Britain’s financial services that he struck in Europe. Does he agree that it is astonishing that Labour Members seem to think it is simply a case of “in or out, and why don’t you get on with it”, when it is far more important to negotiate a better deal for British taxpayers? My right hon. Friend is absolutely on the right track.

I thank my hon. Friend for her question. I should say that the banking union agreement was negotiated not by me but by the Chancellor of the Exchequer. He deserves the credit for the 5 am finish in the negotiations, which safeguarded Britain’s interests. My hon. Friend is right in what she says.

I warmly congratulate the Prime Minister—[Interruption]—it’s all right, don’t worry—on supporting, last week, a step change in the development of a common defence and foreign policy for the European Union, especially as we are in the run-up to the EU Russia summit on Friday. Does it not make sense for Europe to approach, in particular, the Russian Federation with a single set of core objectives, so that we can see a successful set of outcomes? When the Germans or the French have negotiated on their own, everyone has ended up with a bad deal. Now that the Americans have introduced a Magnitsky Act, is it not time that we did the same in this country?

What I would say to my— [Laughter.] I am sorry; there is only so much excitement that one can take in a single day. What I would say to the hon. Gentleman is that I think that one of the worthwhile aspects of our engagement in Europe is the ability to discuss issues—whether they relate to the situation in Syria or to relations with other powers—and try to reach common positions that maximise the influence that we then have. I think it important for the discussions to be held on the basis of unanimity. We do effectively have a veto in this area, but when we can agree, as we did on Syria and Iran, there can be very powerful consequences.

When will the British people be given their democratic right, namely a choice in a referendum between being part of a customs union and being part of a European Union?

My hon. Friend has made a very good, very clear case. He has always held that view. I shall set out in my speech in the middle of January the path that we should take for the future, but let me say now to Members in all parts of the House that, as I tried to explain in my statement, what is happening at present in the European Union is a process of change, driven by what is happening in the eurozone. As a number of Members have pointed out, it is quite a slow process at the moment, but I believe that at some stage it will speed up radically. When we discover that we really do need greater elements of banking union, fiscal union and other co-ordination, a greater treaty change will be proposed within Europe, and I think that that will give us an opportunity to secure the fresh settlement that we want.

Is there still an EU arms embargo? It has been reported that France is already supplying equipment to some opposition groups, and at the same time this country is providing non-lethal equipment. What exactly is going to happen? What kind of equipment will we be providing? Given that Qatar and Turkey are already arming the more extreme jihadist groups, is this an argument for rebalancing within the Syrian national coalition?

The hon. Gentleman has made a number of important points. On the first part of his question, I have seen no evidence that any European Union powers have broken the arms embargo. We certainly would not do that; it would be wrong and illegal. I think it is worth looking at the embargo and asking how we can best work with the parts of the Syrian opposition that want a proper transition to a free and democratic Syria. The hon. Gentleman made that point in his own question.

May I commend my right hon. Friend on his determination not to wreck his Christmas by trying to write a speech on the European Union at the same time?

My right hon. Friend said that we had

“agreed a new voting system that means that the eurozone cannot impose rules on the countries outside the euro area, such as Britain, without our agreement.”

Will he confirm that, in saying that, he did not mean that the treaty had been rewritten, or that the single market article was now subject to a different voting system, so that anything agreed by the banking union could still be put forward by the Commission as a single market proposal to be forced through on a single qualified majority vote?

I greatly respect my hon. Friend’s views on and knowledge of this issue. I was not claiming that we had changed the treaty. The point that I was making was that a number of people in the European Union, including the Commission at one stage, had said that it was impossible to write new rules to deal with circumstances in which some were in the single currency and some were outside it, but we had persevered. We said “If you want to go ahead with banking union, this really is essential”, and that is why there is effectively a new system. If more than four countries are outside the banking union, there must be a double majority in favour of a proposal: a majority of those outside, and a majority of those inside.

I am not claiming that we have rewritten the treaties, or that this is a new treaty change; it is not. However, I think that it is a step forward to deal with a deep problem that Europe will have as the single currency integrates further and those outside it want to ensure that they are properly protected.

I am one of those who very strongly take the view that Greece, Spain and Italy can recover economically only if they leave the euro and recreate their own currencies and have their own interest rates. Was there any private discussion about the effect of the imminent departure of Signor Monti and the re-entry into front-line politics of Signor Berlusconi on the future of Italy in the euro?

There was not any open discussion about that issue, although I understand that Signor Berlusconi was in Brussels on the day of the European Council. My view is that these are issues for the countries in question. We can all have our views about the economic position of these countries, or indeed the political choices they make, but in the end, if we believe in democracy, we have to allow the Greek, Italian and Spanish voters to elect Governments who reflect their views. That is the way it has to work.

I warmly welcome the commencement of free trade talks between the EU and Japan. That is of vital importance to Honda workers in my constituency, and does it not also demonstrate the continuing importance of our membership of the EU in extending free trade across the world?

My hon. Friend makes an important point, and I very much enjoyed visiting the Honda plant in his constituency and hearing for myself how important the people there believe a free trade agreement with Japan would be. The automotive industry in Britain is a success story. Honda, Nissan, Toyota and Jaguar Land Rover are all doing well. They are doing well because of the highly trained and motivated work force here in Britain, of course, but also because we are members of the single market and have the ability to sell into Europe. We should remember that.

The Prime Minister has said his policy on Europe is modelled on the “tantric” approach. Given the different, and increasingly bizarre, positions of some members of his Government on Europe, can he confirm that his final speech will be based on the “Kama Sutra”?

In my defence, my remarks were spontaneous and made in an unwritten speech, whereas the hon. Gentleman actually planned those comments.

I should like to reassure the Prime Minister that for the sake of consistency we had a toast to him in Somerset at the weekend, but I am afraid there is a “but” on this occasion, which is that agreement to the single supervisory mechanism was by unanimity, but the rules for voting on the European Banking Authority can be changed by qualified majority voting. I therefore wonder whether the Prime Minister has got enough from these negotiations, and whether we ought to repatriate financial services regulation powers.

My hon. Friend makes an important point, but I am not sure that I agree with him. The banking union changes went through under a treaty article that requires unanimity. That was good for Britain, because it gave us the ability to insist on the changes we needed and to get the safeguards we wanted. I believe, however, that the single market, and qualified majority voting on the single market, has helped to deepen and develop that single market. That is why Margaret Thatcher passed the Single European Act through this House. We want to have an effective single market in financial services. This country has 40% of Europe’s financial services industry, and we have to fight for it and build alliances for it. There are often frustrations in doing so, but having a single market in financial services is good for Britain.

Some very important decisions will be taken in the EU over the next couple of years, but the Government’s review of the competences is not expected to report back in full until 2014. How will that impact on the UK’s current negotiating position?

The hon. Lady asks an important question, but I think the timing is relatively helpful. It is sensible for Britain to have a balance of competences review, given how long we have been a member of this organisation. Let us go through the areas of competence—those inside and those outside the European Union—and ask in each case whether we benefit, what the problems are, and what the potential opportunities are, and reach a proper view about them. That will inform the decisions we make as the EU develops. As I have just argued, I think the real changes in the EU will not come in the next year. As the Leader of the Opposition said in his response, the time-bound road map still has quite a long way to run, and such road maps have a habit of not entirely sticking to the time set.

Does my right hon. Friend agree that the explicit protection for the single market agreed at the European Council makes it easier for those countries that want to have closer integration to integrate and those that want a looser relationship with Europe to have one?

My hon. Friend makes an important point. What I have spotted over the past seven European Councils is that although to begin with, I was the lone voice always going on about the integrity of the single market—I have a bit of a reputation, dare I say it, for boring on about it in European Councils—a number of other European leaders, including Mario Monti, now see the importance of talking at all stages about safeguarding the integrity of the market.

Does the Prime Minister plan any tantrums or walk-outs from European Council meetings in the near future? Or will he give a commitment to be there at all times, ensuring that he upholds the British national interest?

I am always there upholding the national interest. I have never walked out of a room, but I have on occasion said no and I think that is sometimes the purpose of a Prime Minister.

My right hon. Friend said in his statement that there are “questions of national sovereignty” and that this will “alter the European Union for all of us”. Are there any debates in public about this newly created eurozone? What animal will be created and what national sovereignties will be lost? We need to know the being of which we are part.

The point I would make to my hon. Friend is that there are clearly lively and vigorous debates in eurozone countries, because they are at the sharp end and can see absolutely that there is a battle over national sovereignty, how much say they will have over setting their own budgets and how much of those budgets will be determined by the European Commission. Part of what was discussed by the eurozone at the Council was effectively a set of future contracts whereby countries might have to enter into a contract with the European Commission about their future budgets. There is a very live debate in those countries. We are not in the eurozone, so we are not affected by those contracts, but my argument is that change in the eurozone has knock-on effects for the organisation of which we are a full member and that is why it is so important for us to consider these issues.

But when will the Prime Minister ask the European Council to investigate widespread and endemic corruption in the European Union, as well as endemic fraud, the fact that billions are being thrown down the drain and that accounts have not been signed off for 18 years? What sort of organisation is that to come to us, the British people, and ask us to pay more money in to it?

I have a lot of sympathy with what the hon. Gentleman says. Europe has been too loose with its money: it has not been properly audited and there has been too much fraud and, as he says, potentially corruption. On the budget negotiations, the European Commission is having to accept for the first time that its ambitions for spending in Europe are completely unrealistic, not only for spending on programmes, but, as it is beginning to see, for spending on itself, too.

I congratulate the Prime Minister on putting off his speech about Europe. It is clear to me that it is a most important speech and it is better to put it off and get it right. We had a little hint today, Mr Speaker, when he said for the first time that he was against an immediate in/out referendum and I think the British people can wait until January for their Christmas present.

I am not sure that I will be able satisfy my hon. Friend or, indeed, the other members of his household, but I will try my best. As I have tried to explain this afternoon, the change process in Europe requires some tactical and strategic patience in the UK to see how that change will pan out so that we can get our response to it right. That will be the time at which we will have the maximum amount of influence: when Europe is making big changes itself.

In answer to a previous question, the Prime Minister said that he is in favour of the expansion of the European Union. How big does he want the European Union to get and what are the implications for the movement of populations across Europe?

I would argue in favour of, as some would put it, a Europe that extends from the Atlantic to the Urals and includes all those countries that are currently applying, such as the countries of the western Balkans—I would very much like to see Macedonia and others become members of the European Union. One of the European Union’s greatest successes has been that countries wanting to join have entrenched their democracy and their belief in open and free markets. It has been a very successful policy in that regard. Britain has always argued for enlargement and we should continue to do that. We should always put in place transitional controls, which I am afraid the last Government failed to do.

Many Syrians will welcome robust European support for the mainstream opposition, but will the EU, like the UK Government, urge the involvement of Kurdish as well as Alawite Christian and other minorities in opposition councils? That seems vital for future peace.

My hon. Friend makes a vital point; we should be encouraging an inclusive transitional authority, as we have done in all the meetings of my right hon. Friend the Foreign Secretary and the Friends of Syria group. The Kurds have now joined the Syrian national coalition.

I noticed that in the Prime Minister’s statement nothing was said about recent events between the Israelis and the Palestinians. Was there any discussion of that situation, particularly about sanctions, and more importantly, the two-state solution?

There was not a specific discussion at the Council of the middle east peace process. We were focused particularly on Syria; there was also a discussion about future enlargement. There was not a big discussion about the middle east peace process. Our position is clear, as the hon. Gentleman knows; we support the two-state solution and everything we do should be encouraging it to come about.

Talking about membership of the European Union, did the Prime Minister pick up, although no doubt it was not on the formal agenda, whether or not an independent Scotland would have to reapply to join, and if so, whether it would have to join the euro?

My hon. Friend makes an important point. There was no formal discussion, but the issue was discussed in the margins, as it were, because a number of countries take an interest in it. The letter from José Manuel Barroso is pretty clear: Scotland would have to apply to join the European Union. Obviously, Britain is the only country that has a legal, binding, copper-bottom opt-out from the euro. All the other countries, by and large, are committed to join the euro—[Interruption.] And Schengen, as the hon. Gentleman says. That is important for the Scottish debate.

The Prime Minister said that Syria is attracting and empowering elements linked to al-Qaeda, presumably to help the Government side. What evidence does he have for that?

Tragically, the elements that are linked to al-Qaeda are actually linked to elements of the opposition. There is strong evidence that groups such as the al-Nusra front take an unacceptable view about Islamic extremism. There are very real concerns about the issue, which lead to the argument about how involved we should get with the Syrian opposition. There is a strong argument that by being more involved with like-minded allies we could try to support the elements of the Syrian opposition that most want to see a free, democratic and inclusive Syria.

Given the push for ever-closer union in the eurozone, does the Prime Minister believe that the status quo for Britain—outside the eurozone but inside the EU—has a viable long-term future?

The short answer is yes. The European Union is going to have to manage with some countries that are in the eurozone, some countries that are not in the eurozone and are pretty unlikely to join for a pretty considerable time and some countries, such as Britain, that in my view will never join. When we look at opinion polls in the Czech Republic or Sweden, or in some other countries outside the eurozone, there is no sign of them joining the euro any time soon, so Europe will have to manage in that way. My argument is that it needs to be flexible now, and perhaps even more flexible in the future, so that all countries can be content with the membership they have.

When the Prime Minister finally delivers his long-delayed speech on Europe, will it be the policy of the UK Government that he sets out, or will it be the policy of part of the UK Government excluding the Education Secretary, the policy of part of the UK Government excluding the Liberal Democrats or the policy of part of the Conservative party—or will it just be his own personal opinion?

I am so pleased the hon. Gentleman is looking forward to my speech. He will obviously read it very closely, which will be worth while. Clearly, this country has some choices to make about Europe within this Parliament, and we have already made some big choices. We have said no to more powers being passed from Westminster to Brussels, and unlike the previous Government, there have been no powers passed. We have said let us get some powers, such as the bail-out powers, back from Brussels, and we have got those back. We have said let us get a better financial deal, and I am confident that we will get a far better financial deal than anything negotiated by the Opposition. But of course there will be a choice for all political parties, the hon. Gentleman’s included. As the eurozone changes, as Europe develops, there will be a choice to make in the run-up to the 2015 election to set out how we are going to take the British people with us to make sure that we get the best future for Britain in Europe.

After the last European Council, the Prime Minister indicated that he favoured an in/in referendum. Further to the point from my hon. Friend the Member for Wellingborough (Mr Bone), in reply to which the Prime Minister seemed to oppose an immediate in/out referendum, may we take it that he now supports an in/out referendum, perhaps in the next Parliament? If he does introduce that policy, I can assure him that he will have a great deal of support from those on the Government Benches and also from the public at large.

I am grateful, as ever, for my hon. Friend’s advice, which is always candid and straightforward. I will make sure that he gets a copy of my speech in the middle of January and he will able to study it closely.

The Council conclusions call upon member states to pursue “growth-friendly, fiscal consolidation”. Does the Prime Minister accept that with our economy shrinking this year, the eurozone economy predicted to shrink next year, and 25 million people across the EU out of work, the plan is not working over there and it certainly is not working here?

I think the reference to growth-friendly consolidation is right. That is why, for instance, in the autumn statement, we have put more money into capital spending in the immediate years, and also taken some difficult decisions on welfare spending—decisions which I know the hon. Gentleman’s party is unprepared to support—to make sure that we can focus on those things that will help with growth. But when we look across Europe, we can see that because we set out a long-term plan for getting on top of the problems in our public finances, we are able to take it in reasonable stages and at a reasonable pace—one of the advantages of not being trapped in a system where we are told what to do by the European Commission.

I refer the Prime Minister to an earlier question about certain countries adopting their own currencies. He said that if we believe in democracy, the right decision will be made. Does he agree that there is no democracy in this federalist state at all? Does he also agree that true democracy can only be the repatriation of all the powers to sovereign countries?

The point that I was trying to make in response to the earlier question is that we have to respect the outcomes of elections in other countries. In Greece elections have been held. In Spain elections have been held. We may think that those countries have taken the wrong decisions with respect to the euro or whatever, but those are decisions for them to take, not for us to take. We in this country, through this House of Commons elected by the British people, should determine the right approach for Britain, but I do not think it is possible to say that we have a right in this House to decide the right approach for Greece, Spain or Italy. We may have strong views, but the idea that we can go to the European Council and just tell all those people that they are not listening properly to their own publics is incredible.

Is it not the reality that the Prime Minister has not made his long-awaited speech because he is the head of a party that is entirely ungovernable on Europe?

No, I completely disagree. The Conservative party’s position is absolutely in line with the position of the British public, which is that we know we need to be in the single market because we are a trading nation and our businesses benefit and our economy benefits from that, but we are not happy with every element of our membership of the European Union. Unlike the Labour party, which just caved in, gave in on common agricultural policy reform, gave in on the rebate, gave in on the bail-out, we are prepared to stand up and get what we want.

Reform, for most EU states, seems to be focused on banking reform, but for many of us this extends to cutting waste and spending, CAP reform, and repatriation of powers—all things which will certainly be thrown into the reckoning in an in/out referendum or indeed any kind of referendum, so could my right hon. Friend explain how these wider issues are being addressed by the European Council members?

In terms of the UK, I think that the balance of competences review is a good exercise for looking at all our engagement with Europe and its costs and benefits. Within the European Union, all those issues are addressed and different countries come to different conclusions. We should not be frightened of standing up and saying very clearly what we think is in Britain’s interests.

I fear that the Annunciator is rather over-excited. I can assume only that it has not yet become accustomed, as I have not, to the spectacle of the hon. Member for Shipley (Philip Davies) using an iPad in the Chamber. It is quite a remarkable state of affairs on which he is, of course, to be congratulated.

In the last quarter the British economy grew by 1%, the fastest growth of any major country in the European Union. Clearly, though, right across Europe there are immense growth challenges. The eurozone is back in recession. What we see with the British economy, despite all the difficulties, is that there are over 1 million extra people in private sector jobs compared with when we came into office.

A few weeks ago I held a conference with my local small and medium-sized enterprises, along with UK Trade & Investment, focusing on increasing exports. Will my right hon. Friend say a little more on how he has been able to protect small and medium-sized enterprises from unnecessary and burdensome European regulation?

What we have managed to do is get the European Commission not only to instruct—it is quite fond of doing this—other European countries to look at deregulation, but to look at its own rules and regulations. I think that it is quite striking that the communiqué, the Council conclusions, actually uses the word “scrap” in relation to some European regulations, particularly those that are no longer of use. The Europe Minister, who is sitting next to me, is gesticulating because he knows that getting the bureaucrats in Brussels to use a word like “scrap” is an achievement.

Will the process of increasing centralisation and integration, which the Prime Minister mentioned at the beginning of his statement, lead inevitably to a loss of democratic accountability, and what future implications will that have for the security of democracy in many western European countries?

I think that the hon. Gentleman makes an important point. It is for those countries that are contemplating that integration and that loss of sovereignty to answer that question. I would not be comfortable with it, as someone who believes in the importance of national Parliaments, national democracy and national decision making, but it is for Greek voters and politicians and Spanish voters and politicians to have that debate themselves. Are they content to give up that much sovereignty in return for a single currency that works? That is their decision. We can all have our views on that, but we have to allow them to make that determination. The point I would make, having attended these things for two and a half years, is that we should not underestimate the sense of mission that those European countries and leaders have about their own currency and wanting to make it work.

In supporting my right hon. Friend’s struggle for British interests and, in particular, his identification of the crisis in the eurozone as the key driver for change, may I urge him to put free movement of labour at the top of the issues for potential renegotiation because, as a number of Members on the Government Benches, including the Front Bench, have pointed out, it might not be only the recent entrants with whom we have problems if the crisis in southern Europe worsens over the next year or two?

I will look carefully at what my hon. Friend has said. Clearly, the freedoms of the European Union—the freedom to trade, free movement of capital and free movement of people—have all been important in trying to deliver the economic growth and success we want to see. I will make two points. First, when new members have joined we have been able to put in place transitional controls, and in my view we should always do that. Secondly—this was examined when there was a greater sense of crisis in the eurozone—there are rules that can be invoked in a time of crisis if we need to abrogate those freedoms in some way.

That is not a position I support, so I do not spend my time thinking about it, but clearly all futures for Britain are imaginable—we are in charge of our own destiny and can make our own choices. I believe that the choice we should make is to stay in the European Union, to be a member of the single market and to maximise our impact in Europe, but when we are unhappy with parts of the relationship we should not be frightened of standing up and saying so. As I have said, we have got out of the bail-out power. I think that we made a mistake joining the social chapter. We should be prepared to have these discussions. The fact that we are not in the Schengen agreement is not a disaster for Britain; it is a bonus for Britain. The fact that we are not in the single currency is not a disaster for Britain; it is a bonus for Britain. That is the sort of Europe we should be pushing for.

Ahead of my right hon. Friend’s speech on Europe, and given his very busy schedule to which he referred, may I, in the spirit of Christmas, offer him a helping hand on his Europe speech and say that I will be fully available all over the Christmas holidays?

I thank the Prime Minister for his statement. I refer him to the growth and competitiveness part of it and the sentence about “new safeguards that will protect the interests of those countries outside the eurozone.” The United Kingdom of Great Britain and Northern Ireland has strong economic and trading contact with the Commonwealth countries. Will he assure this House that the historic trading links with the Commonwealth will be encouraged to continue and grow within Europe?

The hon. Gentleman makes an important point. Half our trade is with the European Union, but the other half is with countries outside the European Union. In recent years we have obviously seen very fast growth in that trade with some of the fast-growing BRIC countries—the Brazils, the Russias, the Indias and the Chinas—but we also have very strong relations with our Commonwealth partners. We should be encouraging our trade relations with all those countries. There is also the EU-Canada free trade agreement, which is under negotiation and could bring real benefits to both sides.

Discussions are always under way between the leading powers who are concerned about the future of Syria. Obviously both Turkey and Russia play quite influential roles in terms of this issue, and everything we can do to encourage contact, particularly with the Russians, to encourage them to think about how we can achieve a transition in Syria is worth while.

I refer the House to my declaration of interest. Was there any discussion at the Council about co-operation with China to accelerate the reductions in cost in a transition to a low-carbon economy? Will the Prime Minister meet me and other members of GLOBE UK to discuss this issue?

There were no discussions about our relations with China on this occasion, nor were there discussions on energy policy, which take place at different European Councils, but I am always happy to meet my hon. Friend and hear his concerns.

My right hon. Friend will be aware of the idea that, in future, City of London traders could deal in yen and in dollars but perhaps not in euros. Do the safeguards that he won in Europe protect the City of London from that risk?

My hon. Friend makes an important point. There have been moments over previous years when it looked as though, because of a location policy, it would have been possible to say that Britain could clear deals in pounds, in yen and in dollars but not in euros. As a member of the European Union, which is about free trade and a single market, this would have been a ridiculous state of affairs. The guarantee that my right hon. Friend the Chancellor secured on a no-discrimination policy takes us largely down the road we want to be on.

Will my right hon. Friend reaffirm his position with regard to the European Union military command headquarters, particularly as five major nations in Europe want it to be established, and I do not think we do?

I am happy to repeat that we are against the idea of an operational headquarters. This came up again tangentially at the European Council, with some attempts to change the language about what was required, and I said that that was not acceptable. The focus of the European Council conclusions is rightly about capacity. We are all interested in European countries having greater capacity to deal with these issues, but we do not want duplication of headquarters and challenges to NATO.

May I welcome the Prime Minister’s very clear statement that we will never support a European army? In an increasingly multi-polar and fast-changing world, and given his answer to the question about Commonwealth trading, does he agree that it would also be against Britain’s interests as a trading nation to give up its independent foreign policy and support a full common foreign policy?

My hon. Friend makes an important point. I think we can have the best of both worlds, where we work with European partners to have common positions on issues such as sanctions against Iran or Syria, which can maximise our potential and our influence; but, at the same time, we are an independent power and are able to have independent policies and forge independent relations with some of the fastest-growing countries of the world, and we should continue to do that.

Will the Prime Minister clarify whether, if he does not get his preferred position on renegotiation, he would consider leaving the European Union?

As I have said, I think that Britain will do best if we can maintain not just our access to the single market, but, crucially, our ability to help set the rules of that single market. That is where I part company with those people who want to leave altogether, because it seems to me that it is absolutely vital that a nation that is as reliant on trade and that is as open as Britain is does not just have access to those markets, but helps write the rules of those markets as well. That is the future we should seek.

I praise my right hon. Friend for raising the issue of the EU defence policy, because there is confusion and duplication in relation to command and control. I have seen the operations in the horn of Africa, for example, which has the EU’s Operation Atlanta and NATO’s Operation Ocean Shield. With that in mind, is he concerned, like me, about the proliferation of costly EU embassies, which are popping up all over the planet?

On the issue of the embassies of the European External Action Service, we in this party did not support them in the first place. We should limit them and try to make them as cost-effective as possible.

There is always a risk of potential duplication, which is why Britain and the other strong supporters of NATO should always stand up firmly and say that we do not want costly bureaucracies and new headquarters that are all about flags and politics. Obviously, however, we want other European countries to step up to the plate with greater capacity, so that in areas such as the horn of Africa or Kosovo we are able to get the effect that we need on the ground.

One of the many problems arising from our membership of the European Union is that UK businesses are burdened with rules and regulations from Brussels that hinder their ability to compete in the global race that my right hon. Friend rightly says we are in. To follow on from the point made by my hon. Friend the Member for Crawley (Henry Smith), paragraph 18 of the Council conclusions refers to reducing the regulatory burdens from Brussels. Realistically, however, what cuts in red tape does my right hon. Friend expect to be proposed when the matter is next brought before the Council in March next year?

What I hope for is that we will put pressure on the Commission between now and March to come up with a serious list of European directives and regulations that can be radically amended or cut. We are doing that in the UK through the regulatory changes being led by the Government—we have identified about 3,000 regulations to get rid of—and we want the same process to take place in Brussels. I mentioned paragraph 18 earlier. It says:

“The European Council welcomes the proposals by the Commission to reduce regulatory burdens and scrap regulations that are no longer of use”.

I do not think that the word “scrap” has ever appeared in European Council conclusions before and I am rather proud to be the person who put it there.

Was my right hon. Friend able to raise with his fellow leaders the question of the fulfilment of the pledges they made to international development in 2005?

We did not discuss international development at this Council, because it was largely about the eurozone, but we did discuss briefly the effect of European aid, particularly in Syria, where Britain is playing a key role, as is the EU, with its aid budget, which is making sure that we ease the scale of the humanitarian crisis, and that is good and important work.

Better tantric than premature—we have all seen where that got the Leader of the Opposition on Leveson. We are waiting breathlessly for my right hon. Friend’s speech in mid-January. Will he include in it a statement on the impact on employment in this country of an influx of Bulgarian and Romanian workers?

Given my hon. Friend’s medical background, I think that I will leave all such remarks to her and not make them myself. She makes an important point about the end of transitional controls. Obviously, I will look at that issue carefully.

Does the Prime Minister agree that a banking union should never be able to ride roughshod over those outside the eurozone?

I do agree with my hon. Friend. A banking union is necessary for the countries of the single currency. As I have said, we have a single currency in the pound and there is a banking union between England, Scotland, Wales and Northern Ireland. The countries with the single currency need a banking union, but it should not ride roughshod over others. That is why it is important not only that we are outside the banking union, but that we have secured the voting rules so that the “outs” have a say over things that could affect them.

In response to an earlier question, my right hon. Friend said that he believes it will take a considerable time for the eurozone countries to negotiate full fiscal union. Given the acuteness of the eurozone crisis, does he really believe that they will have the luxury of having the time that they need?

My hon. Friend asks a good question. Because of the success of the European Central Bank in calming the markets, there is perhaps less pressure on the eurozone countries to take the steps that many analysts believe they need to take. The reason why I think it will take time is that these are difficult issues for sovereign countries. As I have said, one issue that was discussed only in outline form at the Council was the idea of contracts between Governments and the European Commission. I do not know how such contracts will go down in other European countries, but I suspect that they would go down rather badly if we proposed them here. These are difficult issues that it will take time to discuss. We need to think about that as we calibrate our response.

Anders Borg, the Swedish Finance Minister, said that when the financial transaction tax was introduced in Sweden,

“between 90%-99% of traders in bonds, equities and derivatives moved out of Stockholm to London”.

What steps has the Prime Minister taken to ensure that we do not find that such a tax is imposed in the UK, which is what the Labour party wants, and that our traders do not all go to New York and Zurich?

My hon. Friend makes an important point. Anders Borg is an excellent Finance Minister. The Chancellor of the Exchequer and I work very closely with him. I believe that if a financial transactions tax is not introduced simultaneously around the world, the transactions will just go to the lowest-cost destinations. That is why it is totally self-defeating. The European Commission’s own piece of work on such a tax showed that it would cost hundreds of thousands of jobs and millions of pounds of revenue, not just in the UK, which has a large financial services industry, but in the rest of Europe.

Prior to the entry of a large number of eastern European countries to the EU a few years ago, the previous Government made the hideously inaccurate forecast that just 13,000 eastern Europeans a year would come to our shores. The total is now 1.5 million and rising. Next Christmas, the transitional controls for Bulgaria and Romania will cease, but the Home Office has refused to make an estimate—on the principle of once bitten, twice shy—of how many people will come to our shores. Have the Bulgarian or Romanian Governments apprised the Prime Minister of their estimates of how many of their citizens may be coming our way?

To answer my hon. Friend directly, I have not asked those Governments for an estimate. He is right to say that the transitional controls are coming off and that the previous forecasts were wrong. I will discuss this important issue with the Home Secretary in the months ahead.

I thank the Prime Minister, the Leader of the Opposition and all 58 Back Benchers who questioned the Prime Minister.