The Downing Street Years (93 page)

Now the high-mindedness quickly disappeared. The Irish Prime Minister tried and failed to gain a special exemption from the measures to limit milk production that the rest of us wanted. He promptly invoked the Luxemburg compromise and walked out. At 4 p.m. there was a long adjournment in order to study a new text of the draft communiqué. On resuming, we discussed once again the budgetary problems. The Italians and the Greeks stood out against giving Britain any permanent agreement to reduce our net budget contributions; more serious for us, President Mitterrand seemed to side with them. I intervened to say that I had fought this battle for five years and that I intended to have a system which was fair and which would last. At this point — whether spontaneously or by previous agreement with President Mitterrand I do not know — Chancellor Kohl upped and offered Britain a 1,000 million ecus rebate for five years — much less than I wanted and still only a temporary arrangement. Almost immediately France and the others agreed with Germany. I found myself isolated. I refused to accept his proposal. Nothing more could be done. No agreed communiqué was issued. To rub salt into the wound, France and Italy at a Foreign Affairs Council immediately after the heads of government summit broke up blocked payment of our 1983 refund.

I had not expected such a totally negative outcome. So the question immediately arose as to whether we should withhold payments to the Community budget. This was partly a legal and partly a political question. We had always been advised that if we withheld contributions we would almost certainly lose any subsequent case before the European Court. In this instance, however, we were on somewhat stronger legal ground because the Community was withholding rebate payments to which we were entitled by previous agreement. Probably, we would have lost the case anyway. But it might have been politically worth fighting — that is we might have thus secured a favourable compromise — if we had enjoyed the united backing of the Parliamentary Party. Unfortunately, there was a hard core of Euro-enthusiasts on the Tory back-benches who instinctively supported the Community in any dispute with Britain. Though a clear minority, they robbed us of the advantages of unity. So as on previous occasions, I decided not to go down the path of withholding contributions. And we had other cards to play.

On the basic question of whether I had been right to refuse what was on offer there was little dispute. A letter I received from one parliamentary colleague began:

Apart from my own summits with the other European heads of government in the run up to important Councils, I always received up-to-the-minute reports from our embassies and officials on what could be deduced of the private intentions of other governments and the state of public and press opinion in their countries. The two crucial players would be France — which still held the presidency — and Germany. Before the European Assembly election campaign got under way I tried to persuade President Mitterrand and Chancellor Kohl to agree to sort out the budget. In this I was certainly being a ‘better’ European than they were: for public opinion in Britain was all for intransigence. But I suspect that the French President, at least, was not minded to reach a deal until the elections had come and gone. My attempts failed.

As the Council approached it still seemed to us that President Mitterrand had not yet finally decided between two possible courses of action — a solution which would be a diplomatic triumph for France (in the chair) or a failure which would all be down to ‘Perfidious Albion’. Whatever his private political calculations, the French President was also now publicly calling for yet another ‘relaunch’ of the Community, something which was music to Chancellor Kohl’s ears. So when we prepared our own paper on the Community’s future for the forthcoming summit, I accepted that it should be liberally sprinkled with
communautaire
phrases.

The French President’s intentions continued to be unclear. Whether the French themselves were confused or whether these were tactics designed to confuse us in the best tradition of Gallic gamesmanship we could not yet tell. A number of apparently unco-ordinated French ideas to settle the budget were in circulation; which, if any, had the President’s own support was unknown. Then on the eve of the Council, President Mitterrand departed for Moscow with an air of nonchalance, which may itself have been an aspect of psychological warfare.

What would the German position be? There were some reasons for optimism. It seemed that Chancellor Kohl was now definitely anxious for a successful summit. At Brussels, where he had been blamed for the failure of the budget negotiations, he had learnt the danger of
taking ill-thought-out initiatives. We thought that he would support the French presidency and that he would probably be willing to agree to a better deal for Britain than he had proposed at Brussels. The most encouraging consideration was that he needed the Community’s agreement to enable him to provide a politically necessary subsidy for his farmers — and for Chancellor Kohl domestic political considerations always came first. As by far the largest net contributors to the Community, the Germans wanted both to set a limit to their contributions — as we did — and to ensure that they did not finish up paying for the whole of our own rebate. But they were surprisingly vague on how precisely to achieve this.

The European Council was held at Fontainebleau, just outside Paris, on Monday 25 and Tuesday 26 June. On the short flight in the And-over from Northolt to Orly I finalized our tactics. Geoffrey Howe and I shared the same analysis. We wanted an agreement at this meeting but only if it was close enough to our terms. We had our reasons. After France the presidency would go to Ireland which would be no improvement — indeed worse because the French themselves, for the reasons I have outlined, were likely to be more difficult when they were not in the chair. Moreover, we had no agreement on rebates for the current year, nor for the future; and our 1983 refund of 750 million ecus (£400 million) was still being held up. I was prepared to accept, if necessary, a different formula from that which we had advanced, but the money rebated must be enough and the arrangement had to be lasting.

I arrived at lunchtime at the Château of Fontainebleau to be met by President Mitterrand and a full guard of honour. The French know how to do these things properly. Whereas Versailles provided the heads of government with an experience of the splendour of France in the
Grand Siècle
, Fontainebleau — the creation of Francis I who vied with our own Henry VIII on the famous Field of Cloth of Gold — represents the height of French Renaissance culture. Lunch took place in the Château’s Hall of Columns and then we went through into the Ballroom, which was heavily disguised by interpreters’ booths, for the first session of the Council. Without any warning, President Mitterrand asked me to open the proceedings by summing up the results of the recent economic summit in London. Others then joined in to give
their own views and two hours elapsed. I started to fidget. Were these just delaying tactics? At last we got on to the budget. Again I opened, demonstrating what I thought unsatisfactory about the other schemes which had been put forward to provide a solution and argued for our own ideas of a formula. There was further discussion. Then President Mitterrand remitted the matter to the Foreign ministers to discuss later in the evening. Our meeting now returned to generalities, in particular President Mitterrand’s lively account of his recent visit to Moscow.

That evening we drove back along the road through the forest to our hotel at Barbizon. This little village attracts artists and gastronomes. Anyone who has eaten at the local Hôtellerie du Bas-Bréau will know why: the food was simply delicious.
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Over dinner I was wondering what the Foreign ministers were going to come up with. As we drank our coffee, we saw that the Foreign ministers were taking theirs outside on to the terrace and naturally concluded that they had done their work. Far from it. It appeared that over dinner the French Foreign minister, M. Cheysson, had been regaling his colleagues with his own recollections of Moscow. President Mitterrand did not conceal his displeasure and the Foreign ministers quickly went inside again to get down to discussing the budget.

For our part, the heads of government spent some time discussing the future of the Community. We got on to the question of the number of commissioners once enlargement to take in Spain and Portugal had occurred. I was alone in being prepared to settle for one commissioner per country so as to reduce the number from sixteen to twelve. I asked M. Thorn (with whom I often saw eye to eye — he did not have the grandiose ambitions and bureaucratic leanings of his successor) whether there was really enough work for seventeen commissioners. He said no. But my colleagues from France, Germany and Italy were not prepared to reduce their representation. So the Commission ended up with the full complement — and the devil makes work for idle hands.

At about 11.30 p.m. M. Cheysson emerged once more to tell us that the Foreign ministers had ‘clarified the points of difference’. In fact, the French had apparently managed to persuade the Foreign ministers to favour a rebate system giving us back a simple percentage of our net contribution. On such a percentage system there would be
no link between net contributions and relative prosperity — unlike the ‘threshold’ system we had been arguing for. We had privately envisaged that this is how matters might eventually turn out.

But a percentage of what? Everyone could agree that it would be a percentage of the gap between the sums we paid into the Community and the sums we received from it. The French proposed in calculating our contributions to take into account only those payments to the Community that Britain made under VAT. That formula, however, ignored the considerable sums we also contributed through tariffs and levies. All our previous proposals had been based on this larger sum, but in the end we had to accept the calculation based on VAT.

And, finally, how big a percentage would the rebate be? If we were to drop the threshold idea — and therefore any link between net contribution and prosperity — it would need to be pretty big. Indeed, I had in mind a figure of well over 70 per cent. But it seemed from the Foreign ministers’ meeting that we were now likely to be offered at most something between 50 and 60 per cent with a temporary two-year sweetener that would bring the refund up to 1000 million ecus a year for the first two years. How Geoffrey, who had been splendidly staunch in the negotiations so far, had allowed the Foreign ministers to reach such a conclusion I could not understand.

I was in despair. I told the heads of government that Britain had never been treated fairly from the beginning: I was not prepared to go back to talking about a temporary sum: if this was the best they had to offer the Fontainebleau Council would be a disaster.

Geoffrey, civil servants and I then met to discuss what should be done. Our officials — who, I knew, had the brains, experience and determination required to retrieve something from this débâcle — set to work with their opposite numbers all through the night and into the early morning. As a result of their efforts, the next day began a great deal better than the previous one had ended.

President Mitterrand’s and Chancellor Kohl’s breakfast the following morning probably cleared the way for a settlement. President Mitterrand opened the formal session by saying that we must try for an agreement on the budget, but if we had not succeeded by lunchtime we should go on to other things. I made it clear that I was now ready to negotiate on the basis of a percentage agreement, but I held my ground for a figure of over 70 per cent. Quite soon, and sensibly, President Mitterrand adjourned the main session so that bilateral meetings could take place.

How hard should I hold out on the figure? As I have said, there were good reasons for my wanting a settlement now. And with the Community running right up against the financial buffers of the 1 per cent VAT ceiling (on raising which they knew we had a veto) there were equally good reasons for other Community members to be cooperative. I saw President Mitterrand and Chancellor Kohl separately. At this stage the French President would not move above 60 per cent. Chancellor Kohl would go as far as 65 per cent. I carefully appraised the situation and came to the conclusion that I could obtain a deal on the basis of a two-thirds refund. But I was determined to get the full 66 per cent. It was only when the full session resumed that I managed to do so. I said that it would be absurd to deny me my 1 percentage point. The French President smiled and said: ‘Of course, Madame Prime Minister, you must have it.’ And so the agreement was reached.

Or almost. When the agreement was being drafted an attempt was made to exclude the costs of enlargement from this refund arrangement. I resisted this fiercely and won. The heads of government also agreed to release our 1983 refund.

Immediately, Chancellor Kohl raised his point about a special subsidy for his farmers. He said that as Germany had facilitated the budget settlement by providing the greater part of the money, he felt he was entitled to subsidize his own farmers, in effective contravention of the CAP. This did not please the Dutch because they would in practice have to subsidize their farmers to the same extent; but the Netherlands had neither the stomach nor the strength to oppose Germany. So Chancellor Kohl got his way.

After more argument, principally between me and Garret FitzGerald, about how to deal with the already overspent 1984 Community budget, President Mitterrand wound up the conference and we retired to a late lunch in high spirits because the deadlock on the budget had been broken.

At my press conference and at the time of my later statement to the House of Commons on the outcome of Fontainebleau there was some criticism that I had not got more. But the crucial achievement was to have gained a settlement which would last as long as the increased ‘own resources’ from the new 1.4 per cent VAT ceiling itself lasted. Of course, in a sense that was not ‘permanent’: but it meant that I would not have to go back every year to renegotiate the rebate until the new VAT limit ran out, and that when it did so I would be in just as strong a position as I had been at Fontainebleau to veto any extra ‘own resources’ unless I had a satisfactory deal on Britain’s
budget contribution. More generally, the resolution of this dispute meant that the Community could now press ahead both with the enlargement and with the Single Market measures which I wanted to see. In every negotiation there comes the best possible time to settle: this was it.