With your permission, a Cheann Comhairle, I propose to make a statement on the European Council, which the Minister for Foreign Affairs and I attended in Strasbourg on 21 and 22 June.
The agenda for the Council was—
(1) Elections to the European Assembly,
(2) European Monetary System,
(3) Energy,
(4) Convergence and Economic and Social Situation,
(5) Relations with Japan.
There were also discussions on a number of items in the political co-operation framework. I have arranged for copies of the Conclusions of the Presidency to be laid before the House for reference by Deputies and intend to deal only with the major points of interest, as I saw them.
An important consideration for the participants was the necessity to co-ordinate the position of the Community for the Summit of the seven leading industrial powers and the Community to be held in Tokyo later this week. In fact, it was probably this theme and the necessity to co-ordinate positions in the face of the world energy situation which dominated the meeting.
The meeting was held in Strasbourg, on the proposal of the French Presidency, to mark the occasion of the meeting of the first directly-elected Assembly of the European Community which is to take place in that city next month. At the election more than 60 per cent of the electorate of approximately 180 million voted. This is a higher turn-out than in, for example, the last Presidential elections in the United States. The European Council took note of my intention to address the Assembly at their Inaugural Meeting on 18 July—as President in office of the European Council. They asked me to express their joint conviction that the newly-elected Assembly will serve the hopes and ambitions of Europe.
The Council were given an account of the working of the European Monetary System since the exchange rate mechanism came into operation last March. The conclusion was that the initial stocktaking could be regarded as positive. The major political significance of the system and of an area of monetary stability in Europe was stressed.
The European Council noted the report submitted to them by the Economic and Finance Ministers Council on the convergence of member states' economic performance. Deputies will recall that this report was asked for at the Paris Council, which discussed the subject in the context of the EMS debates.
In addition, the Commission were asked to study the working of the budgetary system. This study will be submitted to the Council which might adopt guidelines so that the Commission could put forward proposals for decisions to be taken by the next meeting of the European Council which is to take place in Dublin on 29-30 November.
In the Government's Programme for National Development, 1978-1981, we set ourselves the targets of reducing the numbers out of work by 25,000 and attaining a growth rate of 6½ per cent in 1979. Industrial disputes, the severity of the winter with its effect on food prices, the world energy problems now make it virtually certain that these targets cannot be attained.
This conclusion was supported by the papers and discussions of the Strasbourg Council. Indeed, never have I attended a council at which there was such unanimity and such conviction as to the prospects before us. The growth rate of the Community as a whole is expected to fall from 3.4 per cent in 1979 to 2.8 per cent in 1980. For us the Commission projection is that instead of the 6½ per cent I have mentioned, we will attain 3.8 per cent in 1979 and 3.5 per cent in 1980. We do not necessarily accept these projections but they are an indication of the direction and the magnitude of the change which has occurred in our economic circumstances. The essential point is that we will be unable to attain the targets I have mentioned; they or any other reasonable estimate of our prospects now show that we will be, emphatically, far below the figures on which current expectations of increases in living standards are based.
A strong word of warning was sounded at the meeting as to the dangers, indeed the impossibility, of trying to counteract the effect of what is happening by purely budgetary changes. There was strong emphasis on the need for intellectual honesty; for acceptance of the fact that, for example, there can be no compensation for the adverse effect of the rise in the price of oil. Real growth will be lower, increases in living standards will be less; and to believe that budgetary actions can counteract these changes or that increases in wages or other incomes unrelated to our changed circumstances will attain the same effect is to indulge in dangerous illusions.
In the medium term, the meeting was told that part of the problem is due to demographic change. In Europe between 1980 and 1990 the population of working age will increase by 9 per cent— about a million people a year—up to 1985. Thereafter it will decline, yielding a stabilisation of population of working age by about 1995. Europe will thus be faced with a large increase in the number of people seeking work at a time when economic growth is unlikely to be high, when technological change will be affecting jobs and when higher payments for energy will be draining resources away from the Community, on a considerable scale.
For Ireland, the forecasts are that the increase in the total population will be at a rate about five times that for Europe as a whole, while the percentage increase in the population of working age will be just under half as much again as the corresponding figures for the Community as a whole. The increase will continue for long after the figures have started to decline in continental Europe. I mention these statistics in some detail to show one of the reasons for the Government attaching such priority to the creation of employment. We will have a far greater increase proportionately in our working population than other countries and because of events like oil price increases we may well attain an increase in economic growth in the immediate future less than we have aimed for. Of whatever increase is attained, 1 per cent to 2 per cent must go abroad to pay the increased cost of our energy imports: and a further 1 per cent to 2 per cent must go to increase employment. The consequence of failure in any of these areas would be grave.
It will be virtually impossible to use resources to increase living standards this year. Attempts to do so will certainly ensure that there will be less employment and that inflation will be higher. The change in the pattern of world supply and demand for energy has changed the economic background fundamentally. Lest it be thought that our present difficulties are a temporary phenomenon which will pass away in a year or so I want to give some further projections which were before the Council in Strasbourg. During the period to 1990, unless there is a far-reaching change in American policy, world demand for oil would be increasing at a rate so high that it could be covered fully only if the OPEC countries were to double their present production. I need hardly point to the improbability of this or to the dangers even if it were possible. Oil is a finite resource; and we must start to plan now specifically on that basis. The world as a whole consumes about 53 million barrels of oil daily. The United States, with about 5 per cent of the world's population, accounts for about 45 per cent of this. The European Community consumes approximately 20 million barrels daily, of which the Irish share is about 100,000 barrels a day.
With the upset caused by recent events in Iran, demand for petroleum has outstripped supply by an estimated 5 per cent. This has caused a rapid escalation of prices, which have risen on the spot market by more than 80 per cent since the end of last year. The price of contract oil has risen far less steeply but is being pulled up by what is happening on the spot market.
The first problem faced by the European Council was what to do in the short term to meet this situation. Obviously, the first necessity is to try to moderate prices on the spot market. The Minister for Industry, Commerce and Energy at the Energy Council meeting in May was among the first to call for measures with this objective in mind. The European Council noted and welcomed the measures adopted by the Energy Council to improve market surveillance and asked the council to take whatever additional steps might be necessary. As to the recording of international transactions, it asked the Energy Council to take the steps for which they have laid down the principles, provided that the other industralised countries are prepared to take similar action. This will be a major issue at the Tokyo Summit.
Employment cannot be sustained unless there is economic growth. Economic growth in turn is dependent on energy supplies. In fact, in many countries, including our own, every 1 per cent by which the economy grows calls for an increase in energy consumption in excess of 1 per cent. An essential point made by the Council was that this link between economic growth and energy consumption must be broken.
I stressed the very high dependence of Ireland on imported energy. We buy from abroad more than 80 per cent of what we need and oil meets more than 75 per cent of our needs. Just seven years ago, in 1972, we spent £53 million or 2.8 per cent of G.N.P. in buying oil. In 1978 this had gone up to well over £300 million, or 5.3 per cent of G.N.P. I need hardly tell you that the bill for this year will be considerably higher. This is money which is going abroad and there is no way we can compensate ourselves for the loss.
Our vulnerability to shortages or interruptions in energy supplies is accentuated by the very high rates of economic growth we have been attaining and are aiming for. At the Strasbourg Council I stressed that a 5 per cent reduction in oil consumption for a country as heavily dependent as ours on oil supplies, which is growing so rapidly, could impose an altogether disproportionate burden. The Council accepted this point and agreed that in applying energy constraints generally, regard should be had to the situation of individual states.
There will be an effort to co-ordinate approaches with the producer countries to what is in fact a world crisis in energy. The Minister for Industry, Commerce and Energy, acting for the Presidency, will be involved in these discussions. These short-term measures to bring supply and demand into balance and to co-operate with the producer countries will meet only part of the case. They must be supported by measures whose effect will be felt in the medium and longer term. These measures include—(1) an effective conservation policy; and (2) the development of alternative sources of energy, including, in particular, coal and nuclear power. I have stressed the need for the most stringent safety precautions and for the development of methods of disposal of nuclear waste; but there is little point in deluding ourselves into believing that countries which are themselves looking to nuclear energy to supply one-fifth or one quarter of their total needs will look with sympathy on the case of a country like ours if we deliberately, or by omission, continue to leave ourselves vulnerable to the vagaries of supply in the market for commodities of limited and declining availability. Other alternative sources, such as solar or geothermal energy, are unlikely to produce energy on economic terms for another ten or 20 years. Under this heading I stressed the importance of exploration, particularly in the Irish context; but again it is important to remember that even another find on the scale of the North Sea would not change the medium term prospects.
The stark reality in all this is that before the end of the century millions of people could suffer severe hardship unless energy resources are fully developed and utilised; and that unless we here face this reality and adjust our expectations to what is possible of realisation we will be creating for ourselves and our children a most disagreeable future.
The Community, the United States and Japan are the three main pillars of trade and industry in the free world. A difficulty, indeed a source of friction, between them has been the growth of the deficit which the Community continues to incur in its trade with Japan. At $6.4 billion in 1978 it represents a major drain on Community resources. I would like to stress the approach favoured by the Strasbourg Council, because it has particular relevance to Ireland. There was general agreement that the solution did not lie in any attempt to convince the Japanese that they should reduce the efficiency or competitiveness of their research and industry—that indeed would be an easy way out for countries seeking the illusion of progress through higher payments for static output. The success of Japan has been founded on hard work, frugality, discipline and corporate loyalties. The general approach of the Strasbourg Council was to emphasise the need to strengthen co-operation with Japan in all fields, including trade, research and investment. There will be consultations between the Commission and Japan to this end.
Among the items discussed under the heading of European Political Co-operation were the Middle East, the Rhodesian situation and the problems of refugees from Vietnam, in particular the necessity of finding a solution which is both efficacious and humane.
This is the last European Council before Ireland takes over the Presidency on 1 July. I took the opportunity of thanking President Giscard d'Estaing for his hospitality and expressing appreciation of the way in which France had discharged the duties of the Presidency. I said that I hoped that Ireland would prove to be a worthy successor to France in this high office and expressed a welcome for the Council when it meets in Dublin next November.
The Minister for Foreign Affairs will be reporting shortly to the European Assembly on the programme for the Irish Presidency. I need only mention here that, apart from the follow-up to the Strasbourg Council on issues like energy and convergency and some questions relating to agriculture, important issues likely to arise during that time include the six-monthly review of the European Monetary System, the adoption of the 1980 Budget, the report of the Three Wise Men, maintaining the momentum of negotiations for the enlargement of the Community, making progress towards agreement on a Common Fisheries Policy, conclusion of the negotiations with the African, Caribbean and Pacific countries, perhaps this month, and signature of Lomé II. In all this it will be important to work for the avoidance of protectionism, improved access to existing markets, fair competition and safeguards for sensitive industries in trade negotiations. The Community will endeavour to prevent a new inflationary process from developing and to maintain the Community's economic growth at the highest possible level. It will obviously be our aim to do everything possible to improve the employment situation in the Community.
Criticisms are possible of the concept and working of European Councils. I do not necessarily subscribe to these, preferring to look on the positive side. Councils afford Heads of State or of Government an opportunity to come together and exchange views on the problems facing them individually and collectively. Even if Councils attained nothing more than this, they would be of considerable benefit. On this occasion, in particular, I found the degree of consensus, indeed of utter conviction, on the seriousness of the problems now facing Europe both impressive and intimidating, particularly in relation to energy. I will quote one paragraph from the Presidency conclusions which conveys this sense of urgency and conviction. It says that if a strategy for the rational use of oil and the development of new energy sources cannot be worked out, then "the world will rapidly move towards large scale economic and social crisis". That is a message we cannot ignore, either in our approach to general economic problems or to energy policies. The consequences of taking the soft option, of trying to avoid trouble, or to buy temporary popularity, are too grave. We will not survive if we ignore these warnings, which are more serious and more persistent than I can ever recall, or if we seek solutions based more on ignorance or the desire to please than on an appreciation of the realities. These are the facts now. I am no prophet of doom; I would prefer to be regarded as a realist—we must all recognise that our future will be governed by the realities so forcefully expressed in the conclusions of the European Council.