As the House is aware, the Taoiseach is involved in important business in Northern Ireland and, therefore, I am reading this Dáil statement on his behalf.
I attended the Special European Council in Berlin on 24 and 25 March, together with the Minister for Foreign Affairs, Deputy Andrews, the Minister for Finance, Deputy McCreevy, and the Minister for Agriculture and Food, Deputy Walsh. This was the second time the Heads of State or Government had met during the German Presidency to consider the future financial perspective for the Union. The first meeting, the informal Petersberg Summit in February, presented a key challenge to the Presidency in terms of progressing the complex issues contained with the Agenda 2000 portfolio within relatively tight budgetary parameters. I am happy to say that sufficient progress was made on foot of the orientations coming from Petersberg to allow an agreement to be forged in Berlin.
We also decided on our nominee as new President of the European Commission; we adopted statements on Kosovo and the Middle-East and we approved a trade and co-operation agreement with South Africa. Overall and for the reason which I will point out in the course of my statement, I believe that the summit was a success for Europe and for Ireland in particular.
I will begin by outlining the format of the European Council. Proceedings opened last Wednesday morning with a meeting with the President of the European Parliament, Mr. Gil-Robles, where there was a useful exchange of views on the process for the appointment of the new Commission and the issues arising under Agenda 2000.
A detailed discussion of the recent resignation of the Commission took up most of the first working session of the European Council. It resulted in the decision to nominate Mr. Romano Prodi to be the next President of the European Commission.
The emerging situation in Kosovo was discussed during our working lunch that day. Detailed negotiations on Agenda 2000 formed the major part of our afternoon working session and indeed the rest of the summit. However, as Deputies will understand, given the currency of the Kosovo situation this was an issue which featured frequently in our discussions.
I turn now to the agreement negotiated on Agenda 2000. This is not a deal that was agreed in two days of hard negotiations in Berlin. Rather, it is the culmination of a process that began in July 1997 with the presentation by the Commission of its policy document of Agenda 2000. Intensive negotiations were conducted at a technical and political level. This involved the Agricultural Council, the ECOFIN Council and, in an overall co-ordinating role, the General Affairs Council, thus preparing the grounds for agreement at the level of Heads of State or Government.
In parallel with this I engaged in an intensive round of bilateral meetings with my European counterparts and the Commission – highlighting the particular objectives of Ireland in the negotiations. In a period of 11 months, beginning in late April of last year, I visited Finland, Austria, France twice, the UK, Spain, Portugal, Germany, Denmark, the Netherlands and Belgium. Each visit was undertaken specifically to discuss Agenda 2000 and ensure that Ireland's approach was well understood by its partners and the Commission. I believe that my initiative paid dividends; the agreement negotiated last week recognises the special situation of Ireland. On 19 March, I met with German Federal Chancellor Gerhard Schröder as part of his tour of capitals in advance of Berlin. This last meeting allowed me the opportunity to prioritise Irish objectives for the Chancellor at a crucial stage in the preparations for Berlin. Key among those objectives was the maintaining intact of the agriculture package as negotiated at the Agriculture Council the previous week and the need to ensure a balanced outcome on Structural Funds which would take account of Ireland's particular situation.
It is important to set the context in which we conducted our negotiations. We entered these negotiations having derived considerable benefit from our membership of the European Union. One measure of this is that since 1973, Ireland has received a cumulative net transfer of some £23.5 billion in receipts from the EU. Perhaps more importantly as an exporting nation, Ireland has greatly benefited from access to a Single Market which has now grown to over 370 million people. Our progress has not gone unnoticed by our partners and I assure the House it was raised with me at every bilateral meeting.
When we joined the EEC in 1973, the Irish gross domestic product – GDP – per head approximated to 60 per cent of the EU average. While the gap had been halved by 1993, most of the convergence of the Irish figure towards that for the EU has taken place in the very short period since 1993. The nature of this rapid convergence needed to be recognised in judging the extent to which we have "caught up" with our partners. This was a point which my Government colleagues and I sought to emphasise in contacts with our counterparts.
Relative to most of the EU, Irish infrastructure is underdeveloped. Even the Commission's own Sixth Periodic Report on Regional Policy and Cohesion recognised this fact, noting inter alia that Ireland has the least developed motorway network in the Union. The infrastructural gap represents a social and economic barrier to continued economic progress which will take both time and major resources to overcome. The Stability and Growth Pact, which requires countries to be in budgetary balance over the economic cycle, excludes systematic recourse to Government bor rowing to meet these needs. Accordingly, I asked our partners in the Agenda 2000 negotiations to look beyond the very recent statistics on Irish economic growth and to recognise the underlying need for consolidation of our recent achievements in order to complete the convergence process.
Any assessment of the deal struck in Berlin, which I will outline to the House, must take account of the context in which the final negotiation took place. The negotiations took place against a background of general budget retrenchment at EU level. This factor, and the reality of Ireland's economic prosperity, combined to ensure that Ireland would have to bear a significant cut in EU transfers in the period 2000 to 2006. Ireland has negotiated throughout the process on the basis of the Commission proposals, despite the deterioration in our budgetary position which they involved.
However, in the final phase of negotiations, a number of developments gave rise to particular concern to Ireland. The debate on overall levels of EU expenditure was dominated by the suggestion, supported by a majority of member states, that EU expenditure should be stabilised in real terms. This was compounded by the not unreasonable wish of the net contributor member states for a commitment to address what they regard as their excessive contribution to the EU budget.
Ireland consistently resisted the tendency towards overall stabilisation, arguing that it failed to take adequate account of the implications of CAP reform or of the Treaty requirements on economic and social cohesion or of the financial implications of enlargement. Taken together, these factors created an unpromising situation as we went into the negotiations in Berlin. Nevertheless, I have no hesitation in asserting now that Ireland secured an excellent deal in difficult circumstances. The final outcome is one in which our key concerns, CAP reform and Structural Funds, were satisfactorily addressed.
In regard to the resource side, Ireland was prepared to pay its fair share of the burden and, in this regard, contributed positively and constructively to the examination of ways to place the revenue side of the budget on a more equitable and transparent basis.
The existing system of calculating EU budget contributions involves a number of different mechanisms which, in our view, are both unwieldy and lacking in transparency. The European Council decided that the Union's own resources ceiling should remain at the current level of 1.27 per cent of EU GNP. The maximum rate of call of the VAT resource will be reduced to 0.75 per cent in 2002 and to 0.50 per cent in 2004. Traditional own resources will be maintained, with the percentage retained by the member states in the form of collection costs increasing to 25 per cent with effect from 2001. Both the switch to GNP and higher retention of traditional own resources were policy options favoured by Ireland. The UK rebate will remain with some technical adjustments made to neutralise windfall gains resulting from the progressive reduction of the VAT resource and from the increase in the percentage of traditional own resources retained by member states. In addition, it was agreed that on enlargement, an adjustment in the calculation of the UK rebate will be made to exclude from its scope an amount equivalent to the pre-accession aid for these countries.
In order to meet the concerns of net contributors, the financing of the UK rebate by other member states will be modified to allow Austria, Germany, the Netherlands and Sweden to see a reduction in their financing share to 25 per cent of the normal share. The outcome on own resources was a good one from an Irish viewpoint bearing in mind the concerns of the net contributors and the domestic political pressure in the United Kingdom not to concede on the rebate.
Ireland's budget contribution will rise over the period largely in line with GNP growth but the estimated effect of the changes agreed will be to reduce Ireland's contribution to the EU budget over the period by some 40 million euros as compared to what it otherwise would be. The own resources system will be reviewed before end-2005, taking account of the effects of englargement. Ireland will still be a substantial net beneficiary in 2006 but on present trends and assuming enlargement goes ahead, Ireland may become a net contributor during the EU multi-annual budget round commencing in the year 2007.
The Common Agricultural Policy has enabled Irish agriculture to transform and modernise over the past two and a half decades while also helping to preserve our rural communities. Agriculture continues to contribute 6 per cent of our GDP, more than three times the EU average. On top of that, two of the sectors being reformed, beef and milk, account for about 70 per cent of Irish agricultural output. This level of dependence on two agricultural sectors is unique in the EU and we argued this should be reflected in the eventual package.
In entering the latest round of negotiations in Berlin, I was determined to ensure that the detail of the agreement reached at the Agriculture Council would not be modified to our disadvantage. I was very pleased that we achieved this objective.
In order to stabilise agricultural expenditure, the European Council decided on a number of measures. One of these is the postponement of the reform of the dairy sector from 2003 to 2005. Importantly, this is without prejudice to the decisions concerning the specific additional dairy quotas from which Ireland and only three other member states, as well as Northern Ireland, benefited.
I am pleased to confirm that the Irish dairy quota will be increased by approximately 1.8 per cent from the marketing year 2000-01 and by a further 1 per cent or so from 2001-02. Another measure decided by the European Council was that the intervention price for cereals will be reduced by 15 per cent in two equal steps of 7.5 per cent in the marketing years 2000-01 and 2001-02 and not by 20 per cent as originally decided.
The Commission and the Council were also requested to pursue additional savings to ensure that total expenditure, excluding rural development and veterinary measures, in the 2000-06 period will not overshoot an average annual expenditure of 40.5 billion euros in real terms. Through skillful negotiation, together with a number of other member states, we managed to ensure that neither degressivity nor co-financing of the CAP featured in the final agreements.
The net result of the agreement finalised in Berlin is that, over the period 2000-06, Irish agriculture will gain to the extent of 501.5 million euros, even assuming that market prices fall by the full amount of the reductions in support prices. On the same assumption, gains to the economy from lower prices on the domestic market are estimated at 344.1 million euros. Thus, the total gains to the Irish economy could amount to 845.6 million euros over the 2000-06 period.
EU transfers to Ireland from the guarantee section of the agricultural fund will amount to 12.7 billion euros approximately over the period even before counting headage payments in disadvantaged areas, which from 2000 will be funded from the guarantee section and should amount to about 507.9 million euros over the seven year period. Overall, the agreement on agriculture represents a substantial achievement by the Government, which has been lauded by the various farm organisations.
We are all very aware of the important contribution which the Structural and Cohesion Funds have made to the development of this country over recent years. They have facilitiated significant infrastructural investment and promoted the development of a range of programmes encompassing sectoral economic development, human resources and the fight against social exclusion. The Commission identified as a central theme of the Agenda 2000 reforms the need to improve the effectiveness of the Structural and Cohesion Funds in achieving the goal of economic and social cohesion. Structural Fund assistance would be concentrated on the areas of greatest need by, inter alia, a substantial reduction in the number of objectives to three.
In Berlin the overall amount available for the Structural and Cohesion Funds over the period was set at 213 billion euros. Of this, 18 billion euros will be allocated for the Cohesion Fund. Of the overall allocation for Structural Funds, it was agreed that 135.9 billion euros would be allocated to Objective One, including transitional support; 22.5 billion euros for Objective Two, including transitional support; and 24.05 billion euros for Objective Three.
I regard this as a very positive outcome, in particular against the background of the intensive pressure from a majority of member states, which emerged at the informal meeting of Heads of State of Government in Petersberg, Bonn, in late February in favour of a significantly lower volume of resources for structural operations. In this context, I emphasised and, not without difficulty, secured recognition of the need for adequate transitional support to address Ireland's ongoing infrastructural requirements.
On the Cohesion Fund, Ireland supported the Commission's proposals that the existing Cohesion four should retain entitlement subject to a mid-term review. We achieved this aim despite strong pressure from some member states for an earlier review in 2002 or even annual reviews. It was also agreed that in calculating Cohesion Fund share-out, account should be taken of real convergences in GNP terms by individual member states. Because of the much better performance of the Irish economy in recent years this factor will act to depress our Cohesion Fund receipts over the period to 2004. While all regions of the country are sharing in the present period of growth, regional disparities still exist. The poorest regions have incomes below the EU threshold for Objective One status.
The distribution of population growth across the regions also indicates a considerable lagging behind of economic development in certain parts of the country. These regions are also the most dependent on agriculture. The Government decided in November last to pursue a policy aimed at maintaining part of the country as an Objective One region. On foot of this decision, the Government submitted an application to EUROSTAT to change the current single NUTS II status of the country into two NUTS II regions. Our proposal to regionalise the country was accepted, albeit in a modified form. This ensured that the Border, midland and west regions will continue to enjoy full Objective One status over the whole of the next round. The additional amount of Structural Funds arising from this is 590 million euros, a figure which of itself justifies the Government's strategy. Apart from the direct Structural Funds benefit, these regions will continue to be eligible for the highest level of State aid allowable under EU regulations.
The remainder of the country will be treated as an Objective One region in transition for six years. We managed, through late night negotiations, to secure an additional 100 million euros in the form of a special phasing out allocation. This is particularly welcome as it underscores the Government's commitment to ensure that the problems of many of the poorer urban and rural areas in the transition period will continue to be addressed through targeted measures.
All in all, we estimate that Ireland's share of Structural and Cohesion Funds will be around 4.25 billion euros. This includes headage payments now situated in Heading 1 of the budget and is a very commendable achievement in the circumstances.
The task ahead of us is to utilise these funds, in conjunction with Exchequer and private funds, to produce a national development plan which meets the developmental and social needs of the country as it heads into the new millennium. This is now a most urgent priority of the Government.
From Ireland's point of view another key outcome of the summit was the commitment for a continuation of EU support for the Northern Ireland peace process. This built upon the commitments we secured from the European Councils in Cardiff and Vienna. Together with Prime Minister Blair, I had sought to ensure that the level of EU Structural Fund support to Northern Ireland would be maintained at levels broadly comparable to those in the current funding period. The conclusion reached of a continuation in the PEACE programme for five years with funding of 500 million euros, of which 100 million euros will go to the Border counties, over the period was very satisfactory. In addition, following intensive lobbying by Ireland, the EU will make a contribution of 15 million euros per annum to the International Fund for Ireland over three years.
It should not be forgotten that the primary driving force for the Agenda 2000 package was the need to prepare the Union's finances and institutions for enlargement. It was very important that the Council took the opportunity to reassure the applicant countries of the Union's continuing commitment to the enlargement process. The recent focus on the Agenda 2000 package and the crisis in the Commission might have created the impression that the enlargement process was less of a priority for the Union. This is not so. Enlargement remains an historic priority for the European Union. The current crisis in Kosovo underlines once again the importance of Europe's economic, social and political integration project. The crisis highlights the need for a stable Union with stable borders and should reinforce our determination to remove barriers to the early integration of applicant states.
We also took the opportunity to consider the recent resignation of President Santer and the entire European Commission. It was unanimously agreed to ask Mr. Romano Prodi, the former Italian Prime Minister, to accept the position of President of the next European Commission. I fully share the satisfaction of all my colleagues in the European Council that a candidate of proven stature who has demonstrated his commitment to Europe will assume the responsibility of leading the Commission in the months and years ahead. I have no doubt that, with the support of the Heads of State or Government, he will be able to reform, modernise and equip the Commission to discharge effectively its vital role in the European Union. Like other member states, Ireland continues to look to the Commission to be the engine which drives the Union forward. I shall be very happy to work closely with Mr. Prodi, initially on the formation of the new Commission and later on the challenges which we must all face together.
As to the steps to be taken in the short-term, in line with the provisions of the Amsterdam Treaty which is due to come into force on 1 May, this decision was communicated to the European Parliament. After his approval by the Parliament, Mr. Prodi will begin to prepare the nomination of a new Commission in co-operation with the Governments of member states. The Governments of the member states shall, by common accord with Mr. Prodi, nominate those whom they intend to appoint as members of the Commission. Following the European Parliament elections in June, the newly elected Parliament will give its approval to both the President and the nominees for the Commission.