With permission, Mr. Speaker, I shall make a statement about the European Council that took place in Brussels on 22 and 23 March. It was the fifth in a series of summits about the Lisbon agenda on economic reform in Europe.

It is the British case that economic reform is not going as far or as fast as it must. Nevertheless, over the past five years, 6 million extra jobs have been created in Europe. We have opened up the telecommunications market, and the gas and electricity markets have been liberalised, bringing new choice to consumers. Air travel has also been opened up, bringing cheaper air tickets. In the recent World Economic Forum study of international competitiveness, six EU states were among the 15 most competitive nations in the world. Britain is one of them and has risen a number of places in the last year.

Some progress has been made, but the truth is that there used to be eight EU countries in the top 15. There are still far too many unemployed people in Europe and too many businesses unable to compete as they should. That provides the EU's challenge.

The European Council rightly decided yesterday to support the Barroso Commission's emphasis on growth and jobs as the first-order priorities. There was also strong support for the Commission's proposals for improving and simplifying its approach to regulation.

However, the services directive is at the heart of this next phase of the Lisbon programme. Services account for 70 per cent. of both the UK and EU economies. The directive is intended to liberalise that market. It does this by requiring national Governments to make it easier for European service companies to establish on their territory, so regulatory regimes must be simplified and made accessible. It also facilitates temporary, cross-border trade in services.

The directive is unquestionably an ambitious measure. Authoritative studies show that it could bring at least 600,000 new jobs to Europe, and add some €37 billion to the European economy. Also, many of the accusations made about it are unfounded or overstated. It does not mean that workers from a low-cost member state can work permanently under their country of origin wages and conditions in another member state. The posted workers directive already prevents that. Neither does it mean that consumer protection and health and safety legislation will be circumvented or abandoned. Again, there are complementary measures that cover those areas.

It is true that there are some genuine concerns about the implications of the proposals—for example, for us there is their impact on the national health service—that need to be addressed in the negotiations. The directive, inevitably and rightly, will be amended as it goes through its legislative process. The Commission signalled that several weeks ago, and confirmed as much again at the European Council. However, the changes will be part of the normal legislative and negotiating process and, fortunately, the final decision will be by qualified majority voting. None of that has changed as a result of this European Council, whose conclusions were of course subject to the unanimity rule, so any member state had a veto over them.

However, to have withdrawn the directive, as some wished, would have been a grave injustice and error for Europe's economy. President Barroso is therefore absolutely right to maintain it. The Commission remains committed to the main principles of the directive, as do we and many other EU Governments, notably those from the new member states. Its adoption will be a key test of Europe's seriousness about reform.

The issue, however, that underlies the debate about the services directive is the future of the European social model. Some, notably France, believe that that model should remain in its existing form. Some, like Britain, believe firmly in Europe's social dimension but wanted it updated to take account of modern economic reality.

Fortunately, in this debate—which will dominate discussion of Europe's economic future over the coming years, just as the debate over the transatlantic alliance will dominate debate on foreign policy—we have the benefit of some empirical evidence. The UK has shown that it is possible to have flexible labour markets combined with a minimum wage, tax credits to help families into work, family-friendly policies to help the work-life balance, the new deal for the unemployed, record investment in education and skills, and a strong economy. I believe that that is the modern social model for Europe, and that it is recognised as such by many of our partners. The result has been higher growth, higher employment and lower unemployment for the UK. Those successes can be replicated across Europe, with the right policies.

It is worth adding that the UK has also benefited from its decision, unique amongst the larger member states, to open its labour markets to workers from the new member states. Far from disrupting our labour markets, they have, for the most part, made a positive contribution to the British economy. If we want Europe to compete not just with the USA but with China and India in the future, this type of open and flexible economy is precisely what we need.

I should report briefly to the House on four other issues covered during this European Council. We endorsed the deal reached in ECOFIN on reform of the stability and growth pact. That introduces a more sophisticated system for implementing the rules, taking account of issues such as the level of debt, investment, and the impact of the economic cycle, all in line with UK objectives, while maintaining financial prudence.

On climate change, we discussed a long-term strategy for the EU, including progressive targets for reducing emissions. We shall take that process forward in the context of our G8 and EU presidencies later this year.

On Africa, the European Council noted the Commission for Africa's report and agreed that we had to step up our support for that continent. There is now unanimous support inside Europe for the policies that can confront the challenge—indeed, the scandal—of thousands of African children who die needlessly every day and, where they survive, live lives of unimaginable poverty and deprivation: 2005 must be, and should be, Africa's year.

On Croatia, we discussed follow-up to the recent decision by European Foreign Ministers to postpone accession negotiations, but to start as soon as there is full co-operation by the Croatian Government with the International Criminal Tribunal for the Former Yugoslavia. The British Government, in principle, strongly support Croatian membership of the EU. The next step is likely to be EU discussions with Croatia, led by the present and future presidencies, about how to achieve full co-operation with the tribunal. I should add that we also supported democracy in Lebanon.

As was obvious from this Council, and from recent NATO-EU summits, there is a big debate going on in Europe today. It is vital to Europe's future, and to the future of Britain. In this debate, we know where we stand: in favour of the transatlantic alliance as the bedrock of our security; in favour of adapting Europe's economy to the future as the path to our prosperity. It is a debate in which we have allies. It is a debate that we can win. But to win we have to participate, fully, wholeheartedly, with self-confidence and belief; we must not marginalise Britain, reducing it to the role of spectator. The policy of this Government is clear: to be at the centre of the debate, not the margins.

I commend this statement to the House.

I start by thanking the Prime Minister for advance sight of his statement. We welcome some items in the communiqué, such as the commitment to sustainable development and the Kyoto protocol. However, will the Prime Minister explain why new figures published this week show that carbon dioxide emissions in Britain have risen since 1997?

The Council rightly emphasised the importance of development issues, but was there not a grievous failure to match words with deeds when it came to helping the world's poor and depressed? Should not the EU demonstrate its belief in the right values with its trade policy? Is not free and fair trade the best way to lift people out of poverty? Would not dropping EU tariffs on their goods be the ideal way to help people in those countries devastated by the tsunami? Is not it indefensible and immoral to impose punitive duties on struggling nations and suffering people? Is not it also imprudent, as well as unethical, to press ahead with plans to sell arms to China? Does the Prime Minister think that it was right for Javier Solana to say yesterday that the EU was moving towards a "political decision" to end the arms embargo? Should not the Prime Minister instead listen to the human rights groups, Britain's Defence Manufacturers Association, the four Select Committees that have studied this matter, and our allies in Japan and the US, all of whom are urging him to maintain the embargo?

If the Council is serious about human rights, can I ask the Prime Minister whether the situation in Darfur was discussed? He just said that 2005 must be Africa's year, but the tragedy in Sudan is getting daily more horrific. The UN now says that 180,000 people have died. Why is not the Prime Minister demanding a UN resolution that would impose arms and oil sanctions on the Sudanese Government, and give the African Union peacekeepers the mandate and support that they need to protect the civilian population?

This summit came at an appropriate time, being the last one before the election—if we are to believe what we are told, not least by the Deputy Prime Minister yesterday. It discussed a wide range of issues, and it encapsulated the Prime Minister's complete failure on Europe over the past eight years.

Why on earth is the British rebate being discussed? The justification for it is as strong now as it was when it was won. The EU's financial problems are not caused by the rebate but by policies such as the common agricultural policy that are in real need of further reform. So why is not the reform agenda being given pride of place?

The Prime Minister assures us that he will not give way on the rebate. He says that his mind is made up. However, as we have discovered again this morning, members of this Government have a curious tendency to change their minds, and their advice, when they come under pressure.

And it is not just Ministers who cave in at the last moment. The Prime Minister himself changed his position when he came under pressure at the Council. Before he went abroad, his Government were all in favour of the services directive. Only last month the Foreign Secretary said:

"Creating a true single market in" services

"would boost growth in the EU and improve the price, choice and quality of services on offer to businesses and consumers."

But when it came to standing up for the services directive against President Chirac's objections, the Prime Minister surrendered. He put the interests of the French President before those of British workers and consumers, so how can we trust his promises on the rebate? Last time the Prime Minister fell out with President Chirac, he gave him a fountain pen. Next time, if he is still there, will he give him the cheque book?

In 2000, the Prime Minister said that there had been a sea change in European thinking away from heavy-handed intervention and regulation towards a new approach based on enterprise, innovation and competition. The last President of the Commission, Mr. Prodi, described the agenda as a big failure and the current President said that the Lisbon goals were too ambitious. Is not the European Union doing what the Prime Minister does when he fails all his targets—abandoning them and calling it a relaunch? Is not that failure a tragedy for Europe's 19 million unemployed? Does not it show that making promises is not enough and that Governments that are not prepared to turn talk into action never achieve anything?

The Council discussed reform of the euro stability and growth pact which Europe says is needed because a European Union of 25 countries is characterised by considerable diversity. Does not that diversity mean that a one-size-fits-all interest rate does not work? Is not that precisely why membership of the single currency would harm jobs and prosperity in Britain?

The Prime Minister boasted that Britain's place in the recent World Economic Forum's study of international competitiveness has improved during the past year. What he did not say is that today we are 11th in that league, but in 1998 we were fourth. Does not that say all we need to know about the economic performance and record of this Government?

Does not the Prime Minister believe that a European Union of 25 countries, characterised by considerable diversity, should be reforming and modernising in other ways also? Is not that his biggest failure of all? Why is not he putting the case for a more diverse and flexible Europe, for a live-and-let-live Europe of co-operating nation states? Why is not he putting the case for powers to be returned to the nation states, such as those we now discover he surrendered on asylum? Even the Dutch Government are asking for powers to be returned on social policy. Was not Germany's Europe Minister right when he recently described the constitution as

"the birth certificate of the United States of Europe"?

Is not that precisely the wrong direction for a modern Europe, characterised by considerable diversity, to take? Was not the Prime Minister's former economic adviser right when he said that the constitution will

"entrench Europe's failings and drag Britain down too."

Will not there be a clear choice at the next election between a Labour Government handing over ever more power to Brussels and a Conservative Government who will bring powers back to member states and closer to the people, and work for a flexible and diverse Europe fit for the 21st century? Is not there now a unique opportunity to settle Britain's relationship with Europe in Britain's national interest? Is not it time for an end to the Government's failures on Europe?

There certainly is a clear choice, not least on the economy, which the right hon. and learned Gentleman mentioned. I seem to remember that when he was a Minister in the last Conservative Government unemployment rose to 3 million, interest rates were at 10 per cent. for four years and there were two recessions during which people lost their jobs, their homes and their livelihoods. Yes, there is a clear choice between the right hon. and learned Gentleman's boom and bust and cuts in investment and our economic stability and investment in public services.

I shall deal with one or two of the specific issues that the right hon. and learned Gentleman raised. On climate change, it is absolutely important to meet our Kyoto targets and we will. It is correct that there has been a rise in CO ₂ emissions and one way of dealing with that is the climate change levy, which his party voted against. Carbon dioxide emissions have risen because of the strength of the economy but, overall, we shall meet our Kyoto targets in a way that will probably single us out from most other countries in the world.

On the European Union and the China arms embargo, it is important in any discussion of the matter to recognise that that cannot be done without a proper code of conduct to govern any arms sales to China. It is a sensitive issue because of recent events and the European Union has made it clear that there cannot be a qualitative or quantitative increase in arms sales.

On Sudan, we are pressing for UN Security Council measures. The main thing is to ensure that the African Union mission of peacekeepers is built up to its full strength. We can introduce arms sanctions against Sudan, but the only thing that will work is to have a proper peacekeeping force there which is properly able to enforce, as well as to keep peace. Until we do that, we will not bring any hope to that troubled part of Sudan. That is also one of the important aspects of the Commission for Africa. Africa needs its own proper peacekeeping and peace-enforcing contingent, which must be of sufficient strength that it can be sent to different parts of Africa and keep warring people apart so that conflicts can be resolved and peace kept. Until that happens, situations such as that in Sudan will continue.

The right hon. and learned Gentleman talked about a failure of our policy over the past eight years. I remind him that when we came to office we were still living with the aftermath of the beef war, which probably stands out as the epitome of a failed European policy. All he ever did in Europe, and the only position he ever adopted that anyone remembers, was to stand out against the European social chapter, and against paid holidays and decent terms and conditions for British workers—[Interruption.] He may say that people can decide for themselves, but in 18 years of government he never quite got round to doing it, did he?

The right hon. and learned Gentleman raised other points, including the rebate which, incidentally, was not mentioned at the Council, at the dinner or during the conclusions the following day. It was mentioned by the French President, as it always is, but he always gets the same response from me: no. That will continue to happen.

On the reform agenda, I do not think that the right hon. and learned Gentleman listened to what I said. I am passionately in favour of the services directive and we must ensure that it is implemented. We have given nothing away. On the contrary, it will be debated through the legislative process. I agree that there is a big issue with the directive and the reform agenda and that there is a battle going on. There is also a battle over trade policy. What is the right thing to do? It is to get in there and ensure that we win the debates. What is the right hon. and learned Gentleman's alternative? It is to embark on a policy of renegotiating the fundamental existing terms of Britain's membership of the European Union. What will that do? I do not often agree with the spokesman of the UK Independence party but I agreed with him when he said:

"The whole policy of renegotiation is, as far as the Tories are concerned, nothing more than self-delusion—and on the British public it's just a deception".

Dominic Cummings, the right hon. and learned Gentleman's former director of strategy, said a few months ago:

"the party"— the Conservative party—

"is stuck on the question: 'what would you do if you can't get the new deal you want? . . . The current situation of spasmodic lurches without a clear view . . . is the worst of all worlds. It does not deal with UKIP, it does not change opinion, it does not improve the Conservative Party's reputation for seriousness."

I could not have put it better myself.

The Leader of the Opposition is saying that he will withdraw from the common agricultural policy, the social chapter, overseas aid, fisheries—

indicated dissent.

It is in black and white. Let me tell him what his fisheries spokesman said on Monday. The Conservative party's shadow Minster for Europe, when asked what he would do about the control of fisheries, said, "Let's look at what Iceland has done," and, further afield, "Let's look at what happens in the Falkland Islands."

Order. May I gently say that we are discussing a statement, not the Conservative party's policies?

We are also dealing with choice and the choice is between being at the heart of Europe or on the margins. The idea that we could have the same fisheries policy as the Falklands Islands is an indication only of how utterly unserious the Conservative party is.

The truth of the matter is that there is a very clear choice, between going into the debates on economic reform and trade and fighting Britain's corner, or opting out, as the last Conservative Government did, leaving Britain defenceless and near the exit door. That would betray our true national interest. It is a strategy born of opportunism, it will fail, and the more it comes under scrutiny, so will the right hon. and learned Gentleman's leadership.

I, too, thank the Prime Minister for his statement on the summit. On the issue of the liberalisation of the services market and the services directive, which is important because of its 70 per cent. contribution to European gross domestic product—so reform is clearly in Britain's interests—will the Prime Minister confirm that further steps towards liberalisation would increase standards, lower costs and help generate jobs? He said:

"The directive, inevitably and rightly, will be amended as it goes through its legislative process."

Why would it be right to envisage a watering down of the services directive, since that would reduce the benefits of liberalisation? He must find it a little embarrassing in the historical context that Mrs. Thatcher was much firmer in pushing through the liberalisation of the single market than he has been on this issue. Will he be emboldened in his future endeavours?

On the UK rebate, will the Prime Minister acknowledge that that will always come back to the argument that France would have to accept fundamental reform of the CAP before it could make progress by being critical and carping about the UK rebate? Given the domestic referendum concerns of the President of France, which we all recognise, does the Prime Minister hold out much prospect of being able to be a little more persuasive with him than was obviously the case in the past two or three days?

The Prime Minister did not mention the ongoing troop commitment in Iraq in his statement, but it is unlikely that some discussion of it did not take place, certainly at the margins, with some of his opposite numbers in the EU. Given that several of the allies have either withdrawn their troops or have indicated a willingness or a timetable to withdraw them, did he discuss those matters with any of his counterparts at the summit? In that context, will he take account of yesterday's all-party Defence Committee report, which acknowledges an ongoing British presence in Iraq, perhaps even at present levels, into the next calendar year? Will not withdrawal of further European Union countries maintain that position or indeed require our troop numbers to be increased? Did he discuss those matters with any of his opposite numbers?

In relation to the services directive, of course we support it. The only issue for the European Council, which is a discussion that produces conclusions, was whether we should withdraw the directive. That was firmly rejected by the majority of countries round the table. There will be a legislative process in any event, but the Council agreed that any changes have to be made in the course of that process. There will be some amendments, but they should not touch on the essential nature of the directive, which is right and necessary and will bring benefits.

In relation to CAP reform and the services directive, the point to emphasise is the importance of qualified majority voting. There is no way we would get any of the changes—on the CAP, on the services directive or on the single market—without QMV.

In respect of Iraq, I would point out that other countries—most notably, recently, Australia—have decided to put in troops. I can assure the right hon. Gentleman that the position of myself and other European Union leaders, except those with parliamentary resolutions to which they have to adhere—although they remain fully supportive of the mission in Iraq—is that we stay in Iraq until the job is done. The job is being done. Iraq is on its way to democracy, there is a huge spirit of enthusiasm there for the future, and the security problems are increasingly being dealt with by the Iraqis themselves. However, we must ensure that the security forces are in the proper position to be able to guard the Iraqis against the terrorist threat that they face. We must also ensure that Iraq can continue to make steady progress towards democracy. That is our position and, I assure the right hon. Gentleman, it is the position of the other European countries.

Recognising that the process of enlargement may have had an effect on progress on the Lisbon agenda, the Kok report is clear that Britain has done better than its EU partners in meeting the Lisbon benchmarks. My right hon. Friend will know that this spring marks the third anniversary of the initiative that he started with Chancellor Schröder on the wider reform of the EU. Will he confirm that substantial progress has been made since his letter of 25 February 2002, and that the wider reform agenda will be a theme of the presidency?

Yes, I can assure my hon. Friend of that. There is no doubt that the direction of travel for Europe now is towards reform. There are countries that will act as a brake on that, and that is why it is important that we argue the case and try to ensure that people understand that in the world of globalisation we protect jobs through investment in skills and education and active labour market measures, rather than regulation or protection.

I want to take the Prime Minister back to China. It has a terrible record, condemned by almost everybody, on democracy and human rights. Massive abuses take place every day. We also know that it has been hugely involved in the chain of proliferation of technology to North Korea. The Prime Minister knows that the present Government have a strong position on North Korea and are determined that it should rid itself of weapons of mass destruction, but China is behind much of their development. In the past two weeks, China has threatened Taiwan, overtly threatening to invade it if it takes decisions that China disagrees with. Why are the Government not at the very forefront of saying that we should not sell arms to China until major change has come about? We should lead on that and refuse to follow the others in Europe down a ridiculous road that will damage everybody.

It is important to emphasise that the idea in the abstract of lifting the China arms embargo has never been separate from the notion that it should be replaced with a strong code of conduct that should provide for a far more rational method of determining sales to China. I do not put the human rights considerations to the side: on the contrary, I think that they are very important. I would simply underline the fact that the debate in Europe has taken a different turn over the past few weeks. We are in the thick of that debate, trying to ensure that whatever Europe does, it does it with real sensitivity to the values in which we and our American allies believe, and that we introduce a system that is rational in the light of what is happening in China today.

On China, may I draw to my right hon. Friend's attention the Quadripartite Committee's report, published today, in which four Select Committees express strong reservations about any premature lifting of the arms embargo? Was there any discussion in the margins of the meeting? Will my right hon. Friend be reinforced in his view by the unanimous view of all the members of those four Committees, based on our experience of talking to members of the US Congress and other discussions about the damaging impact on British companies of a premature lifting of the embargo?

I can assure my hon. Friend that we shall certainly pay careful attention to what he and his colleagues said. It was not raised either at the summit or at the margins—[Hon. Members: "Why not?"] That is of significance in itself, because there may have been countries that wanted to raise the idea of lifting the embargo at present, but they did not do so. I think that has some significance.

Many British businesses are well placed to take advantage of the services directive, as and when we get it. Can the Prime Minister give an indication of the timetable that he envisages for the adoption of the directive? Does he really think that it will go through under QMV if the French are against it?

In exactly the same way, there was a lot of opposition to reform of the common agricultural policy. The reform has not been as great as we wanted, but the position is different from what it was a few years ago. Yes, I believe that the services directive will go through, but there will be a battle over it. My point to the Conservative party is not that there will not be a battle—there will—but that we must consider what is the best way to win it. My point is that the biggest change that has happened in Europe—I do not think people fully understand it yet—has been the accession of the new member states, which are our allies on both the transatlantic alliance and economic reform. That is why it would be so crazy to marginalise ourselves in Europe. With respect to the Leader of the Opposition, at the very moment when we are fighting those battles for the transatlantic alliance and economic reform, to start a debate about the renegotiation of Britain's membership—I cannot think of a crazier or more misjudged policy.

Does the Prime Minister agree that one of the reasons why Chirac has turned a bit nasty lately is that the French will soon be having a poll on the constitution and it looks as though he might finish up with a headache? In the Prime Minister's quieter moments, does he think that it might not be a bad idea if that happened? It would save us a lot of embarrassment here.

Finally, after eight years of a Labour Government, may I congratulate them on running such a successful economy—unemployment down, employment up and everything else—without joining the euro?

I thank my hon. Friend for his congratulations on our economic management. He asks about my quieter moments. I have to say that I have not yet had any.

On Darfur, the Prime Minister will be aware that the African Union forces in Sudan at present have only a limited monitoring role. Is the House to understand from his earlier comments that the UK and the Security Council will support both a peacekeeping and a peace-enforcing mandate for the African Union? If so, will there also be funds to assist that objective?

We have to try to negotiate that in the Security Council, which is what we are doing at present. I return to the point that I made earlier—because I have looked at the situation in Sudan very carefully—as I did, too, when I visited the country. The Security Council and the resolution we have managed to pass there will be extremely important, but the only thing that will stop what is happening in Sudan is the presence of a sufficient number of well-armed people able to keep the combatants apart and—[Interruption.] Of course their mandate is important. That is why we must secure the right mandate, and we are working to do that, but in the end the most important thing is to ensure that that force goes to Sudan, and we and other countries have already said that we are prepared to help with funding that.

Were there any discussions at the margins about collaborative education projects? My right hon. Friend will be interested to know that there is real excitement at the Whitby high school in my constituency, where we are putting together such a project to form links, through the highest available technology, with a school in Budapest. The teachers are buzzing with excitement. We can do extremely well in that field, because of the importance of the English language to the rest of Europe.

My hon. Friend is right. I know of many such joint partnerships and ventures. They work extremely well, and it is certainly our intention to encourage them.

The Prime Minister rightly referred to the importance of telecommunications market liberalisation in the Lisbon agenda on competitiveness. Does he agree that although the UK market has been opened up effectively with the Communications Act 2003 and the creation of Ofcom, much more progress remains to be made in other EU countries, to the potential disadvantage of British businesses that want to invest in the European market? Will he ensure that telecoms liberalisation is given significant priority in the UK agenda for the EU presidency?

We will certainly do that.

I congratulate the Prime Minister on his statement. Was there any reference at the Council, either formally or informally, to the idea that Britain should have an associate relationship with the European Union? Does he agree that if we were to have such a relationship it would be extremely detrimental to the interests of this country?

It certainly would be, which is why under this Government it will not happen. The result would be that, on trade policy, the services directive and the whole reform agenda, Europe would be without the strong voice of Britain, and Britain would be marginalised in Europe.

Was there any discussion of what is to be done about Kosovo, and if not, why not?

It was discussed in the Foreign Ministers meeting, as I have just been quickly and reliably informed by my right hon. Friend the Foreign Secretary.

Does my right hon. Friend accept that there is deep and growing alarm at the march of neo-liberalism in the European Union? Working people and trade unionists are beginning to wake up to the threat to the welfare state and the worker protection they have enjoyed in the post-war world. That is the underlying cause of the Swedish no in their referendum on the euro, and the probable no vote in France on the constitutional treaty. What happens when the constitutional treaty is rejected? Will we have a fundamental rethink about the economic direction of Europe?

I am afraid that I cannot agree with my hon. Friend. I am not sure that the European economy can be described as marching towards neo-liberalism. It is important to open up the economy. There used to be a view on the right, held by the previous Government—indeed the Leader of the Opposition pioneered the idea—that somehow one had to choose between good, decent terms and conditions for the work force and economic efficiency. That is why the Conservatives opposed the minimum wage and the social chapter. In this country, we have shown that we can combine a minimum wage, the social chapter, help for people to get off benefit and into work and the work-life balance—measures that help people to combine their family life with work—and still have a successful economy. In today's world, it is a deception on our work force and our people to believe that we can isolate ourselves from the emerging economies in Asia—the Chinese economy and the Indian economy—when in fact we have to compete with them. The way to compete is to go higher and higher up the value-added chain, which is why it is so important to invest in skills, technology and education, but to combine that with a flexible and open economy. That is what we have to do. When we consider the difference between this country's economic performance and that of some comparable countries in Europe, I think we are doing extremely well.

The Prime Minister referred to the relaxation of the growth and stability pact. When he agreed to that at the European Council meeting, had he taken the advice of the Governor of the Bank of England? When the Governor appeared before the Treasury Committee this morning, he was critical of that decision and said that if you want monetary stability you have to have a set of rules and stick to them.

Of course you have to have a set of rules, but you also have to have the right set of rules. We want to see changes in the growth and stability pact as it is now—as it is amended. We made a series of propositions for something much more akin to the British system, which works well for us. Obviously, that has to be agreed among all the European countries, but the greater flexibility in the growth and stability pact that was agreed makes sense.

Did the discussions on the serious and worsening unemployment situation in Germany and France and artificial prosperity in Ireland persuade the Prime Minister that the single currency was not the best idea for Europe or for Britain? Will he condemn or at least deny the appalling story on the front page of The Sunday Telegraph last week that, in the unlikely event of the Government winning the election, he would be getting rid of the Chancellor of the Exchequer solely because of his lack of enthusiasm for the single currency?

On the euro, we have the best position, which is to have the five economic conditions that have to be met if it is right for Britain to join, but to keep the option open. The Conservative position is to close off the option. There is absolutely no sense in that whatever. Keep the option open. We can exercise it if we want it, but we do not have to exercise it if we do not want it. In the meantime, we can ensure that we keep the economic conditions intact. That position has served us well both in Britain and in Europe and we should maintain it.

Given the Prime Minister's belief in Africa and his special efforts in that respect, does he agree that the mass killings in Darfur have gone on for far too long? What discussions did he have at the European Council about sending forces rapidly to deal with the situation? Or is the problem that the French are preventing NATO from going into Africa, because they think it should be a European army? When will the west take action on Darfur?

The hon. Gentleman's obsession with Europe has led him into a rather odd deviation from reality. No, the issue is not whether NATO or Europe sends in forces. We cannot send forces into Darfur. That would not be supported by the surrounding African countries, and it would not be practical. The main thing is to support the African Union in doing that. That is the only way that we will bring some semblance of peace to Darfur, and it is not NATO that will be able to do so, any more than Europe.

Last week, the Chancellor told us that more than 50 per cent. of regulations come from the Commission, yet the Minister for Europe now tells us that that is a myth and the figure is just 9 per cent. Who is right?

There are regulations that come from Europe, and a large part of the regulations—

What percentage?

I am not going to get into percentages, but large amounts of regulation come from Europe. It is important, however, that we do not gold-plate those regulations. That is what my right hon. Friend the Chancellor was talking about when he made it clear that we should not gold-plate the regulations that come from Europe. But surely the most important thing is, again, that if regulations are coming from Europe, we should be part of that debate; we should not be opted out of it. That is why the position adopted by the Conservative party is so foolish.

When not discussing the crucial issue of economic reform, did the Prime Minister take the opportunity in the margins of the European Council to complain to President Chirac that Total Oil's $400 million investment in Burma is propping up the brutal military dictatorship there? Is it not now high time that the European Union resolved that its common position towards oppressive regimes should be driven by respect for human rights and democratic values, not by the pursuit of filthy lucre and narrow, short-term self-interest?

That is not something that I raised with President Chirac. We had other discussions, which we are continuing. However, the basic point that the hon. Gentleman makes is right.

Further to the comments of the Governor of the Bank of England this morning, and given that it is in no one's interest that the euro should be anything other than a hard currency, does the Prime Minister accept that the appearance of altering the stability pact for political rather than economic reasons undermines confidence in financial markets, and indeed much more widely? Can he give us any comfort following the meeting that the pact will not be further watered down when the more dominant nations in the EU feel constrained by it?

The most important thing in my view is to have a stability and growth pact that is actually based on a rational set of rules, and we have proposed changes—we have done so for a long period—to the pact that will allow us to take account, for example, of the need to borrow for investment over the cycle. We think that that is a more rational approach to deficits. We are also pushing for economic reform in Europe. I have to tell the hon. Gentleman that, yes, debates are going about these things the whole time, but the important thing is to be there and be part of them, and to ensure that we are not excluded from them and marginalised. I am sure that he would agree with that, which is why he should perhaps re-educate some of his Front-Bench colleagues.

Does the Prime Minister accept that, in going along with the torpedo that President Chirac has fired at the services directive, he, by caving in, has also fired a torpedo at his own constitution, title III of which clearly reinforces the whole notion of the freedom of services? Does he not accept that, in seeking to renegotiate the stability and growth pact when there is no stability, no growth and no pact, he is in fact engaged in renegotiation? What will he do if there is a no vote in the referendum on renegotiation?

I am trying to unbundle that one. Should I understand the hon. Gentleman to be saying that he thought the constitution gave a big push towards the services directive?

Absolutely.

Okay. I assume that the hon. Gentleman is in favour of the services directive. The European constitution gives a push for the services directive. Is that not a good argument for the constitution? Have we got a bit of a mind change going on here?

No.

Possibly not. The issue at the summit was whether the services directive should be withdrawn, and it was decided that it should not be. There will be a process of amendment through the legislative process in the European Parliament. That will happen in any event, and in a sense the debate was neither advanced nor closed off at the European Council—it was merely transferred, obviously, to the European Parliament. The crucial thing was to prevent any suggestion that the services directive in its entirety should be withdrawn, because that would be disastrous. There will be a battle over it. That is the situation. We must ensure that the services directive survives and goes through, and that is what we will do.