COUNCIL RESOLUTION of 14 September 1973 on further measures to be taken against inflation

THE COUNCIL OF THE EUROPEAN COMMUNITIES,

Having regard to the Council Resolution of 5 December 1972 (1) on measures to be taken against inflation;

Having regard to the Communication from the Commission to the Council on the economic policy to be pursued in 1973 and on the preparation of 1974 budgets;

Having regard to the draft resolution presented by the Commission;

Whereas prices are still rising with alarming speed despite the anti-inflationary measures taken in accordance with the Resolution of 5 December 1972;

Whereas inflation jeopardizes continued economic growth and full employment ; whereas it causes increasing distortion in the distribution of incomes and wealth ; whereas it thus seriously endangers the establishment of economic and monetary union;

Whereas the measures introduced to combat inflationary tendencies must therefore continue to be employed and strengthened by concerted action, with due regard for the specific situation of each of the Member States;

ADOPTS THIS RESOLUTION:

I

All the Member States shall pursue an economic policy aimed at slowing down the rise in prices. The Member States in which there is already high utilization of production capacity shall continue and extend their action to check the expansion of overall demand. The other Member States (Ireland, Italy and the United Kingdom) shall endeavour to ensure that the expansion of overall demand does not become excessive. In particular they shall ensure that their policy is sufficiently selective to channel the available resources to industrial investment.

II

The Member States shall continue and extend the measures introduced under Section IV of the Resolution of 5 December 1972, in order to bring about a substantial reduction, by the end of 1973, in the rate of expansion of the money supply (money and quasimoney).

The monetary authorities of the Member States shall, where appropriate, ensure that the expansion of credit is restricted by making use of the measures referred to which are set out in the Resolution of 5 December 1972. Consumer credit and credit for construction and for property transactions shall be subject to particular attention.

Interest rate policies should be compatible with the abovementoned monetary objectives. (1)OJ No C 133, 23.12.1972, p. 12.

The Member States shall ensure that a high level of savings is maintained or encouraged, especially by appropriate measures in the fields of interest rates or taxation.

The Member States shall continue their joint action to prevent undesirable inflows of capital from abroad and if necessary shall strengthen the provisions set up pursuant to the Council Directive of 21 March 1972 to regulate international capital flows and neutralize their undesirable effects on domestic liquidity (1).

The Committee of Governors of Central Banks shall carry out a quarterly review of trends in the money supply in the Member States so that the Central Banks may, if necessary, adopt appropriate provisions under certain Council Decisions, in particular the Council Decision of 22 March 1971 (2) on the strengthening of cooperation between the Central Banks of the Member States of the European Economic Community. By 30 January 1974 at the latest, the Committee of Governors of Central Banks and the Monetary Committee shall put before the Council and the Commission a report on the results achieved, under monetary policy, in implementing this Resolution.

III

The Member States shall, whenever appropriate, reinforce the measures to reduce regional imbalances and to improve the structure of employment referred to in Section III of the Resolution of 5 December 1972. Under a concerted policy at Community level, the Member States shall endeavour to direct a considerable proportion of new corporate investment, preferably towards those Community areas where the level of economic development is the lowest.

IV

In Ireland and Italy, the budget policy measures to stimulate the economic upswing will be implemented in a way which will not jeopardize the moves to moderate price increases.

The other Member States shall apply tight budget management in the second half of 1973. They shall cancel budget appropriations, if need be, and refrain from any projects which might require major additional expenditure, in an effort to ensure that the rate of growth of actual spending comes as close as possible to the guidelines for 1973 laid down in Section V of the Resolution of 5 December 1972.

The rate of growth of expenditure foreseen in all the Member States' draft budgets for 1974 should be moderated. As a general rule, it should be lower than the foreseeable rate of growth in 1973 as compared with that for the previous year.

In those countries in which over the past two years budgetary expenditure has grown less rapidly than the Gross National Product, in value terms, the growth of this expenditure should in any case be less than that at present foreseen for the Gross National Product, in value terms, for 1974. The net borrowing requirement of the central Government should be reduced in all the Member States by comparison with the outcome expected for 1973. If it proves impossible to contain the growth of expenditure to the extent required, a rise in taxation will have to be considered. This could be achieved in certain Member States by refraining, among other things, from mitigating the progressive nature of income taxes.

The Governments of the Member States shall ensure that during the second half of 1973 and in 1974 local authorities also manage their budgets in a way compatible with the requirements of short-term economic policy. They shall use the means at their disposal to limit the expenditure and reduce the borrowing of these authorities.

Any budget deficits in 1973 and 1974 will have to be financed by methods compatible with the monetary policy objectives set out above. Except in Member States faced with particularly marked under-employment, budget deficits will be financed by long-term borrowing. In addition, each of the Member States shall endeavour to consolidate the short-term debt and shall, where appropriate, issue long-term loans on the capital market, the proceeds of which will be frozen with the Central Bank.

Every three months the Budgetary Policy Committee shall examine the extent to which the implementation of the budgets is in accordance with the guidelines set out above and shall, not later than 30 January 1974, submit to the Council and the Commission, a report on the results achieved in public finance in pursuance of this Resolution.

V

The Community institutions shall ensure that full effect is given to the Community measures outlined in Sections VII, VIII and IX of the Resolution of 5 December 1972. (1)OJ No L 91, 18.4.1972, p. 13. (2)OJ No L 73, 22.3.1971, p. 14.

VI

Member States shall continue to apply strictly the national legislation referred to in Section VIII of the Resolution of 5 December 1972. They shall regularly exchange information within the Short-term Economic Policy Committee on the results of price policy and concert their views regarding the most appropriate methods for solving specific problems of common interest in good time. In this context, the Short-term Economic Policy Committee shall give priority to examining both the possibility of setting up in all Member States a system requiring enterprises exceeding a certain size to notify price increases in advance and the possibility of increasing State supervision of price trends in order to prevent abuses on important markets.

VII

The measures set out above are not alone sufficient to mederate the rise in prices. It is essential that they should be supported by the behaviour of those responsible for the economy and by that of the social partners, in the fields of prices and incomes. The Member States should encourage such behaviour by appropriate measures.

VIII

The Council will examine the outcome of this programme of action at its next meeting to review the economic situation in the Community, which is scheduled for October 1973.