12.5.77 OfficialJournaloftheEuropeanCommunities NoL119/21
II
(Actswhosepublicationisnotobligatory)
COUNCIL
COUNCILDECISION
of25April1977
concerningtheadjustmentoftheeconomicpolicyguidelinesfor1977
(77/340/EEC)
THECOUNCILOFTHEEUROPEAN COMMUNITIES ,
HavingregardtotheTreatyestablishingtheEuropeanEconomicCommunity ,
HavingregardtoCouncilDecision74/120/EECof18February1977ontheattainment
ofahighdegreeofconvergenceoftheeconomicpoliciesoftheMemberStatesofthe
EuropeanEconomicCommunity('),andinparticularArticles 1and2thereof,
HavingregardtotheproposalfromtheCommission ,
WhereastheCouncilagreeswiththeanalysisoftheeconomicsituationcontainedinthe
Commissioncommunication of4March1977,concerningtheadjustmentofthe
economicpolicyguidelinesfor1977,
HASADOPTED THISDECISION :
Article1
MemberStatesshallpursueeconomicpolicieswhichconformtotheguidelinessetoutin
theAnnexhereto.
Article2
ThisDecisionisaddressedtotheMemberStates.
DoneatLuxembourg ,25April1977.
FortheCouncil
ThePresident
J.SILKIN
(')OJNoL63,5.3.1974,p.16.

NoL119/22 OfficialJournaloftheEuropeanCommunities 2.5.77
ANNEX
ECONOMIC POLICYGUIDELINES FOR1977
—economicpolicymustbeasrestrictiveaspossible
inthecountrieswherethebalanceofpaymentsis
indeficitandtheinflationrateisstillhigh,soas
toreducethepressureofcostsandbreakthe
sequenceofcurrencydepreciationandprice
increases.Inparticular,theCommunitymustsee
thatItaly,IrelandandtheUnitedKingdombring
theirannualinflationratesdowntounder15%in
thesecondhalfof1977.1.Generalguidelines
1.1.Theobjectivesadoptedfor1977inthelast
AnnualReportontheeconomicsituationinthe
Community(')were,forthefirsttime,inkeeping
withajointly-agreed medium-term strategy,asesta­
blishedatthesecondTripartiteConference (2)and
giveninthefourthmedium-term economicpolicy
programme (3).FortheCommunityasawhole,they
embodiedaneconomicgrowthrateof4%,aninfla­
tionratelimitedto7to8%,improvement ofthe
labourmarketandareductioninexternaldisequili­
bria.1.4.TheCommunity sdevelopmentandcohesion
areendangeredbythepersistenceofinflationary
strainscreatedbyanexcessiveanddisorderedsurgeof
internalcosts;thisdangerstillpointstotheneed,in
severalMemberStates,forasocialconsensuson
actionaimedatmoderatingtheriseinprivate
incomesandatincreasingproductivitygains.
ItisincumbentontheMemberStatestopromotethis
consensusbyappropriatemeasures,particularlyas
regardspricetrends,taxation,workingconditions,the
accumulation ofassetsandworkers'participationin,
thedecision-making process.Theproblemofthe
convergenceofthepriceandincomestrendswithin
theCommunity ,andthatofallocating,atnational
level,thefruitsofexpansionsatisfactorilybetween
collectiveneedsandprivateincomes,mustbethe
subjectofregularinformationandconsultation .1.2.Thetrendsobservedinrecentmonths,andthe
conclusions drawnfromafreshexamination ofthe
outlookfor1977suggestthat,assumingthereisno
changeineconomicpolicy,theseobjectivescanbe
attainedonlywithdifficulty.TheCommunitymust
consequently makeafurthereffort.Itwillhaveto
bringaboutasrapidareturntointernalandexternal
equilibriumasispossiblein1977,soastoimprove
thebasicconditionsforlastinggrowthandareduc­
tioninunemployment intheyearstocomeandto
makeupforthetimelostinreachingthemedium­
termgoals.
1.3.Takingintoaccounttheinsufficientprogress
madeinreducingdisequilibria—bothinternaland
external—andthepresentdisparitiesbetween
MemberStates,alarge-scaleandsimultaneous boost
totheeconomythroughouttheCommunity isoutof
thequestion.Thefundamental guidelinesfor
economicpolicysetoutintheAnnualReportmust
remaindifferentiated accordingtothecircumstances
oftheMemberStates.However,sinceithasnot
hithertobeenpossibletoimplementwiththeneces­
saryvigourthemeasuresadvocatedinthisconnection
bytheCouncil,additionaleffortsareessential:
—therevivalofdemandandproductionmustbe
firmlysustainedintheMemberStateswithafavou­
rablebalanceofpaymentsandarelativelylowrate
ofinflation.Giventheuncertaintyastothe
economicoutlook,bothinternationally andinter­
nally,theCommunitymustinparticularseetoit
thattheFederalRepublicofGermanyandthe
Netherlandsachieveaneconomicgrowthrateof
5%and4%respectivelyin1977.1.5.Unemployment cannotbereducedmore
rapidlynorstructuraldisparitieswithintheCommu­
nityreducedunlessanactiveinvestmentandemploy­
mentpolicyisimplemented onacoordinatedbasis.
SuchcoordinationatCommunitylevelwouldhelpto
avoidinconsistencies innationalpoliciesforsectoral
adjustmentswhichwouldreducetheireffectiveness .
Butitwouldalsoleadtoamorerationaluseof
Communityinstrumentsforstructuralchange(the
SocialFund,theRegionalFund,ECSCandEuropean
InvestmentBankloans)intheinterestsofthe
Community assuch.
InalltheMemberStates,economicpolicymustbe
designedtoensurethatthewillingnesstoinvestis
sustainedinthemediumtermandtoimprovethe
generalconditionsforthegrowthoffixedinvest­
ments.Thescaleofinvestmentsin1977will,however,
remainsubjecttoconstraintswhichvaryfromone
countrytoanotherandaredeterminedbythepersist­
enceofunemployment andsubstantialbudgetdefi(1)OJNoL358,29.12.1976,p.2.
(-')OJNoC173,28.7.1976,p.1.
(3)OJNoL101,25.4.1977,p.1.

12.5.77 OfficialJournaloftheEuropeanCommunities NoL119/23
cits,andbythefearofrenewedboutsofinflation.The
needtoimprovetheeconomicstructureisalsoan
importantconsideration intheformulationofinvest­
mentpolicy.Inordertoreconcileconflictingrequire­
ments,itseemsadvisabletoexpeditethesolutionof
priorityproblemssuchastheenergyproblemandthe
fightagainstpollution.TheMemberStatesfacing
balanceofpaymentsdifficultiesmuststepuptheir
effortstoreducetheir,dependenceonimported
energyandtospeedupthereallocationofresources
totheexportsector.Thisactionisinthecommon
interestandisessentialifthestructuraldeficitvis-
à-vistheOPECcountriesistobereducedintheyears
tocome.Theissueofincreasingtheopportunities for
financialassistancebytheCommunitybyraising
loansoninternationalcapitalmarketstofinancethe
necessaryinvestmentprogrammesshouldbediscussed
againandresolvedintermsofamedium-term
Communitystructuralprogramme .1.7.Thediversityofconstraints ,particularly
externalconstraints ,towhichtheMemberStatesare
subjectmeansthatmonetarypoliciesmustbeframed
inaccordancewiththesedifferingcircumstances .
Nevertheless ,theMemberStatesmustjointlyestablish
acoherentframeworkforthegrowthoftheirprincipal
monetaryaggregates .Inaccordancewiththetask
alreadyassignedbytheCouncil,workaimedatsetting
intermediateobjectivesisproceedinganditisneces­
sarythatitcomeupwitheffectivesolutions(').Inthe
meantime,severalMemberStates(FederalRepublicof
Germany,France,UnitedKingdomandItaly)have
alreadyintroducedmonetarytargetswhichcomply
withtheguidelinessetout,inamedium-term frame­
workinthelastAnnualReportontheeconomicsitua­
tionintheCommunity :providedthatthesetargets
areobserved,thisfactorwillresultinprogresstowards
aligningmonetarypolicieswithintheCommunity .
Atthesametimecontroloftheexpansionofliquidity
providesageneralframeworkforthemovementof
interestrates.Withinthisframework ,interestrate
policyshouldbeusedtofurtherthestabilityofthe
foreignexchangemarkets.Itisparticularlyimportant
fordifferences ininterestrateswithintheCommu­
nity,asbetweentheMemberStatesandthemajor
non-membercountries,toremaincompatiblewiththe
individualsituationofeachcurrency.Intheemployment field,obstaclesofeverykind
(administrative ,fiscalandwithregardtosocialsecu­
rity)liabletodiscouragefirmsplanningtotakeon
workersmustbeidentifiedandovercome,anddeci­
sionsonofficialinvestmentincentivesandonthe
authorization ofpriceincreasesmustreflectmore
closelytheneedtocreatenewjobs.However,inorder
nottodelaytheeliminationofoutmodedeconomic
structures,aiddesignedpurelytokeepalivefirmsthat
cannotpaytheirwaymustbeavoided.Specific
measurestocombattheproblemofunemployment
amongyoungpeoplemustbestrengthened ,inparti­
cularbyspeedingupthecreation,onatemporary
basis,ofadditionaltrainingposts.1.8.Inthemediumterm,theCommunityhasto
bringaboutabetterdistributionofbalanceof
paymentsurplusesanddeficitsandprogressively
reducetheoveralldeficitwithrespecttotheoil
exportingcountries.Afutureefforttoexpandexports
dependsasmuchoncommercialpolicyvis-a-vis
industrializedthirdcountries(particularlyJapanand
theUnitedStates)asonthedevelopment ofnew
marketsinthedevelopingcountrieswhichproduce
rawmaterials.TheCommunitymustcontinueto
opposeenergeticallyprotectionisttendenciesbothat
theinternational levelandwithintheMemberStates.
1.6.InalltheMemberStates,budgetarypolicy
shouldbedesignedtoreducethepublicsector
borrowingrequirement asaproportionofgross
domesticproduct.However,thecountrieswithafavou­
rablebalanceofpaymentsshouldnotfollowthis
trendwiththesamestrictnessasthosewhichmust
givehighprioritytocombatingtheinflationwhichis
jeopardizingtheirexternalequilibrium .Theformer
shouldreconciletheirefforttoreducepublic
spendingwiththeurgentneedtoremedytheinade­
quacyofprivateandpublicinvestment .Thelatter,on
theotherhand,shouldstandfirmintheirdetermina­
tiontorestraintheirexpenditureasmuchaspossible
andalso—insomecases—tobringtheirtax
revenuemorecloselyintolinewiththescaleoftheir
budgetcommitments .1.9.Theurgentproblemsregardingemployment
policy,professionaltrainingandinvestment ,structural
changeasregardsregionsandindustrialsectors,
strongermeasurestoeconomizeonenergyand
developnewsourcesandexportpromotioninthe
deficitcountriesmustallbetackledwithintheframe­
workoftheCommunity'sFourthMedium-Term
Programme .However,inmostcountries,thediffi
(1)Seethegeneralconsiderations onthissubjectoutlinedin
theAnnualReportontheeconomicsituationinthe
Communityandtheeconomicpolicyguidelinesfor1977,
point4.6(OJNoL358,29.12.1976,p.10).

NoL119/24 OfficialJournaloftheEuropeanCommunities 12.5.77
cultiesonboththeconjuncturalandstructuralside
requireimmediatedecisions.Ifthesearedelayed,the
problemsofrestoringtheconjuncturalsituationand
ofstructuralchangewillbecomeevenmoredifficult.AnnualReportandshouldbeaimedatcontaining
internalmonetarycreationwithinthoselimitscompat­
iblewiththenecessityoffinancingthedeficitonthe
currentbalanceofpayments.Interestratepolicy
shouldbedirectedtowardsthesameobjective.
2.5.IntheFederalRepublicofGermany,the
factorsbehindeconomicexpansionhaveagainmade
themselvesfelt,afterafairlylonglull:thefinal
monthsof1976sawmorerapidgrowthofoutput;
exportsandinvestmentincapitalequipmentbeing
themainbeneficiaries .
2.6.Theprospectsforacontinuation ofthe
recoveryarenowbetter.Itis,however,hardtosay
howfarGermanexportswillbeinhibitedbytheweak­
nessofimportdemandintheCommunity'smajor
tradingpartners.Itisalsobynomeanscertainthat
theimprovement inthepropensitytoinvestinthe
privatesectorwillbealastingone.
2.7.In1977,thegrowthrateofgrossdomestic
productshouldreach5%inrealterms,thisgoal
beingthesameasthatfixedintheFederalGovern­
ment'sannualeconomicreport.Thetendencyfor
pricestoriseshouldthereforecontinuetoweakenand
itisforeseeablethatthetendencytowardsareduction
inthecurrentbalanceofpaymentssurpluswill
continuein1977.Moreover,achievementofthisgoal
isnecessary,bothtosupporttherecoveryintherest
oftheCommunityandtocutdownunemployment .
Nonetheless ,evenifthisresultwereachieved,the
numberofunemployedwouldstillbe850000to
900000,or3.3%to3.5%oftheworkingpopula­
tion.2.Guidelines (ortheindividualcountries
2.1.InDenmark,themorerestrictiveslantwhich
hasbeengiventoeconomicpolicysincethesummer
of1976hasbeenreflected,aswasforeseen,ina
slowingdownofprivateconsumption inrecent
months.Thelevelofimportshas,nevertheless ,
remainedbuoyantandexportshaveonlyprogressed
slowly.Thus,thetradedeficithasremainedveryhigh
reachingaboutDkr5600million($950million)in
thefinalquarter.Giveninparticulartheoutlookfora
moderatedevelopmentinexternaldemand,growthin
1977islikelytobeslow(+2%inrealterms)and
insufficienttopreventsomeworseningintheunem­
ploymentposition.
2.2.Inthesecircumstances ,thegeneralguidelines
outlinedintheAnnualReportremainvalidanda
cautiouseconomicpolicyisstillrequired.Therestric­
tivenatureofbudgetarypolicyinparticularshouldbe
maintained .Duetotheimportanceoftheexternal
constraint,budgetarymeasurestostimulateconsump­
tion,whichwouldresultingrowthofimportsand
compromisethechancesofanimprovement inthe
balanceofpayments,shouldbeavoided.Ontheother
hand,measurestosupportinvestmentincertain
sectorsmayprovenecessaryduringtheyear.Thenet
borrowingrequirementforthe1977budgetshould
notexceedtherelativelevelattainedinthepreceding
year;inalleventsitshouldremainbelowthenormof
Dkr11500million(4.5%ofGDP)setoutinthe
AnnualReportontheeconomicsituationinthe
Community .Ifdeficienciesintaxreceiptsresultfrom
developments intheshort-termeconomicsituation
theyshouldbecompensated forbyareductionin
certaindiscretionaryexpenditure ,totheextentthat
furtherprogresstowardsanimprovement inthe
balanceofpaymentsispossibleatthesametime.
2.3.Asfarasincomesareconcerned,therestrictive
guidelinefixedlastyearshouldbemaintained .Inthis
respect,ifisappropriatetokeeptothenormsadopted
bytheEuropeanParliamentinAugust1976forthe
renewalofthepayagreementinMarch.Thiscondi­
tionappearsessentialinordertoachievethemoderate
developmentir.costsneededtoimprovethecompeti­
tivepositiono*Danishproductsandbringabouta
transferofresourcestotheexportsector.
2.4.Asformonetarypolicy,thisshouldremainin
conformitywiththeguidelinesfixedinthelast2.8.Withaviewtoattainingthegrowthobjective
fixed,economicpolicyshouldnowbemoreexpan­
sionarythansuggestedintheAnnualReportonthe
economicsituationintheCommunity .Theprime
objectiveofcurrenteconomicpolicyshouldbeto
improvethebasicconditionsfortheachievementof
vigorousmedium-term growth,accompanied by
furtherprogresstowardsstabilization .Ifgrowthisto
belastingandinflationfree,additionalshort-term
measurestostimulateprivateconsumption donot
appeartobeappropriate :aboutDM25000million
—orDM15000millionmorethanin1976—
chargedagainstsavingsbuiltupunderasset-formation
legislation(premiumsaving,'DM624Law')willbe
releasedinthecourseoftheyear,andpartofthiswill
boostprivateconsumption expenditure .Inthese
circumstances ,itwouldbepreferabletobase
economicpolicymoreonmedium-term supportof
privateandpublicinvestment .

12.5.77 OfficialJournaloftheEuropeanCommunities NoL119/25
increaseinunemployment couldbeoffsetbyvolun­
tarywithdrawalsfromthelabourmarket.2.9.Accountmustbetaken,inanyactionneeded
toscaledownthebudgetdeficit(whichwasrunning
in1976atDM47300million,or4.2%ofthegross
domesticproduct,forthepublicsectortakenasa
whole)ofneedsdictatedbygeneraleconomictrends.
Policywithregardtotheexpenditureofthepublic
authoritiesshouldbedesignedtobringtoahaltthe
declineinpublicinvestment .Thismeansthatthe
budgetsshouldbeexecutedinfull.2.15.Theprincipleofgradualreturntobudgetary
equilibriummustcontinuetogoverntheactionsof
thepublicauthorities .Ifthelevelofeconomicactivity
provesclearlyinsufficient,specificmeasuresaimedat
promotingjobcreationcouldbetakeninthepoten­
tiallymostdynamicsectorsorwheretheneedsare
mosturgent.Ifthereisabudgetdeficit,itmustasa
matterofprioritybefinancedthroughborrowing.The
extentandbasisofeachselectivesupportmeasure
must,however,bemadedependentonclearprogress
inreducinginflation.2.10.Thepublicinvestmentprogrammeplanned
bytheFederalGovernmentforthecomingyearsin
ordertosustaineconomicgrowth,shouldincludefor
1977avolumeofinvestmentsufficienttoboost
activitysubstantially ,particularlyinbuildingand
construction .Theplacingofmajorordersshouldbe
accelerated,soastospurontheeconomywithout
encroachingontheimplementation ofotherinvest­
mentprojectssponsoredbytheLänderandthemuni­
cipalities.Thereisacaseforcertaintaxreliefstogive
durableincentivestoprivateinvestment .2.16.Thepresentstanceinmonetarypolicywill
providesolidbackingforthemeasuresbeingpursued
tostabilizetheeconomy.Theofficialtargetsforthe
growthoftotallendingandthemoneysupplyhave
certainlyhelpedtoreduceinflationaryexpectations .
Asfarasinterestratesareconcerned,theeasingofthe
situationonthemoneymarketsincethebeginningof
theyearcouldcontinue,thusbringingaboutareduc­
tionincostsinthenon-financial sector.Thiseasing
ofinterestratesmustnot,however,jeopardizethevital
objectiveofmaintainingthestabilityofthefranc,an
objectivewhichiscloselylinkedtothefightagainst
inflation.Overallthegeneralstanceofmonetary
policyoutlinedintheAnnualReportneedstobe
maintained .2.11.Theframeworkformonetarypolicyhasbeen
setbytheBundesbank's8%targetfortheannual
averageexpansionincentralbankmoney.Inthese
circumstances ,theliquidityavailableshouldsufficeto
ensurefinancingoftheforeseeablegrowthinreal
terms,withouthamperingeffortstoslowdownthe
riseinprices.Thispolicyshould,however,beimple­
mentedflexibly,ashasinfactbeenthecasesofar,
andshouldbeproperlyrelatedtocurrenteconomic
trends.
2.12.Actionundertakentoimprovethegeneral
conditionsofeconomicgrowthandofemployment
shouldbesupplemented byselectivemeasureswith
regardtoemployment .Inparticular,schemesnow
beingimplemented todevelopthemobilityoflabour,
toimproveoccupationaltrainingandfurthertraining,
andtohelpthegroupsofthepopulationplacedmost
atadisadvantageintheeconomyshouldbestreng­
thened.2.17.Duringthepresentprocessofgradually
reducinginflation,thecontinuitynecessaryinthe
short-termeconomicmeasuresalreadyintroducedwill
havetobereinforcedbypushingaheadwithimple­
mentationofthestructuralreformsannouncedearlier.
Theaimofthesereformsistodeveloppotential
growthindustries,tolimittheFrencheconomy's
dependenceonenergyimports,toabolisheconomic
rentsituationswhichrestrictcompetitionandproduc­
tivitygains,andtoensuregreatercooperationfrom
bothsidesofindustry.
2.13.InFrance,theeconomyisatpresentgoing
throughaperiodofadjustment .Themeasuresintro­
ducedlastautumnarebeginningtoshowpositive
results,withagradualeasingincost,salaryandprice
risesandinthebalanceoftradedeficit.However,the
long-termsuccessofthestabilizationprogramme
dependsonboththereadinessofthetwosidesof
industrytorespectthewageandpriceguidelinesand
strongandsustainedforeigndemand(includingmore
stableconditionsontheinternationalscene).
2.14.Thegrowthrateoftheeconomyin1977will
probablybemoderate.However,tosomeextent,the2.18.InIreland,theoutlookfor1977appears
morefavourablethanthatforeseeninthelatest
AnnualReportontheeconomicsituationinthe
Community .Despiteadownwardrevisioninforecasts
forworldtrade,Irishexportscouldbenefitfromsome
gainsinmarketshare,duetomoresatisfactorydeve­
lopmentsincosts.Inaddition,thegrowthinprivate
consumptionandinvestmentwillverylikelybemore
buoyantthanexpected.Whiletherewillbean
improvement intheemploymentsituation,theunem­
ploymentratewill,nonethelessremainhigh.Onthe
otherhand,theinflationratecouldslowdowninthe
secondhalfoftheyear.

NoL119/26 OfficialJournaloftheEuropeanCommunities 12.5.77
—toholddownhouseholdspurchasingpowerby
aboutLit5000000million(3.5%ofGDPin
1976)throughincreasesintaxation,publicservice
chargesandcontrolledprices;
—toscaledownsharplytheheavyTreasurydeficit
(toLit9800000million);
—tomoderatetherapidgrowthinwagecosts;
—toslowdowntheinflationrate,thengathering
momentumagain,tolimittheincreaseto16%
overthe1976figure;and
—toachieveasmallsurplusinthebalanceof
paymentsoncurrentaccountin1977.2.19.Thebudgetpresentedon26Januaryfitswell
intotheframeworkoftheguidelinessetoutinthe
AnnualReport.Thenetborrowingrequirementrepre­
sents11%ofgrossdomesticproduct,asagainst
11.5%in1976.Themeasurestakenimprove,asa
resultofstructuralmodifications ,thechancesofbetter
balancedgrowthandthuscreatetheeconomiccondi­
tionsappropriatetofurtherreductionsinthedeficitin
comingyears.Thebudgetincludesasupplementary
effortintheareaofemploymentgeneratinginvest­
ment,amarkedslowingdownintheincreaseof
currentexpenditurecommitments ,fiscalreliefsfor
incentivepurposes,highersocialtransfers,thecontinu­
ationoffoodsubsidies,aswellasatransfertothe
Stateofproportionoflocalauthorityrates.Inviewof
thefactthattheborrowingrequirement ,despitethe
sharpfallrecordedin1976,stillrepresentsasubstan­
tialproportionofgrossdomesticproduct,itwillbe
necessarytoensurethatthelevelofreceiptsexpected
isactuallyattained. 2.24.Thesurprisingly vigorousexpansionin
productionattheendoftheyearpointstoapositive,
thoughsmaller,GDPgrowthratefor1977(around
2%).Thisalsomeans,however,thattheobjectivesset
withregardtobalanceofpaymentsandpricespolicy
aremorelikelytoproveoutofreach.Therestrictive
courseofeconomicpolicywhichcorrespondsbroadly
totheguidelinesinthelatestAnnualReportmust
thereforebemaintained andevenintensified .Itis
necessaryaboveallthattheGovernmentandthe
unionsandemployersshouldstrivetonarrowsubstan­
tiallythegap—nowwideningatanominouspace—
betweenItaliancostandpricetrendsandthoseinthe
partnercountries.2.20.Ontheincomesfront,therecentlyconcluded
nationalpayagreementwillimproveIreland'scompet­
itivepositionandensureabetteroutlookforemploy­
mentdevelopments .Itisnecessarythatthisprogress
iscapitalizedontowardsthemiddleoftheyearand
thatasmoothtransitiontoamoremoderateagree­
mentfor1978isassured.Inthisrespectitwouldbe
usefulifthepaynegotiationswerelinkedtooverall
economicstrategy,ashasbeenthecaseuntilnow.It
willbeappropriatealsotolimitasfaraspossibleany
increasesabovethenormssothatthemorelong-term
favourableimpactofthemoderationincostson
employmentandpricesisnotjeopardized .2.25.Inviewoftherapidgrowthinthetaxreceipts
inrecentmonths,acutbackintherateofincreaseof
publicexpenditureshouldbeoneofthemethods
usedtoachievethenecessaryreductionintheTrea­
sury'sandpublicauthorities'deficit,whichisoneof
themainsourcesofinflation .Measurestoreducethe
structuraldeficitsofthehealthinsuranceauthorities ,
ofthehospitalsandofthemunicipalities mustbe
implemented morerapidly.2.21.Asfarasmonetarypolicyisconcerned,the
limitadoptedintheannualreportforthegrowthrate
ofthemoneysupplyremainsvalid.
2.22.InItaly,thegrowthofoverallactivityin1976
provedfarmorevigorousthanwasoriginallytobe
expectedandthanwasconsistentwitheffortstoelimi­
natethemaindisequilibria .Thegrossdomestic
productinfactincreasedbymorethan5.5%inreal
terms.Theconsequences includedamorerapid
increaseinwholesaleandconsumerprices(23%and
16.5%respectively )asubstantialdeclineinthevalue
ofthelira(trade-weighted :—16%ascomparedwith
1975)andacurrentaccountdeficitofaboutLit
2500000million(almost2%ofGDPinvalue).2.26.Evenif,aswasthecaseuntiltheendof
March1977,banklendingremainslargelysubjectto
ceilings,carefulattentionwillhavetobepaidtothe
levelofliquidityofthebankingsectorandtheextraor­
dinaryhighlevelofthebanks'short-termexternal
indebtedness .Theincreaseintotallending,asdefined
byArticle6(1)ofCouncilDirective74/637/EECof
17December1974grantingmedium-term financial
assistancetotheItalianRepublic('),shouldbesmaller
in1977thanin1976.Themaintenance ofbank
lendingceilingsbeyondtheendofMarchcouldfacili­
tatetheachievement ofthisobjective.Itisalsoa
matterofurgency,giventheeconomicpolicycommit 2.23.SinceSeptember ,theGovernmenthasintro­
duced,invariousstages,astabilizationprogramme
havingthefollowingobjectives : (')OJNoL341,20.12.1974,p.51.

12.5.77 OfficialJournaloftheEuropeanCommunities NoL119/27
mentstowhichItalysubscribedforthepurposesof
theCommunityloanlastMarch,tocutdownsubstan­
tiallythemonetaryfinancingoftheTreasurydeficit,
thismethodhavingbeenusedfartoomuchin1976.
Realinterestratesshouldbemaintainedatahigher
levelthancorresponding levelsinothercountries.
2.27.Therecentagreementsbetweenunionsand
employersonwagecostsandimprovedproductivity
conditionspointtoabettersocialclimateinindustry,
butarenotsufficientalonetobringtheriseinunit
wagecoststoaratewhichiscomparablewiththosein
principalpartnercountries.Theinternationalcompeti­
tivenessoftheItalianeconomycanbeassured,inthe
mediumterm,onlyif,dueinparticulartothe
combinedeffortsofunionsandemployers,theinfla­
tionrateattheendof1977islowerthanthatforthe
precedingyear.
2.28.Supportingstructuralmeasures—particularly
intheareasofenergy,industryandagriculturalpolicy,
andwithregardtodistribution—shouldhelptoesta­
blishthebasicsituationneededtoenablethe
economytobebroughtbackeventuallytoaphaseof
morerapidbutbalancedgrowth.
2.29.IntheNetherlands ,effortstoslowdownthe
upwardpricemovementseemtohaveachievedinitial
success.Therelativeappreciationoftheguilderhas
beenafactorhere,becauseofitsimpactonimport
prices,buttheupwardmovementofwagecostshas
alsolostmomentum ,andthisshouldbereflectedin
1977inafurtherslowingdowninpriceinflation.On
theotherhand,onthelabourmarket,wheresome
improvement hadbeenrecordedinrecentmonths,
mainlyasaresultofadeclineinunemployment ,
thereislittlereasontoexpectanysubstantialstreng­
theningofthedemandformanpowerin1977;the
foreseeablegrowthrateforgrossdomesticproduct
shouldbeabout4%.In1977,unemployment on
averagecoulddeclinesomewhatfromthefigureof
225000(4.7%oftheactivepopulation)recordedin
1976.Inviewoftheprospectsofrelativelyslow
growthinworldtradeandthedeterioration inthe
competitivepositionofDutchindustry,theexpansion
ofexportswillbemuchlessvigorousthanin1976.
Theexternalsurplusoncurrentaccountwilldiminish
slightly.
2.30.Althoughitwillfallalittleshortofthe1976
figure,thesupportforaggregatedemandprovidedby
budgetarypolicywillremainsubstantial .Inaddition,
measurestakeninthecontextofthecentral-govern­
mentbudgetfor1977toslowdowntheincreasein
costs(includingsocialsecuritycontributions )andto
encourageproductiveinvestmentshouldimprovethe
profitabilityoffirmsandreducetheirfinancingdiffi­
culties.Thecontribution toeconomicactivity
generatedbytheseselectivemeasurescouldwellprove
strongerthanthatprovidedbygeneralmeasurescostingasmuch.Budgetarypolicyshouldtherefore
strictlyobservethelimitssetinthebudgetas
adopted;anyexcessexpenditureshouldbeoffsetby
retrenchment onotheritems,soastoavoidjeopar­
dizingthegoal,agreedbytheCommunityauthorities,
tolimitthenetborrowingrequirementtonotmore
thanF112000million.Suchapolicywouldbe
compatiblewitharelativecontraction ,inthemedium
term,ofgeneralgovernmentfinancingrequirements .
2.31.Sincethecurrentaccountsurplusmustonce
againbeoffsetbycapitaloutflowssufficienttoavoid
anappreciationoftheguilderwithinthe'snake',
interestratesshouldbemaintainedbelowthosebeing
chargedelsewhere.
2.32.InBelgium,whereeconomictrendsarestill
hesitant,thegrossdomesticproductisexpectedto
growbybetween3to3.5%inrealtermsin1977,a
rateslightlylowerthanthe1976outturn.Theupward
movementinconsumerprices,whichhasgathered
momentuminrecentmonths,isexpectedtobea
gooddealstrongerthanintheFederalRepublicof
Germany.Unemployment couldwellcontinueto
growforseveralmonths.Becauseoftheweaknessof
domesticdemand,andinparticularbecauseindustrial
investmentissluggish,theexpansionofimportsin
termsofvolumecouldremainrelativelysmall.The
currentbalanceofpaymentsmay,asaconsequence ,
showagainasmallsurplus.
2.33.Thechangewhichhastakenplaceinthe
economicoutlookfor1977,inthesenseofaslower
growthofoutputandincomes,meansthatforecasts
withregardtobudgetrevenuemustbereviewed
downwards .Inordertocomplymorecloselywiththe
guidelineconcerningthebudgetdeficitfixedinthe
AnnualReportontheeconomicsituationinthe
Community ,whilestillgivingsomesupportto
economicactivity,theGovernmentannouncedin
February1977anumberofmeasures :theseincluded
anincreaseintheVATrateforcertaingoodsand
services,taxandfinancingincentivesinrespectof
investment,fasterimplementation ofthepublicinvest­
mentprogrammefor1977,extensionoftherequire­
mentthatfirmsemployyoungtrainees,earlyretire­
mentfortheelderlyunemployedandincreased
employmentbythepublicauthoritiesofunemployed
workers.Thissetofmeasuresshouldenablethe
BelgianGovernment tokeepthebudgetdeficit
roughlyattheleveloriginallyplanned,whilstavoiding
anyundueslowingdownineconomicgrowth.Onthe
otherhand,failingachangeinpresentarrangements
forindexingincomes,theincreaseinindirecttaxation
threatenstoaggravatethedangerofcumulativeprice
andwageincreases.Toremedythissituation,the
Government hasmadeacarefulchoiceofthe
productsandservicesforwhichtheratesofVATwill
beincreased.Notwithstanding this,itisdesirableto

NoL119/28 OfficialJournaloftheEuropeanCommunities 12.5.77
maintainabudgetarypolicyorientationwhichwill
makeitpossibleinthemediumtermtoreduce,in
relativeterms,thenetborrowingrequirementofthe
publicsector,byenergeticactionwithregardto
currentexpenditureandespeciallytheincreasein
transferpayments.Thisistheonlywayinwhicha
furtherincreaseinthetaxburdencanbeavoided.
2.34.Inpresenteconomicconditions,andinview
ofthepersistentweaknessofindustrialinvestment,
generalgovernmentborrowingshouldhardlyexceed
financingpossibilities .Nonetheless ,acautiousmone­
taryandfinancialpolicyshouldbepursued,inorder
toencouragetheestablishment ofexchangemarket
equilibriumandlowerinterestrates,whilstavoiding
stimulationofafurtherboutofinflationthroughthe
excessivecreationofliquidity.2.38.TheaimsoftheGovernments economic
strategyremainthereductionoftherateofinflation,
thestrengthening ofthebalanceofpaymentsandthe
establishment ofconditionsforsustainablegrowthof
outputandemployment .Inpursuitoftheseobjec­
tives,theGovernmentlaiddownapolicyforreducing
futurelevelsofpublicsectorexpenditureand
borrowing,andformaintainingafirmgriponmone­
taryexpansion .
2.39.Thispolicywasstrengthened whenthe
Government announced :
—on15December1976,targetsforthepublicsector
borrowingrequirementandfordomesticcredit
expansion ;thesetargetsareinlinewiththeguide­
linesforeconomicpolicycontainedintheAnnual
ReportontheeconomicsituationintheCommu­
nityandadoptedbytheCouncil;
—thedecisionoftheInternationalMonetaryFund
tomakeavailable,totheUnitedKingdom,a
stand-bycreditof£3.9billion;
—anarrangementwithcertaincentralbanksandthe
BankofInternationalSettlementsfora$3billion
creditfacilitydesignedtoprotecttheUnitedKing­
dom'sofficialreserves.2.35.InLuxembourg ,theslowdownineconomic
activitynotedintheAnnualReportontheeconomic
situationintheCommunitypersistedthroughoutthe
secondhalfof1976.Themainreasonwasafallin
newordersinthesteelindustry,sinceonlysome
otherindustries,suchaschemicals,hadsucceededin
emergingfromthecyclicaltrough.Theperformance
oftheeconomyfor1976fellshortofwhathadbeen
expected,andthisalsoentailedareviewofprevious
forecastsfor1977.Thus,whiletheupwardmovement
inconsumerpricesshouldprobablyslowdown
further,thegrowthofthegrossdomesticproductis
nowlikelytoexceed3%.
2.36.Incomparisonwiththedraftbudgetfor1977,
preparedwheneconomicconditionswereexpectedto
bemorevigorous,thepresentoutlookpointstoa
slowergrowthinrevenue.Itwould,nevertheless ,be
preferabletomaintainthelevelofbudgetexpenditure
asplannedaswellasselectivemeasuresimplemented
previouslytoboosteconomicactivityandemploy­
ment,especiallyasitlooksverymuchasifemploy­
mentproblemsinthesteelindustrywillbecomemore
andmorestructuralincharacter .2.40.Inearly1977,followingthemeasures,the
sterlingexchangeratestrengthened ,therewasa
substantialmovementoffundsintothereserves,and
interestratesfell,suggestingareturnofconfidencein
theBritisheconomy.
2.41.Becauseofthefallinthesterlingexchange
ratein1976,thepresentoutlookisfornosignificant
changeintheunderlyingrateofinflation(atpresent
about15%)untilthemiddleoftheyearwhena
markedslowingdownshouldoccur,resultingfrom
thecombinedeffectofthepresentvoluntaryincomes
policyandtightGovernmentcontrolofthemoney
supply.Tomakefurtherprogresstowardsreducing
therateofinflation,theGovernmentshouldnotonly
maintainitspresentpostureonpublicexpenditure ,
publicsectorborrowingandtheexpansionof
domesticcreditbutshouldreinforceitwithasatisfac­
toryarrangement forthenextroundofincomes
policy,tobegininAugust1977.Thelevelofpay
increasespermittedinanewroundofthepolicy
shouldaimtoavoidarapidincreaseinaverageearn­
ingsalthoughitsformshouldhelptoalleviatethe
anomaliesinthestructureofrelativewagesthathave
occurredinthepasttwoyears.Aspartofthegeneral
frameworkforsuchapolicytheGovernmentmay
needtoreducedirectpersonaltaxationandshould
considerthepossibilityofallowingtheexchangerate
tostrengthenasawayofreducingdomesticinfla­
tionarypressuresandinflationaryexpectations .2.37.IntheUnitedKingdom ,afterstronggrowth
inthefirstquarterof1976,outputstagnatedforthe
remainderoftheyearandunemployment continued
torise.Thedeterioration inthebalanceofvisible
tradewasoffsetbyincreasedearningsfrominvisibles,
enablingamodestreductioninthedeficitofthe
currentaccountofthebalanceofpaymentstobe
recorded.Despitethesuccessofthevoluntary
incomespolicy,therateofinflationhashardly
declined,thedepreciation ofthepoundsterling
addingsubstantially torisingimportprices.Public
expenditurecameunderfirmcontrol,intermsofboth
cashandvolume,during1976.

12.5.77 OfficialJournaloftheEuropeanCommunities NoL119/29
—toensureaprogressivereductionintherateof
inflation;
—tore-establish ,onalong-termbasis,ahighlevel
ofemployment .2.42.Thepresentoutlookforgrowthin1977isfor
amodestrateofexpansionofperhaps1.5%.Factors
contributingtothegrowthinoutputarearecoveryin
stockbuilding ,animprovement inthenon-oiltrade
balanceand,inparticular,NorthSeaoilproduction .
Thecontribution ofNorthSeaoiltothebalanceof
paymentsin1977willbeconsiderableandthis,
togetherwithincreasedearningsfrominvisibles,
shouldleadtoareductioninthecurrentaccount
deficittoafigurebelow£1000millionfortheyear
asawhole(0.7%ofGDP).However,giventhelow
labourcontentofNorthSeaoilproduction,the
growthofgrossdomesticproductforeseensuggests
furtherincreasesinunemployment throughtheyear.
Intacklingtheunemployment problem,theGovern­
mentshouldavoidmeasuresthatexpandprivate
consumption ,butshouldratherextenditsspecific
employmentsupportpoliciesandcontinuetotackle
thestructuralrigiditiesintheemploymentmarket.3.4.Inordertoachievesuchresultsandensure
theirpermanence ,itisessentialthatthegrowthof
demandandoutputtakesplaceoverawidearea,so
thatitbecomesself-sustaining andthusleadstoa
continuousincreaseinjob-creatinginvestment .
3.5.Thosemembercountrieswithbalanceof
paymentsdeficitswillstillnothave,in1977,any
appreciabledegreeoffreedomintheconductoftheir
economicpolicy.Thesizeoftheirbalanceof
paymentsdeficitsandtheircontinuedhighratesof
inflationforcethemtopursuetheirstabilization
programmes ,evenifthenecessaryperiodofadjust­
mentprovestobelongerthanatfirstthought.Along­
lastingsuccess,ofatypetoinstilconfidence,in
restoringpricestabilityandreducingbalanceof
paymentsdisequilibria isapre-condition forstrong
growthandanimprovement intheemploymentsitua­
tionduringthenextfewyears.
3.6.Intheabsenceofavigorousrecoveryin
foreigndemand,theeffortsofthedeficitcountries
willbeinvainandcanonlyleadtoheavylossesasfar
asgrowthandemploymentareconcerned .Thetaskof
thesurpluscountriesintheadjustmentprocess,there­
fore,willbetounderpintheupturnineconomic
activitybyincreasingtheirdomesticdemandand
theirimports.Inparticular,thismustbethepriority
objectiveoftheFederalRepublicofGermanywhich
shouldnotrelytooheavilyonexogenousgrowth
factorsarisingfromthirdcountries,butshouldcontri­
butetotheexpansionoftotaldemandwithinthe
Communityitself.TheFederalRepublicofGermany
accountsforalmost25%ofintra-Community trade
and,therefore,itsimportanceasatradingpartnerin
theCommunity isgreaterthanthatoftheUnited
StatesandJapantogetherwithintheOECDarea
(20%).3.Conclusions
3.1.Economicdevelopments overthelastfew
monthsunderlinetheneedtoapplystrictly,andeven
totightenfurther,theguidelinesforeconomicpolicy
whichwerelaiddownfortheCommunityand,in
particular,forthevariousMemberStatesinthelast
AnnualReport.
3.2.Theeconomicrecoveryaftermoreorless
markingtimeinthesummermonths,strengthened
again,particularlyintheUnitedStates.Theplansto
stimulateeconomicactivityannouncedbothinthe
UnitedStatesandinJapanhaveincreasedthe
chancesofanupswinginworldtrade,althoughitis
unlikelytobeasmarkedasin1976.Inaddition,the
variousfactorswhichcontributetoeconomicgrowth
strengthened ,towardstheendoflastyear,inthe
NetherlandsandintheFederalRepublicofGermany.
However,theresultsofthelatestenquiriesconcerning
theeconomicsituationindicatethatindustrialists are
stillverycautiousasfarastheshort-termoutlookfor
demandandproductionisconcerned.Theuncer­
taintiesanddangerswhichsurroundtheimprovement
intheshort-termeconomicsituationandthemove­
menttowardsequilibriuminthemediumterm,have
bynomeansbeencompletelyremoved.
3.3.Forindustrialized countries,theproblemsto
whicheconomicpolicymustbedirected,in1977and
beyond,areessentiallythree:
—tomakeaseriousefforttobegin,withthehelpof
instrumentsofdemandregulation,theprocessof
adjustmentwhichwillleadtoamorestable
balanceofpaymentssituation,bothwithinthe
Communityandataninternational level;3.7.Thesurplusonthebalanceofpayments
currentaccountofOPECcountries,whichwill
continueforseveralyears,meansthattheCommunity
mustacceptitsshareofthecombineddeficitofoil­
importingcountries,ifitwishestocontainwithinreas­
onablelimitsthegrowthoftheforeignindebtedness
ofthenon-oilproducingunderdeveloped countries.
Aslongassurplusesanddeficitsarestillasunevenly
distributedbetweentheMemberStatesastheyareat
present,theCommunitywouldbeadvisedtohelp—
eitherdirectlyorbyinternationalaction—itsweakest
membersonconditionthattheytakeactiontohelp

NoL119/30 OfficialJournaloftheEuropeanCommunities 12.5.77
themselves,tofinancethatpartoftheirbalanceof
paymentsdeficitsthattheireffortsdonotallowthem
toabsorb,inordertolimitlossesofpotentialgrowth.
Tothisendpossibilitiesforincreasingthefinancial
roleoftheCommunity ,asregardsraisingloansonthe
internationalcapitalmarket,inordertocontribute
bothtoanimprovement intheeconomicsituation
andthesolutionofstructuralproblems,shouldbe
investigated .
3.8.Similarly,atinternational level,itisinthe
Community'sinterestthattheimportcapacityofthe
developingcountriesshouldbeincreasedinareaso­
nablemanner.Conversely ,theCommunity ,whichis
theleadingtradinggroupintheworld,mustfirmly
opposeanymovestowardsprotectionism withregard
totrade.Itwillbeabletoescapethesedangerswithin
theMemberStatessomuchtheeasierwhenareal
financialsolidarityisestablished .3.9.Theloweringofinflationratescanonlybe
achievedgradually,andshouldbesupportedby
coherentbudgetary,monetaryandincomespolicies.
Thesameistrueforthereturntoahighlevelof
employment ,whichiscurrentlyanessentialpriority
objectivecommontoallindustrializedcountries.The
policytocombatunemployment mustatleastbe
basedonthefollowingthreefactors:
—anemployment policywhichencouragesjob­
creatinginvestmentandwhichwouldbecomple­
mentedbytraditionalpolicyinstruments (assis­
tancetoincreasemobility,trainingandprofes­
sionalreadjustment )andselectivemeasures;
—agrowthrateinincomeswhichisconsistentwith
reducinginflation;
—anindustrialpolicywhichencouragesthereorgani­
zationofoureconomiesratherthanthemainte­
nanceofjobsatanypriceinindustrieswhichare
nolongercompetitive .