22.7.74 NoL199/1 OfficialJournaloftheEuropeanCommunities
II
(Actswhosepublicationisnotobligatory)
COUNCIL
COUNCILDECISION
of4July1974
ontheadjustmenttotheguidelinesforeconomicpolicyfor1974
(74/374/EEC)
THECOUNCILOFTHEEUROPEAN COMMUNITIES ,
HavingregardtotheTreatyestablishingtheEuropeanEconomicCommunity ,andin
particularArticle103thereof;
HayingregardtotheCouncilDecisionof18February1974(')ontheattainmentofa
highdegreeofconvergenceoftheeconomicpoliciesoftheMemberStatesoftheEuro­
peanEconomicCommunity ,andinparticularArticles1and2thereof;
HavingregardtotheproposalfromtheCommission ;
WhereastheCouncilagreeswiththeanalysisoftheeconomicsituationsetoutinthe
communication fromtheCommissionof27March1974concerningtheadjustmentof
theeconomicpolicyguidelinesfor1974,
HASADOPTEDTHISDECISION :
Article1
TheMemberStatesshallpursuetheireconomicpoliciesinconformitywiththeguide­
lineswhicharespecifiedintheAnnex.
Article2
ThisDecisionisaddressedtotheMemberStates.
DoneatBrussels,4July1974.
FortheCouncil
ThePresident
J.SAUVAGNARGUES
(')OJNoL63,5.3.1974,p.16.

NoL199/2 OfficialJournaloftheEuropeanCommunities 22.7.74
ANNEX
GUIDELINES FORECONOMIC POLICY
A.GENERALGUIDELINES
ThecurrentsituationrequiresthatMemberStates
short-termeconomicpoliciesaimatthefollowing
objectives :Theyareallthemorelikelytoreachagreementwhere
incomerestraintisaccompanied bysocialmeasures.
Variousstepscanbeenvisaged,accordingtothe
specificsituationofeachmembercountry.Aspecial
effortshouldbemadeincertaincountriestobringall
thevariousformsofwealth,inparticularhousing,
withinreachofallsectionsofthepopulation .Sucha
movecouldwellstrengthenthepropensitytosaveof
households .restructuringtheireconomiestoadaptthemtothe
changesintheexternalsituation;
steppingupthefightagainstinflationinorderto
preservepurchasingpower;
achievingareductioninthebalanceofpayments
deficit;inthecaseofthosecountrieswhose
externalsituationhaddeterioratedappreciably
evenbeforethecrisis,thisreductionmustbe
substantial .
Thefulfilmentoftheserequirementsmayincertain
casesendangerfullemployment .Althoughthisisalso
apriorityobjectiveitisnecessarytostressthatinthe
currentsituationitcannotbeachievedbyageneral
stimulationofnominalinternaldemand,butratherby
meansofspecificactions.Thenumberofworkerslikelytobeforcedtochange
theirjobswillbenoticeablyhigherthaninthepast.
Theaimshouldbe'tosafeguardemploymentby
improvingtheflexibilityofthelabourmarket,rather
thanpreservingjobswhicharenolongerproductive.
Tothisend,theinfrastructure forretrainingworkers
shouldwherenecessarybeconsiderablystrengthened
andexpenditurethereonshouldbeincreased.Itis
aboveallduringtheperiodofreadaptationthatthe
workershouldbeguaranteedalevelofincomenottoo
farbelowthatwhichhepreviouslyenjoyed.Thishigh­
lightstheimportanceofasystemwherebyasubstan­
tialproportionofnormalincomeismaintained
duringretraining.Atatimewhenthelevelofvoca­
tionaltrainingandretrainingrequiredisexpectedto
improve,MemberStatesshouldbepreparedto
increasetheeffectiveness oftheSocialFund.In
membercountrieswhereunemployment benefits
representonlyasmallfractionofmoneyincomes,the
amountavailableforthispurposewillhavetobe
increased.Inanyevent,Communitysolidaritymust
comeintoplaytopreventaflowoflabourbackto
ItalyandIreland,wheretheemploymentproblemis
alreadyparticularlyacute.Inordertoattainalltheseobjectives,somemeansof
regulationofoveralldemandisindispensable ,butit
mustnecessarilyandespeciallyinpresentcircum­
stancesbeincorporatedintoalonger-termview.The
changestobebroughtaboutareofsuchsizethatthey
implyactionindepthwhichneedstobeundertaken
forthwithinordertoachieveresultswithinareason­
ableperiodoftime.Thesacrificestheywillrequire
willbethemoreacceptablethebettertheyaredistri­
butedovertimeandbetweenthedifferentsocio­
economicgroups.Amovementtowardsthenecessaryrestructuringof
productionwillundoubtedlycomeaboutspontane­
ously;itmust,however,beencouragedandcertainly
notresisted.Allthestepstobetakenshouldthusbe
designedtoencourageinvestmentintheenergysector
andtheotherpriorityareas.Theessentialprobleminthenextfewyearsistomain­
tainasubstantiallyslowergrowthrateinprivateexpen­
diturethaningrossnationalproduct.Onlyinthisway
willitbepossibletofreethenecessaryresourcesto
enabletheadditionalinvestmentandexporteffortto
bemade.Tothisendtheexpansionofallmoney
incomesmustbesloweddown,inordertoavoid
addingtoinflationandthedisequilibrium ofthe
balanceofpayments.Thisobjectivecanonlybe
attainedwheremanagement andlabourengagein
constructivedialogue.Specialeffortsarenecessary,asregardsresearchand
investment,withaviewtoachievingamorerational
useofenergyanddevelopingsourcesofenergy
capableofguaranteeingtheCommunity acertain
degreeofautonomyinthelongerterm,ata

22.7.74 OfficialJournaloftheEuropeanCommunities NoL199/3
tionarytendenciesinthesecountrieswhileassisting
thecountrieswithlargedeficitsintheireffortsto
improvetheirbalanceofpaymentssituation.reasonablecost.Itwouldthusbepossibletosoftenthe
impactofthehigherpriceofoilonthebalancesof
paymentsandrealincomes.Inordertospeedupthe
processofsubstitutionandtosaveenergy,therisein
thepriceofoilwillhavetobereflectedinthestruc­
tureofdomesticpricesofoilproducts.
Economicpolicyinthefirstgroupofcountrieswill
havetobe,ifnecessary,socontrivedastoactonthe
growthofdemandprincipallybyapplyingbudgetary
measures.Shouldtheexpectedbudgetarystimulusnot
besufficienttosustaingrowth,aneasingofthe
burdenofdirecttaxationoradditionalexpenditure
shouldbeconsidered,especiallywithaviewto
providingextraincentivesforinvestmentinthe
energysector.Arelaxationofmonetaryrestrictions
wouldnot,however,seemadvisableatpresentexcept
wherenecessitatedbytheexchange-rate relationships
withintheCommunityandatinternationallevel.Thefar-reachingtransformations whichmustbemade
intheCommunity'senergypatternsrequireconsider­
ableinvestmentwhich,insomecases,involvesahigh
degreeofrisk.OnaCommunityscale,morepossibili-.
tiesexistforresearchintonewschemesandatthe
sametimetheburdenwouldbeless.TheCommunity
hasadutytoexploitfullytheadvantageofferedbyits
sizebyimplementing acommonenergypolicy.
Themeasuresproposedherewillhelptosolvethe
mainbalanceofpaymentsdifficultieswithinareaso­
nableperiodoftime.However,thiscanonlybedone
byagradualprocessofadjustment,moreespeciallyas
anoverallbalancemustberestoredatworldlevel.In
themeantime,thesolidarityofthemembercountries
mustenablethosewiththelargestdeficitstoobtain,
bymeansofCommunitymachineryalreadyexisting
ortobesetup,atleastpartofthenecessaryfinance.Inthesecondgroupofcountriestheconstraints
imposedbythebalanceofpaymentssituationandby
thevigorousupsurgeincostsandpricescallforpoli­
ciestorestructuredemandaimedatimprovingthe
externalbalance.Tostimulateexports,theeconomic
policyofthesecountrieswillhavetoaimatreducing
thegrowthofdomesticdemandtoarateconsiderably
belowtheexpansionofproductivecapacitybytheend
of1974.
Differentiation iscertainlynecessarybetweenthe
variousmeasurestobetakenaspartofaconjunctural
policy.Againstabackgroundofclosecoordination
thismusttakeaccountoftheinitialsituationandthe
prospectsineachmembercountry.Insidethe
Communityonecan,indeed,distinguishtwogroups
ofcountriesaccordingtotheirexternalpaymentssitua­
tionandtheirinflationarytendencies.Thefirstgroup
comprisesGermanyandtheBeneluxcountries,whose
currentaccountsin1974willbeinsurplusorcloseto
equilibrium ,despiteasharpdeterioration .Thesecond
groupcomprisestheothercountries(Italy,theUnited
Kingdom,Denmarkand,toalesserdegree,France
andIreland),whichwillhavetocopewithheavydefi­
citsontheirexternalbalancesandveryrapidprice
increases .Inthecountrieswhichbeforetheoilcrisishad
alreadynotedasharpdeteriorationintheirbalancesof
paymentsoncurrentaccount,animportantpartwill
havetobeplayedbymonetarypolicyinordertohelp
makethenecessaryadjustments .Therestrictivelineof
monetarypolicymustthereforebemaintainedoreven
tightened.Thereductionindomesticliquidityasa
resultofthedeficitsoncurrentaccountwillhelpin
thisrespect.Interestratesshouldbemaintainedat
highlevels,asmuchtoensureanadequatelevelof
realratesastomaintainasufficientmarginoverthe
ratesobtainingonthemainforeignmarkets.The
expecteddeteriorationinthebudgetarypositionswill
havetobecurbedeitherbycuttingbackthegrowthof
expenditureorbyincreasingtaxes.Inthisconnection
thesteppingupofexportsandinvestmentinthe
energysectoraretobeconsideredaspriorityaimsat
theexpenseofconsumption expenditurebythe
publicauthoritiesandhouseholds .Withregardstothe
fightagainstrisingcostsandprices,astabilizationof
exchangerateswouldappeardesirable.Inthecountriesincludedinthefirstgroup,especially
Germany,theauthoritiesresponsibleforeconomic
policymustmakesurethattherecoveryexpected
betweennowandtheendof1974becomesmore
markedtowardstheendoftheyearwithouthowever,
exceedingthegrowthofproductivecapacity.Itis
desirableforthegrowthinrealgrossnationalproduct
inthesecountriestoreacharateofabout3to4%by
theendof1974.Theresultingdeteriorationinthe
balanceofpaymentsoncurrentaccountwouldhave
tobeaccepted.Itwouldhelptoreducetheinfla­Theeconomicpolicydescribedabovewillhavemore
rapidandmoreeffectiveresultsifthemaintrading
partnersintheCommunitytakesimilaraction.Asfor
theCommunity ,itshouldworkinthisdirection
withintheframeworkofinternationalcooperation .

NoL199/4 OfficialJournaloftheEuropeanCommunities 22.7.74
B.GUIDELINES FORTHEINDIVIDUAL COUNTRIES
InDenmarkthemainfeaturesoftheeconomicsitua­
tionintheperioduptotheendof1974*couldbea
slowdownineconomicactivity,anincreaseininfla­
tionarytendenciesandadeteriorationinthebalance
ofpaymentsoncurrentaccountwhichalreadyshowed
aheavydeficitin1973.abouta3to4%growthrateintheeconomytowards
theendoftheyear.If,however,itshouldappearthat
thisobjectivewillnotbeattained,theGovernment
shouldcautiouslygoaboutstimulatingtheeconomy
further,essentiallytoencourageinvestment .
Theaccelerationinbudgetaryexpenditurecompared
totheinitialforecasts,chieflyasaresultofthesteeper
risesinwagesandprices,theselectivemeasuresin
favourofspecificindustriesandcertainregions,and
theliftingofthetaxrestriction,willmeanthatin
1974,theFederalGovernment andtheLander
togetherwillhaveanetborrowingrequirementofDM
11000to13000million,insteadoftheslightsurplus
forecastinthethirdannualreport.Thedeficitinthe
FederalGovernmentandLanderbudgetsshouldbe
financedprimarilythroughthecapitalmarket-and
onlytoalesserdegreebydrawingonthe'counter­
cyclicalreserves'atpresentfrozenwiththeBundes­
bank.Economicpolicyshouldaimmoreatrestoringequili­
briuminthebalanceofpaymentsandcurbingrising
pricesandcosts.Ifthisobjectiveistobeachieved,
privateconsumers'demandmustbereducedandthe
increaseingovernmentspendingchecked.The
resourcesfreedinthiswayshouldthenbedirected
towardsexports.Themeasuresadoptedrecentlyby
theGovernment ,whichincludeinparticularareduc­
tioninpublicspendingandtheintroductionof
compulsoryprivatesaving,areafirststepinthisdirec­
tion.However,iftheseshouldproveinadequateto
bringaboutthedesiredreductioninthegrowthof
domesticdemandinmoneytermsitwouldbeneces­
sarytosupplementthembyfurthercutsinpublic
spending,ornewtaxesinordertomaintainthe
budgetsurplusatalevelclosetotheguidelinesforthe
1974/75financialyearinthethirdannualreporton
theeconomicsituationintheCommunity .
Inthemonetaryfieldadistinctslowdowninthe
expansionofdomesticliquidityhasbeenobserved
sincelastautumn.Careshouldbetakentoseethat
thistendencyismaintained .Theauthoritiesshould
continuetoconcentrateparticularlyoncurbing
consumercreditaspartofapolicyforrestrictingbank
lending.
Aftertheslowdownrecordedinthesecondhalfof
1973,economicactivityinGermanyremainedata
relativelyhighlevelatthebeginningof1974.Despite
theoilcrisisacertainrecoveryinexpansionseems
probableinthecomingmonths.Theriseinpricesis
likelytoremainrapid.Thepolicyonliquidityshouldcontinuealongthe
presentlines.
InFrance,economicexpansionwillprobablyremain
appreciablealthoughsomewhatslowercomparedto
lastyear.Thestrainswhichaffectedproductioncapaci­
tiesin1973willprobablyslacken.Thesituationon
thelabourmarketshouldgraduallybecomeeasier
duringtheyear.Theincreaseinthepricesof
importedbasicproductsandinparticularofenergy
productswillprobablygiverisetoalargeexternal
deficit.Furthermore ,domesticpricesarelikelyto
continuetoriseatanincreasingrate.
Theeconomicpolicytobeimplemented in1974
mustaimprimarily—aspartofamedium-term
strategy—atgraduallyabsorbingtheexternaldeficit.
Itwouldbeadvisable,aboveall,tofacilitateand
encouragethere-adjustment ofproductivecapacityin
ordertoachieveadistinctimprovement intheposi­
tiononexternalaccountin1975.Atthesametime,
theincreaseindomesticcostsshouldbecurbedin
ordertosafeguardthecountry'scompetitiveposition
andtoensurethestabilizationoftheexchangerate.
Inthefieldofpublicfinance,recenttendenciesindi­
catethattherewillbeabudgetsurplusin1974which
willexceedthelevelofFF2000millionfixedinthe
guidelineslaiddowninthethirdannualreport.Budge­
tarymanagementinthecourseofthefirsthalfof
1974willhaveadistinctlyrestrictivecharacter.Ifthe
trendtowardsaslowdowningrowthshouldbecomeTheauthoritiesnevertheless findthemselveswiththe
particularlydelicatetaskofsupportingthetendency
towardsanimprovement inthelevelofeconomic
activityandatthesametimereducinginflationary
pressures.Inthisrespectthedevelopment ofthe
balanceofpaymentsdoesnotimposeanyappreciable
constraints ;onthecontrary,ariseinimportscould
contributetoanimprovement ininternalequilibrium .
Theeffectsoftheliftingofthetaxrestrictionsintro­
ducedinMay1973combinedwiththeexpansionary
pressuresresultingfromthedeficitsintheFederal
andLanderbudgetsshouldbesufficienttobring

22.7.74 OfficialJournaloftheEuropeanCommunities NoL199/5
toopronounced ,theintroductionoffiscalmeasuresto
encourageinvestmentinprioritysectorsshouldbe
considered .however,inspiteofafasterexpansionofexports,its
pacemayslowdownappreciablyasaresultoftheoil
crisis.Littlechangeshouldoccurinthelabourmarket
situation.Themostpressingproblemswillconcern
theoverallequilibriumoftheeconomy;inthis
respect,itistobefearedthattheincreaseinprices,
alreadyrapidin1973,willacceleratefurtherandthat
thedeficitoncurrentaccountofthebalanceof
paymentswillincreaseconsiderably .Theapparently
excessivedepreciationofthelirahasincreasedthe
inflationarypressureswithoutalleviatingthedifficult
currentaccountposition.Itwouldbeadvisabletomaintaintherestrictivebias
whichhasprogressivelybeengiventocreditpolicy
butwithoutprejudicingthosemeasuresnecessaryto
promotecapitalexpenditureonadjustmentsnecessi­
tatedbytheenergycrisis.Consumercreditandcredit
grantedforinvestmentinnon-prioritysectorsshould
continuetobeseverelyrestricted.
InIreland,beforethepresentationofthebudget,the
generaloutlookfortheIrisheconomywasfora
modestresumptionofgrowthfollowingtheslowdown
experiencedinthesecondhalfof1973.Nogreat
improvement inthelabourmarketseemedlikely.
TherecentNationalPayAgreementwouldleadtoa
largeincreaseinsalaries.Priceswouldcontinuetorise
brisklyandthecurrentbalanceofpaymentswould
showanappreciabledeterioration .Acontinuationof
netcapitalinflowswasexpected.Inthesecircumstances ,theemphasisofeconomic
policyshouldbeoneliminatingthefactorsrespon­
siblefordisequilibrium .Theimmediateproblem
facingtheItalianauthoritiesisthatofrapidly
achievingtangibleresultsintheformofadistinct
improvement intheexternalaccountswhichcannot
beallowedtocontinueontheirpresenttrend.Given
thehighlevelofItaly'sexternalindebtedness ,a
distinctimprovement inthebalanceofpaymentson
currentaccountwillhavetobeachievedinthesecond
halfoftheyearandduring1975.Asthedepreciation
ofthelirasinceFebruary1973willhaveitsgreatest
effectonthevolumeofexportsnextyear,economic
policymustaimatreducingthetotalbalanceof
paymentscurrentdeficitin1975tonotmorethanLit
2000000million.Inthisrespect,itisappropriateto
recallthatwithinthedeficitofLit4100000million
forecastfor1974,approximately Lit2800000million
aretheresultoftheincreaseinoilprices.Giventhat
thehighcurrentbalanceofpaymentsdeficitforecast
for1974istheconsequencenotonlyofincreasesin
thepriceofoilbutequallyofinternalfactorsdueto
theincreaseintotaldemandandtherapidaccelera­
tionofthepricespiral,strictcontrolofthegrowthof
domesticdemandaswellassomemoderationofinter­
nallyoriginatedcostpressuresarenecessaryfromnow
on.Inthisconnection,urgentactionisrequirednot
onlytostabilizetheexchangerateofthelira,butalso
tousetheinstrumentsofdemandmanagementin
suchawayastodivertresourcesintoproductive
investmentand,aboveall,intoexports.Toensurethattheeconomywouldoperatein1974at
alevelclosetothefullutilizationofcapacitythe
Governmentdecidedtoprovideastimulusinthe
budgetpresentedatthebeginningofApril.Despitea
reformoftheincometaxstructureandaconsiderable
advancetowardssecuringgreaterequityinthedistri­
butionofthetaxburden,principallybyextendingthe
taxbaseandtheintroductionofacapitalgainstax,
thebudgetdeficitforecastissubstantial.Duetothe
delicatebalanceneededtoachieveexternaland
internalequilibriumitisnecessarytoadoptaflexible
economicpolicy.Ifthecapacityoftheeconomy
provestobeinsufficienttoabsorbtheadditional
stimulusofthebudgetoninternaldemandandinfla­
tionarypressuresbecomestrongerthanforeseenitwill
benecessarytoreviseeconomicprioritiesparticularly
inthecontextoftheexecutionofthebudget.
Duringthesecondhalfof1973thegrowthof
domesticliquidityaccelerated .Thepresentrestrictive
stanceofmonetarypolicyshouldbecontinuedwith
regardtothemoneysupplyandshouldbeaccompa­
niedalsointhefuturebyselectivemeasuresinfavour
ofthemostproductiveinvestments .Thetaskofthe
monetaryauthoritieswouldbemadeeasierbylessreli­
anceonmonetarymeansforthefinancingofthe
budgetdeficit.withrespecttobudgetarypolicyallthepossibilities
stillavailableshouldbeusedtoreducethebudget
deficitforthecurrentyearandmeasuresshouldbe
introducedtobringaboutagradualimprovement in
thepublicfinancesofnationalandlocalgovernment
andsocialinsurancebodies.Duringthecurrentfinan­
cialyearastrongeffortshouldbemadetorestrictless
urgentformsofexpenditure ,especiallythosedirectly
linkedtoconsumption .Atthesametime,itwouldbe
advisabletosupport,eitherdirectlyorindirectly,
priorityinvestmentexpenditure ,especiallywhere
linkedtoexportingactivitiesandinfrastructureInItaly,lastyearsstrongrecoveryindemandshould
1makecontinuedeconomicgrowthpossiblein1974;

NoL199/6 22.7.74 OfficialJournaloftheEuropeanCpmmunities
improvements .Takingintoaccountthesupplemen­
taryexpendituredecideduponsincelastautumn,the
Government'snetcashdeficitwillamounttoLit
9200000millionin1974.Suchafigureisaceiling
whichshouldnotbeexceededunderanycircum­
stances.Toachievethisresult,anincreaseinthefiscal
burdenseemsinevitable.Moreover,thedeficitshould
befinancedtoalargeextentbynon-monetary means.TheSpecialPowersActof10January1974,which
willremaininforceuntiltheendoftheyear,gavethe
Dutchauthoritiesverywidepowersinthefieldof
incomespolicy.Inthisconnection,theimpositionof
temporarycontrolsonpricesandallincomes,accom­
paniedbyareductionindirecttaxationonsmall
incomesseemsappropriateinsofarasitmayhelpto
curbtheriseinwagecosts.
InBelgium,theslackeningofworlddemandandthe
riseinimportpricesresultingfromtheoilcrisiswill
notfailtoaffecteconomicgrowthin1974.Unemploy­
mentcouldwellspread.Thecurrentaccountsurplus
ofthebalanceofpaymentswillbesubstantially
reduced,thoughstillinsurplus.Inthesecircum­
stancesitisimportanttograntsupportdesignedto
increaseeconomicactivityinaveryselectivemanner
and,giventhepersistentpriceandcostincreases,to
takecaretomaintainthelevelofactivitybelow
productivepotential.Asregardsmonetarypolicy,thebalanceofpayments
deficitshouldcontributetomoppingupexcess
(liquidity.Ontheotherhand,thegrowthinlending
mustbelimitedinordertostaywellbelowtheceiling
ofLit22400000millionfixedintheletterofintent
addressedtotheIMF.Itwillbenecessary,neverthe­
less,withinthisoverallframeworktogivepriorityto
investmentsinthosesectorsclearlyorientedtowards
exportsandenergy.Theriseininterestrateswhich
willresultfromtheserestrictionsshouldtendto
improvethebalanceofpaymentsoncapitalaccount,
mitigateimportpricerisesbysupportingthe
exchangerateofthelira,andstimulatesaving.
IntheNetherlands ,itisexpectedthattheexpansion
ofdemandandproductionwillberelativelymoderate
betweennowandtheendoftheyearbuttheemploy­
mentsituationisliabletodeteriorate .Priceswilltend
torisemoresharply.Theexternalbalanceshouldde­
teriorate,whilstremaininginsurplus.Inthebudgetaryfield,itseemsthatthereductionin
inthedeficitrecommended inthethirdannualreport
andprovidedforinthebudgetpresentedbythe
BelgianGovernment willbemaintained ,asthe
increaseinpricesislikelytoaffectbudgetaryrevenue
asmuchasexpenditure .Thisneverthelessimplies
restrictionsonadditionalexpendituregiventhestruc­
turalnatureofthebudgetarydeficit.Theneedfornew
investmentintheenergyfieldshouldbecovered
essentiallybyrestructuringexpenditure .
Arestrictivemonetarypolicyshouldbepreserved.
Internationaltrendsmay,however,causearisein
interestrates.TheGovernment ,anxioustomaintainasatisfactory
levelofnationalexpenditure ,hasalreadyannounced
policyactionstosupportdemand—especiallyinthe
budgetaryfield(defermentoftheintroductionofthe
investmenttaxinthecountry'swesternregion,acceler­
ationofthesecondstageoftheanti-unemployment
programmeadoptedlastSeptember)andother
measureswereannouncedon19March1974(areduc­
tionofincometaxwitheffectfrom1July1974,an
increaseintaxallowancesforinvestment,supplemen­
taryexpenditure).Ifallthesemeasuresareadopted
andthemeasuresalreadydecidedonattheendof
1973,aretakenintoaccountthenetborrowing
requirementmaybeexpectedtoexceedbyF11100
millionthefigureofF11500millionlaiddownin
thethirdannualreport.Anyfurtherbudgetary
measureswhichmightbetaken—especiallyto
increaseinvestment —shouldinvolveasfaras
possiblearestructuringofpublicexpenditurewithout
furtherincreasingthedeficit.Inordertopreventthehighercostofrawmaterials
fromleadingtoapersistentupwardprice-wagespiral,
anactivepricepolicyshouldbemaintainedandthe
varioussocialandoccupationalgroupsshouldbe
persuadedtomoderatetheirclaimsforhigher
incomes.Inthisconnection ,increasesinincomesin
certainsectorsmustnotbeallowedtosetthepacefor
othersectors.
InLuxembourg ,ahighlevelofeconomicactivitywill
probablybemaintainedduringthecomingmonths,
especiallyintheironandsteelindustry.Theupward
movementofconsumerpricesislikelytogatheraddi­
tionalmomentumduring1974.Theexternalbalance
shouldcontinuetoshowasubstantialsurplus.
Theprincipalfeatureofthemonetarysituationupto
nowhasbeenasubstantialincreaseinsecondary
liquidity.Specialfactorshavecontributedtothisde­
velopment .Thegeneralstanceofmonetarypolicy
requiresnomodificationforthepresent.Theoutlookfortheemploymentsituationisfavour­
able,soeconomicproblemsappearlessacutethanin
someothercountriesoftheCommunity .Because

22.7.74 OfficialJournaloftheEuropeanCommunities NoL199/7
inflationessentiallyoriginatesabroad,itcanonlybe
curbedverymoderatelybyinternalmeasures.Itdoes
notseemnecessary,therefore,tomakeanyappreci­
ablechangestothegeneralguidelinesforbudgetary
policyrecommended bytheCouncilinthethird
annualreport.Nevertheless ,adegreeofcaution
appearsnecessaryinallocatingbudgetaryresourcesfor
newmeasuresintheimplementation oftheGovern­
ment'ssocialprogramme .Anessentialconditionforavoidinganabrupthaltin
theexpansionofinternaldemandintheshorttermis
tolaythefoundationsofanagreementonaconcerted
policyforpricesandincomes;suchanagreement
wouldbeallthemoredesirableinthatitwould
promotesufficientdevelopment ofindustrialinvest­
menttostimulateastrongflowofexportsandso
maintainahighlevelofemploymentinthelonger
term.
IntheUnitedKingdom,economictrendswillbe
stronglyaffectedthroughouttherestoftheyearby
therepercussions ofthetemporarylimitationofthe
workingweektothreedaysandoftheminers'strike.
Evenassumingthatproductionlossesduringthefirst
quarterarepartlymadegoodlaterintheyear,the
grossnationalproductinrealtermswillcertainlybe
considerablyreducedfortheyearasawhole.The
trendofrisingpricescouldincreasesharplyduring
thecomingmonths.Prospectsforthebalanceof
paymentsoncurrentaccount,alreadyinverylarge
deficitin1973,continuetogivecauseforconcern.Asforbudgetarypolicy,measurestomoderate
domestjcdemandshouldbeintroducedfollowinga
returntonormaleconomicactivity.Thebudgetfor
thefiscalyear1974/75constitutesanimportantstep
inthisdirection.Whileprovidingforareductionin
thefiscalburdenatthelowestincomelevels,where
purchasingpowerhasalreadybeensharplyerodedby
inflation,andwhileintroducingsubsidiesinorderto
containtheriseinfoodprices,thebudgetaimsat
restrainingdomesticdemandbothbyalimitationin
thegrowthofexpenditureandbyanincreaseintaxa­
tion.Ifduringthecomingmonthsitappearsthat
domesticdemandinnominaltermsisrisingatarate
inconsistentwiththerequiredimprovement inthe
currentaccountofthebalanceofpayments,additional
measureswillbenecessaryinthebudgetaryfield.
Theseshouldaimatpreservingproductiveinvestment
asmuchaspossible.Thus,theneedtobringtheexternalaccountback
ontoasoundbasisandtoprotecttheforeignexhange
reservesconflictswiththedesiretoavoidanexces­
sivelylowlevelofeconomicactivityandadeteriora­
tionintheemploymentsituation.Thus,althoughthe
improvement ofthepositiononcurrentaccountisa
priorityobjective,itshouldbeplacedwithinastrategy
coveringaperiodlongerthanthecurrentyear.Inthis
respect,itisanticipatedthatthebeneficialeffectsof
thedepreciation oftheeffectiveexchangerateof
sterling,whichhasoccurredsincemid-1972,will
becomeincreasinglyimportant.Judgingfromprev­
iousexperience,thefulleffectsonthecurrentbalance
willbefeltin1975andsubsequentyears.Fromnow
on,economicpolicyshouldhavetheobjectiveof
ensuringthatthetotalcurrentaccountdeficit,in
1975,willbelessthan£2000million.Thisamount
wouldcorrespondtothatpartofthedeficitwhich,in
1974,isattributabletodeareroil.Theachievement of
suchanobjectiverequiresaneconomicpolicywhich
willpermitthereleaseoftherealresourcesnecessary
foravigorousexpansionofexports.Inviewoftherapidandcontinuedincreaseinthe
principalmonetaryaggregates,fresheffortsshouldbe
madetoslowdowntheexpansionofthemoney
supplyin1974.However,withintheoverallframe­
workofsuchaction,therearegroundsforapplying
anyrestrictionsonbanklendingselectively,especially
inrelationtothosesmall-andmedium-sized busi­
nesseswhichhavebeenmostaffectedbyeventsatthe
beginningoftheyear,andalsowhereexportsare
concerned.Moreover,thebalanceofpaymentssitua­
tioncallsforshort-terminterestratestobemain­
tainedatalevelappreciablyhigherthanthose
prevailingoninternationalmonetarymarkets.This
policyshouldcontributetothedesirablestabilization
oftheexternalvalueofsterlingandtocontaining
inflationarypressureswhich,intherecentpast,have
arisenfromthedepreciationofthecurrency.