29. 12. 75 Official  Journal  of the  European  Communities No C 297/1 
I 
(Information) 
COUNCIL 
ANNUAL  REPORT 
ON THE  ECONOMIC  SITUATION  IN THE  COMMUNITY 
THE  COUNCIL  OF  THE  EUROPEAN  COMMUNITIES, 
Having  regard  to the Treaty  establishing  the European  Economic  Community; 
Having  regard  to Council  Decision  74/120/EEC  (1) of 18 February  1974  on the 
attainment  of a high  degree  of convergence  of the  economic  policies  of the  Member 
States  of the European  Economic  Community,  and  in particular  Article  4 thereof; 
Having  regard  to the proposal  from  the Commission; 
Having  regard  to the Opinion  of the European  Parliament  (2); 
Having  regard  to the Opinion  of the Economic  and  Social  Committee  (3), 
HEREBY  ADOPTS  THIS  ANNUAL  REPORT  ON  THE  ECONOMIC  SITUATION  IN 
THE  COMMUNITY,  LAYING  DOWN  FOR  1976  THE  GUIDELINES  TO  BE  FOLLOWED 
BY EACH  MEMBER  STATE  IN ITS  ECONOMIC  POLICY: 
FOREWORD 
Under  Article  4 of Decision  74/120/EEC,  the Council,  acting  on a proposal  from  the 
Commission  and  after  consulting  the  European  Parliament  and  the  Economic  and 
Social  Committee,  must,  towards  the end  of the third  quarter,  adopt  an annual  report 
on the economic  situation  in the Community  and  must  set economic  policy  guidelines 
to be followed  by the Member  States  in the following  year.  Once  the report  has  been 
adopted  by the  Council,  the  governments  must  bring  it to the  attention  of their 
national  parliaments  so that  it may  be taken  into  account  in budget  debates. 
The guidelines  contained  in this  report  may  have  to be adjusted  to take  account  of the 
trend  of economic  development  when  the  Council  carries  out  its  subsequent 
examinations  of the economic  situation. 
(!) OJ  No L 63, 5. 3. 1974,  p. 16. 
(2) OJ  No C 280,  8. 12. 1975,  p. 44. 
(3) Opinion  delivered  on 29. 10. 1975  (not  yet  published  in the  Official  Journal). 
No C 297/2 Official  Journal  of the  European  Communities 29.12.  75 
I. THE  SCALE  OF  THE  RECESSION  IN 1975 
Exceptional  depth  of the j.l.  Since  the  middle  of last  year  and  more  particularly  during  the  first  half  of 
recession  1975,  the Member  States  have  gone  through  the severest  recession  since  the war.  The 
conjunctural  situation  has  been  characterized  by falling  demand  and  production,  a low 
rate of capacity  utilization,  an increase  in unemployment,  and,  despite  some  success 
in combating  inflation,  a continuing  rise  in consumer  prices,  still  with  marked 
discrepancies  between  one  country  and  another. 
Signs  that the down-swing  The  down-swing  which  started  in Germany  and  Italy,  spread  to the Benelux  countries 
is coming  to an end  and  a little  later  also  reached  France.  Finally,  economic  activity  in the  United 
Kingdom,  following  efforts  made  to make  up ground  lost  as a result  of the strikes  in 
1974,  steadily  lost  momentum.  In the  middle  of 1975,  industrial  production  had 
reverted  in most  Member  States  to its level  at the  beginning  of 1972.  For  the 
Community  on average,  it had  dropped  by some  11-5  °/o in a year  (1). However  in 
several  member  countries  the downward  phase  of the  recession  seems  to have  ended 
and the economic  climate  seems  to have  begun  to improve. 
1.2. In  the autumn  of 1974,  when  the previous  report  on the economic  situation  in 
the Community  (2) was  being  prepared,  the  much  more  optimistic  forecast  made  for 
the economic  situation  in 1975  still  appeared  plausible,  despite  the levy  imposed  on the 
resources  of Member  States  by the quadrupling  of the oil price.  The  main  reason  why 
this forecast  proved  wrong  was  that  it underestimated  the following  factors: 
— the  extent  to which  the  energy  crisis,  inflation  and  counter-inflationary  policies 
would  aggravate  the recession  and  entail  adjustments; 
— the  impact  of these  effects  — and  of their  mutual  reinforcement  — on world  trade, 
and the resulting  fall in external  demand; 
— the  extent  of the run-down  of stocks  and  the cautiousness  both  of consumers  and 
of investors. 
Fall in world  trade...  1.3.  For  the first  time  since  the war,  the volume  of world  trade  will  fall  substantially 
in 1975  (by  5 to 6%  at an annual  rate).  The  marked  contraction  in world  trade 
reflects  the scale  of the  recession,  which,  beginning  in the  United  States  and  Japan, 
has spread  to all the  industrialized  countries  and  those  developing  countries  which 
are not  oil producers.  Between  the'  second  half  of last  year  and  the first  half  of 1975, 
the decline  in economic  activity  led,  for  the  Community,  to a reduction  of about 
20 °/o by volume  in the export  demand  generated  by the industrialized  countries.  This 
reduction  was  not  offset  by the continuing  growth  of imports  by the OPEC  countries 
(estimated  at a volume  of 45 % in 1975).  In fact  at present  these  countries  account  for 
only about  10 °/o of the Community's  exports  to third  countries. 
... and Community  1.4.  In  1975,  the  decline  in export  demand  could  mean  for  the  various  Member 
exports  States  a fall  in the volume  of exports  compared  with  1974  ranging  from  4 °/o (United 
Kingdom)  to 11 °/o (Germany);  only  Italy  and  Ireland  will,  more  or less,  succeed  in 
holding  their  exports  at the same  level  in real  terms.  The  forecasts  made  in the autumn 
of 1974  suggested  that  the trend  would  be nearly  normal,  but  in fact  Member  States' 
exports  in 1975  will  probably  have  contracted  appreciably.  The  resulting  shortfall  in 
demand  will  amount  to between  3 and  5 °/o of the gross  domestic  product  for 1975. 
Intra-Community  trade  has  declined  even  more  than  export  demand  generated  by 
third  countries  taken  as a whole. 
(x) See  Table  1 annexed. 
(2) See  the  annual  report  on the  economic  situation  in the  Community  (OJ  No  C 149, 
28. 11. 1974,  p. 1). Earlier  under-estimation 
of recessionary  trends 
29.12.  75 Official  journal  of the  European  Communities  No  C 297/3 
Improvement  in 1.5.  Imports  of  member  countries  have  in general  declined  more  sharply  than 
external  balance  exports.  At the  same  time,  the  terms  of trade  have  improved,  particularly  as raw 
material  prices  have  declined. 
Except  in the  case  of the  United  Kingdom,  the  heavy  current  balance  of payment 
deficit  run  by Community  countries  in 1974  will  probably  be worked  down  to very 
modest  levels  in 1975.  The  Community's  current  account  will  show  a slight  surplus  (1), 
despite  the  fact  that  the  German  surplus  will  contract  by more  than  half  (by  some 
DM 10  000  million).  Considerable  progress  has  therefore  been  made  in 1975  in 
restoring  external  equilibrium  in  the  Community.  The  improvement  in  the 
Community's  current  balance  has  been  essentially  due  to the  unexpected  severity  of 
the recession  and  the  resultant  reduction  in imports.  Financing  the  deficits  has  been 
less burdensome  than  was  forecast. 
Infectiousness  of 1.6.  As  trade  and  financial  interdependence  between  the  industrialized  countries 
recession  ancj5  jn  particular,  the  Community  countries  has  become  far  stronger,  economic 
disruption  (inflation  and  deflationary  or reflationary  movements)  occurring  in one 
country  'contaminates'  the  partner  countries  more  rapidly  than  in the  past  and,  given 
the multiplier  effect,  attacks  once  again  the  country  in which  it originated.  Similar 
multiplier  effects  were  particularly  powerful  when  the  world  recession  started  in 1973 
and 1974.  Studies  carried  out  at international  level  have  shown  that  a reduction  of 
1 % in the  rate  of growth  of domestic  demand  in each  of the  industrialized  countries 
will have  double  this  impact  on aggregate  demand  in the  Community  countries  (2). 
This  estimate  does  not  allow  for  effects  being  transmitted  by mechanisms  other  than 
trade  flows  such  as monetary  relations  and  capital  and  labour  movements.  The 
conclusion  to be drawn  for  economic  policy  purposes  is that  national  measures  to 
combat  inflation  or the  economic  recession  taken  in isolation  are  bound  to  be 
limited. 
Weakening  of tendency  1.7.  Despite  reflationary  programmes  introduced  in almost  all the  Member  States, 
to invest  signs  of recovery  in final  domestic  demand  remained  sporadic  till the  autumn.  Private-
sector  investment  expenditure  is  still  falling,  although  in some  Member  States 
considerable  incentives  have  been  provided  for  investment.  The  main  causes  of the 
decline  in the  willingness  to invest  are  the  extremely  low  capacity  utilization  rates  in 
industry  (about  75 %),  the  relentless  rise  in costs  due  to losses  in productivity,  which 
leaves  firms  in a very  weak  profit  position,  and  also  the  uncertainty  with  regard  to the 
economic  outlook.  Likewise,  investment  in the  housing  sector  is very  sluggish  in 
certain  Member  States  and  the  stock  of unsold  dwellings  remains  high.  Public-sector 
capital  expenditure  is the  only  investment  component  which,  since  the  middle  of the 
year,  seems  to be on an upward  course,  boosted  by central  government  investment 
programmes. 
Strong  effects  of the  The  impact  of stock  reductions  on the  trend  of activity  in 1975  goes  far to account  for 
rundown  in stocks  the  decline  in industrial  output.  In some  countries  and  some  sectors  not  all  the 
involuntary  stocks  of  finished  products  have  yet  been  disposed  of.  This  process  may 
well  be now  complete  in some  cases  as regards  raw  materials  and  intermediate  goods. 
Cautiousness  in consumer  1.8.  The  volume  of private  consumption  expenditure  has  increased  only  slightly, 
expenditure  In  some  Member  States  it has  actually  fallen.  The  growth  of disposable  incomes  has 
slackened  as a result  of cuts  in the  number  of hours  worked  and  the  slowdown  in the 
(') See  Table  2 annexed. 
(2) The  multiplier  is believed  to be higher  than  2 for the Benelux  countries,  Denmark  and  Ireland 
and lower  than  2 for France  and  Italy. 
No C 297/4 Official  Journal  of the  European  Communities 29.12.  75 
upward  movement  of wages  and  salaries.  At the  same  time,  the  insecurity  of the 
employment  situation  and  a desire  to reestablish  the  real  value  of savings  have  caused 
an unusually  rapid  increase  in the propensity  to save. 
Purchases  of consumer  durables  and  clothing  have  been  particularly  affected  by the 
weakness  of demand;  expenditure  of tourism,  on the  other  hand,  has  not  diminished. 
In recent  months,  sales  of new  cars  have  recovered  in Denmark  and  the  Benelux 
countries  and  especially  in the  Federal  Republic  of Germany. 
Only  central  government  current  expenditure  is continuing  to grow  strongly. 
1.9. The  deterioration  in the  labour  market  situation  has  taken  on  alarming 
proportions.  In all  Member  States  1975  will  see  a sharp  fall  in the  number  of 
employees.  In the  Community  as  a whole,  the  unemployed  totalled  almost  five 
million  in September  1975,  which,  after  seasonal  adjustment,  represents  about  4-5  °/o 
of the  working  population,  and  is about  two  million  up  on  the  September  1974 
total  (1). Short-time  working  has  spread  in most  of the  Member  States,  hours  of work 
have  tended  to fall,  and  the  number  of vacancies  has  dropped.  Since  the  end  of the 
holiday  period,  there  have  been,  in some  Member  States,  some  weak  signs  that 
unemployment  might  be levelling  off,  but  with  the  arrival  on the  labour  market  of 
school-leavers,  a further  deterioration  in the  situation  is to be feared.  In an attempt  to 
maintain  the  level  of employment  in construction,  many  Member  States  have  adopted 
measures  which  could  prevent  a fresh  downturn  in this  sector. 
Success  in the struggle  1.10.  As  a result  of the  anti-inflationary  policies,  the  fall  in world  prices  and  the 
against  inflation  weakness  of demand,  inflation  has  eased  in all the  Member  States.  The  slowdown  in 
the upward  price  movement  has  occurred  at different  times  and  with  differing  intensity 
from  country  to country  (2).  Some  definite  progress  has  been  made,  in particular  in 
Denmark,  in the  Federal  Republic  of Germany,  in Italy  and,  quite  recently,  in Ireland. 
On average  for  the  year,  however,  the  rise  in consumer  prices  for  the  Community  as a 
whole,  estimated  at about  12-5  °/o between  1974  and  1975,  will  not  change  much;  and 
the range  of inflation  rates  — between  Germany  (about  6 °/o in 1975)  and  Ireland  and 
the United  Kingdom  (about  22 to 23 °/o)  — will  be wider  in 1975  than  in 1974. 
Consumer  prices  for  manufactured  products  have  risen  less  than  those  for  other 
products  and  services,  although  wage  costs  per  unit  of output  in industry  are  still 
rising.  This  reflects  keener  competition,  but  also  means  that  firms  will  face  falling 
profit  rates  in industry.  The  underlying  upward  trend  of foodstuff  prices  and  the  many 
increases  in public  service  charges  and  prices  for  services  and  energy  have  limited  the 
moderation  of the rate  of increase  in the general  price  level. Worsening  situation  on 
the labour  market 
II. ECONOMIC  POLICY  IN 1975 
Gradual  shift  in 
economic  policy  ... 2.1. In  view  of the  persistence  of inflation  and  the  slowdown  in economic  activity, 
the Governments  of the  Member  States  face  difficult  decisions.  Only  the  Federal 
Republic  of  Germany  and  the  Netherlands  have  been  able  to  follow  clearly 
expansionary  policies  since  1974.  Given  the  seriousness  of domestic  disequilibria  and 
external  deficits,  most  other  member  countries  have  only  very  gradually  been 
adjusting  their  demand  management  policies  towards  reflation.  Consequently,  and  also 
as a result  of structural  rigidities  and  the  long  time-lags  before  the  measures,  once 
taken,  have  begun  to bite,  economic  policy  has  not  shown,  on the  whole,  the  expected 
results. 
... and  in monetary 
policy 2.2. Since  the  autumn  of 1974,  the  authorities,  at first  in a number  of countries  and 
then  in all  the  countries,  have  been  gradually  moving  away  from  a restrictive 
(x) See  Table  3 annexed. 
(2) See  Tables  2 and  4 annexed. 
29. 12. 75 Official  Journal  of the European  Communities No C 297/5 
monetary  policy.  The  first  measures  taken  to relax  monetary  policy  were  designed 
merely  to offset  an incipient  slowdown  in activity.  It is only  in the course  of 1975  that 
monetary  policy  has become  steadily  more  expansionary.  The  strength  of the measures 
taken  and  their  timing  have  varied  between  countries:  those  which,  in view  of their  rate 
of inflation  and  their  balance  of payments  situation,  enjoyed  the greatest  scope  for 
manoeuvre,  took  the most  energetic  action.  The  Federal  Republic  of Germany  was  the 
first country  to set its policy  on a fresh  course.  After  slackening  somewhat,  the rate 
of growth  of the money  supply  in most  Member  States  has tended  to gather  momentum 
since  the  spring.  Since  the  end  of  last  year,  with  the  demand  for  credit 
falling,  quantitative  restrictions  on the  volume  of bank  lending  have  either  been 
relaxed  or abolished  altogether.  Most  interest  rates  are,  generally  speaking,  a good  deal 
lower  than  in the  autumn  of 1974,  owing  to the  high  propensity  to save  and  the 
weakness  of demand  for  funds  from  firms  and  individuals.  Since  the spring  of this 
year,  short-term  rates  have  steadily  drifted  downwards  in the  Community  whilst 
picking  up again  in the United  States.  This  scissors  movement  and  the improvement  in 
the American  conjunctural  situation  and  balance  of payments  has  strengthened  the 
dollar.  The  currencies  in the 'snake'  had  depreciated  against  the dollar  by an average 
of 11 °/o at the end  of September,  compared  with  their  best  level  in the  first  half  of 
1975.  The  corresponding  figures  for  the  lira  and  sterling  are  7%  and  14°/o 
respectively. 
Relative  resistance  of {n  general,  long-term  interest  rates  have  been  slow  to imitate  the  fall  in short-term 
long-term  interest  rates  rates;  indeed,  in a number  of Member  States,  there  has  been  an actual  tendency  for 
them  to rise  since  the summer.  Although  the propensity  to save  has been  exceptionally 
buoyant,  there  has  been  no great  inclination  to invest  in bonds.  In addition,  the 
improvement  in share  prices  which  all member  countries  experienced  before  the spring 
has now  become  rather  less  assured,  with  those  of some  shares  even  falling  sharply 
during  the summer. 
Budgetary  policy  to 2.3.  While,  in most  Member  States,  the budgets  adopted  for  1975  were  part  of a 
sustain  demand  cautious,  even  restrictive,  policy  dictated  by the  severe  disequilibria  in the  economic 
situation  in the autumn  of 1974,  the actual  administration  of the budgets  has,  during 
1975,  been  redirected  so as to support  economic  activity.  Given  the  conflicting 
objectives  facing  them,  the  Member  States  have,  to differing  degrees,  had  to attach 
increasingly  greater  priority  to safeguarding  the level  of employment.  This  change  of 
direction  in public  finance  has  been  determined  partly  by built-in  reactions  to the 
deterioration  in the  economic  situation  affecting  both  spending  (on  unemployment 
benefits,  in particular)  and  tax  revenue.  Most  governments  have,  however,  made 
several  adjustments  to their  budgets  during  1975  in an attempt  to sustain  the level  of 
effective  demand.  Thus  budget  deficits  have  swollen  considerably  (1). 
Prices  and  incomes  2.4.  The  United  Kingdom,  Denmark  and  the  Netherlands  have  to a large  extent 
policies  resorted  to incomes  policies.  In almost  all the  other  Member  States,  price  restraint 
and competition  policies  have  been  adopted.  Belgium,  for  instance,  has  imposed  a 
selective  price  freeze,  while  France  has blocked  certain  prices  and  imposed  controls  on 
profit  margins. 
III. OUTLOOK  FOR  THE  ECONOMIC  SITUATION  IN 1976 
3.1. On  what  is at present  the most  likely  assumption  — that  the stimulus  afforded 
by the  expansion  in world  trade,  the  reflationary  measures  taken  by the  public 
authorities,  the spontaneous  internal  factors  of recovery  and  renewed  confidence  will 
exert  a combined  impact  — the  economy  could  well  start  to pull  out  of the recession 
between  now  and  early  1976.  In this  case,  it would  be reasonable  to expect  the gross 
(J) See Table  5 annexed. 
No C 297/6 Official  Journal  of the  European  Communities 29.12.  75 
domestic  product  in the  Community  as a whole  to expand  by 3 to 3-5  % in real 
terms  in 1976,  given  that  it will  have  fallen  by 2-5 % in 1975. 
Conditions  for a recovery  3.2.  The  validation  of this  assumption  about  economic  developments  in the 
Community  in 1976  will  depend  on: 
— the  extent  to which  the policies  designed  to stimulate  the economy  will  in fact  make 
an effective  contribution  to spontaneous  expansionary  factors  and  to a recovery 
in external  demand; 
— the  speed  of recovery  in industry's  and  consumers'  confidence  in future  economic 
developments. 
Some  improvement  in 3.3.  The  strength  of the  recovery  in demand  will  depend  on the buoyancy  of the 
world  trade  world  economy  in the months  ahead.  Growth  of around  5 % in the volume  of world 
trade  (volume  of imports,  excluding  Community  imports)  seems  possible  for 1976,  in 
spite  of the deflationary  impact  of the recent  10 % rise  in the price  of oil.  An increase 
of about  6 % in the imports  of the industrialized  non-member  countries  (1975:  — 10 %) 
is all the more  probable  since  Japan  and  the United  States  have  passed  the low  points 
of their  recessions  and  have  since  then  steadily  grained  ground.  But  there  too,  there  is 
the danger  that  a fresh  upsurge  in inflation  will  rapidly  cause  economic  agents  to 
revise  their  expectations.  The  demand  for imports  in the OPEC  countries  will  continue 
to grow,  albeit  at a less  rapid  rate  (about  20 to 25 % in 1976)  while  the  import 
demand  of the developing  countries  which  import  oil is likely  to fall  again  in particular 
because  of difficulties  in financing  their  external  deficits.  Finally  the  imports  of the 
State-trading  countries  should  at least  stabilize. 
Expansionary  measures  3.4.  The  programmes  to stimulate  economic  activity  recently  adopted  in Italy,  the 
Federal  Republic  of Germany,  France,  Denmark  and  the  Netherlands  should  produce 
results  in coming  months,  both  in the capital  goods  industries  and  in the construction 
sector.  The  results  will  be all the  better  in so far  as the  official  programmes  are 
reflected  in orders  promptly  placed  and  in so far as the cautious  approach  to spending 
adopted  by the  local  authorities  in certain  Member  States  can  be countered  more 
energetically. 
Stock  rebuilding...  The  reconstitution  of stocks  will  also  boost  production,  and  this  process  seems 
already  to have  got  under  way  in some  Member  States;  it could  account  for  an 
increase  of 1 %> or more  in the gross  national  product  and  at the same  time  stimulate 
imports  of raw  materials. 
... but hesitancy  on the 3.5.  There  can  be no lasting  recovery  in the  economy  until  households'  normal 
part of households  propensity  to consume  has  been  restored.  However,  . as long  as the  uncertainties 
affecting  incomes  and  employment  policies  persist,  private  consumption  demand  will 
remain  depressed,  while  the propensity  to save  will  remain  strong.  In order  to bolster 
confidence,  it is just  as important  to start  curbing  inflation  as it is to bring  about 
close  cooperation  between  unions  and  management  in respect  of incomes  policy, 
employment  policy  and  social  policy. 
... and of firms  continues  3.6.  "With  so many  firms  running  below  or well  below  capacity,  there  is little 
chance  that  private  investment  will  substantially  boost  demand  in the months  ahead. 
The reluctance  of managements  to implement  investment  programmes  will  probably 
be overcome  only  when  there  is definite  evidence  of a recovery  in final  demand  and 
when  the  cash  situation  of firms  shows  an improvement,  i.e. at a later  stage  in the 
recovery  of the economy. 
29. 12. 75 Official  Journal  of the  European  Communities No C 297/7 
Recovery  of output...  3.7.  Recovery  of output  will  occur  at different  times  and  with  different  growth 
rates  in different  countries  (1). The  relative  weakness  of these  rates  is not  surprising, 
and is due,  among  other  factors  to: 
— pessimism  among  the  different  economic  groups  caused  by "the  shock  of the  energy 
crisis  and  the persistence  of the recession; 
— distortions  and  rigidities  in the economic  system  caused  by prolonged  inflation; 
— the  weakening  of important  sectors  which  in the  past  have  been  motors  of 
expansion; 
— the  profound  changes  which  have  occurred  in the international  scene. 
3.8. In  the  first  instance,  the  recovery  of expansion  will  entail  an increase  in the 
number  of hours  worked  per  person  employed,  with  less  part-time  working.  The 
numbers  of unemployed  will  probably  begin  to decline  only  from  mid-1976  onwards. 
For the  average  of 1976,  the  numbers  of persons  unemployed  in the  Community 
could  well  increase  by half  a million  compared  with  the  average  for  1975,  to reach 
nearly  five  million. 
Inflation  remains  a threat  3.9.  Although  the  recovery  is likely  to be slow,  the  dangers  of inflation  will  be 
ever-present.  Wages  and  salaries  could  well  respond  too  quickly  to the  recovery  of 
the economy.  Management,  for  its part,  will  be tempted  to restore  profit  margins 
more  rapidly  than  in the  past.  Lastly,  the  upward  movement  in import  prices,  of raw 
materials  for instance,  and  more  particularly  the recent  increase  in oil prices,  are bound 
to affect  internal  prices. 
Thus  the  rate  of price  increases  in the  Community  will  probably  fall  only  gradually, 
so that  further  efforts  by Member  States  are required. ... and  later  an 
improvement  in the 
employment  situation 
Worsening  of current 
account 
Weakness  of recovery 3.10.  The  Community's  current  account,  like  that  of certain  of its Member  States, 
should  begin  to worsen  in 1976.  A deterioration  in the  terms  of trade  is also  to' be 
expected.. 
3.11.  The  year  1976  will  be characterized  by the  persistence  of price  inflation  in 
the Community  and  uncertainties  about  international  economic  relations.  A 
reappearance  of inflationary  pressures  will  quickly  threaten  the  confidence  of the 
various  economic  groups,  will  necessitate  premature  restrictive  policies  and  lead  to a 
new employment  crisis.  Moreover,  the weakness  of the  point  of departure,  in particular 
as far  as the  financial  position  of enterprises  and  the  public  sector  is concerned, 
threatens  to throttle  the recovery. 
To sum  up,  the economic  situation  in the Community  remains  precarious  in 1976. 
IV. GUIDELINES  FOR  ECONOMIC  POLICY 
A. General  guidelines 
Necessary  alignment  4.1.  Despite  the  efforts  of governments  and  both  sides  of industry,  the  serious 
of action  difficulties  and  the  dangers  confronting  the  economies  of the  Community  countries 
have  by no means  been  overcome.  However  a deep  depression  has  been  avoided. 
The increasing  degree  of economic  interdependence  and  the  unexpected  scale  of the 
world  recession  are  pressing  reasons  for  pursuing  efforts  to strengthen  economic 
coordination  at both  Community  and  international  levels. 
(x) See  Table  2 annexed, 
No C 297/8 Official  Journal  of the European  Communities 29.12.  75 
This  coordination  does  not  mean  that  the  Member  States  should  pursue  identical 
economic  policies,  since  both  from  a conjunctural  and  a structural  point  if view,  they 
differ  too  widely  for  this.  However,  an alignment  of fundamental  objectives  seems 
essential  if what  has  been  achieved  so far  as a Community  is to be preserved  and 
further  progress  is to be made  along  the road  to European  integration. 
Need  for  budgetary 
policy  to sustain  the 
recovery 4.2. In  most  Member  States,  budgetary  policy  will  still  need  to support  economic 
policy  over  the  coming  months.  In several  countries,  it is desirable  that  public 
expenditure  increase  in volume  relative  to 1975.  Similarly  a reduction  in direct  taxation 
must  be envisaged  in many  cases,  if only  to account  for  some  or all of the  effects  of 
'fiscal  drag'.  The  uncertainty  about  the  conjunctural  situation  requires  great  flexibility 
in public  finance  policy:  while  the  budget  is an eminently  suitable  instrument  for 
checking  the  decline  in economic  activity,  any  over-stimulation  of domestic  demand  or 
excessive  monetary  financing  might  well  produce  a new  bout  of inflation  which  would 
cut short  a nascent  recovery. 
If economic  activity  does  pick  up substantially,  the  authorities  should  then  stabilize 
or scale  down  their  budget  deficit  during  the  year,  not  as a restrictive  policy  but 
because  no further  large-scale  inflationary  measures  would  be needed  and  because 
tax revenues  would  start  rising  again  as activity  picked  up.  Stabilizing  or reducing  the 
deficit  would  be in line  with  the  need  for  a non-inflationary  recovery  enabling  a larger 
share  of total  savings  to be allocated  to meeting  the  growing  need  for  credit  in the 
private  sector.  It should  herald  a tightening  up of public  finances  which  will  in any 
event  be needed  in the years  to come. 
Need  for a flexible  4.3.  In  1975,  the  Member  States  in general  followed  expansionary  monetary 
monetary  policy...  policies.  In  most  Member  States  these  policies  should  be  maintained  to provide 
backing  for  the  movement  towards  economic  recovery.  They  should,  however,  be 
conducted  with  prudence  so that  any  excessive  expansion  of liquidity  can  be avoided 
when  the  recovery  of private-sector  borrowing,  taken  with  public  treasury  financing 
requirements,  swells  the demand  for credit. 
Also  monetary  policy  must  avoid  excessive  interest  rate  differentials  vis-a-vis  the 
international  market  so  as  to  prevent  disturbing  capital  movements.  These 
considerations  lead  inevitably  to the  conclusion  that  close  coordination  is necessary 
both  between  the  Member  States  and  between  the  Community  and  the  principal 
third  countries. 
... and  cooperation 
among  different  economic 
groups 4.4. The  most  urgent  task  facing  the authorities  and  various  socio-economic  groups 
in the  present  economic  situation  is to ensure  that  economic  recovery  in the 
Community  can  get  under  way  and  that  the  conditions  are  established  under  which 
lasting  growth  and  an improvement  in the  employment  situation  can  be achieved. 
Industrial  strife  or renewed  inflationary  patterns  of behaviour  would  undermine  the 
fragile  foundations  of economic  progress,  would  make  the  recovery  that  much  more 
difficult  to achieve,  and  threaten  the  employment  situation. 
Cooperation  between  the  two  sides  of industry  and  the  authorities  is the  key  to any 
revival  of confidence  in future  economic  growth.  But  it cannot  be built  up unless  the 
distribution  of the burden  created  by the economic  difficulties  is as fair  as possible. 
Role  of firms...  With  regard  to firms,  it may  reasonably  be expected  that  they  should  improve  their 
financial  situation  as a result  of progress  in productivity  and  fuller  use  of capacity  and 
that they  should  show  the  greatest  restraint  in their  prices  policy.  Supervision  of prices 
and a policy  of keen  competition  should  help  to limit  price  increases. 
29.12.  75 Official  Journal  of the  European  Communities No C 297/9 
(and unions)  If  profits  and  the  propensity  to invest  are  to improve,  the  unions  must  show 
moderation  in wage  demands  and,  for  a limited  period,  they  must  forgo  the  large 
increases  in real  income  obtained  over  recent  years,  since  these  have  largely 
outstripped  increases  in productivity  and  have  led to a heavy  increase  in the  share  of 
national  income  accounted  for  by wages.  Such  a wages  policy  is, however,  conceivable 
only  if there  is fuller  worker  participation  in drawing  up economic  policy  and  greater 
information  on the true  economic  situation. 
... and  the public  sector  Finally  the  authorities  must  face  the  difficult  task  of containing  budget  deficits  and, 
at the  same  time,  of facilitating  not  only  the  economic  recovery  but  also'  the changes 
needed  in the long  term,  through  practising  a courageous  social  policy  and  an effective 
employment  policy. 
B. The  guidelines  for Member  States 
In Denmark,  the  effect  on domestic  demand  of the 
reflationary  measures  adopted  in September  and  the 
expected  upturn  in  external  demand  should 
encourage  a recovery  in activity  in the  coming 
months.  This  recovery,  however,  will  only  give  rise 
to a slow  increase  in employment  and  the number  of 
unemployed  could  remain  high.  The  rate  of price 
increases  will  probably  continue  to  fall.  The 
expected  development  of imports  is likely  to lead  to 
a sharp  deterioration  in the  current  account  of the 
balance  of payments. 
The extension  of the  pay  agreements  of last  spring 
has contributed  to a more  moderate  development  in 
prices  and  salaries;  the  strict  application  of these 
agreements  should  mean  further  progress  in this 
direction.  The  improvement  could  help  to stimulate 
exports  in an intensely  competitive  situation  and  to 
limit  the size  of the external  deficit. 
In this  respect,  budgetary  policy,  which  has  helped  to 
achieve  a more  favourable  development  of incomes, 
should  try to ensure  in particular  that  the  deliberate 
lessening  of the  fiscal  burden  undertaken  since  the 
beginning  of 1975  should  be offset  by a slower  rate 
of increase  of current  expenditure  which,  given  a 
favourable  development  of the  economy,  should 
enable  the budget  deficit  to be reduced. 
Monetary  policy  should  seek  to  counter  the 
consequences  which  could  rise  in a period  of 
economic  recovery,  from  an excessive  growth  of 
domestic  liquidity  caused  by  a large  government 
deficit.  The  monetary  authorities  should,  in addition, 
try to ensure  a substantial  inflow  of capital.  Credit 
policy  should  aim  at preventing  the  appearance  of 
destabilizing  factors,  especially  in the  construction 
sector. In the Federal  Republic  of Germany,  the  most  recent 
conjunctural  indicators  show  an improvement  in the 
prospects  of a recovery. 
The measures  undertaken  by  the  authorities 
responsible  for  economic  policy,  the  awaited 
recovery  of the  world  economy,  as well  as the 
eventual  strengthening  of private  consumption  and 
the propensity  to invest  will  bring  about  a turn-
round  in economic  activity  and  a progressive  rise  in 
economic  growth.  Nonetheless,  a considerable 
measure  of uncertainty  still  affects  the hopes  placed 
on the  factors  leading  to an upturn.  In the  first 
stages  an expansion  of world  trade  will  not  be of 
great  help  to the  Federal  Republic  of Germany,  on 
the one  hand  because  of the  structure  of its exports 
which  are  directed  largely  towards  plant  and 
machinery,  on the  other  hand  as a result  of delayed 
reactions  to changes  in exchange  rates  which  could 
possibly  still  influence  the German  economy.  Under 
these  conditions  the  task  of economic  policy  will  be 
essentially  to support,  to the  extent  required,  the 
forces  of expansion  in order  to attain  in 1976  a 
higher  rate  of capacity  utilization. 
Budgetary  policy  should  be flexible.  On one  hand  it 
should  continue  to follow  the decisions  arrived  at for 
improving  the  structure  of the  budget  and  to 
continue  to limit  the  budget  deficit  in the  medium-
term,  and  on the  other  hand,  with  a view  to the 
upturn  in economic  activity,  it should  show  a deficit 
in 1976  similar  to that  of 1975.  A possible  short-fall 
in tax  receipts  should  not  lead  to new  reductions  in 
expenditure  in the  short-term.  Budgetary  policy 
should,  however,  be managed  so as to ensure  a 
complete  recovery  and  for  this  certain  specific 
measures  to  support  the  economy  may  prove 
necessary. 
Monetary  policy  will  be  such  as  to allow  an 
economic  recovery  while  preventing  the development 
of inflationary  tensions.  An abundance  of liquidity  in 
the economy  will  make  the  financing  of the  deficits 
easier  and  inhibit  an unwarranted  rise  in long-term 
interest  rates. 
No C 297/10 Official  Journal  of the  European  Communities 29.12.  75 
The increase  in prices  might,  however,  continue  to 
slow  down,  above  all if moderate  wage  rises  are 
agreed  on at the  next  negotiations  which  will  limit 
costs  on enterprises  and  if the  latter  by the help  of a 
better  use  of capacity,  could  bring  about  new 
increases  in productivity. 
In France,  the  recession  which  the  economy  has 
undergone  in 1975  seems  largely  the  result  of a 
major  run-down  in stocks,  which  was  related  to a 
less optimistic  outlook  for  exports.  In effect  almost 
the whole  business  sector  has  ha:d  to face  serious 
liquidity  problems  due  to price  developments  and  the 
maintenance  of  excess  employment.  In  these 
conditions  this  sector  did  not  find  it possible  to pass 
on to other  sectors  the  extra  burden  resulting  from 
the deterioration  in the  terms  of trade  in 1973  and 
1974.  The  end  of destocking,  which  has  now  begun, 
and the  effects  of the  programme  to expand  public 
investments,  will  bring  about  a marked  recovery,  but 
sustained  expansion  requires  that  the  other 
components  of  demand,  notably  private  fixed 
investment,  react  favourably  to  this  year's 
stimulatory  measures  and  improved  prospects  for the 
future.  However,  unemployment  will  certainly 
remain  high  throughout  most  of  1976.  The 
commercial  balance  which  will  show  a substantial 
surplus  in 1975  will  probably  be close  to equilibrium 
next  year. 
The depth  of the  recession  has  made  it easier  to 
curtail  inflation.  As the  economy  starts  to expand 
and since  raw  material  prices  are  now  increasing,  it 
will prove  extremely  difficult  to affect  a further  cut 
in the  monthly  rate  of price  increases.  Certainly  the 
high  wage  rate  increases  of the  first  half  of this  year, 
as well  as the  rises  in employers  social  security 
contributions  will  worsen  the path  of the price  level. recovery,  a new  postponement  of the payments  could 
be announced. 
Monetary  policy  has  not  had  a restrictive  influence 
during  the  recession.  Since  demand  for  credit  has 
slowed  down  on its own  accord,  ceilings  on bank 
credit  have  not  been  reached.  Interest  rates  have 
tended  to fall  substantially.  In 1976  developments  in 
the monetary  aggregates  should  be watched  closely 
to avoid  any  appearance  of inflationary  pressures 
later  in the year. 
In Ireland  recovery  could  occur  within  the  next  few 
months,  but  that  recovery  will  be slow  until  the 
world  economic  situation,  and  particularly  that  of 
the United  Kingdom,  gives  it greater  impetus.  The 
employment  position  will  remain  worrying  and 
unemployment  will  stay  at a high  level.  The  inflation 
rate will  continue  to slow  down.  The  current  balance 
of payments  will  improve  before  the  recovery 
becomes  fully  established. 
Incomes  policy  will  play  a most  important  role  in 
consolidating  the  present  tendency  toward  a 
slowdown  in the  rate  of inflation,  by reducing  cost 
increases,  which  threaten  the  competitive  position  of 
Irish  goods.  To  achieve  this  it is not  sufficient  to 
institute  an automatic  link  between  prices  and  wages. 
Limitations  on incomes  growth  and  spreading  that 
growth  over  time  should  be implemented  for  all 
social  groups. 
Budgetary  policy  in 1976  needs  to restrain  the 
growth  of public  consumption.  This  implies  that  the 
net borrowing  requirement  should  be brought  down 
to considerably  below  the  17  % which  the  gross 
domestic  product  will  certainly  reach  in 1975. 
If the  economic  expansion  is, as expected,  sustained 
through  the  course  of 1976  the budget  deficit,  which 
in terms  of execution  will  be close  on 40 000  million 
francs  in 1975,  should  be limited.  But  given  that 
certain  expenditures  decided  upon  in  the  1975 
expansionary  programmes  will  not  be effected  till 
next  year  a certain  deficit  will  occur  in 1976.  Besides, 
to allow  for the uncertainty  as to the  fullness  of the Monetary  policy  should  be  prudent,  particularly 
during  the  recovery  period,  so as to avoid  allowing 
the growth  in internal  liquidity,  which  results  from 
the increase  in the  finance  needed  by  the  public 
sector  in the last  two  years,  to raise  new  inflationary 
pressures.  During  this  period,  the  authorities  should 
also aim  at the building  up of the  necessary  resources 
for financing  productive  investment  in the  private 
sector. 
29. 12. 75 Official  Journal  of the  European  Communities No C 297/11 
In Italy,  the  considerable  progress  achieved  since  the 
end of 1974  towards  restoring  external  and  internal 
equilibrium  has  been  accompanied  by a very  marked 
economic  recession.  The  authorities  have  found 
themselves  required  to stimulate  activity  through  an 
easy  money  policy  and  even  more  so  through 
budgetary  measures.  But  economic  expansion  will 
only  become  more  rapid  when  world  trade  recovers 
and when  the  settlement  of the  agreements  with  the 
trade  unions  in the  autumn  has  eliminated  the 
uncertainty  about  them,  particularly  in so far as the 
profitability  of enterprises  is concerned. 
In this  context  the  government  should  do all it can 
to speed  up the  implementation  of the  expansionary 
measures,  especially  given  the  fact  that  delays  could 
endanger  a balanced  growth  in the  near  future. 
Budgetary  policy  should  aim  at eliminating  rigidities 
in public  expenditure  and  in augmenting  tax  receipts 
as far as necessary  to meet  the  requirements  of the 
infrastructure  and  public  services.  In this  respect 
tightening  controls  to reduce  tax  evasion  should 
become  a prime  goal.  Besides  a greater  flexibility  in 
anticyclical  measures  should  be sought,  particularly 
through  simplifying  administrative  procedures,  by 
speeding  up  the  implementation  of state-financed 
investment  programmes,  and  if  necessary  by 
modifying  the current  legislation.  Moreover,  there  is 
some  danger  that  the  continuance  in the  medium 
term  of a high  current  account  deficit  might  lead  to 
serious  problems  in financing  investment  and  then  to 
an unfavourable  impact  on  internal  and  external 
equilibrium,  and  so lead  to a stop-go  cycle  which 
can only  have  serious  implications. Despite  the  strongly  expansionary  stance  of 
budgetary  policy,  the  employment  situation  is 
unlikely  to improve  noticeably  next  year.  Indeed, 
even  if the  expected  recovery  in foreign  demand 
were  to become  evident  very  soon,  it could  not  have 
much  influence  on  unemployment  until  after  a 
relatively  long  time-lag.  The  reabsorption  of 
structural  unemployment  requires  a global  effort  as 
well as selective  action. 
The outlook  for the development  of prices  and  wage 
costs  in 1976  is not  reassuring,  although  it appears 
more  favourable  than  in 1975.  Undoubtedly  the 
prospect  of some  advances  in productivity  allows  a 
more  gradual  development  in wage  costs  per  unit  of 
output  to be  hoped  for,  and  the  government's 
decision  not  to raise  the  existing  social  security 
contribution  rates  constitutes,  from  here  onwards,  a 
major  contribution  to holding  back  inflation.  But  it 
is important  that  this  measure  should  be accompained 
by a parallel  effort  from  both  sides  of industry  to 
moderate  the rise  in nominal  incomes  and  attempt  to 
reach  the  objective  proposed  by the  government  (an 
increase  of less  than  10 °/o in salaries). 
Monetary  policy  will  play  an especially  important 
part in 1976.  Given  that  financing  the budget  deficit 
in 1976  through  medium-  and  long-term  borrowing 
could  present  some  problems,  a resort  to short-term 
methods  of financing  cannot  be avoided;  this  could 
moreover  help  in keeping  interest  rates  at a relatively 
low level. 
Monetary  policy,  in reducing  interest  rates,  will 
rightly  help  to increase  the demand  for  credit  by the 
private  sector.  However  such  a policy  needs  to be 
implemented  carefully  in order  not  to upset  the 
attractiveness  of  the  Italian  capital  market  for 
foreign  investors  and  to  reduce  the  balance  of 
payments  constraint.  Moreover,  the  balance  of 
payments  could  be  threatened  by  speculative 
purchases  occasioned  by the  economic  recovery  and 
the rising  prices  of raw  materials.  In the  near  future 
the monetary  authorities  must  show  prudence, 
particularly  in appreciating  the  real  needs  of the 
economy  in so far as credit  is concerned. 
In the  Netherlands  considerable  support  has  been, 
and is still  being  given  to domestic  demand.  In the 
framework  of the  budget  for  1976  the  government 
has further  reinforced  its  reflationary  policy. 
According  to the  draft  budget,  the  net  borrowing 
requirement  of the  State  should  reach  Fl 14  500 
million,  including  the  amortization  of the  national 
debt, In Belgium  the  recovery  in activity  could  be delayed 
compared  with  the  improvement  in the  economic 
situation  expected  for  Belgium's  main  trading 
partners. 
After  having  been  restrictive  last  year,  economic 
policy  has  been  eased  since  the  beginning  of 1975. 
As for budgetary  matters,  the decision  by the Belgian 
Government  to advance  the  starting  dates  of public 
investment  programmes  will  have  its impact  chiefly 
in 1976.  In addition,  the  rate  of growth  of tax 
receipts  will  be distinctly  lower  than  during  1975,  a 
year  in which  the  counter-inflationary  policy  was 
based  partly  on  increased  taxation.  These  two 
factors  alone  are likely  to cause  a sizeable  increase  in 
the borrowing  requirement  in terms  of execution. 
Nevertheless,  given  the  current  short-term  outlook 
for the  economy,  some  further  action,  consisting 
essentially  of a reduction  in the  tax  burden  on 
modest  incomes  and,  if need  be,  some  en-
couragement  for  residential  construction,  parti-
cularly  as regards  grants  for  housing  and  housing 
No C 297/12 Official  Journal  of the  European  Communities 29. 12. 75 
improvement,  seems  appropriate.  It is,  however, 
important,  that,  at the  same  time,  efforts  should 
continue  to be made  to moderate  the  growth  of 
expenditure  and  transfer  payments  by  public 
administrations. 
Monetary  policy  could  play  an important  role  in 
stimulating  activity,  through  an expansion  in lending 
and a lowering  of interest  rates.  The  measures  easing 
monetary  policy  recently  taken  in neighbouring 
countries  have  opened  the way  for similar  initiatives 
on the  part  of the  Belgian  authorities.  It would  be 
particularly  desirable  to ensure  that  the  reduction  in 
base  rates  is effectively  passed  on to lending  rates. 
In any  case,  the  employment  situation  could  not  be 
improved  without  a slowing  down  in the  rise  in 
wage  costs.  In this  context  it would  be appropriate 
to keep  strict  control  of trading  profit  margins. expenditure,  combined  with  a net  movement  of 
resources  into  the  balance  of payments,  however, 
served  to  limit  the  fall  in  overall  demand. 
Nevertheless,  unemployment  climbed  to a new  post-
war record  level  and  the  rate  of inflation  remained 
very high  despite  some  recent  signs  of improvement. 
Although  the  current  account  of the  balance  of 
payments  improved  dramatically  during  the first  half 
of 1975,  some  deterioration  has  recently  occurred. 
Domestic  demand  and  output  are  unlikely  to show 
strong  signs  of recovery  before  the  spring  of 1976 
when  inflation  is expected  to  have  moderated 
significantly,  leading  to a reversal  of the present  trend 
in consumers'  expenditure  and  a strengthening  of 
business  confidence.  The  stimulus  from  public 
expenditure,  however,  is then  expected  to slacken  as 
the cuts  announced  in the  April  budget  come  into 
effect. 
In Luxembourg  private  and  public  sector  demand 
could  continue  to grow  at a relatively  high  rate, 
while  exports,  especially  of iron  and  steel,  are likely 
to recover  only  gradually  under  the  influence  of the 
expected  firming  in foreign  demand.  After  the 
overheating  of  recent  years,  the  construction 
industry,  for  which  the  decline  in 1975  has  been 
lessened  by  the  expansion  in public  works,  will 
tend  to become  more  normal  in 1976,  mainly 
because  of persistent  weaker  demand  in the  housing 
sector.  The  State  deficit  (net  borrowing  requirement) 
should  remain  substantial  in 1976.  Indeed  the cost  of 
the measures  needed  to neutralize  the  effects  of the 
recession  (worsening  of employment  and  subsidies  to 
the railways)  will  remain  high,  while  the  yield  from 
taxes  and  in particular  from  taxes  on companies  will 
still be influenced  by the poor  economic  situation. Despite  the  unsatisfactory  prospects  for  output  and 
employment,  there  will  be  limited  scope  for 
reflationary  measures  so long  as the rate  of inflation 
remains  unduly  high.  Every  effort  should  therefore 
be made  to ensure  that  the  government's  counter-
inflation  policy,  as outlined  in the July  white  paper, 
is strictly  implemented. 
The behaviour  of the  external  balance  could  also 
constitute  a constraint  on the  authorities'  room  for 
manoeuvre.  Should  the  stimulus  arising  from  the 
expected  upturn  of  world  trade  be  delayed, 
fundamental  changes  of policy,  including  general 
reflation,  should  be avoided  and  action  confined  to 
measures  of a limited  nature  designed  to alleviate  the 
most  serious  difficulties. 
Since  the level  of employment  and  of general  activity 
are to a large  extent  determined  by the  trend  in 
exports,  economic  policy  should  from  now  on aim  at 
selective  support  for the private  sector. 
In the course  of 1975,  the economic  recession  in the 
United  Kingdom  proved  to be deeper,  and  could  well 
last longer,  than  officially  expected  at the time  of the 
spring  budget.  The  volume  of  consumers' 
expenditure  was  increasingly  affected  by  the 
contraction  of  real  personal  disposable  income. 
Private  industrial  investment,  in both  fixed  assets 
and stocks,  fell  sharply.  The  buoyancy  of public In order  to reserve  the present  trend  towards  a rapid 
expansion  of  the  public  sector  borrowing 
requirement,  the  authorities  should,  from  the 
beginning  of the  1976/77  fiscal  year,  considerably 
reduce  the rate  of growth  of public  expenditure  so as 
to achieve  a rate  below  that  projected  for  the 
nominal  increase  in gross  domestic  product.  To this 
end, it is particularly  important  that  the  new  pay 
limit  be strictly  observed  in the  entire  public  sector, 
including  the nationalized  industries.  This  budgetary 
policy  should  be  continued  during  the  expected 
period  of recovery  so that  the  size  of the  reduction 
of the  borrowing  requirement  is increased  as the 
upswing  gathers  momentum. 
29.12.  75 Official  Journal  of the  European  Communities No C 297/13 
The present  position  with  regard  to monetary  policy 
should  be maintained  in 1976,  and  the  growth  rate 
of the  money  supply  should  not  prejudice  the 
achievement  of the  target  rate  of inflation  set out  in 
the July  white  paper.  This  should  be complemented by a policy  of maintaining  sufficiently  high  levels  of 
short-term  interest  rates  to encourage  orderly  capital 
movements  appropriate  to  the  UK  balance  of 
payments. 
CONCLUSIONS 
In the  light  of information  available  at the  beginning  of October  it appears  that  the 
recession  has  bottomed  out  in France,  the  Federal  Republic  of Germany  and  Denmark 
and is nearly  at an end  in the majority  of the other  Member  States. 
If, in the  course  of the  coming  months,  trends  towards  the  replacement  of stocks, 
a recovery  in external  demand  and  a normalization  of consumer  expenditure  are 
confirmed  and  become  generalized,  a moderate  growth  of gross  Community  product 
in real  terms  during  1976  seems  probable.  Nevertheless,  industrial  capacity  will  not 
necessarily  be  fully  utilized  and  the  employment  situation  will  only  improve 
gradually. 
Given  the  uncertainties  which  exist  as to the  behaviour  of economic  agents,  one  can 
scarcely  be sure  of the  amplitude  or duration  of the  expected  economic  recovery. 
Therefore  it will  be necessary  to follow  very  carefully  the  subsequent  development 
of the  conjunctural  situation  within  the  framework  of frequent  consultations  and  close 
coordination  between  Member  States. 
The Community  should  not  in the  immediate  future  count  too  much  on a boost  to 
economic  activity  from  third  countries.  Its weight  in international  trade  forces  the 
Community  itself  to contribute  to the  recovery  in the  world  conjunctural  situation. 
A similar  responsibility  falls  on Member  States  in the Community  context. 
Done  at Brussels,  18 December  1975. 
For the Council 
The President 
M. TOROS 
No C 297/14  Official  Journal  of the  European  Communities  29.12.  75 
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29.12.  75 Official  Journal  of the  European  Communities No C 297/15 
TABLE  2 
Changes  in the principal  macro-economic  aggregates  of the Community,  the United  States  and 
Japan  (a) 
G.D.P.  (b) (volume) Consumer  prices  (c) 
Unemployment  rate  (d) 
(as °/o of civilian 
labour  force) External  balance 
°/o increase  over  average  of preceding  year Unemployment  rate  (d) 
(as °/o of civilian 
labour  force) (as »/o of ihe G.D.P.) 
1974 1975 1976 1974 1975 1976 1974 1975 1976 1974 1975 1976 
Denmark 1-6 — 1-0 4-0 15-0 9-5 8-0 2-4 4-5 3-7 — 3-5 — 1-1 — 2-1 
Federal  Republic 
of Germany 0-6 — 3-5 4-0 7-3 6-0 5-5 2-2 4-5 4-6 + 2-4 + 0-9 + 0-8 
France 3-8 — 2-0 5-0 13-7 11-6 9-0 2-3 3-9 4-0 — 2-5 — 0-1 — 0-6 
Ireland •0-4 — 3-6 2-5 17-3 21-5 16-0 5-7 8-4 10-1 — 10-4 — 1-7 — 1-6 
Italy 3-4 — 3-0 3-0 19-6 17-0 12-0 2-9 3-7 3-9 — 5-3 — 07 — 0-7 
Netherlands 2-8 — 2-1 2-8 10-0 10-5 10-0 3-0 4-4 5-2 + 2-4 + 1-7 + 2-4 
Belgium 3-9 — 1-9 2-5 12-3 12-4 10-0 2-7 4-8 5-6 + 1-5 + 1-7 + 1-0 
Luxembourg 4-5 — 7-5 4-0 9-5 10-5 8-5 0 0-7 0-7 + 4-4 — 9-5 — 8-8 
United  Kingdom 0-7 — 0-7 ±0 15-2 21-5 15-5 2-4 3-6 (5-3) — 4-6 — 1-3 — 1-2 
Community 2-0 — 2-4 3-3 12-5 12-4 9-6 2-5 4-1 4-6 — 1-4 + 0-1 — 0-1 
USA -2-1 — 4-0 5-0 11-5 8-5 8-5 5-6 8-5 8 — 0-3 + 0-5 — 0-1 
Japan -1-8 + 1-5 6-0 21-7 11-0 6-0 1-4 — 1-1 + 0-2 — 0-2 
(a) 1974:  actuals;  1975:  estimates;  1976:  forecasts  by the  services  of the  Commission  for  Member  States,  the  Community  and  the  third  countries 
reported. 
(b) Gross  domestic  product;  United  States  and  Japan:  gross  national  product. 
(c) On  a national  accounts  basis. 
(d) As a result  of disparities  in definition,  unemployment  statistics  cannot  be compared  between  countries  but  only  reflect  developments  within 
each  country. 
TABLE  3 
Unemployment  ratio  (1) 
(as a %>) 
1974 1975 
I II III IV I II July August September 
Denmark 0-7 1-6 2-5 2-8 3-9 4-3 3-8 4-5 4-6 
Federal  Republic  of Germany 1-8 2-1 2-6 3-1 3-6 4-6 4-7 4-8 4-8 
France 1-9 2-1 2-5 3-0 3-3 3-8 3-9 4-0 4-0 
Ireland 5-8 6-1 6-7 8-0 9-2 8-9 8-9 9-0 9-1 
Italy 2-7 2-9 3-1 2-8 3-1 • • • • 
Netherlands 2-7 2-9 3-2 3-5 3-9 4-3 4-5 4-7 4-7 
Belgium 2-7 2-9 3-2 3-6 4-3 5-1 5-2 5-3 5-6 
Luxembourg — — — 0-1 0-1 0-1 0-1 0-1 0-2 
United  Kingdom 2-3 2-5 2-7 2-8 3-0 3-8 4-4 4-8 4-9 
Community (2-2) (2-4) (2-8) (3-0) (3-4) (4-1) (4-4) (4-4) (4-5) 
(') Number  of unemployed  as °/o of civilian  labour  force;  seasonally  adjusted  figures  for  final  month  of each  quarter.  As  a result  of disparities 
in definition,  unemployment  statistics  cannot  be  compared  between  countries  but  only  reflect  developments  within  each  country. 
Source:  Rates  calculated  from  SOEC  figures. 
No C 297/16 Official  Journal  of the  European  Communities 29.12.  75 
TABLE  4 
Changes  in consumer  prices  since  1973 
December 
1973 June  1974 
December 
1974 December 
1974 March 
1975 19 75 September 
1974 
June  1974 June  1974 
December 
1974 June  1975 September 
1975 May June July August September September 
1975 
Half-yearly ncrease  (°/o) [ncrease  of preceding  month  (°/o) Increase 
(°/o) 
Denmark 7-0 7-0 3-4 4-0 1-3 0-6 0-5 0-3 0-9 8-7 
Federal  Republic 
of Germany 3-5 2-0 4-1 2-5 0-6 0-7 0-0 — 0-1 0-5 6-1 
France 8-4 6*3 5-1 4-7 0-7 0-8 0-7 0-7 0-8 10-7 
Ireland  (J) 10-5 8-7 14-6 5-2(2) 6-1 — — — 0-8 — 18-9 (3) 
Italy 10-9 12-3 6-0 4-9 0-8 0-8 0-4 0-6 0-8 13-0 
Netherlands 5-5 5-0 4-7 4-9 0-7 0-2 0-4 1-0 1-3 10-2 
Belgium 8-3 6-8 5-3 5-0 0-8 0-4 0-9 0-7 0-9 10-9 
Luxembourg 5-8 5-0 5-7 4-7 0-6 0-7 0-9 0-4 0-8 10-9 
United  Kingdom 10-8 7-5 17-3 13-1 4-2 2-0 1-0 0-6 0-9 26-7 
Community 7-8 6-4 7-5 5-8 1-5 1-0 0-5 0-4 0-8 13-1 
USA 6-1 5-8 3-3 3-7 0-4 0-8 1-1 0-3 0-5 7-8 
Canada 6*6 5-4 4-7 5-5 0-9 1-5 1-4 1-0 0-2 10-6 
Japan 12-5 8-7 4-7 4-8 0-7 0-1 0-2 — 0-2 1-9 10-3 
(1) Changes  calculated  from  indices  recorded  at the  middle  of each  quarter. 
(2) Ireland:  February  1975  from  August  1974. 
(s) Ireland:  August  1975  from  August  1974. 
Source:  Services  of the  Commission. 
TABLE  5 
Expenditure,  receipts  and  net balance  of central  government  budgets 
Expenditure Receipts Net balance 
Percentage  change Value  (') As °/o of G.D.P. 
1974 . 1975 1974 1975 1974 1975 1974 1975 
Denmark + 23-0 ~t~ 16*5 + 10-0 — 0-5 0-4 10-6 — 0-2 — 5-2 
Federal  Republic 
of Germany + 13-3 + 18 4- 6*8 — 1 16-8 64-5 — 1-7 — 6-2 
France + 14-9 + 23 + 20-0 — 0-5 + 5-7 — 35-0 + 0-4 — 2-4 
Ireland + 27-6 + 37 + 18-5 + 19-5 — 335-7 — 616 — 11-6 — 17-4 
Italy + 17-3 + 32 + 27-5 + 31 — 6 912 — 9 300 — 7-1 — 8-3 
Netherlands + 16-3 + 25 + 8-1 + 14 — 2-7 — 8-7 — 1-5 — 4-3 
Belgium + 15-5 + 22 + 19-0 + 21 — 76-5 — 99-0 — 3-6 — 4-3 
Luxembourg + 22-7 + 22-5 + 23-4 — 2-5 + 3-0 — 2-4 + 3-6 — 3-1 
United  Kingdom  (2) + 32-9 + 28-5 + 24-0 + 25-5 — 5 111 — 7 910 — 6-3 — 7-8 
(3) + 34-6 + 33 + 24-0 + 25-5 1 621 — 4 810 — 2-0 — 4-7 
(') Milliards  Dkr,  DM,  FF;  Millions  £; Milliards  Lit,  FI,  Bfrs,  Lfrs;  Millions  £. 
(2) 1974/75,  1975/76. 
(3) Actual  expenditure  (i.e.  total  expenditure  less  net  loans  and  advances),  and  balance  of actual  transactions  (i.e.  net  borrowing  requirement 
excluding  the  balance  of loans  and  advances). 
Source:  Services  of the  Commission. 
29.12.  75 Official  Journal  of the European  Communities No C 297/17 
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No C 297/18 Official  Journal  of the  European  Communities 29.12.75 
TABLE  7 
Community  trade  balances  1973,  1974  and  1975  (*) 
Mio Eur  — monthly  average 
Year Federal 
Republic 
of 
Germany France Italy Nether-
lands  (s) BLEU United 
Kingdom Ireland 
W Denmark 
Intra  EEC 
Federal  Republic  of Germany 
France 
Italy 
Netherlands 
BLEU 
United  Kingdom 
Ireland 
Denmark 
EEC  Total 
Extra)  EEC 
USA 
Japan 
OPEC  (4) 
Other 
Extra  EEC  Total 
World 1973 
1974 
1975 — 101 
— 152 
— 77 — 53 
— 109 
— 16 + 62 
+ 82 
+ 102 — 11 
— 36 
— 21 — 92 
— 136 
— 104 — 6 
— 9 
— 4 — 49 
— 55 
— 45 Intra  EEC 
Federal  Republic  of Germany 
France 
Italy 
Netherlands 
BLEU 
United  Kingdom 
Ireland 
Denmark 
EEC  Total 
Extra)  EEC 
USA 
Japan 
OPEC  (4) 
Other 
Extra  EEC  Total 
World 1973 
1974 
1975 + 104 
+ 167 
+ 96 — 64 
— 103 
— 47 + 33 
+ 58 
+ 53 + 34 
+ 34 
— 2 — 49 
— 66 
— 70 — 1 
— 8 
— 5 — 7 
— 7 
— 7 Intra  EEC 
Federal  Republic  of Germany 
France 
Italy 
Netherlands 
BLEU 
United  Kingdom 
Ireland 
Denmark 
EEC  Total 
Extra)  EEC 
USA 
Japan 
OPEC  (4) 
Other 
Extra  EEC  Total 
World 1973 
1974 
1975 + 23 
4- 97 
— 24 + 56 
+ 93 
+ 34 + 33 
+ 42 
+ 31 + 17 
+ 10 
. — 6 — 20 
— 35 
— 24 — 1 
— 3 
— 1 — 9 
+ 5 
+ 8 Intra  EEC 
Federal  Republic  of Germany 
France 
Italy 
Netherlands 
BLEU 
United  Kingdom 
Ireland 
Denmark 
EEC  Total 
Extra)  EEC 
USA 
Japan 
OPEC  (4) 
Other 
Extra  EEC  Total 
World 1973 
1974 
1975 — 61 
— 45 
— 78 — 19 
— 34 
— 33 — 26 
— 27 
— 20 — 30 
+ 3 
+ 35 — 50 
— 36 
— 23 + 0 
— 2 
+ 2 — 12 
— 23 
— 21 Intra  EEC 
Federal  Republic  of Germany 
France 
Italy 
Netherlands 
BLEU 
United  Kingdom 
Ireland 
Denmark 
EEC  Total 
Extra)  EEC 
USA 
Japan 
OPEC  (4) 
Other 
Extra  EEC  Total 
World 1973 
1974 
1975 + 12 
+ 43 
+ 27 — 13 
— 12 
+ 18 — 21 
— 16 
0 — 34 
— 3 
— 24 + 29 
+ 38 
+ 16 + 1 
+ 0 
+ 2 — 13 
— 16 
— 12 Intra  EEC 
Federal  Republic  of Germany 
France 
Italy 
Netherlands 
BLEU 
United  Kingdom 
Ireland 
Denmark 
EEC  Total 
Extra)  EEC 
USA 
Japan 
OPEC  (4) 
Other 
Extra  EEC  Total 
World 1973 
1974 
1975 + 82 
+ 125 
+ 92 + 36 
+ 43 
+ 61 + 10 
+ 22 
+ 14 + 44 
+ .80 
+ 65 — 27 
— 13 
— 2 — 17 
— 19 
— 24 + 22 
+ 16 
+ 35 Intra  EEC 
Federal  Republic  of Germany 
France 
Italy 
Netherlands 
BLEU 
United  Kingdom 
Ireland 
Denmark 
EEC  Total 
Extra)  EEC 
USA 
Japan 
OPEC  (4) 
Other 
Extra  EEC  Total 
World 1973 
1974 
1975 + 6 
+ 8 
4- 1 — 0 
+ 6 
+ 2 + 1 
+ 2 
+ 1 + 2 
+ 4 
+ 3 — 1 
+ 1 
+ 0 + 16 
+ 31 
+ 25 + 2 
+ 2 
+ 1 Intra  EEC 
Federal  Republic  of Germany 
France 
Italy 
Netherlands 
BLEU 
United  Kingdom 
Ireland 
Denmark 
EEC  Total 
Extra)  EEC 
USA 
Japan 
OPEC  (4) 
Other 
Extra  EEC  Total 
World 1973 
1974 
1975 + 48 
+ 57 
+ 42 + 5 
+ 4 
+ 4 — 9 
— 7 
— 9 .+ 13 
+ 22 
+ 21 + 11 
+ 12 
+ 12 — 24 
— 20 
— 27 — 2 
— 2 
— 1 Intra  EEC 
Federal  Republic  of Germany 
France 
Italy 
Netherlands 
BLEU 
United  Kingdom 
Ireland 
Denmark 
EEC  Total 
Extra)  EEC 
USA 
Japan 
OPEC  (4) 
Other 
Extra  EEC  Total 
World 1973 
1974 
1975 + 214 
+ 452 
+ 156 — 36 
— 52 
+ 9 — 162 
— 238 
— 77 + 153 
+ 285 
+ 251 — 7 
+ 11 
+ 16 — 190 
— 224 
— 207 — 26 
— 43 
— 31 — 66 
— 78 
— 41 Intra  EEC 
Federal  Republic  of Germany 
France 
Italy 
Netherlands 
BLEU 
United  Kingdom 
Ireland 
Denmark 
EEC  Total 
Extra)  EEC 
USA 
Japan 
OPEC  (4) 
Other 
Extra  EEC  Total 
World 1973 
1974 
1975 + 72 
+ 87 
— 46 — 94 
— 128 
— 143 — 27 
— 54 
— 86 — 85 
— 110 
— 128 + 1 
— 23 
— 46 — 17 
— 117 
— 136 + 1 
— 0 
— 5 — 5 
— 10 
— 7 Intra  EEC 
Federal  Republic  of Germany 
France 
Italy 
Netherlands 
BLEU 
United  Kingdom 
Ireland 
Denmark 
EEC  Total 
Extra)  EEC 
USA 
Japan 
OPEC  (4) 
Other 
Extra  EEC  Total 
World 1973 
1974 
1975 — 21 
— 12 
— 23 — 8 
— 32 
— 45 — 6 
— 8 
— 11 — 12 
— 16 
— 21 — 5 
— 8 
— 17 — 28 
— 44 
— 62 — 1 
— 2 
— 1 — 8 
— 11 
— 5 Intra  EEC 
Federal  Republic  of Germany 
France 
Italy 
Netherlands 
BLEU 
United  Kingdom 
Ireland 
Denmark 
EEC  Total 
Extra)  EEC 
USA 
Japan 
OPEC  (4) 
Other 
Extra  EEC  Total 
World 1973 
1974 
1975 — 95 
— 288 — 109 
— 372 — 139 
— 451 — 129 
— 284 — 35 
— 138 — 47 
— 491 — 4 
— 16 — 14 
— 58 Intra  EEC 
Federal  Republic  of Germany 
France 
Italy 
Netherlands 
BLEU 
United  Kingdom 
Ireland 
Denmark 
EEC  Total 
Extra)  EEC 
USA 
Japan 
OPEC  (4) 
Other 
Extra  EEC  Total 
World 1973 
1974 
1975 + 675 
+ 1094 + 154 
+ 120 — 37 
+ 43 + 32 
+ 110 — 97 
+ 60 — 436 
— 157 — 15 
— 18 — 29 
+ 12 Intra  EEC 
Federal  Republic  of Germany 
France 
Italy 
Netherlands 
BLEU 
United  Kingdom 
Ireland 
Denmark 
EEC  Total 
Extra)  EEC 
USA 
Japan 
OPEC  (4) 
Other 
Extra  EEC  Total 
World 1973 
1974 
1975 + 631 
+ 881 
+ 865 — 57 
— 412 
— 66 — 209 
— 470 
— 228 — 194 
— 300 
— 273 — 136 
— 109 
— 175 — 528 
— 809 
— 588 — 19 
— 36 
— 22 — 56 
— 67 
— 91 Intra  EEC 
Federal  Republic  of Germany 
France 
Italy 
Netherlands 
BLEU 
United  Kingdom 
Ireland 
Denmark 
EEC  Total 
Extra)  EEC 
USA 
Japan 
OPEC  (4) 
Other 
Extra  EEC  Total 
World 1973 
1974 
1975 + 845 
+ 1333 
+ 1021 — 93 
— 464 
— 57 — 371 
— 708 
— 305 — 41 
— 15 
— 22 — 143 
— 98 
— 159 — 718 
— 1033 
— 795 — 45 
— 79 
— 53 — 122 
— 145 
— 132 
(') 1975:  January  to June  only. 
(2) 1975:  Netherlands:  January  to May  only. 
(3) 1975:  Ireland:  Based  on  national  statistics  converted  to Eur. 
(') OPEC  — Includes  Algeria,  Bahrain,  Ecuador,  Gabon,  Indonesia,  Iran,  Iraq,  Kuwait,  Libya,  Nigeria,  Saudi  Arabia  and  Venezuela. 
: Figures  not  available. 
Source:  SOEC. 
29.12.  75 Official  Journal  of the  European  Communities No C 297/19 
Graph  A 
Trade  and  output  in the Community  and  the world  since  1961 
(%> change  in volume  on preceding  year) 
Intra-Community  trade  •———— 
"World  trade  (imports)  (1) —  —  •— 
GDP  — EEC 
GDP  —USA  —  —  — 
% 
20 
15 
10 
5 
0 
-5 
-10 
1961  1962  1963  1964  1965  1966  1967  1968  1969  1970  1971  1972  1973  1974  1975  1976 
(*) Excluding  State-trading  countries. 
No C 297/20 Official  Journal  of the  European  Communities 29.12.  75 
Graph  B 
Weighted  appreciation  or depreciation  of the currencies  of member  countries  in °/o 
(Reference  period:  'Smithsonian  Agreement',  December  1971;  weighting  according  to the 
structure  of foreign  trade) 
Deutschland 
France 
Italia 
Nederland 
U.E.B.L.-B.L.E.U. 
• o United  Kingdom 
Ireland 
Danmark 
% 
30 
25 
20 
15 
101 
-5 
TR" 
-10 
V 
-15 
UK 
20 
•as. -25 
30 -30 
1913  1914  1913