31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/1
II
(Actswhosepublication isnotobligatory )
COUNCIL
COUNCIL DECISION
of22December 1987
adoptingtheannualreportontheeconomicsituationintheCommunity andlayingdowneconomic
policyguidelinesfor1988
(87/609/EEC)
THECOUNCIL OFTHEEUROPEAN COMMUNITIES ,
HavingregardtotheTreatyestablishing theEuropean
Economic Community ,
HavingregardtoCouncilDecision74/120/EECof18
February1974ontheattainment ofahighdegreeof
convergence oftheeconomicpoliciesoftheMemberStatesof
theEuropean Community (x),asamendedbyDecisions
75/787/EEC(2)and79/136/EEC(3),andinparticular
Article4thereof,HASADOPTED THISDECISION :
Article 1
TheCouncilherebyadoptstheannualreportonthe
economicsituationandthepolicyguidelinestobefollowed
bytheCommunity whicharecontained inPartIofthe
ReportattachedtothisDecisionandwhichlaydownthe
economicpolicyguidelinestobefollowedbytheMember
States,contained inPartIIofthesaidReport.
Article2
ThisDecision isaddressed totheMemberStates.
DoneatBrussels,22December 1987.
FortheCouncil
ThePresident
N.WILHJELMHavingregardtotheproposalfromtheCommission ,
HavingregardtotheopinionoftheEuropean
Parliament (4),
HavingregardtotheopinionoftheEconomicandSocial
Committee (5),
(')OJNoL63,5.3.1974,p.16.
(2)OJNoL330,24.12.1975,p.52.
(3)OJNoL35,9.2.1979,p.8.
(4)OJNoC345,21.12.1987.
(5)OJNoC356,31.12.1987.

NoL394/2 OfficialJournaloftheEuropeanCommunities 31.12.87
ANNUAL ECONOMIC REPORT
1987/1988

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/3
ANNUAL ECONOMIC REPORT 1987/1988
CONTENTS
Page
Preamble 4
PartI—TheCommunity economy
1.Moredynamicgrowthisnecessaryandpossible -5
Summaryandeconomicpolicyconclusions 5
1.1.EconomicsituationintheCommunity andoutlookfor1988 5
1.2.Imbalances intheworldeconomy 5
1.3.Thetaskahead:growth,cohesionandtheinternalmarket 6
1.4.Economicpolicies 7
2.Economicdevelopments andoutlook 8
2.1.Worldeconomy 8
2.2.Theadjustment processandinternational cooperation 9
2,3.TheeconomicoutlookfortheCommunity for1987and1988 10
2.4.Employment andunemployment - 12
2.5.Themedium-term economicoutlookfortheCommunity 13
3.Internaldeterminants ofgrowthandtheinterdependence oftheMemberStates 14
3.1.Theinternalmarketandtheadjustment ofeconomicstructuresasenginesofgrowth 15
3.2.Themacroeconomic process 16
3.3.Interdependence betweentheMemberStates 17
3.4.Theprerequisites forsuccess 1°
4.Community andnationalstructuralpolicies V 19
4.1.Improvingmarketadaptability 19
4.2.Competitiveness ,researchanddevelopment ,industryandservices 21
4.3.Measuresforimprovedeconomicandsocialcohesion 23
5.'Macroeconomic policystancesandproblems 24
5.1.Monetarydevelopments andpolicy 24
5,2.Theliberalization ofcapitalmovements andthestrengthening oftheEMS ..25
5.3.Budgetarydevelopments andpolicies 26
Technicalboxes:GrowthandEmployment 30
Interestrates 34
PartII—Theeconomies oftheMemberStates
ChapterscoveringMemberStates 37
Belgium 37
Denmark <•40
FederalRepublicofGermany 43
Greece 47
Spain 50
France 53
Ireland - 56
Italy 59
Luxembourg 62
TheNetherlands 64
Portugal 67
UnitedKingdom 70
StatisticalAnnex:Tables • 76
Graphs 106

NoL394/4 OfficialJournaloftheEuropeanCommunities 31.12.87
PREAMBLE
SincetheCommission adoptedthedraftAnnualEconomicReport1987/1988on14October1987,
sharepriceshavefallensubstantially onthestockexchangesofthemainindustrialcountries .Interest
rateshavedroppedbyvaryingdegreesintheUnitedStatesandinalmostallCommunity countries .On
veryunstablemarketsthedollarhasdepreciated againsttheECUandtheYen.
InthelightoftheseeventstheeconomicforecastsincludedintheReportshouldobviouslyberevised.
Thesizeandnatureoftheserevisionswillstronglydependonwhen,andatwhatlevel,financialand
exchangemarketsstabilize .
Thebasicanalysisoftheinternational environment andoftheproblemofslowgrowthand
unemployment intheCommunity ,givenintheAnnualEconomicReport,remainsvalid.
Asignificant anddurablereductionofthefederalbudgetdeficitintheUnitedStatesisanessential
elementforthesolutionofthepresentproblemsoftheworldeconomy .Theplantoreduce
expenditure andraiserevenuesbyanetamountof$30,2billioninfiscal1988and$45,9billionin
fiscal1989isencouraging ,butitisimportantthatearlyCongressional approvalisfollowedrapidlyby
itsimplementation .
TheguidelinesforeconomicpolicyfortheCommunity includedintheAnnualEconomicReport
remainrelevant .Theirimplementation hasbecomeevenmoreurgent.Pursuingmacroeconomic and
structuralpoliciesdesignedtoaccelerategrowthisinthefirstinstanceintheCommunity 'sown
interest.Atthesametimethiscontributes tothecorrectionofinternational imbalances .Asstatedby
theCouncilatitsmeetingon16November 1987,theMemberStatesoftheCommunity areresolvedto
improvethesupplyanddemandconditionsnecessarytofurtherinternallygeneratednon-inflationary
growthandtocontribute tothereductionofexternalimbalances .
TheMemberStatesintendtocooperateactivelywithothercountriesindecisionstoensureamore
stabledevelopment ofworldfinancialandforeignexchangemarkets.Crediblemacroeconomic
policieshavetobeimplemented onamultilateral scalesoastoacceleratetheadjustment of
international paymentsimbalances .
Giventheuncertainties intheworldeconomywhichcouldseriouslyaffectthebehaviourofinvestors
andconsumers ,itisallthemorenecessarythattheCommunity anditsMemberStatesbereadyto
adapttheireconomicpolicytothenecessities ofthesituationasitevolves.

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/5
PARTI
THECOMMUNITY ECONOMY
1.MOREDYNAMIC GROWTH ISNECESSARY ANDPOSSIBLE
Summaryandeconomicpolicyconclusions
1.1.EconomicsituationintheCommunity andoutlookfor
1988ratesinexcessof3%.Theyhavethusmadealarge
contribution tosustaining intra-Community tradeand
growthintheCommunity .Inordertopreservebalanceon
theirexternalaccounts,someofthesecountriesruntherisk
ofbeingforcedtoputabrakeontheirowngrowthif
expansion intheirpartnercountriesremainsmediocre .This
wouldaffectthewholeCommunity .Thisdangerwould
growiftheinternational environment weretodeteriorate
further.Since1982,theCommunity economies havestrengthened .
Thelevelanddegreeofconvergence ofinflationratesare
unmatched sincethe1960s.Ratesofreturnofcapitalandthe
adaptability ofmarketshaveimproved significantly and
structuraladjustment ,whichhasoftenbeenpainful,has
reinforced productive potential .Until1986economic
growtheffectively strengthened toreach2,6%onaverage
lastyearfortheCommunity .
1.2.Imbalances intheworldeconomy
Theworldeconomycontinuestobeaffectedbytwosevere
imbalances :thestructureofpayments'balancesbetweenthe
industrialized countriesandtheindebtedness ofdeveloping
countries .In1987,thecurrentexteraldeficitoftheUnited
StatesisstillincreasingtoreachUS$150billion(3,5%of
GDP).TheJapanesesurplus(aroundUS$85billionor
3,8%ofGDP)remainsveryhigh.TheCommunity surplusis
undoubtedly falling,butthecounterpart ofthisfallistobe
foundfor1987,essentially ,intheimprovement inthe
currentbalanceofoil-exporting countriesinparticular asa
resultofthefallintheirimports.Thedebtofdeveloping
countrieshascontinued toincrease (US$1200billion
1987).Restructuring agreements andfallinginterestratesup
totheendof1987havemoderated itsburden,buttherecent
riseininterestratesagainworksagainstthesecountries .However ,growthin1987,onlybarelyover2%,islower
thanin1986.Hopesforafurtheracceleration havenot,
therefore,beenrealized.Attheendof1986andagainin
1987,Community exportstothirdcountrieshavefallenback
inrealterms,influenced bytwofactors.Firstly,theeffective
appreciation ofEuropean currencies hasledtoa
deterioration inCommunity competitiveness ,notonly
vis-h-vistheUnitedStates,butalsowithrespecttoother
areassuchasthenewlyindustrialized countries .Secondly,
traditional Community marketsshowpractically nogrowth
onaverage,withimportsofOPECcountriesfallingvery
sharply.Ontheotherhand,Community importshave
remainedbuoyant .Accordingly ,theexternalbalancehas
costtheCommunity onepointofgrowthbothin1986and
1987.Thisrepresents acontribution oftheCommunity to
theinternational adjustment processwhichcannotbe
regardedasnegligible .Thisdeterioration intheexternal
climatewasoffsetin1986bytheimpetusgiventodomestic
demandbytheimprovement inthetermsoftrade,butthe
effectsofthisimprovement onrealincomesandprivate
consumption arepeteringout.Anaddedfactoristhatmany
firmsinexportsectorshavebeenledtorevisetheir
investment plansdownwards .Thefallinextra-Community
tradeaswellastheuncertainty attachedtoexchangerates
andinterestrateshascontributed greatlyhere.Positiveelementsareappearing .Realtradeflowsare
contributing tore-establishing balanceontradeaccounts .
International cooperation isestablished andisleadingto
policyadjustments intherightdirection .Thedollar
exchangerateismorestablefollowingtheLouvreaccordof
February1987.Thethrustofthispolicywasconfirmedatthe
June1987summitofindustrialized nationsinVeniceand
subsequently attheGroupofSevenmeetingofSeptember
1987inWashington .UNCTAD VIIhasshownthatitis
possibletoarriveatacommonviewwiththedeveloping
countries onthemainproblems affectingtheworld
economy .MeetingsoftheWorldBankandtheIMFin
September 1987havemadesomeprogress,inparticularon
thesubjectsoftheindebtedness ofAfricancountriesandan
increaseinWorldBankfunding.Finally,theUruguayRound
ofnegotiations withinGATTprovidesabasisforcontinuing
effortstohaltandrollbackprotectionism .In1988,growthshouldremainalittleabove2%.Thislevel
ofgrowthisjustaboutsufficienttoholdtheunemployment
rateatnearly12%,anintolerable level.Extra-Community
tradewillundoubtedly recoverslightly.Itscontribution to
growth,however,islikelytoremainnegative,whilethatof
domesticdemandshoulddecreaseanew.Athreatisnow
emerging .Anumberofcountries—Spain,Italy,Portugal
andtheUnitedKingdom—havesofarmaintained growth

NoL394/6 OfficialJournaloftheEuropeanCommunities 31.12.87
However ,therearestillappreciable dangersahead.In1988,
progresstowardstherestoration ofinternational balanceof
paymentsequilibrium willremainslow.Thecontinuation of
alargemeasureofstabilityonforeignexchangemarkets
remainsnecessary toallowtimefortheconsiderable
exchangerateadjustments whichhavealreadyoccurredto
producetheirfullpositiveeffects.Centralbankintervention
andinternational management ofinterestratedifferentials
canstillcontribute here.Inordertostabilizedurable
exchangerateexpectations ,however,itisaboveallnecessary
toprogressmorerapidlytowardstherestoration of
international payments'equilibrium ,otherwise thegap
betweeninterestratesintheUnitedStatesontheonehand,
andEuropeandJapanontheother,runstherisksofneeding
towidenstillfurther <Additional risesininterestratesinthe
UnitedStatescouldthenprovenecessary .Thesituationof
developing countries,alreadyaffectedbytheweakening of
worldtrade,wouldbecorrespondingly worsened .Tostrengthen theCommunity 'seconomic andsocial
cohesion,alltheMemberStatesmustcoordinate theirefforts
asprovidedforinArticle130BoftheEECTreaty,as
amendedbytheSingleEuropeanAct.Threeconditions must
befulfilled.Firstly,thetaskistocreateinEuropeaclimateof
buoyantgrowth;anadequaterateofgrowthinthemost
advancedcountries isnecessaryforthis.Secondly,forthe
less-advanced countriesitiscrucialtoimplement policies
whichimprovethedomesticconditions fortheirgrowth,
notablythereturnon,andeffectiveness of,theirinvestment
aswellasthepublicfinanceposition .Thiswouldcreatethe
sortofconditions neededtoattractinflowsofprivatecapital.
Thirdly,theCommunity shouldsupporttheadjustment
processthroughthestructuralfunds,aswellasthroughits
financial instruments andtheEIB.TheCommission
proposestodoubletheresourcesofthestructuralfundsin
realtermsby1992,andtoincreasetheireffectiveness .
Inthesecircumstances ,itisdesirableforrelativetrendsin
domestic demand between thevariousindustrialized
countriestocontinuehelpingtoreducetradeimbalances ,
whileatthesametimepreserving ahighlevelofworld
growth.Thecurrentprospectsfor1988arenotencouraging .
ItisessentialfortheUnitedStatestocontinuereducingits
budgetdeficit,butJapanmustalsomakegreatereffortsto
createconditions whicharefavourable toamorerapid
growthinimports,bystrengthening growthandfurther
openingupitsmarkets.TheCommunity ,inaddition,by
reinforcing itsowngrowth,wouldhelptosupportworld
trade,whileatthesametimeplayingitspartinthe
absorption ofinternational payments'imbalances .Thecompletion oftheinternalmarketupto1992createsan
important newmomentum .Itisessentialnottodisappoint
theexpectations ofthoseinvolvedineconomicactivityinthis
enterprise .Rapidprogressshouldbemadetowardsthe
abolitionoffrontiercontrolsandcustomsformalities ,the
removaloftaxandotherimpediments tothefreemovements
ofgoodsandservices,theharmonization oftechnical
standardsandtheunification ofpublicprocurement .Inthis
connection ,theCommission hasin1987madeproposalsfor
theapproximation ofindirecttaxratesandthe
harmonization oftheirstructure andfortheunification of
publicprocurement markets.
1.3.Thetaskahead:growth,cohesionandtheinternal
marketThereductionincostswhichwillresultfromthecompletion
oftheinternalmarket,economies ofscale,increased
competition ,andthebroadening oftheeconomicbasisfor
researchanddevelopment ,willleadtoaneasingofthe
burdenonpublicbudgets,productivity gains,an
improvement incompetitiveness onexternalmarketsanda
boosttointra-Community trade.Theinternalmarketwill
createfreshopportunities forinvestment byopeningupnew
horizonsforentrepreneurs .Fortheseopportunities tobe
quicklyandfullyseized,theirreversible natureofthe
enterprise mustbedemonstrated byspeedingupits
completion .Thecompletion ofthelargeinternalmarket
shouldalsoderivebenefitfromaninfrastructure network
whichmatchesitinscale.Thecompletion oflarge-scale
infrastructure projectsofCommunity interestshould
contribute here.Giventhepresentsituationoftheworldeconomy,the
Community willnolongerbenefitfromanexternalimpetus.
Implementing thecooperative growthstrategyformore
employment nowmeans:successfully accomplishing the
switchfromgrowthunderpinned byexternalfactorsto
growthbasedoninternalforces,shortening theperiodof
conjunctural weakening andthusescapingmorerapidly
fromthetrapofslowgrowthextendingintothemediumterm
intowhichtheCommunity seemstohavefallen.Inthisway,
theCommunity willonceagainbeabletoreduce
unemployment ,derivefullbenefitfromthecompletion ofthe
largeinternalmarketandreinforceitseconomicandsocial
cohesion .InordertoexploitCommunity strengthstothe
full,increasedcooperation andthepursuitofambitious
Community policiesremainessential .Italsoremains
necessarytoreinforcetheconsensus withandbetweenthe
socialpartnersonthepoliciesrequiredbyamoreintensive
dialogueonallaspectsofthestrategyatbothCommunity
andnationallevel.Theproductivity gainsmadepossiblewillnot,however,
resultinadditional jobsandafasterriseinlivingstandards
unlessproductive potential isfullyexploited .Stronger
growthwillalsomakeiteasierforthesocialandregional
dimension oftheinternal markettobetakeninto
account .

NoL394/731.12.87 OfficialJournaloftheEuropeanCommunities
1.4.Economic policies stabilization ofexchangerates.Swiftliberalization ofcapital
movements shouldcontinuetogohandinhandwithefforts
tostrengthenthesystem.TheoutcomeoftheEconomicand
FinanceMinisters CouncilatNyborgconstitutes an
importantstepinthisregard.Intheinterestsofpermanent
stabilityofthesystem,however,itisvitalthatthis
cooperation shouldcontinuetobebasedonabroad
consensus ontheneedforstability-oriented monetary
policies.Firstly,itremainsessentialtopursuestructuralpolicies
aimedatagreateradaptability ofthemarkets.Inthis
connection therecommendations forsupply-side policies
contained inthemostrecentAnnualEconomic Reports
remainentirelyvalid.Inparticular ,thelooseningofthe
constraints onsmallandmediumsizedenterprises ,improved
competition ,andthereductioninsubsidiesaffectingthe
productive useofresources willpermitafurther
reinforcement ofthedomesticdeterminants ofgrowth.Also,
thegreateradaptability ofthelabourmarket,the
reorganization andreductionofworkingtime,neutralfor
thelevelofcosts,andinvestment invocational training
shouldalsoboostemployment-creation .Thescopeformonetarypolicyisnowlimited.Budgetary
policythereforehasagreaterroletoplay.First,theeffortsto
restructurepublicexpenditure andreceiptsmustbepursued
withdetermination .Fromthepointofviewofthepublic
deficits,eachcountryintheCommunity takenindividually is
stillsubjecttosevereconstraints .Insomecountriesthelevel
ofpublicdebtisstillincreasingatanexcessiverateandmajor
effortsarebeingmadetoputpublicfinancesinorder.
However ,theimpactofthoseeffortsondeficitsisweakened
anddelayedbylowlevelsofgrowthandthe,resultant
shortfallintaxrevenue.Inothercountries ,thebudgetary
situationiseasierandthetaxreductions plannedfornext
yearandbeyondwillprovideawelcomeboosttogrowth,the
positiveeffectsofwhichwillalsobefeltinthemedium-term .
Insomeofthesecountries ,theconsequences ontaxreceipts
oftheslowdown ingrowth,combinedwiththetaxcuts
planned,arealreadyleadingtoanincreaseinpublic
deficits.Thecompletion oftheinternalmarketandthestructural
policiesprovidesubstantial stimuli,whichwillbeableto
exerttheirfulleffectsiftheyformpartofadynamic
macroeconomic process.Investment shouldincreaseata
significantly fasterratethanGDPovertheyearstocomein
ordertomakeuptheshortfallofjobs.Theoutlookfor
demand,profitability andrealinterestratesaredetermining
factors.Intheabsenceofanexternalstimulus,theoutlook
fordemanddependstoagreatextentonasatisfactory trend
ofprivateconsumption andthereforeonthetrendof
personaldisposable income.However,toimprove
profitability andcompetitiveness further,realwagecostsper
headmustremainmoderate .Undertheseconditions ,
reductions inthetaxburdenonhouseholds andbusiness
shouldalsocontribute togreatermomentum .Additional
cost-effective publicinvestment wouldalsoboostproductive
potentialandatthesametimeprovidewelcomesupportfor
internaldemand .Inaddition,afallinrealinterestratesis
desirable .Tothisend,itisimportanttoavoidcallinginto
questionthecredibilityofthemedium-term consolidation of
publicfinances,thatinflationary expectations stabilizeata
lowlevel,andthatfinancialexternalimbalances are
absorbed .Suchfallswouldalsotakepressureoffpublic
budgets.Ifitistobedurable,anacceleration ingrowthmust
becompatible withthemaintenance ofanexternalposition
thatissustainable inthemedium-term .Whensupply
conditionsareimprovedatthesametime,someacceleration
ofgrowthisthuspossiblewithoutjeopardizing thebalanceof
paymentsobjectiveandwithoutthedangerofaresurgenceof
inflation .Thereisagraveriskinasituationinwhichgrowthremains
poor:thecountrieswhosebudgetary situationismore
difficultcouldbecompelledtotakeadditional measuresto
attaintheirobjectiveofpublicfinanceconsolidation .This
wouldhaveadverseeffectsontheirowngrowthandonthat
oftheirpartners,whoseroomformanoeuvre wouldinturn
beaffected.Thisshowshowimportant itisfornational
budgetaryauthoritiestotakeaccountoftheinterdependence
amongeconomiesoftheCommunity intheirpolicychoices.
TheaccessionofSpainandPortugal,whicharecurrently
givingsubstantial supporttointra-Community trade,has
madethisinterdependence evenwider.Itislikelytoincrease
furtherwiththecompletion oftheinternalmarketandthe
liberalization ofcapitalmovements .
Intheeventofafurtherslowdown ingrowth,ajointand
well-timed effortwillpermitapositiveuseofthe
interdependence amongMemberStates,asenvisagedinthe
conclusions reachedbytheEconomicandFinancialAffairs
CouncilatitsmeetinginJuly1987.Suchaneffortwill,of
course,havetobeconsistent withtheobjectives and
constraints whichexistatnationallevel.However ,ifeach
countrycancountonmorerapidgrowthelsewhereinthe
Community ,itsownexternalandbudgetaryconstraints will
bereducedanditwillbeabletocontribute toa
non-inflationary strengthening ofgrowth.Despitethehighlevelofrealinterestrates,monetarypolicyis
currentlycreatingsufficientroomforfinancinggrowth.Even
ifaccount istakenoffinancial innovation incertain
countries,monetarygrowthremainsstrong.Thetasknowis
topreventthebuildupofanexcessiveaccumulation of
liquiditywhichwouldbeinflationary .Themorefavourably
thatotherdeterminants ofinflation,inparticularthetrendof
wagecosts,develop,thesmallertheriskwillbe.
TheCommunity isfacedwithadifficultinternational
environment .Itsperformance mustrelymainlyonitsown
efforts.Ithasmajorstrengthstodrawon:thestructuralWithintheEMS,themanagement ofinterest-rate
differentials hascontributed betterthaninthepasttothe

NoL394/8 OfficialJournaloftheEuropeanCommunities 31.12.87
adjustments intrain,theimprovement inprofitability ,the
reductionofinflation,allcreateconditions favourable to
strongergrowthwhichwillcreatejobs.Thelargeinternal
marketwillgivetheeconomiesoftheCommunity additional
momentum andacceleratetechnicalprogress .Itscompletion
willhavetobesupplemented byeffectiveCommunity
policieswhichshouldalsocontribute tobettereconomicandsocialcohesion .Closercooperation betweentheMember
Stateswillimprovetheeffectiveness ofeconomicpolicy.To
reinforceconsensus onthepoliciestobefollowed,a
continuation ofsocialdialogueremainsessential.Exploiting
theCommunity dimension willthusenableEuropetomake
itseconomies moredynamicandtocontributetostabilizing
theinternational environment .
2.ECONOMIC DEVELOPMENTS ANDOUTLOOK
2.1.Worldeconomy remainedflatinvolumeterms.Theexpectation atthe
momentisthattotalworldimports (including the
Community )willgrowbysome3,5%in1987,compared
withcloseon4,9%in1986(seeTable3).Theprospectsfor
theCommunity areevengloomier .Ifworldimports
(excludingtheCommunity )areweightedtotakeaccountof
thestructureofCommunity exports,thisgivesforthecurrent
yearafigureoflessthan1%fortheexpansion in
Community exportmarkets (seeTable5).Worldtradeisnot
expectedtostagearecoveryofsortsuntil1988.Itssluggish
expansion in1987isdueessentiallytothesqueezeonimports
intheOPECcountriesandtoamuchslowerrateofgrowthof
importsintheUnitedStates.Theovervaluation ofthedollarthatgraduallybecame
apparentinthefirsthalfofthe1980swassharplycorrected
in1985,1986andinthefirsttwomonthsof1987(seeGraph
1).Theunsatisfactory progressinreducingtheUnitedStates'
currentaccountdeficitandtheexpectation ofafurtherfallin
thedollartemporarily fuelledaself-sustaining processof
depreciation .Thedollarthuslostsome40%ofitsvalue
againsttheECUbetweenMarch1985andFebruary1987.
Therewasareturntomoresettledconditions onthe
exchangesonlyaftertheLouvreaccordofFebruary1987
betweentheleadingindustrialized countrieshadunderscored
theneedtokeepexchangeratesclosetotheirprevailing
levels,andonlyafterthisconsensuswasaccompanied by
massivecentralbankintervention .Asaresult,thereal
effectiveexchangerateofthedollarwasstabilizedatabout
thelevelrecordedin1981,ayearmarkedbyrelativelysmall
current-account imbalances .IntheUnitedStates,thefederalbudgetdeficitfell
significantly infiscal1987,butmainlyundertheimpactofa
once-offincreaseintaxrevenueasaresultofthetaxreform.
Thisspecificeffectwill,however,nolongerbefeltin1988.
Moreover ,thebalancedbudgetoriginallyforeseenunderthe
Gramm-Rudman legislationfor1991hasnowbeenputback
to1993.Thefallinthedollarandtheresultingincreasein
importpriceswillpushupinflationin1987.Atthesame
time,thefirstsignsoftheanticipated impactonmerchandise
tradeofthefallinthedollararebeingfelt.Forthefirsttime
since1980,theexternalbalancehascontributed positivelyto
thegrowthinrealGDP.Nevertheless ,withthenegative
effectsofchangesinimportandexportpricesexceedingfor
themomentthegainswhichtheyimplyinmovements in
exportandimportvolumes,nocontraction intheUStrade
deficitinnominaltermsistobeexpectedthisyear(J-curve
effect).Thecurrentaccountdeficitshouldalsowidenfurther
in1987andreachUS$154billion(3,5%ofGNP).An
improvement canbeexpectedonlyin1988.Investment
shouldrecoverin1988afterthefallinrealtermsthisyear.In
total,GNPgrowthcouldaccelerateslightlyfrom2,3%in
1987to2,7%in1988.Theriseincrudeoilpriceswasgreaterin1987thanhadbeen
expectedayearearlier.TheaveragepriceforCommunity
importsisexpectedtobeintheregionofUS$17perbarrel,
comparedwithUS$13,7in1986.Unlikein1986,oilprice
movements arenolongerexpected,therefore,tomakeany
contribution toaloweringofinflationrates.Alimitedrisein
theoilpriceisassumedforthecomingyear.However,oil
pricesarepreytomajoruncertainties stemmingfromthe
politicaltensionsintheGulfandfromtheprecariousnature
oftheproduction quotasagreedbyOPEC.
Othercommodity pricesmayincreaseslightlyindollarterms
in1987and1988(seeGraph2).As,atthesametime,prices
ofmanufactures willincreasemorerapidly,thetermsof
tradeofthecommodity-exporting developing countriesare
likelytoshowafurtherworsening .
InJapan,acountryheavilydependentonexports,thestrong
appreciation oftheyenlastyearledtoasharpdeclineinthe
GNPgrowthrate,from4,5%in1985to2,4%in1986.For
thecurrentandcomingyears,growthcouldrecover,since
thedevelopment ofdomesticdemandremainsdynamicand
thenegativecontribution oftheforeignbalancetogrowthisThegrowthinworldtradeoverthelast12monthshas
remained belowtheforecastmadelastautumn .Inthefirst
halfof1987,importsbynon-Community countriesactually

31.12.87 OfficialJournaloftheEuropeanCommunities NoL394/9
fading.Thisprocessisunderpinned bythefiscalpackage
announced bytheJapanesegovernment ,worthover6000
billionYen,thatwasadoptedin1987.Investment will
probablyexpandatarateofmorethan7%,asarisein
publicinvestment andinvestment inresidentialconstruction
lookssettomakeupforthesluggishnatureofproductive
investment .Despitetherecovery ingrowth,the
unemployment rateisexpectedtoremainin1987,asin
1988,atthehistorically veryhighlevelofaround3%.The
Japanesecurrentaccountsurplusindollartermsshouldbeof
thesameorderofmagnitude in1987asin1986,aroundUS$
85000million,whilefallingasapercentage ofGNPto
3,8%from4,5%in1986.heightened theriskofa'hardlanding'.Inthiscontext,the
majorindustrialized countriesarrivedataconsensusonthe
desiredadjustment inparitieswhichfounditsexpression in
thePlazaagreementofSeptember 1985.Itwasreflectedon
theforeignexchangemarketsbyapersistentfallofthedollar.
Following what,oversuchashortperiod,werelarge
exchange-rate adjustments ,commitments weremade,within
theframework oftheLouvreaccord,tostabilizethedollar's
ratesoastoenabletradeflowstoadapttothenew
configuration ofexchangerates,andtherebytoinitiatea
returntomorebalancedcurrent-account positions .This
accordwasconfirmed attheGroupofSevenmeetingin
September 1987inWashington .Someprogressincorrecting
externalimbalances isevident,buttheprocessalsoexhibits
someworryingtrends.Itistruethatthetradebalancesof
JapanandtheCommunity atconstant1985pricesare
movinginthedesireddirection :implyingrespectivefallsof
aroundUS$23000millionandUS$36000millionbetween
1986and1988(seeTable6).Thesefallsonly,however,
correspond totheimprovement intheUnitedStates'balance
ofUS$36000millionbetweenthesetwoyears.An
important counterpart isfurnished bythedeveloping
countries,inparticularoilexporterswhohavesubstantially
reducedtheirimports.Thus,theadjustment processbetween
theindustrialized countries isonlyadvancing very
modestly .Leavingasidethenewlyindustrializing countriesinAsia,the
situationofthedeveloping countrieshasscarcelyimproved
in1986/1987owingtotheslackrateofgrowthintheworld
economyandthedepressedlevelofcommodity prices(see
Tables7and8).Thedeterioration inthecurrent-account
balancesofthedeveloping countriesasawholein1986is
attributable primarilytoloweroilpricesandreflectsthefall
intheoilrevenuesofoil-exporting countries .The
non-oil-exporting countries'currentbalances were,
however,clearlyeased.Nevertheless ,theprivateexternal
contribution tothefinancingoftheseexternaldeficits
remainsverysmall.
Thesituationofthenon-oildeveloping countriescontinues
toshowlargedifferences .WhilethecountriesoftheFarEast
continuetorecordhighGDPgrowthrates,thosewithmiddle
incomesinEuropeandLatinAmericahaveperformed only
modestly .Thesituationinsub-Saharan Africa,ontheother
hand,remainsextremely disturbing ,withfallingliving
standards incertainareas.Itisdifficulttotellwhetherthedollar'spresentexchangerate
iscapableofredressingthecurrent-account balanceinthe
mediumterm.Nevertheless ,realexchange-rate movements
since1985have,toalargeextent,compensated forthe
dollar'stendencytobecomeovervalued duringthefirsthalf
ofthe1980s.AsfortheJapaneseyen,itsappreciation since
1985has,infact,morethanoffsetitsearlierreal
depreciation .Itcould,therefore,beconcludedthatthe
exchangeratemodifications whichhavetakenplacesince
1985maybesufficienttoleadtosignificantprogresstowards
balanceininternational payments ,totheextenttowhich
theyareaccompanied byoverallmacroeconomic policy
compatible withafasteradjustment process.
2.2.Theadjustment processandinternational
cooperation
International cooperation hasbeendirectedtowards
reducinginternational imbalances andisleadingtopolicy
adjustments thatarepointingintherightdirection .In
particular ,theeffortstostabilizethedollar'sexchangerate
haveprovedfruitful,butfurtherprogressisstillneededin
eliminating themajorimbalances .Thetwomainproblems,
i.e.current-account imbalances betweentheleading
industrialized countries andthedebtburdenofthe
developing countries,arestillbeingacutelyfelt.Solvingthem
willbeataskofoverriding importance intheyears
ahead.Inthefirsthalfof1987,centralbankintervention
contributed substantially tofinancingtheUnitedStates
currentdeficitandtostabilizing thedollar.Inthemedium
term,however,thisalonecannotachievethelasting
stabilization ofexchangeratesnecessaryforasmooth
adjustment process.Suchastabilization isconceivable onlyif
apositiveinterestratedifferential iscombinedwithweaker
growthofinternaldemandintheUnitedStatesthaninJapan
andEurope.Themovements ininterestratedifferentials
sincethebeginningoftheyearhavealreadycontributed toa
stabilization inexchangerates.Thus,forexample,between
JanuaryandAugust1987,theinterestratedifferential
betweentheUnitedStatesandGermany ,onbothlong-and
short-term nominalrates,hasincreasedbyaroundone
percentagepoint,thuspreventing afurtherfallinthedollar.
Theshort-term forecastsassumethatthisdifferential does
notnarrowin1988.Inanyevent,whilethenecessary
differentials arebeingmaintained ,theaveragelevelofTheunprecedented scaleofcurrent-account imbalances is
illustrated inGraph3.Asearlyas1985,theseimbalances
hadbecomeuntenable ;fortheworldeconomy,this

NoL394/10 OfficialJournaloftheEuropeanCommunities 31.12.87
interestratesmustbekeptaslowasisconsistentwithlow
inflation .ThisisbecausehighUnitedStatesinterestratesnot
onlyharminvestment butalsoleadtoaworsening ofthe
situationoftheheavilyindebteddeveloping countries .thedeveloping countriesonthemainproblemsoftheworld
economy .AttheSeptember 1987annualmeetingofthe
WorldBankandIMFinWashington ,somesuccessescould
benoted,particularly thenegotiations underwaytoraisethe
capitaloftheWorldBank.Broadconsensus isappearingon
theneedtosupporttheadjustment effortsofthelow-income
countries ,whosedebtsareprimarilywithofficialcreditors ,
byalleviatingtheburdenoftheirdebtandbysteppingupthe
volumeofcapitalflowsmadeavailableatfavourable rates.In
theotherindebtedcountries ,inaccordance withthe
objectivesofgrowthandstructuraladjustment ,itwouldbe
necessarytomobilizedomesticresourcesandtotapa
sufficientamountofexternalfinancing ,inparticularprivate
capital.However ,thekeytostabilization ofthedollarandtoa
sustained reduction inexternalimbalances liesinthe
establishment ofanadequatedomesticdemandgrowth
differential betweenJapanandEurope,ontheonehand,and
theUnitedStates,ontheother.Experience hasshownthat
theeffectsofalargeexchange-rate adjustment workthrough
morerapidlyifgrowthinthesurpluscountryspeedsup,
triggering apick-upinexportsthatisofcrucialimportance
whenitcomestorectifyingtheexternalbalanceofthe
countryrunningadeficit.In1987,itwouldseemthat
considerable progressisintheprocessofbeingmadeonthis
front.Whilethegrowthinfinaldomesticdemandinthe
UnitedStatesisaround1%belowthatofits19mainpartner
countries,JapanandtheCommunity willregisterapositive
growthdifferential withrespecttotheirpartnersofaround
1,6%and0,5%respectively (seeTable4).Atthe
Community levelitshould,however,berecognizedthatthis
development istoagreaterextentduetotheslowdown in
worldeconomicactivitythantoanacceleration infinal
domesticdemand .Whatismore,accordingtotheforecasts
for1988thesedifferentials ,exceptintheJapanesecase,will
probablytend,ifanything,tonarrowinsteadofgrowing
wideraswouldbedesirableandnecessary .Thenagain,the
growthindomesticfinaldemandintheUnitedStatesin1988
isexpectedtobeonlysome0,7%lowerthantheaveragefor
itsmajortradingpartners.InrelationtotheCommunity ,
therewillbeprobablynodisparityingrowthrates
whatsoever .Iftheseforecastsweretoholdgood,external
tradewouldonlymakealimitedcontribution nextyear
towardsreducingcurrent-account imbalances betweenthe
industrialized countries .Thiscoulddamagethecredibilityof
theadjustment processinthemediumterm.Thiswould
increasetheriskofafurtherfallinthedollarandofescalating
protectionist measures .Itisessential,therefore ,that
economicpolicyshouldthwartsuchadevelopment .Atthe
sametime,stepsmustbetakentoensurethatthenecessary
disparities ingrowthareachievedatahigh,but
non-inflationary levelofgrowth.Withoutthis,itwillnotbe
possibletosetabouttacklingthepressingproblemof
unemployment inEurope.Furthermore ,arecessioninthe
UnitedStateswouldhaveanadverseeffectonthosecountries
runninganexternaldeficitandontheheavilyindebted
developing countries .Evenso,theindustrialized countriesthemselves must,while
helpingtostrengthengrowthworldwide ,spurnprotectionist
measuresandopenuptheirmarketsinordertoallowthe
developing countriestoexpandtheirexports,thereby
makingiteasierforthemtorepaytheirborrowings .Rapid
progresswould,therefore ,bewelcomeatthecurrentround
ofnegotiations withinGATT(theUruguayRound).Atany
event,thepresentproblemsatinternational levelcanbe
resolvedonlyifcurrent-account imbalances arecorrected
andthedebtcrisisdefused;giventhegrowing
interdependence ofeconomies ,thiswillbepossibleonlyif
international cooperation andcoordination aresteppedup.
Inthisrespect,theimproved multilateral surveillance
arrangements agreeduponbackin1985attheTokyo
Summitandconfirmed inJune1987inVenicecouldproveto
beausefulinstrument inavoidinganyincompatibilities in
economic policyand,whereappropriate ,identifying any
possibledivergence ingoodtime.Itisalsoimportantthatthe
Community speakswithonevoiceintheinternational
meetingsofthecomingmonths.Thisappliesnotonlyto
tradepolicyandtheindebtedness problemsofdeveloping
countriesbutalsointheareaofeconomicandmonetary
cooperation betweenthemajorindustrialized blocs.
2.3.TheeconomicoutlookfortheCommunity for1987
and1988
EconomicgrowthintheCommunity estimatedat2,2%this
yearissignificantly lowerthanexpectedinthelastAnnual
EconomicReport.Theexpectation offastergrowthhasnot,
therefore,beenrealised .Comparison oflastyear'sforecasts
withthemostrecentestimatespinpointswherethetwomain
causesofthisdevelopment lie:exports,andinvestment in
plantandmachinery (seeTable9).Thisyear,thelevelofdeveloping-countries debtwillclimb
onceagain,partlyasaresultofexchange-rate adjustments .
Admittedly ,theratioofdebtinterestpaymentstoexportshas
declinedslightly.Thedebtburdenwaseasedbyreductions in
interestratesupto1986andbydebt-rescheduling
agreements ,inparticularwithintheframework oftheParis
Club.However,therecentrisesininterestrateswillagain
makethesituationofthedeveloping countriesmoredifficult.
TheSeventhUnitedNationsConference onTradeand
Development (UNCTAD VII),inJuly1987inGeneva,
showedthatitwaspossibletomakeacommonanalysiswithAlthough ,forreasonstodowithinternational adjustment
(seeabove),externaltradecannot,basically,belookedtoas
asourceoffastergrowthinEurope,thecontraction in
exportstothirdcountries has,evenso,beenmore

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/11
fosterprogresstowardsthegrowthandemployment
objectiveslaiddownintheCommunity strategy.The
contribution ofdomesticfinaldemandtoGDPgrowthrose
steadilybetween1981and1986,from—0,5to+3,5
percentagepoints,butthishasnotbeenenoughtooffset,to
theextentnecessary ,thedistinctlyadverseeffectofexternal
tradeduring1986and1987.Sincetheparticularly benign
impactofthetermsoftradein1986isfading,theslowdown
thatoccurredin1987couldonlyhavebeenprevented
throughevenmoreflexiblebudgetarypolicymanagement .
Duringthosetwoyears,onlyintra-Community exportshave
expanded appreciably ,withtradebetweenSpainand
Portugal,ontheonehand,andtheotherCommunity
countries,ontheother,beingparticularly buoyant (see
Chapter3.3).pronounced thanexpected .Ontheonehand,lowercrudeoil
priceshavecausedtheOPECcountriestoreduceimports
significantly .Ontheotherhand,thepricecompetitiveness of
Europeanproducershasdeteriorated sharplyinresponseto
exchange-rate adjustments .Compared with1985,the
Community hashadtocontendwithariseof20%orsoinits
realeffectiveexchangerateagainstitsmajortradingpartners
(seeTable10).Moreover ,anumberofnewlyindustrializing
countriesinthePacifichavebenefitedfromanimprovement
intheirinternational competitiveness astheircurrencieshave
falleninlinewiththedollar.AtthesametimetheYen/ECU
exchangeratehasonlyrisensome9%sothatthe
Community 'spricecompetitivity vis-h-visJapanhasonly
improved slightly.Ashighlighted byabusinesssurvey
conducted inApril/May1987onbehalfoftheCommission ,
themagnitudeofexchange-rate adjustment tookmanyfirms
bysurprise,causingthemtomodifysubstantially their
forecastsandplans(seeTable11).Thesurvey'sfindings
indicatethatfirmshave,inparticular ,revisedtheirprofit
forecastssharplydownwards .Atthesametime,the
prospectsforsalesinthemediumtermhavealsobecome
muchgloomier .Inviewofthissimultaneous weakening of
thetwokeydeterminants ofinvestment ,itisnotsurprising
thatinvestment projectshavebeendeferred.Thisexplains
whythe1987expansion ininvestment inplantand
machinery asrecordedinnationalaccountsfellwaybelow
lastautumn'sforecast .Noimprovement seemslikelyfor1988.Onthecontrary,the
growthindomesticfinaldemandwillprobablydecelerate
further,toaround2,7%asagainst3,2%in1987and
3,8%in1986.Thissituationisapparentatthesametime
withintheCommunity ,withlargedisparities ingrowth
rates.AmongthelargercountriesoftheCommunity ,in
FranceandGermanyforexample,thegrowthoffinal
domesticdemand,withratesofincreaseofonly2,0%and
2,3%respectively in1988,islikelytobebelowthe
Community average.Ontheotherhand,expectedgrowth
ratesof3,3%inItalyandtheUnitedKingdomandnearly
5%inSpainandPortugalarewellabovetheCommunity
average.Furthermore ,insomecountriesgrowthiscoming
upagainstmountingexternalconstraints (seeTable1).
Theseconstraints couldbeeasedifthemoreprosperous
Community economiesnotchedupmorebuoyantgrowth.
Failingthat,theriseinCommunity GDPwillprobablybeno
higherin1988thanin1987.Theexternalsector's
contribution isexpectedtoremainonlyslightlynegative,as
theriseinimportslosesmomentum andthegrowthof
extra-Community exportspicksupagain.Revisionstobusinessinvestment plansalreadyoccurredin
thesecondhalfof1986.Thisrevisionisalsoshowingupin
theregularinvestment surveysconducted intheCommunity .
Whereas,inMarch/April1986,realinvestment growthof
10%inindustrywasstillinprospectforthecurrentyear,by
October/November thatyearthefigurehadbeenscaled
downto5%.Thiswasthelargestrevisionsince1981.The
mostrecentforecastsindicateariseofsome3,3%inthe
volumeofgrossfixedcapitalformation in1988,compared
with3,6%thisyear,theslightrecoveryinconstruction
investment notcompensating foraweakergrowthof
investment inplantandmachinery .
Thetrendofprivateconsumption hasalsobeenslightlymore
disappointing thanexpected .In1987,afurtherfallinimport
pricesandtheresultingmarkedincreaseinpersonal
disposable incomeagainboostedprivateconsumption by
around3%.Nevertheless ,withsomeoftheextraincome
beingchannelled intosaving,thestimulustogrowthisnot
sufficienttosetoffanappreciable dynamicgrowth.In1988,
becauseofaslackerrateofincreaseinrealdisposable
income,privateconsumption isforecasttogrowatarateof
onlysome2,7%.Thefavourable trendofpriceshascontinuedandinflationis
stillonthewaneinthemajorityofcountries .Therisein
consumerprices(justover3%intheCommunity )isactually
belowtheaverageforthe1960s.Thisstabilization process
gotunderwayatthebeginningofthe1980sundertheimpact
ofmonetarypoliciesdirectedtowardsstability,andhasalso
receivedafillipsince1986fromthedeclineinenergyand
importprices.Sincenominalwageshaveadjustedrapidlyto
lowerinflationandsincethegrowthofrealwageshas
remained moderate (seeTable14),theparticularly
favourable externalinfluences haveresultedinapositive
trendininternalcosts,layingthefoundations forlasting
stability.Althoughtheinflationreductionprocessisrunning
outofsteamattheCommunity level,afurtherstrengthening
ofpriceconvergence onthelowestinflationrateisalso
expected (seeTable12).Thisarisesfromthefactthatthe
slideininflationisparticularly pronounced inthosecountries
wheretheinflationrateisstillcomparatively high.Although supply-side conditions haveimproved ,the
transitionfromgrowthunderpinned byexportstogrowth
basedmainlyondomesticfactorshasnotbeensufficientto

NoL394/12 OfficialJournaloftheEuropeanCommunities 31.12.87
and1988,themanufacturing workforce isagainexpectedto
fallslightly.SpainandtheNetherlands willprobablybethe
onlycountriestoregisterasignificant riseinindustrial
employment inthosetwoyears.Overall,thegrowthof
employment intheCommunity isaccounted forbythe
servicesector.Therehasbeenlittlefurtherprogresstowardsconvergence of
livingstandardsintheCommunity ,thatis,realconvergence .
Onthecontrary,thedisparities ,measured intermsofper
capitaGDP,havetended,ifanything ,towidensincethefirst
oilshock.Thiscompareswiththeappreciable progress
registeredinthe1960s(seeTable13).Atpresent,GDPper
headinPortugalandGreeceisaround45%,inIreland
35%,andinSpain25%,belowtheCommunity average.
Since1985,SpainandPortugalhavesucceededinsomewhat
reducingtheirdivergence fromtheCommunity average
throughahigherlevelofeconomicgrowth.Intotalthe
improvement remainsmodest;noristhereanyindication
thattheless-favoured regionswillmanagetoclosethegap
separating themfromtherestoftheCommunity in1988
quickly.Itis,however,essentialforeconomicandsocial
cohesionintheCommunity thatthiscatching-up process
shouldbegin(seeChapter3.3).
2.4.Employment andunemploymentNewormodifiedformsofworkingaswellaslabourmarket
measureshavecontributed totheriseinemployment .
Workingtimeperpersonemployedhasfalleninalmostall
MemberStatesfollowingareductionandreorganization of
weeklyworkinghoursandanextension inpart-time
working .Wherethereorganization ofworkingtimeis
concerned ,flexiblesystems(seeChapter4.1.4)underwhich
employees'workinghourscanbedivorcedfromoperating
hoursproliferated .Theexpansion inpart-timeworkingalso
makesformoreflexibleuseoflabour.In1986,13,5%of
wageandsalaryearners (EUR9)wereinpart-time
employment ,compared withonly10,8%in1979.In
Denmark ,theNetherlands andtheUnitedKingdom ,just
underonequarterofwageandsalaryearnerswerein
part-timeemployment (seeTable16).Thepart-timelabour
forceismainlymadeupofwomen,andmostofthejobs
availableareintheservicesector.Ifthereductioninworking
timeandtheintroduction ofpart-timeworkingmeetthe
wishesofthoseinemployment ,andifbothcanbereconciled
withtheneedsoffirms,moreflexibleorganization of
workinghoursandoperatinghoursopensupnumerous
possibilities forjobcreation(*).Theproliferation of
fixed-term employment contractsshouldhavemadeiteasier
forthosewithoutjobstofindemployment .Forinstance,the
proportion ofpersonscoverdbyalimited-duration contract
rosefrom5%ofthetotalnumberofpersonsemployedin
1983to5,5%in1985intheUnitedKingdomandfrom
2,3%to3,2%inFrance.IntheFederalRepublicof
Germany ,anincreasefrom4,2%to6,8%wasrecordedin
asingleyear(from1984to1985).Youngpeopleand
part-timeworkersaccountforanabove-average proportion
ofthosecoveredbylimited-duration contracts (seeTable
17).Thisoftenstemsfromnewlawsorspecificemployment
measures (seeChapter4.1).Theslowdown ingrowthdescribedaboveimpliesthatthe
Community hasfailedtocomenearertomeetingoneofits
mainobjectives :thesubstantial reductionofunemployment .
For1987and1988,employment isindeedexpectedto
increasebyaround0,8%and0,6%respectively ,compared
with0,8%in1986;butthisisstillnotenoughtobringabout
anymajorfallintheunemployment rate,whichwill
probablybecloseon12%fortheCommunity asawhole
duringthosetwoyears(seeTable1).Nevertheless ,the
relationship thatseemstobeemergingin1987and1988
betweeneconomicgrowthandtheriseinemployment
confirmsobservations madeoveranumberayears,namely
thatthejobcontentofgrowthhasincreased (seethebox
'Growthandemployment ').
In1986,forthefirsttimesince1979,theriseintotal
employment broughttoanendtheupwardmovement in
unemployment .Evenso,theincreaseinthedemandfor
labourbarelyexceedstheexpansion ofthelabourforce.
Demographic pressureonthelabourmarketiseasing,butthe
participation rate,especiallyamongwomen,willprobably
continuetorise.Consequently ,thenumberofpeopleoutof
workwillremainhighin1988,at16million.In1987and1988,totalemployment issettoriseatan
above-average rateinSpain,ItalyandtheUnitedKingdom
andatabelow-average rateinBelgium,Denmark ,Greece,
IrelandandFrance(seeTable1).Thegrowthinemployment
since1985hasbeenneithersufficiently broad-based nor
sufficiently strongtoproduceanysubstantial improvement
onthelabourmarket.Risingemployment intheservice
sectorisalonehelpingtocompensate forthedownward
trendofemployment inagriculture andmanufacturing (see
Table15)andtheeconomyisnotexpanding fastenoughat
themomenttoreverse,oratleaststem,thecontraction in
manufacturing employment .Insectorssubjecttopainful
restructuring vyithintheworldadjustment process,suchas
coal,steelandshipbuilding ,employment hasfallensharply.
Ofaround3,2millionjobslostinindustrybetween1982and
1986,100000havebeeninsteel,nearly150000in
coalmining and80000inshipyards .Furtheremployment
sheddinginproblemsectorsaretobeexpected .This
development willhaveparticularly noticeable effectson
unemployment ,sinceemployment incertainregionsoften
dependscruciallyontheseindustrialsectors.Forboth1987(*)Anenquiryundertaken fortheCommission showsthatonly10
to20%ofpart-timeworkerswouldwishtoincreasetheirhours
worked,whiletheproportion offull-timeworkerswhowould
prefertoworklessisaround30%(seeEuropeanEconomy ,No
27,'Employment problems :viewsofbusinessmen andthe
workforce').Thisenquiryalsorevealsthatamoreflexible
management ofworking-time andofproduction wouldenable
anincreaseinemployment perhapsreaching6%.

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/13
countedon,becauseofthenecessary international
adjustment processes .Asfarastheregionaldistribution isconcerned ,
unemployment isnotonlyhigherintheweakerthanthemore
prosperous regions,buthasadditionally grownatamore
rapidpacethantheCommunity average.Thus,in1985for
example,theunemployment ratewasmorethan20%inthe
25weakestregionswhileitwas6,6%inthemoreadvanced
regions(seeTable20).Themostworryingfactoristhat,
accordingtotheprojections ,halfthetotalgrowth(6,7
millionfromnowto1995)inthepopulation ofworkingage
intheCommunity ,isinthelessfavouredregions(seeTable
21).Althoughanattemptmaybemade,againstthebackground
ofthissituation,toquantifythemedium-term economic
outlookfortheCommunity ,themedium-term projections ,
unliketheshort-term forecasts,canonnoaccountbe
interpreted asaprognosis ofprobable economic
developments .Butwiththehelpofplausibleassumptions as
tointernational developments ,keyeconomic reaction
mechanisms andbehaviourpatterns,andastotheeconomic
policytobeconducted ,possibleeconomicdevelopments can
bediscerned .Themedium-term projections preparedby
Commission servicessincethestartofthe1980s—insofar
asithassofarbeenpossibletoobservetheiroutturns—have
presented theCommunity 'sgrowthandunemployment
problemsfairlyrealistically (seeTable22).However,this
relativesuccessdoesnothingtochangethefactthateachnew
projection throwsupnewuncertainties andthatcertain
developments canbeonlyimperfectly gaugedby
macroeconomic projections .Thisisnotonlytrueofthe
international environment ,butalsoofdevelopments inthe
internaleconomy .Forexample,macroeconomic projections
takealongtimetoregister—orhavesofarcompletely
ignored—thegradualchangesineconomicrelationships
whichstemfromtheeffortsmadeinalltheMemberStatesto
improvetheadaptability ofmarketsortopromotethe
completion oftheinternalmarket.Thevariouscategoriesmakingupthelabourforcearebeing
affectedquitedifferently byhighunemployment .Theriskof
unemployment isverypronounced amongyoungpeople,
women,theelderlyandtheunskilled .IntheCommunity ,
overathirdoftheunemployed areyoungpeople,although
thesituationdiffersagreatdealfromonecountrytoanother.
In1986,48%inItalyand43%inSpainoftheunemployed
wereunder25whilethecorresponding figuresforGermany
andDenmark wereonly22%and23%,respectively .
Nevertheless ,inrecentyears,youthunemployment has
fallenbacklittleintheCommunity asawhole:in1986,36%
oftheunemployed wereunder25asagainst38%in1984;
22,7%ofthelabourforceunder25(thoseinemployment
plustheunemployed )wereoutofworkin1986against
23,5%in1984.Thisdevelopment canbeputdowntoan
easingofdemographic pressuresandtothewidevarietyof
programmes tocombatyouthunemployment ,including
measuresundertheEuropean SocialFund.Unemployment
amongwomenisalsoaspecificlabourmarketproblem .It
hasrisensteadilyinrecentyears,toreach13,2%in1986
(seeTable18).InApril1986,onthebasisofthe
Community 'slabourforcesamplesurvey,itwasparticularly
highinSpain(25,9%),Ireland(20,2%)andBelgium
(16,8%).Labourmarketproblemsarealsothereasonfora
disturbingincreaseinthenumberoflong-termunemployed .
According tothedefinitions ofthelabourforcesample
survey,atthemomentoverhalfofthoseoutofworkhave
beenwithoutajobformorethanayear,comparedwith
46%in1983(seeTable19).Thisphenomenon is
particularly pronounced inBelgium,ItalyandIreland,where
thefigureisovertwothirds.InSpainandtheNetherlands ,
theproportion oflong-termunemployment easilyexceeds
50%.Giventhesharpincreaseinlong-termunemployment ,
itisofevenmorepressingimportance thatasolutionshould
befoundtotheproblemsonthelabourmarket.Thepresentprojectionto1991assumesthattheECUwill
notappreciatebyverymuchmoreagainstthedollaroverthe
nextfewyears,buttheYenwillstillhavesomemarginfor
appreciation ;thepriceofoilcouldgraduallyincreaseinthe
nextfewyearsbutnonewshockisassumed;thesituationof
thedeveloping countrieswillremaindifficult,buttheir
importscouldagainincreaseappreciably inlinewiththe
upturninworldtrade.Overall,ontheseassumptions ,world
trade(worldimportvolume,excluding theCommunity )
couldgraduallyreturntoagrowthrateofslightlyunder5%
by1990/1991(seeTable23).Withregardtoeconomic
policyintheCommunity ,ithasbeenassumedthatthe
presentstanceofbudgetarypolicy—includingthetaxcuts
plannedinmajorcountriesandaslightlymoredynamictrend
ofpublicinvestment —wouldbemaintained ,thatmonetary
policywouldcontinuetobegearedtostabilitybutwould
leavesufficientmarginforrealgrowthandthatincreasesin
realwageswouldremainmoderate ,butaccelerateslightlyin
comparison withtheperiod1981to1986.
2.5.Themedium-term economic outlookforthe
Community
Ontheseassumptions ,theaverageannualgrowthrateforthe
Community wouldbe2,5%intheyears1987to1991(see
Table24).Theinflationratewouldstabilizeatitspresent
levelofalittleover3%.Theprofitability offixedcapital
wouldgoonrising,butatamarkedlyslowerratethanin
thepreviousfive-yearperiod(seeGraph13).CorporateInthemediumterm,unemployment canonlybereducedif
growthaccelerates andatthesametimebecomesmore
employment-creating .Asalreadyshown,aseriesofdomestic
economicconditions forstrongergrowt^ihasimproved .
Positiveexternaleconomicconditions cannot,however,be

31.12.87NoL394/14 OfficialJournaloftheEuropeanCommunities
investment wouldimprovealittle,butnotsufficiently to
createthedesirednumberofjobs.Theincreasein
employment achieved (0,7%perannum)wouldcertainly
producenomorethanaslightfallintheunemployment rate;
in1991itwouldstillbelikelytobestandingatover10%.
TheCommunity 'scurrentaccountsurpluswouldgradually
diminishwhich,giventheneedsoftheinternational
adjustment process,wouldbenormal;theemergenceofa
largedeficitasaresultofgrowthbeingaccelerated on
employment groundsshould,however,beavoided.
However,thisdeterioration inthecurrentaccountbalanceis
chieflyattributable totheassumedriseintheoilprice;ifit
wereassumedthatin1989theoilpricestayedat18dollars
andthereafterdidnotincreasemoresharplythantheexport
pricesoftheindustrialized countries,theCommunity would
stillhaveacomfortable currentaccountsurplusin1991.Thedepreciation ofthedollarcontinuedin1986andduring
thefirsttwomonthsof1987.Moresettledconditionsonthe
foreignexchangemarketsonlycameaboutasaresultof
theLouvreaccordofFebruary1987.Thehoped-for
repercussions ofthedepreciation ofthedollarhavebegunto
befeltonrealflows,butprogressisstillinsufficient .To
succeedinstabilizingthedollar,untilcredibleprogresshas
beenachievedontheinternational adjustmentfront,requires
notonlyapositivedifferential ininterestratesbutalsoan
adequatenegativegrowthgapbetweentheUnitedStateson
theonehandandJapanandEuropeontheother.Although
developments havebeenfavourable inthisrespectin1987,
firstindicationsfor1988suggestthatgrowthdifferentials
willmoreprobablyshrink.Iftheseforecastsweretocometo
pass,thecredibilityofthemedium-term adjustment process
couldbecompromised .Thisinitsturncouldonlyleadtoa
greaterriskofafurtherfallinthedollarandastrengthening
ofprotectionist measures .Substantialandcredibleprogress
intheabsorptionoftheUnitedStatesbudgetdeficitanda
greateropeningupoftheJapanesemarketwouldcontribute
substantially toavertingthedanger.WithintheCommunity ,
thesharpebbinextra-Community exports,andthe
consequent worseningoftheinvestment climate,have
quashedthehopesofanacceleration ingrowthwhichexisted
lastAutumn .Inaddition,convergence inlivingstandardsin
theCommunity isonlyprogressing slowly.Ontheother
hand,theconvergence ofpricedevelopments towardsa
lower ■levelofinflationiscontinuing .Thegrowthin
employment notedsince1985hasenabledtherisein
unemployment tobestemmedin1986forthefirsttimesince
1979.Reduction inworkingtime,theextensionofpart-time
working,moderation inrealwages,newformsofworking
timereorganization ,aswellasotheremployment measures,
havemadegrowthmoreemployment-creating forseveral
years.Despitethesefavourablefactors,theunemployment
rateintheCommunity willscarcelyfallin1987/1988since
growthisslowingdown.Theincreaseinlong-term
unemployment isparticularly worrying .Inthemediumterm,
amorefavourable international economic environment
cannotbecountedon.WithintheCommunity ,thereare
sometentativesignsofaslightimprovement ingrowthand
employment inthemediumterm.Thisstemsessentiallyfrom
thehypothesesofareductionintaxationandanincreasein
publicinvestmentsupportingdemandwhich,inconjunction
withamoderate development inrealwages,increase
profitability .Atthebeginningofthe1990s,nevertheless ,the
unemployment ratecouldstillremainabove10%.Fromthepointofviewofgrowthandemployment ,this
projectionisdisappointing ,andhardlyseemstodifferfrom
thereferenceprojection producedforthelastAnnual
EconomicReport,but,ashasbeenindicated ,itdoesnottake
sufficientaccountoftheimprovement inmarketadaptability
anddoesnotyetintegratethecompletion oftheinternal
market.Ifweconsidertheannualprogression ofthe
principalvariables,oncetheexternallydetermined low
growthof1987and1988isover,thisyear'sreference
projectionshowsasomewhatmoredynamicgrowthtrend
thanlastyear'sprojection (seeGraph14).Admittedly ,the
reduction ofunemployment isstilltoosmall,but
employment attheendoftheprojectionperiodismarginally
better,sothattheunemployment ratethenfallsslightlymore
rapidly.Certainly,thesearethefirstsignsofaslight
improvement intheoutlook;theyshouldnotbe
overestimated ,andonnoaccountbeinterpreted asthe
probablecourseofthecycle.Iftheparameters arevariedin
theprojections ,itcanbeseen,however,thattheslight
improvement perceived ismainlyconnected withthe
assumedreductionintaxesandtheslightlymoresustained
increaseinpublicinvestment .Thesesupportdemandand,in
conjunction withamoderatedevelopment inwages,improve
profitability .Itremainstheprioritytaskofeconomicpolicy
tostrengthen andtoaccelerate thesefavourable
developments .
3.INTERNAL DETERMINANTS OFGROWTH ANDTHEINTERDEPENDENCE OFTHEMEMBER
STATES
Giventhechangedexternalsituation,theCommunity 'stask
istostrengthen itsgrowthfromitsownforces.Thisisnot
onlythebestcontribution itcanmaketorestoreinternational
equilibriaatahighestpossiblelevelofgrowth.Highgrowth
fortheCommunity isaboveallnecessarytoachieveitsinternalobjectives:thereductionofunemployment ,the
exploitation ofalltheadvantages flowingfromthe
realizationofthelargeinternalmarketandthestrengthening
ofeconomic andsocialcohesion intheCommunity .
Achievingeachofthesecentralinternalobjectivesrequires

NoL394/1531.12.87 OfficialJournaloftheEuropeanCommunities
highergrowth.Further,progressinachievinganyoneofthe
threewillcontribute significantly toachievingtheother
two.Thecompletion oftheinternalmarketcanalso,however,
havepositiveeffectsonprivatedemand:
(i)Ifcompetition iswider,lowerunitcostsleadtolower
productprices.Asaresult,competitiveness is
improved .Thisnotonlystrengthens internaltradebut
alsoenablesdemandoutsidetheCommunity tobe
betterexploited ;
(ii))Thegreatervarietyofproductsavailableinthelarge
internalmarketmeetstheneedsofenterprises and
consumers andisalsolikelytotriggeradditional
demand .Achieving internally-led growthmeansapplyingthe
cooperative growthstrategyformoreemployment which
wasadoptedbytheCouncilfortheCommunity inthe
1985/1986and1986/1987AnnualEconomic Reports.
Strongergrowth,inordertobedurableand,finally,
self-sustaining ,mustpreserveachievements gainedfromthe
internalandexternaleconomicstability,strengthening them
wherenecessary .Itmustbesupported byimproved
profitability andadaptability ofmarkets.Inthisrespect,the
recommendations onsupplypoliciesintheannualreportsof
previousyearsremainvalid.Completion ofthemarketwillalsoproducemanycost
savingsinthepublicsector:expenditure onthesupervision of
nationalregulations willfall,andprocurement opportunities
willimprove,ifpubliccontractsareawardedwithinthe
Community underconditionsoffreecompetition .Thisalso
increases thebudgetary marginavailable for
growth-promotion measuresonboththesupplyandthe
demandside. 3.1.Theinternalmarketandtheadjustment ofeconomic
structures astheenginesofgrowth
TheCommission hasinitiated anumberofstudiesto
estimatethequantitative effectsofcompleting theinternal
marketinsomesectors.Theoveralleffectislikelytobe
significant eventhoughitisdifficulttoquantifyexactly
becauseofthelargenumberoffactorsinvolved .Theoverall
effectwillalsodependonthecircumstances inwhichthe
internalmarketiscompleted :Thecompletion ofanareawithoutinternalfrontierscreates
importantstimuliforboththesupplyanddemandsidesinthe
Community .Removing fiscalandadministrative barriers,
mutualrecognition oftechnicalstandardsandtheopeningof
marketswillhavebothanimmediate aswellasaprogressive
impact.Fortheprivatesector,thefollowingsupply-side
effectscanbeexpected :
(i)First,directcostsavingsachievedintradewithinthe
Community ,iffrontierformalities ,additional
inspections andcertificates disappear ;
(ii)Theeasierandlesscostlyitbecomestoofferproducts
marketedinonemembercountryinothercountriesas
well,thegreateristheincentivetoexpandproduction
capacitiesandtoproduceforthelargeinternalmarket;
theresultanteconomiesofscalecanbeconsiderable :
productivity riseswhileunitcostsfall;
(iii)Becausetransparency forpublicandprivategoodsis
greater,competition ontheCommunity 'sinternal
marketwillintensify .Firmswillhaveagreater
incentivetoincreasetheirefficiencyandtoimprovethe
qualityoftheirproducts .Inthemediumtermthiscan
leadtoamoreefficienteconomic structure inthe
Community ;
(iv)Thelargeinternalmarketfinallyalsocreates
substantially betterconditions foragreaterEuropean
researchanddevelopment effortsinceitopensupthe
wholeCommunity asanoutletfortheinstitutesand
enterprises involved,benefitting thetechnological
competitiveness oftheCommunity .—Considerable additional investment wouldenablethefull
exploitation oftheopportunities createdbycompletion
ofthelargeinternalmarket.Theearlierthatfirmsrealize
thattheCommunity hasembarkedonanirreversible
process,themorequicklythisinvestment willbe
forthcoming .Additional investment createsadditional
demandandincreasesthemomentum ofgrowth.Onthe
otherhand,improvedmarketexpectations ofgrowthare
alsonecessary ,sothatmoreisactuallyinvested.The
executionofmajorprojectsofEuropeaninterestisalso
relevanttothecompletion oftheinternalmarket,since
theyhelptoestablishmodernandtransnational transport
andtelecommunications networks andsotocounteract
thefragmentation ofnationalinfrastructure .Inasuitable
environment suchprojectscanlargelybefinancedonthe
privatecapitalmarket.
—IntheMemberStatesitisalsonecessarytoincreasethe
adaptability ofthemarketsingoods,services,capitaland
labourandtoencourage entrepreneurial initiative (see
Chapter4.1);thisimprovessupply-side conditions ,
allowsfirmstoreactmorequicklytothenewconditions
oftheinternalmarket,andaccelerates theexploitation of
itsadvantages .Theassociated structural changescan
createsocialandregionalproblems .Inordernottocall
intoquestionfundamental rightsinthefieldsofsocial
security,ofsocialprotection andofworkingconditions ,
anissueraisedbytheCouncilofMinisters inits

NoL394/16 OfficialJournaloftheEuropeanCommunities 31.12.87
profitability ,improvesimultaneously .However ,sincethe
Community cannotfortheforeseeable futurecountonany
greatexternalboosttodemand,thenecessarystimulusmust
emanatefrominternalfinaldemandintheCommunity ,i.e.
fromprivateconsumption andfromhigherinvestment .
Privateconsumption wouldthereforehavetogrowat
roughlythesamerateasGDPoverthenextfewyears,
requiring appropriate increases inprivatedisposable
income.resolution of22December 1986,appropriate regard
mustbegiventothesocialdimension andtheprocessof
structuraladjustment mustbeaccompanied byawide
socialdialogue .Thestrengthening ofeconomic and
socialcohesionintheCommunity (seeChapters3.3and
4.3)wouldalsofacilitateregionaladjustment .Lastly,the
socialandregionalproblemsassociated withstructural
adjustment canbeovercomeonlyinanenvironment of
strongereconomic growth.Defensive behaviour of
governments andsocialpartnerswillthenbeeasierto
avoid.
Animportant contribution oftheinternalmarketisto
increaseproductivity ,but,forhigherproductivity tocreate
bothgreaterprosperityandmoreemployment ,growthhasto
behighenough.Admittedly ,thecompletion oftheinternal
marketwillprovideastrongboostforgrowth,butthiscan
onlybecomefullyeffectiveifitgoeshand-in-hand witha
moredynamicmacroeconomic process.However,ifinvestment istogrowstrongly,itsprofitability
mustrisefurtherforsomeyears(seebelow);realwage
increasesintheCommunity mustthereforecontinueto
remainmoderate .Moderateincreaseswithstrongergrowth
inemployment stillallowanappropriate riseinprivate
incomes,providedthatbudgetary policyalsoassumesan
activeroleinthisprocess,bycontributing toanimprovement
ofconditions onthesupplysideandtotheadequategrowth
ofdemandbyreducingtaxationonprivatehouseholds and
firmsandbymorepublicinvestment inworthwhile or
profitableprojects .Toavoidpressureforhigherrealinterest
rateswhichwouldbeunfavourable toprivateinvestment ,
suchabudgetary policyshouldnotcallintoquestionthe
improvement ofpublicfinanceinthemedium-term .3.2.Themacroeconomic process
Macroeconomic policymustalsohelptofreetheCommunity
fromthetrapoflowgrowthinwhichpresentpoliciesand
behaviourpatternswouldplaceit,evenifthereareperhaps
signsofaslightimprovement fortheendofthedecade(see
Chapter2.5).Itmustaimtopromoteself-sustaining growth
whichishigherandcreatesmorejobs,withoutjeopardizing
internalandexternalstability;inthiswayfastergrowthcan
bemaintained inthemediumterm.Anumberofmembercountrieshavegiventhemselves scope
foramoreactivebudgetary policyrolebymeansofthe
consolidation effortsofthepast(seeChapter5.3).These
countrieshavealreadycuttaxesorareplanningtodoso.The
positiveeffectsofthesemeasuresforthemediumtermcan
alreadybeperceived (seeChapter2.5),but,shouldeconomic
growthfallshortofexpectations foranylengthoftime,these
plansmaybeendangered ,sincetheslackening ofgrowth
goeshand-in-hand withrevenuelossesforthepublicbudgets
andstillhighercrisis-induced expenditure ,whichreduces
thebudgetary roomformanoeuvre accordingly .The
prerequisite foracredibleandrealisticpolicyof
medium-term budgetaryconsolidation thereforeseemstobe
aflexibleapproachtoplannedtaxcuts,bothasregardstheir
scaleandtiming.Thegrowth-promotion effectisgreatest
andthedangerofunsustainable externalimbalances ismost
limitedifthosemembercountries whichcanconductan
activebudgetary policycoordinate theiraction.Stronger
growthintheCommunity wouldimprovethebudgetary
situationoftheothermembercountries .These,while
adheringtotheirconsolidation priorities,couldthenalso
contribute totheimprovement ofgrowthprospectsinthe
Community (seeChapter3.3).Adynamicequilibrium mustthereforebeestablished inthe
Community betweeninvestment andprivateconsumption .
From1960to1973,privateinvestment intheCommunity
increasedslightlymorerapidlythanprivateconsumption ,
whiletheproportion ofprivateinvestment inGDPincreased ;
from1973to1985therewasacompletechangeinthe
situation,withinvestment growthactuallyfallingmore
sharplythanthegrowthofGDP,therateofwhichmorethan
halved(seeTable25).Ifthisinvestment gap,whichhas
grownupovermorethanadecade,istobeclosedandtoday's
lackofjobsalleviated ,if,inthefuture,capacitybottlenecks
aretobeavoided,andifstructural changeandthe
modernization ofproduction facilitiesaretoaccelerate ,
privateinvestment intheCommunity inthenextfewyears
willhavetogrowsubstantially morequicklythanGDP.Since
eachunitofoutputnowonaveragerequiresmorecapital
thanbefore,thismeansthattheneedforcapitalexpenditure
toexpandproduction andemployment istodayconsiderably
greaterthaninthe1960s(seeTable25).Itwillthereforebe
necessaryfortheshareofprivateinvestment inGDPinthe
Community toriseappreciably inthenextfewyears.Publicinvestment hassufferedseverelyasaresultofthe
consolidation driveoftheMemberStates.ItsshareinGDP
hasfallenbyroughlyonethirdsincethebeginning ofthe
1970s.Anacceleration inprofitablepublicinvestment would
notonlyexpandtheproductive potentialintheCommunity
morequicklybutatthesametimewouldalsohaveadirectThiscanonlybeachievediftwoessentialdeterminants of
privateinvestment ,i.e.expectations ofdemandand

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/17
3.3.Interdependence betweentheMemberStates effectondemand.Theexecution ofmajorinfrastructure
projectsofCommunity interest(seeChapter3.1)canalso
contribute totheattainment ofthisobjective .
In1987almost60%ofthevisibleimportandexporttradeof
theMemberStateswillbeconducted withtheotherMember
States(comparedwithlessthan40%in1958,seeTables26
and27).Theintra-Community importsorexportsofallthe
MemberStatesrepresentaround13%oftheCommunity
GDP.Thesetradetieshaverecentlybecomeevencloserwith
thechangeintheexternaltradeflowsofSpainandPortugal
asaresultoftheiraccessiontotheCommunity .Thus,in
Spain,theshareoftheCommunity intotalimportshasrisen
frombelow38%(1985)toover52%(1987);inPortugal,
thecorresponding risewasfromunder46%toover69%.
ForvisibleexportstheCommunity shareroseinSpainfrom
over53%toover69%andinPortugalfromlessthan63%
to70%.Thecompletion oftheinternalmarketwillincrease
thisinterdependence evenfurther.Inadditiontheincreasing
liberalization ofcapitalmovements combined withthe
maintenance ofstableexchangerates,particularly withinthe
framework oftheEMS,createsanevencloser
interdependence betweenthemoneyandcapitalmarketsof
theMember States.However,itisnotonlyimportant toimprovedemand
prospects :profitability mustalsoimprove.Inthisrespect,
considerable progresshasbeenachievedinrecentyears.
Highercapacityutilization ,thefallinthepricesofimportant
rawmaterialsandinparticularthefactthat,forseveral
years,realwageincreaseshavenotkeptpacewith
productivity gains,havealreadymarkedlyimprovedthe
profitability ofphysicalcapital.Nevertheless ,itisstillnot
backtothelevelofthe1960s,whenprofitability was
sufficienttopermitself-sustaining growthwithlow
unemployment .Norhasprofitability yetrisenbymuchin
1987.Giventhegreatneedforprivateinvestment ,anduntila
self-sustaining processofdynamicgrowthhasbecomea
reality,wagetrendsmustthereforecontinuetocontributeto
improving thepreconditions forinvestment .Inthisrespect
thereductionofthetaxburdenonwageandsalaryearners
shouldfacilitatemoderation inrealwageincreasesper
head.
Becauseoftheever-closer economicties,theflowsofgoods
andfinancereactmorerapidly,andthisincreasingly reduces
theautonomyofindividualMemberStatesintheconductof
theireconomicpolicy.Thecloseeconomicties,however,
alsoprovidenewopportunities forjointactionandincrease
theCommunity 'spotentialforgrowth,providedthat
economicpolicymeasuresaremorecloselycoordinated .The
stabilization achievedwithintheframework oftheEMS
showsthat,ifmonetary policiesarecoordinated ,
interdependence canbeusedtotheadvantageofallMember
States.Furtherprogressalongthisroadcan,andmust,be
made(seeChapter5.2).Awagestrendwhichdoesnotincreasethepressureoncosts
andthecontinuation ofastability-oriented monetarypolicy
makeiteasiertostabilizeinflationatitspresentlowlevelor
tobringitdownevenfurtherinanumberofmember
countries .Thisenablesinflationary expectations tobe
adjusteddownwards ,creatingasoundbasisforafurtherfall
inlong-term interestrates.Higherprofitability andan
increasedself-financing capacityoffirmswould,inaddition,
reducetensionsbetweensupplyanddemandforlong-term
capital.Thistoowillhaveafavourable effectoninvestment
activity,becausefinancing costsfallandbecausethe
relationship betweentheexpectedreturnonphysicalcapital
andinterestratesonthefinancialmarketisshiftingmoreand
moreclearlyinfavourofproductive investment .Most
importantly ,however,fallinglong-terminterestrateswill
alsotakeconsiderable pressureoffpublicbudgets:insome
MemberStatesthepublicdebtalreadyequals,ifnotexceeds,
annualgrossnationalproduct (seeboxoninterestrates).However ,itisnowimportant tomakeuseofthis
interdependence tostrengthengrowthbyalsoimprovingthe
coordination ofbudgetary policies.Thiscaneaseboththe
externalandthebudgetary constraints ontheMember
States.Inasituationinwhichtherearenoappreciable
externalstimuli,theresultisasubstantial increaseinthe
MemberStates'scopeforaction.Becauseofthegreat
significance ofintra-Community tradetheMemberStates
canexpectfastergrowthtohavelessseriousconsequences on
theircurrentaccountbalancesifitispartofacoordinated
approachthaniftheyactinisolation (accordingtoOECD
calculations ,theseconsequences wouldbereducedby
betweenonehalfandtwothirds).Thisisparticularly
important forthemembercountrieswhoseroomfor
manoeuvre ineconomicpolicyislimitedbecauseofconcern
fortheirexternalequilibrium ;atpresentthisisespeciallytrue
ofDenmarkandFrance,butalsoofItaly,Portugaland
Spain,wherecontinuation ofthepresentvigorousgrowthis
endangered bythethreatofexternalimbalance .Ofcourse,
theacceleration indomesticdemandwhichsuchaneffort
bringsaboutwouldleadtosomedeterioration intheexternal
accountsofCommunity countrieswiththerestoftheworld.Suchanincreaseingrowth,underpinned bydomestic
demand,wouldalsohelptoeliminateinternational current
accountimbalances whilemaintaining globalgrowthatthe
highestpossiblelevel.Thiswouldstrengthen confidence in
thestabilityofinternational economic andmonetary
relationsandwouldalsoremoveimpediments toadditional
investment .Inordertoavoiddisturbances itis,however,
importanttopreservesatisfactorily theexternalequilibrium
oftheCommunity inthemediumterm.TheCommunity 's
competitiveness musttherefore bemaintained and
strengthened .Afurtherimprovement inprofitability and
moreadaptable marketswillalsohelptosatisfymore
internaldemandbymeansofinternalproduction inthose
circumstances ;itisthuspossibletomaintainexternal
equilibrium inthemediumtermevenifgrowth
accelerates .

NoL394/18 OfficialJournaloftheEuropeanCommunities 31.12.87
Portugalwereabletocontinuetoclosethegapintermsofper
capitaGDP,butabthepriceofseriousexternaldeficits.
Inthe1980s,GreeceandIrelandinparticularwereunableto
gainmoregroundintermsofpercapitaincomesbecause
theirefficiencyofinvestment wasbelowtheCommunity
averageandtheinvestment ratiohadfallen.However ,
Spain'sefficiencyofinvestment recoveredtoapproximately
theaverageleveloftheothermembercountriesasaresultofa
vigorousinternaladjustment effort:notonlyequallingthem
intermsofgrowthofpercapitaincome,butevennow
drawingslightlyahead,whilestillsucceeding inpreserving
externalequilibrium .TheCommunity wouldthuscontribute tothe
re-establishment ofequilibrium ininternational payments .
However ,inorderthatthiseffortresultsinadurable
acceleration ingrowth,itisnecessarythatitreliesona
simultaneous improvement insupplyconditions anddoes
notcallintoquestioneitherasustainable medium-term
externalpositionorpricestabilityachievements .Ina
coordinated approachthebudgetaryconstraints ontaxcuts
oradditional publicinvestment arealsoeasedasaresultof
theclosetradeties.EachMemberStateenjoyingstronger
growthmakesanappreciable contribution tothegrowthof
theotherMemberStates;theincreaseineconomicgrowth
andtheaccompanying additional taxrevenueare
substantially higherthanifinitiativesaretakeninisolation .It
isthuseasiertoreconcilebudgetary policymeasuresand
medium-term budgetaryconsolidation .Strongergrowthin
thepartnercountriesalsohelpstoimprovethesituationof
themembercountrieswhichstillhaveseriousbudgetary
problems (seeTable29)andafteratimeenablesthemto
contribute tothecommonprocessofaccelerating growth.
Inthemedium-term ,acoordinated anddifferentiated
approachforbudgetarypoliciesmakesitpossibletoimprove
theconvergence ofthepublicfinancesituationinthemember
countriesoftheCommunity .Giventheincreasingly close
monetaryinterdependence withintheEMS,thisconvergence
isofspecialimportance .Withoutit,themembercountries
whosebudgetarysituationisrelativelyunfavourable could
becompelled toaccepthigherinterestratesinorderto
preventoutflowsofcapitalandtheresultantpressureontheir
currency .Torevivethecatching-up processinthecurrentchanged
circumstances requirescoodinated effortsbyallMember
States,aslaiddowninArticle130Bintroduced intothe
TreatyofRomebytheSingleEuropean Act.Forthis
purpose,growthmustaccelerate intheCommunity asa
whole,inordertoassisttheadjustment processandto
preventtheleast-favoured countriesandregionsbeingforced
intorestrictive policiesasaresultofdomesticorexternal
imbalances whicharenolongersustainable .Thisisonly
possibleiftheeconomically strongmembercountriesmakea
sufficientcontribution togrowth.However ,itisalso
cruciallyimportant fortheleast-favoured countriesand
regionstoimprovetheirinternalgrowthconditions further,
i.e.asregardstheprofitability andefficiencyofinvestment .
Thisincreasescapitalformation ,makesiteasiertopreserve
theirexternalequilibrium despitehighergrowth,andcreates
theconditions necessaryforincreasedcapitalimports.In
addition,thispolicymustreceivestrongersupportfromthe
Community institutions ,structural funds,theEuropean
Investment Bankandtheotherexistingfinancing
instruments ,asstatedinthecommunication fromthe
Commission (COM(87 )100)totheCouncil.If,inthisway,a
lastingandself-sustaining catching-up processcanbe
launchedinthesecountries ,notonlywilleconomic and
socialcohesionintheCommunity bestrengthened ,but,in
addition,thecountriesandregionswhichstarttocatchupas
aresultofmoredynamicgrowthwillalsomakea
considerable contribution togrowthintheCommunity .Thehigherinterestrateswouldobligethesecountriesto
makeadditional adjustment efforts,whichwouldbe
detrimental tothegrowthprocessintheCommunity asa
whole.
Closeconcertation ofeconomic policiesatnationaland
Community levelalsofacilitates effortstoaccelerate the
catching-up processintheleast-favoured countriesand
regions(Greece,Spain,IrelandandPortugal).Suchaprocess
occurreduptothe1970s,notablyinSpain,Greeceand
Portugal,whichwereabletoincreasetheirrealpercapita
GDPdistinctly morequicklythantheothermember
countries (seeTable30andChapter2.3).InSpainand
Portugal,thissituationwasfavouredbyabove-average
investment ratios,withtheefficiencyofinvestment highinall
fourcountries .Thecatching-up processwasmade
substantially easierbecauseittookplaceagainsta
background ofhigheconomicgrowth,whichenabledthose
countriestopreservetheirexternalequilibrium .3.4.Theprerequisites forsuccess
Theeffortsofthelastfewyearshavesubstantially increased
theprofitability ofinvestment andtheadaptability of
marketsintheCommunity ,thusfavouringhigherandmore
employment-creating growth,whilepreserving internaland
externalequilibria .However ,inthelasttwoyears,growth
hassloweddown,primarilybecauseofexternalfactors;asa
result,theeconomyoftheCommunity hascomescarcelyany
nearerattainingoneofitsmainobjectives ,asubstantial and
lastingreduction inunemployment .SincetheCommunity
cannotexpectveryfavourable externalinfluences inthe
foreseeable future,itmustrelyonitsownstrengthseven
morethaninthepast.Inthesecondhalfofthe1970s,theefficiencyofinvestment in
thesecountriesfelltotheaverageleveloftheotherMember
States(andevenfarbelowinthecaseofSpain).Itwasonlyby
increasing theirinvestment substantially thatIrelandand

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/19
Inthisnewenvironment ,application oftheCommunity
strategythereforemeansmakingbetteruseoftheadvantages
oftheCommunity dimension :completing theinternal
market,accelerating themacroeconomic processtoachieve
stable,highereconomicgrowthandtoprofitfromthe
interdependence betweentheMemberStates.Thisrequires
closercooperation betweenMemberStatesinthefieldsof
monetaryandbudgetary policyandthedevelopment of
Community policies(seeChapters4and5).TheCommunity
mustalsocontribute tothestrengthening ofinternational
cooperation ,inordertoworkinconcertwiththeotherlarge
economic areastoreduceinternational imbalances and
ensuremorestableexchangerates,aswellastoavertthe
threatofprotectionism (seeChapter2.2).InthecomingyearstheCommunity ,whilepreserving
achievements onthepricestabilityfront,mustincreaseits
economicgrowth,notonlyinordertocontribute tothe
processofinternational adjustment whilemaintaining the
highestpossiblelevelofworldgrowth,butaboveall,inorder
toattainitsownobjectives :reducingunemployment ,
makingfulluseofalltheadvantagesofthelargeinternal
market,andstrengthening itseconomicandsocialcohesion .
Sinceitcannotexpectstrongexternalstimuli,itmustrely
moreonitsownstrengths .Thecompletion oftheinternal
marketwillstimulategrowthconsiderably whilemaking
Community outputmoreprofitableandmakingitpossibleto
satisfyadditionaldemandwithintheCommunity andon
exportmarkets.However,inordertomakefulluseofthe
potentialoftheinternalmarketforgrowthandemployment ,
macroeconomic policymustalsocontribute tohigher,
self-sustaining growth,withouttherebyendangering internal
andexternalstability .Inthisconnection itisimportantfor
thegrowthofprivateinvestment torisewellabovethe
growthofGDP.Inadditiontothemoderateriseinreal
wages,taxcutsandhigherprofitablepublicinvestment will
contribute toimproving bothsupply-side conditions and
demandexpectations .However,suchfiscalpolicymeasures
shouldnotcallintoquestiontheimprovement ofpublic
financeinthemediumterm.Thecontinuation ofa
stability-orientated monetarypolicywillfurthermore helpto
bringlong-term interestratesdownagdin,favouring
investment andabovealleasingpressureonthepublic
budgets.Inaddition,closercoordination ofbudgetary
policiesbetweentheMemberStatesreducesexternaland
budgetaryconstraints whichconsiderably restricttheroom
formanoeuvreofcertainMemberStates.Suchcoordination
hastobeconsistentwiththeobjectivesandconstraints which
existatnationallevel.Lastly,coordinated effortbyallthe
MemberStatesandtheCommunity arenecessarytorelaunch
thedynamicprocessofcatchingupbytheleast-favoured
countriesandregions.Inthenewcircumstances ,application
ofthecooperative strategymeansmakinggreateruseofthe
Community dimension ,whichrequiresclosercooperation
betweentheMemberStates,thedevelopment ofCommunity
policiesandawide-ranging socialdialogueatnationaland
Community level.Strengthening socialdialogueatnationalandCommunity
levelsremainsdecisiveforwideningtheconsensus onthe
changesofattitudeandtheeconomic policymeasures
necessaryforthesuccessoftheCommunity strategy(see,for
example,the1986/1987AnnualEconomicReport,Chapter
4.6).AttheCommunity level,importantprogresshasbeen
made,notablytwojointopinionsofthesocialpartners :one
onthefundamental optionsoftheCommunity strategy(6
November 1986),theotherontrainingandmotivation ,as
wellasinforming andconsulting theworkforce when
introducing newtechnologies intheenterprise (6March
1987,seealsoChapter4.2).Encouraged bythissuccess,the
Commission willpursueitsefforts,todevelopatEuropean
leveldialoguewithandbetweenthesocialpartnersonallthe
themesoftheCommunity strategy .Thisalsoconformsto
Article118BoftheTreatyamendedin1987bytheSingle
EuropeanAct.However ,thewilltocooperateshownbythe
socialpartnersatCommunity levelshouldalsobebetter
utilizedatnationallevel.
TheobjectiveswhichtheCommunity has,thus,setitselfin
itscooperative strategyforgrowthandemployment arestill
relevantandrealizable ,thoughwithacertaindelay,despite
thedeterioration intheexternalenvironment .
4.COMMUNITY ANDNATIONAL STRUCTURAL POLICIES
marketaccordingtothelineslaidoutintheCommission s
WhitePaper(*)ofJune1985.TheCouncilrequestedthe4.1.Improving marketadaptability
4.1.1.AttheEuropean level,thecompletion ofthe
internalmarketby1992standsatthecentreofeffortsto
improvemarketmechanisms .Thiswasreconfirmed bythe
EuropeanCouncilofBrusselsof29/30June1987,withthe
observation thatitwasimportanttocompletetheinternal(1)Cf.'Completing theinternalmarket',WhitePaperofthe
Commission attherequestoftheCouncil,documentofthe
Commission oftheEuropean Communities ,Luxembourg ,
1985.

NoL394/20 OfficialJournaloftheEuropeanCommunities 31.12.87
describingotherproductcategories ,e.g.onthebasisofthe
proposalondangerouspreparations ,wouldfurtherincrease
markettransparency intheCommunity .responsible CouncilsofMinistersforthispurposetomake
fulluseoftheimproveddecision-making processintroduced
bytheSingleEuropeanAct.Underthenewprovisionsofthe
Treaty(inparticularArticle100A)introduced bytheSingle
European Act,itwillbepossibleinfutureforsome
two-thirds oftheproposalscontained intheWhitePaperto
beadoptedbyaqualifiedmajorityoftheCouncilin
cooperation withtheEuropean Parliament ;onlyfiscal
provisions ,thoserelatingtothefreemovement ofpersons,
andthoserelatingtotherightsandinterestsofemployed
personsareexcludedfromthesenewrules.TheCommission
describedtheprogressmadeinworkonthenumerous
individualproposalsinitsreportsontheimplementation of
theWhitePaperinMay1986and1987(COM(86 )300;
COM(87 )203).TheCommission hasalsoaddressedanother
important areafortheremovaloffrontiercontrolswithits
proposalsofearlyAugust1987(COM(87 )320-328 )for
theapproximation ofratesandharmonization ofstructures
ofindirecttaxes.4.1.3.Aseriesofmeasures toimprovemarket
adaptability ,throughderegulation andliberalizing market
access,concernsmallandmedium-sized enterprises (SMEs).
Theevidenceshowsthat,withintheenterprisesector,such
firmscontribute mosttonewemployment creation,
essentially inthehigh-technology sectors.Toencourage
furtherthedevelopment ofsmallandmedium-sized
enterprises ,twotypesofactionhavebeentaken.Thefirst
aimstoincreasemarketflexibility andencourage the
adaptability offirms.Itincludesmeasurestoreducethe
burdenonbusinessarisingfromCommunity regulations
suchasthesimplification offiscalandcompany law
applicable tosmallfirmsproposed bytheCommission .
SeveralMemberStatesarealsoendeavouring tofacilitatethe
creationofnewfirmsbypoliciesinthisarea.Thesecondtype
ofmeasureaimstoimprovetheflowofinformation tofirms
aboutEuropean Community andnationalpoliciesto
promotetradeandtofostercooperation amongenterprises
acrossnationalborders.Thesemeasuresareenvisagedinthe
ActionProgramme forSmallandMedium-sized Enterprises
approvedinNovember 1986bytheCouncil.4.1.2.Beyondthecompletion oftheinternalmarket,the
generalobjectiveofimproving marketadaptability remains
validforeconomicpolicyintheCommunity .IntheAnnual
Economic Report1985/1986(*),theCommission pointed
outthatactionwiththeaimofimproving theadaptability of
markets,andnotonlythelabourmarket,shouldbe
strengthened .Italsostressedthattheobjectivebehindefforts
toincreaseflexibilityisnottodestroyachievements madeon
thesocialfrontbuttocreatejobsandthereforethat,asfaras
atallpossible,economicefficiencyshouldbereconciledwith
thepreservation andstrengthening offundamental social
progress .IntheAnnualEconomic Report1986/1987(2),
theCommission presentedanumberofmeasurestoimprove
marketflexibility ,partlyfromtheviewpoint ofinternal
marketpolicy.4.1.4.Adaptability ofthelabourmarketcontinuestobea
majorconcernintheimplementation ofgovernment
employment policiesandcollective bargaining .Inits
communication ontheinternalandexternaladaptation of
firmsinrelationtoemployment ^1),theCommission has,
interalia,givenanoverviewofrecentdevelopments in
MemberStatesbothatlegislative and,wherepossible,
collectivebargaining level.
Thissurveyshowsthatgovernments andsocialpartnerstend
tofocusonaqualitative adjustment ofthelabourforce.To
succeedintheintroduction andspreadofnewtechnologies it
hasbecomeincreasingly importantfortheenterprises tohave
afunctional andversatileworkforce capableofadjusting
quicklytothenewtechnological advancesinworldmarkets.
Inthiscontext,qualification andtrainingprogrammes have
beenagreeduponatabi-ortrilaterallevel.AlsoworthyofmentionaretheCommunity measuresinthe
approximation oflegislation onconsumerprotection which,
insubstance ,aimtoimproveadaptability ofmarketsin
goodsandservicesbyincreasingmarkettransparency .Inthis
connection ,itisappropriate firsttocitethe1979Directive
ontheindication ofthepriceoffoodstuffs andofthe
indication oftheunitpricewherequantities presented in
standardized packaging areconcerned .Similarproposalsfor
otherconsumer goodshavebeenbeforetheCouncilsince
1983.Information onthecharacteristics oftheproductshas
alsobeenimprovedandharmonized intheCommunity .Here
theprovisions onthelabellingoffoodstuffs oronthe
presentation andmarketingofdangerous substances should
bementioned .Fortheseproductgroups,theconsumer is
informedofthecomposition ortheparticularcharacteristics
oftheproductsofferedbythesamemeansthroughout the
European internalmarket.Aharmonization oftherulesItisalsoincreasingly recognized thatmotivation and
adaptability ofpersonnelwillbesignificantly enhancedwhen
employees areinvolvedandassociated bywayofinformation
andconsultation inrelationtomanagement decisions ,
especiallythosewithemployment implications .Onthese
questionsbroadagreement hasbeenarrivedatbetweenthe
socialpartnersintheframework ofthesocialdialogueatthe
Community level(Chapter3.4).
Negotiations onadaptation ofworkingtimeandflexibilityin
thedurationofuseofproductive capacitycontinue .Thus,
forexample,inthemetal-workingindustries inDenmark (*)SeeAnnualEconomicReport1985/86,inEuropeanEconomy,
No.26,November 1985,Brussels,pp.10and42etseq.
(2)SeeAnnualEconomicReport1986/87,inEuropeanEconomy ,
No30,November 1986,Brussels,pp.63etseq.1COM87229.

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/21
targetedattheyoungembarking ontheirprofessional life,in
thepublicserviceorinnon-profit-making voluntary
organizations .Thesedirectemployment measuresnowcover
aconsiderable numberofwageearners(seeboxongrowth
andemployment ).andtheFederalRepublicofGermany ,long-termcontractual
agreements havebeensignedproviding foraflexible
reduction ofworkinghourswithwagecompensation ,
arrivingat37hoursperweekby1990and1989,
respectively .InFrance,anewlawontheadaptation of
workingtimeandnightworkforwomeninindustrywas
adoptedinJune1987increasingthepossibilityofaflexible
modulation ofworkingtimearrangements .InBelgium,an
interprofessional agreement intheNationalLabourCouncil
onnewworkingtimearrangements inenterprises ,withthe
exceptionofthedistributive sector,wasconcluded inApril
1986.Itwasconfirmed byalawinJuly1987.Finally,severalgovernments areendeavouring toimprove
theclimateforpersonalinitiativesbytheunemployed .Those
withoutworkwhobecomeself-employed orwishtostartup
theirownfirmcannotonlycountonStateassistanceinthe
formofadviceandtraining,butcanalsoreceivepublicaid
enablingfinancialriskstobereduced(ofteninplaceof,and
sometimes inassociation with,unemployment insurance
assistance ). Aseriesofmeasuresaims,inparticular ,atfightinghigh
unemployment aswellasaccompanying socialmeasuresto
structuraladaptation inregionsorindustrialsectors(coal,
steel,shipyards )wheretheneedforadjustment isparticularly
greatandimportant forthelabourmarket.Theobjectof
thesemeasuresisveryoftentoimprovequalifications orfor
professional retraining ofthepersonsconcerned .The
Community contributes herethroughitssocialfundsand
socialexpenditure fromtheECSCbudget.Another
important aspectisaidforemployment creation,more
particularly inthoseareaswheresteel,coalandshipyardsare
concentrated .Inthisarea,too,theCommunity contributes
throughtheregionalfundanditsfinancialinstruments .4.2.Competitiveness ,researchanddevelopment ,industry
andservices
Insomecountries thenumberofso-called'atypcial'
employment contracts,notablywithregardtopart-time
work,fixed-term employment andagencywork,has
increasedconsiderably inrecentyears,inparticularwith
regardtonewrecruitment .Thishasoftenhappenedunder
theimpactofchangedlawsandadministrative provisions .Formorethanadecade,aseriesofindicators haveshown
thatmanybranchesofEuropeanindustryhaveproblemsin
holdingtheirownagainsttheircompetitors inthemajor
developed economies .Forexample,intheperiod1979to
1985,theshareofCommunity exportsofindustrialproducts
(excludingintra-Community trade)intheexportsofOECD
countriesdeclinedbyaround1,4percentage pointsand,
since1963,byabouttwiceasmuch.Intheperiod1979to
1985,theUnitedStatesincreaseditsmarketshareby0,7ofa
pointwhileJapanactuallyincreaseditssharebyoverfive
points(seeTable31).Ifitistruethatthelossofmarketshare,
nowandinthenextfewyears,isperfectlyinlinewiththe
essentialadjustment oftradebalancesatworldlevel,itis
nevertheless worryingthatthefallinCommunity sharesis
concentrated onindustrial sectorsinwhichdemand is
particularly dynamic (e.g.electricalandelectronicproducts,
dataprocessing ,andofficemachinery :alossof2,5points
from1979to1985).Inthesesectors,theUnitedStates
increaseditsmarketshareby1,2pointsandJapanbyover
sevenpoints.Bycontrast,theCommunity hasgainedmarket
sharespredominantly inthesectorswheretheexpansionof
demandisweak(e.g.againof1,9pointsforironandsteel,
textiles,andbuildingmaterials )".Someprogresshasalsobeenmadetowardsamoreflexible
adaptation oflabourcoststochangedmarketsituations .
Measuresonprofitsharingareenvisagedorhavebeen
introduced inBelgium,DenmarkandtheUnitedKingdom ;
andinGermanyandFrancethecapital-sharing schemes
alreadyinexistencehavebeenextended .
Measuresaimedatbetteradaptability attheleveloffirms
havebeencomplemented byspecificemployment policiesof
MemberStates.Theemphasishasbeenplacedinparticular
onmeasuresfacilitating there-employment ofthelong-term
unemployed (1).Continuing theireffortsintheareaof
trainingandprofessional qualifications ,severalMember
Statesaretryingtoimprovetherecruitment possibilities of
thelong-term unemployed ,throughsupplementary
motivation programmes andassistanceinjobsearchaswell
asbyspecificfinancialincentives (forexamplethetemporary
waivingofsocialcontributions inBelgium,Franceand
Ireland,assistance forrecruitment intheNetherlands ,
temporarycontribution towagesintheUnitedKingdom).In
otherrespects,themajorityofMemberStateshavecreated
possibilities fortemporary employment ,inparticularAmoredetailedbreakdown atindustrybranchlevel(see
Table32)showsthat,since1979,theCommunity has
increasedmarketsharesprimarilyintheareasofwood
processing ,foodproduction andprocessing ,textiles,
clothingandpaper.TheUnitedStateshasalsolostmarket
sharesinmostindustrial sectors,buthasmadegainsin
importantsectorssuchasofficemachineryandtheelectrical
industry.AllbranchesofJapaneseindustryexceptthefood
industrygainedmarketsharesfrom1979to1985.
Withregardtotheevolutionofmarketshares,itisinteresting
thatlosseswithintheCommunity forEuropeanindustryin
theyears1979to1985wereonlyabouthalfasgreatasthe
lossesonthirdcountrymarkets (seeGraph14)andthat,{l)Foramoredetaileddescription seetheMemorandum onthe
fightagainstlong-termunemployment (COM(87 )231).

NoL394/22 OfficialJournaloftheEuropeanCommunities 31.12.87
compensate inthiswayonlyforthedeterioration incost
competitiveness .since1963,theseshareshaveremainedvirtuallyunchanged .
Internaltradehasthusclearlyhadastabilizing effectforthe
evolutionofmarketsharesinindustrialproducts .Through
itsbeneficialeffectsoncompetitivity ,thecompletion ofthe
internalmarketshould,moreover ,provideappreciable
additional supporthere.Itisallthemoreimportanttomaketheimprovement of
competitiveness intermsofproduction andproduct
technology apriority.Thelossesofthird-country market
shareinimportant industrialsectorsbetween1979and
1985,irrespective oftheexchangeratemovements ,should
givefoodforthought(Tables31and32:electricalgoods
-10,5points;motorvehicles-11,4points;office
machinery-6,3points).Incomparison ,Japaneseexport
successes intheareasofelectronics andmotorvehicle
construction showtheimportance ofusingadvanced
technologies intraditional industries .Inthiscontextitis
noteworthy ,however,thatimportantbranchesofEuropean
industry (textiles,machinetoolsandalsothecarindustry)
haveimprovedtheirpositionthankstoarationalization in
outputaswellasbyinnovation inproductsandproduction
methods .Anunfavourable structuraldevelopment isalsoevidentinthe
caseofinvestment activity(seeTable33).Intheyears1979
to1982,investment declinedmarkedly inthesectorsin
whichdemandwasgrowingstronglybut,withthegeneral
recoveryininvestment activitysince1983,theincreasein
investment inthesesectors,atleastupto1985,hasbeen
aboveaverage.Thisindicatessomecatchingupinrelationto
thirdcountrycompetitors .Itprobablyalsocontributed to
thevirtualhaltingofthedeclineofemployment from1982to
1985insectorsofproduction inwhichdemandwasheavy
(seeTable34).
Thisdevelopment inmarketshares,investment activityand
employment shouldbeconsidered alongsidetheevolutionin
thepatternofindustrialized countries'exchangerates,in
particularthedollar'sriseduringthefirsthalfofthe1980s
anditsdepreciation sinceMay1985.However,these
changesinexchangeratesareunlikelytohavebeendecisive
bythemselves fortheevolutionofdifferentcomponents of
marketshares.Forexample,thelossintheCommunity 's
marketshareforgoodsintheheavyandmediumdemand
sectorsoccurredduringtheperiodoftheECU'sdepreciation
between1981and1984(seeTable31).Theonlyincrease
wasintheareaofgoodsforwhichdemandisweak.Forthe
UnitedStates,thedollar'sappreciation overtheperiod1981
to1984hadvirtuallynoeffectintheheavydemandsectors,
butitseffectsarediscernible forproductsinthemediumand
weakdemandsectors.Thisindicatesthattheinfluence of
technological andorganizational factorsiscrucial,precisely
inthesectorswherethegrowthofdemandisdynamic .Inordertoimprovetechnological competitiveness ,the
Community hasmadeconsiderable effortstopromote
industrialinnovation byconcentrating andstrengthening
researchanddevelopment programmes inordertoclosethe
technological gap.Thefactthatcooperation between
European enterprises inthefieldofresearchisstill
insufficient haswithoutdoubtbeenadisadvantage for
Europeuntilnow;asaresult,researcheffortsinthe
Community havebeenunnecessarily fragmented ,even
thoughresearchcapacityandfinancialresourcesforresearch
purposesareintotalcomparable withthoseoftheUnited
States.Indeed,totalresearchanddevelopment expenditure
attheCommunity level(researchmanaged bythe
Community ,Eureka,ESA,etc.)represents between5and
6%oftotalpublicfundingofresearchintheCommunity .
WithregardtotheCommunity budgetalone,expenditure on
cooperation inresearchamountstoonlysome2,8%ofthe
total.Anewerawillbeopenedwiththe1987to1991
framework programme forresearchadoptedinJuly1987.In
thefieldofmoderntechnologies mentionshouldbemadeof
theprogrammes Esprit(information technology ),RACE
(communication technology )andBrite(introduction of
advancedtechnologies totraditional areasofproduction ),
Euram (advanced materials),andthebiotechnology
programmes .
Community researchprogrammes areonlyoneimportant
linkinanoverallindustrial strategywhichcoversthe
domesticandinternational aspectsoftechnology .Thus,
researchprogrammes aimatcreatingthenecessarybasefor
proposalsinthefieldofinternational standardsaswellasto
encourage industrial cooperation downstream from
research .Atthesametime,cooperation betweenvarious
Europeanfirmsonresearchisalsogivingrisetoincreased
cooperation inotherfields.Withregardtotheorderofmagnitude ofdevelopments since
1985,theECUhasappreciated bysome50%againstthe
dollariftheaveragelevelfor1987iscomparedwiththatfor
1985.Inthesameperiod,thenominaleffectiveexchangerate
ofthecurrenciesoftheTwelve(weightedaverageagainstthe
currenciesofninemajortradingpartners )hasrisenby20%.
Since,fortheCommunity asawhole,relativeunitlabour
costsinnational currency compared withmajor
industrialized partnershavehardlychanged,competitiveness
bearsthefullbruntoftheappreciation oftheeffective
exchangerate:theCommunity 'scostcompetitiveness has
thusdeteriorated bysome20%asaresultoftheECU's
appreciation .Thisisanotherargument infavourofa
moderatedevelopment incostsintheCommunity ,and
particularly labourcosts.However ,giventhescaleofthe
changeswhichhaveoccurred,itwillhardlybepossibletoInordertoensurethatresearchhasatangibleimpacton
competitivity andthatitiscirculated inscientificand
industrial circles,theCommission hasjustlaunched a

NoL394/2331.12.87 OfficialJournaloftheEuropeanCommunities
Community programme foreducationandtraininginnew
technologies (Comett)whichprovidesforvariousprocedures
oncollaboration attheEuropeanlevelbetweeneducational
establishments andfirms.encourageprivatecapitalflows,inparticularbydeveloping
newCommunity instruments enablingthemarkettooffer
newformsoffinancingcombining Community andprivate
capital.Theresourcesraisedinthiswaywouldprimarily
servetofinanceprojectsofspecialinterestforthe
Community .
Themorecompetitive thatCommunity industrybecomesin
termsofcostsandtechnology ,themoreroomwillbecreated
forexpansion ofemployment ,mostnotablyinservices.
Thereareimportant interactions betweenindustryand
services,andavigorouslygrowingservicessectorinharness
withahighlyproductiveindustrialsectorrepresentsthebest
prospectforemployment growthintheCommunity .The
Commission hasrecentlypublished aGreenPaperonthe
futureeconomic andregulatory framework for
telecommunications inEuropewhichconsidersthemeasures
necessarytocreateatrueinternalmarketfortheadvanced
communications services .Thequantitative effectsoftheproposedmeasurescouldbe
considerable .Withthestrengthening ofstructural fund
actionandtheparalleldevelopment ofloaninstruments ,the
proportion oftheseresourcesattheendofthe1980s,in
certainless-favoured countriessuchasGreece,Irelandand
Portugal,wouldstandatalittleover4%ofGDP(now
slightlyover2%).Forthedesiredeffectongrowthtooccur,
itiscrucialfortheadditional financialmargincreatedtobe
usedtoexpandinvestment activity.
4.3.Measuresforimprovedeconomicandsocial
cohesion
Inaccordance withArticle130AoftheSingleEuropeanAct,
theCommunity shoulddevelopandpursueitsactionleading
tothestrengthening ofeconomicandsocialcohesioninorder
topromoteitsoverallharmonious development .The
Community has,inparticular ,fixedasanobjectivea
reductioninthegapbetweenthevariousregionsandthe
backwardness oftheleast-favoured regions.Throughtheuse
ofitsstructuralfunds,ofitsfinancialinstruments andofthe
EIB'sactivities,theCommunity alsohasanimportantroleto
playinsupportoftheMemberStatesthemselves inleading
andcoordinating theirpolicieswithaviewtoattainingthe
objectivesofArticle130A(cf.Chapter3.3).Initsreports'TheSingleAct:AnewfrontierforEurope
(COM(87 )100)andThefinancingoftheCommunity
budget'(COM(84 )101),theCommission hassetout
guidelinesforfuturebudgetary policy.Initsview,the
extensivetaskswhichfalltotheCommunity asaresultofthe
SingleEuropeanAct,especiallythereformofthestructural
funds,requireanincreaseinitsbudgetary roomfor
manoeuvre .Ontheexpenditure side,thefollowing
elementsareespeciallyimportantforthefuturedevelopment
ofstructuralpolicyintheCommunity :thegrowthofthe
EuropeanAgricultural GuidanceandGuarantee Fund
(EAGGF)Guarantee sectionshouldremainlimitedinthe
framework ofbudgetary discipline ;itsshareinthetotal
budgetfallingfromover60%currentlytoslightlyover
50%in1992.Thisslowdown ofGuarantee section
expenditure willpermitadoublinginrealtermsof
committed expenditure forthestructuralfundsby1992.
Moreover ,expenditure onresearchonthebasisofproposals
forthe1987/1991framework programme shouldriseto
3%ofthebudgetagainst2,5%atpresent.Ontheincome
side,greaterbudgetarysecuritywouldbeachievedbythe
settingofanupperlimitof1,4%oftheCommunity 'sGNP
forownresources ;theCommission hassuggested a
complementary financialelementwhichwouldtakeinto
accountthefinancialcapacityoftheMemberStates.Atthe
sametime,greaterfinancialdisciplineshouldalsocontribute
toimprovedfinancialmanagement .Withregardtothestructuralfunds,theCommission setout
fromFebruarypolicyguidelinesfortheirfutureorganization
withfiveobjectives (COM(87 )100).Twooftheserelateto
regionalpolicy:achievinggrowthandadaptation inregional
economies showing structural backwardness ,and
restructuring decliningindustrialregions.Threeofthe
objectives aremorenon-regional :combating long-term
unemployment ,theintegration intoemployment ofyoung
peopleandspeedinguptheadjustment ofagricultural
production structures .TheCommission hasalsoproposed
thatthebudgetfundscommitted viathestructuralfundsto
theachievement ofthesefiveobjectivesshouldbedoubledin
realtermsby1992,concentrating theirapplication asa
priority,inconjunction withthefinancialinstruments ,on
theleast-favoured regions.Onthebasisoftheseguidelines ,it
presentedaproposalforaCouncilRegulation on30July
1987(COM(87 )376).Thecompletion oftheinternalmarketwillenableresources
tobebetterallocatedandthuscontribute tofastergrowth,at
thesametimeasstimulating investment .Theirreversible
natureoftheprojectmust,however,berapidlyapparentto
economicagentssothattheycanpreparethemselvesfor
changeandinterveneonthebasisofanaccuratepictureof
futuredevelopments .Thisnecessitates respectforthe
timetablefixedintheWhitePaperandthatdelaysinits
applicationshouldbemadeupforasrapidlyaspossible.The
economicrestructuring necessaryshouldbefacilitatedbyan
increasedadaptability ofmarkets,especiallyinthelabour
marketbyintensified vocational training.Aseriesof
indicators showsthatthestructural adjustments inthe
Community aretooslowbycomparison withotherAlongside theexpansion ofthestructural funds,the
Commission willplacespecialemphasisonthedevelopment
ofnewfinancinginstruments .Theobjectoftheseeffortsisto

NoL394/24 OfficialJournaloftheEuropeanCommunities 31.12.87
industrialized countries;thisessentially concerns the
Community 'sindustrial competitiveness inthe
high-technology sectors.Thisiswhyitisparticularly
important thattheCommunity 'saimofincreasing its
technological competitivity isalsorapidlyrealizedwithinthe
framework oftheEuropean researchanddevelopment
policy,partlybyutilizingthecapacitiesofsmalland
medium-sized enterprises .Thereinforcing ofthe
Community 'sstructuralfunds,theirconcentration onalimitednumberofobjectives ,aswellasthedevelopment of
financialinstruments wouldenabletheCommunity inthe
Commission 'sviewtocontribute moreefficiently to
achievingtheaimofgreatereconomicandsocialcohesion
alongside theeffortsundertaken bytheMemberStates
themselves .Inthiscontext,theCommission laysimportance
onitsproposalsonfinancingtheCommunity budgetand
strengthening budgetdisciplinebeingadoptedassoonas
possible.
5.MACROECONOMIC POLICYSTANCES ANDPROBLEMS
adoptedin1987fortheexpansionoflendingtotheprivate
sector.Thisiswellbelowtheratesrecordedintheearly
1980s,whichwereover13%.Althoughthetargetshave
sometimes appearedtooambitious incertaincountries ,
actualmonetary growthhasindeedconverged toa
considerable extent.TheCommunity isfacedwithadifficultinternational
environment andmustrelyonitsownresources .Ithas,
nevertheless ,majorstrengths :inflationrateslowerandmore
convergent thanforalmost25years,arelativelycomfortable
externalpositionoverall,amarkedimprovement inthe
financialsituationandprofitability offirms,andstructural
changeswhich,althoughpainful,werenecessary .These
strengthsconstituteasolidbasisfromwhichtoimplement a
monetaryandfiscalpolicymixaimedatstrengthening
non-inflationary growth.Thedeceleration inmonetarygrowthisnowlessmarked.
Mostrecentrecordedoutturnsshowratesof,asappropriate ,
moneyorcreditexpansionhigherthantheuppertargetlimits
adoptedfor1987(seeTable36).Theliquidityratiohas
increased inmostCommunity countries .Todate,these
developments havenotendangered thedownward
convergence ofinflationrates.5.1.Monetarydevelopments andpolicy
Therateofmoneysupplygrowthhasdeclinedfromtheearly
1980s:fromanaverageofover14%duringthe1970s,itis
nowaround10%.Thisslowinginmonetaryexpansion has
backedupthedisinflation process.Therateofinflationas
measuredbytheGDPdeflatorhasbeenreducedfrommore
than13%in1980toabout4%in1987(EUR12).Atthe
sametime,theriseinpercapitawagecostshassloweddown
appreciably (frommorethan14%in1980toabout5,5%in
1987),thusmakingamajorcontribution tostabilization .
Consequently ,therestrictiveeffectsofpoliciesofmonetary
stabilityhavebeenlargelyattenuated .Thustherehasbeena
gradualacceleration intherealmoneysupply,i.e.nominal
moneysupplyadjustedforinflation,anindicatorofthe
liquidityavailabletofinancerealgrowth.Therateof
increaseisnowabout5%,'significantly abovethatof
output .Theassessment ofmonetarypolicystancesonthebasisof
indicatorsofliquiditydoesinvolvesomeuncertainty :rapid
financialinnovation ,structuraladjustment onmoneyand
capitalmarketsandgreaterfreedomofcapitalmovements
canbeaccompanied bymajorchangesintherelationship
between monetary expansion andothervariables ,
particularly GDP.Itdoesseem,however,thatthestanceof
monetary policiestodatehasbeenconsistent withthe
requirements ofthecooperative strategy;however,greater
vigilancenowseemsnecessarytopreventexcessliquidity
frombuildingupintheCommunity ,withthepotentialfor
soonerorlaterrefuellinginflation .
Theconvergence ofmonetary policieshascontinued to
improveappreciably ,inparticular withintheEMS,
evidencedbytheconvergence oftargetsformoneyandcredit
expansion adoptedinthedifferentmembercountries :the
growthtargetrangeforcentralbankmoneyinGermanywas
broughtdownfrom4to7%in1981to3to6%in1987;the
targetforM2inFrancewasbroughtdownfrom9%in1983
toarangeof4to6%in1987.InItalyatargetof7%wasOverthepasttwelvemonths,domesticmonetarypoliciesin
Europehavebeenstronglyinfluenced byeventsonthe
foreignexchangemarkets .Theappreciation oftheEuropean
currenciesagainstthedollarobviouslymadeiteasiertobring
inflationdownbut,atthesametime,themonetary
authorities hadtokeeptheirowncurrencies from
appreciating tooquickly,topreventtoogreatalossof
competitiveness andtolimittheresulting damaging
medium-term structural effects.Untiltheendof1986,the

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/25
depreciation ofthedollarwasaccompanied byareductionin
nominalinterestratesintheUnitedStatesandEurope,and
byanarrowingofinterest-rate differentials betweenthetwo
regions(s^eeGraph16).theirpart,cancontributetoadeclineinlong-termratesby
convincing economicoperators ,throughtheirpolicy,that
theyarepursuingtheobjectiveofmonetarystabilityinthe
medium-term ,thusdurablystabilizing inflationary
expectations atalowlevel.Thismeansthatitisstill
important inthecountriesconcernedtosetandtopursue
quantitative targetsformonetary growthandcredit
expansion .Moreover ,possibletensionsintheEMSasthe
liberalization ofcapitalmovements gathersmomentum will
bemoreeasilyandrapidlydealtwithasthemonetary
authorities arefirmlyanddurablycommitted toapolicy
gearedtowardsstability.Inparticular ,moreflexible
adjustments ofshort-termratesmightbecomenecessary,but
theyshouldnot,insuchconditions ,havemajor
repercussions onlong-termratesandbankbaserates.SinceFebruary 1987,exchange rateshavestabilized .
Following theLouvreAgreement ,flexibleinterest-rate
adjustments —leadinginparticular in1987toawider
differential betweenUnitedStatesandGermanrates—and
substantial intervention onforeignexchangemarketshave
ledtocrediblestabilization ofshort-term foreignexchange
expectations despitepersistent international balance­
of-payments disequilibria .
Intheframework oftheEMSexchangeratemechanism ,the
authorities inmostcountrieshavegivenmoreconsideration
toeconomicdevelopments intheirpartnercountrieswhen
conducting monetarypolicies.Short-term interestrateshave
beenmorefrequently usedtosupplement intra-marginal
intervention tostabilizebilateralparitiesbetweencurrencies
participating intheEMSexchangemechanism .Forexample,
sincetheendof1986,Germanshort-term ratesdeclinedby
nearlyonepointuptothesummerof1987whileFrench
short-term ratesdeclinedonlymoderately .Centralbanksare
nowtendingtotakebetteraccountofexternalrequirements
whenpursuingtheirdomesticmonetarytargets,atleastas
longastheaimofdomestic stabilization isnot
compromised .5.2.Theliberalization ofcapitalmovements andthe
strengthening oftheEMS
Theaimoffreecapitalmovement ispartofawiderapproach
aimedatthecompletion oftheinternalmarketwhile
maintaining theeconomicandmonetarycohesionofthe
Community .Substantial progresshasbeenmadeoverthe
pastyeartowardsfreeingcapitalmovements inthe
Community .
On17November 1986,theCounciladoptedanewDirective
extending compuslory liberalization intheCommunity to
threefurthercategories ofcapitalmovements I1).The
Directivetookeffecton1March1987,althoughSpainand
Portugalhavealongerperiodinwhichtocomply(totheend
of1990andtotheendof1992,respectively ).
Liberalization measurestakeninseveralMemberStates—
Denmark ,France,ItalyandSpain—alreadygobeyondthe
strictobligations imposedbythecurrentDirectiveortheAct
ofAccession .Capitalmovements areentirelyfreein
Germany ,theNetherlands andtheUnitedKingdom ,and,
subjecttotheapplication ofthetow-tierexchangemarket,in
BelgiumandLuxembourg .Apartfromthenewmembers,
onlytwoMemberStates—GreeceandIreland—maintain
restrictions ,byvirtueofthesafeguard clauseinArticle
108(3)oftheTreaty,oncertaincapitalmovements thatare
normallyfree.
Thesedevelopments encouragetheCommission topursueto
completion theinitiativelaunchedinMay1986towardsthe
complete liberalization ofcapitalmovements inthe
Community by1992.AnewproposalforaDirectivetothis
end,alsotakingaccountofthespecificsituationincertain
MemberStatesandprovidingthepossibilityfordealingwith
gravedisturbances onthemoneymarketswhennecessary ,
willshortlybepresentedtotheCouncil.Despitethedeclineinshort-term interestratesupto
mid-1987andininflationrates,long-term interestrates
remainrelativelyhighandinrecentmonthshaveincreasedin
certaincountries .InSeptember 1987intheEMScountries
theywerealittleabovethoseinOctober1986,whileaverage
short-term ratesinthesamecountries hadonthewhole
declined .Moreover ,thegapbetweenthelong-terminterest
rateandthepresentrateofinflationisstillverywide.The
rapiddeclineininflationoverthepastfewyearshasnotyet
beenfullyabsorbedinallcountriesintoexpectedinflation
rates,sothattheexpectedgapoveralongerperiodbetween
thenominalinterestrateandtheinflationrate,adetermining
factorininvestment ,isprobablysmallerthanthegap
measuredonthebasisofcurrentobservation .Nevertheless ,
despiteamajorriseinthereturnonfixedcapital,furtherrises
inlong-term interestratescouldactasadisincentive to
productive investment ,aswellasconsiderably hampering
effortstorestorehealthypublicfinancesincountrieswitha
highlevelofpublicdebt(seebox).
Adeclineinlong-termratesappearsdesirable .However,the
recentdevelopment ofbothlong-termandshort-term rates
confirmsthatthemonetaryauthorities arelimitedintheir
abilitytoinfluencelong-term rates.Furtherdeclinesin
short-term rates,whichwouldbeaccompanied byexcessive
expansionofliquidity,couldevenleadtohigherlong-term
ratesiftheyagainraisedinflationary expectations .Alongside
domesticfactors,long-term ratesalsoreflecttensionson
international capitalmarkets .Themonetaryauthorities ,for(J)Long-term commercial credits,acquisition ofsecuritiesnot
tradedonastockexchange,andtheadmissionofsecuritieson
thecapitalmarkets .

NoL394/26 OfficialjournaloftheEuropeanCommunities 31.12.87
specialneedsofmanagingtheEMS,butcomplementary in
theirusewiththoseadoptedatinternational level.ThisCommission proposalwillbeaccompanied bytwo
otherproposals ,permitting recoursetobalance-of-payments
supportfacilitiestobackupaprogramme ofcapital
liberalization .
Thegreatermobilityofcapitalrequiresrapidreactionto
tensionsintheSystem.Whileitwillstillbebasedonabroad
consensus astothestanceofmonetarypolicy,cooperation
willnowfocusmoreontheproblemsoftheshort-term
management ofexchangerates,andinparticularthemore
flexibleuseofauthorized fluctuation margins,the
coordinated management ofinterestratedifferentials andthe
improvement ofpracticesandconditions forintervention at,
orwithin,themargins .Liftingexchangecontrolsisanecessarybutnotsufficient
condition fortheintroduction ofanintegrated financial
system.Suchasystemalsoimplieseffectivefreedomof
movement forfinancial serviceswithintheframework of
sufficiently harmonized rulestoguaranteetheprotection of
savings,ensurefaircompetition between financial
intermediaries andavoidtheriskofexcessively strong
distortions inthechannelling ofcapitalflows.Theadoption
andimplementation oftheproposalsintheWhitePaperon
completing theinternalmarket,althoughnotaprior
conditionforliberalizing capitalmovements ,shouldmakeit
possible,asfarascarefulsupervision isconcerned ,to
establish suchaframework ,adjustedtothenew
international financial environment .IntheCommission 's
view,itisalsoimportant onthetaxsidetoapproximate
company taxarrangements andtoestablish closer
cooperation betweentherelevantauthorities tocombattax
evasion .Here,too,areinforced monitoring procedure hasbeen
established toimprovetheearlydetectionoftensionswhich
mayoccurwithintheSystemandtoagreeonhowtodeal
withthem.
Thispragmatic approach isaccompanied bysome
appropriate changesinthemechanisms oftheEMS:inthe
caseofveryshort-term financingtheseareanextensionofits
maximum durationfromtwo-and-a-half tothree-and-a-half
months,thedoublingoftheamounteligibleforautomatic
renewalandthechangingofthe'defacto'acceptance limiton
officialECUfrom50%to100%.Lastly,ithasbeenagreed
thattherewillbeapresumption thatveryshort-term
financing willbeavailable,oncertainconditions ,for
intra-marginal interventions .TheremovalofallexchangecontrolsbetweenCommunity
currencies ,andthefurtherintegration ofmoneyandcapital
markets,aremajorstepstowardsmonetaryunification ,but
theydomeanextraconstraints ontheconductofthe
monetarypoliciesoftheMemberStates,whichmustnotbe
allowedtoaffectthestabilityofexchangerates,another
necessaryconditionforthecompletion andviabilityofthe
internalmarket.
5.3.Budgetary developments andpoliciesItisthusindispensable tocontinuealongtheroadof
cooperation andconvergence ineconomic andmonetary
policies,andtoreinforcethemechanisms involvedinthe
management andfunctioning oftheEMS.On12January
1987,theCommunity 'sMinistersforFinanceasked,the
Monetary Committee andtheCommittee ofGovernors to
examinethepracticalmeansofachievingthis.Thetwo
Committees ,whichbenefited intheirworkfrom
Commission proposals ,haveproduced anumberof
proposalsforimproving themonitoring ofeconomicand
financial developments withintheCommunity .The
Committee ofGovernors hasalsoagreedonanumberof
operational changestotheEMS.Alltheseproposals were
unanimously endorsedbytheMinistersforEconomic and
FinancialAffairsataninformalCouncilmeetingheldat
Nyborgon12September 1987.Thegeneralgovernment deficitfortheCommunity asa
wholeiscontinuing onthedecliningtrendthatbeganin
1982:itisexpectedtostandat4,5%ofGDPin1987
comparedwith4,8%in1986andaround5,5%in1982.
However ,thereductionfor1987issmallerthanenvisaged in
thelastAnnualEconomicReport(1986/87),mainlybecause
oftheeffectoftheunexpected slowdownofgrowthin1987
ontaxandsocialcontributions andoncertainexpenditure
items.Moreover ,theratioofpublicdebttoGDPis
continuing toincreaseonaverageintheCommunity ,
althoughrathermoreslowlythanintheearly1980s(see
Table38).Thetotalburdenoftaxation (directandindirect
taxesand'socialsecuritycontributions ),aftertendingtorise
inthe1960sand1970s,hasremainedatpractically thesame
levelsincetheearly1980s.Ithasnevertheless falleninseveral
MemberStates.Inotherrespects,currentexpenditure is
expectedtocontinueincreasing onaverageinthe
Community atamoderaterate,whileitsshareinGDP
declinessignificantly ,andtheshareofpublicinvestment
remainspractically constant .Inordertoimprovethecoherenceandthecompatibility of
variouseconomic policymeasuresimplemented bythe
MemberStatesandtheresultsthereof,themedium-term
monitoring procedurehasbeenstrengthened .Thisexerciseis
basedonasetofmacroeconomic indicators definedforthe

31.12.87 OfficialJournaloftheEuropeanCommunities NoL394/27
whichshouldbereflectedinanimprovement inbudget
balancesexcludinginterestfrom1985to1988equivalentto
twotofourpercentage pointsofGDP.Atpresent,however,
theseeffortsareparticularly painfulbecauseoflowgrowth
andfairlyhighrealinterestrates.Intheframework oftheCommunity cooperative strategy,
budgetary choicesshouldcontribute toreinforcing
productive potentialwhileachievingormaintaining atrend
ofpublicdebtthatissustainable inthemediumterm.
Medium-term actionforthispurposeshouldbebasedona
gradualreductioninthetaxburdenandaspecialeffortinthe
areaofprofitablepublicinvestment (seeChapter3.2).Such
measures improvesupplysideconditions aswellas
strengthening demand.Budgetary policyisincreasingly
importantatpresent,bothbecauseoftheinternational mix
ofeconomicpoliciesrequiredtoreducebalance-of-paymeints
disequilibria andbecauseofthelimitations ontheroleof
monetarypolicyinactivelysupporting growth(seeChapter
5.1).Itisaquestionofcontinuing tocreateconditions
favourable tofastergrowthwhichisdurable;itcannot
simplybeamatterofgenerating higherdomesticabsorption
intheshort-term ,withaconsequent rapidreductioninthe
currentsurplus,andnolastingeffectsonemployment .Inthesecondgroupofcountries,Denmark ,Germany ,
France,theUnitedKingdom andLuxembourg ,the
budgetarysituationiseasier;theratioofpublicdebttoGDP
isincreasingatamuchslowerrate,orevendeclining,froma
levelalreadylowerthanelsewhere .In1987,thegeneral
government budgetbalanceasapercentage ofGDPis
between-2,8%(France)and+1,9%(Denmark )and
+2,8%(Luxembourg ).Someofthesecountries,especially
FranceandGermany,areusingtheirscopeformanoeuvre to
supportdomesticgrowthin1987and1988.
Inmanycountries,budgetarystancesemergingfor1988are
alreadyinlinewiththecooperative strategy.Forexample,
taxreductions areexpectedinGermany ,France,theUnited
Kingdom ,SpainaswellasinBelgiumandintheNetherlands .
Publicinvestment isalsobeginningtorecoverincountries
suchasGermany ,FranceandDenmark .Inothercountries ,
however,tightbudgetpolicieshavemeantafurther
substantial declineintheshareofpublicinvestment inGDP
(seeTable40).
Atnationallevel,therearetwomainmacroeconomic
constraints ontheconductofpublicfinancepolicies:the
budgetconstraint inthestrictsenseandtheexternal
constraint .Theimportance oftheseconstraints varies
appreciably fromonecountrytoanother.Theirbudgetary balancesareinadditionaffectedbythe
slowdownofgrowth,asinthecaseofDenmark,asreceipts
aredepressedand'crisis'expenditure increases .Thishas
alreadyledin1987toanincreaseinthegeneralgovernment
deficitinGermany .InDenmark ,despiterestrictive fiscal
measuresaimedatredressing theexternalimbalance ,the
budgetarysurpluswilldeclinein1987and1988.InFrance,
onthegovernment 'splans,thegeneralgovernment deficit
willdeclinebetween1986and1988(from3,0%to2,3%of
GDP).Totheextentthatnoneofthesecountriescanany
longerrelyonafasterexpansioninitspartners,itonlyhas,in
isolation,verylimitedextramarginsofmanoeuvre ,where
theseexistatall.IntheUnitedKingdom,growthiscurrently
abovetheunderlying trendof3%experienced since1981
whileinflationhasaccelerated moderately ,partlyasaresult
ofhigheroilprices.In1987growthhasbeenassistedby
strongersupplysideperformance andbythefallinthe
effectiveexchangerateofthepoundsterling.Wagegrowthis
stronglysupporting privateconsumption .However ,given
productivity performance ,therateofprofitability remains
closetoits1986level.Inthesecircumstances thegovernment
hascontinuedreducingthebudgetdeficit,whichlookssetto
undershoot thelevelforecastinthebudgetforthethirdyear
insuccession .Simplyfromthepointofviewofpublicdeficitsandpublic
debt,presentpositionsvarywidely.However ,emerging
stancesareincreasingly convergent .Inoutline,twogroupsof
countriescanbedistinguished .Inthefirstgroup,thegeneral
government deficitisover5%ofGDPandinsomecases
closeto10%.TheratioofpublicdebttoGDPisalreadyvery
high,andstillexpandingrapidlyatarateofbetween3%and
8%ayear.Thisratioisparticularly highinBelgium,Ireland
andItaly,whereitisclosetoorevenbeyond100%ofGDP.
ItislowerinGreeceandPortugal (60to70%),butthe
budgetdeficitisstillcloseto10%ofGDP,andinboth
countriestheneedforgreaterrecoursetonon-monetary
financingofthedeficit,soastocompletethedisinflation
process,mightfurtheracceleratetheexpansionofthepublic
debt,whichmakesitallthemorenecessaryandurgentto
restoreabasicallyhealthypublicfinancesituation .InSpain
andtheNetherlands ,thelevelofboththepublicdeficitand
thepublicdebtrepresentsignificantconstraints butlessso
thanintheothercountriesofthegroup.Thesevencountries
ofthisfirstgroup,todifferingdegrees,aremaking
considerable effortstorestoreahealthybudgetarysituation,Thedifferences inbudgetary trendsbetweenthesetwo
groupsofcountriescarryseriousrisks.Theycomplicate the
taskoftheauthorities tofreetheCommunity morequickly
fromtheslowgrowthwhichseemstoentrapitinthemedium
term.First,inthecountrieswherepublicdebtisrisingtoo
quickly,evenmorerestrictive effortstoimprovepublic
financesmayneedtobemade,inordertocompensate forthe

NoL394/28 31.12.87 OfficialJournaloftheEuropeanCommunities
budgetaryimbalances rapidlyarising,withoutlastingeffects
ongrowth.Accountshouldalsobetakenoftheinherent
inflationary riskfromsuchmeasures .Thesemeasures
should,therefore,bepartofaneconomicpolicymixoriented
stronglyandconsistently topricestability.effectsontaxreceiptsofgrowthlackingimpetusfromnet
exports.Thisprejudices thesecountries'growthandhas
negativerepercussions onthatoftheirpartners,whoseroom
formanoeuvre isaffectedinturn.Theconvergence process
andthatofimproving publicfinanceisthusmarkedly
slowed,whichalsocomplicates thetaskofthemonetary
authorities ,especiallyintheEMS,andslowstheconvergent
fallinrealinterestrates.Consequently ,somecountrieswith
currentlyaboveCommunity-average growth,particularly
Spain,ItalyandPortugalriskbeingforced(orhavealready
beenforced)togiveamorerestrictive orientation totheir
policiesinordertosafeguardtheirexternalaccounts .This
harmsintra-Community trade,whichiscurrently an
importantfactorineconomicdevelopment intheimmediate
term.Thesecountries wouldthusbeunabletodrawallthe
benefitsfromtheinternaladjustment effortswhichtheyhave
alreadymade,andshouldpursue.Theywouldthusnolonger
contribute ,asatpresent,tosustaining demandinthe
Community .
Thereisariskthattheseunfavourable trendscouldbecome
moreacuteinthecaseofafurtherweakening ofworldtrade
oranadditional declineofthedollar,whichwouldinstigatea
newslowdown ofgrowthintheCommunity .Insuch
circumstances ,ashasalreadybeenenvisaged inthe
conclusions oftheJuly1987Economic andFinancial
Council,itwillbeaquestionofbeingreadytousepositively
theinterdependence whichexistsbetweenCommunity
economies ,withintheframework ofajointeffort(cf.
Chapter3.3).Suchaneffortwouldcontribute tothe
realization oftheinternalobjectivesoftheCommunity and
tothecorrectionoftheinternational paymentsimbalances at
asatisfactory levelofworldgrowth.Ifonetakesaccountofparticular economiccircumstances ,
thecontribution ofeachofthesecountriestoacooperative
solutionintheeventofgrowthweakening furtherwouldbe
fairlydifferentiated .Forexample,inDenmarkandFrance,
theexternalsituationmakesitnecessarytovaryingdegreesto
maintainanegativegrowthdifferential withtheirmaintrade
partnerswhilefurtherreinforcing productive potential .In
Denmark,thepersistence ofaveryhighcurrentexternal
deficitisstillaconstraining factorintheconductofeconomic
policy.InFrance,taxreductions alreadyplannedfor1988
shouldnowbecontributing toreinforcing domesticgrowth
withinlimitscompatible withtheexternalconstraint .
However ,thesecountriescouldremainpreparedtoreview
thestanceoftheirbudgetary policiesintheframework of
international cooperation toreinforcetheirdomesticgrowth
assoonastheireffortstoimprovethecompetitiveness of
theireconomies andthepoliciesimplemented bytheir
Community partnersleadtofavourable effectsontheir
externalaccounts .InGermany,taxreductions plannedfor
1988willindeed,asisdesirable,contribute totherequired
change-over todomesticsourcesofgrowth.Theyinvolve
somedeterioration inthebudgetdeficit,alreadyaffectedby
slowergrowth.Forthemoment,supplementary fiscal
measuresappeardifficultifGermanyactsalone.However,in
viewoftheimprovement inproductive potentialalready
achieved ,thiscountrycouldtakefulladvantage ofjoint
actionbytheCommunity partners,whichwouldgradually
widenthemarginformanoeuvre andmightmakeitpossible
tospeeduptheprogramme oftaxreductionsplannedforthe
yearsafter1988.IntheUnitedKingdom,thereisagreater
riskofinflation .Moremoderategrowthofnominalwages
wouldreducethisandalsoimprovetheeconomy's
competitivity ,thuscreatingmorefavourable conditions for
investment andemployment .Theobjectiveofstabilizing the
sterlingexchangerateannounced bytheauthorities afterthe
Louvreaccordcouldalsohelptocontaininflation .This
countrycould,however,contribute usefullytoagreater
dynamism intheCommunity ifitcancontinuetosustainits
stillrelatively highrealgrowthratewhilepreserving
monetarystability.Ifsuchaneffortistohavelastingfavourable effects,itmust
respectthemainmacroeconomic equilibria ineachofthe
Member States,inparticular theachievement or
maintenance ofbudgetandexternaldeficitpositions
sustainable inthemediumterm.Thetypeandtimingof
possiblemeasuresshouldalsotakeaccountoftheeconomic
situationofeachcountry .
Someofthecountrieswhosebudgetary situationiseasier,
andwhichtogetheraccountforcloseto70%ofthe
Community 'sGDP,couldcurrently—fromthebudgetary
aspect—activelysupportgrowth.Theothercountries ,whosebudgetary situationremains
fragile,shouldrelyessentiallyonthebenefitsarisingtothem
fromfastergrowthintheirpartnercountries ,inorderto
attaintheirobjectivesofbudgetaryimprovement atahigher
levelofgrowth.Inthisothergroupofcountries ,situations
alsodifferconsiderably .InBelgiumandtheNetherlands ,
growthisstilllow.Bothcountrieshaveanexternalsurplus,
andbotheconomies haveparticularly closerelationswith
theirCommunity partners .TheythusbenefittothefullfromIfthissupportwereanelementofacooperative solution,this
wouldallowoffsetsagainstthebudgetaryorexternalbalance
effects.Actiontakeninisolationbyoneorotherofthese
countries wouldruntheriskofunsustainable externalor

NoL394/2931.12.87 OfficialJournaloftheEuropeanCommunities
investment ,constraints aretightenedasaconsequence ofthe
slowdown ingrowth.Thisonlyconfirmsthenecessityof
fullytakingintoaccounttheCommunity dimensionof
nationaleconomicpolicychoices.amoredynamicCommunity context.Thesetwocountries
couldusethemarginmadeavailablebystrongergrowthin
theirCommunity partnerstoreinforcethedomestic
components ofdemand,whilemaintaining theiraimsforthe
gradualreductionofthebudgetdeficit,ortoacceleratethe
budgetary consolidation process.InSpain,Italyand
Portugal,growthislikelytoremainhigherthanaveragefor
theCommunity ,althoughslightlylowerthanin1987,and
thethreecountriesaremakingamajorcontribution tothe
relativelysustainedexpansionofintra-Community trade.A
highergrowthrateintheCommunity partnerswouldhelp
thesethreecountries tomaintainorevenincreasetheir
presentrateofgrowthwhilepreserving asustainable external
positionandreducingtheirbudgetdeficitsasplanned,or
perhapsevenslightlymorerapidly.Lastly,inGreeceand
Ireland,theprocessofbudgetary consolidation is
accompanied byveryslowgrowth.Greeceis,inaddition,
stillfacinganexcessiveexternaldeficit.Inbothcountries,the
prioritytaskistorestoreahealthypublicfinance
position .Thedeceleration inmonetarygrowthcontinuesbutataless
pronounced pacethanpreviously .Theevenmore
pronounced deceleration ofpricesandcostscreatesa
satisfactory marginforrealgrowth.Acertainvigilanceis,
however,nownecessarytoavoidabuild-upintheeconomy
ofexcessliquidity .FollowingtheLouvreaccordthedollar's
exchangeratehasbeenmorestable.WithintheEMS,more
flexiblemanagement ofmoneymarketrateshascontributed
moreeffectively thaninthepasttostabilizing bilateral
parities.Thepursuitofmonetarypoliciesorientedina
credibleanddurablemannertowardsstabilityare
contributing tofurtherfallsinlong-terminterestrates,which
remainhighdespitethefallinshort-term ratesandin
inflation .WithintheEMS,suchpolicieswouldenablean
easiersurmounting ofthetensionswhichcouldarisefromthe
alreadyaccelerated liberalization ofcapitalmovements .The
progressmadeinSeptember 1987attheEconomicand
Financial Council'smeetingatNyborgshouldalso
contribute tothis.Withmonetarypolicynolongerbeingable
tosupportgrowthactivelywithoutcertainrisks,andthe
needforanimprovement intheinternational economic
policymix,theroleofbudgetary policybecomesmore
prominent .OnaveragefortheCommunity ,thebudget
deficitisstilldecliningsomewhat .Thebudgetoutlookfor
1988isthatthisisconsistent withthedirectionofthe
cooperative strategyandwillcontribute toimproving
supply-side conditions whilegivingsomesupporttodemand .
Ifcarriedoutaspartofaneconomicpolicydurablyaimedat
preserving pricestability,fasterreductions intaxesand
additionalpublicinvestment ,compatible withapublicdebt
positionsustainable intothemediumterm,wouldcontribute
tofurtherreinforcing thedeterminants ofgrowth .The
implementation ofbudgetarypoliciesenablinggrowthtobe
bettersupported ,however,isoftenconfronted at"the
nationallevelwithexternalorbudgetary equilibrium
constraints .Theseconstraints couldbeeasedinthe
framework ofcommonandwell-timed effortwhichwould
takeaccountoftheexistinginterdependence betweenthe
MemberStates.Inthecaseofanewslowdown ingrowth,
someoftheCommunity countrieswithaneasierbudgetary
situationcouldjoininsuchanefforttovaryingdegrees,while
theothercountriestookadvantageofsuchfastergrowthin
theirpartnerstorealizetheiraimsofconsolidating their
publicfinances,ifappropriate ,atahigherlevelofgrowth.
Suchaneffortwouldallowafasterconvergence ofbudgetary
positionsandreducetheriskofsomecountriesbeingforced
toslowtheirowngrowthratesbecauseoftighterbudgetary
and/orexternalconstraints ,whichwouldhavenegative
repercussions ontheirpartners .Evenifsuchacooperative solutionmayappeardifficultto
implement ,itsconsideration maybeappropriate atthe
presenttimeinviewparticularly oftheuncertainties
weighingontheworldeconomy .Ifgrowthweretoslow
downfurther,actionvariedtosuiteachcountry's
circumstances ,andwelltimed,couldleadtoanaverage
budgetdeficitfortheCommunity somewhathigherthanin
presentforecasts (4,5%ofGDPin1988).Inasituation
wheremarketsareconsiderably moreadaptable ,and
productivecapitalconsiderably moreprofitable ,theyieldof
suchactionintermsofgrowth,anacceleration ofinvestment
andthustaxrevenuecanbeexpectedtobemuchhigherthan
itwouldhavebeeninthelate1970sorearly1980s.The
returnsonsuchabudgetarystimuluswouldbeallthegreater,
thelargerthenumberofcountriesparticipating ,sothatthe
initialboostwouldbemorerapidlycoveredineachcountry
byextrataxrevenue.Thedurablereinforcement ofgrowthin
theCommunity thatmightresultwouldcontribute tothe
maindomesticobjective ,i.e.areductionofunemployment ,
andatthesametimewouldfacilitatesolvingtheproblemof
international balanceofpaymentsdisequilibria .
ThecountrychaptersinthesecondpartofthisReport,which
underpinitseconomicpolicyrecommendations ,allowthe
constraints whicheachcountryfacesinisolationtothe
gauged.Whethertheseconcerntheleveloftheexternal
balanceorwhatisnecessarytorestorehealthypublic
finances,toimplement taxreductions ortoraisepublic

NoL394/30 OfficialJournaloftheEuropeanCommunities 31.12.87
Growthandemployment
Intheyears1986/1983theannualgrowthrateofrealgrossdomesticproductintheCommunity was
onlyhalfasgreatasintheperiod1973/1960,butthatofemployment almostdoubled.Inthe
1991/1986medium-term projections this—inlabourmarketterms—favourable relationship
betweengrowthandemployment isexpectedtocontinue (seeTable1).
TABLE 1
Growthandemployment intheCommunity
Averageannualchange(%)
1973/1960 1979/1973 1983/1979 1986/1983 1991/1986(>)
RealGDP 4,8 2,4 0,8 2,4 2,6
Employment 0,3 0,1 -0,6 0,5 0,6
(*)Projection .
Source:Commission services .
ThismeansthatintheCommunity ,thegrowththreshold ,abovewhichanincreaseinemployment is
tobeexpected,isnowsubstantially lowerthanitwasinthe1960s.Accordingtoestimatesbythe
servicesoftheCommission ,inthe1960sthisthresholdwasreachedwhenrealGDPgrewby4,2%,in
theperiod1979/1973whenitgrewby2,1%,andintheperiod1987/1979whenitgrewby
1,7%.
GRAPH
Employment thresholds
(')Employment increaseswhenthisannualincreaseinrealGDPisexceeded .
Source:Estimates bytheservicesoftheCommission .
Thegreaterjobcontentofgrowthinrecentyearsisnotanewphenomenon ,butcontinues atrend
whichhasbeenapparentsincethefirstoilcrisisin1973.Thereis,however,reasontobelievethatthis
trendhasbecomesomewhat strongerinthe1980sandthatthefactorscausingitdiffer.
Thefollowingfactorsinparticularshouldbeconsidered ashelpingtoincreasethejobcontentof
growth:
(a)Thereductionofaverageworkingtimeperpersonemployed ,whichmeansthattheinputof
labourcanbesharedbetweenmorepeople.Afallinaverageworkingtimeperpersonemployed
canbeachievedbyreducingweeklyworkingtimeandlengthening annualholidaysforfull-time
workers,andforanincreasingproportion ofpart-timeworkers .

NoL394/3131.12.87 OfficialJournaloftheEuropeanCommunities
(b)Thestructuralshifttowardstheservicesector.Accordingtothethree-sector theory,asthe
prosperityofaneconomyincreases,agrowingproportion ofthenationalincomeisspenton
services.Sincetheservicesectorisgenerallymorelabour-intensive thangoodsproduction ,this
increasestheemployment-creating effectofgrowthasawhole.
(c)Theslowdownofthesubstitution bythefactorcapitalforthefactorlabour.Inotherwords,the
increaseinthenationalproductisproducedwitharelativelylargerinputoflabouranda
relativelysmallerinputofcapital.Theincreaseincapitalintensityisdeclining .Theslower
substitution ofcapitalforlabourcurbstheriseintheaverageproductivity oflabourinthe
economyasawhole.Growthbecomesmoreemployment-creating .
Thesethreefactorsarenotindependent ofoneanother,buttheyalloverlap.Itisthereforenotpossible
tomeasuretheinfluenceofeachofthefactorsaccurately .Nordothesaidthreefactorsentirelyexplain
thegreaterjobcontentofgrowth.
Takingthelong-termaverage,workingtimeperpersonemployedfellbyjustunder1%ayearinthe
fourlargeindustrialized countriesoftheCommunity (EUR4)(seeTable2).Inthe1960sand1970s
reductionsofworkingtimepermittednomorethanslightincreasesinemployment (0,1%and0,2%a
year,respectively );intheperiod1985/1980theystillweakenedthedeclineinemployment .Unlike
the1960sand1970s,whentheshorterworkingweektimeandlongerholidayswereclearlytothe
fore,inrecentyearsitisthespreadofpart-timeworkingintheCommunity whichhassubstantially
contributed tothegreatereffectonemployment ofgrowth.Table3showstheextenttowhichthe
growthofemployment inrecentyearsisattributable toincreasingpart-timework.Intheperiod
1985/1983itwasbasedexclusivelyontheincreaseinpart-timejobs;thenumberoffull-timeworkers
actuallyfellslightly.Thefiguresshowclearlythattheeffectonemployment ofshorterworkingtime
(perpersonemployed )dependsnotonlyonthesizeoftheaveragereduction,butalso,andmore
importantly ,onwhetherthereductionofaverageworkingtimeisduetotheincreaseinpart-time
workortothereductionoftheworkingtimeoffull-timeworkers .
Eveniftheincreaseinpart-timejobsisconcentrated ontheservicesector(theproportionofpart-time
workersintotalemployment hasrisenfrom16,1%in1983to17,3%in1985),aslightincreasein
thisproportion canalsobeseeninindustry(from5,1%in1983to5,7%in1985).Malepart-time
workingisalsoincreasingslightly(3,4%ofallmaleworkersin1985comparedwith2,8%in1983),
althoughpart-timeworkisstillpredominantly afemalepreserve (28,7%ofallfemaleworkersin
1985comparedwith24,4%in1983).
Asaprovisional resultitmuststillberemembered thatthespreadofpart-timeworkgoesalongway
towardsexplainingthehigherjobcontentofgrowth.Totheextentthatpart-timeworkisdesiredby
thoseconcernedanddoesnotrepresentaformofinvoluntary underemployment ,thereisnothingto
besaidagainstthistrend,especiallyifpart-timeworkiscoveredbycollectiveagreements anddoes
notcarrywithitgreaterdisadvantages intermsofsocialsecuritycoverorpromotionopportunities .
However,thefactremainsthatpart-timeworkersarefrequentlyrecruitedfromthe'latentreserve'
(e.g.housewives )andthereforedonotreproduceacorresponding fallinthenumberoftheregistered
unemployed .
Thestructuralshifttowardstheservicesectoriscontinuing .SinceI960asteadilyincreasing
proportionoftotalemployment andgrossdomesticproducthasbeenattributable totheservicesector
(seeTable4).Inrecentyearsthistrendhasgrownevenstronger.Until1973therealgrossvalueadded
totheservicesectorgrewinproportiontothegrowthoftheeconomyasawhole;sincethenithasbeen
growingmorethanproportionately .Thehigheffectofgrowthonemployment intheservicesectorhas
increasedinthelastfewyears(seeTable4).Anannualaverageincreaseinrealgrossvalueaddedinthe
servicesectorofjustunder3%inboth1984and1985wasaccompanied byanincreasein
employment ofapproximately 2%ineachofthoseyears.Intheperiod1979/1973,a3,2%annual
averageincreaseinrealgrossvalueaddedintheservicesectorwasassociatedwitha1,7%annual
averageincreaseinemployment .Muchoftheincreasedeffectonemployment probablystemsfrom
thegreateruseofpart-timeworkers.

NoL394/32 OfficialJournaloftheEuropeanCommunities 31.12.87
Thelong-termtrendintheCommunity towardshighercapitalintensityandtherelativesubstitution of
labourhassloweddownintheCommunity sincethefirstoilcrisisin1973.Thiscanbemeasuredby
thecontribution ofthefactorsubstitution ofcapitalforlabourtotheincreaseintheproductivity of
labourperman-hour (seeTable5).Overtheperiod1973/1960intheprivatesector(i.e.total
economyexcludingagriculture ,housingandthepublicsector)itaveraged1,8%ayearcompared
withonly1,3%fortheperiod1986/1979(forEUR4).Thedeclinewasparticularly strikingin
GermanyandItaly.Moderaterealwageincreasesinthemembercountriesandtheplentifulsupplyon
thelabourmarketwereprobablycontributory factors.Thepressuretorationalize haseased.The
numberofprofitable jobshasincreased .Thisstimulated theincreaseinemployment in
labour-intensive areas(suchastheservicesector).Acontinuing tendencyforfactorsubstitution to
slowdowncanprobablybeexpectedfromthemoveswhichhavenowstartedtodissociatecompany
hoursfromindividuals'workingtime.Itisimportant inthefuturetoconservetheseeffects,whichgive
growthagreaterjobcontent,andalsotoextendthem.Atthesametime,thedeclininggrowthratesfor
labourproductivity perman-hourandforcapitalproductivity (seeTable5)indicatethattheefficiency
oftheeconomicprocesshasdeclined .Economicgrowthtodayrequiresarelativelygreaterinputofthe
twofactors,labourandcapital,thanitdidbefore.Forstrongandemployment-creating growth,a
morethanproportionate increaseininvestment isthereforealsonecessary .
Stateemployment measureshaveadmittedly somewhat strengthened thetrendtoemployment -
creationinrecentyears.In1985and1986,welloveronemillionworkerswereemployedinsuch
programmes intheCommunity ,butthisemployment effectwaspartlyoffsetbythesignificantly
slowerriseinthenumberofpublicserviceemployees (increaseaveraging 1,0%ayearovertheperiod
1985/1979,comparedwith2,3%for1979/1973).Inmostmembercountriesthetendencyishowto
makeonlyslightincreasesinthepresentnumberofpersonsemployedinsuchprogrammes ,mainly
becauseofbudgetaryconstraints .So,althoughsuchspecificmeasuresoflabourmarketpolicycanbe
expectedtohaveastabilizing effectonemployment ,theycannotbeexpectedtoincreasethejob
contentofgrowthanyfurther.
Summary :Thethresholdabovewhichthegrowthoftheeconomyasawholeleadstoanincreasein
employment hasfallenfromrealnationalproductgrowthofover4%ayearintheperiodbefore1973
tounder2%inthe1980s.Thisincreasedeffectonemployment canbeexplainedbyreductions in
averageworkingtimeperpersonemployed ,withpart-timeworkbecomingincreasingly important ,
andbytheslowerfactorsubstitution ofcapitalforlabourwhichcurbstheriseinlabourproductivity
perman-hour .Inaddition,thereisthemorethanproportionate expansionoftheservicesectorwhich
isparticularly employment intensive .Theseeffectscannotbeaddedtogethereasily,sincetheyare
interrelated ,butprobablyaccountformostoftheincreasedjobcontentofgrowth.
TABLE2
Totallabourinput,averageworkingtimeperpersonemployed ,andtotalemployment
(annualaveragepercentage change)
1970/1960 1980/1970 1985/1980 1983/1980 1985/1983
FederalRepublicofGermany :
—Totallabourinput
—Workingtime
—Totalemployment
France :
—Totallabourinput
—Workingtime
—Totalemployment
Italy:
—Totallabourinput
—Workingtime
—Totalemployment-0,8
-1,0
0,2
0
-0,6
0,6
-1,1
-0,6
-0,5-1,2
-1,1
-0,1
-0,4
-0,9
0,5
-0,7
-1,2
0,5-1,2
-0,5
-0,6
-2,0
-1,6
-0,4
0
-0,6
0,6-1,6
0,3
-1,3
-3,1
-2,1
-1,0
-0,2
-0,5
0,3-0,4
-0,8
0,4
-1,3
-0,7
-0,6
0,3
-0,8
1,1

31.12.87 OfficialJournaloftheEuropeanCommunities NoL394/33
1970/1960 1980/1970 1985/1980 1983/1980 1985/1983
UnitedKingdom :
—Totallaboutinput -0,9 -0,7 -1,1 -3,1 2,2
—Workingtime -1,1 -0,9 -0,5 -1,0 0,4
—Totalemployment 0,2 0,2 -0,7 2,1 1,7
EUR4:|| \
—Totallabourinput -0,7 -0,8 -1,1 -1,8 0,2
—Workingtime -0,8 -1,0 -0,8 -0,9 -0,5
—Totalemployment 0,1 0,2 -0,3 -0,8 0,7
Source:Eurostat ,OECDEmployment Outlook1987.
TABLE3
Percentage changeinemployment ,1983to1985(%)
BDK DGR FIRL I LNL UKEUR10
Total 0,85,60,81,3-1,2-4,30,90,63,33,31,1
Contribution I1)tothechangeintotalemployment :
Full-time workers 04,00,41,4-2,5-4,20,201,10,9-0,1
Part-time workers 0,81,60,4-0,11,3-0,10,70,62,22,41,2
(')Withregardstothebreakdown intofull-andpart-timeworkers,undertaken inaccordance withtheresultsoftheLabour
MarketSampleSurvey,itshouldbeborneinmindthatthissurveyiscarriedoutinonlyoneweekoftheyear—inthespring—
andthereforemaynotbefullyrepresentative oftheannualaverage.
Source:Eurostat,LabourMarketSampleSurvey,1983,1985.
TABLE4
Employment andgrowthintheeconomyasawholeandintheservicesectorintheCommunity (EUR12)
1968/
19601973/
19681979/
19731985/
19791983 1984 1985
Totalemployment (%p.a.) 0,10,50,1-j)>3-0,5-0,10,6
Realgrossdomesticproduct(%p.a.) 4,64,92,4t'21,42,32,4
Employment intheservicesector
(%p.a.) 1,71,91,7i
1,51,21,92,2
Realgrossvalueaddedintheservicesector
(%p.a.) 4,55,03,2 2,12,02,82,9
1960 1968 1973 1979 1983 1984 1985
Employment intheservicesectorasa
proportion oftotalemployment (%) 39,144,247,3 51,855,756,857,6
Grossvalueaddedintheservicesectorasa
proportion ofgrossdomesticproduct(%)48,152,753,5 57,259,259,459,5
Source:Eurostat .

NoL394/34 OfficialJournaloftheEuropeanCommunities 31.12.87
TABLE 5:
Contribution offactorsubstitution totheproductivity trendintheprivatesector(^j
annualgrowthrates(%)
D F I UK EUR4USA(2)Japan(2)
Labourproductivity
perman-hour (3)
1973/1960
1979/1973
1986/1979
Capitalproductivity
1973/1960
1979/1973
1986/1979
Totalfactorproductivity
1973/1960
1979/1973
1986/1979
Contribution ofthesubstitution ofcapital
forlabourtotheincrease inlabour
productivity perman-hour
1973/1960
1979/1973
1986/19794,3
3.8
2,5
-2,1
-1,3
-2,0
1,9
1,9
0,8
2,4
1,9
1,65,1
3,4
2,4
0,2
-1,2
-2,0
3,4
1,8
0,8
1,7
1,6
1,56,5
2,2
1,4
0,5
-0,7
-1,2
4,7
1,3
0,6
1,7
0,9
0,83.1
2,7
2,7
-1,7
-1,8
-1,5
1,7
1,4
1,5
1,4
1,3
1,24,5
3,1
2,3
-0,9
-1,3
-1,7
2,7
1,7
1,0
1,8
1,4
1,3i,8
0,1
0,3
-0,3
-0,8
-0,5
1,2
-0,1
0,1
0,5
0,2
0,29,6
3,0
3,8
-0,5
-1,5
-3,0
5,8
1,4
1,3
3,5
1,6
2,5
(')Privatesector:totaleconomyexcludingagriculture ,housingandthepublicsector.
(2)Dataavailableonlyupto1985.
(3)Becauseofthedefinitionofsectorsandofworkingtime(hoursworkedperweek)thevaluesgivenherearenotfullycomparable
withthedatainTable2.
Definitions :
—Labourproductivity :realgrossvalueaddedpermanhour.
—Capitalproductivity :realgrossvalueaddedperunitatconstantprices.
—Totalfactorproductivity :weightedaveragevalueoflabourandcapitalproductivity .Theweightscorrespond tothesharesof
factorremuneration ingrossvalueadded.
—Contribution ofthesubstitution ofcapitalforlabourtotheincreaseinlabourproductivity permanhour:thedifferencebetween
thegrowthratesoflabour "productivity permanhourandoftotalfactorproductivity (seeEuropeanEconomy ,No20,June
1984).
Source:Estimates byservicesoftheCommission .
Longterminterestrates
Therearetwomainreasonswhylowerlong-terminterestrateswouldmakeiteasiertoimplement the
cooperative strategy.Firstly,lowerinterestrateswouldhelptoboostinvestment .However,perhaps
moreimportantly ,theywouldtakesubstantial pressureoffpublicbudgets,heavilyburdenedbydebt
servicingcosts.Thiswouldcreatemoreroomformanoeuvre forfasterbudgetaryconsolidation ora
boostingofgrowth.
Thedecisiontoinvestdependsveryheavilyonthedifferential betweentheexpectedprofitability ofthe
investment andthefinancingcostortheyieldfromafinancialplacement .Thisdifferential mustbe
increasedtostimulatemoredynamicinvestment .Profitability hasalreadyrisensubstantially inrecent
years.However,asanindication ,theaverageprofitability ofproductive capitalintheCommunity is
notyetbacktoisaveragelevelinthe1960s(seeGraph12).Furtherimprovements mustandcanstillbe
made,butafallinlong-terminterestrateswouldalsohaveafavourable influenceoninvestment .
Accordingtoeconometric analysesofCommission services,alastingfallof0,8ofapercentage point
inlong-terminterestrates,basedonthestabilization ofinflationary expectations atalowlevelwould
increasetheannualvolumeofprivateinvestment byalittleover2%infouryears;theannualgrowth
ofprivateinvestment wouldacceleratebyanadditional0,4to0,5%.

31.12.87 OfficialJournaloftheEuropeanCommunities NoL394/35
Theotherimportantelementintheassessment oflong-terminterestratesistheirimpactonpublic
deficitsandhenceonthemanagement ofbudgetary policy.Afallininterestratesfirsthasan
immediate effectonthecostofnewdebt.Also,astheolddebtisrefunded,thefallininterestrates,
providedthatitislasting,takestheequivalentamountofpressureoffpublicbudgets.Althoughthe
immediate effectmayoftenbeignored,exceptforthecountrieswithaveryhighbudgetdeficit',the
longertermeffectwillbeappreciable inallthecountries .According toCommission estimates,the
assumedfallof0,8ofapercentagepointinlong-terminterestratescouldhaveaneffectonthebudget
deficitaveragingbetween0,5%and0,6%oftheCommunity 'sGDP,aftertheentiredebthas
maturedandhasbeenrefundedatalowerrate.Acautiousevaluation putsthereductionattainable
overfouryearsat0,4ofapercentage pointofGDP.Asaresultofthisreductionintheinterestburden,
budgetary policycouldgraduallybegivenmoreflexibility .
Thisreductionwouldbeofparticularbenefittothecountrieswiththehighestlevelofpublicdebt.It
wouldcontributetoanaboveaveragedegreetoreducingtherisingtendencyofthepublicdebt,which
thesecountriescanatpresentcurbonlybycreatinglargerandlargersurplusesontheirbudgets
excludingdebtinterest.Itwouldthuscontribute tothedesirablecloserconvergence ofpublicdebt,
positionswhichinitsturnwouldbeboundtohavefavourable repercussions onthedownward
convergence ofinterestratesthemselves .
Theassessment whichcanbemadeofthelevelofnominalinterestratesiscloselyboundupwiththeir
differential withtheinflationrate,i.e.the'realinterestrate'.Inflationary expectations arecrucialin
thisrespect,butsincetheycannotbedirectlyobserved,the'realinterestrate'measured bythe
differential betweenthenominalrateandtheCurrentinflationrateisoftenusedasaninitial
approximation .However ,thismeasurement createsveryspecialproblemswhenthereissharpand
rapidvariationintheinflationrate.Inthiscasethecurrentinflationrateandtheanticipated inflation
rateprobablydifferwidely,withtheeconomicagents'expectations provingfalse.Thechoiceofthe
inflationindicatorisalsodifficult.Asageneralrule,thedifferentindicatorsofinflation (GDPor
privateconsumption deflators ,nominalunitwagecosts)moveinparallel.However ,whenmajor
changesoccurinrelativesprices,e.g.asin1986,followingtheimprovement inthetermsoftrade
resultingfromthedepreciation ofthedollarandthefallinoilprices,majordifferences mayappearin
themovement ofthesevariousindicators .Allthesefactorsmustbetakenintoaccountwhenassessing
thelevelofrealinterestratesandtheroomwhichexistsforthemtofallinthefuture.
Asahistoricalcomparison ,thepresentdifferential betweenthenominallong-terminterestrateand
theinflationrateiswide,ataround5%(seeGraph).Thisis,ofcourse,distinctlywiderthaninthe
1970s,whenitwasclosetozero,orevennegative,butthenitwastheexpression ofmonetary
instability andofhighandrapidlyfluctuating inflationratesratherthanareflectionoftherelative
scarcityofcapital.Inmanycountriesinterestratesthenlosttherolewhichtheyoughttohavein
channelling scareresourcesfromsavingintothemostprofitableallocations .Thishasprobablyledto
wasteofcapitalandhasmadetheproductive processevenmorecapital-intensive .However ,the
differential isalsonowslightlywiderthaninthe1960s,aperiodwhichfromthepointofviewof
monetarystabilityismorecomparable withthepresentperiod.Thehighlevelofrealinterestratesis
alsoasignofinadequate savingrelativetothefinancingneedsofthevariouseconomicagents.
Sincethebeginningofthe1980s,stability-oriented monetarypolicieshaveenabledinterestratesto
ensurebalanceonthecapitalmarketsmoreeffectively .Theirrelativelyhighlevelcanbeexplainedby
severalfactors;ifthesefactorsmovefavourably onecanhopeforalastingfallinrealinterestrates
withouttheachievement ofstabilitybeingcalledintoquestion .
First,atinternational level,theabsorption ofdomesticandexternalsavingrepresented bytheUnited
States'budgetandexternaldeficitsandthedebtsituationofthedeveloping countriesplacesaheavy
burdenoninternational capitalmarkets.Totheextentthattheseimbalances arecorrected ,scope
wouldbecreatedforinterestratestofalloninternational markets .Totheextentthattheseimbalance
arecorrected ,scopewouldbecreatedforinterestratestofalloninternational markets,and
consequently ontheEuropeancapitalmarkets.

NoL394/36 OfficialJournaloftheEuropeanCommunities31.12.87
Secondly,withintheCommunity ,thereturntostabilityisarelativelyrecentphenomenon andthe
disinflation processisnotyetcompleteinallcountries .Ifmonetarypoliciesremainlastinglyand
crediblygearedtostabilityandif,yearforyear,inflationratesremainlow,inflationary expectations
shouldstillbeabletofall,andthiswouldhaveafavourable effectoninterestrates.Aprogressive
improvement inthebalancebetweendomesticsavingandinvestmentshouldalsocontributetoa
relativefallinrealinterestrates.Suchanimprovement ispossibleif,withintheframework ofthe
cooperative strategy,thefasterriseofinvestmentcanbebasedonrisingprofitability accompanied by
aprogressive increaseinthemarginsforself-financing ,andthuswithasimultaneous increasein
domesticsaving.Thepursuitofpolicieswhichpermit,wherenecessary,aprogressiveconsolidation of
publicfinancesandwhichimprovetheconvergence ofpublicdebtpositionsshouldalsocontributeto
reducetensiononthecapitalmarketsandwouldalsofacilitatethetaskofmonetarypolicyinexternal
andinternalstabilization .ThereductionofinterestratesintheCommunity whichwouldthusbe
possiblewouldcontributetoestablishing atalowerlevelthedifferentialbetweenEuropeanand
UnitedStatesinterestratesnecessarytostabilizethedollar.
LONG-TERM INTEREST RATES
(annualaverage)
Differential betweennominalratesandvariations inthepriceofGDP
1.GDPpriceshavebeenchosenasrepresenting underlyingdomesticinflation.Theirevolutionisonalong-term
averageroughlyidenticalwiththeevolutionofthepricesofprivateconsumption (averagefortheyears1970to
1985:pricesofGDP:+10,1%perannum;pricesofprivateconsumption :+10,0%perannumonaveragefor
EUR12).However,insomeyears,widedifferentials existwhenthetermsoftradechangesubstantially (e.g.
1974:pricesofGDP,13,0%;pricesofprivateconsumption ,14,6%;1986:pricesofGDP,5,6%;pricesof
privateconsumption ,3,7%;onaverages,EUR12).
2.Thenominalinterestratecorresponds totheweightedaverageofrepresentative nominallong-terminterest
ratesonthecapitalmarketsoftheCommunity countries (weighting :GDPpricesandPPA1985).

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/37
PARTII
THEECONOMIES OFTHEMEMBER STATES
BELGIUM
in1989.Thiswillinvolveanewseriesofexpenditure cuts,
especiallyonsocialtransfersandoperatingexpenditure ,and
thecreationofnewbudgetrevenue,partlyfromthe
privatization ofcertainpublicsectoractivities .InBelgium,energeticbudgetary adjustment undertaken
during1987markedtherealgrowthrateofdomestic
demand,whichslowedto1,6%;astherealcontribution of
theexternalbalancewasagainnegative,theGDPgrowth
ratefellto1,3%.Againstthissomewhatslackbackground ,
fixedinvestment byfirmsnevertheless remained very
sustained,increasingbyalmost8%involumeforthesecond
yearrunning,whilepublicinvestment declinedby10%.
Privateconsumption increasedbyonly1,5%inrealterms,
owingtoaslowdowninrealdisposableincome.Thevolume
ofimportsincreasedfasterthanthatofexports,buttheterms
oftradecontinuedtoimproveandthebalanceofpayments
oncurrentaccountshowedanappreciable surplus(2,3%of
GDP).Theconsumerpricerisewaskeptto1,8%onannual
average.Unemployment diminished slightly,despitethe
contractionary effectofbudgetary measures on
employment .Atthesametime,theGovernment hasannounced an
ambitiousprogramme oftaxreform,spreadovertheperiod
1989to1993,includingareductioninthenumberandlevel
ofpersonalincometaxrates,theeffectsofwhichwouldbe
partiallyoffsetbythediscontinuation ofaseriesoftax
allowances infavourofenterprises andhouseholds .The
programme hasnotyetbeenpresentedtoParliament .
Toattenuatetheeffectsonthelabourmarketofpublic
financeausterityandmoderate economic growth,the
Government 'sprogramme for1988alsoincludesasetof
directspecificmeasuresinfavourofemployment ,including
opportunities forreducedsocialsecuritycostsincertain
sectors,andfacilitiesforyoungandlong-termjobseekers .
Jobcreationintheprivatesectorisstillbeinghelpedalongby
asteadydeclineinrealunitlabourcosts.Onthebasisofwage
agreements for1987and1988,theincreaseinrealwages
shouldbebelowproductivity gains.Realpersonaldisposable incomescouldgrowslightlyfaster
in1988;asaresult,andassumingafurtherreductioninthe
savingsratio,privateconsumption willbeabletoexpandat
thesamerateasin1987.Privateinvestment willcontinueto
grow,stimulated bywiderprofitmarginsandgiventhestill
moderatetrendofrealwages.Thecontribution ofthe
externalbalancetogrowthshouldbecomepositive,since
costcompetitiveness isagainimproving .Inthese
circumstances ,thecurrentaccountsurplusshouldbe
maintained ataround2,5%ofGDP.TherealGDPgrowth
ratecouldbecloseto2%,whiletheunemployment rate
shouldfallslightly.Whileremaining moderate ,inflation
couldaccelerateslightly,partlybecauseofaturnround inthe
trendofimportprices.Moreover ,improvements intheoperationoflabourmarkets
havemadeitpossibletoimprovetheflexibilityofsupply
conditions .Newlawsintroducing moreflexibleprovisions
onSundaywork,nightworkandworkinghours,cameinto
forceinJuly.Undertheselaws,newarrangements forwork
canbeintroduced bycollectiveagreement negotiated at
sectoralorfirmlevel.Thisincreasedflexibility ,alongwith
themoderation ofinternalcosts,createsfavourable
conditions forthedevelopment ofexportsandinvestment .Itisstillanabsolutepriorityobjectivetorestorehealthy
publicfinances.Furthereffortsinthisdirectionare
imperative forseveralreasons:thesizeofthegrossdebt,
whichreachedtheequivalentof125%ofGDPin1987(the
corresponding figurefortheCommunity asawholebeing
61%),withexternaldebtaloneequivalentto20%ofGDP;
theburdenofinterestpayments ,whichwillapproach11%
ofGDP(thecorresponding figurefortheCommunity asa
wholebeing5%);andthefactthatthereciprocalmultiplier
effectsbetweenthedebtandinterestpaymentshavestillnot
beenbroughtundercontrol.Thepolicyintroduced in1982torestoreprofitability and
healthyfinancesinthebusinesssectorhasalreadyimproved
businessinvestment ,particularly in1986/1987.
Monetarypolicyshouldcontinuetopreservethestabilityof
theexchangerateoftheBelgianfrancwithintheEuropean
Monetary System,whileusingthemarginformanoeuvre
availabletoencourage adeclineininterestratesandthus
lightentheburdenofservicingthepublicdebt.The
realignment ofJanuary1987involvedrevaluingtheBelgian
francby2%againsttheECU,afterthe1%revaluingoftheAfteranappreciable reduction (about3%ofGDP)inthe
centralgovernment borrowingrequirement in1987,mainly
thankstomajorpublicexpenditure cuts,theGovernment
intendstobringthebudgetbalancedownto7,4%in1988
soastoachievetheprogrammed objectiveof7%ofGDP

NoL394/38 OfficialJournaloftheEuropeanCommunities 31.12.87
precedingrealignment inApril1986.Thispolicyhasbeen
madeeasierbythefactthatthecurrentbalanceofpayments
isshowingaconsiderable surplus,andinflationperformance
isgood.Progresstowardsreducingthebudgetdeficitislikely
toloosentheconstraint imposedbychangesincapital
movements oninterestrates.Alongwithabalanceof
payments surplusoncurrentaccount,thisdevelopment
shouldalsoenabletheauthorities toreducetheexternaldebt
thathasaccumulated since1979.
ThesuccessoftherecoveryplanfortheBelgianeconomy
dependsontheinteraction ofanumberoffactors.Alow
inflationratemusthelptobringdowninterestrates,
stimulate investment andreducetheburdenofintereston
publicdebt.Wagemoderation shouldsafeguardcompetitiveness andmaintainprofitability atasatisfactory
level.Iftheseconditions aremet,growthmightreviveand
makeiteasiertoachievethetwofoldaimpursuedbythe
Belgianauthorities :reductionofthebudgetdeficitand
reductionintheburdenofcompulsory levies—anobjective
thatfitsinwiththestrategyrecommended bythe
Community ,andwhichisexpectedtohavefavourable
effectsonemployment .Ifitistobeasuccessinpractice,the
authorities mustkeepcontrolofpublicexpenditure andthe
Belgianeconomymustalsobeabletotakeadvantage of
sufficiently dynamic intra-Community trade.The
implementation ofthetaxreductionprogramme couldthen
beconfinedtousingthe'budgetarydividend'generatedbyan
improvement intheconditions ofgrowthinthe
Community .

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/39
Belgium:Maineconomicaggregates 1983to1988
(Annualpercentage changes)
1983 1984 1985 1986(') 1987(2) 1988(2)
Cvalue
GrossdomesticJvoiume
product |Ldeflator
Privateconsumption deflator
r>c-JCprivateGrossfixed r
capital -<public
formationvolume 1j
ofwhich:construction
equipment
Domesticdemandatconstantprices
GapwithrespecttootherCommunity
countries (3)
CnominalCompensation
ofemployees -<realA(4)
perhead^B(4)
Productivity (5)
Realunitlabourcosts
Competitiveness (6)
Employment
Registered unemployed as%
ofthecivilianlabourforce(7)
Currentbalanceas%ofGDP
Long-term interestrate
Moneysupply(8)
Netlendingorborrowing requirement of
generalgovernment as%ofGDP(9)
Publicdebtas%ofGDP
Publicdebtinterestas%ofGDP6,0
-0,3
6,3
7,3
-3,6
-7,6
-4,3
-5,5
-2,3
-2,5
-3,8
6,0
-0,3
-1,3
0,9
-1,2
-2,2
-1,1
14,4
-0,6
11,8
7,0
-11,3
105,1
9,47,2
1,6
5,5
6,5
4,4
-8,8
2,2
-4,8
13,9
1,7
-0,1
5.8
0,3
-0,6
1,7
-1,4
-1,3
0,0
14,5
-0,4
12,0
6,1
-9,4
111,0
9.96.7
1,5
5.1
4.8
3,8
-13,1
1.2
-0,4
3,5
1.3
-1,0
4.4
-0,7
-0,4
0,6
-1,2
1,1
0,8
13,7
0,4
10,6
6,7
-8,4
117,9
10,66,9
2,3
4,4
1,3
6,6
-7,2
4,8
1,6
9,1
3,4
-0,3
2,5
-1,8
1,2
1,3
-3,1
4,5
1,0
12,6
2,4
7,9
10,7
-8,7
120,3
11,13,4
1,3
2,1
1,8
7,0
-11,0
5,0
1,6
9,2
1,6
-1,0
3,7
1,6
1,9
1,2
0,4
3.8
0,1
12,4
2,3
7,6
8,0
—6,6
125,3
10,94,0
1,8
2,2
2,5
4,9
0,2
4,4
3,1
6,0
1,7
-0,6
3,0
0,8
0,5
1,6
-0,8
-0,6
0,2
12,1
2,3
7,4
6,0
-6,1
128,4
11,0
(*)EstimatesoftheCommission services,September 1987.
(2)ForecastsoftheCommission services,September 1987,onthebasisofpresentpolicies.
(3)Differences inpercentage points.
(4)A:GDPdeflator;B:privateconsumption deflator.
(5)Grossvalueaddedperoccupiedpersoninthewholeeconomy .
(«)Effectiveexchangerate{vis-it-vis19industrialcountries)onthebasisofunitlabourcostsforthewholeeconomy .Positivefigure=lossof
competitiveness .
(7)Eurostatdefinition .
(8)Endofyear.
(')This'borrowingrequirement 'issubstantially differentfromtheconceptof'thenetbalancetobefinancedtowhichnationalbudgetarypolicyrefersandwhich
includesloans,advancesandequitiesandcertainotherexchequeroperations .

NoL394/40 OfficialJournaloftheEuropeanCommunities 31.12.87
DENMARK
Activityisexpectedtorecoversomewhat inthecourseof
1988mainlyinresponsetoacontinuedimprovement ofthe
externalbalanceinvolumeterms.Thegrowthofexport
marketsisunlikelytoacceleratemuchandcompetitiveness
maydeteriorate further.Ontheotherhand,giventhe
weaknessofthedomesticmarket,producersmaytosome
extentshiftsupplytoexternalmarketsandexportsmay,
therefore ,nevertheless risefasterthanin1987.Real
domesticdemandisforecasttocontinueitsdecline,although
atasomewhat slowerrate,andthiswillbereflectedina
furtherdropinthevolumeofimports.Onaverageforthe
year,grossdomesticproductmayshowarisebelow1%and
therateofunemployment islikelytoincreaseoverthelevelof
1987.Domestic costincreases willslowdownbutarisein
importpriceswillpushupcostsandtherateofincreaseof
consumerpricesis,therefore ,unlikelytodrop.Giventhe
expecteddeterioration ofthetermsoftrade(reflectingbotha
riseinimportpricesandafallinexportpricesofagricultural
products )thetradebalanceincurrentpricesisnotimproving
fullyinlinewiththechangeinthevolumebalance.
Moreover ,thebalanceoninvisiblesmaydeteriorate asa
resultofafallinnettransfersfromtheCommunity .The
currentexternaldeficitis,nevertheless ,likelytofallfrom
2,9%ofGDPin1987tosome2,2%in1988.InDenmark,afterfiveyearswithgrowthinexcessofthe
Community average,thegrossdomesticproductisestimated
tohaveshownasmalldeclineinrealtermsin1987.While
exportsofgoodsandserviceshadalreadystagnatedin1986,
thegrowthofactivityhadbeensustainedbyanexceptionally
rapidexpansion ofdomesticdemand (5,7%increaseon
averageover1985).Towardstheendoftheyear,however,
keydomesticdemandcomponents turneddistinctly
downwards inresponsebothtothedeterioration ofexport
prospectsandtheresultingworsening oftheinvestment
climateandtothesharptightening offiscalpolicy
undertaken inserveralstepsinthecourseoftheyear,andof
measuresaimedatincreasingthesavingratioofprivate
households .Privateconsumption ,thus,declinedbysome
5%(actualrate)fromthethirdtothefourthquarterof1986
andis,evenwithsomeriseinthecourseof1987,likelyto
showasmalldeclineonaveragefor1987over1986.
Dwellingconstruction isestimatedtohavecontracted by
some10%andbusinessinvestment isalsolikelytohave
dropped .Althoughpublicinvestment rosesomewhat over
the1986level,totalgrossfixedassetformation ,therefore,is
estimated tohavedeclinedbysome6,5%.With,
furthermore ,afallinthelevelofinventoryformation ,total
domesticdemandmayhavedeclinedbyalmost2%inreal
«terms.Importsfellevenfasterthandomesticdemandand,
sinceexportsremainedratherunchanged ,thecontribution
togrowthfromnetexportswaspositivealthoughnotenough
topreventasmallcontraction ofdomesticactivity.The
numberofpersonsemployednevertheless probablyrose
marginallybutlessthanthefairlyrapidincreaseinthelabour
force.Therateofunemployment ,therefore,afterhaving
beenonadecliningtrendsince1983,rosesomewhatfrom
1986to1987.
Importpricesareestimatedtohavefallenbysome3,5%in
nationalcurrencytermsbutdomesticunitlabourcostshave
risensubstantially fasterthanin1986(inpartasaresultofa
shorteningoftheworkingtime)andconsumerpricesare
expectedtohaveshownariseof4%againstsome3,5%in
1986.Assuming unchanged policies,implying,notably,the
continuedimplementation ofthegeneralguidelinesforthe
development ofcentralandlocalgovernment expenditure
andunchanged rulesoftaxation,thefinancialsituationof
generalgovernment shouldchangelittlein1988.Theslow
growthofprivatesectordemandwillexertadampening
effectonreceiptsfromindirecttaxesbutdirecttaxesare
expectedtorisefastasaresultofthewideningofthetaxbase
followingthetaxreform(notablytheloweringofthescope
fordeductinginterestpayments).Interestpaymentsonthe
publicdebtareexpectedtofallsomewhatandthegeneral
government budgetsurplusmay,therefore,remainbroadly
unchanged orperhapsevenincreasealittleoverthelevelof
1,9%reachedin1987.Theneedtostrengthen evenfurther
theexternalaccountremainsimperative andwarrantsa
considerable surplusonthegeneralgovernment budgetas
longasthesavingoftheprivatesectorremainsinsufficient .
Thefinancialdeficitoftheprivatesector,whichrosefrom
2,7%ofGDPin1985to8,6%in1986,fellsomewhat in
1987butis,infact,forecasttoremainashighas3,9%of
GDPin1988.Amorelastingimprovement ofthefinancial
balanceoftheprivatesectorwillrequirefurthermeasuresto
enhancehousehold savingsandwillalsowarrantacontinued
prudentstanceofmonetarypolicy.Despitethisacceleration ofinflation,nominalincomes
showedamarkeddeceleration andtherateofincreaseoftax
receipts—exceptionally highin1986asaresultofmajortax
rises—sloweddownconsiderably .Government
expenditure ,ontheotherhand,accelerated asaresultof
wageandsalaryimprovements forcivilservantsandarisein
transferstohouseholds .Thegeneralgovernment budget
surplus,therefore,mayhavedeclinedfrom3,3%ofGDPin
1986tosome1,9%in1987.Thebalanceoftradeingoods
andservices,whichhadbeenslightlynegativein1986,again
turnedpositivein1987and,asthenetinterestpaymentsto
abroadremainedpracticallyunchanged ,thecurrentexternal
deficitwasreducedfrom5,1%ofGDPin1986to2,9%in
1987.Thedeterioration oftheprivatesector'sfinancialbalancein
1986(reflectingbothadeclineinthesavingsrateandastrong
upturnindwellingconstruction andbusinessinvestment )in
factpromptedasharpriseinnominallong-terminterestrates
—fromsome9%inMarch1986tomorethan12%in
September 1987.Short-term interestrates,apartfromabrief

NoL394/4131.12.87 OfficialJournaloftheEuropeanCommunities
riseinJanuary1987intheperiodimmediately precedingthe
EMSalignment ,havenotincreasedfullyinlinewith
long-termrates,implyingariseinthesteepnessoftheyield
curve.Thedifference between DanishandGerman
short-term interestrates,nevertheless ,haswidenedvery
considerably sincethebeginningof1986.Thisdecoupling of
Danishinterestratesfromthegeneralloweringofrates
withintheEMSwasinstrumental inmaintaining the
relativelystrongpositionoftheKronewithinthebandof
fluctuation and,thus,indampening therateofincreasein
consumerpricesinthefaceofanacceleration ofdomestic
costincreases .Thetightening ofdomestic monetary
conditions ,infact,toalargeextenttookplaceasan
'endogenous 'adjustment tothesecostincreasesratherthan
asadeliberate changeinthepolicystance.Anyprogress
madebyreducingthedeficitinthecurrentbalanceof
paymentswouldbehelpfulinreducinglong-terminterest
ratesandinstimulating privateinvestment .
Growthwasexceptionally vigorousduringtheyears1984to
1986,notablyasaresultofastrongboominprivate
investment fosteredbyimprovedprofitability andbenefiting
fromfavourable exportprospects .However ,thewideningofthegapbetweentheexpansion ofinternaldemandin
Denmark andinotherCommunity andScandinavian
competitiveness ,increasedthecurrentbalanceofpayments
deficittoanunsustainable level.Inviewofthissituation ,and
ofthehighlevelofexternaldebtandrelatedinterest
payments,therelaxationoftheexternalconstraintshould
remaintheprimaryobjectiveofgovernment policy.Tothis
endthecontribution offiscalandmonetary policiesis
essential,butwagerestraintwillbeequallyimportant ,soas
toensureareturntoadynamicgrowthprocesswhichwas
successfully achievedintherecentpast.Astrengthening of
foreigndemandcouldhelptoreducetheexternalconstraint .
Increasedgrowthinintra-Community tradesustainedby
appropriate macroeconomic policiesintheMemberStates
wouldbehelpfulinthisrespect.
Withaviewtostrengthening thecompetitiveness ofDanish
enterprises ,theDanishGovernment hasstartedtripartite
discussions withthesocialpartnersonmoderation ofgrowth
ofcostsandincomes.Important subjectsforthese
discussions areproposalstoreducetheburdentoenterprises
ofemployment-related contributions andproposals to
promotesavingsforpensionpurposes .

NoL394/42 OfficialJournaloftheEuropeanCommunities 31.12.87
Denmark :Maineconomicaggregates
(Annualpercentage changes)
I1983 1984 1985 1986(') 1987(2) 1988(2)
Cvalue
Grossdomestic I,
product \volumeIdeflator
Privateconsumption deflator
GrossfixedfPrivate
capital -<public
formationvolume 1tota|
ofwhich:construction
equipment
Domesticdemandatconstantprices
GapwithrespecttootherCommunity
countries (3)
Compensation Cnom'na'
ofemployees ■<realA(4)
perhead (4)
Productivity (s)
Realunitlabourcosts
Competitiveness (6)
Employment
Registered unemployed as%
ofthecivilianlabourforce(7)
Currentbalanceas%ofGDP
Long-term interestrate
Moneysupply(8)
Netlendingorborrowing
requirement ofgeneralgovernment
as%ofGDP
Publicdebtas%ofGDP
Publicdebtinterest
as%ofGDP10,4
2,5
7.6
6,8
5.0
-14,8
1,9
1,9
1,8
1,4
-0,2
8,2
0,5
1,4
1,8
-1,3
0,9 .
0,3
10,1
-2,6
14.4
25.5
-7,2
62.6
8.19.4
3.5
5.7
6,5
12,0
0,1
10,5
7.3
14.5
4,1
2,1
5.4
-0,4
-1,1
1.8
-2,1
-3,6
1.5
9,9
-3,4
14,0
17,0
-4,1
67.6
9,79,7
4.2
5.3
4,9
11.5
14.7
11,9
8,6
15,9
5,7
3,2
4.6
-0,6
-0,2
0,8
-1,4
1,1
2,9
8.7
-4,7
11.6
15.8
-2,1
65,8
9,98,4
3,4
4,9
3.6
19,9
-5,3
16,8
19.4
13,9
5.7
1,9
5.1
0,2
1,4
1.2
-1,0
7,4
2,0
7,6
-5,1
10.5
8,0
3,3
61,7
8.84.4
-0,2
4.6
4,1
-7,6
1,9
-6,6
-7,1
-6,1
-1,9
-4,7
7.2
2,5
3,0
-0,8
3,3
9,1
0,8
7,7
-2,9
11,9
4,3
1,9
59,1
8.25,1
0,9
4.1
4,0
-3,8
2,1
-3,2
-4,3
-1,9
-0,7
-3,1
5,2
1,1
1,2
1,2
-0,2
0,2
-0,1
8,6
-2,2
11,0
4,4
1,7
53,3
7.8
(J)EstimatesofDanmarks Statistik,April1987.
(2)ForecastsoftheCommission services,September 1987,onthebasisofpresentpolicies.
(3)Differences inpercentage points.
(4)A:GDPdeflator;B:privateconsumption deflator.
(s)Grossvalueaddedperoccupiedpersoninthewholeeconomy .
(s)Effectiveexchangerate(vis-A-vis19industrial countries )onthebasisofunitlabourcostsforthewholeeconomy .Positivefigure=lossof
competitiveness .
(7)Eurostatdefinition .
(8)Endofyear.

NoL394/4331.12.87 OfficialJournaloftheEuropeanCommunities
FEDERAL REPUBLIC OFGERMANY
2%in1988.Theoverallpriceincreaseintheeconomy,
around2%,wouldbebroadlyinlinewithdomesticcost
increases .Thereductioninthecurrentaccountsurpluswill
besimilarinscaletothatof1987,butitmightstillbeabove
the3%-of-GDP markin1988.EconomicprospectsfortheFederalRepublicofGermanyare
currentlyviewedrelativelycautiously .Inthesecondhalfof
1986,thestrongappreciation oftheGermanmark,
principally againsttheUnitedStatesdollar,wasreflectedina
declineinexportsinrealtermsandanincreaseinimports,
particularly offinishedgoods.Althoughdomesticdemand
remainedbuoyant,theinfluenceoftheexternalsectortended
increasingly toblunttheoveralleconomicperformance .
Employment duringtheyearwillprobablyrisetoasimilar
extentasin1987,butafurthercontraction isexpectedin
employment inmanufacturing .Withaprobableincreasein
totalemployment ofaround70000,unemployment islikely
toedgeupagain. In1987thisdampening influenceoftheexternalsidehas
againstronglymarkedthedevelopment oftheeconomy .
Following afurtherriseofsome10%intheGermanmark's
valueagainsttheUnitedStatesdollarandwitheconomic
activitysufferingexceptionally fromharshwinterweather,
aggregate production contracted inthefirstquarter.
Admittedly ,thefactorsholdingbackexportsweakened as
theyearprogressed ,andexportsstartedtorecovermarkedly
fromthesecondquarteron;onaveragefortheyeartheymay,
nevertheless ,involumetermsremainbelowtheir1986level.
Domesticdemandwentongrowingatadistinctlymorerapid
ratethanaggregateproduction ,eventhoughitfellfarshort
ofthehigh1986growthrate—notleastbecauseofsome
deceleration inprivateconsumption .Theunfavourable
trendofexportsalsodampened investment inequipment ,
althoughsomerevivalappearedtotakeplaceattheendofthe
year.However ,investment waschannelled primarilyinto
rationalization schemes .Investment inbuildingand
construction showednogrowth,notjustduetobadweather
butalsosincethetrendwise declineinresidential contruction
hasnotyetsloweddown.Sincedemandwasincreasingly met
byimports,whichenjoyedacompetitive priceedge,and
sinceexportsstagnated ,thegrowthofGDPamountedto
around1,5%in1987.Underthosecircumstances
employment showedonlylittleincrease.Theresulting
annualaverageincreaseofaround0,5%wasnotsufficientto
bringunemployment downbelowtheaveragelevelfor1986.
Asinthepreviousyear,therealbalanceongoodsand
servicesdeteriorated significantly ,toonlyslightlyoverhalf
its1985level.Nevertheless ,mainlybecauseofafurther
majorimprovement inthetermsoftrade,thecurrentaccount
surplusfellbyonlyaroundhalfapercentage point,to3,7%
ofGDP.Thehighlivelandrisingtrendofunemployment arestill
extremely worrisome features.Wagebargainers and
economicpolicymakers aretogetherfacingthechallengeof
makingfulluseoftheopportunities forscalingdown
unemployment .Wagesettlements concludedearlierthisyear
suggestthatthewagecostspercapitain1987willincreaseby
some3,5%.Theonlyreasonwhytheresultingincreasein
unitwagecostsdidnotsofardamagebusinessprofitswasthe
significantimprovement inthetermsoftrade.Amoderate
riseinrealwagesthereforeremainsnecessary ifthe
propensitytoinvestistobemaintained despitethelossof
competitiveness resultingfromappreciation .However,the
wagesettlement recentlyreachedinthemetalindustry
containssomepositiveelements :workingtimewillbe
progressively reducedbyatotalofoneandahalfhours,with
agreedannualwageincreasestranslatingintoariseofaround
4%inhourlywagecosts.Thissettlement inthemetal
industryisthefirstinwhichwagebargainershavereachedan
agreement spanningthreeyears.Thiswillallowfirmsto
makeplansonasaferbasismuchinlinewiththe
government 'spolicywithrespecttothemacroeconomic
framework .Giventheimportance ofthisbranchofindustry,
whichaccounts forsome50%ofemployment in
manufacturing ,thepatternhasbeensetforwagecostsinthe
economyasawholeinthemediumterm,andthiswillbean
important factorinfluencing monetary andfinancial
policy.
Inviewoftheprospective smalldeclineinrealunit-labour
costs,theoverallprofitsituationofenterprises ingeneral
remainshealthy.Thenetrateofreturn(measuredasthenet
operatingsurplusinproportion tothenetcapitalstock)has
increasedfromthetroughof1981andshouldnextyearbe
backtotheleveloftheearly1970s.Asfirmscancounton
steady—althoughstillrathermoderate —growthin
demand,investment conditions areingeneralnot
unfavourable .Theexpansionindomesticdemandisexpectedtoshowonly
amodestslowdown from1987to1988.Theincreaseinreal
grossprivatewageandsalaryincomemayslowdowntojust
below4%.However ,thetaxcutsplannedforearly1988,
willboosttherateofincreaseindisposable incomes.Despite
someacceleration ofconsumerprices(tojustbelow2%)real
disposable incomeofhouseholds may,therefore,showarise
ofaround2%.Withslightlyfastergrowthinexportmarkets
andassumingonlyasmallriseintherealeffectiveexchange
rateoftheGermanmark,exportsareexpectedtogrow
moderately ,whileimportsmightincreaseatmuchthesame
rateasin1987.Asaresult,GDPmayexpandveryclosetoAlthoughtheFederalRepublicofGermanyisalreadymaking
amajorcontribution towardseliminating international
paymentsimbalances ,withthegrowthindomesticdemand

NoL394/44 OfficialJournaloftheEuropeanCommunities 31.12.87
probablyexceedingthegrowthofGDPbyover2,5%inreal
termsbetween1986and1988,thecurrentaccountsurplus,
asaresultofthetermsoftradeimprovement ,isbeingreined
backonlygradually .Sincethebeginningof1986,theCentralBankmoneystock
hasbeenexpanding atanaverageannualrateofover7%,
whilethenominalnationalproducthasbeenrisingbyno
morethanaround5%.Asaresultoffallinginterestrates,the
fasterpaceofmonetary expansion was,attheoutset,
attributable principally togrowthinhighlyliquidformsof
moneybutthen,fromaboutthemiddleoflastyear,the
moneysupplyaggregatesexpandedonabroaderfront.Low
interestrates,togetherwithfallingprices,significantly
erodedtheopportunity costsofholdingmoney,whilethe
moneysupplywascharacterized bystronggrowthincredit
institutions 'claimsonnon-residents .Budgetary policyisstilldirectedtowardsreducingthe
proportion ofscarceresourcestakenupbythestateby
imposingtightrestrictions ontheriseinexpenditure .Even
so,apronounced changeinthestancetookplacein1986.Up
to1985,themainpurposeoftherestrictions onexpenditure
wastotrimbudgetdeficitsandtostemtheriseinpublicdebt
asapercentage ofGNP.Since1986,however,theheadroom
available hasbeenusedtoeasetheburdenoftaxation .
Following thereduction indirecttaxationin1986
(equivalentto0,6%ofGDP),asomewhatlargerstepwillbe
takenin1988(0,6to0,7%ofGDP),withthetaxcuts
originallyplannedbeingaugmented inthewakeofthe
LouvreaccordofFebruary1987bybringingforwardDM5
billionofthetaxreformscheduledfor1990.Theremaining
partsofthereformwillresultintaxcutsequivalent to
somewhat lessthan1%ofGDPfrom1990onwards .In
addition,budgetary policyservedtounderpingrowthlast
yearandhascontinuedtodosothisyear,especiallyaspublic
investment ingoodsandmaterialshasrisenatamuchfaster
ratethanGNP.Alongsidethis*theautomaticstabilizershave
beenabletoproducetheirfulleffectsthisyearsince,byand
large,theGovernment hasnotattempted tomakeupfor
revenueshortfallsduetothedegreeofcapacityutilization
withcorresponding cutsinexpenditure .Asaresult,thetotal
publicauthoritydeficitin1987isexpectedtowidenagain
significantly forthefirsttimesince1981.However ,monetarypolicystillshowssomeconflictbetween
domesticandexternalobjectives ;undersuchcircumstances ,
thereisadangerthatthemeasureswhichareinherently
necessarytocurtailmonetarygrowthwillbeimpededby
furtherundesirable upwardpressureontheDM.
Developments sinceMay1987have,however,clearlyshown
thelimitations theBundesbank facesininfluencing long-term
interestrates.SinceMay,thecapitalmarkethasnotfollowed
thetargetsestablished bytheBundesbank .Onthecontrary,
therewasariseofmorethan0,5pointsinthecurrentyieldon
publicloans,lessinresponsetochangesininvestors'
inflationary expectations thantomovements inexchange
ratesandinternational interestrates.Fromamonetarypolicy
viewpoint ,aslowdown inmonetaryexpansion wouldbe
welcomeinordertostartnextyearwithalowerrateof
growth.Iftheexternalenvironment weretoprovemore
stablethanin1986/1987,therewouldprobablybeagood
prospectofthishappening .
Theattemptstomakemarketsmoreadaptable have
continued .Inrecentmonths,themainobjectiveinmany
caseshasbeentofacilitatemarketaccessfornewfirmssetup
bytheself-employed andbyenterprises ,toimprovetheir
accesstonewequitycapitalandtoremoveasmanyas
possibleofthenumerousobstaclestheyencounter .Against
this,scantprogresshasbeenmadehithertoindismantling
subsidies .Thelatterwere,infact,increasedsubstantially ,
especiallyin1986,partlyasaresultoftheGermanmark's
appreciation butalsoundermountingpoliticalpressurefrom
interestgroups.Inthecontextofthefinancingofthetax
reformithassubsequently beendecidedtoreducethetax
exemptions byanamountofbroadlyDM8billion.Bytaking
furthermodeststepstowardsreducingweeklyworkingtime
andbyexpanding thescopeforflexibleworking
arrangements ,thetwosidesofindustryhavehelpedimprove
employment opportunities ;atthesametime,theFederal
LabourOfficesteppedupeffortstoprovidevocational and
furthertraining .Theabovementioned taxcuts,amounting toDM13to14
billion(0,6to0,7%ofGDP),willbethemainfeatureof
budgetarypolicyin1988.Thesecutswillnotonlystimulate
demand,butalsoservetoimproveincentivestoeffortonthe
partofemployees andfirms.Inviewofthefairlymodest
growthprospects ,afurtherexpansion inthedeficitscannot,
therefore ,beavoided .TheCentralGovernment (combined
FederalGovernment andLander)deficitwillprobablyreach
2,7%ofGDPin1988,corresponding toariseof0,3points
over1986,whilethetotalpublicauthoritycashdeficit
(centralandlocalgovernment ,andthespecialFederalfunds)
mightevenrisetosome3%in1988.Sincethegrowthin
expenditure has,inanycase,alreadybeenadjustedtothe
moreunfavourable trendinrevenue,atemporary widening
ofthedeficitsundertheimpactoftaxcutsprovidesno
justification foranyweakening ofconfidence inthe
soundness ofbudgetary policy.However,through
dismantling subsidiesanddecidingonhowthetaxreformis
tobefinanced,caremustbetakentoensurethatthe
expansionary forcesintheeconomyaregivenfullrein.An
energeticdismantling ofsubsidiesshould,inparticular ,
preventthepreservation ofproduction structuresforwhich
therewillbenofuturewhatsoever inthelongerterm.Allinall,theoutlookforeconomic development inthe
FederalRepublicin1988doesnotappearfullysatisfactory
—notably sincenofurther reduction in

31.12.87 OfficialJournaloftheEuropeanCommunities NoL394/45
unemployment istobeexpected .Judgingfrompast
experience ,arecoveryinthetrendofexports,asseenfrom
mid-1987 ,willwithacertainlagleadtoageneralupturnin
thedomesticgrowthleadingultimatelytoafurtherreduction
oftheexternalsurplus.However,shouldeconomicgrowthsignificantly loosemomentum ,itwouldbedesirableto
reconsider thestanceofbudgetary policynotonlywitha
viewtopreventafurtherdeterioration ofthelabourmarket
butalsotoavoidaslowdown oftheprocessofrenewing
productive capacity .

NoL394/46 OfficialJournaloftheEuropeanCommunities 31.12.87
FederalRepublicofGermany :Maineconomicaggregates ,1983to1988
(Annualpercentage changes)
1983 1984 1985 1986 1987(') 1988(•)
Cvalue
Grossdomestic I,
product \volumeIdeflator
Privateconsumption deflator
Grossfixed Cprivate
capital J,
formation |1C
(volume)Ltotal
ofwhich:construction
equipment
Domesticdemandatconstantprices
Gapwithrespecttoother
Community countries (2)
Compensation fnominal
ofemployees -<realA(3)
perhead (3)
Productivity (4)
Realunitlabourcosts(5)
Profitability (6)
idem(1970=100)
Competitiveness (7)
Employment
Registered unemployed as%
ofthecivilianlabourforce(8)
Currentbalanceas%ofGDP
Long-term interestrate
Moneysupply(9)
Netlendingorborrowing ofgeneral
government as%ofGDP
Totalpublicauthority
cashdeficitas%ofGDP(10)
Publicdebtas%ofGDP
Publicdebtinterest
as%ofGDP4,8
1,5
3,3
3,2
5,1
-8,6
3,2
1,7
5,6
2.3
1,6
3,9
0,6
0,7
3,0
-2,4
11,5
85,4
-0,9
-1,5
8,4
0,7
-7,9
7,0
-2,5
-3,3
40,9
3,04,8
2,8
2,0
2,5
1,2
-2,1
0,8
1,6
-0,5
2,0
-0,1
3,5
1,4
1,0
2,8
-1,3
2,1
87,2
-4,3
0,1
8,4
1,3
7,8
4,6
-1,9
-2,6
41,8
3,04,3
2,1
2,2
2,1
-0,1
0,8
-0,1
-5,6
9,4
1,0
-0,9
3,1
0,9
1,0
1,8
-0,9
5,2
91,7
-2,6
0,7
8,5
2,4
6,9
4.5
-1,1
-2,1
42,5
3,05,7
2,6
3,1
-0,5
2,5
7,3
3,1
2,4
4,1
3,7
-0,1
3,9
0,8
4,4
1,8
-1,0
5,0
96,3
10,0
1,0
8,1
4,1
5,9
7,8
-1,2
-2,2
42,6
3,03,3
1,4
1,9
0,6
1,2
2,9
1,4
-0,4
3,8
2.5
-0,4
3,3
1,4
2,6
0,8
0,6
-3,2
93,2
5,7
0,6
8,1
3,7
5,7
6,9
-1,6
'-2,6
43,8
2,93,7
1,9
1,8
1,8
1,6
0,7
1,4
0,8
2,3
2,3
-0,1
2,9
1,1
1,1
1,6
-0,5
-2,2
91,2
-0,0
0,3
8,2
3,2
5,7
5,9
-2,0
-2,9
45,2
2,9
(')ForecastsoftheCommission services,April/May1987,onthebasisofpresentpolicies.
(2)Differences inpercentage points.
(3)Deflatedby:A=GDPdeflator;B=privateconsumption deflator.
(4)Grossvalueaddedperoccupiedpersoninthewholeeconomy .
(5)Ratioofrealwagesperheadtoproductivity .
(6)Netoperatingsurplusrelativetonetcapitalstockatcurrentreplacement cost.
(7)Effectiveexchangerate(vis-d-vis19industrialcountries )onthebasisofunitlabourcostsforthewholeeconomy;positivefigure=lossof
competitiveness .
(8)Eurostatdefinition .
(*)CentralBankMoneyStock,'Q4overQ4.
(10)Territorial Authorities andspecialFederalfunds;financialstatisticsconcept.

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/47
GREECE
expectations ,causedthedomesticcreditexpansiontargetto
beexceededeventhoughbanklendingtotheprivatesector
wasgenerallywithintheratesenvisaged .Consumer price
inflation,afterfluctuating around20%foranumberof
yearsbutrisingto25%attheendof1985,wascutto17%
in1986.Therateisexpectedtofallbyapproaching three
percentagepointsonayear-endbasisin1987despitethe
inflationary effectcausedbytheintroduction ofVAT.InGreece,theyear1987hasseenfurtherprogresstowards
stabilization ,eventhoughithasnotbeenpossibleforallthe
targetsinitiallysettobecompliedwith.Thedeficiton
currentaccountnarrowed furtherasdomesticdemandand
GDPcontracted ;thepublicsectordeficitasaproportion of
GDPfellagainandthemonetaryaggregatesexpandedless
thanin1986.Inflationshowedadownward trend,while
unemployment remainedunchanged ,thefallintotal
employment beingoffsetbyasimilardeclineinthelabour
force.In1988,activitywilltendtoreturntopositivegrowth.
Bothconsumption involumeandthesavingsratioof
households arelikelytosteadyandinvestment willcontinue
torise,leadingtoarealgrowthofdemandandoutput.Prices
shouldriseataslowerrateafterhavingbeenaffectedby
exceptional factorsin1987,butthepublicsectordeficitwill
onlynarrowifadditional measuresaretaken,whileno
appreciable improvement islikelyinthecurrentaccountof
thebalanceofpayments .Thecurtailment ofdomesticdemandandtheloweroilbill
wereverybeneficialtothebalanceofpaymentsoncurrent
account,whichshowedadeficitof9,8%ofGDPin1985,
4,3%in1986and3,1%in1987.Thecurrentaccount
deficitin1986,atUS$1,7billion,isformallyinlinewiththe
targetsetinconnection withtheCommunity loan,butthe
deficitfor1987,whilelowerthanin1986,islikelytobe
somewhat higherthanthetarget.
Theendof1987istheofficialdateforthecompletion ofthe
stabilization plan.Adoptedattheendof1985,thisplanwas
designedtoachievearapidimprovement inthebalanceof
paymentsthroughadeliberatecutbackofdomesticdemand,
inordertostabilizetheleveloftheexternaldebtfrom1988
onwards .Theplanwassupported bytheCommunity
authorities whichgrantedabalanceofpaymentsloanforthe
purpose .Theobjectives involvedreducingtherateof
inflationto10%bytheendof1987,cuttingthepublic
sectornetborrowing requirement by8%ofGDPovertwo
years,andlimitingdomesticcreditexpansion to17%in
1986and11%in1987.Substantial progresshasbeenmadeinreformingthefinancial
system.Preferential interestratesforcertaincategoriesof
operatorhavebeenabolished .Thegenerallevelofinterest
rates,whichpreviously hadbeenlowerthantherateof
inflation,hasbeenraisedandcommercial bankshavebeen
grantedadegreeoffreedominfixingtheirlendingrates.The
strictadministrative rulesandregulations governing the
administration ofcredithavebeenmademoreflexibleand
effortshavebeenmadetoplacetreasurybillsand
medium-term paperwithprivatenon-banks .Continuation
oftheseefforts,togetherwiththecreationofanefficient
non-bank financial market,shouldfacilitate the
implementation ofmonetarypolicyandcontributetothe
modernization ofthefinancialsystem,whichisessentialfor
thedevelopment ofthecountry .Wagepolicy,thekeyinstrument forrestraining domestic
demand,wasbasedonasystemofdegressive indexation
focusedonatargetedinflationrateandexcludingtheeffect
fromimportprices.Inaddition,verymoderategrowthwas
authorized forfarmincomes .Thestrictincomespolicy
produced a10%reduction inrealwagesanda7%
reductioninrealpersonaldisposable incomeintheperiod
1986/1987.Foranumberofyears,thepublicsectorinGreecehasbeen
expandingrapidly,withasignificantincreaseinthepublic
debt.Gettingthecurrentdeficitsinthecentralgovernment
budgetundercontrolisclearlyapriority,butthedeficitofthe
socialsecuritysystemraisesthegreatestproblem .Therapid
deterioration inthisfieldisaresultofthepolicy,pursued
sincethebeginningofthe1980s,ofsubstantially increasing
pensionsandextendingsocialsecuritybenefitstopeoplewho
hadnotpreviouslypaidcontributions .Thedrivetocutback
thepublicdeficit,alreadyinitiatedbytheauthorities ,will
needtocontinueforanumberofyearsinorderforthepublic
debttobestabilizedasaproportion ofGDP.However ,asaresultofinitialdoubtsbyprivateeconomic
agentsaboutthedurabilityoftheplanandbecauseof
speculative behaviour ,privateconsumption contracted only
slightly,entailingasharpdropinthepersonalsavingsratio,
helpedespeciallybytheveryhighdegreeofliquidityinthe
personal sector.Thepublicsectornetborrowing
requirement wasreducedfrom17,6%ofGDPin1985to
13,7%in1986,partlyasaresultofanincreaseinthe
taxationofoilproductswhichoffsetthefallinoilprices.In
1987,afurtherreductionto12%ofGDPislikely,butthis
levelishigherthantheobjectivesetinthecontextofthe
programme . Fromastructuralangle,thebasicproblemoftheGreek
economyisthecontinueddeclinesince1980ofproductive
investment ,broughtaboutbytheunfavourable climatefor
industrialactivityassociatedwithawide-ranging regulation
ofmarkets.Sincetheendof1985,theGovernment hasbeenThisdevelopment ,togetherwithavolumeofsalesof
treasurybillsandmedium-term paperthatfellshortof

NoL394/48 OfficialJournaloftheEuropeanCommunities 31.12.87
workingonphasingoutpricecontrols;combinedwiththe
verymoderategrowthofwagecostsandaconsistent
exchangeratepolicy,thishashelpedtoproduceasignificant
improvement inthefinancialpositionofenterprises .Thisis
expectedtoleadtoasignificant upturninproductive
investment ,althoughinitiallycompanies havegivenpriority
toimproving thestructureoftheirbalancesheets.
Thecountry'sproductive capacityhasbeenconsiderably
weakened asaresult,sothatcontinued effortsneedtobe
madein1988tocontainthepressureofdomesticdemand
andtherebyavoidadeterioration inthebalanceofpayments .
However,inviewofthescaleoftheadjustment ofrealwage
incomesinthepasttwoyears,wagepolicycannolongerbe
themaininstrument formanaging demand.Wage
negotiations shouldtakeaccountofarateofinflationthatis
consistent withthemacroeconomic objectives pursued,
whilethedegressivestructureofwageriseswillgradually
havetobeabandoned ,asthishasproducedalevellingof
incomesthatisnotconducive toproductivity growth.
Overall,thispolicymightbeconsistentwithaslightincrease
inrealwagesinthecourseoftheyear.
Inthesecircumstances ,reducingthepublicsectordeficitwill
havetobetheprimeinstrument ofdemandmanagement .It
willbedifficulttoapply,especiallysincethesocialsecurity
deficitistendingtoincrease,whileincomepolicywillnotcontribute tothemoderation ofthepublicsectorwagebillto
thesameextentasintheprevioustwoyearsandcertain
exceptional receiptswillnolongeraccrue.Someessential
changesinlegislation shouldbemaderapidly:inparticular ,
reorganizing thepensionssystem,wideningthetaxbase
throughfullertaxationofcertaincategoriesoftaxpayer,and
containing thewageandsalarybillinthepublicservice
throughabanonnewrecruitment andrestriction ofwage
andsalaryincreasesbelowtheaverageintheeconomy .
Alongsidethedismantling ofexportsubsidies,whichbegan
in1987,agricultural subsidies,whichagainrosesignificantly
in1987,willneedtobecut.Rationalization ofthe
management ofpublicenterprises andagenciesshouldhelp
toreduceboththebudgettransferstothemandtheirown
deficits.
Inviewofthemedium-term publicfinanceobjectives ,andin
ordertostabilizetheexternaldebtin1988,budgetarypolicy
forthecomingyearshouldaimatmakinguptheslippage
fromtargetrecordedin1987andalsoatachieving
substantial additional progressinreducingthepublicsector
netborrowing requirement asapercentage ofGDP.An
activemonetary policyseekingafurtherdeceleration in
domesticcreditexpansionshouldaccompany thisrestrictive
stance.Inthesecircumstances ,domesticdemandwould
declinefurther,theinflationratewouldfallbelow10%by
theendof1988,andthedeficitoncurrentaccountofthe
balanceofpayments shouldnarrowtoabout2%of
GDP.

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/49
Greece:Maineconomicaggregates 1983to1988
(Annualpercentage changes)
1983 1984 1985 1986 1987(') 1988(»)
Cvalue
Grossdomestic J,i ■<volumeproductLdeflator
Privateconsumption deflator
GrossfixedfP"vate
capital spublic
formationvolume 1j
ofwhich:construction
equipment
Domesticdemandatconstantprices
Gapwithrespecttoother
Community countries (2)
r, .CnominalCompensation
ofemployees ■<realA(3)
perhead R(3)
Productivity (4)
Realunitlabourcosts
Competitiveness (5)
Employment
Registered unemployed as%
ofthecivilianlabourforce(6)
Currentbalanceas%ofGDP
Long-term interestrate
Moneysupply(7)
Netlendingorborrowing
requirement ofgeneralgovernment
as%ofGDP
Publicdebtas%ofGDP •
Publicdebtinterest
as%ofGDP20,3
0,3
19,9
18,6
-1,9
3,9
-8,2
-0,7
-0,4
21,8
1.5
2,7
-0,1
1.6
-3,4
-1,0
7,9
-4,7•
18,2
20,3
-8,9
44,3
3,423,0
2,6
19,9
18,0
-4,7
-7,7
-0,9
0,8
-2,5
22,6
2.3
3,9
2,9
-0,6
1.4
-0,2
8,1
-4,1
18,5
29,4
-10,1
53,2
4,619,6
2,1
17,1
18,4
3,4
2,6
4,4
4,9
3.0
20,4
2,8
1.7
1,0
1,9
-2,1
1.1
7.8
-8,2
15.6
26.7
-13,6
62,6
5,420,6
1.3
19.0
22.1
-4,8
-3,4
-6,5
-0,3
-4,5
13.7
-4,5
-6,9
0,3
-4,7
-13,6
0,3
7.4
-5,4
15,8
18,5
-10,7
64,3
5,915,8
-0,8
16,7
16,0
-2,0
-5,5
2,2
-0,6
-3,4
12,5
-3,6
-3,0
0,1
-3,7
-2,9
0,1
7.4
-4,2
17,3
17.3
-10,6
65.4
6.512,2
0,5
11,6
12,0
3,7
3.7
3,8
0,3
-2,2
12,0
0,4
0,0
0,2
0,2
-3,5
0,2
7,5
-4,1
16,0
11,7
-9,8
67,2
6.9
(')ForecastsoftheCommission services,September 1987.
(2)Differences inpercentage points.
(3)A:GDPdeflator;B:privateconsumption deflator.
(4)Grossvalueaddedperoccupiedpersoninthewholeeconomy .
(5)Effectiveexchangerate(vis-A-vis19industrialcountries)onthebasisofunitlabourcostsforthewholeeconomy .Positivefigure=lossof
competitiveness .
(s)Eurostatdefinition .
(7)Endofyear.

NoL394/50 OfficialJournaloftheEuropeanCommunities31.12.87
SPAIN
structuresofproduction ,theneedforwhichhasgrownas
Spainisrapidlyopeningupitseconomytotheoutsideworld.
Inthemediumterm,thispolicyseekstoachieveaveragereal
economicgrowthof3,5to4%peryear,underpinned mainly
bybuoyantinvestmentandexports,areductionoftheorder
ofhalfapercentage pointofGDPperyearinthegeneral
government borrowingrequirement ,andconvergence ofthe
rateofinflationtowardstheCommunity average.Thegap
betweenpercapitaincomesinSpainandthemostprosperous
countriesintheCommunity couldthusgoonnarrowing .In1987Spainwillagainseehighereconomicgrowththanthe
othermembercountries,withdomesticdemandexpanding a
gooddealmorerapidlythanintherestoftheCommunity .
Realgrossdomesticproductwillincreasebyover4%.
Privateconsumption hasbeenstimulatednotonlybyreal
wageincreasesintheprivatesectorbutalsobythesharp
increaseinnon-agricultural employment .Theverystrong
expansion offixedinvestment continued ,reflectingthe
continuing favourable trendofcompanyprofits,positive
salesprospectsandtheneedformodernization ofproductive
equipment inthefaceofincreasingly strongcompetition
fromabroadfollowing thecountry'saccessiontothe
Community .Exportperformance ,whichwaspoorin1986,
improvedgraduallyduringtheyearthankstostrongdemand
fromtheotherCommunity countries .Importgrowth
remained veryrapidandtheexceptional buoyancy of
domesticdemandwasthereforeonlypartiallyreflectedinthe
grossdomesticproduct.Similarly,thetradedeficitwidened
rapidlyandthefallinthecurrentaccountsurpluswasonly
sloweddownbytherapidgrowthofreceiptsfromtourism.
Verygoodemployment growthallowedtheunemployment
ratetofallbelow21%,butitsdeclinecontinuestobe
hamperedbythesharpgrowthinthelabourforce.Thefallin
inflationcontinued ,helpedbytheevolutionoffoodprices,
sothattheofficialobjectivewillprobablybeachieved (5%,
onatwelve-month basis,fortheconsumerpriceindexbythe
endof1987).Majorprogresswasalreadymadein1986and1987in
implementing thegrowthstrategyformoreemployment ,the
mostpositiveaspectclearlybeingtheupturninproductive
investment .Withprofitmarginsbeingrebuiltandthe
economic environment improving ,businesses have
demonstrated theirwillingness tomodernize production
equipment andtakeupthechallengeofCommunity
membership ,arisingnotonlyintheformofthedismantling
ofbarriersasprovidedforintheAccessionTreatybutalsoin
thatofthecompletion oftheinternalmarketby1992.The
stronggrowthinemployment waslikewiseapositiveresult
andconfirmation ofcyclicalbuoyancyandrenewedbusiness
confidence :non-agricultural employment islikelytoincrease
by3,3%in1987and2,4%in1988,althoughmuchofthis
willbeintheformofpart-timeortemporaryworkcontracts .
Withtheactivityrateandthefemalelabourforce
participation raterelativelylow,thepositiveemployment
trendhaspromptedmany'discouraged workers'toenterthe
labourmarket.Asaresult,thelabourforceisgrowingagood
dealmorerapidlythanthepopulation ofworkingage.Inthe
circumstances ,employment willneedtorisestronglyover
manyyearsifthelevelofunemployment istocomedown
significantly .Themaintendencies observed in1987shouldcontinue in
1988,byandlarge;realGDPshouldgrowbyapproximately
3,75%.Domesticdemandislikelytoremainbuoyantbut
mayslowdownalittle,withthismovementapparentinboth
consumption andinvestment .Inparticular ,followingthe
surgeinproductive investment in1986/1987,therenewed
fallofenterprises'financingcapacitymaywellexerta
moderating influence .Exports,moreover ,arelikelytoslow
downslightly,notwithstanding someimprovement in
markets .
Followingthebreakdown ofthesocialdialogueinearly
1987,theGovernment ,inanefforttosecuregreater
industrialpeaceandruleouttheriskofwagesgettingoutof
controlintheyearsahead,tooktheinitiativeinthesummer
ofproposingtheconclusion ofanewsocialpactforthe
remainingperiodofthecurrentParliament (1988to1990).
Althoughconclusion ofsuchapacthascomeupagainst
difficulties ,consulations aswide-ranging aspossibleshould
beheld,notonlyontheevolutionofwagesandsalariesand
workingconditions ,butalsoontheeconomicandsocial
strategyforthemediumterm.Thecurrentaccountsurpluswillprobablygoonshrinking
andshowamoderatedeficit(0,5%ofGDP)asaresultofthe
buoyancyofimports,whichisattributable mainlytothe
continuing widedifferencebetweenthegrowthofdomestic
demandinSpainandelsewhere intheCommunity .
Employment growth,whileslower,willstillbesignificantat
arateof1,7%,whereastheunemployment rateisexpected
todeclineonlyslightlybecauseofthestronggrowthofthe
labourforce.Thedisinflation processislikelytocontinue
despiteasomewhat fasterincreaseinimportprices.
TheGovernments 'economicpolicy,whichhasbeenbroadly
unchanged since1983,remainsconsistent withthe
guidelines ofthecooperative growthstrategyformore
employment .Itsmainfocusistheelimination ofthe
macroeconomic disequilibria —ofwhichunemployment is
clearlythemostworrying—andthemodernization oftheThedrivetoreducethegeneralgovernment borrowing
requirement shouldhelptocutitfrom5,7%ofGDPin1986
to5,0%in1987and4,9%in1988.Ontherevenueside,
maintenance ofthemaindirecttaxratesandscalesin1987
andgreaterefficiencyincollectionwillprobablyproducea
significantmeasureoffiscaldrag.Ontheexpenditure side,
targetshavebeenwidelymissedin1987despitethe

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/51
becauseofthescaleoftheimbalances onthelabourmarket
butalsoinordertoreduceinflationandimprovethe
competitiveness oftheeconomy .Excessivewageincreases
wouldinparticularleadtoanundulysharpupsurgein
privateconsumption ,suckinginevenmoreimports.moderation insubsidiestopublicenterprises .Therewill
thereforehavetobeeffectivecontrolofexpenditure in1988
ifthegeneralgovernment borrowing requirement istobe
reducedandanyroomcreatedforlowerdirecttaxesand
socialsecuritycontributions .Monetarypolicyhadtodeal
withsomestrainsinthefirsthalfof1987asthegrowthof
monetary aggregates wasinexcessofpreviously set
objectives .Thisovershooting wasduetovariousfactors:
strongloandemandfromtheprivatesector,higherthan
expectedeconomicgrowth,shiftsintheportofolio mix
towardsmoreliquidassetsand,morerecently,anupsurgein
monetaryfinancingbythepublicsectoraswellasanincrease
intheexternalcounterpart .Followingasharpincreaseinthe
spring,thelevelofshort-terminterestratesdeclinedalittle
afterthesummer,butthisstillleavesthemrelativelyhigh.
Whatismore,long-terminterestrateshavebeenaffectedby
thismovement eventhoughinflationary expectations remain
favourable .Thismeansthatputtinginterestratesbackona
downward pathrequiresandappropriate mixofbudget
management andmonetarypolicygearedtodisinflation .Inamedium-term context,thecurrentaccountbalancemay
wellbecomeanincreasingly severeconstraint :evenonan
optimisticviewofthemodernization ofthecapitalstock,
domesticsupplywillforyearstocomeremaininsufficient to
counteract thecombined effectsofanincreaseintherateof
importpenetration causedbythebuoyancyoftheeconomy
andagrowthrateofintra-Community tradethatislower
thanwouldresultfromgeneralapplication ofthecooperative
strategyformoreemployment .Importsmustthereforebe
expectedtogrowmorerapidlythanexportsandthetrade
deficittocontinuetowiden.Evenifthetrendofthebalance
oninvisibletransactions islikelytoprovidepartial
compensation ,theauthoritiesmusttakecaretoensurethat
thedeterioration innetborrowing ofthenationdoesnot
placeanexcessiveburdenonenterprises .Thegeneral
government deficitmustthereforebereducedtoalevelwell
below5%ofGDPin1988soastofreeextrafinancial
resourcesforstronggrowthinproductive investments .Foremployment togoonimproving ,thereisaneedfor
strongandindeedfastereconomicgrowth,withtheemphasis
onproductive investment andexports.Economic policy
mustgiveprioritytothemoderation ofwagecosts,notonly

NoL394/52 OfficialJournaloftheEuropeanCommunities 31.12.87
Spain:Maineconomicaggregates 1983to1988
(Annualpercentage changes)
1983 1984 1985 1986(') 1987(2) 1988(2)
Cvalue
Grossdomestic J,product 1volumeIdeflator
Privateconsumption deflator
GrossfixedfPrivate
capital •<public
formationvolume 1^
ofwhich:construction
equipment
Domesticdemandatconstantprices
GapwithrespecttootherCommunity
countries (3)
compensation fnom'na^
ofemployees ■<realA(4)
perhead
Productivity (5)
Realunitlabourcosts
Competitiveness (s)
Employment
Registered unemployed as%
ofthecivilianlabourforce(7)
Currentbalanceas%ofGDP
Long-term interestrate
Moneysupply(8)
Netlendingorborrowing
requirement ofgeneralgovernment
as%ofGDP
Publicdebtas%ofGDP
Publicdebtinterest
as%ofGDP13.6
1,8
11,6
12.4
-2,1
-5,2
-2,5
-2,0
-3,5
0,3
-1,2
16,0
3,9
3.2
2,8
1,0
-12,1
-1,0
18.7
-1,5
16,9
16,0
-4,8
34.5
1.313.0
1,9
10,9
10,9
-7,2
8,5
-5,1
-5,4
-4,6
0,0
-2,3
10.1
-0,7
-0,7
3,9
-4,4
0,6
-2,0
20,7
1,3
16,5
13,3
-5,5
41,2
2,010,9
2,1
8,6
8,3
0,8
20,7
3,9
2,0
7.1
2.3
0,5
9,9
1.2
1.4
3.3
-2,1
0,2
-1,2
22,0
1,7
13.4
12,9
-6,7
46.5
3.415.1
3,5
11.2
8,9
14.1
2,1
11,9
6,9
20.2
6,5
3,0
8,7
-2,3
-0,1
1,5
-3,7
3,2
2,0
21,6
2,0
11,4
12,2
-5,7
47,3
3,910,0
4.1
5,7
5,4
12,5
12,5
12,5
9,4
17,0
6.2
3.4
6,5
0,8
1,0
1,7
-0,9
0,9
2,4
20,8
0,6
12,7
12,0
-5,0
49,2
3,77,9
3,7
4,1
4,2
9,4
7,2
9,0
6,9
12,0
4,8
2,5
5,3
1,1
1,0
1,9
-0,8
-0,1
1,7
20,5
-0,4
12,3
10,0
-4,9
51,6
3,7
(*)EstimatesoftheCommission services,September 1987.
(2)ForecastsoftheCommission services,September 1987.
(3)Differences inpercentage points.
(4)A:GDPdeflator;B:privateconsumption deflator.
(5)Grossvalueaddedperoccupiedpersoninthewholeeconomy .
(')Effectiveexchangerate{vis-cl-vis19industrial countries )onthebasisofunitlabourcostsforthewholeeconomy .Positivefigure=lossof
competitiveness .
(7)Eurostatdefinition .
(')Endofyear.

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/53
FRANCE
Giventhattheinternational economic environment is
turningoutlessfavourable in1987thanwasexpectedinthe
autumnof1986,ithasbeenmoredifficulttoachievethe
objectives forgrowthandemployment setbythe
Government thattookofficefollowingtheelectionsof
March1986.Thegrowthofgrossdomesticproduct,
estimatedat1,2%inrealtermsfor1987asawhole,was
entirelybasedontheexpansionofdomesticdemand,the
externalbalancemakinganegativecontribution .Despite
somedownward revisionofinvestment intentionsduetothe
deterioration oftheinternational environment ,productive
investment wasthemostdynamiccomponent ofdemand,
expanding considerably indistributive tradesandprivate
industry,althoughitcontracted inthelargenational
corporations andinagriculture .Asinvestment by
households rosebysome2%inrealtermsandasgeneral
government investment wasalsoup,grossfixedcapital
formation asawholeroseonlyslightlylessthanthe3%
recordedlastyear.Privateconsumption ,ontheotherhand,
lostmomentum ,mainlybecauseoftheslowerincreasein
wageincomes.Thus,therateofgrowthofrealdomestic
demandsloweddownmarkedly ,from3,5%in1986to
2,2%in1987.specialmeasureshavebeensuccessfully applied,inparticular
tocombatunemployment amongyoungpeopleand
long-termunemployment ;theyincludetheorganization of
sandwichcoursesandexemption fromcostsforfirms
recruitingnewworkers.Thesystemofbenefitsforlong-term
jobseekershasbeenimprovedthroughelimination ofthe
hiatusbetweenexhaustion ofentitlement tounemployment
insurancebenefitsandeligibilityforStatebenefits.
Themacroeconomic conditions foranappreciable increase
inemployment continuetobefragile,however,sincethe
expansionofactivityisstillbeinghamperedbytheexternal
constraint andissubjecttotheachievement ofgreater
flexibilityintheFrencheconomy .
Theslowdown indomesticcostsderivingfromwage
restraintand,toalesserextent,therealignment ofJanuary
1987ledtogainsinEuropeanmarketsharesthatpartially
offsetlossesonmarketsoutsidetheCommunity .Itis
important tomaintainthetrendtowardsrealwage
moderation in1988,sothatFrenchexportscancontinueto
benefitfromanimprovement inpricecompetitiveness ,and
sothattherateofpenetration ontheFrenchmarket,in
particularforconsumergoods,canatleastbestabilized .
Onthesupplyside,theauthorities havecontinuedtheir
effortstostimulatetheadaptability oftheeconomy .In1986,
theireffortsmainlyconcernedthelabourmarket,e.g.by
adaptationofworkingtimearrangements andconditionsof
dismissal;in1987,theauthorities concentrated on
liberalizingcapitalmovements andforeignexchange,andon
improvingtheflexibilityofthemoneymarket,aswellas
removingthelastremainingpricecontrols.Allthemeasures
shouldcontribute togreateradaptability tothechanging
conditions ofdemand,andshouldimprovecompetitiveness .
Theyshouldbeanincentivetomoreintenseinvestment
activity.
Theauthorities haveearmarked aboutthreequartersofthe
revenueoriginallyexpectedfromprivatization forthe
reimbursement ofthepublicdebt;theremainingquarteristo
beusedasendowment ofcapitaltopublic-sector enterprises .
Receiptsinexcessoftheforecasts,some20billionfrancs,
willbedistributed onananalogous basisasbetweendebt
reimbursement andsupplyofcapitaltopublicenterprises .In
thiswaythefinancialrehabilitation andthereductionofthe
levelofdebtoftheseenterprises willbebroughttoan
end.Theriseincomsumerpricesremainedfairlymoderate :the
annualaverageratewasvirtuallyunchangedfrom1986.The
downward pullofimportpriceswasalmostimperceptible ,
buttheriseofdomesticcostsbegantoslowdown.
Assumingnonotablechangeintherealexchangerate,but
allowingforaslightlyhigherexpansionofexportmarkets
thanin1987,shipmentsabroadin1988shouldgivethe
Frencheconomyastrongerboost.Domesticdemand,onthe
otherhand,mayonlystrengthen slightly.Theimprovement
inratesofreturnwillunderpininvestment inplantand
machinery ,whileresidential buildingsmightcontinueto
increasemoderately .Ontheotherhand,eventhough
disinflation islikelytoprogressin1988,private
consumption willhardlyexpandbymorethan1,7%inreal
termssincehousehold'sincomes,especiallyoverallwage
incomes,arerisingonlymodestly .
Inviewofthefairlyhighrateofpenetration ontheFrench
market,importsarelikelytoprogressinparallelwith
exports.Theexternalbalanceisunlikelytomakemuch
positivecontribution tothegrowthofGDPinrealterms,
whichmightstandatabout1,5to2%,aratethatdoesnot
holdouthopeforareductioninunemployment .Despitethe
risingtrendofpricesforoilandotherrawmaterials,the
termsoftrademayimprovesomewhat .Thebalanceof
paymentsoncurrentaccount(nationalaccountsdefinition )
willprobablybeinequilibrium afteraslightdeficitin
1987.Monetarypolicyshouldalsocontributetotheexpansionof
productiveinvestmentthroughthereductioninnominaland
realinterestrates.Form1January1987,creditcontrolswere
discontinued andreplacedbytheuseofinterestratesasthe
mainregulatoryfactor.Exchangecontrolswererelaxedin
severalstages.Byharmonizing thematuritiesTreasurybills
withthoseofcommercial paperissuedbyfirms(billetsdeTheproblemofunemployment isstillthemajorconcernof
theFrenchauthorities .Sincethemiddleof1986,aseriesof

NoL394/54 OfficialJournaloftheEuropeanCommunities31.12.87
Controlofpublicfinancesisvitalnotonlyfromthispointof
viewbutalsotocontaindomesticdemandwithinlimits
compatible withexternalequilibrium .TheGovernment 's
aimistobalance,by1989,thecentralgovernment budget
netofinterestpayments ,i.e.toachieveadeficitequivalentto
about2%ofgrossdomesticproduct;budgetary policy
intentions for1988areconsistent withthisline.Asthe
Government hasalsocommitted itselftoreducingthetax
burdenonfirmsandhouseholds (includingthereductionof
VAToncertainproducts )in1988byabout30billionfrancs
(some0,5%ofGDP),theincreaseinpublicexpenditure will
havetobelimitedtoabout2%incashterms.Savingswillbe
mademainlyonoperatingexpenditure andsubsidiesto
publicsectorfirms.Thenetcentralgovernment borrowing
requirement mightthusnotexceedFF115billion.
Moreover ,theequilibrium ofsocialsecurityaccountsmight
requirefurthereffortstocomplement themeasurestakenin
May1987:anincreaseinsocialsecuritycontributions anda
plantostreamline expenditure onhealth.Aswage
moderation andwidespread unemployment placeadamper
onrevenuewhiletheriseinbenefitscontinues ,further
pressureisputonthefinancialsituationofthesocialsecurity
funds.trSsorerie)andnegotiable depositcertificates issuedby
banks,theauthorities havedecompartmentalized themarket
inthesesecurities,thusmakingitmoreactive.Henceforth ,
firms'borrowing costswillbedetermined byconditionson
themoneymarketratherthanbycommercial banks'base
rates.
Thispackageofmeasurescaninfluencethebehaviourofthe
monetaryaggregatesandestablishamoredirectlinkwiththe
interestratesappliedoninternational markets.Thus,
followingincreaseddemandforcertificates ofdeposit,the
growthofM3hastendedin1987(figuresatendJuly1987)
toincreasefasterthantheupperlimitonthemonetary
authorities 'targetrange,whileMlandM2developedmore
slowlythanexpected .Afterasuddenspurtimmediately prior
totherealignment of12January1987,interestrates
subsequently graduallydeclined .
For1988,themonetaryauthorities couldchooseratesof
expansionforthemonetaryaggregates closetotherateof
increaseinnominalnationalincome.Thefavourable
development oftheinflationrate,whichistendingtoalign
itselfonthatofotherCommunity countriessuchasGermany
andtheNetherlands ,andtheconsequent declinein
inflationary expectations ,couldcontribute toasharper
declineinbothshort-term andlong-terminterestrates.The
extentofthedeclineshouldbedetermined inparticular by
thedrainonfinancialmarketsexercisedbytheTreasury :if,
asexpected,thatdrainislimited,conditions conducivetoa
fairlysteadyreductioninrealinterestrateswouldbe
created .Thestanceofthepublicfinancesasawholeseemsconsistent
withtherequirements ofthepresentsituationandoutlook.
However,ifpresentforecastsfortheworldeconomyturned
outtobelessfavourable thancurrentlyenvisaged,there
wouldbegrounds,withintheframework ofinternational
cooperation ,forremainingpreparedtoreconsiderthestance
ofbudgetary policy.

NoL394/55 31.12.87 OfficialJournaloftheEuropeanCommunities
France:Maineconomicaggregates 1983to1988
(Annualpercentage changes)
1983 1984 1985 1986 1987(>) 1988(')
Cvalue
GrossdomesticJvojume
product |Ideflator
Privateconsumption deflator
GrossfixedfP"vate
capital ■<public
formationvolume Ij
ofwhich:construction
equipment
Domesticdemandatconstantprices
Gapwithrespecttoother
Community countries (2)
^ fnominalCompensation
ofemployees <realA(3)
perhead^B(3)
Productivity (4)
Realunitlabourcosts
Ratesofreturn(5)
idem(1970=100)
Competitiveness (6)
Employment
Registered unemployed as%
ofthecivilianlabourforce(7)
Currentbalanceas%ofGDP(8)
Long-term interestrate
Moneysupply(®)
Netlendingorborrowing
requirement ofgeneralgovernment
as%ofGDP
Publicdebtas%ofGDP
Publicdebtinterest
as%ofGDP10,5
0,7
9,7
9,7
-3,6
-3,6
-3,6
-2,9
-4,1
-0,4
-1,7
10,1
0,4
0,4
1,3
-0,9
3,2
52,2
-2,9
-0,6
8,8
-0,9
14,4
11,2
-3,2
30,7
2,68,9
1,4
7,5
7,5
-2,4
-1,6
-2,3
-3,4
-1,4
0,6
-1,6
8,6
1,0
1,0
2,5
-1,5
16,9
61,0
-2,6
-1,0
9,9
-0,1
13,4
8,3
-2,7
32,9
2,87,5
1,7
5,7
5,7
0,2
6,2
0,2
1.8
2,2
-0,3
6,7
0,9
0,9
2,0
-1,1
5.8
64,6
1,7
-0,3
10,3
0,0
10,9
5,6
-2,9
35,2
2.86,9
2,1
4,8
2.5
2,1
7,6
3,0
1,4
4,3
3.5
0,0
4,0
-0,8
1,5
1,7
-2,5
13,5
73,3
4,2
0,3
10,5
0,6
8,4
4,4
-2,9
37,0
2,84,5
1,2
3,3
3,1
2,3
1,4
2,2
1,8
2,5
2,2
-0,7
3,0
-0,3
-0,1
1,4
-1,7
1,5
74,4
-0,5
-0,2
10,7
0,0
9,0
6,3
-2,8
38,9
2,84,6
1,9
2,6
2,6
2,8
2,0
2,7
2,3
3,0
2,0
-0,5
3,5
0,9
0,9
1,9
-1,0
1,5
75,5
-1,5
0,0
11,0
0,0
8,5
6,0
-2,3
40,3
2,7
(')ForecastsoftheCommission services.
(2)Differences inpercentage points.
(3)A:GDPdeflator;B:privateconsumption deflator.
(4)Grossvalueaddedperoccupiedpersoninthewholeeconomy .
(5)Netoperatingsurplusonthenetcapitalstockofcurrentreplacement cost.
(s)Effectiveexchangerate(vis-à-vis19industrialcountries)onthebasisofunitlabourcostsforthewholeeconomy.Positivefigure=lossof
competitiveness .
(7)Eurostatdefinition .
(')Onthebasisofnationalaccountsdefinitions .Thecorresponding figuresonthebasisofBankofFrancedefinitions (currentbalanceofpayments )areas
follows:
1981 1982 1983 1984 1985 1986 1987 1988
-0,8-2,2-0,9-0,2 0 0,5 0,0 0,0
(®)Endofyear.

NoL394/56 OfficialJournaloftheEuropeanCommunities31.12.87
IRELAND
legislation ,administrative costsofemployment —which
couldalsobeexamined .Meanwhile ,moderation inwagesis
essentialtoprotectexistinglevelsofemployment .Training
andmarginalemployment schemesremainanimportant
short-term responsetothedifficulties inthelabourmarket.
Inthecontextofvocational training,greateremphasisneeds
tobegiventothedevelopment ofmanagement and
marketing skillsinordertosupporttheparalleleffortsbeing
madetoexpandexport-based industryandservices.InIreland,economicrecoveryisproceeding in1987ataslow
butsteadypace.Despitetheappreciable tighteningofan
alreadyrestrictivebudgetarystance,realGDPshouldriseby
over2%thisyearafterzerogrowthin1986.Private
consumption continuestoexpandmoderately ,butaggregate
investment hasdeveloped unevenly .Whilereductions in
domesticinterestratesaresupporting investment inplant
andequipment ,perfomance intheconstruction sector
remainsdepressedbyfallingdemandforprivatehousingand
reducedpublicsectoractivity.Onthetradeside,export
volumeshaverisensharplythisyearandasubstantial trade
surplushasemergedasimportshavedevelopedmoreslowly.
Consumer priceinflationisexpectedtoaverage3%in1987,
thelowestratesincethe1960's,helpedbylowimportand
wholesalepricesandthelaggedimpactofthe1986oilprice
reductions .TheIrishpound'sexchangerateagainstthe
currencies ofmajortradingpartnershasremainedstable
throughout mostoftheyear,whilethesignificant easingin
domesticinterestratesisoccuringinresponsetothe
determined budgetary policyanddevelopments on
international moneymarkets.Theunemployment rate,
however,hascontinuedtoedgeupwardsintheabsenceof
significant growthintotalemployment .Budgetary policyin1987hasbeencharacterized bya
relativelylargefiscalcontraction .Asapercentage ofGDP,
theExchequer Borrowing Requirement isexpectedtofallby
some2%tounder10%.TheCurrentBudgetDeficitshould
fallbymorethan1%ofGDP.Theadjustment inthepublic
financesisbeingachievedthroughcuttingordeferring
capitalexpenditure ,miscellaneous savingsintheprovisionof
servicesandatightcontrolonincreasesintheExchequer
wagebill.Indeed,wagemoderation throughout thepublic
sectorisakeyelementofthebudgetarystrategyasameansto
controlStateexpenditure andencourage moremoderate
wagedemandsinothersectorsoftheeconomy .Inthis,asin
manyotherareas,budgetary policyhasbeenbroadly
successful in1987andhasfacilitated asustained declinein
realdomesticinterestrates,whichbegantheyearatover
10%attheshortend. Economic growthshouldcontinuein1988,albeitata
modestrateinthecontextofafurthersharpbudgetary
contraction .Theslowupwardtrendinprivateconsumption
maycontinue,whiletheimprovement inbusinessconfidence
inspiredbyfurtherprogressinreducingthebudgetdeficit
shouldhelptostimulateprivateinvestment .Continued low
priceinflationandthelikelihoodofasustainedreductionin
domesticinterestrateswillhelpmaintainthepresentlevelof
competitiveness oftheexportsectorand,whileimport
volumesshouldriseinphasewithconsumer demand,
anotherhealthytradebalanceisprobable .GrowthinGDPis
expectedtobeabout1,25%inrealtermsin1988.Thismay
besufficienttoentailsomeexpansion ofprivatesector
employment outsideofagriculture ,whichcouldhelpto
containtheupwarddriftintheunemployment rate.Persistentimbalances inthepublicfinancesareimposinga
seriousconstraintoneconomicgrowththroughhighinterest
rates,heavytaxationandthediversionofpublicfundsinto
debt-servicing andawayfrommoreproductive uses,and
significantbudgetaryadjustments arerequiredoveraperiod
ofyears.InOctober,theGovernment published its
'Programme forNationalRecovery'followingnegotiations
withthesocialpartners .Theprogramme extendsovera
three-year periodandreaffirms theGovernment 's
commitment tomedium-term budgetaryadjustment leading
toastabilization inthenationaldebt/GNPratioduringthe
courseoftheprogramme .Stabilization ofthepublic
debt/GDPratio,onthebasisoffeasiblemedium-term
growthandinterestrateassumptions ,wouldrequirea
reductionoftheExchequer Borrowing Requirement toabout
5to6%ofGDP.Thisimpliesfurthersubstantial real
reductions innon-interest expenditure overthecoming
years.Thepublicfinancesandunemployment areundoubtedly the
majorstructuralproblemsfacingtheeconomy .Whilerecent
demographic developments ,includingemigration trends,
haveoffsetthestrongunderlying growthinthelabour
supply,nosignificant reductioninunemployment canbe
expectedwithoutsustainedgrowthinemployment .Thisin
turnwilldependonastrongerperformance bytheeconomy
ingeneral.There-establishment ofafavourable environment
forgrowththroughfurtherbudgetaryadjustment isthusan
essential precondition forprogress inreducing
unemployment .Inaddition,toensurethatgrowthhasahigh
employment content,moreattentionmustbegiventothe
supplysideoftheeconomy,wheregreaterflexibility is
desirable .Changesinthewageformationprocessintheearly
partofthisdecadehavepromoted amoreflexibleand
cost-sensitive evolutionofwages,butthereareotherareasof
thelabourmarket—workingpatterns,protectiveIn1988,therefore,budgetary policymustcontinuetobe
restrictive ;itwouldbeappropriate toachieveanotherstaged
reductionintheExchequer Borrowing Requirement ofat
leastoneandahalfpercentage pointsofGDPfromthe
expectedoutturnforthisyear.Thisstanceshouldbe
consistentwithcontinued realGDPgrowthin1988.This
financialconstraintprecludesanyreductionintheoverall
burdenoftaxationin1988,althoughthebudgetary
authorities shouldbeconsidering possibleoptionstowiden
thetaxbaseandrationalize thetaxstructureinfutureyears.
Indecidingonpossiblecutsinpublicexpenditure ,itseems

NoL394/5731.12.87 OfficialJournaloftheEuropeanCommunities
appropriate toconcentrate onthoseareaswheresavingsare
alsopossibleinthemediumterm.Anobviousareafor
consideration istheExchequer wagebill.Inviewofthe
difficultemployment conditions ,wagemoderation inthe
economyasawholeisacrucialfactorinordertomaintain
competitiveness andtorestoreahealthygrowthprocesssustainedbythedevelopment ofinvestmentandexports.Itis
essentialthatthemoderation involvedinthepay
arrangements associatedwiththeProgramme forNational
Recoveryshouldberealized.Theexpansionofsocial
transfersshouldalsobelimitedandgreateremphasisplaced
onmoreeffectivematchingofbenefitswithneeds.

NoL394/58 OfficialJournaloftheEuropeanCommunities 31.12.87
Ireland:Maineconomicaggregates 1983to1988
(Annualpercentage changes)
1983 1984 1985 1986(') 1987(2) 1988(2)
fvalueGrossdomestic 1vojume
product |Ldeflator
Privateconsumption deflator
/->cjCprivateGrossfixed r
capital public
formationvolume\j
ofwhich:construction
equipment
Domesticdemandatconstantprices
Gapwithrespecttoother
Community countries (3)
Compensation fnom^na'
ofemployees ■<realA(4)
perhead R^
Productivity (5)
Realunitlabourcosts(s)
Competitiveness (7)
Employment
Registered unemployed as%
ofthecivilianlabourforce(*)
Currentbalanceas%ofGDP
Long-term interestrate
Moneysupply(')
Netlendingorborrowing ofgeneral
government as%ofGDP
Publicdebtas%ofGDP
Publicdebtinterest
as%ofGDP9,7
-0,6
10,3
8,6
-9,0
-14,4
-2,3
-2,9
-2,9
11,9
-1,4
3.0
0,0
-0,2
2,4
-1,9
14,9
-6,3
13,9
5,6
-11,8
107,4
9.111,1
3,2
7.7
9,4
-2,4
-3,9
-0,9
0,2
-1,7
11,8
3,8
2,2
6,2
-0,5
-2,2
-1,9
16,6
-5,5
14,6
10,1
-9,7
113,3
9,66,1
1,1
5,0
4,5
4,7
-5,2
-4,4
-9,6
0,9
-1,3
-3,6
6.5
1,4
1,9
4.6
-2,3
-0,2
-2,2
17,9
-3,2
12,6
5,3
-11,4
117,9
10,65,4
-0,3
5,7
3,6
2,0
-8,0
-2,3
-5,3
0,3
0,8
-2,9
6,1
0,4
2,4
0,1
0,3
7,4
-0,4
18,4
-1,8
11,1
-1,0
-11,2
133,2
10,95,5
2,5
2,9
3,0
5,3
-8,0
-0,7
-5,0
3.0
0,0
-2,8
6.1
3,1
3,0
2,8
0,3
-2,1
-0,3
18,5
-1,1
11,3
9,3
-10,0
136,0
10,34,1
1,3
2,7
3,2
6,8
-6,5
1,0
-4,1
5,0
0,2
-2,3
4,9
2,1
1,6
1,1
0,9
0,8
0,2
18,2
-0,3
10,5
6,4
-7,5
138,0
10,2
')EstimatesoftheCommission services,September 1987.
2)ForecastsoftheCommission services,September 1987,onthebasisofpresentpolicies.
J)Differences inpercentage points.
4)Deflatedby:A=GDPdeflator;B=privateconsumption deflator.
5)Grossvalueaddedperoccupiedpersoninthewholeeconomy .
*)Ratioofrealwagesperheadtoproductivity .
7)Effectiveexchangerate(vis-it-vis19industrialcountries)onthebasisofunitlabourcostsforthewholeeconomy;positivefigure=lossof
competitiveness .
*)Eurostatdefinition .
®)M3;endofyear.

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/59
ITALY
InItaly,arapidexpansionofdomesticdemandandimports
hasresultedin1987fromthedelayedeffectsofthereverseoil
shock,fromthewageincreasesagreedatthebeginningofthe
yearwithintheframework ofthethree-yearly collective
negotiations andfromsomeacceleration inthepaceofpublic
expenditure .Thestrengthofdemandhasexerteddownward
pressureonthetradebalance,leadingtheauthorities ,soon
aftertheformationofthenewgovernment followingthe
earlyelectionson15June,totightenmonetarypolicyand
takeaseriesoftaxmeasures,inordertorestrainhousehold
consumption andavoidarekindling ofinflationary
expectations .accounts(*),thedebt/GDPratiohasnowreached90%.
Themedium-term planapprovedinJune1986aimedat
stabilizingthisratioby1990,byeliminatingthedeficitnetof
interest,withoutchangingtheleveloftaxation,andby
keepingdebtservicingcostsatabout6%ofGDP.This
wouldleadtoareductionofalmosthalfintheTreasury
deficitasapercentage ofGDPcomparedwiththelevel
reachedin1986,subjecttorealgrowthaveragingabout
3,5%fromnowto1990andtheinflationratecomingdown
to3%from1988.However,theweaker-than-expected
development ofeconomicactivityandthetrendinreal
interestratessincetheendof1986requiredanupdatingof
theseprojections .Thenewmacroeconomic framework
foreseesgrowthslightlyabove3%peryearfortheperiod
1988to1990,andacontinuedreductionininflation .The
objectiveofbringingtheTreasurynetborrowing
requirement excludinginterestpaymentsintobalancein
1990isreaffirmed ,whichwouldstillimplyasmallincrease
inthepublicdebt/GDPratiobytheendofthedecade.For1987asawhole,domesticdemandwillrisebyover4%,
therealexternalbalancewilldeteriorate threetimesasfastas
in1986—duealsototheweakening ofexports—andthe
growthofGDPwillbeabout3%.Despiteafairlyfavourable
yearfortourism,thesurplusachievedlastyearoncurrent
accountwilltoalargeextentdisappear .Therevivalin
inflationrecordedsinceJulyislikelytocontinueforaperiod
followingtheincreasesinarangeofindirecttaxes.Although
employment increasedonceagainintheservicessector,flat
exportmarketsandsomeworsening inbusinessoutput
prospects heldbackindustrial recruitment ,andthe
unemployment ratecontinuedtorise.Thisobjectiveappearsambitious,especiallyinthelightof
publicfinancedevelopments in1987.WhereastheTreasury
borrowingrequirement shouldnothavebeenmorethanLit
102000000million(10,5%ofGDP)in1987,theoutcome
willbeclosertoLit110000000million,duetothefasterrate
ofexpenditure causedby,amongotherfactors,the
implementation ofthenewwageagreements .In1988,the
government ,initsreviseddraftbudgetagreedinNovember ,
intendstolimittheborrowing requirement toLit
103500000million,whichwouldreducethedeficitto
9,9%ofGDP,onlyalitlebelowtheinitialobjectivefor
1987,andstillleaveamarginoftwoandahalfpercentage
pointscomparedwiththedeficitaimedforin1990(about
7,5%ofGDP).Therevisedbudgetproposalslinkreductions
inpersonalincometax(IRPEF)totheachievement ofthe
targetedinflationrateandpostponetheVATincrease.
Additional revenuesareforeseen,especiallyfromincreasesin
certainindirecttaxesandthroughaspeedingupinthe
collectionofdirecttaxes.Nevertheless ,substantial spending j
cuts,mainlytobeconcentrated onhealthexpenditure ,will
benecessarytolimitthepublicdeficitin1988.This
representsanessentialsteptowardsachievingthebudget
balancetargetedfor1990,whichiscrucialnotonlyforthe
equilibrium ofthepublicfinancesbutalsoforthereturnto
lastingmonetarystability.In1988,someslowinginhousehold disposable income,
togetherwiththebudgetaryandcreditmeasures,shouldlead
toaslightlylessrapidgrowthofdomesticdemand.However,
anacceleration ofexports,whichareexpectedtobenefit
fromstrongergrowthofinternational markets,shouldallow
thenegativecontribution togrowthfromtherealforeign
balancetobereducedsignificantly .Intotal,realGDPshould
growbynearly3%,onlyslightlylessthanin1987.Inthese
conditions ,andassumingnochangeinthetermsoftrade,the
balanceofpaymentsoncurrentaccountshouldshowonlya
fairlysmalldeficit.Theunemployment rateisunlikelyto
changemuchcomparedwith1987.
Someslowingininflationduringthecourseof1988seems
likelybecauseoftheinclusioninthenewcollective
agreements ofacommitment thatnowageincreaseswillbe
grantedbeyondthosealreadysettled,takingintoaccount
alsotherestrictivenatureofmonetarypolicy.Theextentof
theslowdown inpricesisstilluncertain,however .The
Government 'stargetof4,5%inflationonaveragefor1988
presupposes somedeceleration inpricesduringtheyear(by
aboutonepercentagepointfromJanuarytoDecember),but
thisdoesnotappearabsolutelyguaranteed ,giventhetrendin
productivity andthedevelopment ofthepublicfinances,
especiallyinregardtoexpenditure .Theincreasingly restrictivestanceofmonetarypolicyin
1987wasmadenecessarybythebriskacceleration inprivate
sectorcreditdemandandbytheovershooting ofthebudget
target.Thelimitssetforgrowthbytheendoftheyearofthe
maincreditaggregates(6to9%forprivatesectorcreditand
(>)Revisednationalaccountspublishedin1987raisedGDPby
17,7%in1986,whichautomatically reducedtherelativesize,as
apercentageofGDP,ofaseriesofbudgetindicators (public
debt,borrowingrequirement ,burdenoftaxation,etc.).Indeed,budgetarypolicystillfacesthestructuralproblem
inherentinthesizeofthedeficitandthepersistentupward
trendinthepublicdebt.Onthebasisoftherevisednational

NoL394/60 OfficialJournaloftheEuropeanCommunities31.12.87
favourable resultsrecordedinrecentyears.Withaviewto
thecreationofasinglemarketby1992,itseemsnecessaryto
reinforceinternalstructuressothattheopeningofmarkets
cancontributetoraisingthegrowthpotential .Fromthis
pointofview,healthierpublicfinancesandfreedomof
capitalmovements aretwopriorityobjectives .Theopening
ofcapitalmarketsshouldenablefinancialinstitutions to
diversifyinvestmentopportunities andtoincreasethefluidity
offinancialcircuits.Theauthorities haveaspecialroleto
playinreinforcing productive capacity;thispresupposes an
improvement ineconomic infrastructure ,andalsoa
reorganization ofpublicservices.Inthesamecontext,it
wouldseemdesirabletoreconsider energypolicyoptions,in
viewofItaly'sstrongdependence onimportedenergy,andof
theriskwhichanincreaseintheoilbillwouldbringforthe
balanceofpayments .11%fortotaldomesticcreditonthebasisofaTreasury
deficitofLit100000billion)wereexceededduringthefirst
halfoftheyear.Thefinancialmarketsituationcontinuedto
tightenduringthethirdquarter,obligingtheauthorities to
raiseinterestratesonseveraloccasions .Theseprecautionary
movesmustbeseenagainstthebackground ofthefurther
measuresintroduced inMaytoliberalizecapitalmovements ,
abolishingthecompulsory interest-free depositrequiredon
purchasesofforeignsecurities .TheCommission wasthus
able,earlyinAugust1987,toabrogatetheauthorization
grantedtoItalyunderthesafeguardclauseofArticle108(3)
oftheEECTreaty.However ,withcapitaloutflowsgrowing
inscaleduringthesummer,andsincepartofdomesticcredit
seemstohavebeenusedforsuchoperations ,andalsofor
othershort-term transactions ,themonetaryauthorities have
recentlyreintroduced measuresrestrictingbankcredit.The
potential risksattaching todomesticandexternal
equilibrium makeamoderating stancedesirablefor
monetarypolicyin1988.Itwouldbeadvisabletoretain
indicative ratesofexpansion forthemainaggregates
compatible withnominalGDPgrowthcloseto7,5%.
Thereformofwageindexation andthewagerisesforeseenin
thenextfewyearsatbranchlevelareliabletoencourage a
gradualslowdown inprices,providingtherearenowage
increasesotherthanthosealreadyplanned;butrapid
disinflation seemsunlikelywithoutastrongexpansion of
investment ,theonlymeansofdurablyreducingexternal
dependence andspeedingupproductivity gains.Business
investment shouldbecomethekeyfactorinkeepingthe
growthoftheItalianeconomysufficiently rapidand
healthy.
Aneconomicpolicystancebasedonmonetarystrictnessand
flexibilityofwageadjustments iscertainlybehindtheThedefenceofthecompetitive capacityoftheItalian
economyisthekeyfactorforcontinuedhealthyexpansion
andareduction inunemployment .Although economic
growthhasbeenrelativelymoresatisfactory inItalyoverthe
pastfewyearsthaninmostoftheotherCommunity
countries,ithasbeenassociated ,exceptin1986,witha
considerable positivedifferential inthegrowthofdomestic
demandinrelationtotherestoftheCommunity ,whilethe
realexchangerateoftheliraappreciated uptothebeginning
of1987.Monetaryandbudgetary policiesmusttogether
contributetolimitingboththeriseincostsandtheincreasein
domesticdemandtoanextentcompatible withmaintaining
externalequilibrium .Theauthorities wouldobviouslyhave
moremarginformanoeuvre ifjointactiontakenbythe
MemberStatesmanagedtoincreaseintra-Community
trade.

OfficialJournaloftheEuropeanCommunitiesNoL394/6131.12.87
Italy:Maineconomicaggregates1983to1988
(Annualpercentage changes)
1983 1984 1985 1986 1987(*) 1988(M
Cvalue
Grossdomestic 1volume
productLdeflator
Privateconsumption deflator
GrossfixedfPrivate
capital -<public
formationvolume 1■j
ofwhich:construction
equipment
Domesticdemandatconstantprices
Gapwithrespecttoother
Community countries (2)
_ CnominalCompensation
ofemployees -srealA(3)
perhead^^
Productivity (4)
Realunitlabourcosts
Competitiveness (5)
Employment
Registered unemployed as%
ofthecivilianlabourforce(6)
Currentbalanceas%ofGDP
Long-term interestrate
Moneysupply(7)
Netlendingorborrowing
requirement ofgeneralgovernment
as%ofGDP
Publicdebtas%ofGDP
Publicdebtinterest
as%ofGDP15,9
0,5
15,3
14,9
-1,6
0,8
-4,2
-0,4
-1,8
16,0
0,6
1,0
0,1
1,0
11,9
0,5
10,9
0,4
18,0
13,2
-11,0
72,1
7,514.1
3,5
10.2
11,4
4,4
0,6
8,9
4,4
3.0
11,4
1.1
3,4
-2,6
2,0
0,8
11,9
-0,6
14,9
12,1
-10,8
77,7
7,611,8
2.7
8,9
9,3
3.3
-0,5
7.4
3.1
1,1
10,2
1.2
0,8
1.8
-0,5
3,1
1,4
12,9
-0,7
14,3
11,1
-12,3
84,6
8,111,0
2,7
8,0
6.3
1,2
-0,7
3.1
3.2
-0,6
7,7
-0,3
1.4
1,9
-0,6
10.5
0,8
13,0
0,8
11,7
9.4
-11,3
88.6
8.58,7
3,0
5,5
4,8
3,5
1,0
6,0
4,5
2,0
8,3
2,8
3,5
3,0
0,3
7,2
0,3
14,2
0,2
10,9
8,9
-10,4
93,6
7,77,6
2,8
4,7
4,9
2.8
2,1
3,5
3,3
1,0
6,0
I,3
1,1
2,1
-1,1
2?9
0,2
14,3
0
II,6
6.6
-10,4
97,9
7,9
(*)ForecastsfortheCommission services,September1987,onthebasisofpresentpolicies.
(2)Differences inpercentage points.
(3)A:GDPdeflator;B:privateconsumption deflator.
(4)Grossvalueaddedperoccupiedpersoninthewholeeconomy. ,, _.. ,
(5)Effectiveexchangerate(vis-el-vis19industrialcountries)onthebasisofunitlabourcostsforthewholeeconomy.Positivefigure-lossof
competitiveness .
(6)Eurostatdefinition .
(7)Endofyear.

NoL394/62 OfficialJournaloftheEuropeanCommunities 31.12.87
LUXEMBOURG
Ontheotherhand,wagetrendsaredisturbing ,inviewofthe
extremeopennessoftheLuxembourg economyandtheneed
notonlytoimprovecompanies'profitability butalsoto
safeguardtheircompetitive position.Fortheeconomyasa
whole,percapitawagesincreasedinrealtermsby3,9%in
1987,andforecastsfor1988pointtoaprobableincreaseof
about2,0%,wellinexcessofthesimultaneous increasein
productivity (0,4%in1987and1,2%in1988).The
accumulation ofwagerisesandsocialsecuritychargescould
putabreakonpossibilities ofeconomicdevelopment inthe
longerterm.InLuxembourg ,economicgrowthweakened in1987,and
therateofexpansionofgrossdomesticproductinrealterms
fellto2%.Households 'consumption wasboostedbyan
appreciable increaseintheirdisposable incomes,sustained
amongotherthingsbytaxreductions ;butgrossfixedcapital
formation inindustry,whichhadexpandedstronglyin
earlieryears,wassomewhathesitantasdemandweakenedin
thesteelsector.Slacksalesofsteelproductsalsoledtoa
smallerriseintotalexports.Importsalsosloweddown.The
inflationrateremained moderate thankstothedeclinein
importprices;therateofunemployment rosemarginally .
In1988,grossdomesticproductshouldgrowbyabout1,8%
inrealterm.Inviewofthedeclineinsalesofsteel,the
increaseintotalexportswillbeslow.Althoughtheriseinper
capitawagesshouldbecomparable withthatoftheprevious
year,thebenefittohouseholds ofthetaxreductions willbe
lower,andtheirdisposable incomewillrisemoreslowlyin
realtermsthanin1987.Privateconsumption isconsequently
expectedtoexpandlessrapidly.Corporate investment
shouldcontinueontheslowertrendthatbeganin1987,and
residential constructions shouldstabilize.Theprivate
consumption deflatorcouldspeedupmarkedlyasaresultof
higherimportprices.Althoughtheunemployment ratewill
belittleaffectedbylaboursheddinginthesteelindustry,itis
notlikelytoimprove .
Economic policyintheGrandDuchycorresponds ,from
manypointsofview,tothemainthrustofthecooperative
growthstrategyformoreemployment .Havingserved,inthe
firstinstance,toreconstitute thefinancialresources of
centralgovernment investment funds,thebudgetarymargin
isnowbeingusedtoreinforcethecompetitive positionof
firms,inparticular byreducing directtaxationon
companies .Thecumulative effectofmeasuresoftax-relief
onfirmsandhouseholds willreachalmost3,7%ofGDPin
1988withoutendangering budgetary equilibrium .Thepolicyofdiversification andofrestructuring the
productive apparatushasnotonlymadetheeconomyless
dependent onthesteelindustry,buthasalsoenabledthe
creationofnewjobs.Moreover ,specificmeasuressuchas
earlyretirement schemeshavehelpedtokeepthenumberof
unemployed ataverylowlevel.Theauthorities have
developed vocational trainingandguidancetoabsorbthe
persistenthardcoreofunemployment .Furthermore the
authorities intendtosetupthelegalframework necessaryto
allowtheflexibilityofthelabourmarkettobeincreased
subjecttotheagreement ofallthepartiesinvolved .
In1988,generalgovernment netlendingshouldbeslightly
higherthanin1987.Theincreaseinpublicexpenditure will
notbeabletooffsettheeffectsoftheweaknessofexport
demand,butthereduction inthedirecttaxationon
businesses ,grantedunderthe1987and1988budgets,willbe
afurthereffectiveaidtothepolicyofdiversifying the
economicstructure,andthereductioninpersonaltaxation
shouldstimulateconsumption .Nevertheless ,somecautionis
stillcalledforinthemanagement ofexpenditure sincesocial
policymeasures (earlyretirement ,pensions,publicsector
wages)aresuretoreducetheavailablebudgetary margin.

31.12.87 OfficialJournaloftheEuropeanCommunities NoL394/63
Luxembourg :Maineconomicaggregates1983to1988
(Annualpercentage changes)
1983 1984 1985 1986(') 1987(2) 1988(2)
Cvalue
GrossdomesticJvolume
product |Ideflator
Privateconsumption deflator
GrossfixedfP"vate
capital ■<public
formationvolume 1j
ofwhich:construction
equipment
Domesticdemandatconstantprices
Gapwithrespecttoother
Community countries (3)
^CnominalCompensation
ofemployees -<realA(4)
perhead^(4)
Productivity (5)
Realunitlabourcosts
Employment
Registered unemployed as%ofthe
civilianlabourforce(6)
Currentbalanceas%ofGDP
Long-term interestrate
Moneysupply(7)
Netlendingorborrowing
requirement ofgeneralgovernment
as%ofGDP
Publicdebtas%ofGDP
Publicdebtinterest
as%ofGDP11,2
3,2
7,7
8,i
-8,0
-9,0
-8,3
-8,6
-7,5
0,5
6,9
-0,7
-1,1
3,9
-4,5
-0,4
1,6
38.5
9,8
0,2
14.6
1,012,1
5,5
6,3
6,4
-0,6
-3,7
-1,3
-3,1
2,5
1,7
7,0
0,7
0,5
4,6
-3,7
0,6
1,7
38,9
10,3
2,0
14,6
1,25,5
2,9
2,5
3,3
2,6
0,6
2,1
1,2
4,0
0,8
4,1
1,5
0,7
1,6
-0,1
1,4
1,6
41,9
9,5
4,4
14,4
1,36,7
2,5
4,1
0,3
5.3
3,1
4,8
3,2
7,9
3,7
4,0
-0,2
3,6
0,4
-0,5
2,4
1,4
40,4
8,7
3,9
14,7
1,34,6
2,0
2,5
0,5
2,8
2,2
2,7
3,0
2,0
3,3
4,4
1,8
3,9
0,4
1,5
1,0
1,5
38,7
(8,2)
2,8
14,7
1,34,0
1,8
2,2
2,3
1,2
3,2
1,7
1,8
1,5
2,1
4,2
1,9
1,9
1,2
0,7
0,4
1,4
37,8
3,1
14,8
1,1
(')EstimatesoftheCommission services,September 1987.
(2)ForecastsoftheCommission services,September 1987,onthebasisofpresentpolicies
(3)Differences inpercentage points.
(4)A:GDPdeflator;B:privateconsumption deflator.
(5)Grossvalueaddedperoccupiedpersoninthewholeeconomy .
(*)Eurostatdefinition .
(7)Endofyear.

31.12.87NoL394/64 OfficialJournaloftheEuropeanCommunities
THENETHERLANDS
IntheNetherlands ,thegrowthofGDPinvolumeterms
sloweddownin1987toarateofsome1,7%notablyasa
resultofweakerdomesticdemand .Asin1986,private
consumption ,stimulated byasubstantial increaseinreal
personaldisposable incomes,expandedbynearly3%in
volumeterms,butpublicconsumption andinvestment
contracted .Afterrisingstronglyforanumberofyears,
businessinvestment andespeciallypurchasesofplantand
machinery felloffappreciably whilepublicinvestment
declinedmainlybecauseofthecompletion ofthelargewater
engineering projects.Whileexportsalesofnaturalgaswere
againdownonthelevelofthepreviousyear,manufactured
exportswererelativelybuoyantinspiteofthelarge
appreciation oftheguilderin1986and1987.Thepositive
exportresultwasobtainedbyreducingprofitmargins.households onthewhole.Theauthorities areaimingtocut
thenumbersunemployed by200000,bringingthemdownto
500000by1990.
Onthebudgetaryside,thegovernment programme provides
forareductioninthecentralgovernment deficitfrom8%of
netnationalincomein1987to7%in1988,6%in1989and
5,25%in1990.Inviewofthecommitment tostabilizethe
burdenoftaxesandparafiscalcharges,theburdenof
adjustment willfallmainlyonexpenditure .Substantial
savingswillbeachievedbyfreezingsocialtransferpayments,
makingasubstantial reductioninsubsidiestotheprivate
sectorandcuttingthenumbersemployed inthecivil
service.
Thenumberofpersonsemployedgrewby1,4%in1987
partlyasaresultoftheexpansionofpart-timeworkand
unemployment contracted .Thetradesurplusdeclined
considerably andthebalanceoncurrenttransactions
consequently fellfromalmost3%ofGDPin1986to1,9%
in1987.
In1988,thegrowthrateofgrossdomesticproduct,affected
asin1987byadecliningenergyproduction ,isagain
expectedtoslowdownandshouldbarelyreach1,2%inreal
terms.Exportsofgoodsshouldincreaseatnearlythesame
rateasin1987,butthegrowthofdomesticdemandwill
probablyweakenmarkedly .Theincreaseinpersonal
disposable incomeswillhardlyreach1,2%inrealterms,in
particularbecauseoftheslowrateofriseofwages.Even
assumingafallinthesavingsratiobycomparison with1987,
privateconsumption shouldriseonlyslowly.Unlessthereis
anappreciable improvement intheexternalenvironment ,the
volumeofbusinessinvestment willbarelyincreasein1988
andpublicinvestment shouldstagnate.Afterdecliningin
1987,consumerpricesmightriseslightly,astheeffectsof
lowernaturalgasandimportpricesgraduallyfade.Despitea
slightdeterioration inthetermsoftrade,thebalanceof
paymentssurplusoncurrentaccountshouldstabilizeatthe
1987level.Thenumberofpersonsemployedisexpectedto
increasebyabout1%,partlyasaresultofthe
implementation ofprogrammes topromoteemployment and
training,andtheextensionofpart-timeworking;the
unemployment rateshouldconsequently falltoaround11%
oftotallabourforce.Theachievement oftheseaimsisbasedonfairlyfavourable
assumptions fortheinternational environment ,a
stabilization ofthelabourincomeshareinGDPbetween
1986and1990andanincreaseinemployment ,expressedin
man-years ,ofover3%duringthesameperiodaccompanied
byareductioninworkinghoursandaspreadofpart-time
work.Anyeconomicoutturnwhichislessfavourablethan
forecastwouldrequireanadditional effortinorderto
safeguardtheadjustment desiredbytheauthorities .
Since1983,realprogresshasbeenmadeintheconsolidation
ofpublicfinances,makingitpossibletoreducethenet
generalgovernment deficit;however,theinternational
environment andthelossofnon-taxrevenuein1986and
1987imposedahaltontheadvancetowardsthemultiannual
targets.In1988,themainthrustofbudgetary policyis
unlikelytobeverydifferentfromthatappliedatpresent,
whichismainlygearedtocontaining expenditure .
Higherthanforecastgrowthintaxrevenueledthe
authorities toreducetheleveloftaxationonpersonalincome
byF11,35billionfor1988.However,thepossibilitythat
expenditure willexceedbudgettargetshasforcedthe
government toimposefurthercutsinadditiontothose
alreadyplannedinthegovernment agreement .Thefinal
resultisaslighteasingofthebudgettarget(thecentral
government deficitwillprobablybe7,2%ofNNIin1988
whereastheoriginaltargetwas7%,andthecomparable
deficitfor1987is7,6%).Theovershooting remainswithin
acceptable limits,giventheweakgrowthwhichdoesnot
favoureffortstorestorehealthypublicfinances.Itdoes,
however,implythatexpenditure cutsmustbesomewhat
intensifiedovercomingyearsifmultiannual objectivesareto
beachieved,inviewofthesteadyriseininterestpaymenton
thepublicdebtuntil1991.
Centralbankmanagement giveshighprioritytothestability
oftheparityoftheguilderagainsttheGermanmark.The
interestratedifferential requiredtosupportthisaimmight
graduallynarrowifexpectations ofpricerisesremainlow.
Thepropensitytoinvestshouldthusbestimulated .OntheTheeconomicpolicystanceadoptedsincetheautumnof
1982,whichhasmadepossibleanappreciable reductionin
thepublicsectordeficit,anincreaseinemployment anda
moreflexiblyoperatinglabourmarket,hasbeenconfirmed
bythenewgovernment whichtookofficeinJuly1986.The
government agreement stressestheneedtoreducemajor
imbalances —thebudgetdeficitandthehighlevelof
unemployment —withoutincreasingthefiscalburden,andif
possiblereducingit,andtomaintainthepurchasingpowerof

OfficialJournaloftheEuropeanCommunitiesNoL394/6531.12.87
homefront,monetaryauthoritiesreachedanagreementwith
thebanksattheendof1986underwhichthelatterwilllimit
creationofliquidityto11to12%fortwoyears.Thetargets
forincreasingthemoneysupplysetbythecentralbankseem
appropriate toguaranteeanadequatedegreeofliquidityfor
theeconomy,whilehelpingtokeeptherateofinflation
down.overallmoderation ofrealwageincreases .Theeffortsto
reducetherigidityofthelabourmarketoperationalso
includeafreezeontheminimumwage,whichaffectsthe
rangeofprimaryincomesandwhichisimportantforthe
evolutionofcompanies'wagecostsbecauseofitscloselink
withtheaveragewage.Insofarastheauthorities have
formallywithdrawn fromthewagedetermination process,
thedevelopment ofreallabourcostswilldependmoreon
marketforcesandontheattitudeofthetwosidesofindustry .
Byloweringthetaxburdenonindividuals theauthorities
contribute totheobjectiveofwagemoderation .As
productivity gainsarestilllow,realwagerisesshouldremain
verylimitedsoastoencourageaprocessofinvestment-led
growth,whichstartedin1985and1986,butwhichhassince
tendedtoweakenoncemore.Budgetarypolicy,althoughrestrictive ,stillinvolvesspending
considerable resourcesonsuitabletrainingofworkersand
jobcreationforyoungerandolderjobseekers .Inaddition,
thedecentralization ofwagenegotiations iscontinuing ,and
thiswillmakeitpossibletoadaptwagesmorecloselyto
sectoralincreasesinproductivity andhencetocontinuethe

NoL394/66 OfficialJournaloftheEuropeanCommunities 31.12.87
Netherlands :Maineconomicaggregates 1983to1988
(Annualpercentage changes)
\1983 1984 1985 1986(') 1987(2) 1988(2)
fvalueGrossdomesticJ,
productLdeflator
Privateconsumption deflator
GrossfixedfP"vate
capital ■<public
formationvolume 1j
ofwhich:construction
equipment
Domesticdemandatconstantprices
GapwithrespecttootherCommunity
countries (3)
^ .CnominalCompensation
ofemployees ■<realA(4)
perhead (<l)
Productivity (s)
Realunitlabourcosts
Competitiveness (6)
Employment
Registered unemployed as%
ofthecivilianlabourforce(7)
Currentbalanceas%ofGDP
Long-term interestrate
Moneysupply(g)
Netlendingorborrowing
requirement ofgeneralgovernment
as%ofGDP
Publicdebtas%ofGDP
Publicdebtinterest
as%ofGDP3,3
1,4
1,9
2,7
3,3
-4,6
2,1
-2,6
10,0
1,5
0,4
3,2
1,3
0,4
3,4
-2,0
-2,8
-1,9
14,0
3,1
8,8
10,5
-6,4
61,9
5,75,0
3,2
1,8
2,0
5,1
7,6
5,5
3.6
8,2
1,7
-0,5
0,2
-1,5
-1,7
3,2
-4,6
-7,0
-0,1
14.3
4,2
8,6
7,7
-6,3
66.4
5,94,1
2,3
1,8
2,5
7,4
-7,7
5,1
-3,1
16,9
2,5
0,2
1,4
-0,4
-1,1
1,0
-1,3
-2,6
1,3
13,1
4,3
7,3
10,5
-4,7
69,9
6,03,1
2,4
0,7
0,2
9,6
-8,8
7,2
4,9
9,9
3,9
0,2
1,6
0,8
1,4
0,6
0,2
5,8
1,8
12,1
2,8
6,4
4,4
-4,7
73,0
6,00,7
1,7
-1,0
-0,8
3,9
-1,1
3,3
2,6
4,1
2,3
-0,3
1,9
3,0
2,7
0,8
2,1
2,7
0,9
11,4
1,9
6,3
3,5
-5,6
79,3
6,01,7
1,2
0,5
1,0
0,8
0,0
0,7
0,5
0,9
1,0
-1,4
1,6
1,1
0,6
1,0
0,1
-0,7
0,2
11,0
1,8
6,4
5,5
-5,9
85,2
5,9
(')EstimatesoftheCommission services,September 1987.
(2)ForecastsoftheCommission services,September 1987,onthebasisofpresentpolicies.
(3)Differences inpercentage points.
(4)A=GDPdeflator;B=privateconsumption deflator.
(5)Grossvalueaddedperoccupiedpersoninthewholeeconomy .
(*)Effectiveexchangerate(vis-i-vis19industrialcountries)onthebasisofunitlabourcostsforthewholeeconomy .Positivefigure=lossof
competitiveness .
(7)Eurostatdefinition .
(*)Endofyear.

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/67
PORTUGAL
Theupturnineconomicactivitythatstartedin1985has
continued since,underpinned bythebriskrecoveryof
domesticdemand.However ,followingamarkedincreasein
1986(+4,3%),realGDP(x)islikelytoincreaseslightlyless
in1987(3,75%).Thisslowdown isdueexclusively tothe
increasedcontractionary effectexertedbytheexternal
balanceandtheslowerrateofstockbuilding .Private
consumption ,bycontrast,maintained itsvigorousriseas
partofacatching-up process,whileinvestment growth
accelerated appreciably ,spurredinparticularbytheeffects
ofthecountry'saccession totheCommunity .The
improvement inemployment strengthened andthe
unemployment ratefellsignificantly (from8,6%in1986to
7,2%in1987).Atthesametime,inflationshowedaclear
slowdown eventhoughitstilldivergedmarkedlyfromrates
intheothermembercountries .Theexternalsurpluswent
downsignificantly followingtherecoveryin1985and
1986.
Undertheimpactofanappreciable deceleration indomestic
demandanddespitegoodexportperformance ,thegrowthin
realGDP0)shouldbecloseto3%in1988.The
improvement inemployment isexpectedtobelessstrong
leadingtoasignificantly slowerreductionofunemployment .
Inlinewiththeauthorities 'objectives ,majorprogresswill
againbemadeinbringingdowninflation .Thebalanceof
payments oncurrentaccountwillprobablydeteriorate
furtherandshould,forthefirsttimesince1984,closewitha
deficit(oftheorderof1%ofGDP).beenmadetoservegreaternominalconvergence withthe
othermembercountries .SinceJuly1986apermanent
Councilforsocialdialoguehasbeenplayinganactiverolein
thisfield.Adjustment measuresinthefieldsoftaxationand
themodernization offinancialmarketsaresupporting the
investment drive.TheCommunity foritspartiscontinuing
tomakeasignificant contribution inordertopromote
greaterrealconvergence andareductioninthegapbetween
Portugal'slevelofdevelopment andthatintheotherMember
States.TherelativeshareoftheCommunity 'sstructural
Fundsandfinancialinstruments inPortugal'sgrossdomestic
productsthusreachedmorethan2,8%in1986.Overall,
however,therecentbeginningoftheprocessofconvergence ,
bothrealandnominal,remainsinsufficient andfragile.This
processmustthereforebeactivelycontinuedandindeed
strengthened .
Budgetarypolicyhasaparticularly importantroletoplayin
thiscontext.Thereduction inthegeneralgovernment
borrowing requirement achievedin1985wascontinuedby
theauthorities in1986thanksinparticulartotaxesonoil
productsandtheintroduction ofVAT.However,thetrend
ofthecentralgovernment 'sbudgetfor1987revealstheneed
foranaccompanying rigourinordertoachievethetax
receiptsprojectedinthebudget,particularly asregardsvalue
addedtax.Theobjectiveofareductioninthemediumterm
ofthecentralgovernment borrowing requirement ,which
wassetforthefirsttimein1987andinvolvescuttingitfrom
8,8%ofGDPin1987tolessthan5%ofGDPasfrom
1990/1991,willnotbeachievedwithoutacontinuous drive
tocontainoperatingexpenditure ,areductionintransfer
payments ,notablytoenterprises inthecompetitive sector,
andawideningofthetaxbase.Arapidimplementation of
thetaxreformwouldplayapositiveroleinthiscontext.In
theabsenceoftangibleresultsinthisfield,thepolicyof
improvement ofinfrastructure and,moregenerally,the
requiredcontribution frombudgetarypolicytoincreasing
thecountry'sinvestmentratio,improvingvocationaltraining
andmakingappropriate useofhumancapitalwillbeplaced
injeopardy .Thiswouldbeparticularly soif,failinga
sufficientreductioninthepublicdeficitin1988,theexternal
accountdeteriorated atanexcessivepace,requiringareturn
torestrictivepolicieswhich,untiltherecentpast,hampered
thecountry'sgrowthprocessandthescopeforbringing
downagricultural underemployment .
Achievement ofthebudgetaryobjectiveisessentialifthetask
ofmonetarypolicyistobeeasedbothdomestically ,
especiallyasregardsthenecessarymoderation ingrowthof
themonetaryaggregates ,andfromthepointofviewof
exchange-rate performance .Onlyonthisconditionwillitbe
possibletocontinuereducinginflationary expectations and
maintaining thedownward movementofinterestrates.Fresh
progressonmodernizing financialchannelswouldalsobe
helpful.
Byinfluencing inflationary expectations andtheevolutionof
production costs,continuedpursuitoftheactivepolicyof
socialdialoguemakesanessentialcontribution totheThedifferential betweenthegrowthrateofPortugal's
domesticdemandandthatintheothermembercountries ,
whilesmallerthaninpreviousyears,willstillbesubstantial
in1988.Admittedly ,thisisjustifiedbytheneedtomake
furtherprogressonreducing Portugal'sstructural
deficiencies throughasustainedrecoveryintheinvestment
ratio,whichisstillagooddeallowerthanthelevelrecorded
untilthebeginningofthe1980s.However,inviewofthe
uncertainties surrounding theexternalenvironment and
becauseofthePortuguese economy'sheavydependence on
oilimportsanditsincreasingopenness,suchatrendcarries
risksforcurrentpayments .Application oftheprogramme
forthestructural correction oftheexternaldeficitand
unemployment (PCEDED),adoptedinMarchand
confirmed attheendofAugustwhenthenewgovernment
announced itsprogramme toParliament ,willallowthe
avoidance oftheserisks,allthemoresoastheenvisaged
policiesarelargelyinlinewiththeCommunity 'scooperative
strategyforgrowthandemployment .
Markedprogresshasalreadybeenmadetowardsimproving
theconditions ofdemandandsupply.Thepolicyofplanned
depreciation oftheescudoandwagepolicyinparticularhave
(*)At1985prices.Calculated onthebasisofthepreviousyears
prices,growthwouldbe5,2%in1987and4,2%in1988.

NoL394/68 OfficialJournaloftheEuropeanCommunities 31.12.87
balancedandsustainedexpansionthatisnecessaryifthe
Portuguese economyistosucceedinbecomingprogressively
integratedintotheCommunity .Inparticular ,thereisaneed
fortheconsensus onthe6%inflationrateaimedatfor1988
tobemaintained andeffectivelytakenintoaccountinwage
negotiations fornextyear.Theconclusion isthatthevariousmeasuresnecessaryfor
achievingtheauthorities 'macroeconomic objectivesmustbe
implemented energetically .Onlyonthisconditionwillitbe
possibletomaintainsatisfactory growth,bothquantitative
andqualitative ,andtobringinflationdownprogressively to
arateclosetotheCommunity average.

NoL394/6931.12.87 OfficialJournaloftheEuropeanCommunities
Portugal:Maineconomicaggregates 1983to1988
(Annualpercentage changes)
1983 1984 1985 1986(') 1987(2) 1988(2)
Cvalue
GrossdomesticJ
productLdeflator
Privateconsumption deflator(3)
GrossfixedfP"vate
capital ■<public
formationvolume 1totaj,
ofwhich:construction
equipment
Domesticdemandatconstantprices
GapwithrespecttootherCommunity
countries (4)
^ fnominalCompensation
ofemployees ■<realA(5)
perhead^B(5)
Productivity (6)
Realunitlabourcosts
Competitiveness (7)
Employment
Registered unemployed as%
ofthecivilianlabourforce;(8)
Currentbalanceas%ofGDP
Long-term interestrate
Moneysupply(9)
Netlendingorborrowingf^mo\requirement ofgeneral "j«)10l
government as%ofGDPL
Public.debtas%ofGDP
Publicdebtinterest
as%ofGDP23,7
-0,3
24.1
25.5
-7,5
-3,0
-13,1
-7,0
-8,7
21.6
-2,0
-3,1
1,4
-3,4
-8,3
-1,7
7,9
-7,2
30,3
16.3
10.4
9,1
56.2
6,423.4
-1,7
25.6
29,3
-18,0
-13,5
-23,0
-7,0
-8,4
19,8
-4,6
-7,4
-0,4
-4,2
-4,9
-1,3
8,5
-3,0
32.5
24.7
13,3
12,0
61,2
7,125,9
3,7
21,3
19.3
-1,8
-4,0
1,0
0,6
-1,7
22,0
0,6
2,2
4,2
-3,6
-1,2
-0,5
8,7
1.7
25.4
29,1
11,0
10,0
64,8
7.823,1
4,3
18,0
12,1
9,9
4,7
16,0
8.5
4,3
16,7
-1,1
4.1
4,0
-4,9
1,2'
0,2
8,6
3,9
17,9
25,7
9.2
8,2
67,1
9,315,3
3.7
11,2
9,3
14,6
9,5
20,0
8.3
5.1
11,9
0,6
2.4
1,3
-0,6
-0,2
2.3
7.2
1.4
15,1
17,0
9,4
8.8
71,8
8,110,5
3,0
7.3
6,5
10,5
9,0
12,0
5.0
2.4
8.5
1.1
1,9
1,9
-0,8
-1,2
1,0
6,8
-1,0
14,3
13,0
8,3
7,8
78,5
7,2
(>)EstimatesoftheCommission services,September 1987.
(2)ForecastsoftheCommission services,September 1987.
(J)Seriesdifferentfromtheofficialretailpriceindex.
(4)Differences inpercentage points.
(5)A:GDPdeflator;B:privateconsumption deflator.
(®)Grossvalueaddedperoccupiedpersoninthewholeeconomy .
(7)Effectiveexchangerate{vis-<l-vis19industrialcountries)onthebasisofunitlabourcostsforthewholeeconomy.Positivefigure—lossof
competitiveness .
(')Eurostatdefinition .
(')Endofyear.
(10jA:Includingloans,advancesandequities;B:excludingloans,advancesandequities.

NoL394/70 OfficialJournaloftheEuropean Communities31.12.87
UNITED KINGDOM
IntheUnitedKingdom ,theexpansionofeconomicactivity,
whichhasbeenunderwaywithoutinterruption since1981,
hasgainedstrengthsincemid-1986 ,andthegrowthofreal
GDPin1987isexpectedtobeabout3,5%.Registered
unemployment hasshownacleardownward trendsincethe
middleof1986,andemployment hasbeguntorisemore
rapidlyagain.Althoughthesharpfallininflationlastyear
hasbeenpartiallyreversed,thetwelve-month rateofretail
priceinflationhasrisenonlyslightlyduringthecourseof
1987,remaining closeto4%.Thecurrentaccounthas
weakenedtoalesserextentthanearlierseemedlikely,despite
adeterioration ofover3%inthetermsoftradeduring1986
and1987.Theexpansionofactivityhasbeguntohaveanincreasingly
largeimpactontheunemployment figures.Aroundoneanda
quartermillionnewjobshavebeencreatedsincethetrough
inemployment in1983.Employment growthhas
strengthened inrecentquartersparticularly ,withastrong
increaseinmaleemployees atthestartof1987.Until
recently,thecomposition ofemployment growthhasbeen
suchastoreducetheimpactofrisingemployment onthe
unemployment total,butthedownward trendin
unemployment hasnowbeenfirmlyestablished ,andinlarge
partappearsattributable tothestronggrowthofthe
economy .Thegovernment 'semployment andtraining
programmes alsocontributed toincreasedemployment and
reducedunemployment .Inrecentmonthstheycovered
almost400000persons,slightlymorethanayearearlier.
In1987,growthhasbeenassistedbystrongersupply-side
performance andalsobythefallintheeffectiveexchange
rate,whichincreased thepricecompetitiveness ofthe
economy .Weakexportmarketgrowthhasthusbeenfeltless
intheUnitedKingdomthanincountrieswithappreciating
currencies .Exportspickedupsharplyinthelatterpartof
1986andhaveremainedatahighlevelthroughout the
currentyear,despitethe5%appreciation ofsterlinginthe
monthsuptotheJunegeneralelection.Inaddition,subdued
importsintheearlypartof1987suggestsomeimport
substitution andanimproved supplyresponsefromthe
economy .Theunemployment rateisstillabout10%andthecontinued
rapidriseinpercapitaearningsandunitlabourcostsis
worrying .Towardstheendof1986therewassome
moderation inthelevelofwagesettlements but,becauseofa
riseinovertimeworking,thisdidnotshowupinthe
underlying rateofincreaseinaverageearnings,whichhas
continued almostunchanged atcloseto7,5%since1983.
Indeed,thesizeofpaysettlements seemstohavebegunto
increaseagainrecently.Apartfromarecession-induced
declineatthebeginningofthe1980's,realwageshaverisen
stronglyinthecurrentdecade,but,atthesametime,there
hasbeenasignificant recoveryinprofitability achieved
throughsubstantial productivity gains,particularly in
manufacturing .Thecapitalstockhasbeenrisingonlyslowly
inrecentyears.Withmorefirmsreporting capacity
constraints andunemployment stillveryhigh,anappreciable
extensionofproductive investment isdoublynecessary .In
thisregard,therecentclearsignsofapick-upinbusiness
investment areencouraging .Privateconsumption ,thoughnolongermakingthe
dominantcontribution togrowth,hascontinuedtodevelop
vigorously in1987.Higherinflationandasteadyingofthe
savingsratioafteritsfalllastyearhaveonlypartlyoffsetthe
boosttoconsumption comingfromrapidgrowthinnominal
earningsandotherpersonalincomes,andfromthereduction
inthebasicrateofincometaxto27%intheMarchBudget.
Overall,businessandconsumer confidence hastendedto
strengthen andapick-uphasbeguninbusinessinvestment ,
particularly inmanufacturing ,afteraperiodofsluggishness
since1985whichpartlyreflectedchangesinthecorporation
taxsystem.Theupwardpressureonsterlinginthefirsthalf
oftheyearenabledbankbaseratestobereducedbya
cumulative twopercentage points,givingfurthersupportto
domesticdemand,althoughthismovement waspartly
reversedinAugustasaresultbothofsometemporary
weakening ofsterlingandofstrongcreditdemand.In1986,astheoilpricefellandthestrongexpansion of
privateconsumption pulledinimports,therewasamarked
deterioration inthevisibletradebalance.Improved
competitiveness temporarily helpedtostabilizetheposition
inthefirsthalfof1987,butsomefurtherdeterioration isnow
likelyasimportspickupagainonresponsetogrowthinfinal
demandandasdomesticproduction ofoilgraduallydeclines
inthemediumterm.Tolimitthedeterioration requiresthat
thesupplyresponseoftheeconomybesustainedand
improved ;thisinturndepends onmaintaining
competitiveness throughachievingchangesinunitlabour
costsinlinewiththoseoftheUnitedKingdom main
competitors andkeepingtheexchangeratestable,andona
steadyexpansionoftheproductive capacityoftheeconomy .
Ontheinvisiblesaccount,theincomestreamfromthe
growingstockofforeignassetshasriseninvalue.Whilethe
stronggrowthinnetfactorincomerecordedin1986is
unlikelytobesustainedoverthemediumterm,invisibleIn1988,developments shouldremainpositive,givena
relativelyencouraging worldoutlook.Anotherstrongrisein
privateconsumption islikely,particularly if,asexpected,the
inflationratesteadiesandthereisafurtherreduction inthe
basicrateofincometax.Growthinfixedinvestment should
becomemoremarked .Exportvolumesmay,however,rise
moreslowly,implyingsomedeterioration inthecurrent
balance.Intotal,realGDPisforecasttorisebyabout2,5%,
somewhat slowerthanin1987.

NoL394/7131.12.87 OfficialJournaloftheEuropeanCommunities
earningsshouldbesufficienttooffsetmuchofthedeficiton
visibletradethisyearandtomakeasubstantialcontribution
insubsequent yearstoholdingthecurrentaccountdeficit
withinlimitswhichdonotplaceamajorconstraint on
growth.TheGovernment continuestopressaheadwithstructural
policiesdesignedtopromotethefunctioning andflexible
operationofmarkets.Inregardtothefinancialmarkets,a
widerangeoflegislative andothercontrolshasbeen
abolishedsince1979.Atpresent,akeyconcerninthisregard
ishowanadequatelevelofsurveillance canbemaintained
consonant withderegulation .Othersupply-side measures
includereductions inthebasicrateofincometax,tax
incentives topromoteprofit-related pay,extensive
employment andtrainingmeasures,helpforsmallfirms
whichareseenasanimportantengineofgrowth,tradeunion
reform,andaconsiderable expansion oftheprivatization
programme . Considerable progresshasbeenmadeinachievingthe
budgetary objectives setwithintheframework ofthe
Medium-Term FinancialStrategy .Thebuoyancyofnon-oil
revenues andtheacceleration oftheprivatization
programme enabledthelong-termobjectiveofbringingthe
publicsectorborrowingrequirement downto1%ofGDPto
beachievedaheadofschedule inthefinancialyear
1986/1987.Withborrowing atalowlevel,thepolicy
emphasishasnowswitchedtousingtheroomcreatedby
strictcontrolofexpenditure toreducetheburdenoftaxation
furtherwhenitisprudenttodoso(withacutinthebasicrate
ofincometaxto25%asonespecificgoal).Inthecurrent
financialyear,1987/1988,theGovernment 'slatestforecast
isforaPSBRof£1billion(0,25%ofGDP),comparedtothe
budgetprojectionof£4billion(1%ofGDP).Thisreflects
bothhighertaxrevenue,mainlyasaresultoffasterthan
expectedrealeconomicgrowth,andlowerspending .The
PSBRthereforeappearstobeheadingforathirdsuccessive
yearofsignificantundershooting ofBudgetplans.In1988andsubsequent years,amaintaskistoensurethat
theimprovement inlabourmarketconditionsnowunder
wayissustainedandstrengthened .Bearinginmindthatthe
growthinemployment hasbeenstrongerinsomeregions
thanothersandthatpocketsofhighunemployment persist,
theCommission 'sviewisthatapossibleoptionmightbefor
theauthorities toconsiderusingsomeofthescopeavailable
fortaxcutsinthenextfinancialyearfortargetedactioninthe
highunemployment areas,perhapsthroughreductions in
taxesaffectingthecostofemployment ,inordertostimulate
thecreationofnewjobsandtoattractinvestment tothese
areas.Adrivetoimprovethelevelandeffectiveness of
vocationaltrainingintheseregionswouldalsobeaprudent
stepinviewofworriesaboutskillshortagesintheeconomy .
Inthiscontext,itwouldalsobedesirabletopromotelabour
mobilitybytakingappropriate measurestomakeavailable
sufficientreasonably pricedaccommodation ,especiallyin
theSouthEastwhereactivityisstrongest ;theshortageof
suchaccommodation atpresentisadisincentive tomobility .
Theauthorities haverecentlyplacedmoreemphasisonthe
needtorehabilitate decayedinnercityareas,throughabetter
coordination ofexistingpublicprogrammes andprivate
sectorinitiative .Thiscouldbeasuitableopportunity for
somejudiciously chosenincreasesincapitalexpenditure in
theseareas,particularly oninfrastructural repairs.Inregardtomonetary policy,onlythenarrowmoney
measureMOnowhastargetstatus.Theinformation content
ofthebroaderaggregates aboutthegrowthofnominal
incomehasbecomeblurredbytheeffectsofderegulation and
innovation infinancialmarkets .Evenso,theauthorities
havemadeitclearthatthebehaviour ofliquidityisakey
factortobetakenintoaccountinassessingmonetary
conditions .TherapidgrowthinM3thisyear,although
partlyexplainedbyextensiveBankofEnglandintervention
toholddowntheriseofsterlinginthefirsthalfoftheyear,
maysuggesttoorapidanexpansionofpersonalsectorcredit,
andneedstobekeptunderreview.Formanyyears,the
objectiveofmonetarypolicyhasbeentoattainabalance
betweendomesticmonetaryconditions andtheexchange
ratewhichwillplaceasteadydownward pressureon
inflation .Anincreasedemphasisdoes,however,appearto
havebeengiventotheexchangerateasanindicatorof
monetaryconditions .Theauthorities acceptedasignificant
downward adjustment intheexchangerateduring1986
followingthefallintheoilprice,andmanagedthisrelatively
smoothlyfromtheinterestratepointofview.Afterthe
LouvreAgreement inFebruary1987theChancellor ofthe
Exchequer statedthataperiodofstabilityforsterlingand
otherexchangerateswouldbedesirable,and,helpedbya
judiciousmixtureofintervention andinterestratechanges,
thesterling/DMcrossratehasremainedwithinarelatively
narrowrange.Whileabetterregionaldifferentiation ofrealwageswouldbe
desirable,thereisamorepressingneedtomoderatethelevel
ofwageincreasesgenerallyintheeconomyifcompetitiveness
istobemaintained andsatisfactory employment growth
sustained .TheGovernment doesnotfavourtheuseofan
incomespolicyasitwouldbeinconsistent withitsgoalsof
freeingmarkets andencouraging greaterwage
differentiation .Tightcontrolonpublicsectorwage
settlements is,however,animportantmeansofinfluencing
wagetrendsinthewidereconomy .Anextendedperiodof
exchangeratestability,whichwouldbereinforcedbyfull
entryoftheUnitedKingdomintotheEuropeanMonetary
System,couldalsoinduecourseexerciseamoderating effect

31.12.87 NoL394/72 OfficialJournaloftheEuropeanCommunities
giventotherecentgreenpaper,notonlyinorderto
strengthen incentives andtoreducepovertyand
unemployment traps,butalsotohelpinachievingwage
moderation .onwagesbyinfluencing inflationary expectations .Atthe
sametime,renewedeffortstoachievecomprehensive
reformsinthestructureofpersonaltaxationandsocial
securityaredesirable,inspiteofthelukewarm reception

NoL394/7331.12.87 OfficialJournaloftheEuropeanCommunities
UnitedKingdom :Maineconomicaggregates 1983to1988
(Annualpercentage changes)
1983 1984 1985 1986 1987(») 1988(')
fvalueGrossdomestic J,product(')jvolumeIdeflator
Privateconsumption deflator
GrossfixedfP"vate
capital -<public
formationvolume 1j
ofwhich:construction
equipment
Domesticdemandatconstantprices
Capwithrespecttoother
Community countries (3)
.CnominalCompensation
ofemployees ■<realA(4)
perhead^g^
Productivity (s)
Realunitlabourcosts(6)
Profitability (7)
idem(1970=100)
Competitiveness (8)
Employment
Registered unemployed as%
ofthecivilianlabourforce(9)
Currentbalanceas%ofGDP
Long-term interestrate
Moneysupply(10)
Netlendingorborrowing
ofgeneralgovernment as%ofGDP
Publicdebtas%ofGDP(n)
Publicdebtinterestas%ofGDP8,9
3,6
5,2
5,0
2,7
36,6
5,2
7.3
4,2
4,5
4,2
9,1
3,7
3,9
4,7
-1,0
9,9
84.7
-7,6
-0,8
11,6
1,0
10,8
10,3
-3,6
57,5
4,76,4
2,0
4,3
4,7
8,6
11,9
8,2
7,9
10,3
2,7
1,0
5,1
0,8
0,4
0,2
0,6
0,7
85,3
-2,9
1,7
11,8
0,4
10,7
9,8
-3,9
59,3
4,99,9
3,7
5,9
5,2
4,1
-3,1
3,1
-3,2
8,1
2,9
0,8
7,3
1,3
2,0
2,4
-1,1
2,2
87,1
1,1
1,5
12,0
0,8
10,6
13,1
-2,9
57,5
5,06,5
2,9
3,5
3,6
-0,5
4,4
0,3
4,3
-4,0
3,8
0,0
7.2
3,6
3,5
2,3
1,3.
-1,4
85,9
-5,3
0,6
12,1
-0,3
9,8
18,9
-2,7
57,6
4,57,4
3,2
4,0
3,0
4,7
-2,5
3,8
3,5
4,2
3,2
0,6
6,8
2,7
3,7
1,8
0,9
-1,5
84,7
-0,3
1,4
11,0
-0,5
9,3
21,7
-2,0
56,2
4,37,6
2,7
4,7
3,9
3,8
3,7
3,9
4,0
3,7
3,3
1,2
6,6
1,8
2,6
1,8
0,0
-1,8
83,1
3,0
0,9
10,4
-0,8
9,5
11,9
-2,0
54,1
4,1
(*)ForecastsoftheCommission services,September 1987,onthebasisofpresentpolicies.
(•*)Expenditure measureatmarketprices.OnthebasisoftheaverageestimateofGDPatfactorcost,thecorresponding volumefiguresfor1986,1987and1988are
3,0%,3,8%and2,7%,respectively .
(3)Differences inpercentage points.
(4)Deflatedby:A=GDPdeflator;B=privateconsumption deflator.
(5)Grossvalueaddedperoccupiedpersoninthewholeeconomy .
(s)Ratioofrealwagesperheadtoproductivity .
(7)Netoperatingsurplusrelativetothenetcapitalstockatcurrentreplacement cost.
(®)Effectiveexchangerate(vis-<l-vis19industrialcountries)onthebasisofunitlabourcostsforthewholeeconomy;positivefigure=lossof
competitiveness .
(*)Eurostatdefinition .
(,0)M3;endofyear.
(n)Generalgovernment grossdebtatmarketvalues.

NoL394/74 OfficialJournaloftheEuropeanCommunities 31.12.87
STATISTICAL ANNEX
ANNUAL ECONOMIC REPORT 1987/1988
TABLES
Page
1.Summaryofmainmacroeconomic aggregates bycountry(1960to1988) 76
2.SummaryofmaineconomicaggregatesforEUR12(1960to1988) 79
3.Worldoutput,tradeandprices 80
4.Contribution torealGDPgrowth 81
5.Merchandise importsandexports 81
6.Realtradebalances 82
7.Currentaccounttransactions ofdeveloping countries 82
8.Externalfinancingandindebtedness ofcapitalimportingdeveloping countries 83
9.Comparison offorecastsfor1987 83
10.Bilateralnominal,nominalandrealeffectiveexchangerates 84
11.Businesssurveyresultsontherevisionofplansandexpectations inresponsetoexchangerate
changes 85
12.Deflatorofprivateconsumption andconvergence ofpricedevelopments 85
13.Realconvergence —percapitaGDPanditsdivergence intheCommunity 86
14.Nominalwages,realwagesandrealunitlabourcosts 86
15.Sectoraldevelopments inemployment 87
16.Percentageofemployeesworkingpart-timeoftotalemployees .... 88
17.Employment underfixed-termcontracts 88
18.Structureofunemployment 88
19.Long-termunemployment aspercentageoftotalunemployment 89
20.Evolutionofunemployment ratesbyregion 89
21.Evolution inlabourforce(1985to1995) 89
22.Medium-term projections ofCommission servicesandoutturns—EUR10 90
23.Mainworkinghypotheses forthe1987to1991referenceprojectionofSeptember 1987...90
24.1987to1991referenceprojectionofSeptember 1987 91
25.Thebalanceofgrowthonthedemandside 91
26.Intra-Community shareoftotalimportsofgoods I 92
27.Intra-Community shareoftotalexportsofgoods 92
28.DirecteffectsonMemberStates'exportsofa10%increaseintheirimports 93
29.Effectsofraisingpublicinvestment incertainMemberStatestakingaccountofinterdependence
intheCommunity 94
30.Realconvergence ,investment shares,capitalproductivity andcurrentbalances .95
31.Exportmarketshares 96
32.Gainsandlossesinsharesofexportmarketsovertheperiod1985/1979 97
33.Growthrateofindustrialgrossfixedcapitalformationbysector 98
34.Growthrateinemployment bysector 98
35.EuropeanCommunity generalbudget,1985to1988:paymentappropriations ,millionsof
ECUasapercentageoftotal 99
36.Moneyandcredittargetsandoutturns 100
37.Nominallong-terminterestrates 101
38.SyntheticindicatorsofbudgetarypolicyintheCommunity 102
39.Generalgovernment expenditure ,receiptsandlending 103
40.Shareofselecteditemsofgeneralgovernment receiptsandexpenditure inGDP 105

31.12.87 OfficialJournaloftheEuropeanCommunities NoL394/75
GRAPHS
Page
1.ECU/US$exchangerate 106
2.Worldpricesforcrudeoil,rawmaterials (excludingfuel)andmanufactured goodsinUS$107
3.Balanceoncurrenttransactions withrestoftheworldasapercentage ofGDP 108
4to11.Comparative evolutionoftheCommunity ,UnitedStatesandJapaneseeconomies 109
12.Profitability ,totalfinaldemandandprivateinvestment Ill
13.Growth,employment andunemployment inthe1986and1987referenceprojections —
EUR12 ••••H2
14.SharesofworldmarketforexportsofCommunity industrialproducts (Indices,1963=
100) 113
15.Moneysupplyinrealtermsandthedeceleration o/nominalvariables (averageannual
percentage change)EUR12 114
16.Long-termandshort-termnominalinterestrates .115

NoL394/76 OfficialJournaloftheEuropeanCommunities 31.12.87
TABLE 1
Summaryofmainmacroeconomic aggregates bycountry(1960to1988)
(a)RealGDP
(percentage changeperannum)
1973/19601980/1973 1981 1982 1983 1984 1985 1986(>)1987(>)1988(')
B
DK
EY
GR
E
F
IRL
I
L
NL
P
UK4,9
4,3
4,4
7,7
7,3
5,6
4,4
5,3
4,1
4,8
6,9
3,12,5
1,6
2,2
3,4
2,4
2,8
4.4
2,8
1,5
2,4
3,3
0,9-1,5
-0,9
0,2
-0,3
-0,2
0,5
3,4
1,1
-1,0
-0,7
0,5
-1,21,9
3,0
-0,6
-0,2
1,2
1,8
1,4
0,2
1,5
-1,4
3,2
1,0-0,3
2,5
1,5
0,4
1,8
0,7
-1,9
0,5
3,2
1,4
-0,3
3,81,7
3,5
2,7
2,8
1,9
1,5
4,2
3,5
5,5
2,4
-1,6
2,21,5
3,9
2,6
2,1
2,2
1,1
2,0
2,7
2,9
1,7
3,3
3,72,3
3,4
2,6
M
3,5
2,0
-0,3
2,7
2,5
2,4
4,3
2,91,3
-0,2
1,4
-0,8
4,1
1,2
2,5
3,0
2,0
1,7
3,7
3,21,8
0,9
1,9
0,5
3,7
1,9
1,3
2,8
1,8
1,2
3,0
2,7
EUR12 4,8 2,3 0,0 0,6 1,5 2,4 2,5 2,6 2,2 2,3
USA
Japan3,9
9,62,1
3,72,1
3,9-2,5
2,83,4
3,26,6
5,02,9
4,52,9
2,42,3
2,92,7
3,5
(b)Realfinaldomesticdemandincludingstocks
(percentage changeperannum)
1973/19601980/1973 1981 1982 1983 1984 1985 1986(')1987(')1988(')
B
DK
D
GR
E
F
IRL
I
L
NL
P
UK4,8
4,6
4,5
8,2
7,8
5,8
5.4
5,5
3.9
4,9
7,5
3,22,6
0,7
2,3
2,1
2,2
2,9
3,6
2,5
2,1
2,4
2,8
0,4-4,3
-4,1
-2,6
1,8
-2,3
-0,3
3,0
-1,2
0,7
-4,6
2,5
-1,70,4
3,5
-2,0
2,9
1,1
3,7
-2,9
0,3
0,4
-0,9
3,4
2,1-2,5
1,4
2,3
0,8
-0,1
-0,4
-4,1
-0,5
0,5
1,5
-7,4
4,71,8
4,1
1,9
-0,4
-0,5
0,6
1,0
4,5
1,7
1,4
-6,6
2.81,2
5,4
1,5
5,3
2,7
1,9
-0,4
3,2
0,8
2,2
0,5
2,83,4
5,7
3,7
-0,3
6,5
3,5
0,8
3,2
3,8
3,9
8,5
3,81,6
-1,9
2,5
-0,6
6,2
2,2
0,0
4,5
3,3
2,3
8,3
3,21,7
-0,7
2,3
0,3
4,8
2,0
0,2
3,3
2,1
1,0
5,0
3,3
EUR12 5,0 2,1-1,7 0,9 1,0 1,9 2,4 3,8 3,2 2,7
USA
Japan4,0
9,91,8
2,72,8
2,1-1,5
2,85,1
1,88,6
3,83,4
3,63,9
4,01,7
3,92,0
4,1

31.12.87 OfficialJournaloftheEuropeanCommunities NoL394/77
(c)Balanceofcurrenttransactions withtherestoftheworld
(percentage ofGDP)
1973/19601980/1973 1981 1982 1983 1984 1985 1986(')1987(*)1988(>)
B
DK
D
GR
E
F
IRL
I
L
NL
P1,0
-1,9
0,8
-2,9
0,1
0,3
-2,3
1,4
7,0
0,7
0,1-1,4
-3,5
1,0
-1,8
-1,9
-0,8
-7,7
-0,5
20,7
0,8
-6,1-4,6
-3,0
-0,5
-0,7
-2,7
"1.4
-14,7
-2,2
23,0
2,2
-11,8-3,3
-4,2
0,5
-4,4
-2,5
-3,0
-10,6
-1,6
35,2
3,2
-12,7-0,5
-2,6
0,6
-5,1
-1,5
-1,7
-7,0
0,3
38,5
3,1
-6,3-0,4
-3,5
1,1
-4,1
1,3
-0,8
-6,1
-0,6
38,9
4,1
-1,90,5
-4,6
2,2
-8,3
1,7
-0,8
-3,8
-0,9
42,4
4,3
3,02,4
-5,1
4,1
-5,4
2,0
0,6
-1,8
0,8
40,4
2,8
3,92,3
-2,9
3,7
-4,2
0,6
-0,0
-1,1
0,2
38,7
1,9
1,42,3
-2,2
3,2
-4,1
-*0,4
0,0
-0,3
0,0
37,8
1,8
-1,0
UK -0,1-0,9 2,3 1,2 0,7-0,3 1,0-0,3-0,5-0,8
EUR12 0,4-0,4-1,0-1,1-0,2 0,1 0,6 1,5 1,1 0,8
USA 0,5 0,3 0,3-0,0-1,0-2,4-2,9-3,3-3,5-3,1
Japan 0,5 0,1 0,5 0,7 1,8 2,8 3,7 4,5 3,8 3,3
(d)Privateconsumption deflator
(percentage changeperannum)
1973/19601980/1973 1981 1982 1983 1984 1985 1986(>)1987(»)1988(')
B
DK
D
GR
E
F
IRL
I
L
NL
P3,7
6,6
3,6
3,5
6,7
4,7
6,0
4,8
3,1
5,0
3,47.8
10,8
4.9
16,0
17,8
10,8
16,1
17,6
7,4
7,2
22,08,0
12,0
6,0
23,4
14,3
12,8
19,6
17,9
8,7
6,3
18,37,3
10,2
4,7
20,8
14,5
11,2
15,9
15,9
10,8
5,3
22,57,5
6,8
3,2
17,9
12,3
9,5
10,0
14,8
8,1
2,7
25,56,2
6,5
2.4
18,4
10,7
7,2
7.5
11,4
6.4
2.5
29,34,8
4,8
2,1
18,6
8,3
5.5
4.2
9.3
3,3
2.6
19,01,3
3,6
-0,5
22,1
8,9
2.5
3.6
6,3
0,3
0,1
12,11,8
4,1
0,6
16,0
5,4
3,1
3,0
4,8
0,5
-0,8
9,32,5
4,0
1,8
12,0
4,2
2,6
3,2
4,9
2.3
1,0
6,5
UK 4,8 15,7 11,4 8,7 5,0 4,8 5,2 3,6 3,0 3,9
EUR12 4,6 12,3 12,0 10,4 8,5 7,0 5,9 3,7 3,2 3,4
USA 3,1 8,0 8,7 5,8 4,0 3,9 3,3 2,2 4,1 4,9
Japan 6,2 9,0 4,4 2,6 1,9 2,1 2,2 0,7 0,2 1,5

NoL394/78 OfficialJournaloftheEuropeanCommunities 31.12.87
(e)TotalEmployment
(percentage changeperannum)
1973/19601980/1973 1981 1982 1983 1984 1985 19860)1987(')1988(')
B
DK
D
GR
E
F
IRL
I
L
NL
P
UK0,6
1,1
0,2
-0,5
0,8
0,7
0,1
-0,4
1,1
0,9
-0,5
0,30,1
0,4
-0,3
0,8
-1,3
0,3
1,2
0,8
0,6
0,3
0,3
0,1-2,0
-1,3
-0,7
4,9
-3,0
-0,6
-0,9
-0,0
0,3
-1,5
1,2
-3,9-1,3
0,4
-1,7
-0,8
-1,0
0,1
0,1
0,6
-0,3
-2,5
-0,4
-1,8-1,1
0,3
-1,5
1,1
-0,8
-0,4
-2,2
0,5
-0,3
-1,9
4,3
-1,20,0
1,5
0,1
0,3
-3,0
-0,9
-1,6
0,8
0,6
-0,4
-1,5
2,00,8
2,8
0,7
1,0
-1,0
-0,3
-2,8
1,4
1,4
1,1
0,3
1,31,0
2,0
1,0
0,3
2,0
0,3
-0,4
0,6
2,4
1,8
0,2
0,60,1
0,8
0,6
-1,0
2,4
-0,2
-0,3
0,6
1,0
0,9
2.3
1,40,2
-0,1
0,3
0,3
1,7
-0,0
0,2
0,8
0,4
0,2
1,0
0,9
EUR12 0,3 0,1-1,3-0,8-0,5 0,1 0,6 0,8 0,8 0,6
USA 1,9 2,0 0,9-0,5 1,0 4,8 2,4 2,3 2,5 1,9
Japan 1,3 0,7 0,8 1,0 1,7 0,6 0,7 0,8 0,8 1,0
(f)Unemployment rate(2)
(percentage ofthecivilianlabourforce)
1973/19601980/1973 1981 1982 1983 1984 1985 1986(')1987(>)1988(')
B
DK
D
GR
E
F
IRL
I
L
NL
P
UK2,4
1,2
0,9
1,1
5,1
5,7
0,1
1,4
2.26,8
5,5
3,6
4,7
8,1
5,9
0,4
5,3
4,511,1
8.7
4.8
4,2
14,4
7.7
10,2
8,1
1,0
8.8
9,113,0
9,3
6,9
5,8
16,2
8,7
12,3
9,7
1,3
11,8
10,614,3
10,1
8,4
7.8
17,7
8.9
14,9
11,0
1,6
14,2
11,614.4
9,9
8.4
8,1
20,6
10,0
16,6
12,0
1,8
14.5
8.5
11,813,6
8.7
8,4
7.8
21,9
10,5
17,9
12,9
1,7
13,3
8,6
12,012,6
7,6
8,1
7,4
21,5
11,1
18,4
13,0
1,4
12.1
8,6
12,112.4
7,7
8,1
7.4
20,7
11.3
18.5
14,2
1.5
11.4
7,2
11,012,1
8,6
8.3
7,5
20,3
11,7
18,2
14.3
1.4
10,9
6,8
10.4
EUR12.I l 11,7 12,1 11,9 11,8 11,7
EUR9 2,2 5,1 7,7 9,3 10,4 10,9 11,1\LE
USA 5,3 6,8 7,6 9,7 9,6 7,5 7,2 7,0 6,3 6,0
Japan 1,4 1,9 2,2 2,4 2,7 2,7 2,6 2,8 3,0 2,9
(')EconomicForecasts,September 1987.
(2)Thefigurespresentedherearebasedonthenumberofregisteredunemployed onacommonEurostatdefinition,exceptforGreece,SpainandPortugalwhere
nationalsurveyresultsarepresented .
Source:EurostatandCommission services .

31.12.87 OfficialJournaloftheEuropeanCommunities NoL394/79
TABLE2
SummaryofmaineconomicaggregatesforEUR12(1960to1988)
(Annualpercentage changes)
I1973/
19601981/
19731982 1983 1984 1985 1986 1987(')1988(')
Grossdomesticproduct
—nominal
—real
—deflator
Grossfixedcapitalformation (2)
—construction
—equipment
Shareofnominalgrossfixed
capitalformation inGDP
—total
—public
Privateconsumption (2)
Domestic demand
(incl.stocks)
—intheCommunity
—gapwithrespectto
otherOECDcountries
Inflation (privateconsumption
deflator )
Compensation peremployee
—nominal
—deflatedbythepriceofprivate
consumption
—deflatedbyGDPprices
Productivity (3)
Realunitlabourcosts(4)
Profitability (5)
Competitiveness (s)
Employment
Unemployment rate(as%ofthe
civilianlabourforce)
Currentbalance
(as%ofGDP)
Netlendingorborrowing
ofgeneralgovernment
(as%ofGDP)
Publicdebt(as%ofGDP)
Moneysupply(10)
Long-term interestrate(13)10,2
4,8
5,1
5.5
23,1
3,8(")
5,0
5.0
-0,5
4.6
10,0
5.1
4,6
4,5
100,3
108,2
101,3
0,3
2.2H
0,4
-1,0(•)
37,5(•)
11,4n
7,114,4
2,0
12,2
-0,2
-1,4
1,7
22,1
3,3(12)
2,3
1,6
-0,6
12,2
14,8
2.3
2.4
2,1
104,0
72,8
108,9
-0,1
5,1(7)
-0,6
-4,1(g)
43,4(»)
13,7
10,711,2
0,6
10,6
-1,8
-2,4
-1,0
20,1
3,0
0,7
0,9
0,9
10.4
11,1
0,6
0,4
1,5
102,9
63.5
99,2
-0,8
9,3(7)
-1,1
-5,5
48.2
11.3
12.610,1
1,5
8,5
0,2
0,4
2,1
19,6
2,9
1,3
1,0
-1,8
8,5
9,9
1,3
1,3
2,0
102,2
66,4
93.6
-0,5
10.4(')
-0,2
-5,3
51.5
11,2
10.79.1
2.4
6.5
1.6
1.2
5.8
19.3
2,8
1,4
1.9
-3,4
7,0
7.4
0,3
0,8
2,3
100,7
72,7
86,6
0,1
11.7
10,9(?)
0,1
-5,3
54.8
9,5
10.48,7
2,5
6,1
2,3
-3,1
9,2
19,1
2.8
2,5
2,4
-1,1
5,9
6,8
0,9
0,7
1,8
99,6
77.7
85,8
0,6
12,1
11,1n
0,6
-5,2
57,4
8,5
9,68,4
2,6
5,6
3.4
2.7
4,2
18,9
2.7
3,9
3.8
0,1
3.7
6,0
2,2
0,4
1.8
98.2
82,1
95.3
0,8
11,9
1.5
-4,8
59,0
10,2
7.96,2
2,2
3,9
3.6
2,0
5.3
19.1
2.7
3.1
3.2
0,5
3,2
5.4
2,1
1.5
1,4
98.3
80,9
101,6
0,8
11,8
1,1
-4,5
61.4
10.2
7.85,9
2,3
3,5
3.3
2.6
4,0
19,2
2,8
2,7
2,7
0,0
3.4
4,7
1,3
1,2
1,7
97,8
81,1
101,8
0,6
11,7
0,8
-4,5
63,6
8,6
7,7
')Economic Forecasts,September 1987.
2)Atconstantprices.
3)RealGDPperpersonemployed inthewholeeconomy .
4)Compensation peremployeedeflatedbyGDPpricesdividedbyrealGDPperpersonemployed ,index1970=100.
5)EstimateforEUR4:non-agricultural business.Index1970=100.Netrateonnetcapitalstock.
*)RelativeunitlabourcostsintheCommunity vis-à-visitsninemainindustrialpartnercountries,inacommoncurrency,index1970=100.
(7)EUR9(EUR12excluding Greece,SpainandPortugal).
(8)EUR9(EUR12excluding Greece,IrelandandPortugal),1973and1981,respectively .
(9)1981(EUR12
(,0)Annualaverage.BroadmoneysupplyM2orM3accordingtocountry.
(n)EUR9(EUR12excluding Greece,IrelandandPortugal),1970to1973.
(,2)EUR9(EUR12excluding Greece,IrelandandPortugal).
(u)EUR10(EUR12excludingSpainandPortugal).Datafrom1961,levels.
Source:EurostatandCommission services.

NoL394/80 OfficialJournaloftheEuropeanCommunities31.12.87
TABLE 3
Worldoutput,tradeandprices
l 1986(') 1987(') 1988(»)
Realgrossnational/domesticproduct
(%changeonprecedingyear)
EUR12
OtherOECD
—USA
—Canada
—Japan
—RestOECD
TotalOECD2,6
2,8
2,9
3,2
2,4
2,6
2,72,2
2,5
2.3
3,2
2,9
2,2
2.42,3
2,9
2,7
2,9
3,5
2,3
2,7
Volumeofworldtrade(goods)
(%changeonprecedingyear)
EUR-definition (2)
—excludingEUR
—includingEUR
OECD-definition (3)
—excludingEUR
—includingEUR3,8
4.9
4.2
4.32,1
3,5
3,1
3,43,5
3,9
3,9
4,0
WorldexportpricesinUS$
(%changeonprecedingyear)
Rawmaterialsexcluding fuels 5,i 4,1 4,8
Crudeoil(fob) -49,7 26,2 4,1
Manufactured products 19,2 11,4 5,9
Balanceoncurrentaccount
(billionsofUS$)
EUR12
OtherOECD
—USA
—Canada
—Japan
—otherOECD
TotalOECD
OPECcountries
Otherdeveloping countries (4)
Othercountries (5)
Errorsandomissions52,8
-87,8
-141,3
-6,3
85,8
-25,9
-35,0
-33,0
-7,2
-2,5
-77,744.8
-94,8
-154,3
-4,0
84.9
-21,5
-50,1
-6,9
-8,6
-0,6
-66,236,3
-89,9
-147,3
-1,5
79,0
-20,0
-53,6
-2,4
-14,4
-0,3
-70,7
(')Economic Forecasts,September 1987.
(2)Growthrateofworldimports.
(3)Arithmetic averageofrespectivegrowthratesofworldimportsandexports.
(4)OtherdevelopingcountriesincludeChina,Yugoslavia andSouthAfrica.
(5)Othercountriesexcludeintra-COMECON trade.
Source:Commission services .

NoL394/8131.12.87 OfficialJournaloftheEuropeanCommunities
TABLE4
Contribution torealGDPgrowth
(inpercentage pointsat1980prices(2)
1981 1982 1983 1984 1985 1986(')1987(•)1988(')
EUR12
Domestic demand
(excludingchangeinstocks)
Changeinstocks
Balanceoftradeingoodsandservices
GDPgrowth
Deviationofchangeindomesticdemand
fromthatinotherOECDcountries (3)-0,5
-1,3
1,7
0,0
-3,50,3
0,6
-0,3
0,6
0,91,1
-0,1
0,5
1,5
-1,81,4
0,5
0,5
2,4
-3,42,3
0,0
0,1
2,5
-1,13,5
0,2
-1,2
2.6
0,12,9
0,3
-1,0
2,2
0,52,7
0,1
-0,4
2,3
0,0
USA
Domestic demand
(excludingchangeinstocks)
Changeinstocks(4)
Balanceoftradeingoodsandservices
GDPgrowth
Deviationofchangeindomesticdemand
fromthatinotherOECDcountries (3)1,9
0,9
-0,8
2,1
2,50,0
-1,5
-1,0
-2,5
-1,24,7
0,5
-1,8
3,4
3,26,9
2,0
-2,4
6,6
5,45,1
-1,5
-0,7
2,9
0,34,1
0,3
-1,2
3,1
0,31,3
0,7
0,3
2,3
-1,02,3
-0,1
0,5
2,7
-0,7
Japan
Domestic demand
(excludingchangeinstocks)
Changeinstocks
Balanceoftradeingoodsandservices
GDPgrowth
Deviationofchangeindomesticdemand
fromthatinotherOECDcountries (3)2,2
-0,1
1,7
3,9
1,42,8
-0,1
0,1
2,8
3,62,1
-0,4
1,4
3,2
-1,53.2
0,5
1.3
5,0
-1,63.4
0,1
1,0
4.5
0,64,1
0,6
-1,3
2,4
0,24,4
0,1
-0,8
2,9
1,64,0
0,1
-0,4
3,5
1,7
(*)Economic Forecasts,September 1987.
(2)Duetostatisticaldiscrepancies ,thesumofthecontributions isnotalwaysidenticaltototalGDPgrowth.
(J)Domesticdemand(includingstocks)growthdifferentialfromaweightedaverageofOECDpartnercountries.Theweightingstructureisthesameasthatusedto
calculateeffectiveexchangerates.
(4)Includingstatisticaldiscrepancies .
Source:Commission services .
TABLE 5
Merchandise importsandexports(volume)
(percentage changeontheprecedingyear)
Imports Exports Marketgrowth(') ExportPerformanee(3)
19861987(2)1988(2)19861987(2)1988(2)19861987(2)1988(2)19861987(2)1988(2)
EUR12total
—intra—EUR(4)
—extra—EUR(4)
USA
Japan
OPEC
Otherdeveloping countries
World
WorldexcludingEUR6.7
6,0
7,4
13,9
10,1
-20,5
-0,9
4,9
3,85,7
4,5
7,5
2,5
6,2
-17,0
4,3
3,5
2,14,6
3,9
5,7
2,6
5,2
-0,0
4,9
3,9
3,52,0
5.6
-2,1
7,7
-2,7
6,0
6,0
3,4
4,22,0
5.3
-1,9
11,8
-4,9
2,5
4.6
3.4
4,13.3
4,7
1,5
11,1
0,6
4.4
4,4
4,4
5,04.1
7.2
0,5
2.7
3,83,3
5.5
0,7
3,0
2.63,9
4,5
3,1
4,4
3,4-2,0
-1,5
-2,6
4,9
-6,3-1,3
-0,2
-2,6
8,6
-7,3-0,6
0,2
-1,6
6,4
-2,7
(1)Changeinimportsfromthirdcountriesweightedbytheregionalexportstructureoftherespectivecountryorzone.
(2)EconomicForecasts,September 1987.
(3)Indexforexportsdividedbyanindexforgrowthofmarkets.
(4)EstimatesoftheCommission services.
Source:Commission services .

NoL394/82 OfficialJournaloftheEuropean Communities 31.12.87
TABLE6
Realtradebalances (1985to1988)(2)
1985 1986(') 1987(') 1988(>)change
1985/1986change
1986/1988
(a)InbillionsUS$at1985prices
USA
Japan
EUR12
Germany
Developing countries
—OPEC
—otherdeveloping countries-124,5
56.0
11,9
28.1
57,1
-4,4-155,1
39,4
-17,3
21,7
86,6
19,0-137,5
23.0
-42,3
16.1
104,1
21,0-119,1
16,9
-52,8
14,6
111,5
20,1-30,6
-16,6
-29,2
-6,4
29,5
23,436,0
-22,5
-35,5
-7,1
24,9
1,1
(b)Aspercentage ofGDPaf1985prices
USA
Japan
EUR12
Germany-3,1
4,2
0,5
4,5-3,8
2,9
-0,7
3,4-3,3
1,6
-1,6
2,5-2,7
1,2
1,9
2,2
(')Economic Forecasts,September 1987.
(2)Balanceofpaymentsbasis,fob-fob.
Source:Commission services .
TABLE7
Currentaccounttransactions ofdeveloping countries
(inbillionsofUS$)
Alldeveloping
countries (2)Fuelexporters Non-fuelexportersExportersof
manufactures
1981 1985 1986 1981 1985 1986 1981 1985 1986 1981 1985 1986
Currentaccountbalance
—Tradebalance
—Netservices
—Unrequited transfers
Oiltradebalance
Resourcebalance(J)-48,5
37,1
-100,7
15,1
216,8
-30,7-23,8
45,4
-90,6
*21,3
118,4
20,0-46,3
7,2
-79,5
26,0
63,8
-3,534,8
120,4
-68,8
-16,8
278,1
17,23,0
67,4
-50,6
-13,8
155,2
1,6-37,1
15,2
-40,0
-12,3
87,4
-39,2-83,2
-83,2
-31,9
31,9
-61,4
-47,8-26,8
-22,0
-40,0
35,1
-36,8
18,5-9,2
-8,0
-39,5
38,3
-23,6
35,7-15,2
-25,2
0,8
9,1
-25,3
-5,2-4,2
-12,2
-2,6
10,6
-15,6
4,013,0
1,9
-0,5
11,5
-10,0
21,2
(')Theresourcebalanceisintendedtoshowtheavailability ofexternalresourcestoaneconomy .Inthepresentcontextithasbeencalculatedasthecurrentaccount
balanceminusnetinvestment income.Apositiveresourcebalancereflectsanoutflowoffinancialresourcesandvice-versa.
(2)Countriesaregroupedbypredominant export.Fuelexportersandnon-fuelexportersaresubgroupsofthetotal.Exportersofmanufactures arethosenon-fuel
exporters ,whoseexportsofmanufactures accounted in1980forover50%oftheirtotalexports.
Source:IMFWorldEconomic Outlook1987andCommission services .

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/83
TABLE 8
Externalfinancingandindebtedness ofcapitalimportingdevelopingcountries
(inbillionsofUS$)
Capitalimporting
countries(')Countries withrecent
debt-servicing
problemsSubgroups (7):
Fifteenheavily
indebtedcountriesSub-Saharan
Africa
1981 1985 1986 19811985 1986 1981 19851986198119851986
(a)Externalfinancing
Netexternalborrowing 129,544,241,586,313,714,465,25,79,19,24,05,7
—Long-term borrowing fromofficial
creditors 31,424,030,617,116,216,56,57,76,74,84,04,0
—Reserve-related liabilities 12,22,87,19,12,47,31,4-0,52,22,41,80,4
—Othernetexternalborrowing (6) 85,817,4 3,860,1-4,9-9,457,3-1,50,22,0-1,81,4
(b)Externalindebtedness
Totaldebt(2) 708,0954,11036,3462,0585,9621,6332,3416,5433,548,665,174,1
Debtratio(3) 30,439,841,537,648,650,332,846,260,344,665,767,8
Debtserviceratio(4) 22,225,027,132,936,742,039,342,149,819,324,929,6
Interestserviceratio(5) 12,314,213,318,623,823,222,829,630,09,111,111,3
(*)AlldevelopingcountriesexceptIran,Iraq,Kuwait,Libya,Oman,Qatar,SaudiArabia,UnitedArabEmirates.
(2)Foralldevelopingcountries(capitalimportingandcapitalexportingcountries)totaldebtamountedtoaroundUS$1101billionin1986.TheIMFforecasts
for1987anincreasetoaboutUS$1198billion,ofwhich1128billionrepresentsthetotaldebtofcapitalimportingcountries .
(3)ExternaldebtrelativetoGDP.
(4)Debtservicerelativetoexportsofgoodsandservices.
(5)Interestservicerelativetoexportsofgoodsandservices.
(6)Residuallycalculated .Theamountsshownreflectmainlynetexternalborrowingfromprivatecreditorsandshort-termflows.
(7)Accordingtodifferentcommonly usedclassifications .
Source:IMFWorldEconomic Outlook1987andCommission services.
TABLE9
Comparison offorecastsfor1987(EUR12):October1986—September1987
(percentage changeontheprecedingyear)
October1986(')September 1987(2)
RealGDP
Privateconsumption
Grossdomesticfixedcapitalformation
—Construction
—Equipment
Exportsofgoodsandservices
Privateconsumption deflator
Employment
Currentbalance (3)
Unemployment rate(4)2,8
3,5
5.1
3.2
6,9
3,7
3,0
0,8
0,9
11,72,2
3.1
3,6
2,0
5,3
1,9
3.2
0,8
1,1
11,8
(')Economic Forecasts ,October1986.
(2)EconomicForecasts,September 1987.
(3)Percentage ofGDP.
(4)Percentage ofthecivilianlabourforce.
Source:Commission services .

NoL394/84 OfficialJournaloftheEuropeanCommunities 31.12.87
TABLE10
Bilateralnominal,nominalandrealeffectiveexchangerates
(Index1970=100andpercentage changeonprecedingyear)
Bilateralnominal
exchangerateNominal effective
exchangerate(')Relativeunitlabourcosts
innationalcurrency (2)Realeffective
exchangerate(3)
Level Change Index Change Index Change Index Change
EUR12 ECU/US$ I
average1960—1969
average1970—1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987(4)
1988(4)1,059
1,137
1,274
1,371
1,392
1,116
0,980
0,890
0,789
0,763
0,984
1,136
1,18011,7
7,6
1,6
-19,8
-12,2
-9,1
-11,4
-3,3
29,0
15,4
3,9101,9
100,8
94,7
100,9
102,6
86,1
80,0
73.2
66,6
65.3
72.4
77,2
78,20,6
6.5
1.6
-16,1
-7,0
-8,5
-9,1
-1,8
10,8
6,6
1,398,5
103,8
111.5
114,4
119.9
122,4
123,9
127,8
130.1
131,4
131,7
131.6
130.21,9
2,5
4,8
2,1
1,2
3,2
1,8
1,0
0,2
0,0
-1,1100.3
104,7
105.7
115.4
122,9
105,3
99.2
93,6
86,6
85,8
95.3
101,6
101.82.4
9,3
6.5
-14,3
-5,9
-5,6
-7,5
-0,9
11,1
6.6
0,2
USA US$/ECU\
average1960—1969
average1970—1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987(4)
1988(«)0,945
0,879
0,785
0,730
0,718
0,896
1,021
1,123
1,267
1,310
1,016
0,881
0,848-10,4
-7,0
-1,6
24.7
14,0
10.1
12.8
3,4
-22,5
-13,3
-3,798,9
89.7
80,2
77,9
77.8
87,7
98,3
103,9
112,0
116,5
95,0
85.0
82.1-9,2
-2,8
-0,2
12,8
12,0
5.7
7.8
4,0
-18,4
-10,5
-3,499.6
88,4
79.7
82,0
82.4
82,0
83.1
82,3
82.2
82.8
81.5
81,3
82,01,4
2,9
0,5
-0,4
1,3
-1,0
-0,1
0,7
-1,6
-0,2
0,998,6
79.3
63,9
63,9
64,1
72,0
81,6
85,5
92.0
96,5
77,5
69.1
67.4-8,0
-0,0
0,4
12.3
13.4
4,7
7.7
4.8
-19,7
-10,8
-2,5
Japan Yen/ECU
average1960—1969
average1970—1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987(«)
1988(4)0,00262
0,00291
0,00374
0,00333
0,00317
0,00408
0,00411
0,00473
0,00535
0,00554
0,00606
0,00601
0,0061214,5
-11,1
-4,6
28,4
0,8
15,2
13,0
3,6
9,4
-0,9
1,998,1
111.3
153,5
142.2
136.4
155,0
147.3
163.3
172,2
177.4
228.5
246.6
256,921,8
-7,4
-4,0
13,6
-5,0
10,9
5,5
3,0
28,8
7,9
4,2101,3
113,5
116.5
109,0
100.6
95.1
89,7
87.2
84,2
80,9
80.7
80,0
79.8-3,6
-6,4
-7,7
-5,5
-5,7
-2,7
-3,5
-3,9
0,2
-0,9
-0,399,3
127,5
178.8
155.0
137.3
147,5
132.1
142.4
145,0
143.5
184,4
197,3
204.917.4
-13,3
-11,4
7,4
-10,5
7,8
1,8
-1,0
28.5
7,0
3,8
(1)Thenominaleffectiveexchangerateistheweightedaverageoftheexchangerateofacurrencywithrespecttothemainnine(EUR12)or19competingcountries .
Theweightattributedtoeachcurrencyreflectstheimportance oftherespectivecountryasabilateraltradingpartnerandasacompetitoronthirdmarkets(double
exportweights).
(2)Indexofunitlabourcostsinthecountryorzoneinquestioninrelationtotheweightedaverageofunitlabourcostsinthemainnine(EUR12)or19competing
countriesinnationalcurrency .Thisindicatestherelativecompetitiveness ofthecountryorzoneinquestionintheabsenceofanymovements inexchange
rates.
(3)Theindexoftherealeffectiveexchangerateisderivedbymultiplying theindexofthenominaleffectiveexchangeratebyasimilarlycalculatedindexoftherelative
changeinpriceorcostlevelsinnationalcurrencies ,inthepresentcaseunitlabourcostsinthetotaleconomy .Suchanindexcanalsobeusedasanindicatorofthe
competitiveness ofacountry,whereanincreaseintheindex(indexofrelativeunitlabourcostsinacommoncurrency )reflectsadeterioration incost
competitiveness .
(4)Economic Forecasts,September 1987.
Source:Commission services .

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/85
TABLE 11
Businesssurveyresultsontherevisionofplansandexpectations inresponsetoexchangeratechanges
(weightedbalance)(!)
\ B D GR E F IRL 1 L NL UK
Domesticproduction
Numberemployed
Domesticinvestment (nominal )
Investment abroad(innationalcurrency )
Profits
Domesticsellingprices
Exportpricesinnationalcurrency
Medium-term salesexpectations-23
-15
-10
-8
-39
-14
-51
-23-10
-13
-8
-2
-35
-5
-19
-15-15
-18
-59
+55
+25-1
-19
+23
+2
0
0-18
-8
-1
-37
-12
-28-11
-11
0
-12
-10
-22
-19-6
+10
0
-2-41
-42
+4
+3
-51
-6
-89
-34-25
-25
-9
-6
-49
-42
-68
-41+2
-8
-2
-3
-32
+20
+4
-5
promemoria :
exchangeratechangesJanuary1986/
May1987against:
—US$
—weightedaverageofthecurrenciesof19
maintradingpartners+34,9
+7,5+36,8
+11,6+11,5
-10,8+22,3
-0,4+25,6
+1,1+20,2
-1,5+29,1
+4,7+34,9
+7,5+36,8
+8,4+17,1
-4,2
(*)ThespecialsurveywasconductedinApril/May1987.Thewordingofthequestionwas:'Theappreciation ofthenationalcurrencyhaspromptedustorevise
plans/expectations for1987thatweannouncedlastautumn.'Theofferedresponsecategorieswere:nochange/noresponse,revisedsharplyupwards,revised
somewhatupwards,revisedsharplydownwards ,revisedsomewhatdownwards .Thebalancehasbeencalculatedonthebasisofresponsesfortotalindustry,with
sharprevisionsbeinggivenadoubleweight.
TheresultsforPortugalarenotyetavailable .
.Denmarkdidnottakepartinthisspecialsurvey.
Source:EuropeanCommunity businesssurvey.
TABLE12
Deflatorofprivateconsumption andconvergence ofpricedevelopments
1969/19601977/19691981/1977 1982 1983 1984 1985 1986(')1987(»)1988(>)
B
DK
D
GR
E
F
IRL
I
L
NL
P
UK3,2
5,7
2,7
2,4
5,9
4.2
4,5
3,7
2,3
4,1
2,7
3,77.4
10,0
5,5
10.7
13.5
8,3
13.8
13,0
6,8
8,0
13,4
12.65.6
10,6
4.7
18,6
16,3
11,3
15,2
16.5
6,2
5,5
21.6
12,67,3
10,2
4,7
20,8
14,5
11,2
15,9
15,9
10,8
5,3
22,5
8,77,5
6,8
3,2
17,9
12,3
9,5
10,0
14,8
8,1
2,7
25,5
5,06,2
6,5
2.4
18,4
10,7
7,2
7.5
11,4
6.4.
2.5
29,3
4,84,8
4,8
2,1
18,6
8,3
5.5
4.2
9.3
3,3
2.6
19,0
5,21,3
3,6
-0,5
22,1
8,9
2,5
3.6
6,3
0,3
0,2
12,1
3,61,8
4,1
0,6
16,0
5,4
3,1
3,0
4,8
0,5
-0,8
9,3
3,02,5
4,0
1,8
12,0
4,2
2,6
3,2
4,9
2,3
1,0
6,5
3,9
Weightedaverage
EUR12
EMS3,7
3,69,9
8,711,3
9,910,4
9,88,5
8,37,0
6,45,9
5,13,7
2,43,2
2,53,4
2,9
Measuresofdispersion relatedtoaverage(2)
EUR12
EMS0,9
0,82,5
2,24,7
3,94,6
3,44.7
2,84,6
1,93,9
1,74,1
1,82,7
1,61,8
0,8
Measuresofdispersion relatedtolowest(2)
EUR12 1,4 4,7 7,4 7,7 7,6 7,0 5,2 5,8 5,0 3,2
EMS 1,5 3,6 4,8 5,5 5,1 3,8 2,5 2,7 2,9 1,7
(')Economic Forecasts,September 1987.
(2)Thedispersionindexisanunweighted sum,disregarding signs,ofeachcountry'sdeviationfromtherespectivereferencevalue(e.g.weightedaverageorlowest
rate).
Source:EurostatandCommission services .

31.12.87NoL394/86 OfficialJournaloftheEuropeanCommunities
TABLE13
Realconvergence —percapitaGDP(2)anditsdivergence intheCommunity
\ 1960 ,1970 1975 1980 1985 1986(>)1987(')1988(')
B
DK
D
GR
E
F
IRL
I
L
NL
P
UK
EUR12
Weightedstandard
deviation EUR12
Ratiooffourpoorest
tofourrichest
countries96.1
119,8
118,2
38,7
58.3
101,4
61,9
91.4
141,3
120,0
38.2
128,3
100,0
26,2
41,099,5
116,7
113,6
51,7
72.3
106,1
61.4
100,6
125,3
117,3
47,4
108,0
100,0
17,9
56,3103,0
111.3
109.6
57,1
80,1
110.4
63,0
97,7
122.7
116,3
50.3
105,7
100,0
15,5
63.4104.4
109.5
114,2
58,4
73,8
111.6
64.7
102,0
120,5
112,4
54,3
100,7
100,0
16.8
60,0101,7
116,7
116,0
56,1
72,3
109,0
63,8
103.2
127,5
107.3
52,6
103,9
100,0
17,6
58,6101,8
117,8
116,2
55,3
72,7
108,2
62,3
103,5
127,5
106,7
53,2
104,2
100,0
17,5
58,9101,2
115,1
115,6
53,7
73,9
106,8
62.7
104,4
127,4
105,9
53.8
105,3
100,0
17,2
59.9101,0
113,6
115,4
52,6
74,6
106,2
62.3
105,1
127,0
104,4
54,1
105,8
100,0
17,1
60.4
(')Economic Forecasts,September 1987.
(2)GDPpercapitaatcurrentpricesandpurchasing powerstandardsasapercentageoftheCommunity average.
Source:Commission services .
TABLE14
Nominalwages,realwagesandrealunitlabourcosts
(percentage ,changeperannum)
1973/
19601980/
19731981 1982 1983 1984 19851986(>)1987(')1988(')
(a)Nominalcompensation peremployee
B
DK
D
GR
E
F
IRL
I
L
NL
P
UK
EUR128,9
10,7
9.2
10,2
14.5
9,9
11.3
11.6
7,4
11.4
12,0
8.3
10,011,6
11.7
7.4
21,1
21.8
14,7
19,5
20,2
11,0
9.5
25,2
17,5
15,16,5
9,2
5,2
21.5
15,7
14,3
18,1
22.6
8,5
3,5
19,9
13,2
13,08,2
11,9
4.2
27,8
13,8
13,7
14,4
16,2
6,9
5,8
20,1
9.3
11,16,0
8,2
3.8
21,3
14.5
10,6
11,6
16,0
6,8
3,2
16,6
9,1
9.95,8
5.3
3.4
21,2
11,8
8,1
11,8
11,4
7,2
0,4
18,7
5,1
7,44.4
4.8
3,0
21,7
9.9
5,8
7.5
10,2
1,3
19,9
7,3
6,82.5
5.1
3,9
13,7
8,7
4.0
6.1
7,7
4,0
1.6
16,7
7.2
6,03.7
7.2
3.3
12,5
6,5
3.0
6.1
8.3
4.4
1,9
11,9
6.8
5,43,0
5,2
2,9
12,0
5,3
3,5
4,9
6,0
4,2
1,6
8,5
6,6
4,7
(')Economic Forecasts,September 1987.

NoL394/87 31.12.87 OfficialJournaloftheEuropeanCommunities
1973/
19601980/
19731981 1982 1983 1984 1985 1986 11987>)1988(M
(b)Nominalcompensation peremployeedeflatedbytheprivateconsumption deflator
B
DK
D
GR
E
F
IRL
I
L
NL
P
UK
EUR125,1
3,8
5,4
6,5
7,3
5,1
5,0
6,5
4,2
6,0
8,3
3,3
5,13,5
0,8
2,4
4,4
3,4
3,5
2,9
2,3
3,4
2,2
2,7
1,6
2,5-1,4
-2,5
-0,8
-1,6
1,2
1,3
-1,2
3,9
-0,2
-2,7
1,3
1,6
0,90,9
1,5
-0,5
5,8
-0,6
2,3
-1,3
0,2
-3,5
0,5
-2,0
0,6
0,6-1,4
1,3
0,6
2,9
1,9
1,0
1,5
1,0
-1,2
0,4
-7,1
3,9
1,3-0,4
-1,1
1,0
2,4
1,0
0,8
4,0
0,0
0,7
-2,0
-8,2
0,4
0,3-0,3
0,0
0,9
2,6
1,5
0,4
3,2
0,8
0,7
-1,3
0,8
2,0
0,91,2
1,5
4,4
-6,9
-0,2
1,4
2,4
1,3
3,6
1,4
4.1
3,5
2,21,9
2,9
2,6
-3,0
1,0
-0,1
3,0
3,3
3,9
2,7
2,4
3,6
2,10,5
1,2
1,1
0,0
1,1
1,0
1,6
1,0
1,9
0,6
1,9
2,6
1,3
(c)Realunitlabourcosts(2)
B
DK
D
GR
E
F
IRL
I
L
NL
P
UK
EUR120,3
0,2
0,5
-2,5
0,5
0,0
-0,4
0,2
-0,2
1,0
0,3
0,2
0,11,4
0,5
0,0
1,9
-0,2
1,0
1,2
0,3
3,3
0,2
1,4
0,0
0,31,0
-1,2
0,3
6,5
0,4
1,2
-3,5
2,2
1,7
-2,7
4,0
-1,3
0,5-2,0
-1,3
-1,2
1,7
-2,2
-0,7
-2,4
0,3
-5,0
-1,3
-5,2
-1,3
-1,0-1,1
-1,7
-2,5
2,5
0,0
-0,1
0,0
0,6
-4,3
-2,0
-1,5
-1,1
-0,7-1,2
-2,3
-1,2
-1,6
-4,0
-1,6
-0,7
-1,6
-3,9
-4,4
-5,0
0,8
-1,5-1,3
-1,5
-1,1
2,4
-2,1
-1,4
-2,4
-0,1
-0,7
-1,6
-4,8
-1,0
-1,1-3,1
-1,1
-0,8
-5,4
-3,7
-2,5
0,3
-2,4
-0,3
0,2
-5,0
1,2
-1,40,4
3,4
0,6
-3,8
-0,9
-1,6
0,3
0,3
0,9
2,1
-0,7
0,8
0,1-0,8
0,0
-0,5
0,1
-0,8
-1,0
1,0
-0,7
0,6
0,1
-0,8
-0,1
-0,5
(')Economic Forecasts,September 1987.
(2)Compensation peremployeedeflatedbytheGDPdeflatoranddividedbyrealGDPperpersonintotalemployment .
Source:EurostatandCommission services .
TABLE15
Sectoraldevelopments inemployment (EUR10)
Percentage annualaveragerateofchangePercentage shareof
employment
1980/19701983/19801985/1983 19860)1987(')(2)1988(«)(*) 1970 1985
Employment in: | I
—Agriculture
—Industry
—Services
Total-3,2
-0,8
1,9
0,3-2,4
-3,3
0,9
-0,6-2,4
-1,4
2,0
0,5-0,2
0,8-0,5
0,8-0,3
0,611,2
41,7
47,1
1007,0
33,2
59,8
100
(»)EUR12.
(2)Economic Forecasts,September 1987.
Source:EurostatandCommission services .

NoL394/88 OfficialJournaloftheEuropeanCommunities31.12.87
TABLE16
Percentageofemployeesworkingpart-timeoftotalemployees
\ B DK D F IRL 1 L NL UK EUR9
1975 4,1 22,3 10,1 6,5 4,7 4,0 4,8 8,8 17,9 10,2
1979 5,5 24,6 10,8 6,9 4,1 3,7 5,4 10,8 17,9 10,8
1983 8,3 25,6 12,0 8,9 5,8 3,5 6,2 20,9 19,4 12,3
1985 9,3 25,3 12,3 10,5 5,8 4,5 7,1 22,4 21,7 13,5
Source:Eurostat,'Employment andUnemployment 1987'TableVI/2andpreviousissues.BasedonCommunity labourforcesamplesurvey.
TABLE17
Employment underfixed-term contracts
Fixed-termcontractsUnitedKingdom France Germany
1983 1985 1983 1985 1984 1985
Percentage shareof: \
—Totalsalariedemployment 5,0 5,5 2,3 3,2 4,2 6,8
—Men 3,8 4,0 2,0 3,1 4,2 7,0
—Women 7,0 7,4 2,7 3,3 4,1 6,4
—Part-time 11,5 13,2 2,1 4,1 7,6 8,9
—Full-time 2,5 2,4 2,3 2,8 3,6 6,4
—Youngpersonsunder25years 10,2 9,8 7,0 10,9 9,5 16,7
I1985/1983 1985/1983 1985/1984
Percentage change:
—Employment underfixed-term
contracts
—Totalsalariedemployment+11,2
+1,9+36,2
-1,0+64,0
+0,8
Source:Wissenschaftszentrum ,BerlinonthebasisofCommunity labourforcesamplesurveysforFranceandtheUnited
Kingdom,andMicrocensus (Statistisches Bundesamt )forGermany .
TABLE18
Structureofunemployment (EUR12)(*)
(in%
Unemployment rate 1984 1985 1986
Total 10,5 10,7 10,8
Men 9,3 9,4 9,3
Women 12,5 12,7 13,2
Under25years 23,5 22,9 22,7
Over25years 7,3 7,6 7,8
(i)Dataarefromtheharmonized Community labourforcesamplesurvey.Accordingly ,ratesdifferfromthosepublishedfor
registeredunemployment asapercentageofthecivilianlabourforce.
Source:Eurostat,'Employment andUnemployment 1987'TableIV/1,basedonCommunity labourforcesamplesurveys.

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/89
TABLE19
Long-termunemployment (*)aspercentageoftotalunemployment
1983 1984 1985
B
D
DK
GR
E
F
I
IRL
L
NL
P
UK
EUR1264.1
38.4
32.2
32.3
52.5
39.6
54.6
35,2
32.7
46,9
45.2
44.8
46.3(2)67,1
43,4
30,9
37,1
53.4
39,1
60,5
44,5
29,3
n.a.
43,5
45,5
48,3(*)68,2
46,9
32.0
43,4
56.3
43,8
63.6
62,2(3)
36,8
56.4
48,4
48.7
52.1(2)
(!)Unemployment ofmorethanoneyearduration .
(2)Estimate .
(3)Thechangeofformatofthequestionin1985appearstohaveaffectedtheresponse.
Source:COM(87 )231finalonthebasisofCommunity labourforcesamplesurvey.
Spain:nationalsurvey.
Portugal :nationaldefinitionofunemployment .
TABLE20
Evolutionofunemployment ratesbyregion(asapercentageoflabourforce)
1976 1980 1985
EUR11(»)
25weakestregions
25strongestregions4,6
8,0
2,46,2
11,7
3,011,7
21,1
6,6
(')EUR12excluding Greece.
Source:COM(87 )230,Annexp.134.
TABLE21
Evolution inlabourforce(1985to1995)(*)
Increase1985to1995
(inthousands )Annualaverage
growthrate
Totalweakercountriesandregions
—Spain
—Portugal
—Greece
—Ireland
—Mezzogiorno3442
1380
387
338
291
10461,0
0,9
0,8
0,8
1,9
1,3
Totalstrongestregions3256 0,3
EUR12,total6698 0,5
(*)Ontheassumption ofnonetmigrationbetweenregions.
Source:COM(87 )230,Annexp.149.

NoL394/90 OfficialJournaloftheEuropeanCommunities31.12.87
TABLE22
Medium-term projections ofCommission servicesandoutturns—EUR10
(percentage changeperannum)
Projection Outturn
EuropeanEconomyNo9,July1981—5thProgramme
GDPinvolume1985/1980
Employment 1985/1980
Unemployment rate(*)1985,percentage ofcivilianlabourforce1,9
-0,2
10,21,2
-0,5
11,1
EuropeanEconomyNo14,November 1982
GDPinvolume1987/1980
Employment 1987/1980
Unemployment rate(*)1987,percentage ofcivilianlabourforce1,6
-0,2
11,11,4
-0,2
10,5
EuropeanEconomyNo18,November 1983
GDPinvolume1987/1982
Employment 1987/1982
Unemployment rate0)1987,percentage ofcivilianlabourforce1,9
-0,1
10,41,9
0,2
10,5
(')Rateobtainedbyaggregating therateofMemberStatescalculatedaccordingtotheirnationaldefinitions .Ratescantherefore
differfromharmonized ratespublishedbyEurostat .
TABLE23
Mainworkinghypotheses forthe1987to1991referenceprojectionofSeptember 1987—EUR12
(percentage annualaveragegrowthrates,unlessotherwisestated)
1970/
19601980/
19701985/
19801986 1987 1988 1989 1990 19911991/
1986
Hypotheses concerning theinternational
environment
Oilprice(US$/barrel)(J)
ExchangerateECU/US$
ExchangerateYen/US$
Importsofgoods(1980prices)
—USA
—Japan
—OtherOECD
—OPEC
—Developing countries
—Othercountries
WorldtradeexcludingEUR12
Economic policyhypotheses
Realpublicconsumption
Realpublicinvestment
Annualaveragechangeintheshare
ofpubliccurrentreceiptsinGDP
(inpercentage points)
Moneysupply(M2/M3)
Nominallong-terminterestrates
Labourcostsperhead
Reallabourcostsperhead(deflatedbyGDP
prices)1.3
0,3
0,0
8,4
14,4
7,6
4,5
6,2
7,8
7,8
3.6
4,0(2)
0,6
10,2(2)
6.7(2)
9,2
4,628.7
-3,0
-4,5
4,5
5,1
4,1
15,4
4,9
7,5
5,7
3.1
-0,2
0,6
14.8
9,9(*)
14,3
3.227,5
12,8
0,9
6,5
1.4
4.5
-0,4
2,0
2.6
3,2
1.5
-0,3
0,5
10.4
11.5(2)
9.6
1,013,7
-22,7
-29,3
13,9
10,1
6,0
-20,5
-0,9
-2,0
3,8
2,4
1,0
-0,2
10,2
9,2
6,0
0,417,3
-13,3
-12,6
2,5
6,2
2,0
-17,0
4.3
4,5
2,1
1,8
2,9
-0,0
10,2
9,1
5.4
1,418,0
-3,7
-5,5
2,6
5,2
3,1
0,0
4,9
3,0
3,5
2,0
3,3
-0,2
8,6
9,1
4,7
1,219,0
-1,0
-3,0
3,5
5,5
3,5
10,0
5,0
4,0
4,5
1,5
2,5
-0,0
8,0
9,0
4,7
1,422,0
-1,0
-3,0
4,0
*5,5
4,0
10,0
5,0
4,0
4,8
1,4
2,5
-0,2
8,0
8,8
5,0
1,724,0
-1,0
-3,0
4,5
5,5
4,5
7,5
5,0
4,0
4,8
1,3
2,5
-0,0
8,0
8,6
5,1
1,824,0
-4,2
-5,5
3,4
5.6
3,4
1,5
4,8
3,9
3,9
1,6
2,7
-0,1
8,6
8,9
5,0
1,5
(')Levelatendofperiod.
(2)EUR10(EUR12excludingSpainandPortugal).
Source:EurostatandCommission services .

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/91
TABLE24
1987to1991referenceprojectionofSeptember1987—EUR12(percentageannualaveragegrowthrates,unlessotherwisestated)
1970/
19601980/
19701985/
19801986 1987 1988 1989 1990 19911991/
1986
RealGDP
Unemployment rate
(%oflabourforce)(!)
Priceofprivateconsumption
Balanceoncurrenttransactions
(%GDP)(0
Realdomestic demand
Realprivateconsumption
Privateinvestment
Realexportsofgoodsandservices
Realimportsofgoodsandservices
Totalemployment
Productivity (GDPperpersonemployed )
Realunitlabourcosts(3)
Reallongterminterestrates
Indexoftheprofitability ofcapital(4)
(1960to1969=100)
Publicdeficit(%ofGDP)4,8
2,0(*)
3,8
0,5
4.9
4,9
6,4(2)
7,9
8,7
0,2
4,6
0,0
2,3
98,9
-0,63,0
6.1(s)
10,6
-1,3
2,9
3,4
1,8
5,8
5,4
0,2
2,8
0,4
-0,9
75,0
-2,81,2
12,1
8,7
0,5
0,6
1,0
0,6
4,3
2.4
-0,5
1,7
-0,7
3,0
61,9*
-5,22,6
11,9
3,7
1,5
3,8
3,9
3,8
1.6
5.9
0,8
1,8
-1,4
3,6
75,9
-4,82,2
11,8
3,2
1,1
3,2
3,1
3,7
1,9
5,3
0,8
1,4
0,0
5,2
76,1
-4,52,3
11,7
3,4
0,8
2,7
2,7
3.3
3,2
4,4
0,6
1,7
-0,5
5,6
78,3
-4,52,3
11,4
3,3
0,7
2,5
2,6
3,7
4,2
4,5
0,6
1,7
-0,3
5,7
79,6
-4,12,6
11,1
3,4
0,4
2,7
2,7
4,2
4,5
4,8
0,6
2,0
-0,2
5,6
80,7
-3,92,8
10,6
3,4
0,2
2,8
2,8
4,4
4,8
4,8
0,7
2,1
-0,2
5,4
81,8
-3,4.2,5
10,6
3,3
0,2
2,8
2,8
3,9
3.7
4,8
0,7
1,8
-0,3
5,5
79,3
-4,1
(')Levelatendofperiod(inpercentage points).
(2)EUR10(EUR12excludingSpainandPortugal).
(3)Calculated astherelationship betweenreallabourcostsperemployeeandGDPperpersoninemployment .
(*)Theresultscalculatedbythemodelareasyntheticindicatorandcannotthereforebecompareddirectlytothoseforthebusinesssectorpresented
elsewhere .
(5)EUR9(EUR12excludingGreece,SpainandPortugal).
Source:EurostatandCommission services .
Fortheforecastingperiod1987to1991,theyears1987/1988correspondtotheshort-termforecastsoftheCommission services(EconomicForecast
1987/1988,September 1987)extendedto1991withthehelpoftheCompactmodel.
TABLE25
Thebalanceofgrowthonthedemandside:GDP,privateconsumption ,investment byenterprisesandnetexports
intheCommunity (averageannualchangesatconstantprices)
(in%)
GDP Privateconsumption Privateinvestment (2)Netexports(3)
(in%ofGDP)
1961to1973
1974to1985
1986to1988(»)4,8
1,8
2,45,0
2,0
3,25,9
0,7
3,60,3
-0,2
0,6
(')Economic Forecasts,September 1987.
(2)EUR10to1970(excludingSpainandPortugal).
(3)Balanceofgoodsandservices,currentprices.
Source:EurostatandCommission services .

NoL394/92 OfficialJournaloftheEuropeanCommunities31.12.87
TABLE26
Intra-Community shareoftotalimportsofgoods(atcurrentprices)
EUR12 B/L DK D GR E F IRL I NL P UK
1958 35,2 55,5 60,0 36,3 53,7 31,8 28,3 68,9 30,2 50,7 53,4 21,8
1965 44,9 63,6 50,0 46,9 52,1 48,6 46,4 67,7 38,1 61,7 51,9 25,6
1970 50,3 66,3 48,7 51,7 50,9 40,9 56,0 70,1 47,5 63,4 52,6 29,4
1975 49,5 68,5 47,2 51,9 45,1 35,3 51,8 70,3 44,5 58,2 43,9 34,6
1980 49,2 61,6 50,3 49,4 40,9 31,3 52,0 75,3 46,2 54,7 45,3 40,9
1985 53,4 68,6 50,7 53,1 48,1 37,9 59,4 71,7 47,1 55,8 45,9 47,3
1986 57,8 69,9 53,2 54,2 58,3 51,3 64,4 73,0 55,4 61,0 58,8 50,4
1987(*) 58,0 69,5 54,0 55,3 58,5 52,2 63,0 70,9 56,1 62,0 64,2 51,0
1988(^ 58,4 69,7 53,7 56,6 58,4 52,6 63,0 69,4 56,3 61,7 64,0 52,0
(')Economic Forecasts,September 1987.
Source:EurostatandCommission services .
TABLE27
Intra-Community shareoftotalexportsofgoods(atcurrentprices)
EUR12 B/L DK D GR E F IRL I NL P UK
1958 37,2 55,4 59,3 37,9 50,9 46,8 30,9 82,4 34,5 58,3 38,9 21,8
1965 49,6 70,8 52,1 46,9 46,6 53,6 51,8 83,8 51,1 69,2 44,0 29,6
1970 53,4 75,2 44,2 49,8 53,5 49,6 58,1 74,3 51,7 72,6 43,8 32,7
1975 52,4 72,4 46,6 46,9 51,6 48,1 53,2 80,4 49,2 73,0 53,8 35,2
1980 55,7 73,2 51,6 51,1 48,2 52,2 55,4 76,0 51,6 73,5 58,6 45,0
1985 54,9 70,1 44,8 49,7 54,2 53,4 53,7 68,9 48,2 74,6 62,5 48,8
1986 57,2 72,9 46,8 50,8 63,5 60,9 57,8 71,9 53,5 75,7 68,0 47,9
1987(») 58,1 74,5 47,5 52,9 63,4 63,3 56,1 74,0 53,9 76,3 70,0 49,0
1988(*) 58,4 75,0 48,0 53,3 63,5 64,4 56,4 75,0 53,6 76,7 70,6 49,0
(')Economic Forecasts,September 1987.
Source:Eurostat andCommission services .

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/93
TABLE28
DirecteffectsonMemberStates'exportsofa10%increaseintheirimports(atconstantprices)(')
Following a10%increaseinimportsin:
B/LDK D GR E F IRL INL P UKEUR12
Exportsincrease(%)in:
B/L
DK
D
GR
E
F
IRL
I
NL
P
UK
EUR120,2
0,7
0,2
0,3
0,9
0,3
0,3
1,5
0,4
0,4
0,60,1
0,2
0,1
0,1
0,1
0,1
0,1
0,2
0,3
0,2
0,22,0
1,7
2,5
1,2
1,8
1,2
1,9
2,9
1,6
1,4
1,30,1
0,1
0,1
0,1
0,1
0,0
0,1
0,1
0,0
0,1
0,10,1
0,1
0,2
0,1
0,3
0,2
0,3
0,1
0,6
0,3
0,22,0
0,5
1,1
0,9
1,9
1,0
1,6
1,0
1,5
0,8
1,10,0
0,1
0,1
0,0
0,1
0,1
0,0
0,1
0,1
0,5
0,10,6
0,5
0,9
1,5
0,8
1,2
0,3
0,7
0,4
0,5
0,71,5
0,4
0,9
0,3
0,4
0,5
0,5
0,3
0,6
0,6
0,60,0
0,0
0,1
0,0
0,4
0,1
0,0
0,1
0,0
0,1
0,10,8
1,2
0,9
0,7
1,0
0,9
3,6
0,7
1,0
1,5
0,87.3
4,7
5,1
6,4
6,1
5,8
7,2
5,4
7,6
6,8
4,8
5,7
{*)EstimatesonthebasisoftheQuestmodel.TheQuestmodelisbeingdevelopedbytheCommission services.Formethodological detailsoftheinternational trade
sectorinthemodel,see'Estimation andSimulationofInternational TradeLinkagesintheQuestmodel*inEuropeanEconomyNo31,March1987.
Source:Commission services.

31.12.87NoL394/94 OfficialJournaloftheEuropeanCommunities
TABLE29
Effectsofraisingpublicinvestment incertainMemberStatestakingaccountofinterdependence inthe
Community :illustrativeexampleassuminganincreaseinpublicinvestmentof1%ofGDP(annualaverages
duringfirstfiveyears)
(percentage pointsofGDP)
Followinganincreaseinpublicinvestment in:
\D F I UK EUR4
Netlendingorborrowing ofthe
publicsectorchangesin:
B
DK
D
GR
E
F
IRL
I
NL
P
UK
EUR120,2
0,1
-0,7
0,1
0,0
0,1
0,1
0,0
0,2
0,1
0,0
-0,10,2
0,1
0,1
0,0
0,0
-0,8
0,1
0,0
0,1
0,1
0,0
-0,10,1
0,0
0,0
0,0
0,0
0,1
0,1
-0,8
0,1
0,0
0,0
-0,10,1
0,1
0,1
0,0
0,0
0,1
0,1
0,0
0,1
0,1
"0,7
-0,10,6
0,2
-0,5
0,2
0,2
-0,6
0,3
-0,6
0,5
0,2
-0,6
-0,4
Thecurrentbalancechangesin:
B
DK
D
GR
E
F
IRL
I
NL
P
UK
EUR120,3
0,1
-0,3
0,1
0,1
0,1
0,2
0,1
0,2
0,1
0,1
0,0 ■0,3
0,1
0,1
0,1
0,1
-0,4
0,1
0,1
0,2
0,1
0,1
0,00,1
0,0
0,1
0,1
0,0
0,0
0,1
-0,3
0,1
0,0
0,0
0,00,2
0,1
0,1
0,0
0,1
0,1
0,3
0,0
0,2
0,1
-0,4
0,00,8
0,3
-0,1
0,2
0,2
-0,2
0,6
-0,1
0,6
0,4
-0,2
-0,1
Source:OECDInterlinkModel(1987)andcalculations bytheCommission services.

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/95
TABLE30
Realconvergence ,investment shares,capitalproductivity andcurrentbalances
GR E IRL PGR,E,IRL,P
totalother
Member
StatesEUR12
GDPperhead(atconstantprices,annualaveragechangesin%)
1961to1975
1976to1981
1982to1988(»)6,2
2,3
0,45,7
0,6
2,!3,6
3,0
0,95,4
3,4
1,75.6
1,2
1.73.2
2.3
1,83,5
2,1
1,8
Investment shares(in%ofGDP)
1961to1975 22,3 24,7 21,0 24,3 24,2 22,9 23,1
1976to1981 23,4 22,9 27,7 27,7 23,8 21,2 21,6
1982to1988(>) 19,2 20,4 21,2 25,3 20,9 19,1 19,3
Marginalcapitalproductivity (2)
1963to1975 0,23 0,22 0,16 0,17 0,21 0,13 0,14
1976to1981 0,09 0,02 0,11 0,12 0,05 0,10 0,09
1982to1988(») 0,02 0,10 0,04 0,07 0,08 0,09 0,09
Currentbalances (in%ofGDP)
1961to1975 -2,9 -0,4 -2,7 -0,6 -0,9 0,4 0,2
1976to1981 -1,2 -1,5 -9,6 -7,1 -2,6 -0,1 -0,4
1982to1988(*)-5,1 0,2 -4,4 -1,9 -1,0 0,5 0,3
(*)For1987/1988:Economic Forecasts,September 1987.
(2)Additional GDPforoneadditionalunitofcapital=changeinGDPdividedbygrossfixedcapitalformation .
Source:Commission services .

TABLE31
Exportmarketshares(')
1963 1968 1973 1979 1980 1981 1982 1983 1984 1985Difference
1973/1968Difference
1979/1973Difference
1985/1979
Totalindustry:
EUR10(2)
USA
Japan31,68
20,92
6,3928,63
19,06
8,9226,80
15,43
10,5327,04
15,26
11,3827,25
16,35
12,4326,65
17,92
15,1626,61
17,20
14,6226,03
16,49
15,6025,21
16,59
16,9425,60
15,99
16,75-1,83
-3,63
+1,61+0,24
-0,17
+0,85-1,44
+0,73
+5,37
Strongdemand (3)
EUR10(2)
USA
Japan35,00
24,26
6,2231,39
22,47
10,1527,96
17,51
12,3627,40
18,08
13,0627,00
19,18
14,1825,79
20,70
17,3425,75
20,91
16,5325,23
20,11
18,5424,01
20,74
20,6224,86
19,32
20,20-3,43
-4,96
+2,21-0,56
+0,57
+0,70-2,45
+1,24
+7,14
Moderate demand (4)
EUR10(2)
USA
Japan31,52
25,43
3,8228,17
23,26
6,3726,98
18,65
9,2226,69
17,66
10,8627,66
18,26
12,2426,49
20,42
14,7626,32
19,12
13,9825,34
18,21
15,0324,32
17,95
16,3824,27
17,87
16,52-1,19
-4,61
+2,85-0,29
-0,99
+1,64-2,42
+0,21
+5,66
Weakdemand (5)
EUR10(i)
USA
Japan29,64
12,57
9,9827,20
10,45
11,6425,53
8,90
10,9327,23
8,81
10,5326,86
10,62
10,9927,89
10.42
13.4328,12
9,37
13,5228,29
8,84
12,9028,46
8,53
13,0229,16
7,76
12,38-1,67
-1,55
-0,71+1,70
-0,09
-0,40+1,93
-1,05
+1,85NoL394/96 OfficialJournaloftheEuropean Communities 31.12.87(*)DefinedasshareofexportsofacertaincountryorzoneintotalexportsofallOECDcountries(atcurrentprices);includingintra-Community trade.
(2)EUR10excludingintra-Community trade. ,.,., .,,,,, .
(J)Productswithstrongdemand:electricalequipmentandelectronics,informationtechnology,automatedofficeequipmentandprecisioninstruments,chemicalsandpharmaceuticals .Worlddemandgrewatanaverage
annualgrowthrateofaround6%. , 4 ft 1V, ^ „r
(<)Productswithmoderatedemand:transportequipment,food,drinkandtobacco,paperpulp-,packagingandprinting,rubberandplastics,industrialandagriculturalmachinery .Worlddemandexpandedbyanaveg}
2%to3%ayear. j L.10/
I5)Productswithweakdemand:steelandmetalores,metalgoods,textiles,leatherandclothing,construction materialsandnon-metallic minerals.Worlddemandgrewbysome1/0ayear.
Theaverageannualgrowthratehasbeencalculatedonthebasisoftheaveragefor1981/1982comparedwiththeaverage1972/1973(inUS$at1975pricesandexchangerates).Theclass,ficationisbasedonthegrowth
ratefortheareaasawhole.
Source:Commission services,Volimexdatabase .

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/97
TABLE32
Gains(+)andlosses(—)insharesofexportmarketsovertheperiod1985/1979(indecliningorderofimportance )(')
EUR10(2)
Branches Losses Branches Gains
Electricalgoods
Motorvehicles
Rubberandplasticproducts
Agricultural andindustrialmachinery
Othertransportequipment
Officeanddatamachines ,precisionandoptical
instruments
Othermanufactured products
Metalproductsexceptmachinery andtransport
equipment-4,39
-4,25
-2,53
-2,49
-2,27
-2,23
-0,84
-0,65Leatherandfootwear
Woodandfurniture
Textilesandclothing
Non-metallic mineralsandproducts
Food,beverageandtobaccoproducts
Paperandprintingproducts
Ferrousandnon-ferrous oresand
metalsotherthanradioactive
Chemicalproducts+5,45
+4,86
+3,87
+2,47
+2,03
+1,25
+1,23
+0,51
USA
Branches Losses Branches Gains
Othermanufactured products
Textilesandclothing
Ferrousandnon-ferrous oresandmetals,otherthan
radioactive
Motorvehicles
Food,beverageandtobaccoproducts
Woodandfurniture
Non-metallic mineralsandproducts
Metalproductsexceptmachinery andtransport
equipment
Chemicalproducts
Agricultural andindustrialmachinery-2,06
-1,41
-1,29
-0,86
-0,52
-0,46
-0,36
-0,24
-0,01
-0,01Othertransportequipment
Rubberandplasticproducts
Officeanddatamachines ;precisionandoptical
instruments
Paperandprintingproducts
Electricalgoods
Leatherandfootwear+5,45
+3,63
+3,30
+0,68
+0,66
+0,52
Japan
Branches Losses Branches Gains
Food,beverageandtobaccoproducts 0,00 Electricalgoods
Motorvehicles
Officeanddatamachines ;precisionandoptical
instruments
Agricultural andindustrialmachinery
Othermanufactured products
Non-metallic mineralsandproducts
Rubberandplasticproducts
Othertransportequipment
Textilesandclothing
Metalproductsexceptmachinery andtransport
equipment
Ferrousandnon-ferrous oresandmetals,otherthan
radioactive
Chemicalproducts
Paperandprintingproducts
Leatherandfootwear
Woodandfurniture+11,66
+9,40
+5,47
+5,26
+5,24
+3,17
+3,04
+2,71
+2,20
+1,75
+1,63
+1,35
+0,78
+0,42
+0,18
(»)MarketshareisdefinedastheexportsofUSA,JapanorEUR10totherestoftheworldinrelationtoexportsofOECDcountriestotheworld.
(2)Onlyextra-Community tradeistakenintoaccount.
Source:Commission services,Volimexdatabase .

NoL394/98 OfficialJournaloftheEuropeanCommunities31.12.87
TABLE33
Growthrateofindustrialgrossfixedcapitalformationbysector(at1980prices)
1973to1979 1979to1985 1979to1982 1982to1985
Totalindustry:
EUR4(»)
USA
Japan
Strongdemand:
EUR40)
USA
Japan
Moderate demand:
EUR4(x)
USA
Japan
Weakdemand:
EUR4(')
USA
Japan-0,4
5,5
-2'1
1,9
7,2
-0,8
2,1
6,4
-1,4
-5,0
3,0
-3,61,1
-0,6
9,7
1,4
2,1
15,8
0,8
0,4
8,3
0,1
-5,5
5,4-3,8
-3,4
9,2
-5,5
3,6
13,0
-2,3
-4,1
7,0
-6,3
-10,0
8,46,2
2,2
10,2
8,9
0,7
18,6
3,9
5,0
9,6
6,9
-0,7
2,5
(*)FederalRepublicofGermany,France,Italy,UnitedKingdom .
Source:Commission services,sectoraldatabank.
TABLE34
Growthrateinemployment bysector
1973to1979 1979to1985 1979to1982 1982to1985
Totalindustry:
EUR7(»)
USA
Japan
Strongdemand:
EUR7(*)
USA
Japan
Moderate demand:
EUR7(J)
USA
Japan
Weakdemand:
EUR7t1)
USA
Japan-1,3
0,9
-1,7
-0,5
2,1
-2,0
-0,6
1,3
-0,9
-1,9
-0,2
-2,1-2,5
-1,4
1,3
-1,6
-0,3
4,9
-2,0
-0,5
0,6
-3,3
-3,3
0,2-2,6
-3,6
0,9
-2,4
-1,4
4,3
-1,8
-2,9
0,9
-3,5
-5,9
-0,6-2,3
0,9
1,7
-0,7
0,9
5,4
-2,3
2,0
0,4
-3,0
-0,7
0,9
(i)FederalRepublicofGermany,France,Italy,UnitedKingdom,Netherlands ,Belgium,Denmark.
Source:Commission services,sectoraldatabank.

31.12.87 OfficialJournaloftheEuropeanCommunities NoL394/99
TABLE35
EuropeanCommunity generalbudget,1985to1988:
paymentappropriations ,millionsofECUasapercentage oftotal
1985(')
EUR101986(2)
EUR121987(3)
EUR121988(")
EUR12
Expenditure :
Agriculture —Guarantee Section
Agriculture —structuralFunds
Fisheries
SocialFund
RegionalFund
Integrated Mediterranean projects
Transport
Energyandindustry
Research andinnovation
Foodaid
Development aid
Otherexpenditure includingrefundsto
Member States69,9
2,6
0,3
5,0
5,8
0,0
0,3
0,5
2,0
1,9
1,9
9,865,7
2,1
0,4
6,6
7,1
0,1
0,1
0,2
1,7
0,9
1,1
14,063,5
2,6
0,5
7.0
6,9
0,5
0,1
0,4
2.1
1,6
1,5
13,3(*)68,1
3,0
0,6
6,4
7,4
0,2
0,2
0,5
2,4
0,9
1,2
9,1
Total
(Promemoria:Absoluteamountin
millionsofECU)100,0
(28223)100,0
(33635)100,0
(36168)100,0
(39708)
Receipts:
Agricultural levies
Customs duties
Value-added tax(VAT)
Specialcontributions
Miscellaneous7.7
29,4
53,8
6,8
2,36,8
24,3
66,1
0,6
2,28,9
23,2
64,8
0,6
2,57,6
22,6
44,2
24,9
0,7
Total
(Promemoria:Absoluteamountin
millionsofECU)100,0
(28272)100,0(6)
(33635)100,0(7)
(36168)100,0(8)
(39708)
Maximum rateofVAT
EffectiverateofVAT
Budgettotalasapercentage ofGDP1,0
1,0
0,851,4
1,37(»)
0,981,4
1,27(10)
1,001,0
1,0(")
1,03
(')Outturn .Management accounts1985.
(2)Provisional outturn.Reportonexecutionofthe1986Budget.
(3)Supplementary andrectifyingBudgetNo11987adoptedon3August1987.
(4)Preliminary draftBudgetfor1988proposedbytheCommission on15June1987.
(5)Includesanestimateddeficitof820millionECUinrespectof1986.
(s)ThecorrectionofthebudgetaryimbalancefortheUnitedKingdomwhichamountsto2685millionECUgrossisincludedin
receipts.
(7)ThecorrectionofthebudgetaryimbalancefortheUnitedKingdomwhichamountsto2366millionECUgrossisincludedin
receipts.
(8)ThecorrectionofthebudgetaryimbalancefortheUnitedKingdomwhichamountsto2513millionECUgrossisincludedin
receipts.
(9)ExceptfortheFederalRepublicofGermany (1,33)andtheUnitedKingdom (0,67).
(10)ExceptfortheFederalRepublicofGermany (1,35)andthe701tedKingdom (0,83).
(11)Iftheproposedreformswerenotcarriedout,theVATceilingagreedatFontainebleau (1,4%)wouldleaveashortfallofabout
sixbillionECU.EvenanincreasedVATceiling(1,6%)wouldnotbesufficienttocovertheexpenditure plannedinthe
preliminary draftbudget.

NoL394/100 OfficialJournaloftheEuropeanCommunities31.12.87
TABLE36
Moneyandcredittargetsandoutturns
1981 1985 1986 1987
Objective Outturn Objective Outturn Objective Outturn ObjectiveOutturn
(annualrate)
D
MZ(')
F
M2(2)
E
M3
ALP(8)
I
TDCE(3)
PSCE(7)
M2
UK(4)
£M3(')
MO
USA(s)
Ml
M2
TDCE(3)4—7
10,0
14,5—18,5
16,0
6—10
3,5—6
6—93,5
11,4
16
18,2
13,8
2,3
9,23—5
4—6
11,5—14,5
16,8
5—9
3—7
4—7
6—9
9—124,4
6,9
12,8
17,9
15,1
6,0
11,9
8,0
12,73,5—5,5
3,0—5,0(«)
9,5—12,5
7
7—11
11—15
2—6
3—8
6—9
8—117.8
4,4
11,4
11.4
9,4
18,1
5,2
16.5
8.9
12,23—6
3—5
6,5—9,5
7
6—9
2—6
5,5—8,5
8—117,3(July)
7,2(June)
7,2(June)
13,7(June)
14,2(June)
12,3(June)
20,9(July)
5.3(July)
10,5(July)
5,7(July)
11,3(July)
(')Centralbankmoney.
(2)For1985M2R(M2residents )andfor1986/1987:M3.
(3)TDCE-total domesticcreditexpansion .
{*)Before1985,objectiveswereannualratesforthechangefromFebruarytoAprilofthenextyear;from1985theyconcernedtherateofgrowthover12monthsand
theresultisforthe12monthsendinginDecember .
(5)TheUnitedStatesalsohaveatargetforM3.
(6)M3,newdefinition .
(7)Domesticcredittothenon-statesector.
(')Liquidassetsheldbythepublic.
(*)Theaggregate£M3wasreplacedbyM3inMay1987.
Source:Commission services .

31.12.87 OfficialJournaloftheEuropeanCommunities NoL394/101
TABLE37
Nominallong-terminterestrates
Country1961to
19691970to
19771978 1979 1980 1981 1982 1983 1984 1985 1986 1987(')
B
DK
D
GR
E
F
IRL
I
NL
P
UK6,1
7,9
6,6
6,2
6,5
5,3
6,78,1
13,2
8,3
9,8
9,6
12,2
10,2
8,3
11,88,5
16,8
5,7
10,0
12,0
10,6
12,8
13,7
8,1,
12,69,7
16,7
7,4
11,2
13,3
10,9
15,1
14,1
9,2
13,012,2
18,7
8,5
17,1
16,0
13,1
15,4
16,1
10,7
13,913,8
19.3
10.4
17,6
15,8
15,8
17,3
20,6
12,2
14,813.4
20.5
8,9
15.4
16,0
15.6
17,0
20,9
10.5
12.711,8
14,4
7,9
18,2
16,9
13,6
13,9
18,0
8,8
10,812,0
14,0
7,8
18,5
16,5
12.5
14.6
14,9
8,6
10.710,6
11,6
6,9
15.8
13,4
10.9
12,7
14.3
7,3
25.4
10,67,9
10,5
5,9
15.8
11,4
8,4
11,1
11,7
6,4
17.9
9,87,7
11,8
5,6
17.4
12,1
9,0
11.5
10.6
6,2
15,2
9,3
EUR12(2)
EUR10(2)
EMS(2)6,5
6,4
6,39,8
9,5
9,210,3
9,3
8,811,2
10,2
10,112,9
11,8
11,515,0
13,8
13,514,2
12,6
12,512,6
10,7
10,611,8
10,4
10,310,8
9,6
9,29,1
7,9
7,88,9
7,7
7,5
USA
Japan4,6 6,5
7,77,9
6,38,7
8,310,8
8,912,9
8,412,2
8,310,8
7,812,0
7,310,8
6,58,1
5,28,2
4,5
Long-term interestratesadjustedbyactualinflation (3)
Country1961to
19691970to
19771978 1979 1980 1981 1982 1983 1984 1985 1986 1987(')
B
DK
D
GR
E
F
IRL
I
NL
P
UK2,7
1,6
3,2
1,9
2,1
0,2
2,70,2
2,9
2,3
-1,5
0,9
-1,4
-2,5
-0,1
-0,84,0
6,3
1,3
-2,6
-6,8
1,0
2,1
-0,2
2,6
1,24,9
8,5
3,3
-6,2
-2,9
0,5
1,2
-1,6
5,1
-1,38,1
9,7
3,5
-0,5
1,8
0,8
0,6
-3,7
4,7
-4,88,5
8,4
6,2
-2,0
3,4
3,6
-0,1
1,8
6,4
3,06,0
9,0
4,3
-7,6
1,9
2,7
1,1
4,0
4,2
4,65,1
6,3
4,5
-0,8
4,7
3,7
2,3
2,3
6,8
5,56,4
7,9
5,7
-1,3
5,0
4,9
7,8
4,3
6,3
6,35,2
6,0
4,6
-1,5
4,3
4,7
7,3
5,1
4,8
3,1
4,53,4
5,3
2,7
-2,7
0,2
3,4
5,1
3,4
5,6
-0,1
6,15,5
6,9
3,6
0,6
6,1
5,5
8,4
4,8
7,3
3,6
5,1
EUR12(2)
EUR10(2)
EMS(2)2,3
2,3
2,2-0,4
-0,3
0,30,0
0,2
0,40,2
-0,1
1,0-0,3
-1,1
0,43.6
2.7
2.83.3
2.4
2,13,8
2,6
2,15,0
4,3
4,24,4
3,8
3,83,3
3,0
3,94,8
4,0
4,3
USA
Japan1,7-0,3
-1,30,6
1,4-0,2
5,11,7
4,92,9
5,05,5
6,36,6
6,97,9
5,97,3
4,75,8
3,24.7
3.8
(')Averageoffirstsevenmonths.
(2)Forcountriesavailableintheyearsinquestion.
(3)GDPdeflator.
Source:Commission services .

31.12.87NoL394/102 OfficialJournaloftheEuropeanCommunities
TABLE38
SyntheticindicatorsofbudgetarypolicyintheCommunity
(%ofGDP)
EUR12(2):Generalgovernment
1970(z)1973(2)1981 1982 1983 1984 1985 198619870)1988(')
Receipts:
1.Indirecttaxes
2.Directtaxes
3.Socialcontributions received
4.Taxburden
(1+2+3)
5.Othercurrentreceipts
6.Totalcurrentreceipts
(4+5)
Expenditure :
7.Currentexpenditure
(-ofwhichinterest)
8.Publicinvestment
9.Othercapitalexpenditure
Budgetbalance:
10.Total
11.Totalexcludinginterest
Publicdebt:
12.Percentage ofGDP
13.%changep.a.13,1
9,5
10,3
32,9
3,0
35,9
30,8
(1,9)
4,0
0,8
0,3
2,212,2
9,8
11,3
33,3
3,0
36,2
33,0
(1,9)
3,6
0,7
-1,1
0,8
36,912,6
11,6
14,0
38.1
3,7
41,8
43,1
(3,7)
3,0
1,0
-5,3
-1,6
43,112.7
11.8
14,4
39,0
3,8
42,8.
44,4
(4,1)
3,0
0,9
-5,5
-1,4
48,2
11,812,9
12,0
14,7
39,6
3,8
43.4
45,0
(4,4)
2.9
0,9
-5,3
-0,9
51.5
6,813.1
12.2
14,6
39,9
3,8
43,6
45.2
(4,8)
2,8
1,0
-5,3
-0,6
54.3
5,412,9
12,4
14,6
39,9
4.0
43,9
45,1
(5,0)
2,8
1.1
-5,2
-0,2
56,9
4,813.1
12.2
14,5
39,8
3,9
43,7
44,7
(5,0)
2,7
0,9
-4,7
0,4
58,1
2,113,1
12.4
14.6
40,1
3.6
43.7
44.5
(4,8)
2.7
0,9
-4,4
0,4
60,4
4,013.1
12.2
14,8
40.2
3,5
43,5
44.3
(4,8)
2,8
0,8
-4,4
0,4
62,8
4,0
(')Economic Forecasts,September 1987.
{2)EUR12;withoutGreece,IrelandandPortugalin1970and1973.
Source:EurostatandCommission services.

NoL394/10331.12.87 OfficialJournaloftheEuropeanCommunities
TABLE39
Generalgovernment expenditure ,receiptsandlending
(%ofGDP)
1970 1973 1981 1982 1983 1984 1985 1986(»)1987(')1988(»)
(a)Totalcurrentreceipts
B
DK
D
GR
E
F
IRL
I
L
NL
P
UK36,5
46,2
38,9
26,5
22,9
39,8
26.7
35.8
41,1
39,838.2
47.3
42,9
25,1
24,1
39.4
26,7
39,4
46,4
35,645,2
52,9
45.6
28,9
31.7
46,7
38,4
34,1
54.7
53.8
33,0
41,846.8
52.0
46.1
32.0
31.9
47,6
40,5
36.2
54.1
54.2
33.3
42,546.1
54,4
45,8
33.2
34.0
48,2
42.7
38.1
56,4
55,6
37,1
41.847.3
56.7
46,1 .
34,2
33.8
49,1
43,0
38,0
54,5
54.4
34,4
42,047.8
57,4
46.4
34.5
35.4
49,2
43,1
38.5
56.9
55,1
33,1
41,846.1
58.7
45,5
36,0
36,4
48.8
43.3
39.2
55,2
53.4
35.5
41,046,5
58.5
45,4
37.0
37,2
48,7
44,2
39,7
54,2
53.1
33,9
40.646.3
59.0
45.1
37.4
37.2
48,9
44.3
39,9
54,2
52,2
33,9
39,7
EUR12 35,9(*)36,2(')41,8 42,8 43,4 43,6 43,9 43,7 43,7 43,5
(b)Totalexpenditure includingcapital(3)
B
DK
D
GR
E
F
IRL
I
L
NL
P
UK38.6
42,1
38.7
22,1
38,9
29,7
33,1
42,3
36,941,5
42,1
41.7
22,9
38,5
32,8
36,1
45,4
38,358,0
59.8
49,2
39.9
35,6
48,6
51.8
45,5
57.9
59,2
42,5
44,457,8
61,2
49.4
39,7
37.5
50,3
54,3
47.6
55.7
61,3
43,6
45,057.5
61.6
48.4
41.5
38,8
51.4
54.5
48,8
56,2
62,0
46,2
45,256,7
60.7
48,0
44,3
39.3
51.8
52.9
49,5
52,5
60,7
46.4
45,956,2
59,5
47,5
48.1
42.2
52,1
54.7
50.8
52.5
59.9
43,1
44.654,9
55.4
46,7
46.7
42,1
51.8
54,0
50.5
51,4
58,0
43,7
43.653.1
56,6
47.0
47.6
42.2
51.5
53,2
50.1
51,4
58,8
42.7
42.652,4
57,3
47,1
47,3
42,1
51,3
52.1
50,3
51.2
58,2
41,7
41,7
EUR12 35,6(2)37,3(2)47,1 48,3 48,7 49,0 49,1 48,4 48,1 47,8
(c)Totalnetlending(+)orborrowing (-)includinginterestpayments
B
DK
D
GR
E
F
IRL
I
L
NL
P
UK-2,2
4,1
0,2
0,7
0,9
-3,1
2,7
-1,2
2,9-3,3
5,2
1,2
1,1
0,9
-6,1
3,3
1,0
-2,7-12,8
-6,9
-3,7
-11,0
-3,9
-1,9
-13,4
-11,5
-3,2
-5,5
-9,5
-2,5-11,0
-9,1
-3,3
-7,7
-5,6
-2,8
-13,7
-11,3
-1,6
-7,1
-10,3
-2,4-11,3
-7,2
-2,5
-8,3
-4,8
-3,2
-11,8
-10,7
0,2
-6,4
-9,1
-3,4-9,4
-4,1
-1,9
-10,0
-5,5
-2,7
-9,9
-11,5
2,0
-6,3
-12,0
-3,9-8,4
-2,1
-1,2
-13,6
-6,7
-2,9
-11,6
-12,3
4,4
-4,7
-10,0
-2,9-8,7
3,3
-1,2
-10,7
-5,7
-3,0
-11,2
-11,3
3,9
-4,6
-8,2
-2,7-6,6
1,9
-1,6
-10,6
-5,0
-2,8
-10,0
-10,4
2,8
-5,7
-8,8
-2,0-6,1
1,7
-2,0
-9,8
-4,9
-2,3
-7,5
-10,4
3,1
-6,0
-7,8
-2,0
-5,3 -5,3-5,3-5,2-4,8-4,5-4,5EUR12 0,3(2)-1,0(2) -5,5

NoL394/104 OfficialJournaloftheEuropean-Communities31.12.87
1970 1973 1981 1982 1983 1984 1985 1986(»)19870)1988(')
(d)Interestpaymentsonthepublicdebt
B 3,4 3,3 7,9 9,2 9,4 9,9 10,6 11,1 10,9 11,0
DK 1,3 1,3 5,3 6,0 8,1 9,7 9,9 8,8 8,2 7,8
D 1,0 1,1 2,3 2,8 3,0 3,0 3,0 3,0 2,9 2,9
GR \ |: 3,2 2,6 3,7 4,6 5,4 5,9 6,5 6,9
E 0,6 0,6 0,8 1,0 J,3 2,0 3,4 3,9 3,7 3,7
F 1,1 0,8 2,0 2,0 2,6 2,7 2,9 2,9 2,8 2,8
IRL |: 7,4 9,0 9,4 9,6 10,9 10,1 10,4 10,7
I 1,5 2,2 6,2 7,2 7,6 8,1 8,1 8,5 7,7 7,9
L 1,1 1,0 0,9 1,0 1,0 1,2 1,3 1,3 1,3 1,1
NL 2,9 2,8 4,4 5,1 5,7 5,9 6,3 6,0 6,0 5,9
P \ I=\ 5,2 5,4 6,4 7,1 7,8 9,3 8,1 7,2
UK 3,9 3,7 5,1 4,7 4,9 5,0 5,0 4,5 4,3 4,1
EUR12 1,9(2)1,9(2)3,7 4,1 4,4 4,8 5,0 5,0 4,8 4,8
(')Economic Forecasts,September 1987.
(2)WithoutGreece,IrelandandPortugal .
(3)Netofcapitaltransfersreceived.
Source:EurostatandCommission services .

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/105
TABLE40
Shareofselecteditemsofgeneralgovernment receiptsandexpenditure inGDP
1970to19731974to1980 1981 1982 1983 1984 1985 1986(»)1987(>)1988(•)
(a)Grossfixedcapitalformationofgeneralgovernment
B 4,4 3,7 3,7 3,4 3,0 2,6 2,2 1,9 1,7 1,7
DK 4,4 3,7 3,0 2,8 2,3 1,9 2,2 1,7 2,1 2,1
D 4,3 3,6 3,2 2,8 2,5 2,4 2,3 2,4 2,4 2,4
GR-l 3,9 2,9 3,3 4,1 4,4 4,1 3,7 3,5
E 2,7 2,2 2,3 3,1 2,8 3,0 3,6 3,4 3,6 3,7
F 3,7 3,4 3,2 3,4 3,3 3,0 3,1 3,2 3,2 3,2
IRL I 5,3 5,7 5,1 4,4 3,8 3,8 3,5 3,2 2,9
I 2,6 2,9 3,6 3,7 3,7 3,5 3,7 3,4 3,3 3,4
L 4,7 6,3 6,7 6,7 5,4 4,9 4,8 4,6 4,6 4,6
NL 4,4 3,5 3,1 2,9 2,7 2,8 2,5 2,2 2,2 2,2
P I 4,3 3,4 3,1 2,6 2,5 3,0 3,5 4,1
UK 4,7 3,6 1,8 1,6 2,0 2,0 2,0 2,0 1,9 1,9
EUR12 3,8(2)3,3(2)3,0 3,0 2,9 2,8 2,8 2,7 2,7 2,8
(b)Directtaxes
B 12,1 16,8 18,0 19,3 18,6 19,2 19,1 18,4 18,4 18,3
DK 23,8 25,2 25,8 25,4 26,6 27,6 28,5 29,0 28,5 29,5
D 11,5 12,8 12,2 12,1 12,0 12,1 12,5 12,2 12,2 11,9
GR 3,7 4,7 4,7 5,9 5,5 5,9 5,6 6,0 6,1 6,4
E 3,7 5,2 7,2 6,8 7,9 8,3 8,5 8,4 9,7 9,7
F 6,9 7,8 8,6 8,8 8,9 9,1 9,0 9,2 9,3 9,3
IRL 10,9 12,9 13,3 14,0 14,9 14,8 15,6 16,3 16,4
I 5,0 7,4 10,9 11,8 12,4 12,7 13,0 12,9 13,7 13,7
L 13,0 18,2 18,0 17,9 19,4 18,2 20,0 18,7 17,5 17,8
NL 14,0 17,0 15,1 14,7 13,6 12,7 12,7 13,4 13,7 13,5
P 7,7 7,6 8,5 8,3 8,3 7,1 6,4 6,3
UK 13,3 14,2 14,3 14,6 14,4 14,6 14,7 14,0 13,8 13,3
EUR12 9,6(*)10,9(*)11,6 11,8 12,0 12,2 12,4 12,2 12,4 12,3
(c)Socialsecuritycontributions
B 10,8 12,3 12,7 12,7 13,2 14,0 14,7.14,4 14,7 14,6
DK 2,3 1,6 2,1 2,4 2,9 2,9 2,9 2,5 3,0 3,1
D 13,5 16,4 17,4 17,8 17,3 17,3 17,5 17,4 17,6 17,6
GR 6,6 7,8 9,1 10,2 10,9 11,1 11,5 11,8 11,7 12,3
E 7,4 10,7 13,4 13,3 13,7 13,1 13,1 12,9 12,7 12,6
F 14,8 17,8 19,6 20,2 20,7 21,0 21,2 21,0 21,1 21,4
IRL I:\ 4,4 4,9 5,5 5,8 5,8 5,8 5,8 5,8 5,9
I 10,8 12,1 12,8 13,7 14,1 13,7 13,7 14,0 13,8 13,8
L 10,5 14,6 15,6 14,9 14,4 13,6 13,6 13,4 13,7 13,7
NL 14,8 17,4 18,7 19,7 21,9 20,7 20,6 19,5 20,0 20,0
P I 9,3 9,6 10,0 9,3 9,0 8,3 8,2 8,2
UK 5,2 6,2 6,3 6,5 6,9 7,0 6,9 7,0 7,0 7,0
EUR12 10,8(*)13,1(2)14,0 14,4 14,7 14,6 14,6 14,5 14,6 14,6
(')Economic Forecasts,September 1987.
(2)WithoutGreece,IrelandandPortugal .
Source:Eurostat andCommission services ,

NoL394/106 OfficialJournaloftheEuropeanCommunities31.12.87
GRAPH 1
ECU/US$exchangerate(quarterlyaverages)(')
(*)For1987/1988:EconomicForecasts,September 1987.
Source:Commission services.

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/107
GRAPH 2
Worldpricesforcrudeoil,rawmaterials (excludingfuel)andmanufactured goodsUS$
(Index1980=100)(>)
(')For1987/1988:Economic Forecasts,September 1987.
Source:Commission services .

NoL394/108 OfficialJournaloftheEuropeanCommunities31.12.87
GRAPH 3
Balanceoncurrenttransactions withrestoftheworldasapercentage ofGDP(')
(!)For1987/1988:EconomicForecasts,September 1987.
Source:Commission services .

NoL394/109 31.12.87 OfficialJournaloftheEuropeanCommunities
GRAPHS 4to7
Comparative evolutionoftheCommunity ,USandJapaneseeconomies ,1984to1987
5.Industrialproduction
three-month movingaverage,s.a.4.Grossdomesticproduct,s.a.
1980=100
6.Unemployment rate,s.a 7.Tradebalance
fob/cif,billionsECU,three-month movingaverage,s.a.

31.12.87NoL394/110 OfficialJournaloftheEuropeanCommunities
GRAPHS 8to11
Comparative evolutionoftheCommunity ,USandJapaneseeconomies ,1984to1987
8.Consumer prices
six-month change,s.a.,annualrates9.Exchange rates
IndexofSDRspercurrencyunit
March1979=100
11.Short-term interestrates10.Long-term interestrates
O//0

31.12.87 OfficialJournaloftheEuropeanCommunities NoL394/111
GRAPH 12
Profitability ,totalfinaldemandandprivateinvestment (pastdevelopments andmedium-term projections )
Source:Commission Services .

GRAPH 13
Growth,employment andunemployment inthe1986and1987referenceprojections —EUR12NoL394/112 OfficialJournaloftheEuropean Communities 31.12.87Source:Commission services.

31.12.87 OfficialJournaloftheEuropeanCommunitiesNoL394/113
GRAPH 14
SharesofworldmarketforexportsofCommunity industrialproducts
(Indices,1963=100)
(1)Indexofthemarketshareofintra-Community (EUR10)exportswithrespecttoOECDcountries'exportstotheCommunity (EUR10).
(2)IndexofCommunity (EUR10)exportstothirdcountrieswithrespecttothatofexportsofOECDcountriestothesamedestination .
Source:Commission services,Volimexdatabase .

NoL394/114 OfficialJournaloftheEuropeanCommunities31.12.87
GRAPH 15
Moneysupplyinrealtermsandthedeceleration ofnominalvariables (EUR12)(averageannualpercentage
change)(*)
(')EconomicForecastsSeptember 1987.
(2)Broadmoneysupply,annualaverage.
(3)BroadmoneysupplydeflatedbytheindexofunitlabourcostsorGDPprices.

31.12.87 OfficialJournaloftheEuropeanCommunities NoL394/115
GRAPH 16
Long-term andshort-term nominalinterestrates(*)
(a)EUR12average(2)
Difference betweenlong-andshort-term rates:
(b)EMSaverage(3)(Currencies participating intheexchange-rate mechanism )
Difference betweenlong-andshort-term rates:
(>)Representative ratesinthevariouscountriesonthemoneymarket(ingeneralthreemonths)andforlong-termgovernment securities .
(2)Privateconsumption weights.
(3)Weighted byrelativeweightsofcurrencies .