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Vol.1978/0023

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(78)64final.
Brussels,27February197°.
COMMUNICATION FROMTHECOMISSION
TOTHEJOINTCOUNCIL
OFFOREIGNAFFAIRSMINISTERS ANDFINANCEMINISTERS ANDTO
THEEUROPEAN PARLIAMENT
Globalappraisalofthe"budgetaryproblemsoftheCommunity
C0M(7B)64final

CONTENTS
■>mseetion Pane
,:r.,?<.hjlTION
A.GCTiHRALGUIDELINES
b.r)'<IORITYMATTERS FROMAMEDIUM-TERM BUDGETARY VIEWPOINT
C.SOImEREPERCUSSIONS ONTHE1979BUDGETIII
V
VII
Hnnex
MEDIUM-TERM BUDGETGUIDELINES
I.TowardsabudgetgearedtoaDEEPENINGoftheCommunity 1
1.PROSPECTS,OPTIONSANDCRITERIA 1
a.theBudgetasitstands,reflectingpartial 1
andlocalizedintegration
b.therisksinherentinthepreponderance 2
ofagriculture
c.thefunctionsoftheBudgetandthechoicestobemade 4
d.somecriteriaandconditions fordetermining priorities 6
2.PRIORITY AREASINWHICHITISPROPOSED THATTHECOMMUNITY ASSUME 9
GREATERRESPONSIBILITY FOREXPENDITURE
a.Policyonsectoralchangesandsocialandregionalcon- 9
sequences
(1)sectorsindifficulty 11
(2)growthsectors 12
(3)agricultural restructuring 13
(4)socialconsequences 15
b.Greaterenergyself-sufficiency 16
c.Strengthening ofinternational cooperation 18
d.Mitigation ofregionalimbalances 20
3.THECONTAINMENT OFAGRICULTURAL EXPENDITURE 22
II.TheENLARGEMENT oftheCommunity :asourceoffar-reaching
Budgetchanges23

-I-
INTRODUCTION
1.TheCouncilhasagreedtocontinuein1978theexperimenttriedin1976and
1977ofholdinginspringajointmeetingofMinistersofForeignAffairsand
Finance,soastoengage,withtheCommission andinaccordance withthe
wishesexpressed bytheEuropeanCouncilinDecember1975,inacomprehensive
reviewofbudgetproblemsinthecontextoftheCommunity'sgeneralpolicy.
Thismeetingistobeheldon3April1978.
TheEuropeanParliament,asoneco-holderofthebudgetary powers,intends
tocontribute tothispolicydiscussion,andhasplacedthequestiononthe
agendaofitspart-session openingon13March1978.
2.Whilewelcomingthisopportunity forawide-ranging exchangeofviewson
budgetprospectsbeforetheopeningofthebudgetaryprocedure,theCommission .»
takestheviewthatanattemptshouldbemadethisyeartomaketheexercise
moremeaningful .Atthisstageitisnotaquestionofpredetermining the
quantitative datafornextyear'sBudgetintermsofvolumeorgrowthrate,
fornotonlyarethefactorsvitaltosuchanexerciseunavailableatthistime
oftheyear,therulesofbudgetaryprocedure wouldforbidit.Ontheothe"
hand,itwouldbeextremelyusefulfortheCommunity-andwouldHpl.pthe
Commission initstaskofdrawingupthepreliminary draftBudget-ifa
effortweremadetoprovidethebasisforagreatercoherencebetweenthebroad
outlinesofgeneralpolicyandtheirimplementation ,laterintheyearand
onamulti-annual pattern,inbudgetary terms.
3.TheCommissiontherefore hopesthatthispolicydiscussionwillprepare
thegroundforanobjectivediscussion oftheBudgetandbringaboutamore
constructive attitudetowardsthepreliminary draftBudget.TheCommission
takestheviewthatthewayinwhichtheCouncilin1977,duringthefirstreading
oftheBudget,embarkeduponageneralandslashingreductionofthenon-compul-
soryexpenditure proposedbytheCommission showedthattheCouncillacked
aconsensus oncertainpriorities,forifsuchaconsensus hadexistedit
wouldhavebeenboundtoproduceamorepositivereactionontheCouncil'spart.

-II-
A.ThisCommunication isbeingsenttotheCouncilandtheEuropean -Parliament
topresenttheCommission'sreflexionsandsuggestions .
Itconsistsofthemainsectionandanannex.Themainsectionhasthreeparts:
PartCA)suggestsanumberofgeneralguidelines;Part(B)outlinesthesub­
jectswhichtheCommissionbelievesshouldbegivenpriorityinamedium-term
budgetaryperspective ;Part(C)triestodrawanumberofconclusions for
the1979budget.
Astheannexisanenlargement ofPartsAandB,themainsectionsometimes
makescross-references tothecorresponding pagesoftheannex.

-III-
GENERALGUIDELINES
1.Amountingtoaround2.5%ofthenationalbudgetsoftheMemberStatesand
0.8%ofGDP,theCommunityBudgetreflectstherealityofaverypartial
andextremelylocalizedfinancialintegration (seeTable,p.1):ready
threequartersoftheappropriations aredevotedtothecommonagricultural
policy,whichistheonlycommonpolicythefinancingofwhichhasbeento
alargeextenttransferredtotheCommunityBudget.TheBudgetinnoway
measuresuptotheroleitisrequiredtoplaytowardsachievingtheobjec­
tivesofeconomicandmonetaryunionandenlargementtowhichthehighest
CommunityAuthoritiesrecentlyagaindeclaredthemselvesfirmyattached.
ThosewhodesiretoseetheCommunitydeepenedandenlarged,mustalso
acknowledge thefinancialconsequences .
2.Thepreponderance ofagricultural expenditure mustnotleadtothebudgetary
debatetreatingtheBudgetasonebiglump,withtheriskofstiflingpoli­
ciesandmeasuresvitaltotheCommunity'sfuture:theBudgetaryAuthority
mustexamineeachofthepolicieswithbudgetaryimplications accordingto
itsownmeritswithregardtointegration .
3.Bothbyfirmercontainment ofagricultural expenditure andbytheexpansion
ofotherCommunitypolicies,therelativeweightofexpenditure inrespect
ofguaranteeing agricultural marketsmustbegraduallybutappreciably redu­
ced.Butitwouldbeillusorytoimaginethatthebudgetaryprocedurewould
beofmuchuseasameansofcontainingthisexpenditure,asitisbasically
determined bydecisionstaken"upstream"(marketorganizations ,prices,MCAsetc
A.Inthefinancialyearsahead,priorityshouldstillbegiventobringingwithin
theCommunityambitpoliciesandmeasureswhichhaveadirectlyintegrating
effect,i.e.inthosesectorswhereoperationontheCommunitylevelpresents
aneconomicorpoliticaladvantageoveractioninthenationalframework.
5.However,withaviewtoprogresstowardseconomicandmonetaryunion,prepa­
rationsmustbemadetoapplytheCommunityBudgetincreasingly asaninstru­
mentofredistribution andstabilization .Thecoordination -andthecorrespon­
dinglymoreeffectiveandcloselyderetaileduse~ofthefinancialinstruments
isalreadyamoveinthisdirection.Thefundingwhichwouldberequiredto
naveanysignificanteffecthereclearlyexceedsthecurrentsizeofthe
Budget(seep.5).

-ÏV-
6.ItisessentialforthefundsallocatedtotheCommunitytobeincreased,but
theCommunityshouldbemaderesponsible onlyforthosetaskswhichcan
bebestcarriedoutatCommunityratherthannationallevelorwhich,forother
reasons,determinetheprogresstowardsintegration .Thesetaskswilltherefore
bechosenonthebasisofwelldefinedcriteria(seepage6).
7.,neDevelopmentofsuchCommunitypoliciesshouldlightentheloadonthe
nationalbudgets.ToensurethattheCommunitypolicycouldhavearealand
tangibleeffect,itisabsolutelynecessarythattheCommunityactionsreach
the"criticalmass",andsometimesevenwhollyreplacenationally-financed
actionssoastotransformthemintoreal"Community"actions.
8.Whilethewholerangeofpoliciesandmeasures-established orrecentlystarted-
willbecontinued,itisthereforenecessaryinthelightofadvocatingmajor
financialexpansiontoadoptamoreselectiveandnarrowapproachwhichwould
ensurethatresponsibility forpoliciesandmeasuresinasmallnumberofpriority
fieldsimportanttoEuropeanintegrationistransferred fromnationaltoCommu­
nitylevel,thecostsinvolvedbeinggraduallyassumedbytheCommunityBudget.
9.FinancingtheBudgetunderthesystemprovidedforintheDecisionof21April
1970willbeaprobleminthemediumtermastheavailablemarginmaydisappear
bythebeginningofthe1980.TheCommissionwillshortlypresent
areportonthequestionofcreatingnewresources.
10.Inthiscommunication ,theemphasisisplaced,forobviousreasons,onthe
financingofoperationsfromtheCommunityBudget;buttheCommissionstresses
thatitattachesgreatimportancetoasmucheuseaspossiblebeingmadeof
theborrowingandlendingmachinery,whichmustplayagrowingpartinthe
Community'sfinancesandbeusedwheneverthemeasuretobefinancedis
suitableforthisapproach.
Οβ/0β

-ν-
B.PRIORITYMATTERSFROMAMEDIUM-TERMBUDGETARY VIEWPOINT
TneCommissionsuggeststhatcertainmattersbegivenpriorityfromamedium-
tern,budgetaryviewpoint;thesewereincludedinthePresident'spolicyspeach
totheEuropeanParliamentlastFebruaryandintheCommission'scommunication
totheEuropeanCouncilof6thand7thDecember1977oneconomicandmonetary
union,
'"Policyonsectoralchangesandsocialandregionalconsequences
Inthefaceofconjonctural andstructuraldifficulties,itisnecessaryto
makeanattempttorestructuretheproductiveapparatus;thisattemptat
restructuring ,whichshouldalsoincludeagriculture,willhavesocialand
regionalconsequences withrepercussions atbudgetlevel.
Toensuresuccessthisrestructuring mustbeabletobecarriedoutatcom­
munitylevel,forreasonsofefficiencyandcoherence;besides,itwill
onlybepossibleifaparallelattemptismadeinthefieldofdevelopment
ofgrowthsectors
Communityindustryinthedecliningsectorsisconfrontedwiththeneedtoad­
justproductioncapacitiesandmodernizestructuressoastoregainthe
competitiveness whichisessentialfordevelopingitsexternalmarkets.
Whatismore,industrymustexploitthenewdevelopmentpotentialwhichthe
advancedtechnologysectorsandtheenvironmental andenergysectorscontain
onitsownmarket.
GS..eaierenergyself-sufficiencymustalsotakepriorityiftheCommunity
wishestoachievetheobjectivesithassetitself.Theproportionofthe
CommunityBudgetcurrentlyallocatedtoenergypolicyproper(approximately
0.4%)isdisproportionately smallincomparisonwithwhatisatstake.
Energypolicy-comprisingthedevelopementoftheCommunity'senergyresources
andrationalutilizationofenergy-mustbevastlyexpanded.
strengthening ofinternational cooperation mustcontinuetoreceivethe
Community'sclosestattentioninthemediumandlong-term,bothbyreason
oftheCommunity'sconcernfordevelopmentinThirdWorldcountriesandin
theCommunity'sowninterests.Numerouscriteriaspeakinfavourofreinfor­
cingtheCommunitycharacterofthedevelopmentcooperationpolicyandthe
resultantexpenditure.Althoughtheshort-termaimistoconsolidate and
deepenwhat,hasalreadybeenachieved,theearly1980'swillbeanimpor­
tantmilestoneinthebudgetaryactivityoftheCommunitywiththeincorpo­
rationoftheEuropeanDevelopment FundintheBudget.

-VI-
4.Thereductionofregionalirebalancesisalreadyagrowingconcernof
theCommunity.Althoughthefinancialallocationplannedupto1980
represents aconsiderableeffort,theimpactoftheCommunitycontri­
butionwillnevertheless beveryslightinrelationtothescaleof
theproblemstobetackled.Giventheforeseeable consequences ofthe
deepeningandwideningoftheCommunityitwouldbeofvitalimportance
toincreasesignificantly thefinancialmeasuresmadeavailabletothe
Community .
5.TheCommissionconsidersthatthebudgetaryapproachtothecommon
agricultural policymustcontinuetobethatofcontainingtheexpen­
dituregeneratedbythispolicy(seep.22").
Ageneralmedium-termappraisalofbudgetarymattersmustincludethe
enlargementoftheCommunities,whichwillhavesignificant budgetary
repercussions fortheCommunities andinparticularthereallocation of
resourcestotheadvantageofthenewMemberStates(seep.23).The
Commissionwillshortlymakeaninitialassessment .

VIÎ-
•SOMEREPERCUSSIONS ONTHE1979BUDGET
Asregardsthe1979Budget,themaineffectoftheguidelinesandpriorities
putforwardareasfollows:
.Asregardsindustry,theCommissionintendstocontinuetheeffortsit
launchedinthe1978Budgettoraisethefinancialmeansneededtoover­
comethecrisis.
Thoughthesefinancialinterventionsareonlypartoftheoverallindus­
trialstrategyatCommunitylevel,theyarenevertheless anindispensable
part.
ComplementingtheactiontakenbyoperatorsandtheMemberStates,Commu­
nityfinancialaidwillreleaseaidforreorganization andconversionin
theformofloansandinterestreliefgrants.AportionoftheCommunity
loansintendedtofinanceindustrialinvestmentprojectsshouldtherefore
bedirectedtowardstheseobjectives.Inaddition,appropriations could
beenteredintheGeneralBudgettoenabletheCommunitytoapplyadirect
stimulustoreorganizationeffortsaswellasupgradingtheexisting
financialinstruments(EIB,SocialFundandRegionalFund).
2'Thea9riculturalstructurespolicyshouldgrowsignificantlyin1979:
firstly,therecentCommissionproposalswithaviewtoCouncildecisions
during1978,shouldallowtheexistingdirectivestobeappliedmorefully
Secondly,theCouncilisalsocalledupontodecidein1978onanumberof
specificproposalsonthestructureoftheMediterraneanregions,theimpl
cationsofwhichwillbereflectedinthe1979Budget.
3.Asforthesocialpolicy,thefinancialyear1979should-bearinginmind
theprecariousemploymentsituation-seethefollowingdevelopments :
anacross-the-boardincreaseinappropriations shouldraisetheinterven­
tionlevelforexistingmeasures;
ormsofaidinrespectofyouthunemploymentshouldbeintroduced;
newinterventionmeasureswillbenecessary,ifthepoliciesforthe
reorganization ofcertainindustrialsectorsaretobeacceptableona
sociallevel. *

-VIII -
4.Asregards energy policy anditsresearch aspects ,in1979 budgetary appro­
priations will beneeded inorder that theoperations todevelop theCommu­
nity 'senergy resources maybecontinued andexpanded ,with theemphasis on
theexploitation ofhydrocarbons ,uranium prospecting anddemonstration pro­
jects (energy savings ,coal gasification ,geothermal energy ).Asregards coal ,
operations fortheupgrading andpromotion ofcoal atCommunity level (stock­
piling ,useinpower stations ,intra-Community trade )will berequired .
These operations todevelop alternative energy sources ,will bebacked upby
anewoperation concerning theenergy savings tobemade by
modernizing buildings .
5.Asregards international cooperation -pending important stages iribudgetary
activity insubsequent financial years -in1979 emphasis should beplaced ,
asamatter ofpriority ,on :
-food aid :thetotal quantity ofcereals supplied bytheCommunity andthe
Member States should beincreased .TheCouncil took afavourable view of
theprinciple ,andthis should betranslated into practical terms when the
Food AidConvention isrenegotiated ;
-financial andtechnical aidtonon-associated developing countries :present
efforts should beintensified toensure that atruly significant volume of
aid isreached atanearly date .
6.Theneed already sostrongly felt forasubstantial increase inthefinancial
resources ear-marked foralleviating theeffects ofregional imbalance isfelt
even more acutely intheperspective ofeconomic andmonetary union aswell
asthat ofenlargement .
Looking forward tothe1979 Budget ,priority must begiven toestablishing
a"non-quota "allocation whose raain purpose would betopermit financial
intervention atregional level andattheCommunity 'sinitiative ,andthus
provide additional support which isessential ifthis policy istobefully
implemented .
».»i•a

-IX-
7.Whereagricultural marketpolicyisconcerned,the1979financialyearwill
reflecttheadjustments whichwillhavebeenmadeonthebasisofrecent
Commissionproposals :
-theeffectsofacautiousagriculturalpricespolicy;
-themodification of3omemarketorganizations shouldresultinabetterbalance
andinmoresatisfactory functioning ofthepolicy;
-thegradualreductionofmonetarycompensatory amountswillhelpto
restorethesituationtonormal;
-therestructuring andimprovement ofsomemarketorganizations forMediterranean
productswillmakeiteasiertomeettherequirements ofcertainregionswhich,
sofar,havebeendisadvantaged .
.8.The1979Budgetwillreflecttherepercussions ofthenewfisheriespolicy,
whichwillbeintroduced inthreear&as
-Thecommonmarketorganization willhavegrowingimportance.Tothiswill
laterbeaddedtheeffectsofthenewsupportmeasuresforwhichprovisionis
tobemade(extendingthepricesystemtootherspecies,newtechnologies,
marketingandsales...);
-Thestructuralpolicywillappearinthe1979Budget,intheformofthe
threemeasuresforwhichtheCommissionhassubmittedproposals:(conversion
ofthesmallscaleinshorefishingindustry,adjustmentofproductioncapaci­
tiesincludingsocialaspects';protectionandsurveitlanceoffishingzones).
-Theexternalaspectsofthefisheriespolicywilltaketheformoffisheries
agreements (involvingafinancial'consideration )withcertainnon-Member
countries.

Annextothedocument
"Acomprehensive reviewof
theCommunity *aBudget
problems' 1
MEDIUM-TERM
BUDGET
GUIDELINES

-1-
I.TowardsaBudgetgearedtoaDEEPENINGoftheCommunity
1*PROSPECTS,OPTION'SANDCRITERIA
n.TheBudgetasitstands,reflectingpartialandlocnlii-.odIntegration
ThegeneralpublicandtheGovernmentsoftheMemberStatesgenerally
tendtoseethevolumeoftheCommunityBudgetastooInrgeandits
growthastoorapid.ThemythhasgrownupthattheCommunitycosts
toomuch.Whatisthetruth?
V,V3
197*.
1975
1'/?£•In197fttheGeneralBudgetoftheCommunitieswillreachthestunof
12.4thousandmillionEuropeanunitsofaccountinappropriations for
payment,whichcorrespondsto0.855oftheGDPandabout2.5%ofthe
nationalbudgets.While,asthetablebelowshows,therelationship
betweentheCommunityBudgetandnationalbudgetsshowsaslightincrease
TABLE1;GROWTHCFTHEGENERALBUDGET(FTHECOMMUNITIES ,1973-78
Umt GeneralBudget
ofthe
EuropeanCommunities
Totalofwhich
EAGGF-,i
Guarantee
mu.a.
mu.a.
mu.a.
niu.a,.
Zy?7jmu.a.
1;"77|mEUA
jmEUA4641
5037
ó214
7993
9584
9600
123623,594
3390
4327
5710
M33
8695EAGGFGar.
as.%of
Total
77ΛΧ
67.3%
69,6%
71.4%
74.4%Member •
States'
BudgetssGDP
(EEC)
(Central
govts.)
70»3%227638
268274
337496
387.908
433824óGeneralBudget
as%of
National
Budgets.
<2Î:(S)
867550
983.470
1,110600
1*281 ,610
1.445,120
<398.600)1.375760
1.531'4102,0%-
1,9%
1,8%
2f1%
2.2%GDP
(2):-fc.)
8
(2.4%)0.53%
0.51%
0.55%
0.62%
0.66%
0,70%
0.81%
Concertedat1February1977ratesforthe1978Budget.
overtheyearsandwhiletheproportionaccountedforbytheGeneralBudget
intheGDPoftheEuropeanCommunities showsaslightrise,itisnevertheless
truethat3

(i)threequartersoftheBudgetoftheEuropeanCommunitiesisallocated
toasinglesector:thecommonagricultural policy;
(ii)allocationstoothersectorsofintervention aresuchthatthey
seldomcausetheBudgettoreachthecrucialsizetoenableitto
havearealandnoticeable impact;
(iii)theBudgetisnotofasizeallowingittoperformanymacro–economic
functionwhatsoever .
TheCommunityBudget,notinsignificant inabsolutetermsyetrelatively
verysmallandveryheavilyweightetinfavourofonepolicy,reflectsthe
realityofaverypartialandextremelylocalizedfinancialintegration.
Atpresent,itisneitheratrueinstrumentforfinancingawiderangeof
policiesnorameansofredistribution worthyofthename,noran
instrument ofeconomiostabilization .
Attheriskofappearingoutofstepwithpublicopinion,itmustbe
saidthat,objectively ,theBud/gettodayinnowaymeasuresuptothepart
itisexpectedtoplayinthemovetowardsneatereconomicintegration .
ThedeepeningoftheCommunityrequiresamajorexpansionofthefinancial
resourcesavailabletoit.
b.Therisksinherentinthepreponderance ofagriculture
TheonlyareawheretheCommunityBudgetmeasuresuptoitstaskis
agriculture ;evenso,thisholdsonlyfortheGuaranteeSectionandnot
forthestructuralGuidanceSection.Itisregrettable andindeedvery
detrimentalthattheweightoftheagriculturalpolicyintheBudgettendsto
disturbthedebateontheCommunity'sbudgetaryprospects#

»3-
IntnissituationtheCommunitymustavoidmakinga"basicmistake:itmust
preventthefinancialresourcesdevotedtoagriculture fromdominatingor
ever,swagingtheentireBudgetdebate.Thecontainingofagricultural
expenditure shouldbeonesubjectandtheremainingpoliciesandmeasures
tobefinancedfromtheCommunityBudgetanother.YettheCommissionfinds
thattheMemberStatestendtoprojecttheeffectsofagricultural "guarantee"
expenditure –consideredexcessivebysoma–ontoalltheothersectorsand
policies:itbeginswiththatverypartofagricultural expenditurewhich
isdesignedtoattacktherootoftheproblem,namely"structural"expenditure,
whichhasbeenhelddownforalongtime;anditgoesonto"non-compulsory
expenditure"which,fromtheoutset,istheoretically oontainedbythe
"maximumrateofincrease",asifinaCommunitywhichisfarfromhaving
achievedits"cruisingspeed"therewereanyeconomicorpoliticalsense
indemandingstrictparallelism withcertainmacro-economic factors
orwithnationalbudgets(whichforthemostpartareoperatingat"cruising
speed").
TheCommissionmustthereforeargueinfavourofanobjectiveexamination
ofeverypolicythathasbudgetaryimplications ,basedonitsownmerits
inthelightofEuropeanintegration ,andagainstanytoogeneralexamination ,
whichi3liable,owingtotherelatingweightofexpenditure ontheguarantee
ofagricultural markets,tostiflesomeoftheactionsandpoliciesmost
vitaltothefutureoftheCommunity.

-4-
C.Thefunctions oftheBudget and thechoices tobemade
Before attempting toidentify thecriteria which will point tothose
priority sectors where ,initsopinion ,expenditure should bebrought
more fully under theCommunity umbrella ,theCommission believes that
itisworthwhile putting forward anumber ofconsiderations onthe
functions which theBudget might perform with aview tothedeepening
oftheCommunity ,andparticularly inthecontext ofeconomic and
monetary union .
First ,theBudget hasthefunction offinancing anumber ofpolicies and
measure s,Community financing ofwhich constitutes adirect contribution
toeconomic integration .Ineach case these areareas where there is
economic orpolitical advantage inoperating onaCommunity rather than
onanational scale .
Secondly ,theBudget must have aredistributive function .Atpresent
only theRegional Fund isgeared tothis end .AstheCommunity
advances towards economic andmonetary union ,sotheconcomitant charges
even pooling oftheeconomic andmonetary policy instruments which they
will entail ,mean that theredistributive function oftheBudget must grow .

-5-
Thirdly ,theBudget mayberequired toact asastabilizing agent on
cyclical trends rrevenue andsupply ..
Although thepresent Budget already contains elements ofthese three
main functions ,itmust "besaid that only the first isperformed to
anysignificant extent ,theBecond operates only marginally and the
third iseffective only intheagricultural sector .
Inview ofthelimited financial resources available totheCommunity
inthemedium term ,there islittle possibility ofsignificant progress
being mad inallthese three areas atonce *
Inconsequence ,the Commission recommends that thebudgetary authorities :
(i)continue togive priority inthecoming budgetary years tothe
bringing within theCommunity ambit ofpolicies andmeasures which
have adireot integrating effect .Progress oould still bemade here
within theexisting financial framework .Furthermore ,thetransfer of
such expenditure tothe Community may often remove aburden from
national budgets ;
(ii)prepare toallow theCommunity Budget eventually toplay a
growing redistributive andstabilizing role .The financial resources
necessary toproduoe any significant effect onthis front farexoeed
present availabilities .Weare not ofcourse thinking interms ofa
Community Budget comparable toacentral budget inafederal system
(20$"to25%oftheGDP).Nevertheless ,asubstantial increase inthe
Community Budget would beessential (l).
(l)TheMacDougall report "Therole ofpublic finance inEuropean
integration ",estimates that theCommunity Budget asapercen­
tage ofGDPshould fall between 2%and2,5%onalower assumption ,
andbetween 5%and7%onamore ambitious assumption ;atpresent ,
thofigure is0,8

d.Somecriteriaandconditionsfordeterminingpriorities
WhiletheCommissionisadvocatinganincreasexnthefinancialmeans
attheCommunity'sdisposal,itwishesatthesametimetostressin
nouncertaintermsthattherecanbenoquestionofindiscriminately
transferring totheCommunityactivitieswhichhaveanimpactonthe
Budget.Onthecontrary,onlythosefunctionsmustbeentrustedto
theCommunitywhichitisindisputably "betterabletoperformthan
nationalauthorities orwhich,forotherreasons,governthepursuit
oftheintegration process.
Firstofallthereisthe"economiesofscale"criterion,which
arguesforahigherdegreeofCommunityresponsibility forpolicies
andmeasuresinrespectofwhichthegreatertechnicalandeconomic
efficacityofoperatingonaCommunityscaleiseasytodemonstrate
(keyindustrialseotors,research,international relations,andso
on)•
AnothercriterionwhichtheCommissionfindsessentialistheextent
towhichtheCommunityfinancingofagivenpolicywouldimpingeupon
otherpolicieswhicharealreadyfinancedbytheCommunity.Itwouldbe
bothdetrimental andillogicaltodivideuptherangeofmeasuresto
betakentodealwithaspecificproblembyassigningsometothe
Communityandotherstonationalauthorities.Thegreaterefficacity
ofacomprehensive approachisanindisputable argumentinfavourof
poolingthewholecomplexofmeasuresundertheCommunity'saegis.

AfundamentalnecessityforpersuadingtheMemberStatesandthepublic
toacceptanincreaseintheCommunityBudgetisthatCommunity
expenditure shouldnotsimplybeanextraburden.Aslongaspeople
believethatCommunitybudgetaryexpenditureisanadditionalcallon
thenationalpurse,theirreactionwillbetosystematically curbsuch
expenditureforobviousreasonsofeconomyandausterity.
Communityfinancingofmeasuresandpoliciesshouldnotalwaystake
theformofexpenditure undertheBudgetadditionaltonational
expenditure# Cnthecontrary,thedevelopment ofCommunitypolicies
"iustr3.i.ievenationalbudgets,exceptingnewandhenceadditional
leasureawhichgenuinelyrepresentthepricetobepaidforthe
advantagesofintegration.
ThebestexampleofaCommunity-finances policywhichhaslightened
theburdenonnationalbudgetsisonoeagaintheagricultural markets
guarantyspolicy,whore"criticalmass"or"take-off"levelhasactually
beenreached.Th'.sexplainswhyitaccountsforsuchalargeproportion
oftheCommunityBudget:andalsowhythereisnoavoidingit,and
whyitisaccepted.

-8-
\
1
ι
5
i
i
ι
TheCommissionthereforebelievesthat,althoughthewholerangeof
Communitypoliciesandmeasures,"bothtentativeandestablished ,
shouldbecontinued,everyeffortshouldhenceforthbemade,inareas
wheremajorfinanoialexpansionisadvooated,toavoidthepolicyof
"apinchhereandadashthere".
Tostunup:theCommissionsuggeststhattheCouncilandParliament
basefutureCommunitypolioy,notonthespawningofahostof
smallprojects,butonamoreselectiveandconcentrated approach.This
approachwouldgraduallybringabouttheCommunityfinancing-intotowhere
necessary–ofpoliciesandmeasuresinanumberofclearlyidentified
priorityand(fromtheviewpointofEuropeanintegration ^important
fields:thesepoliciesandmeasureswouldbegenuinely
transferred fromthenationaltoCommunitylevel,thuseasingthe
pressureonnationalbudgets.

PRIORITY AREASINWHICHITISPROPOSED THATTHECOMMUNITY ASSUMEGREATER
RESPONSABILITY FOREXPENDITURE
a.Policyonsectoralchangesandsocialandregionalconsequences
TheCommission suggests,takingthelong-termview,thattherestructuring
oftheapparatusofproduction anditssocialandregionalconsequences
shouldbeputatthetopofthelistofthepriorityareaswhichcometo
mind.
Manylargeindustrial sectorsintheCommunityarenotadaptedtothe
presentpatternofworlddemandandareuncompetitive ontheirownmarket
and,ofcourse,ontheinternational market.
Iftheyarenotreorganized,thesesectorswilleitherdeclineorowetheir
survivalonlytoprotectionist measuresornationalproduction aids.
Theroleofthemarketinthenecessaryreallocation ofresourcesforre­
structuring remainsandmustremainessential.
Itistobefeared,however,thatthesocial,regionalandfinancialcosts
ofarestructuring broughtaboutbytheplayofmarketforcesalonewill
beconsidered sohighthatthegovernmentswilltakenationalmeasuresto
accelerate anddirecttheadaptationoftheindustrial sectorsindifficulty .
Thesenationalmeasuresareliabletobeartofstepwitheachother,if
notdownrightcontradictory ineffect,unlesstheyareconcertedatCommu­
nitylevelandaccompanied byacertaindegreeoffinancialsolidarity.
ThisiswhytheCommunity mustencourage,pragmatically butconsistently ,
thenecessarysectoralmeasurestomodernizetheindustries inorderto
restoretheircompetitivity morequicklyandthatistheaimoftheCommu­
nitymeasuresinthesteel,extileandshipbuilding sectors.
TheCommunity'sfinancialassistance mustbedirected,depending onthe
caseandinkeepingwithnationalactions,toassistrestructuring when
themainobstacletorationalization isshortageoffinancialresources,
ortoassistconversiontoothersectorswhenthemainobstacleisopposi­
tiontoredundancies owingtothelackofalternative jobsintheregion.

-10-
Firstly,thereisanirrefutablelinkwithcommercialpolicy,acommonpolicy
parexcellence;Itislargelyowingtoexternalcompetition thatalarge-scale
restructuring andconversion programmeneedstobecarriedoutintheEuropean
economy.IftheCommunityintendstopreservefreedomof.tradeandwardoffpro­
tectionist tendencies,itwillhavetodomorethansimplycallintoplayat
Communitylevelthebatteryofcommercialinstruments which,inanycase,inthe
presentsituationarelikelytobeprimarilydefensive.
Industrialpolicymustalsobeconnectedwithcommercialpolicyandaccordingly
pursuedatthesamelevel,i.e.Communitylevel.Thatiswhythelogicalexten­
sionofcommoncommercial measuresiscommonstructural measureswhenever compe­
titionfromnon-member countriesisfeltintheMemberStates.
ThereisalsoalinkwiththeprospectoftheCommunity'senlargement,whichwill
createnewproblemsofindustrial andagricultural reorganization .Itwouldhardly
befeasibletomovetowardsenlargement withoutprovidingtheCommunitywiththe
fundsitneeds,bystrengthening andadjusting,wherenecessary,theexistingin­
strumentsofstructuralpolicy.
Theregionaldimensionoftheproblemofrestructuring isobvious:lessdeveloped
regionswillbemoreseriouslyaffected-hencetheneedforgreaterCommunity
financialsolidarity .
Finally,theproblemofrestructuring isbounduptoacertainextentwithanother
Communitypolicy,thatofdevelopment cooperation .Thecompetitive pressures on
oureconomicstructures arepartlyattributable toadeliberatepolicyofcoopera­
tionincommercial (e.g.withthesystemofgeneralizedtariffpreferences),fi­
nancial,technical,industrial,agricultural andotherfields.TheCommunity
shouldthereforebearagreatershareofthecostoftheadjustmentnecessitated by
itscooperation policy.Alongside"defensive"restructuring ,weshouldnotfor­
getthepossibilities of"dynamic"reorganization ,giventhegrowingimportance

-il-
totheCommunityofthedevelopingcountries'markets.Community
financialassistance mayproveessentialtobothtypesofadaptation.
Arestructuring programmmayevenextendbeyondCommunityterritoryin
theinterestsoftheCommunity :rawmaterialandenergysupplyconsi­
derationsshouldprompttheCommunity–astheCommissionhassuggested–
toprovidesupportintheformoffundsfromtheBudget(ifonlyas
guarantees )orthroughtheEIB,asneeddictates,forprivateinvest­
mentprojectsinnon–Communitycountriesfulfillingtheseessential
objectives.
TheCommissionproposesforthesereasonsthatrestructuring ofthe
apparatusofCommunityproduction andtheconcomitant socialreadjust­
mentsandregionalconsequences shouldbetheprimaryframeworkforthe
long-termbudgetaiypattern.Theborrowingandlendingsystemwillalso
playanimportantparthere.MeasurestoensuregreaterCommunityrespon­
sibilityinpublicfinancingmustbechosenaccordingtowelldefined
criteria,
(l)Asregardsthesectorsindifficulty,theCommissionagainstresses
thattherewillbeaconsiderably greaterchanceofcreatingaCommunity
frameworkforrestructuring iftheCommunityisabletoprovideitsown
financialassistance ,forbothrestructuring andconversion®
Anappropriation of20mEUAisenteredinthe1978Budgetunderanew
heading,Article375?"Communityreorganization andconversionoperations
inconnection withcrisesincertainindustrial sectors".TotheCommis­
sion'swayofthinking,thismarkethestartofapolicyofusingCommunity
resourcesforcommonpoliciesintheindustrialsector,anditintendsto
continuethispolicyofintervention undertheBudgetinfuturfinancial
years.

«•12 «•
) growth sectors (inwhich thedevelopment oftheadvanced "technology /
sectors must beincluded )will bacalled ,upon toplay amajor role inthe
expansion ofEuropean industry *.Theeconomic aridsocial transition of
these sectors should "betherefore !carefully planned *
TheCommission 'sanalyses ofthedevelopment potential oftheaerospace ,
data processing andelectronic components seotors reveal ,with aclarity
that agrowing number ofGovernments andindustrialists are "beginning
torecognize ,that aCommunity approach would Hake foraworthwhile ex­
pansion ofthese activities .Inanycase ,theproblem arises inthese
sectors ofthegradual pooling oratleast coordination ofresearch
capacities ,together with thequestion ofusing public procurements
asameans ofexpending their markets .,TheCommunity must make an
important contribution totheresearch effort byproviding undertaking *
with the research facilities vhioh are not available totheMember
States acting individually e
Inthese sectors where intervention bythepublio authorities is
usually onalarge scale andoften decisive ,theCommunity must give
itself themeans -including "budgetary means ~toassume itsrole as
aneconomic power ,astheadvanced technology sectors candevelop
only with theresources andthemarket ofawhols continent' ..
Tosumup,itistoth©extent that itiscapable ofmaking afinancial
contribution that theCommission ismost likely topersuade Governments
and industrialists toooot>erat© «

13
(3)AgriculturalrestructuringisamattertowhichtheCommunitymust
devotemoreattentionandgreaterresources.Thisaspectof
agriculturalpolicyislaggingwellbehindmarketpolicy,eventhough
thereisquiteclearlyacloselink-aconsideration whichindeedin
theearlyyearspromptedtheCommunitytotrytosetacertainratiofor
thetwosetsofexpenditure ;inaddition,however,itscontextis
changing,inviewoftheprospectiveinternationaldivisionoflabour
and,atthemoment,inparticulartheprospectiveenlargementofthe
Community.
Agriculturalstructurespolicyhastakenalongtimetofinditsfeet.
Onlysincethefairlyreoentlaunchingofthe"commonmeasures"can
onespeakofastructurespolicywithCommunitycoordination.The
1978Budgetisthefirstonetoprovidefortheallocationofallthe
appropriations availablefor"commonmeasures".
Thefollowingguidelinesshouldbefollowedtosecurethenecessary
reinforcement ofagriculturalstructurespolicy:
(a)Improvementsintheexistingdirectivesandmorevigorousapplication
Pastexperienceindicatesthatspecificadjustmentsarerequired
inordertostepuptheapplicationofthesedirectivesandhence
makethemmoreeffective.Themainadjustmentsproposedtothis
endaretobringcertainamountsintolinewiththecost–of–living
trend,tointroducemorefavourablearrangementsforthecessation
offarmingandtoincreasetherateoftheCommunity^financial
participationforcertainlessfavouredareas(inIrelandand
inItaly).
Thedelayinapplyingseveraldirectiveshasresulted,forexample,
fromadegreeofsluggishnessinnationaladministrative organization
whichmustberemediedswiftly.
(b)Thenewproposals
Thedirectivesandregulationssofarapprovedalreadyconstitutea
fairlybroadbasisfortheprogressiveimprovementofagricultural
structureSoHowever,inadditiontocertainadhocproposals,it
hasbeenfoundnecessarytobringinnew"Mediterranean"proposals.

«•14™
AstheMediterraneanregionspresentaseriousproblemandthereisaserioiis
imbalancewiththerestoftheCommunity,theCommissionrecently
submittedasetofproposalswithaviewtohelpingtosolvethe
problemsoftheseregions.
TheCommissiontruststhatalltheseimprovementswillbeagreedto
andcanthereforebedecidedonandimplementedassoonaspossible.
Asregardsthebudgetaryimplications ,itmustbeassumedthat
increasingallocationswillberequiredintheyearstocome.Inthis
particulararea,enlargementwillprobablyentailanoteinsignificant
increaseinbudgetaryexpenditure.

-15-
(4)Social consequences
Itisalso largely interms oftheprospect ofthis enormous economic
restructuring exercise that certain social policy priorities should be
defined .
The social situation intheCommunity atpresent ismarked bytwoproblems
onavery large scale :
(a)many industries areencountering serious difficulties which areforcing
them totake various types ofrestructuring measures ;
(b)unemployment among young people ,increasing every year ,isasocial
evil forwhich aneffective remedy must befound asquickly aspossible .
Inview ofthe general lines emerging from debates held in1977 in "the
Communities' various bodies ,theCommission :
–considers that ,where theindustries indifficulty areconcerned ,
social action will certainly benecessary –implying large allocations in
theBudget forretraining andresettlement operations ;
-will shortly submit specific proposals onthenewforms ofaidforpromoting
theemployment ofyoung people .Apreliminary outline ofsome measures
that might beconsidered was given inaCommunication totheCouncil in
October 1977 *
These prospects imply aconsiderable increase insocial policy resources *

-16-
boIncreasing energyself-sufficiency
In1977theCommissionrepeatedly remindedtheCouncilofitsconcernregarding
theenergysituation.TheCommissionstressedthattherelativeeasingofthe
energymarketattheendoftheyearshouldnotbeallowedtomaskthebasic
medium-andlong-termproblemswhichstillremain.TheCommunity'stargetof
reducingenergydependenceto50%stillholdsgoodandrequiresasustained
effortbyboththeMemberStatesandtheCommunityifitistobeachieved.
DirectincentivesfinancedbytheGeneralBudgetwillberequiredtomakeup
for,addtoorreinforcetheeffortsofthemembercountries.
(
TheproportionoftheCommunityBudgetsetasideforenergypolicyproper
bearsnorelationwhatsoevertotheimportanceofwhatisatstake:
in1978(excludingappropriations forresearch)itstandsatonly80roEUAin
theformofappropriations forcommitment and46.3mEUAinappropriations for
payment,i.e.approximately 0.38%ofthetotalBudget.
»•
Inthenextfewyears,actionbytheCommunityinenergymattersshouldbe
directedtothefollowing aims:
-1)Continuation andexpansionofmeasurestodeveloptheCommunity'senergy
resources
Thisincludesactionalreadyunderway(oilandgas,uraniumprospecting),
andmeasuresthathavebeenproposedorarebeingprepared(demonstration
projectsforalternative energyresources,useofcoalinpowerstations,
upgrading andpromotionofCommunitycoal).Thedevelopment ofnewalternati'
vesourcesofenergysuchassolarandgeothermal energywillbegiven
prominence inthecomingyears.
Inscienceandtechnology,thesameobjectiveisservedbythepursuitof
energyresearchbothattheJointResearchCentreundersuch"indirect
action"astheenergyresearchprogramme,thethermonuclear fusionprogramme
andtheconstruction oftheJointEuropeanTorus.
ββ*ββ»

-17-
2)Efficient useofenerqy
TheCommission intendstotakeactioninthissectorinthecomingyears
bydevelopingactivities connectedwithenergy-saving demonstration pro­
jects(COM(77)187).
Alargepercentage oftheenergy-savings neededtoachievetheCommunity
objectives setfor1985shouldbeachievedbyimprovingtheinsulation
andheatingsystemsofexistingbuildings.Suchactionwillrequirea
majorfinancialeffortonthepartofthepublicauthorities ofthe
MemberStates,whichmightprovedifficultforsome.TheCommission be­
lievesthatitwouldbenecessarytoenvisageCommunityfinancialsupport
inthisfield,whichgoesbeyondtheenergysectorproper.Suchaneffort
wouldhavethesecondaryeffectofstimulating economicgrowth,boosting
certaintypesofinvestment andcreating alargenumberofjobsinthe
Community.

-18-
n.r*."f."rr>riinOTin~tOTTl;~.'fclCHUiCOOpCF<3.~t1Ofl
TheCornnisoionconsidersthatthiaieanareawhichshould,begiven&
hi-hpriorityintheBudgetoverthemediumandlongterm:thereare
m:nygoodreasonsfortheCommunitytotalcemoreresponsibility for
thispolicyandfortheexpenditureitwouldinvolve.
AlreadytheMemberStatesincreasingly appearasasingleunitin
negotiations withtherestoftheworld.Fromthistheyarereaping
thebenefitofakindofpoliticaleconomyofscaleandgreaterweight
ininternational forums.Aspoliticalcooperationinexternalaffairs
progresses ,sotheobstacleswhichcanstillstandinthewayoffurther
actionatCommunitylevelarebeingreduced-Community-level action
representing themostefficientapproachtocertainformsoffinancial
andtechnicalcooperation (moreefficientmanagement,harmonizedcriteria,
easiertermsforthebenefitingcountry,thefreeingofsupplieswithin
theCommunity),
Overlapping withotherCommunitypoliciesisanothergoodreasonfor
advancingfurtheralongthispath:anoverallpolicysubsumingthe
differentinstrumentsofcooperation (commercial,financial,technical)
hasaninfinitelygreaterimpact–witnesstheagreementsoftheLom£
type-thanthefragmenting ofthevariousinstruments acrossCommunity
andnationallevels.
Finally,thisisanareawheresinbudgetterms,thegradualtransferof
responsibility totheCommunityshouldnotintheorymeananincreasein
thetotalfinancialburdengreaterthantheincreasewhichwould ,
otherwiseoccuratstrictlynationallevel,providedthattheMember
Statestakeseriouslythecommitmenttoadvancetowardstheinternational
objectiveofgiving0.7$oftheir0-NPinpublicaid.Inthiscontext,
anincreasingpartofthejointeffortshould "beconductedunder
Communityaust>ices «

_19-
Havingstatedthisgeneralidea,theCommissionaddsthattheprinciples
itadvocatesshould "beintroducedgraduallyandinaccordancewithspecific
criteri ...TheCommissionreiteratesitsviewthat,whenevertheCommunity
intervenesthroughitsBudget,theamountsshouldveryquicklybeincreased
tothe"criticalmass"whichwillmakeforareal,noticeableimpact.
Thisiscertainlynecessaryin"Lome"policyandtoaverylargeextent
inMediterranean policy.TheCommissionwouldreferheretothe
forthcomingrenegotiation of"theLom£Conventionwhich,intheCommission's
view,shouldresultintheEuropeanDevelopment Fundbeingincorporatedin
theCommunityBudgetasfrom1980;thiswouldbeanotinconsiderable
additionalchargeontheBudget,butanequivalentburdenwouldbe
removedfromthenationalbudgets.Thefinancialprotocolsunderthe
Mediterranean policyhavebeenshownintheCommunityBudgetsince
1978,andtheirrenegotiation willbereflectedintheBudgetfrom1981.
Whilstitisnotpossibletoquantifythefinancialefforttobemade
underthesetwoheads,sincethiswilldependonexternalnegotiations ,
itcanalreadybeassumedthatinrealtermsitmustbeatleast
equivalenttotheeffortforthepreviousperiod.
Foodcidhasindeedreached"criticalmass",withaCommunityshareof
almost6Cffoforaidintheformofcereals.Nevertheless ,concernfor
efficientmanagementisanargumentinfavourofeventuallybringing
thewholesystemwithintheCommunityambit.Asregardsthegeneral
foodaidprogramme,theCommissionplanstoproposeasecondindicative
three-yearprogramme,alongthesamelinesastheindicativeprogramme
for1977-79whichcouldcontinuethecerealbracketbutprovidefora
specialeffortinmilkproducts,sinceaidisincreasingly directed
towardsagricultural developmentprojectsofthe"operationflood"type.
Asthesecooperationactivitiesareconnectedwithtrade,itissurely
obviousthataneffortmustbemadebytheCommunity.
SincecommercialpolicyisafieldinwhichCommunitywritruns,itis
becomingincomprehensible thatprogrammessupportingthispolicyare
conductedatdifferentlevels(technicalassistanceforpromotingexports
fromdevelopingcountriestotheCommunitymarket;butatthesametime
incentivestoexportstoexternalmarkets).Whatismore,thissubjectis
closelylinkedtotherestructuring exercisewhich,astheCommission
ruggestsabove,shouldbegiventoppriority.

20-
Finally*the"criticalmass"argumentshouldbeadducedinfavourof
increasingaidtothenon-associated developingcountries.Community
actioninwhatisnowanewfacetofCommunitydevelopment cooperation
policyhassofarbeenfairlymarginalandaimedatextremelynarrow
targets.TheCommissionrecommendsagradualandregularincrease
inthebudgetaryfundsallocatedtothissector.
d.Mitigation ofregionalimb3.1ances
Whiletheprioritymeasuresmentionedabovearejustifiedmainlyby
theirdirecteffectontheprocessofeoonomicintegration andrelate
tosectorswhereeoonomiesofscale,inthewidestsenseoftheterm,
operate,theCommissionconsidersthatanyforward–lookingviewmust
notignoretheotherfunctionwhichtheCommunityBudgetmust
increasingly assumeinthecontextofeconomioandmonetaryunionand
enlargement :thatfunotionisoneofredistribution tomitigate "
regionalimbalances (seep,4)»
Oneofthemajorobstaclestoincreasedintegrationistheexistence
ofseriousregionalimbalanceswithintheCommunity:itwastoremedy
thisstateofaffairsthattheEuropeanRegionalDevelopment Fundwas
setupin1975*
Budgetaryappropriations ofabout1100mF.UA(l300mu.a.-IMF)
weremadeavailabletotheFundinitsfirstthreeyearsofoperation,
1975-77®AfterreviewingthisCommunitypolicyinDecember1977$
theEuropeanCouncilproposedanallocationofaround1850inSUA
forthethreefinancialyear-B1978–80.

-21-
Although the previous allocation andthat proposed for theperiod up
to1980 dorepresent aconsiderable outlay ,theCommission still
believes that this financial contribution isvery small compared with
the scale ofthe problems .,
Itmust also beremembered that theforthcoming enlargement ofthe
Community andthe steps towards economic andmonetary union will add
tothepressure ontheeconomically weaker regions ,both within the
Nine and intheenlarged Community .
TheCommission considers itofmajor importance toincrease theregional
policy appropriations instep with other Community policies ,sothat
the imbalances which they might cause canbetackled effectively .
Inother words ,progress towards economic andmonetary union must be
matched bybetter geographical distribution ofeconomic activities
and jobopportunities :ifthis isnotdone ,theeconomic problems
andimbalances suffered bythepoorest regions could only become more
acute .
Tosumup,ifregional policy istomake thesubstantial anddecisive
impact which the situation nowand inthe foreseeable future calls :for ,
much greater financial resources than atpresent planned must beprovided .

3.I'TT?OOTVPAT^WMT OFAGRICULTURAL EXFETOxTUKE
While theCommission iscalling foranassessment ofthebudgetary
requirements ofthevarious policies that isnotdistorted bythe
predominance ofagricultural expenditure (seep.2)fitisnone
the less aware that theincrease inthe cost ofthefarm policy
isamajor source ofconcern which ,toBorne sectors ofthepublic ,
undermines apolicy which isindisputably oneoftheCommunity 's
greatest achievements .
Inview ofcertain attempts totackle theproblem ofagriculture through
theBudget ,theCommission must emphasize itwould beillusory totry
tocontain agricultural expenditure through theBudget .More than
inother fields ,agricultural expenditure isdetermined bydeoisions
further back along the line–onmarket organizations andthe
adjustment thereof ,prices ,monetary compensatory amounts –andbecomes
virtually unassailable .
This being so,theCommission will continue topush forthepolicy
itadvocates foragricultural markets ,which would check the increase
inexpenditure bythefollowing means :
–cautious prices policy
Acautious prices policy ,already recommended bytheCommission for
themost recent marketing years ,must becontinued .Thegeneral
economic situation and ,inparticular ,theslowdown intheincrease of
consumption make caution necessary .The average price increase
proposed forthe197S/79marketing year (2fo)isthus based ona
spirit ofmoderation .
–adjustment ofcertain common market organizations
The efforts toadjust certain existing market organizations must first
ofallbecontinued toensure more effective management ,afreer
flow ofgoods within theCommunity andthus areduction incertain
present structural imbalances .Greater attention isbeing paid to
theproducts oftheMediterranean regions ;this should lead to
animprovement ofcertain market organizations and a "better overall
balance forthe c.oi.imon agricultural policy :,TheCommission has just
sent thebudgetary authority itsproposals onthematter ..

23-
-gradualreductionofthemonetarycompensatory amounts
TheCommissionalreadyputforwardproposalsconcerningthedismantling
ofmonetarycompensatory amountsin1976,andrepeatedtherainanamended
formintheautumnof1977®Th®Commissionattachesnruchimportance
totheseproposals,asitconsidersthatthe"representative rates"must
begraduallybroughtintolinewiththeactualmonetarysituation.
–the"co-responsibility levy"experiment
Inanattempttogainmorecontroloveragricultural expenditure ,the
Council,whendecidingonthepricesforthemarketingyear1977/78»
adoptedonespecificmeasure~the"co-responsibility levy"~tolimit
theformationofsurplusesofmilkproductsandtopromotethemonthe
market*
Anagricultural marketspolicyofthistypeshouldbeaccompanied "bya
moresubstantialagricultural structurespolicyatCommunitylevel
(seep.13).
II.Community ENLARGEMENT ,sourceoffar-reaching budgetarychanges
Workisnotsufficiently advancedtoofferexactassessmentofthebudgetary
repercussions ofenlargement.Nevertheless ,someproblemshavebeen
identifiedandanumberofreferencepointsnowexist.
1.Somesocio–économieaspects
Theenlargement oftheCommunitythroughtheacoessionofthethreeapplicant
countriesGreece,SpainandPortugalwillincreasethepopulationofthe
Communitybyapproximately 20fo,doublethenumberofpersonsengaged
inagriculture ,increasetheGDPbyalmost10slightlyincreaseindustrial
outputandraiseshippingcapacitybysome50fo»
Althoughthisexpansionofferstheprospectofprogressinmanyareas,
integrationoftheapplicantcountrieswillposeanumberofmajor
problems,bothstructuralandasregardsthewideninggapinincome
betweentheMemberStates.

-24-
Structuralproblems:Theapplicationofthecommonagriculturalpolicywill
causeproblemsofcompetitionbetweentheMediterranean productsofthe
applicantcountries(oliveoil,wine,citrusfruit,vegetables,tobacco)
andthesouthernpartofthepresentCommunity.Thiswillnecessitate an
adjustmentprogrammewhichwillnotbemadeanyeasierbythestructure
andpoorlevelofdevelopmentofagricultureandthefinancialweaknessof
thepublicsector.
Forindustry,theprimaryenergyproductionoftheapplicantcountriescovers
onlyaverysmallpartofrequirements :thesecountriesresorttoimports
(mostlyoil)toanevengreaterextenttbanpresentCommunity,withanega­
tiveeffectonthebalanceofpayments.Thiscannotbutfurtherhighlight
theadvantagesofacommonenergypolicygearedtoreducingenergydependence.
Otherimportantsectorsintheapplicantcountriesareamongthosewhichin
theNineareinastateofcrisis-steel,shipbuilding,textiles,footwear.
Hencetheneedforconcertedactiononreorganizing thestructures.
DifferencesinincomebetweentheMemberStates:Allowingforpurchasing
power,GreeceandSpainhaveaslightlylowerpercapitaincomethanItaly
andIreland.InPortugal,ontheotherhand,GDPperheadofpopulationis
onlyabout60%ofIreland's,atpresenttheCommunity'spoorestcountry.On
topofthisthereareseriousimbalancesbetweenregionswithintheapplicant
countries.ThesolidarityofanenlargedCommunitywouldthereforerequire
certaintransferstobemade,butwithoutdetrimenttothoseregionscurrently
receivingassistance.
ItisobviousthateconomicrevivalintheCommunity,withthedirecteffects
thiswouldhaveonexportsfromtheapplicantcountriesandonadditionaljob
opportunitiesformigrantworkers(whoseremittancesareasubstantialcon­
tributiontothebalanceofpayments),wouldbeavaluablespurtothesolu­
tionoftheseproblems.
2.Financialaspects
TheCommunity'sfinancialinstruments havebeendesignedanddeveloppedto
meetthepresentCommunity'srequirements,andtakeintoaccount.

25
existingresources andmschineryintheMemberStates.Someoftheseinstruments ,i
suchasthoseforreformingagriculture,arenowsorefinedastopresagepractical
problemsoftheorganization andthemanagement methodsinthesectorhavenot
reachedacertainlevel.EvenwithinthepresentCommunity,theintroduction and
application ofsomedirectives hashadtobegradual.Inthesecircurastances ,
exigenciesofadaptation and"running-in"mustbeexpected.
TheCommissionwillsoonbediscussing thebudgetaryaspectspaperinthecontent
ofitsconclusions onthequestionorenlargement .
Difficultquestionsareobviouslygoingtoarise.Forexemple:giventhefact
thattheCommunity nowoperatesthefullownresources system,shouldthenew
MemberStatesberequiredtopayoverownresourcesinfullfromtheoutsetor
shouldstage-by-stagearrangements beadopted?
Anotherproblemwillbetheadjustment ofthepresentfinancialinstruments or
thecreationofnewones.
Tosumup,theCommission doesnotintendthisCommunication tosparkoffadebate
onthebudgetaryrepercussions ofenlargement .Itdoes,however,believethatan
overallmedium-term appraisalofbudgetaryproblemscannotignorethefactof
enlargement :todosowouldbetoturnasidefromanimportantelementinfu­
turebudgetpolicyasawhole.