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DELACOMMISSION
COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(74)689
Vol.1974/0108

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(74)689Final
Brussels.13May1974
PROPOSAL FORA
COUNCILDECISION *
ontheadjustmenttotheguidelinesforeconomicpolicy
for1974.
(submittedtotheCouncil "bytheCommission)
COJî(74)689Final

PROPOSALFORACOUNCILDECISION
ontheadjustmenttotheguidelinesforeconomicpolicyfor1974
THECOUNCILOPTHEEUROPEANCOMMUNITIES
HavingregardtotheTreatyestablishing theEuropeanEconomicCommunity,
andinparticularArticle103thereof,
HavingregardtptheCouncilDecisionof18February1974onthe„
attainment ,ofahighdegreeofconvergenceoftheeconomiopoliciesofthe
MemberStatesoftheEuropeanEconomicCommunity,andparticularlyArticles
1and2thereof,
HavingregardtotheproposalbytheCommission
TAKINGINTOCONSIDERATION thattheCouncilagreeswiththeanalysisofthe
economicsituationsetoutintheCommunication fromthe.Commissionofthe
concerningtheadjustmentoftheeconomicpolicyguidelinesfor
1974,
HASADOPTEDTHISDECISION
Article1
TheMemberStatespursuetheireconomicpolioiesinconformitywith
theguidelineswhioharespecified ^intheAnnextothisDecision.
Article2
ThisDecisionisaddressedtoallMemberStates,
DoneatBrussels, 1974& FortheCouncil
* • ThePresident

ANNEX
-1-
GUIDELINES FOR ECONOMIC POLICY
a)General guidelines
Theourrent situation requires that Member States' short -
term economio policies aim atthefollowing objectives :
–restructuring their economies toadapt them tothechanges inthe
external situatior ^
–stepping upthe fight against inflation inorder topreserve
purchasing power j
!
/
–inthe case ofthose oountries whose external situation had deterio­
rated appreciably even before theorisis ,aohieving areduction
whioh must besubstantial inthebalance ofpayments deficit .
Thefulfilment ofthese requirements may incertain cases
endanger full employment .Although this isalso apriority objective
itisnecessaiy tostress that inthecurrent situation itoannot be
aohieved byageneral stimulation ofnominal internal demand ,but
rather bymeans ofspecifio aotions .
Inorder torealize allthese objectives ,some means of
regulation ofoverall demand isindispensable ,but itmust ,necessarily
andespecially inpresent circumstances ,beincorporated into a
longer-term view .Thechanges tobebrought about areofsuch size
that they imply aotion indepth which needs tobeundertaken forthwith
inorder toaohieve results inareasonable period oftime .The
sacrifices they will require will bethemore acceptable thebetter
they aredistributed over time andbetween thedifferent socio­
economic groups *

0
Theessentialproblemposedforthecomingyearisthe
maintenance ofasubstantially lowerrhythmofgrowthofprivate
expenditurethanthatofgrossnationalproduct.Onlyinthisway
willitbepossibletofreethenecessaryresourcestoenablethe
additionalinvestment andexportefforttobemade.Tothisend
theexpansionofallmoneyinoomesmustbesloweddown,inorderto
avoidaddingtoinflationandthedisequilibrium ofthebalanceof
payments.Thisobjectivecanonlybeattainedwherethesocial
partnersindulgeinaconstructive dialogue.
Apossiblewayofreachingagreementbetweenthemmightbe
ifinoomerestraintwasacoompanied bysocialmeasures.Various
stepsoanbeenvisaged,accordingtothespeoificsituationofeach
membercountry.Aspeoialeffortshouldbemadeinoertaincountries
tobringallthevariousformsofwealth,inparticularhousing,
withinreachofallseotionsofthepopulation.Suchamoveoould
wellstrengthenthepropensitytosaveofhouseholds.
Thenumberofworkersindangerofhavingtochangetheir
jobswillbenoticeablyhigherthaninthepast.Theaimshouldbe
tosafeguardemploymentbyimprovingtheflexibilityofthelabour
market,ratherthanpreservingjobswhicharenolongerproductive.
Tothisend,theinfrastructure canbeconsiderably strengthened
wherethesituationarises,aswellasexpenditure onretrainingof

labour.Itisaboveallduringtheperiodofreadaptation thatthe
workershouldbeguaranteedalevelofincomenottoofarbelowthat
whichhepreviouslyenjoyed.
Thishighlightstheimportanceofschemesformaintaining
asubstantialportionofincomesduringretraining .Atatime,like
thiswhentheleveloftrainingandretrainingrequiredisexpeoted
toincrease,MemberStatesshouldbepreparedtoincreasethe
effectiveness oftheSocialFund.
Inthemembercountries,whereunemployment benefitsonly
representasmallfractionofmoneyincomes,theamountavailable
forthispurposewillhavetobeimproved.Inanycase,community
solidarity musthelptopreventaflowoflabourbacktoItalyand
Ireland,wheretheemploymentproblemisalreadyatitsmostacute.
Amovementtowardsthenecessaryrestructuring ofproduction
willcomeaboutspontaneously ,anditshouldmoreoverbeencouraged
andnotresisted,Alltheactionstobetakenshouldthusbedesigned
toencourageinvestmentintheenergysectorandtheotherpriority
areas.
Specialeffortsarenecessary ,asregardsresearchand
investment ,withaviewtoachievingamorerationaluseofenergy
anddevelopingsourcesofenergycapableofguaranteeing theCommunity
acertaindegreeofautonomyinthelongerterm,atareasonablecost.
Itwouldthusbepossibletosoftentheimpactofthehigherpricecf
oilonthebalancesofpaymentsaridrealincomes.Inordertospeed
uptheprocessofsubstitution andtosaveenergy,theriseinthe
priceofoilwillhavetobereflectedinthestructureofdomestic
pricesofoilproduots.

-4-
Thefaiweaching transformations whiohmustbemadeinthe
Community'senergypatternsrequireconsiderable investments whioh,
insomecases,arefaxfromcertaintoproveasuocess.OnaCommunity
scale,morepossibilities existforresearchintonewsohemesandat
thesametimetheburdenwould-beless.TheCommunityowesittoitself
toexploitfullytheadvantageofferedbyitssize,byputtinginto
operationacommonenergypolicy«
Themeasuresproposedherewillcontributetowardsthe
absorptionwithinareasonableperiodofdisequilibriainthebalance
ofpaymentsposition.However,thiscanonlybedonebyagradualprocess
ofadjustment ,moreespeciallyasthereestablishment ofageneral
balancetobeaohievedattheworldeconomylevel.Inthemeantime,the
solidarityofthemembercountriesmustenablethosewiththelargest
deficitstoobtain,bymeansofCommunitymachineryalreadyexisting
ortobecreated,atleastpartofthemeansoffinancingnecessary.
Adifferentiation ofactionsiscertainlynecessary,asregards
oonjunctural polioy.Againstabackgroundofolosecoordination this
musttakeaocountoftheinitialsituation andtheoutlookineaoh
memberoountry.InsidetheCommunityonecan,indeed,distinguish two
groupsofcountriesaccordingtotheirexternalpaymentssituation
Ο··/···

and.theirinflationary tendencies .ThefirBtgroupcomprises
GermanyandtheBeneluxoountries,whoseourrentaccountsin
1974willfeeinsurplusorclosetoequilibrium ,despiteasharp
deterioration .Thesecondgroupoomprisestheothercountries
(Italy,theUnitedKingdom,Denmarkand,toalesserdegree,
FranceandIreland),whichwillhavetooopewithheavydeficits
ontheirexternalbalancesandveryrapidpriceinoreases.
Inthecountriesincludedinthefirstgroup,especially
Germany,theauthoritiesresponsibleforeconomicpolicymust
makesurethattherecoveryexpectedbetweennowandtheendof
1974culmiaates ,towardstheendoftheyear,inatrendwhich,
whilenotexoeedingthegrowthofproductivecapacity,cannever­
thelessberegardedasdistinctly upward.Itisdesirableforthe
growthinrealgrossnationalproductinthesecountriestoreach
atrendrateof3"to4$bytheendof1974»Theresulting
deterioration inthebalanceofpaymentsoncurrentaccountwould
havetobeaccepted.Itwouldhelptoreduoetheinflationary
tendenciesinthesecountrieswhileassistingthecountrieswith
largedefioitsintheireffortstoimprovetheirbalanceofpay­
mentssituation.
Economicpolicyinthefirstgroupofcountrieswillhave
tobe,ifnecessary,socontrivedastoactonthegrowthof
demandprincipally byapplyingbudgetarymeasures.Shouldthe
expectedbudgetarystimulusnotbesufficienttosustaingrowth,
aneasingoftheburdenofdirecttaxationoradditionalexpendi­
tureshouldbeconsidered ,especiallywithaviewtoproviding
extraincentivesforinvestmentintheenergyseotor.Arelaxation
ofthemonetaryrestrictions would,however,notseemadvisableat
presenthavingregardtotheexohangeraterelationships within
theCommunityandattheinternational level.

-6-
Intheseoondgroupofcountriestheconstraints imposed
"bythe"balanceofpaymentssituationand"bythevigorousupsurge
inoostsandpricescallforpolioiestorestructure demandaimed
atimprovingtheexternal "balance.Tostimulateexports,the
economiopolicyofthesecountrieswillhavetoaimatreducing
"bytheendof1974»thegrowthofdomestiodemandtoaratedistinct–
ly"belowtheexpansionofproductiveoapaoity.•
Inthecountrieswhichbeforetheoilcrisishadalready
notedasharpdeterioration intheir "balanceso|paymentson
ourrentaccountanimportantpartwillhavetolpeplayedbymone–
itarypolicyinordertohelpmakethenecessaryadjustments .The
restrictivelineofmonetarypolicymustthereforebemaintained
oreventightened.Thereductionindomestioliquidityasaresult
ofthedefioitsoncurrentacoountwillhelpinthisrespect.
Interestratesshouldbemaintainedathighlevels,asmuchto
ensureanadequatelevelofrealratesastomaintainasufficient
marginovertheratesobtaininginthemainforeignmarkets.This
expecteddeterioration inthebudgetarypositionswillhavetobe
curbedeitherbyouttingbackthegrowthofexpenditure orbyin­
creasingtaxes.Inthisconnectionthesteppingupofexportsand
investmentintheenergyseotoraretobeconsideredaspriority
aimsattheexpenseofconsumption expenditure bythepublio
authorities andhouseholds.Withregardtothefightagainstthe
risesinoostsandpricesastabilisation ofexchangerateswould
appeardesirable.
Theeoonomicpolicydescribedabovewillhavebothmore
rapidandmoreeffectiveresultsifthemaintradingpartnersin
theCommunityactinparallel.AsfortheCommunity,itshould
workinthisdirectionwithintheframeworkofinternational
cooperation ^
I •••/•••

b)Guidelinesfortheindividualcountries
InDenmarkthemainfeaturesoftheeconomicsituationintne
perioduptotheendof1974couldbeaslowdownineconomicaotivity,
anincreaseininflationary tendenciesandadeterioration inthe
balanceofpaymentsoncurrentacoountwhiohalreadyshowedaheavy
deficitin1973»
Eoonomiopolicyshouldaimmoreatrestoringequilibriumin
thebalanceofpaymentsandcurbingrisingpricesandcosts.Ifthis
objeotiveistobeachieved,privateconsumers' demandmustbereduced
andtheincreaseingovernmentspendingchecked.Theresouroesfreed
inthiswayshouldthenbedirectedtowardsexports,,Themeasures
adoptedreoentlybytheGovernment ,whichincludeinparticulara
reductioninpubliospendingandtheintroduction ofcompulsorypri­
vatesaving,areafirststepinthisdirection ,,However,ifthese
shouldproveinadequatetobringaboutthedesiredreductioninthe
growthofdomestiodemandinmoneytermsitwouldbenecessaryto
supplementthembyfurthercutsinpubliospending,ornewtaxesin
ordertomaintainthebudgetsurplusatalevelneartotheguide­
linesforthe1974^75finanoialyearinthethirdannualreporton
theeoonomiosituationintheCommunity.
Inthemonetaryfieldadistinctslowdownintheexpansion
ofdomesticliquidityhasbeenobservedsincelastautumn.Care
shouldbetakentoseethatthistendencyismaintained.Theauthorities
shouldcontinuetoconcentrateparticularly oncurbingconsumercredit
aspartofapolicyforrestricting banklending.

Aftertheslowdownrecorded ,inthesecondhalfof1973»economic
aotivityinGermanyremainedatarelativelyhighlevelatthebeginningof
1974.Despitetheoilorisisacertainrecoveryinexpansionseemspro­
bableintheooraingmonths.Theriseinpricesislikelytoremainrapido
Theauthorities meanwhile,findthemselveswiththeparticularly
delicatetaskofsupportingthetendencytowardsanimprovementinthe
levelofeoonomioactivityandatthesametimereducinginflationary
pressures#Inthisrespectthedevelopmentofthebalanceofpaymentsdoes
notimposeanyappreciableconstraints }onthecontrary,ariseinim­
portscouldcontributetoanimprovementininternalequilibrium .The
effectsoftheliftingofthetaxrestrictions introducedinMay1973
combinedwiththeexpansionary pressuresresultingfromthedefioitsin.
theFederalandLanderbudgetsshouldbesufficienttobringabouta
3to4%growthrateintheeoonoiqytowardstheendoftheyear.If,
however,itshouldappearthatthisobjectivewillnotbeobtained,the
Governmentshouldcautiously goaboutstimulatingtheeconon^yfurther,
essentiallytoenoourageinvestment.
Theacceleration inbudgetaryexpenditure comparedtotheinitial
forecasts,chieflyasaresultofthesteeperrisesinwagesandprices,
theselectivemeasuresinfavourofspecificindustriesandcertain
regions,andtheliftingofthetaxrestrictions ,willmeanthatin1974»
theFederalGovernmentandtheLandertogetherwillhaveanetborrowing
requirementofDM11.000to13.000million,insteadoftheslightsurplus
foreoastinthethirdannualreport.ThedeficitintheFederalGovern­
mentandLanderbudgetsshouldbefinancedprimarilythroughthecapital
marketandonlytoalesserdegreebydrawingonthe"counter-cyclical
reserves"atpresentfrozenwiththeBundesbank.
Thepolicyonliquidityshouldcontinuealongthepresentlines.

InFranceieconomicexpansionwillprobablyremainappreciable
althoughsomewhatslowercompared ,tolastyear.Thestrainswhich
affectedproductioncapacitiesin1973willprobablyslacken.The
situationonthelabourmarketshouldgraduallybecomeeasierduring
theyear.Theincreaseinthepricesofimportedbasioproductsand
inparticularofenergyproductswillprobablygiverisetoalarge
externaldeficit.Furthermore ,domestiopricesarelikelytocontinue
toriseatanincreasingrate.
Theeconomicpolicytobeimplementedin1974mustaimpri­
marily–aspartofamedium-termstrategy–atgraduallyabsorbing
theexternaldefioit.Itwouldbeadvisable,aboveall,tofaoilitate
andencouragethere–adjustmentofproductivecapacityinorderto
achieveadistinctimprovementinthepositiononexternalaccountin
1975.Atthesametime,theincreaseindomesticcostsshouldbecurbed
inordertosafeguardthecountry'scompetitivepositionandtoensure
thestabilization oftheexchangerate.
Inthefieldofpublicfinance,recenttendenciesindicatethat
therewillbeabudgetsurplusin1974whichwillexceedthelevelof
2.000millionfrancsfixedintheguidelineslaiddowninthethird
annualreport.Budgetarymanagementinthecourseofthefirsthalfof
1974willhaveadistinctlyrestrictivecharacter.Ifthetrendtowards
aslowdowningrowthshouldbecometoopronouncedtheintroduction of
fiscalmeasurestoencourageinvestmentinprioritysectorsshouldbe
considered ..
Itwouldbeadvisabletomaintaintherestrictive biaswhich
hasprogressively beengiventooreditpolicyjnevertheless ,without
prejudicing thosemeasuresneoessaiytopromotecapitalexpenditure on
adjustments madenecessaryby"theenergycrisis.Consumercreditand
creditgrantedforinvestmentinnon-priority seotorsshouldcontinue
tobekeptstriotlycurbed.

-10-
InIreland,beforethepresentation ofthebudget,thegenera.1
outlookfortheIrishecononywasforamodestresumptionofgrowth
followingtheslowdownexperiencedinthesecondhalfof1973*No
greatimprovementinthelabourmarketseemedlikely.
ThereoentNationalPayAgreementwould.leadtpalargein-.
Icreaseinsalaries,Priceswouldcontinuetorisebrisklyandthe.current
,balanceofpaymentswouldshowanappreciabledeterioration .Acontinua­
tionofnetcapitalinflowswasexpected.
Toensurethattheeconomywouldoperatein1974atalevel
I
;olosetothefullutilisation ofcapaoitytheGovernmentdecidedto
\provideastimulusinthebudgetpresentedinthebeginningofApril.
,Despiteareformoftheincometaxstructureandaconsiderable ad–
'vancetowardssecuringgreaterequityinthedistribution ofthetax
!burden,principally byextendingthetaxbaseandtheintroduction
,ofa.capitalgainstax,thebudgetdefioitforecastissubstantial ,
iDuetothedelicatebalanceneededtoaohieveexternalandinternal
equilibriumitisnecessarytoadoptaflexibleeconomicpolicy.
'Ifthecapaoityoftheeconomyprovestobeinsufficient toabsorbthe
jadditionalstimulusofthebudgetoninternaldemandandinflationary
jpressuresbeoomestrongerthanforeseenitwillbenecessarytorevise
eoonomioprioritiesparticularly intheoontextoftheexecutionof
:thebudget•
!
jDuringtheseoondhalfof1973"thegrowthofdomestioliquidity
Iaooolerated'.'Thepresentrestrictive ,stanceofmonetarypolicysllduld
»>econtinuedwithregardtothemoneysupplyandshouldbeaccompaniedalso'
inthefuturebyselectivemeasuresinfavourof._themost .....
iproductiveinvestments,.The.task,ofthemonetaryauthorities wouldbe
:madeeasierbyless.relianceonmonetarymeansforthefinancingofthe
budgetdeficit.
••/•••

-11-
InItaly,lastyear'sstrongreooveryindemand,shouldmaKe
oontinuedeconomiogrowthpossiblein1974*however,inspiteofa
fasterexpansionofexports,itspacemayslowdownappreciablyasa
resultoftheoilcrisis.Littlechangeshouldoccurinthelabour
marketsituation.Themostpressingproblemswillconcerntheoverall
equilibriumoftheecononyjinthisrespect,itistobefearedthat
theincreaseinprices,alreadyrapidin1973,willacceleratefurther
andthatthedefioitoncurrentaccountofthebalanceofpayments
willincreaseconsiderably .Theapparentlyexcessivedepreciation of
thelirahasincreasedtheinflationary pressureswithoutalleviatingthe
difficultcurrentacoountposition.
Inthesecircumstances ,theemphasisofeconomiopolicyshould
beoneliminating thedisequilibrating factors.Theimmediateproblem
facingtheItalianauthoritiesisthatofrapidlyachievingtangible
resultsintheformofadistinctimprovement intheexternalaccounts
whichcannotbeallowedtocontinueontheirpresenttrend.Giventhe
highlevelofItaly'sexternalindebtedness ,adistinctimprovementin
thebalanoeofpaymentscurrentaccountwillhavetobeachievedinthe
secondhalfoftheyearandduring1975•As'thedepreciation ofthe
lirasinceFebruary1973willhaveitsgreatesteffectonthevolume
ofexportsnextyear,economicpolicymustaimatreducingthetotal
balanceofpaymentscurrentdeficitin1975"tonotmorethanLit.
2.000.000millions.Inthisrespect,itisappropriatetorecallthat,
withinthedeficit–jfLit.4*100.000millionsforecastfor1974,
approximately Lit.2.800o000millionsaxetheresultoftheincrease
inoilprices.Giventhatthehighcurrentbalanceofpaymentsdeficit
forecastfor1974isnotonlytheconsequence ofincreasesinthe
priceofoilbutequallytointernalfactorsduetotheincreasein
totaldemandandtherapidacceleration ofthepricespiral,strict
controlofthegrowthofdomesticdemandaswellassomemoderation
ofinternally–originatedcostpressures,arenecessaryfromnowon.
Inthisconneotion ,urgentactionisrequirednotonlytostabilize
theexohangerateofthelira,butalsotousetheinstrumentsof
demandmanagementinsuchawayastodivertresourcesintoproductive
investmentand,aboveall,intoexports.
o../•..

-12-
Withrespecttobudgetarypolicyallthepossibilities still
availableshouldbeusedtoreducethebudgetdeficitforthecurrent
yearandmeasuresshouldbeintroducedtobringaboutagradualim­
provementinthepublicfinancesofnationalandlooalgovernment and
sooialinsurancebodies.Forthepresentexeroiseastrongeffortshould
bemadetorestriotlessurgent ..formsofexpenditure ,especiallythose
directlylinkedtoconsumption.Atthesametime,itwouldbeadvisable
tosupport,eitherdirectlyorindirectly ,priorityinvestmentexpen­
diture,especiallywherelinkedtoexportingactivitiesandinfrastructure
improvements .Takingintoaccountthesupplementary expenditure decided
uponsincelastautumn,theGovernment'snetoashdeficitwillamount
toLit.9*200.000millionin1974*Suohafigureisaceilingwhich
shouldnotbebrokenunderanycircumstanoes .Toachievethisresult,
anincreaseinthefiscalburdenseemsinevitable.Incidentally ,the
defioitshouldbefinancedtoalargeextentbynon–monetarymeans0
Asregardsmonetarypolicy,thebalanceofpaymentsdeficit
shouldcontributetomoppingupexcessliquidity.Ontheotherhand,
thegrowthinlendingmustbelimitedinordertostaywellbelowthe
ceilingof22.400.000millionlirafixedintheletterofintent
addressedtotheIMP.Itwillbenecessary,nevertheless ,withinthis
overallframeworktogiveprioritytoinvestmentsinthosesectors
clearlyorientatedtowardsexportsandenergy.Theriseininterestrates
whichwillresultfromtheserestrictions shouldtendtoimprovethe
balanceofpaymentsoncapitalaccount,mitigateimportpricerisesby
supportingtheexohangerateofthelira,andstimulatesaving.
•··/ο··

13
IntheNetherlands ,itisexpeotedthattheexpansionofdemand
andproductionwillherelativelymoderate "betweennowandtheendof
theyearandtheemploymentsituationisliabletodeteriorate.Prices
willtendtorisemoresharply.Theexternal "balanceshoulddeteriorate ,
whilstremaininginsurplus.
TheGovernment,anxioustomaintainasatisfactory levelof
nationalexpenditure ,hasalreadyannouncedpolicyactionstosupport
demand–especiallyinthebudgetaryfield:(defermentoftheintro­
ductionoftheinvestmenttaxintheoountry'swesternregion,accele­
rationofthesecondstfeugeoftheanti–unemployment programmeadopted
lastSeptember)andothermeasureswereannouncedonthe19thMarch,
1974(areductionofincometaxwitheffeotfrom1July1974»anin­
creaseintaxallowancesforinvestment,supplementary expenditure).
Intheeventofsuchmeasuresbeingadopted,thenetborrowingre­
quirementmaybeexpeotedtoexceedbyPI.700millionsthefigureof
'Fl.1.500millionlaiddowninthethirdannualreport.Anyeventual
furtherbudgetarymeasures–especiallytoincreaseinvestment–should
'involveasfarapossiblearestructuring ofpublicexpenditurewithout
:furtherincreasingthedeficit.
Theprincipalfeatureofthemonetarysituationuptonowhas
beenasubstantialinoreaseinsecondaryliquidity.Specialfactors
,havecontributedtothisdevelopment.Thegeneralstanceofmonetary
policyrequiresnomodification forthepresent.
Thespeoialpowersactof10January1974?whichwillremain
inforceuntiltheendoftheyear,gavetheDutchauthoritiesvery
widepowersinthefieldofincomespolicy.Inthisoonneotion ,the
impositionoftemporarycontrolsonprices ,andallincomes,accompanied
byareduotionindireottaxationonsmallincomesseemsappropriate
insofarasitmayhelptoourbtheriseinwagecosts.
•••/•«•

-14-
InBelgium,theslackeningofworld,demandandtherisem
importpricesresultingfromtheoilcrisiswillnotfailtoaffect
eoonomiogrowthin1974*Unemployment couldwellspread..Thecurrent
accountsurplusofthe"balanceofpaymentswillbesubstantially re­
duced,thoughstillinsurplus.Intheseoircumstances ,itisimportant
;atpresenttomaintainveryselectivelythecurrentlevelofactivity
duringtheoomingmonthswhilst,giventhepersistentpriceandoost
inoreases,takingcaretomaintainitbelowproductivepotential.
Inthebudgetaryfield,itseemsthatthereductioninthe
deficitrecommendedinthethirdannualreportandprovidedforinthe
budgetpresentedbytheBelgianGovernmentwillbemaintainedasthe
increaseinpricesislikelytoaffectbudgetaryreceiptsasmuchas
<expenditures .Thisnevertheless impliesrestrictions onadditionalex­
pendituresgiventhestructuralnatureofthebudgetarydefioit.The
needfornewinvestmentintheenergyfieldshouldbecoveredessen­
tiallybyrestructuring expenditure.
Arestrictivemonetarypolicyshouldbepreserved.International
!trendsmay,however,causeariseininterestrates.
Inordertopreventthehighercostofrawmaterialsfrom
leadingtoapersistentupwardprice–wagespiral,anaotiveprice
policyshouldbemaintainedandthevarioussocialandoccupational
groupsshouldbepersuadedtomoderatetheirclaimsforhigherinoomes.
Inthisconnection,inoreasesininoomesinoertainsectorsmustnotbe
allowedtosetthepaceforotherseotors.
•••/•••

-15-
InLuxembourg ,ahighlevelofeconomicactivitywillpro­
bablybemaintainedduringthecomingmonths,especiallyintheiron
andsteelindustry.Theupwardmovementofconsumerpricesislikely
togatheradditional momentumduring1974*Theexternalbalanceshould
continuetoshowasubstantial surplus.
Theoutlookfortheemploymentsituationisfavourable,so
economicproblemsappearlessacutethaninsomeothercountriesof
theCommunity.Becauseinflationessentiallyoriginatesabroad,it
canonlybecurbedverymoderatelybyinternalmeasures.Itdoesnot
seemnecessary,therefore,tomakeanyappreciable changestothe
generalguidelinesforbudgetairypolicyrecommended bytheCouncilin
thethirdannualreport.Nevertheless ,adegreeofcautionappears
necessaryinallocatingbudgetaryresourcesfornewmeasuresinthe
implementation oftheGovernment'ssocialprogramme.
Λ

-16
IntheUnitedKingdom,economiotrendswillbestrongly
affeotedthroughouttherestoftheyearbytherepercussions ofthe
temporarylimitationoftheworkingweektothreedaysandofthe
miners'strike.Evenassumingthatproductionlossesduringthefirst
quarterarepartlymadegoodlaterintheyear,thegrossnational
productinrealtermswillcertainlybeconsiderably reduoedforthe
yearasawhole.Thetrendofrisingpricescouldincreasesharply
duringthecomingmonths©Prospectsforthebalanceofpaymentson
currentaccount,alreadyinverylargedeficitin1973»continueto
givecauseforconcern.,
Thus,theneedtobringtheexternalaccountbackintoa
soundbasisandtoprotecttheforeignexchangereservesconflicts
withthedesiretoavoidanexcessively lowlevelofeconomicactivi­
tyandadeterioration intheemploymentsituation ,,Thus,althoughthe
improvementofthepositiononcurrentaccountisapriorityobjec­
tive,itshouldbeplacedwithinastrategycoveringaperiodlonger
thanthecurrentyear.Inthisrespect,itisanticipatedthatthe
beneficialeffectsofthedepreciation oftheeffectiveexchangerate
ofsterling,whichhasocourredsincemid-1972,willbecomeincreasing­
lyimportant.Judgingfrompreviousexperience,thefulleffectson
thecurrentbalancewillbefeltin1975andsubsequentyears.From
nowon,economiopolioyshouldhavetheobjeotiveofensuringthatthe
totalcurrentacoountdeficit,in1975»willbelessthanL2milliards.
Thisamountwouldcorrespondtothatpartofthedeficitwhich,in1974»
isattributable todeareroil.Theachievementofsuohanobjective
requiresaneconomicpolicywhichwillpermitthereleaseofthereal
resourcesnecessaryforavigorousexpansionofexports.
Asforbudgetarypolicy,measurestomoderatedomesticdemand
shouldbeintroducedfollowingareturntonormaleconomioactivity.
Thebudgetforthefiscalyear1974/75constitutesanimportantstep
inthisdirection.Whileprovidingforareduotioninthefiscalburden
atthelowestincomelevels,wherepurchasingpowerhasalreadybeen
sharplyerodedbyinflation,andwhileintroducingsubsidiesinorder
tocontaintheriseinfoodprices,thebudgetaimsatrestraining
•••/•••

-17-
domesticdemandbotnbyalimitationintriegrowtnofexpenditure
andbyanincreaseintaxation.Ifduringthecomingmonthitappears
thatdomesticdemandinnominaltermsisrisingatarateinconsistent
withtherequiredimprovement inthecurrentaccountofthebalance
ofpayments,additionalmeasureswillbenecessaryinthebudgetary'
field.Theseshouldaimatpreservingproductiveinvestmentasmuch
aspossible.
Inviewoftherapidandcontinuedincreaseintheprincipal
monetaryaggregates ,fresheffortsshouldbemadetoslowGOTOthe
expansionofthemoneysupplyin1974*However,withintheoverall
frameworkofsuchaction,therearegroundsforapplyinganyrestric­
tionsonbanklendingselectively ,especiallyinrelationtothose
smallandmedium-sized businesswhichhavebeenmostaffectedbyevents
atthebeginningoftheyear,andalsowhereexportsareconcerned.
Moreover,thebalanceofpaymentssituationcallsforshort-term
interestratestobemaintainedatalevelappreciablyhigherthan
thoseprevailing oninternational monetarymarkets.Thispolicyshould
contribute tothedesirablestabilisation oftheexternalvalueof
sterlingandtocontaininginflationary pressureswhich,intherecent
past,havearisenfromthedepreciation ofthecurrency.