ARCHIVES HISTORIQUES
DELACOMMISSION
COLLECTION RELIEE DES
DOCUMENTS "COM"
COM (78)365
V ol.1978/9026

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COM(78)365 final.
-»
Bruxelles ,le20 .july
COMMISSION
DES
COMMUNAUTES EUROPEENNES
Secrétariat général
RECOMMENDATION FOR ACOUNCIL DECISION AND DIRECTIVE
setting the economic policy conditions inthe
context oftheCommunity loans andmedium-termfinancial assistance extented tothe
Republic ofItaly
(submitted bythe Commission totheCouncil )
 
COMI78 )365final

Economic policy conditions fixed for 1978
within the framework ofthe Community loans granted toItaly
Explanatory Memorandum
1»Themedium-term financial assistance andtheCommunity loans grante^Jsb
Italy were approved subject toeconomic policy conditions which ,inaccordance
with the rules governing use ofthis machinery ,have been regularly adapted
eachyear.Article 1ofCouncil Decision 77/359/EECof17May1^77laid down
theeconomic policy conditions to "beobserved bytheItalian^j^yublic during
1977withaviewtoattaining thebasic objectives referr^j^o inthethird
recital ofthat Decision ,Lastyear ,these objectives •^fhich consisted in
eliminating during the course oftheyear the current account deficit and
inbringing down therate ofincrease inconsumer prices toayear-on-year
increment of16fobyDecember 1977-werea^J^ined infull.Butmostofthe
"instrumental "ceilings referred toinArt^^ 1oftheDecision wereexceeded :
thetarget fortheTreasury borrowing r^^lrement byLit3920000million ;the
target fortheborrowing requirement 6^theTreasury plus that ofthelocal
authorities byLit 3830 000million ;thetarget forthe borrowing requirement
ofthe enlarged public sector byLit 4550 000 million ;andthe target for
total domestic credit expang^A byLit5250000million .However ,thegrowth
oftotal central governrao ^^expenditure remained someLit1250000million
below theceiling sct^VJsnd thefinancing oftheTreasury corrowing requirericnv
bythe central bank actually fell byLit 4300 000 instead ofgrowing within
the Lit 4000 000million limit set ,the creation ofliquidity inthe economy
having been accounted for mainly bythebalance ofpayments surplus .
Tbrf^analysis ofthese results must take account ofthefact that the
conjun3$ural situation -both spontaneous trends inItaly andtheexternal
situation -has been substantially less dynamic than had been expected atthe
beginning of1977 *
This circumstance has encouraged amore moderate rise inprices andcosts
and amore balanced development oftheexternal payments position ,but has posed
simultaneously problems forastricter manipulation ofbudgetary andmonetary
instruments having regard totheunfavorable development ofgrowth and employments
Certain automatic disequilibrating factors have atthe same time played animpor­
tant role .Thefact that the credit ceiling was exceeded inthefourth quarter -

of1977 was almost entirely duetothe braking ofthe budgetary norms ,which was
linked inpart totheaction ofbuilt-in factors which automatically inflated
public expenditure# Coming towards the endoftheyear ,however ,this overshooting
had only aslight effect onthegeneral situation seen for'theyear asawhole .
2.Under Article 3ofCouncil Decision 77/359/^(3of17May 1977 1the
economic policy conditions for 1978 should have been adapted before the
endof1977 andsupplementary conditions fixed atthesame time.TheConif&ssion
andthe Monetary Committee held consultations forthis purpose with the
Italian authorities ,inJanuary andagain inMay 1978 *However ,asthe
Committee stated initsreport of12May1978^1 political cir^^^tances
prevented their conclusion before theendofthefirsthalf^j^theyear.
TheCommission andtheMonetary Committee thusfindthen^Jjlves inthe
position ofhaving tofixthe economic policy conditions for 1978 ata
time when more than half ofthe year has already elapsed .
The guidelines proposed inthis context bythe Commission 'sdepart­
ments are based onthe follow^g desiderata :
a)toreduce asfaras^esible theinflation ratedifferential between
Italy andthe other industrialized countries $
b)to .cur&Jxhe spontaneous growth ofthepublic sector deficit during the
comiiQj .months ,while atthe same time adjusting thepattern ofexpen­
diture soastoachieve control inthe medium term over its excessive growth ;
^c)toslow down,accordingly ,-thegrowth ofthemonetary aggregates ,withthe^ particular aimofavoiding undesirable capital movements .
Thus creating atthe same time ,favourable conditions forthe renego­
tiation ,inaspirit ofmoderation ,ofthemain collective agreements ../•
(l)Doc.II/370/78(final ),paragraph 11.

3.The Commission hasnoted that for 197«theItalian Government adopted ,
inthe "budgetary andcredit field ,measures which were asrestrictive as
the economic andpolitical context inItaly allowed ,anditproposes con­
sequently that the following objectives should hetaken asconditions : A.
1978
Basic objectives
–asurplus ofatleast Lit3000000million onthecurrent ba^nce of
payments ; (
-agrowth rateoflessthan14$inconsumer prices bet^^thefourth quarter
of1977 andthefourth quarter of1978 * ^
Inst rumental objectives
-limiting current expenditure ofpublic adrnjasSstration toLit.90500 000million
-limiting theoverall deficit ofthecwlic sector (Treasury ,local autho­
rities ,sickness insurance ,MEL)t^Li't# .31500.000 million endtheTreasury
déficit toLit.28000 OOQ Million :
–limiting thegrowth intota^lending ,asdefined inArticle 6(l)ofDirec­tive74/637/ESC,toLit<4^000000million !
–limiting theoveral^jreation ofmonetary base (excluding postal deposits )
toLit.7500 000 million ;
–adjusting the sliding wage-scale system soastoreduce its impact on
wage ands^Aary costs andonpublic finance .
/•

4*Aconcerted ,recovery "bytheEuropean economies should permit the
Italian authorities toapply ,allthemore easily ,apolicy designed to
restore toequilibrium themajor economic aggregates "bythe impulses
which itwould give toeconomic activity inItaly .
5.Taking account oftheabove andhaving consulted theMonei^y Committee ,
theCommission recommends ,intheattached draft Decision and^&rective ,the
adjustment for197^ oftheeconomic policy cond^^ns provided for
inDecision 77/359/SECandDirective 77/36O/EECof17 1977 »
 

COUNCIL DECISION
adapting Council Decision 77/359/EEC of17Kay 1977'
fixing the economic policy conditions totoe
observed bytheItalian Republic
THE COUNCIL CP THE EUROPEAN COMMUNITIES
having regard totheTreaty establishing theEuropean Economic ^jommunity ,
having regard toCouncil Regulation 75/397/EECof17Pebr\^y 1975concerning
Community loans (l),andinparticular Article 3thereq& ^
having regard toCo\mcil Decision 77/359/EECof17Kay 1977 fixing the economic
policy conditions tobeobserved bytheItalia^Republic (2),andinparticular
Article 3thereof ,
having regard tothe proposal submitt^*by the Commission which hasforthis
purpose consulted the Monetary Committee ,
whereas byDecision 77/359/^^'the Council fixed theeconomic policy conditionstobeobserved during 1973$^
whereas itisappropriate tofixthe conditions tobeobserved forthe subsequent
years ofduration ofthe loans granted totheItalian Republic byDecisions
76/322/EEC(^and77/36l/EEC(4);
whereas^t*le development oftheeconomic situation inItaly mustpermit the
attainment ,during 1978 ,. ,oftheobjective ofacurrent balance
ofpayments surplus ofLit 3000 000 million ,anincrease inconsumer prices
ofless than 14$between thefourth quarter of1977 andthefourth quarter -–
"of1978;
(1)OJNo.L46,20.2.1975 ,P.1.
(2)OJNo.L132,27.5.1977 ,p.34.
(3)OJNo.L77,24.3.1976 ,p.12.
(4)OJNo.L132,27.5.1977 ,P.37.

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whereas forthis purpose itisappropriate tofixthe economic policy
conditions to "beobserved during the remainder of1978 ;whereas the
economic policy conditions tobeobserved in1979 will befixed inthe
coming autumn ;
whereas theItalian authorities have declared that they will not,unilaterally ,
take any measure ofacommercial orfinancial natiire torestrict imports or
subsidize exports ; <>0*
HAS ADOPTED THIS DECISION :
Article 1
Thefollowing economic policy conditions sh^S^be observed bytheItalian
Republic during the 1978 calendar year :
a)current expenditure ofpublic adminigC&ation incash terms must belimited to
Lit.90500 000 million ;
b)theoverall deficit ofthepublic sector (Treasury ,local authorities ,
social security ,ENEL )taking into account thefinancial assistance given
directly toentities outside thepublic sector ,must notexceed Lii;31500000
million ,"that isabout l/2$ofgross domestic product ,Lit.28000000
million ofwhich fon$$&e transactions oftheTreasury andlocal authorities as
awhole ;c)the growth intotal *lending ,asdefined inArticle 6(l)ofDirective
74/637/EEC (l),must notexceed Lit»46 000000 million ;
d)total mcxjS^ary-base creation (excluding postal deposits )mustnotexceed
Lit.;^80000million ;
e)the^liding salary scale system should bemodified soastoreduce its
effect onlabour costs and the overall deficit ofthe public sector .

Article 2
a)Before theendofOctober 1973 !intermediate quarterly J
objectives shall beestablished byagreement between the
Italian authorities and the Commission inrelation tothe measures laiAV *
downinArticles 1 ,except forthatsetoutin(e); ^
b)Before theendof1978 ,theCouncil ,ontherecommendation of.theCommission ,
'shall adapt ,for1979 »theconditions contained inArticl^ii
Article 3
This Decision shall adapt Decision 77/359/230 ,
Article 4
ThisDecision isaddressed totheItali^^"Republic »
Done atBrussels , ^or "®'"eCouncil
.<& ThePresident
 

COUNCIL DIRECTIVE
adapting theconditions laid down forthegrant of
medium-terra financial assistance totheItalian Republic
THECOUNCIL CPTHEEUROPEAN COMMUNITIES ,
4having regard totheTreaty establishing theEuropean Economic Community ,
andinparticular Article 108 (2)thereof ,
having regard toCouncil Directive 74/637/EECof17Decem"bei^<$74 granting
medium-term financial assistance totheItalian Republic
having regard toCouncil Directive 77/36o/EECof17May1977 adapting the
conditions laid down forthe grant ofmedium-term financial assistance to
theItalian Republic (2), .<&
having regard totherecommendation subij^pted bytheCommission ,after
consulting theMonetary Committee ,
whereas Decision 78//EEC (3)of ,laid dovm for197^
theeconomic policy conditic^^'to beobserved bytheItalian Republic forthe
Community loansgranted ^Sj^hisMember StatebyDecisions 76/322/ESC(4)and
77/361/SSC(5);^
whereas these conditions fulfil therequirements ofCounoil Decision 7l/l43/EEC
of22March J$?l setting upmachinery formedium-term financial assistance (6)
aslast amdjifefed byDecision 75/785/EEC (7)
(1)0JNo.L 341,20.12.1974 ,P.51.
(2)0JNo.L 132 ,27.5.1977 ,P.36.
,<$5"(3)Seepage ofthis Official Journal .^(4)OJNo.L 77,24.3.1976 ,p.12.
(5)OJNo.L 132 ,27.5.1977 ,p.37.
(6)OJNo.L 73,27.3.I97I ,P.15.
(7)OJNo.L 330 ,24.12.1975 ,P.50.

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HASADOFTED THIS DIRECTIVE :
Article 1
Theeconomic policy conditions laid down inDirective 77/36o/EECshall
<.v
bereplaced ,for1978 ,bytheconditions laid down inDecision 78/ /EECo
<#
Article 2 vgy
This Directive isaddressed toMember States , ^
#
Done atBrussels , x
For the Council
The President