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COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(79)303
Vol.1979/0116

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COMMISSION
OFTHE
EUROPEAN COMMUNITIES
GenerolSecretariatCOM(79)303final.
Brussels,7june1979
FOROFFICIAL USEONLY
STRENGTHENING OFTHECO-ORDINATION OFTHEPOLICY
(Commission Communication totheCouncil)
COM(79)303final

STRENGTHENING OFTHECO-ORDINATION OFECONOMIC POLICY
Commission communication totheCouncil
1.TheEuropeanCouncilof12-13March1979invitedtheCouncil
(EconomicandFinancialAffairs),onaproposaloftheCommission,to
strengthen theco-ordination ofeconomicpolicy.Thislong-standing Com­
munityobjectiveisnowmademoreurgentbytheintroduction of'theEuropean
MonetarySystem.Variousideashavebeendiscussedintherelevantbodies
sincetheCommission'slastCommunication onthesubject('Improvingthe
Co-ordination ofEconomicPolicies',C0M(77)443final,5October1977),
andrecently,atthelastEuropeanCouncil/*theNetherlands submittedcer­
tainproposals.Thetimehasnowcometomovetoconclusions,andtoachieve
inpracticeaqualitative changeintheeffectiveness oftheco-ordination
systemasawhole.
2.Thebroadstructureoftheexistingprocedures,notablyaslaid
downinthe'Convergence Decision'of18February1974,areonthewhole
adequateforgeneral "economicpolicymatters.
3.Theneedistoidentifyhowtostrengthen thepracticalcontent
ofco-ordination withintheexistinggeneralprocedures,andinparticular
tostrengthen monetarypolicyco-ordination inviewoftheEuropeanMonetary
System.
4.Thefollowingparagraphsidentifytheinnovations thattheCommis­
sionhasalreadybeenintroducing,whatfurtherinnovations arerequired
includingthecontributions ofMemberStates,fromwhom-sincetheyhold
thepowersofmacro-economic policy-themainefforthastocome.
5.InthefirstplacetheCommissionunderlinesthenecessityofgivinga
ÇYfullyoperational contentto,theprincipleofpriorconsultation oneconomicpoll
conditions whenchangesintheseconditions canaffecttheworkingofthe
EuropeanMonetarySystem.Giventheparticularimportanceofthisprocedure

inthemonetarysphere,priordiscussionshouldnotonlytakeplaceonthe
settingofintermediate objectivesbutalsowhenadjustments duringaperiod
(amovementofinterestratesorachangeinreserveratios)implyasignific­
antmodification ofmonetarypolicy,andinconsequence,intheexchange-
ratesituation.Priorcoordination shouldembraceexchange-rate policies
vis-a-visthirdcurrencies .InsuchcasesresorttotheCommitteeofGovernors
ofCentralBanksortotheCouncilappearstoberequired.Advanceindic­
ationofsuchintentions needstobesignalledearlyenoughtoallowother
MemberStatestoconsideradjustingtheirownpoliciesaswell,soasto
achieveaconcertation ofaction.
6.Secondly,theCommission proposesthattheCommunityshouldretainand
focusmoreclearlyonthreecyclesofcoordination activityperyear,January-
to-March,May-to-July,andSeptember-to-December.Eachcyclebeginswiththe
up-datingofeconomicforecastsandendswithmeetingsoftheCouncil(Economic
andFinancialAffairs).Thesecyclesofwork-alsoaccordwiththetime-table
oftheEuropeanCouncil.
7.Forthepreviousexaminations ,andnotablythatforMarch1979,the
Commission hasbegunsubmittingrelatively comprehensive documentswhich
up-datetheeconomicoutlook,includingtheprospectsfortheconvergence
ofeconomicperformance,andreviewpolicyproblemsfranklyanddirectly.
8.Coordination ofthesevariousstagescannotend,however,withanalysis'
anddiscussion .OneachoftheaboveheadingsMemberStateshavetocontribute
morefullybymakingup-to-dateforecastsavailableandbyagreeingtodis­
cussthelong-termoutlookinquantitative terms.Itisonthiscondition
thatthepreparatory workwillallowthepresentation oftheproblemsof
economicpolicytoMinistersinaformsuitableforaction.
9.ThisrequiresthatMemberStatesbemorepreparedtorelatetheirown
policymoves,bothintheirtimingandintheirsubstance,totheperiodic
revisionsofpolicyatCommunitylevel.
10.Onthetimingofcoordination activityinrelationtonational
policy-making ,budgetaryguidelines havetobeestablished inapreliminary
.wayinJuly,ifthesearetoinfluencethepreparationofnationalbudgets

forthefollowingcalendaryear.Thisisprovidedforunderexisting
procedures.Moreover,in1978,theJulyconcertedactionDecisiongave
morepreciseandpublicindications thanhadbeenthecaseonearlier
occasions.ThisallowstheAnnualReport,preparedintheautumn,tobe
moredetailedandprecise.
11.ItremainsdesirablethatallMemberStatesfollowthecalendar
yearfortheirbudgets;suchisnotyetthecase.
12.Asregardstheconceptualbasisofpolicyguidelines,theCommis­
sionhasproposedthatbudgetarypolicyguidelinesbeextendedbeyondthe
centralgovernmentbudgettoincludethefinancesofgeneralgovernment.The
EconomicPolicyCommitteehasrecommendedthatthisshouldnowbebegunon
anexperimental basis.
13.Inthepreparation oftargetsformonetaryaggregatesthereare
seriousproblemsofdispersioninnationaltime-tables .Moreover,therelevant
monetaryauthorities havegenerallybeenreluctantsofartoenterintoany
priordiscussionattheCommunitylevelaboutthesettingoftargetsfor
monetaryaggregates.Thesetwoissuestogethercallforsignificantprogress
inCommunityprocedures,stillrespectingtheprerogatives oftheinstitu­
tionsandtheneedfor.confidentiality .TheCommissionseesitasdesirable
thattheCommitteeof.GovernorsofCentralBanksextenditsworkonmonitoring
monetaryaggregatestoincludepriordiscussion onthesettingofmonetary
targets.Asuitabletimeforthiswouldbetowardstheendoftheyear,after
theCommissionhassubmittedtotheCouncilitsproposedAnnualReportcon­
taininggeneraleconomicandbudgetarypolicyguidelines.Consideration could
alsobegiventoamid-yearreviewofmonetarytargets.
14.Forsomecountriesthemovetoamoregeneralized andfixedexchange-
ratesystemundertheEMSaffectsthechoiceofintermediateobjectivesfor
monetarypolicy.TheCommissionsuggeststhattheMonetaryCommitteeandCom­
mitteeofGovernorsofCentralBanksadvisetheCommission andCouncilonthe
implications oftheEuropeanMonetarySystemforthechoice,andharmonization,
oftheconceptualbasisofmonetarypolicy.Suchwouldnotrequireuniformity
ofintermediateobjectivesbutratherthepursuitofgreatercompatibility .

15.TheEMSLikewisegivesincreasedsignificance toanalyticalwork
onthecompatibility ofmonetarypoliciesandontheevolutionofmonetary
aggregatesinrelationtotargetsandtogeneraleconomicdevelopments .
TheCommissionintendstoextenditswork(bothretrospective analysisand
projections )inthisdirection,andnotablytoanalysetheimplications
formoneyandcreditofitsgeneraleconomicforecastsandbudgetaryguide­
lines.Itisdesirablethatthisworkbedoneincollaboration withthe
relevantworkingpartiesoftheMonetaryCommitteeofGovernorsofCentral
Banks,andonthebasisofacommonconceptualframework (thedefinition
ofsuchaframeworkhasbeenunderdiscussioninoneoftheworkingparties
mentioned).TheCommissionproposesthatthebodiesconcernedadoptacommon
frameworkonwhichregularworkcanbebased.
.16.ThedivergenceindicatoroftheEMSwillplacenewrequirements on
theco-ordination system.TheResolutionoftheEuropeanCouncilof4-5Decem­
ber1978indicates (inparagraph3.6)thepresumedactionbytheauthorities
ofthedivergingcountries.Itgoesontosaythat^.."Inthecasethatsuch
measures,onaccountofspecialcircumstances,arenottaken,thereasons
shallbegiventotheotherauthorities,especiallyinthe•concertation
betweenCentralBanks1...Consultations will,ifnecessary,thentakeplace
intheappropriate Communitybodies,includingtheCouncilofMinisters...
Aftersixmonthstheseprovisionsshallbereviewedinthelightofexperience".
Itisnecessarytospecifyfurther'theprocedurestobefollowedwhen
consultations shouldextendbeyondCentralBankstotheCouncil,notably
ifitappearsthattheMemberStatehadnottakenappropriatemeasuresorif
inspiteofmeasurestaken,thecurrencyinquestionremainedpersistently beyond
it's"thresholdofdivergence".Theseconsultations wouldtakeplaceatthe
requestoftheChairmanofGovernorsoftheCentralBanks,orofaMember
State,oroftheCommissionitself.TheCommissionproposesthatsuchconsul­
tationsshouldbearrangedbythePresidencyoftheCouncilinliaisonwith
theCommission,inthemannerconsideredmostappropriate,including,should
theoccasionarise,formalrecoursetotheCouncil.
17.ithasbeensuggestedthattheco-ordination systemshouldinclude
•amoresystematicreviewofthepoliciesandperformanceofeachMemberState.
Thishasinfactbegunonanexperimentalbasis,withperiodiccountry
examinations inthemedium-termformationoftheEconomicPolicyCommittee,
and,morefrequently,shorter-runexaminations (onecountrypermonth)in
theMonetaryCommittee;inbothcasestheexaminationsarepreparedby

documentsfromtheCommission.TheCommissionproposesthatthesearrangements
beconfirmed,andthattheEconomicPolicyCo/nmittee'sexaminations should
concentrateespeciallyonissuesofstructuraleconomicpolicyandtheMone­
taryCommitteeonquestionsofmonetaryandfinancialpolicy.Experienceof
thesenewarrangements shouldbereviewedinayear.
18.TheCommissionintendstoproposeanumberofchangesforthehand­
lingofmedium-termpolicyquestions-inadditiontotheinclusionofa
multi-yearquantitative frameworkintheregulareconomicpolicyreview
documentsmentionedabove.TheCommunityshouldadoptitsnextfive-year
programmein1980.However,theCommissionconsidersitnecessarytointegrate
medium-termconsiderations moreactivelyinCommunitypolicythanimpliedin
five-yearlyexercises.TheCommissionproposesthattheCounciladdresses
medium-termissuesmoreregularly,forexampletwiceayear.Secondly,itis
proposedtochangetheemphasisofmedium-term workmarkedlyinfavourof
concretepolicyissues,ratherthandevotetoolargeaproportiontotheeffort
toquantitative projections (whichnonetheless remainnecessary).Thirdly,
theCommissionintendstomakeproposalsinordertoopenitsmedium-term
workmorewidelytoexpertisefromoutsidetheCommunityinstitutions .
19.Tosummarise,theCommissionsuggeststhattheCouncilandtheCom­
mitteeofGovernorsofCentralBankstakeactiontostrengthentheco-ordination
ofeconomicpolicyunderthefollowingheadings:
(i)priorconsultation notonlyon.thedefinitionofthemainlinesof
economicandmonetarypoliciesbutalsointhecaseofanadjust­
mentduringtheperiod(e.g.ofinterestrates)liabletoaffect
theworkingoftheEMS;
(ii)arevisedgeneralstructuretotheregularthree-times-a-yearcycle
ofco-ordination activity,requiringamoreclear-cutresolveon
thepartofMemberStatestoparticipate morefullyinthisframe­
work,andsotogiveitamoreoperational andtightlyconcertedcontent
(iii)somefurtherimprovements inthesynchronisation ofbudgetarypolicy
timetables;
(iv)extensionoftheconceptualbasistobudgetaryguidelines;

6.-
(v)priordiscussioninthesettingofmonetarypolicyobjectives,
requiringacommontime-tablelinkedtotheCommunity'sgeneral
coordination procedures;
(vi)closerharmonisation oftheconceptualbasistomonetarypolicy
objectives;
(vii)astrenghtening ofjointwork,onthepartoftheCommissionand
monetaryauthorities,linkinganalysisofthemonetarysectorto
thegeneraleconomy;
(viii)clarification ofconsultation proceduresinresponsetothedivergence
indicator;
(ix)newworkonthepoliciesandperformance ofindividual MemberStates;
(x)revisedapproachtomedium-termpolicyquestions.
I