No C 230/62 Official  Journal  of the European  Communities 10. 9. 81 
Opinion  of the Economic  and Social  Committee  on the economic  situation  in the Community 
(mid  1981) 
The text  referred  to the Committee  has not yet been  published  in the Official  Journal  of the 
European  Communities. 
A. LEGAL  BASIS  FOR  THE  OPINION 
The Council  Decision  of 18 February  1974  on the attainment  of a high  degree  of convergence  of 
the economic  policies  of the Member  States  of the European  Community. 
B. OPINION  OF THE  ECONOMIC  AND  SOCIAL  COMMITTEE 
The Economic  and Social  Committee  prepared  its opinion  on the above  matter  at its 189th 
plenary  session  held  in Brussels  on 1,2  and  3 July  1981. 
The full text of the opinion  is as follows: 
THE  ECONOMIC  AND  SOCIAL  COMMITTEE, 
Having  regard  to the Treaty  establishing  the European 
Economic  Community,  and  in particular  Article  198 
thereof, 
Having  regard  to the resolution  of 22 March  1971  of the 
Council  and the Representatives  of the Governments  of 
the Member  States  concerning  the realization,  by stages, 
of economic  and monetary  union  in the Community, 
Having  regard  to the Council  Decision  of 18 February 
1974  on the attainment  of a high  degree  of convergence  of 
the economic  policies  of the  Member  States  of the 
European  Community, 
Having  regard  to the decision  taken  by the Bureau  of the 
Committee  on 27 May  1980  charging  the Section  for 
Economic  and  Financial  Questions  to draw  up an 
own-initiative  opinion  on the economic  situation  in the 
Community  in the second  quarter  of each  year;  this 
opinion  to be accompanied  by a study  of the economic 
situation  in the Member  State  currently  holding  the 
Presidency  of the Council, 
Having  regard  to the opinion  adopted  by the Economic 
and Social  Committee  on 20 November  1980  on the 
annual  economic  report  1980  0), 
Having  regard  to the declaration  made  by the Presidency 
following  the meeting  of the European  Council  held  at 
Maastricht  on 23 and 24 March  1981  and following  the 
Joint  Council  of Economic,  Financial  and Social  Affairs 
on 11 June  1981, 
Having  regard  to the discussion  that  took  place  in the 
Section  for Economic  and  Financial  Questions  at its 
meeting  on 16 June  1981,  to the report  drawn  up by the 
(») OJ No C 348,  31. 12. 1981. rapporteur,  Mr  Zinkin,  and  the  additional  report 
appended  thereto  on the  economic  situation  in the 
Netherlands, 
Having  regard  to the discussions  on 2 July  1981  during 
the 189th  plenary  session  held  on 1,2  and  3 July 
1981. 
HAS  ADOPTED  THE  FOLLOWING  OPINION 
by 102  votes  in favour,  to 12  against  and  10 
abstentions: 
1. The  1981  situation 
1.1. One  of the few  points  on which  everybody  is 
agreed  in the present  crisis  is that 1981  is going  to be a bad 
year.  The  Commission's  latest  communication  to the 
Council  on the economic  and  social  situation  in the 
Community  (Doc.  COM(81)  95 final  of 6 March  1981) 
sees a decline  in Community  GNP  of 0 • 6 %, an increase 
in unemployment  of nearly  1 %, to 7*5  %, and  a large 
deficit  in the balance  of payments;  however,  it also 
believes  that  there  will  be a reduction  in inflation  and 
some  limited  recovery  towards  the end of the year. 
1.2. The  Committee  has accepted  these  forecasts  of 
the Commission  as the basis  for its discussion  and for its 
consideration  of possible  policies. 
2. The  nature  of the crisis 
2.1. There  is a series  of disturbing  aspects  to the 
present  depression:  there  is a cyclical  recession;  there  are 
major  structural  problems;  there  is a high  rate  of 
inflation,  combined  with  a high  rate  of unemployment. 
There  is a demand  by developing  countries  that  there 
should  be a change  in the economic  order.  There  are 
10. 9. 81 Official  Journal  of the European  Communities No C 230/63 
fluctuations  in exchange  rates  of exceptional  magnitude. 
Interest  rates  in the world's  leading  economy,  the USA, 
are at a level  never  before  known,  even  in times  of war. 
There  is in most  Member  States  a very  low  level  of 
profitability.  All these  aspects,  moreover,  interact  on 
each other.  None  can  be solved  in isolation,  yet their 
co-existence  makes  solving  any  of them  much  more 
difficult. 2.5. There  are superposed  on the  present  cyclical 
recession  some  major  problems  of structural  adjustment, 
and these  interact.  The  recession  worsens  the structural 
problems.  However,  curing  the structural  problems  may 
involve  a reduction  of capacity,  which  increases 
unemployment  in the sector  concerned,  and  makes  the 
vital objective  of full  employment  more  difficult  to 
achieve. 
The co-existence  of so many  problems  is unprecedented 
and this means  that  there  is less guidance  from  history  on 
what  should  be done  than  we had for the relatively  limited 
problems  of the 1950s  and  1960s.  Everybody,  whether 
governments,  economists  or the electorate,  is uncertain  of 
the consequences  of any  particular  remedy,  and  this 
uncertainty  has a paralysing  effect  on the will  to act. 
Governments  in  particular  hesitate  because  in 
considerable  measure  they  have  lost faith  in their  capacity 
to control  events,  and  when  they  do act,  their  actions 
sometimes  have  quite  unexpected  consequences. 
2.2. In  addition,  the traditional  cures  have  become 
more  difficult  to apply.  Reliance  purely  on the market  has 
been  made  more  difficult  by the rigidities  which  have 
crept  into  its mechanism  and  by  the  effect  on 
entrepreneurial  confidence  of uncertainty  about  the 
future.  Reliance  on Keynesian  remedies,  is made  more 
difficult  by the extent  to which  in some  Member  States 
budget  deficits  are already  very  large  and the percentage 
of the national  income  taken  by the state  through  taxation 
or social  security  is already  felt by a large  part  of the 
population,  rightly  or wrongly,  to be excessive;  it is 
indeed  higher  than  in Japan  or in the United  States. 
2.3. Even  when  governments  believe  they  know  the 
cure,  the economies  of the Member  States  are reacting 
very slowly  to the  remedies  applied.  Inflation,  for 
instance,  is proving  to be very  deep-rooted.  In the past, 
inflation  sometimes  provided  its own  cure  because  it 
produced  high  rates  of profit  and  therefore  every 
incentive  to increase  supply.  That  is mainly  because  of the 
money  illusion.  Now  that  illusion  has  almost 
disappeared.  Because  of the way  in which  tax works  and 
because  painful  experience  has given  the workers  a much 
greater  consciousness  of their  real rate of wages,  inflation 
tends  to reduce  real profitability  and therefore  to worsen 
the supply  situation.  Moreover,  inflation  is made  worse 
by the existence  of large  masses  of liquid  capital,  much  of 
it belonging  to states,  especially  the OPEC  States,  often 
placed  on the shortest  of short  terms,  and always  liable  to 
be switched  from  one financial  centre  to another. 
2.4. The  economies,  particularly  the  developed 
countries,  have  now  become  so inter-dependent  that  no 
national  government  can  find  a solution  in isolation. 
None  of the attempts  to find  a concerted  answer  has yet 
proved  fully  adequate. 2.6. The  structural  problems  stem  from  various 
causes.  Most  important  of all in the short  term  is our 
delay  in adapting  the economy  to the problems  resulting 
from  the enormous  increase  in energy  prices  and the rapid 
pace  of technological  change.  Then  there  are  the 
increased  competition  from  the newly  industrialized 
countries,  the  growing  threat  from  Japan  in such 
industries  as cars  and consumer  electronics,  the greater 
value  attached  to the environment  which  can both  destroy 
employment  in some  industries  and create  it in others,  the 
over-investment  in certain  industries  as a result  of the 
euphoric  atmosphere  of the years  immediately  before 
1973,  the increased  competitiveness  of the USA  because 
of the decline  in the value  of the dollar  over  the last decade 
and high  rates  of interest  which  discourage  investments  of 
long gestation.  Moreover,  the search  for remedies  is made 
more  complicated  by the severe  monetary  instability  of 
recent  years.  These  sharp  shifts  in the relative  values  of 
the main  trading  currencies  greatly  alter  the conditions  of 
competition  over  quite  short  periods  of time. 
2.7. The  increase  in energy  prices  has upset  many 
previous  price  relativities.  The  growth  industries  of 
Europe  were  largely  those  which  benefitted  from  the 
declining  real prices  of energy  in the 1950s  and 1960s.  Air 
travel,  artificial  fibres,  steel  and  automobiles  are all 
examples.  All  of a sudden,  these  industries  find 
themselves  in a much  more  unfavourable  world,  and  a 
considerable  part  of the  present  recession  can  be 
explained  by the check  to their  growth  or even  some 
temporary  decline. 
2.8. On  the  other  hand,  new  investment  in the 
industries  which  benefit  from  the changes  in relative 
prices  has been  lower  than  might  have  been  expected,  for 
various  reasons. 
Firstly,  in addition  to the legal  or political  difficulties 
which  often  stand  in the way  of new  investment,  it takes 
time for investors  to identify  a new  trend  and to work  out 
the best  way  to meet  it. For example,  before  a boiler  is 
converted  from  oil-burning  to coal-burning,  the firm  has 
to be convinced  that  coal  will  in all probability  stay 
cheaper  than  oil,  it has  to investigate  the costs  and 
alternative  methods  of conversion,  it has to design  the 
details  of the change  and it has to order  the work  to be 
done. 
No C 230/64 Official  Journal  of the European  Communities 10. 9. 81 
Secondly,  when  profitability  is low,  industry  may  have 
difficulty  in obtaining  the resources  for new  investment; 
retained  profits  are inadequate  and  it may  be hard  to 
borrow  because  low  profitability  and  high  rates  of 
interest  often  make  the provision  of adequate  cover  for 
debt interest  difficult.  This  will  particularly  reduce 
innovative  investments  which  are inevitably  risky. 
Thirdly,  management  whether  public  or private,  is made 
more  hesitant  by all these  experiences  - especially  about 
entering  on ground  of which  they  have  no knowledge. 
2.9. Europe's  steadily  changing  relations  with  the 
third  world  require  adjustments  that  go beyond  the 
consequences  of the widening  of the GSP  or the success  in 
exports  of countries  like  Hong  Kong  and Taiwan.  The 
Group  of 77 has formulated  demands  for a whole  new 
international  economic  order.  Some  of these  demands 
have  already  been  acted  upon,  sometimes  by 
international  agreement,  e.g. Lome  II, and sometimes  by 
the unilateral  decision  of the developing  countries.  Others 
are likely  to be so in the future.  Each  time  Europe  has to 
adjust  to the loss of an old position.  If the prosperity  of the 
third  world  is thereby  increased,  European  exports  will 
increase  too,  but these  are likely  to be of new  products, 
which  are not likely  to come  from  the firms  that  have 
suffered  from  the change  unless  they  adapt  themselves  to 
the new  markets. people  in changing  homes  and the social  circle  in which 
they have  lived  all their  lives.  Naturally,  there  is 
resistance.  So the state  finds  itself  under  pressure  to 
postpone  adjustment  by subsidies.  In the extreme  case  of 
shipbuilding,  it is calculated  that  all the  wages  and 
salaries  of shipbuilding  in the Community  are covered  by 
state  subsidies.  Such  subsidies  may  be justified  when  the 
decline  is temporary  and the chance  of recovery  is strong, 
but the  temptation  to provide  them  generally  is 
powerful. 
2.13.  Furthermore,  before  the Community  can afford 
to let any industrial  sector  die, it has to consider  whether 
it does  not need  to keep  some  strategic  minimum  of that 
sector,  whether  it can afford  to become  totally  dependent 
on the outside  world.  Shipbuilding  is again  an example. 
On the other  hand,  before  a new  industry  can develop,  the 
research  has to be done,  pilot  plants  have  to be created, 
factories  have  to be built,  and  new  skills  have  to be 
created.  Moreover,  a considerable  number  of the new 
industries,  like  telematics  and  biogenetics,  are either 
capital-intensive,  or skill-intensive.  They  will  not 
automatically  provide  jobs  for the very  people  who  lose 
their  jobs  in industries  like clothing  or steel.  Indeed,  there 
is no guarantee  that  their  growth  will  occur  in the 
Community,  in some  of them  Japan  and the United  States 
are already  ahead.  The  development  of a new  industry 
may also,  as often  with  energy,  require  the adoption  of a 
firm governmental  policy,  and these  policies  often  take  a 
long time  to adopt,  if only  because  what  is the best  policy 
is so frequently  not clear. 
2.10.  Most  subtly  of all,  investment  depends  on 
confidence;  confidence  in some  measure  of political 
stability,  confidence  in the  economic  policies  being 
pursued,  confidence  that  there  will  be a market  for the 
goods  and services  the investment  produces.  At times  of 
uncertainty  like  the present  there  is a general  decline  in 
confidence,  but this  decline  is much  greater  in some 
sectors  than  in others. 2.14.  Finally,  where  problems  are  structural, 
immediate  solutions  are  rarely  possible.  But  even 
solutions  which  will  work  only  in the medium-term 
require  action  to be taken  now. 
2.11.  Structural  problems  are not only  material.  They 
are also  human.  The  decline  of old industries  can make 
skills  obsolete  which  have  taken  a lifetime  to build  up, can 
leave  quite  considerable  regions  semi-derelict,  and  can 
leave  the young  unskilled  or women  who  cannot  move 
home,  with  little  hope  of a job. Yet at the same  time  other 
skills  may  be in short  supply  and other  areas  may  find  it 
hard to find  the labour  they  need. 
2.12.  Adjustment  to these  situations  can be harsh.  It 
involves  many  people  in changing  jobs,  learning  new 
skills,  perhaps  losing  seniority  and income.  It may  involve 3. Constraints 
3.1. In  taking  action,  whether  to provide  a recovery  or 
to remedy  a fault  of structure,  the Member  States  have  to 
operate  within  more  constraints  than  in, say,  the 1960s. 
What  each  state  can do to bring  down  interest  rates  is 
limited  by rates  elsewhere  in the Community  and above 
all in the US. Tight  money  brings  down  inflation  but in 
the short  run may  make  recession  worse.  A reduction  in 
taxes  or an increase  in public  sector  expenditure 
stimulates  demand,  but often  at the cost  of higher  interest 
rates  or the crowding  out of private  sector  borrowing. 
Where  inflation  is high,  there  is a reluctance  to do 
10. 9. 81 Official  Journal  of the European  Communities No C 230/65 
anything  which  might  make  bringing  it down  more 
-difficult;  this has been  a dominant  influence  in UK policy, 
for instance.  Where  public  borrowing  is as high  as it is, 
say, in Ireland,  any  increase  could  well  out-run  the 
available  savings.  Where  the balance  of payments-deficit 
is high,  as in Germany,  the need  to compete  with  rates  of 
interest  in the outside  world  can produce  a higher  rate  of 
interest  than  might  be necessary  for domestic  reasons. 
4. General  principles 
4.1. It  is impossible  for the Committee  to prescribe 
remedies  which  can be applied  in the same  degree  in all the 
Member  States.  The  reduction  of unemployment  and of 
inflation  must  be primary  objectives  for all, but inflation 
is less of a problem  in Germany  than  it is in Greece  and 
unemployment  is not the scourge  in Luxembourg  that it is 
in Northern  Ireland  or the Mezzogiorno.  One  must, 
however,  emphasize  the  importance  of a coherent 
Community  policy  and  of coordinated  policies  in the 
Member  States  which  support  and do not frustrate  each 
other.  Even  if one  cannot  lay down  the detail  of these 
policies,  one can enunciate  certain  objectives. 
Some  of the other  objectives,  like the sharing  of burdens 
and sparing  of the weak  and  the question  of working 
time,  are discussed  in Section  7. More  generally,  social 
issues  are considered  at length  in the Committee's  opinion 
on the  development  of the  social  situation  in the 
Community  (i). Here  the  Committee  only  considers 
certain  more  strictly  economic  possibilities,  remembering 
that the first  priority  of policy  must  be to reduce  in a 
permanent  way  the present  level  of unemployment  in the 
Community.  The  Committee  shares  the dismay  expressed 
by the European  Council  in March  at the prospect  that in 
the short-term  unemployment  is still liable  to increase.  In 
dealing  with  this threat,  it is important  that  the Member 
States  should  not adopt  incompatible  policies.  There  is a 
need  for  a concerted  Community  policy  to combat 
unemployment  through  the  selective  stimulus  of the 
economy. 
4.2. The  Committee  has  already  insisted  on the 
importance  of adopting  policies  which  look  forward  to 
the medium-term.  It is equally  important  to remember 
both that  medium-term  policies  have  short-term  effects 
and that  policies  adopted  to meet  short-term  necessities 
have  medium-term  effects.  It is never  easy,  given  the 
pressures  on governments,  to make  policy  coherent,  but it 
is never  more  important  than  in times  of instability  and 
uncertainty  like  the present. 
(') See  page  26 of this  Official  Journal. 4.3. Particularly,  all policies  should  recognize  the 
importance  of the  increase  in profitable  investment 
without  which  any return  to growth  is most  unlikely.  This 
increase  will need  to come  from  both  the private  and the 
public  sectors.  The  development  of new  enterprises  and 
the modernization  of existing  enterprises  depends  mainly 
on private  enterprise,  though  nationalized  industries  are 
important  in some  Member  States.  Energy  and  the 
modernization  of infrastructure  are,  in the  Member 
States,  mostly  dependent  on public  investment,  though 
the private  sector  has  its contribution  lo make,  for 
instance  in the development  of forms  of energy  which  are 
not dependent  on oil. 
4.4. It  is important,  therefore,  that  the tendency  of 
governments  to cut expenditure  on investment  for purely 
budgetary  reasons  be reconsidered.  There  is no reason 
why borrowing  should  not  be increased  in order  to 
provide  for necessary  infrastructure  and profitable  public 
investment  in those  countries  where  genuine  savings  are 
available  to meet  that  borrowing,  where  private 
investment  will  not be crowded  out,  and  where  interest 
rates  will  not be unduly  raised.  Nationalized  industries 
with monopoly  power  should  not take  advantage  of their 
monopoly  to raise  charges  excessively  in order  to avoid 
borrowing  from  the capital  market  for their  investment 
requirements. 
4.5. In  some  Member  States  measures  have  been  taken 
to limit  incomes.  It is worth  considering  whether 
expenditure  should  not be limited  by the heavier  taxation 
of luxury  or superfluous  goods,  thus  freeing  resources  for 
more  investment  expenditure. 
4.6. For  private  investment,  a key requirement  is a 
reduction  of the uncertainties  of the world.  The  investor 
needs  to see a demand  for his product  before  he will invest 
in making  it; he is very  worried  about  political  risks;  he 
does  not like to borrow  at high  nominal  rates  of interest, 
even if the real rates  are low or negative,  in case  inflation 
declines  and leaves  him  with  a high  real  rate  too.  When 
the level  of uncertainty  makes  the risk exceptionally  high, 
the investor  needs  the possibility  of a higher  rate of return 
in order  to induce  him to bear  this higher  risk,  but he may 
then feel that if this higher  return  is in fact achieved  it will 
be largely  taken  away  from  him  by higher  taxation. 
Anything,  therefore,  that by reducing  uncertainty  reduces 
the investor's  perspective  of risk,  will increase  investment, 
and that  is why  it is important  to try and make  the world 
more  predictable,  whether  one  is talking  of the rate  of 
inflation,  of monetary  and  taxation  policy,  or of the 
Community's  commercial  policy. 
4.7. Even  if a greater  feeling  of confidence  can be 
induced  in industry,  it will  still  not invest  unless  it has 
both the resources  to do so and the minimum  of equity 
No C 230/66 Official  Journal  of the European  Communities 10. 9. 81 
capital  required  to carry  the risks.  For both  purposes  a 
reasonable  level  of profitability  is, therefore,  essential. 
Here  again  circumstances  differ  between  Member  States. 
The trend  has been  much  more  unfavourable  in the UK 
and Germany  than  in the USA.  In the UK  the rate  of 
return  in 1980  dropped  further  to something  of the order 
of 2 %. Profitability  in Belgium  and in the Netherlands  is 
also exceptionally  low.  There  has been  some  restoration 
of profitability  in France  alone  although  even  there  levels 
are still  low.  However,  it must  be emphasized  that 
although  profitability  is a necessary  condition  of further 
private  investment,  it is not a sufficient  condition.  Unless 
the entrepreneur  sees  an expanding  market  for  his 
products  he  may  be  induced  to embark  upon 
labour-saving  investment  in order  to improve  their 
competitiveness  — and  this obviously  reduces  the number 
of jobs  he can offer,  at least  in the short  term. rate which  makes  the real  rate  of interest  negative, 
especially  after  tax.  A low  rate  of interest  would 
encourage  an addition  to stocks;  in some  Member  States 
the present  recession  has  been  made  much  worse  by 
de-stocking. 
5.4. Competitiveness  further  requires  a level  of 
profitability,  which  makes  investment  attractive  and 
permits  a large  part  of the resources  for it to come  from 
within  the firm,  and this  in turn  depends  partly  on the 
level of demand.  Any  unnecessary  reduction  in demand 
reduces  competitiveness  twice  over.  It inhibits 
investment,  and it may  well  put up unit  costs. 
5. The  productivity  of people  and  capital 
5.1. Whatever  measures  are taken  must  have  in mind 
the need  to restore  the competitiveness  of the Commu-
nity's  economies  which  has fallen  seriously  in recent  years, 
though  in different  degrees  in different  Member  States 
and different  sectors  within  them.  Much  of this  is the 
result  of the way  exchange  rates  have  changed.  In the last 
few months,  the position  has  improved  somewhat  as 
against  Japan  and the United  States  because  of the rise in 
the yen and the dollar,  but it still gives  cause  for disquiet 
especially  for those  countries  like  the United  Kingdom 
whose  position  has worsened  even  against  their  Commu-
nity partners. 
5.2. What  needs  to be done  varies  from  Member  State 
to Member  State,  but some  general  objectives  can be 
stated.  We  need  lower  burdens  on enterprises,  more 
flexible  response  to changing  conditions,  more  and better 
training,  conditions  which  make  mobility  easier  for 
workers,  adequate  resources  for investment;  and overall 
there  has to be an acceptable  social  climate. 
5.3. Of  more  specific  measures,  a reduction  in the rate 
of interest,  where  it can be achieved  without  worsening 
inflation,  would  be particularly  helpful.  It would  make 
investment  more  attractive  since  a high  nominal  rate  of 
interest  presents  the borrower  with  problems  of finding 
that interest  from  his cash  flow  in the early  years  of the 
debt,  and of keeping  sufficient  cover  for it in his profits  to 
allay  the fears  of his creditors,  even  though  inflation  may 
mean  that  the real burden  of the debt  is diminishing  at a 5.5. Some  sectors  are unlikely  to be able  to face  the 
competition  of the rest of the world  without  a measure  of 
State  aid,  though  this  aid should  not be used  to provide 
those  who  work  in them  with  a remuneration  higher  than 
unaided  sectors  can afford.  This  will sometimes  be true of 
the new  advanced  technologies  where  risks  are high;  the 
State  may  need  to share  them  if these  industries  are to get 
off the ground.  The  Committee  has already  expressed  its 
approval  for  a Community  telematics  policy,  for 
example  I1). It is sometimes  true,  too,  of declining 
industries,  or those  which  have  been  hard  hit by the rise in 
the price  of energy,  where  the poor  prospects  which  make 
restructuring  essential  make  it difficult  to raise  the 
necessary  resources.  But  care  must  be taken  that 
short-term  worries  do not get in the way  of the action 
needed  in the longer  term. 
5.6. In  both  cases,  however,  it is important  that  there 
should  be  the  maximum  possible  Community 
coordination  of what  is done.  The  Member  States  acting 
separately  could  easily  between  them  keep  in being  far too 
much  capacity  in a declining  industry  for any  possible 
market.  Competitive  State-aided  modernization  in an 
industry  like  steel,  unless  limited  to some  reasonable 
measure  of the amount  the Community  can expect  to sell, 
could  place  ruinous  burdens  on the taxpayer.  Even  worse 
is the risk that if Member  States  begin  to outdo  each  other 
in the aids  they  give,  the common  market  itself  will cease 
to be common.  The  Committee  strongly  supports  the 
European  Council's  exhortation  to Member  States  to 
'refrain  from  a competitive  escalation  of aid'.  All aids 
must  be strictly  within  the provisions  of the Treaty  of 
Rome  and according  to clearly  defined  rules  (particularly 
temporary  character,  transparency,  subordination  to the 
efforts  at restructuring  of the enterprises  themselves). 
Member  States  should  not  distort  competition  by 
outbidding  each  other  in the assistance  they  give  to ensure 
(») OJ No C 353,  31. 12. 1980. 
10. 9. 81 Official  Journal  of the European  Communities No C 230/67 
that they,  and the Community,  are fully  represented  in the 
new industries  on which  the future  so largely  depends. 
What  they  do should  be limited  to what  is necessary  to 
compete  effectively  with  the outside  world,  and especially 
with the United  States  and Japan  (')• 
6. International  considerations 
6.1. Competitiveness  is always  relative.  If the 
Community  becomes  more  competitive,  the rest of the 
world  to that  extent  becomes  less  so. It is, therefore, 
important  that  the contest  be confined  to the desirable 
weapons  of lower  costs  or better  products,  and its terms 
should  not be falsified  by disorderly  exchange  rates  or 
concealed  protection. 6.4. The  Community  must  work  against  behaviour 
which  denies  it a fair opportunity  to trade  whether  it be 
the concealed  subsidies  provided  by certain  countries 
through  artificially  low  energy  prices,  or the artificial 
barriers  to entry  into the market  as in Japan,  or the refusal 
to provide  reasonable  reciprocity  for the concessions 
made  by the Community,  as with  some  of the newly 
industrializing  countries.  Any  widespread  return  to 
protection  would  be dangerous  for the Community, 
which  is the world's  largest  international  trader,  but for 
that very  reason  it is important  for it to make  sure  that 
apart  from  the  concessions  made  deliberately  to 
developing  countries,  it has similar  opportunities  in third 
countries  to those  it offers  them. 
7. Social  consensus 
6.2. The  Community,  therefore,  not only  needs  some 
stability  in exchange  rates  between  its Members.  In this 
the European  Monetary  System  has been  of great  help, 
though  sterling,  which  is outside  the system,  has risen  too 
much  for the comfort  of British  industry.  It also  requires 
some  attempt  to manage  relations  with  the dollar  and the 
yen. Fixed  exchange  rates  in the world  of high  and volatile 
inflation,  sharply  changing  interest  rates,  and  sudden, 
sharp  shocks  to the system  like the oil price  rises  or the 
Iran /Iraq  war  are probably  not possible.  But it may  at 
least be possible  to limit  the violence  of free  fluctuation. 
When  the yen can move  by more  than  25 % against  the 
DM in a matter  of some  10 months  without  any  great 
change  in the underlying  economic  situation,  all rational 
calculation  for the sectors  of industry  affected  by foreign 
trade  becomes  impossible. 
6.3. Equally,  experience  has shown  that  in an open 
world  it is impossible  for any one country  to operate  on its 
interest  rates  without  regard  to rates  elsewhere.  If 
American  interest  rates  are high,  German  interest  rates 
have  to be relatively  high  even  if, for the general  good  of 
the German  economy,  it would  be desirable  to lower 
them.  In what  is done  about  interest  rates,  therefore,  it is 
important  that  Governments  and central  banks  should 
show  more  consideration  for the effects  on others  than 
they have  sometimes  done  hitherto,  though  the extent  to 
which  they  can do so is limited  by the fact  that  high 
interest  rates  are largely  an inevitable  consequence  of high 
inflation;  the saver  cannot  be expected  to lend  at a loss, 
especially  since  taxation,  unfortunately,  does  not take 
account  of the capital  loss caused  by inflation,  but only  of 
the high  nominal  income  from  the high  rates  of interest  it 
produces. 
(2) See  page  26 of this  Official  Journal. 7.1. Economic  policy  is not made  in a vacuum.  Its 
eventual  purpose  is not only  to make  people  better  off, 
though  that  is important.  It is also  to contribute  to a 
happier  and more  united  society.  Improving  the quality  of 
life, even  the increase  of the pleasure  people  take  in their 
work  are just as legitimate  ends  of economic  policy  as an 
increase  in the GNP. 
7.2. In  the choice  of policy,  therefore,  one should  try, 
difficult  though  it may  be, to ensure  that no considerable 
section  of the  population  should  feel  itself  severely 
discriminated  against,  that  the community's  sense  of 
social  justice  should  be respected,  that the measures  taken 
should  not only  be fair but be seen  to be fair.  What  can be 
done  will of course  always  be imperfect.  Perceptions  of 
fairness  and justice  vary  from  person  to person  and social 
group  to social  group.  Moreover,  in the individual 
Member  States,  these  perceptions  are often  differently 
conditioned  by their  different  histories  and the need  for 
economic  efficiency  will sometimes  enforce  acceptance  of 
measures  not everybody  regards  as equitable.  Consensus 
makes  implementation  of any policy  easier.  It does  not, of 
course,  of itself  guarantee  the policy's  success. 
7.3. Despite  all  these  caveats,  some  practical 
suggestions  can be made. 
Firstly,  the Community  cannot  avoid  the loss  in real 
income  (calculated  by the Commission  at 2 %) caused  by 
worsening  of its terms  of trade  largely  as a result  of the rise 
in the price  of energy;  the initial  impact  of this rise falls 
mainly  on those  who  pay the higher  prices  for energy,  but 
it will often  be right  to find some  way of compensating  the 
poorer  members  of the population  for these  higher  prices. 
No C 230/68 Official  Journal  of the European  Communities 10. 9. 81 
Equally,  since  the unemployed  inevitably  bear  a large  part 
of the cost  of structural  adjustment,  everything  possible 
should  be done  to ease  the burden  on them,  especially 
when  those  in work  get better  off as the economy  turns  up 
again. 
7.4. Secondly,  policies  are much  more  likely  to be 
successful  if they  are supported  by the widest  possible 
measure  of agreement.  The  Committee,  therefore, 
supports  the plea  of the European  Council  of 23 and 
24 March  and  of the  Joint  Council  for  Economic, 
Financial  and  Social  Affairs  of 11 June  1981  for the 
widest  possible  consultation  with  the social  partners.  The 
genuine  disagreement  on the course  to be pursued  make 
this more  urgent  as well  as more  difficult.  Moderation,  is 
more  effective  if it is the result  of a free  decision  of those 
concerned,  made  as a contribution  to a general 
compromise  than  if it is enforced  by law. 
7.5. Thirdly,  though  in the final  anlaysis  it is always 
the individuals  who  are well  off or badly  off,  there  are 
regions  and sections  of the population  where  the number 
of individuals  who  have  been  hard  hit by the recession  is 
particularly  high.  Some  of the peripheral  areas  of the 
Community  and even  some  parts  of its central  areas  have 
much  higher  levels  of unemployment  than  other  areas. 
Unemployment  is also  very  much  higher  among  the 
young  than  among  the middle-aged,  in nearly  all Member 
States  among  women  than  among  men,  and  among  the 
unskilled  than  the skilled.  As the Committee  has pointed 
out on other  occasions,  the regional  and social  funds  need 
very much  larger  resources  if they  are to make  their 
proper  contribution  towards  correcting  these  imbalances 
and towards  expressing  the  fellow  feeling  the more 
prosperous  sections  of the Community  have  for those 
who have  been  hardest  hit. 
7.6. Fourthly,  in times  of high  unemployment,  more 
solidarity  than  usual  is necessary  to mitigate  this 
unemployment.  The  Community  should,  therefore, 
pursue  vigorously  ways  of spreading  the available  work 
more  widely  without  reducing  the  capacity  or 
competitiveness  of industry,  recognizing  that  for this to 
be achieved  may  require  certain  sacrifices  from  those  at 
present  in work,  which  their  extra  leisure  is likely  only 
partially  to compensate. 
7.7. This  solidarity  may  need  to be extended  beyond 
the bounds  of the Community.  It is urgent  therefore  that 
aid should  be increased  as soon  as possible  to the 0 * 7 % 
of GNP  to which  all the Member  States  have  pledged 
themselves.  This  would  make  it easier  for the developing 
countries  who  have  not got oil, and  particularly  for the 
poorest  of them,  to survive  their  present  difficulties 
without  severe  cuts  in their  already  low  standard  of life 
and would  at the same  time  make  it easier  for them  not to reduce,  or even  to increase,  their  purchases  from 
Community  exporters. 
7.8. It  is one  of the distinguishing  features  of the 
present  situation  that  consensus  on what  should  be done 
is exceptionally  hard  to achieve  - not  because  there  is less 
goodwill  than  in the past,  but because  there  is much  less 
agreement  on what  the solutions  should  be. 
8. A Community  lead 
8.1. The  Committee  has  pointed  out  on several 
occasions  in this  opinion  that  there  is much  which  can 
only be done  by the Member  States.  Nevertheless,  it 
would  emphasize  as the Committee  has done  on previous 
occasions  that  in many  directions  there  is an urgent  need 
for a real lead  from  the Community.  If the crisis  is to be 
met, there  needs  to be more  movement  towards  economic 
and monetary  union,  more  use of Community  funds  and 
of its loan  facilities  for useful  and employment-creating 
investment,  a stronger  line  from  the Community  in the 
North-South  dialogue  and  in reducing  disparities 
between  Member  States.  Moreover,  only  the Community 
can provide  many  of the  conditions  for  a proper 
functioning  of the economy;  to take  some  very  specific 
examples:  anti-dumping,  the  removal  of technical 
barriers,  state  aids  to industry,  the transparency  of the 
assistance  given  to nationalized  industries,  all come  under 
Community  jurisdiction.  Furthermore,  if Community 
energy  resources  are to be fully  developed,  and Member 
States  are to give  each  other  adequate  assistance  in any 
sudden  crisis,  Community  initiatives  are  required. 
Finally,  the forthcoming  consultation  with  the USA  and 
Japan  on interest  rates  and exchange-rate  policy  should 
be tackled  by the Community  as a unit,  on the basis  of a 
common  policy  - to be defined  as a matter  of priority  -
regarding  the dollar  and the yen. 
8.2. The  depth  and seriousness  of the recession  makes 
a European  policy  dealing  fundamentally  and coherently 
with the Community's  structural  and  cyclical  problems 
vitally  necessary.  The  Commission  of the  European 
Communities  should  propose  to the  Community 
institutions  such  a policy.  It would  aim  at achieving  a 
satisfactory  level  of growth,  a better  quality  of life,  and 
closer  relationships  with  the developing  countries. 
Such  a policy  should  embrace: 
— urgent  measures  to  reduce  unemployment; 
Community  policy  should  favour  a reduction  in 
working  time  while  respecting  the  methods  and 
practices  for collective  bargaining  in the individual 
Member  States, 
10. 9. 81 Official  Journal  of the European  Communities  No  C 230/69 
— a systematic  drive  to promote  energy-conserving 
production  processes  and  by the  same  token,  the 
establishment  of a common  industrial  and  energy 
policy, 
— selective  measures  including  financial  instruments  to 
encourage  investments  which  create  jobs,  increase 
international  competitiveness  or  promote 
innovation, 
— protection  of the poorest  against  the consequences  of 
the recession, 
— a proper  priority  for  certain  forms  of collective 
consumption  notably  public  transport  and  low-cost 
housing, 
— the  restoration  of profitability, — a reduction  in rates  of interest, 
— some  agreement  on limits  for charges  on industry. 
Such  a policy  would  require  a proper  balance  between  the 
fight  against  inflation  on the one hand,  and  the need  for 
an increase  in investment  and  the  expansion  of 
employment  on the other.  It should  not assume  that  the 
recession  is attributable  exclusively  to wage  pressures  and 
the increased  oil bill;  there  are also  many  and deep-seated 
structural  causes. 
Were  such  a total  Community  policy  formulated,  it 
would  give  Europe  a chance  of returning  to full 
employment  combined  with  social  progress  and  a closer 
solidarity  with  the developing  countries. 
Done  at Brussels,  2 July  1981. 
The Chairman 
of the 
Economic  and  Social  Committee 
Tomas  ROSEINGRAVE 
ANNEX 
to the opinion  of the Economic  and Social  Committee 
The following  amendments  were  rejected  during  the discussions: 
Page 63, paragraph  2.6: 
In the second  sentence,  delete 
'. . . the greater  value  attached  to the environment  which  can both  destroy  employment  in some 
industries  and create  it in others'. 
Reasons: 
It is important  not to give  the impression  that  the ESC,  is using  the recession  as an excuse  to call for 
dismantlement  of the laws  protecting  the environment.  The opinion  mentions  'the greater  value  attached  to 
the environment'  as a source  of 'structural  problems',  on the same  footing  as competition  from  the new 
industrialized  countries,  the invasion  of domestic  car and electronic  markets  by Japan,  and the excessive 
extension  of production  capacity  by ill-considered  investment.  By so doing,  the opinion  attaches  excessive 
importance  to the potential  cost  to certain  companies  of measures  to protect  the environment.  When 
gauging  the economic  impact  of environment  protection,  the following  points  should  be kept  in mind: 
1. The  manufacture  of equipment  for protecting  the environment  (filters,  purification  stations,  etc.) 
creates  jobs;  this industrial  sector  is booming. 
2. Environmental  protection  often  involves  recycling  and recuperation  operations  yielding  marketable 
products. 
3. In marginal  cases,  failure  to carry  out counter-pollution  measures  will save  individual  firms  money,  but 
will increase  social  costs  to the community;  in the final  analysis,  this increase  can only  be funded  by 
increasing  taxation. 
No C 230/70 Official  Journal  of the European  Communities 10. 9. 81 
Voting: 
For: 52, against:  58, abstentions:  20. 
Page  63, point  2.8: 
Before  the last paragraph  insert  the following  text,  which  contains  the substance  of the rapporteur's 
proposal  to the Section  on 16 June  taking  account  of the comments  made  on that  occasion: 
'Secondly,  new  investments  may  involve  political  or legal  difficulties.  Alternative  sources  of energy 
and in particular  nuclear  energy  are an example  of this.' 
Reason: 
This cause  of the present  recession  is too important  to be disregarded.  The  rapporteur  was  right  to 
mention  it. 
Voting: 
For: 30, against:  53, abstentions:  38. 
Page  64, paragraph  2.9: 
Delete  from  'Europe's  steadily  changing  ... of an old position'  and replace  with  the following  text: 
'Europe's  steadily  changing  relations  with  the Third  World  will require  adjustments  that go beyond  those 
so far made  in response  to the widening  of the general  scheme  of preferences  or the growth  of exports 
from  the NICs.  The Group  of 77 has already  formulated  demands  for a whole  new international  order 
involving  inter  alia  vast  increases  in aid,  more  favourable  trade  and commodity  arrangements,  the 
easier  transfer  of technology  and greater  control  over  the affairs  of the IMF  and the World  Bank.  Every 
time a concession  is made  to these  demands,  Europe  will have  to adjust  to the loss of an old position.  If 
the prosperity  . . .' 
Reason: 
The above  formulation  is factually  more  accurate.  Lome  II had  very  little  to do with  the demands 
formulated  in the New  International  Order.  It did not increase  aid (it reduced  it in per capita  terms);  it did 
not improve  the trade  prospects  or bring  any great  changes  affecting  commodities  or deal  with  any of the 
other  issues  which  are normally  raised  in the New  International  Economic  Order  (NIEO).  We are going  to 
have  trouble  enough  this  year  in dealing  with  developing  country  demands  about  the NIEO  without 
suggesting  that  Lom6  was an answer  to them. 
Voting: 
For: 22, against:  57, abstentions:  37. 
The following  part  of paragraph  8.2 (first  indent)  was  deleted  as the result  of an amendment: 
'. . .; a framework  for agreements  to reduce  working  time  would  be relevant  here;  . . .'. 
Voting  on the amendment  which  resulted  in the deletion  of the above: 
For: 81, against:  27, abstentions:  13.