7. 3. 90 Official Journal of the European Communities No C 56/57 
Opinion in preparation for the drawing-up of the opinion on the Commission's Annual 
Economic Report 1989/90 
(90/C 56/14) 
On 27 October 1989 the Council decided to consult the Economic and Social Committee, 
under Council Decision No 120/74/EEC 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^), as amended by Decision No 787/75/EEC(2), Article 4, on the Annual 
Economic Report 1989/90. 
The Section for Economic, Financial and Monetary Questions, which was responsible for 
preparing the Committee's work on the subject, adopted its opinion on 7 November 1989, 
in the light of Mr Geuenich's report. 
At its 271st plenary session (meeting of 16 November 1989) the Economic and Social 
Committee adopted the following opinion by 120 votes to 1 with 6 abstentions. 
1. Economic trends 1989/90: the Commission's analy­
sis and forecasts 
1.1. The world economic background 
1.1.1. Because of the Community's size, economic 
trends in the Community are to a large extent internally 
generated. Since the beginning of the current expansion­
ary phase in 1983, there has been a more or less continu­
ous improvement in the quality of growth, which has 
to an increasing extent been investment-led. Economic 
growth has paved the way for a considerable expansion 
of employment over the last few years and expansionary 
trends in the world economy have done much to under­
pin this growth. A healthy world economy thus con­
tinues to be of great importance for the Community. 
As the Commission points out, Community trade with 
third countries accounts for roughly 20% of world 
exports, and world economic interdependence is grow­
ing. Against this background, the Community's econ­
omic development is unfortunately being constrained 
by the world economic problems discussed below. 
1.1.2. After the strong growth of the last few years, 
GDP growth is now slackening, particularly in the USA 
but also in Japan; in 1990 growth in these two countries 
is expected to be only 2,1% and 4,1% respectively. 
This means slower growth of world trade, which hits 
the heavily indebted developing countries hardest. 
1.1.3. Despite slower growth, which is having an 
even bigger impact on domestic demand than on GDP, 
the US balance of payments deficit is falling only slight­
ly. The impact of improved export performance on the 
balance of payments, itself impeded by the relatively-
high value of the dollar, is counteracted by rising 
interest payments on foreign debt. At the same time 
Japan looks set to increase its surpluses still further, 
and the four new industrialized countries of South East 
(!) OJ No L 63, 5. 3. 1974, p. 16. 
(2) OJ No L 330, 24. 12. 1975, p. 52. Asia are not expected to reduce their surpluses. As the 
international balance of payments disequilibria must be 
reduced to less worrying proportions in the next few 
years, the Community will not be able to increase its 
market shares in the USA; this makes it all the more 
dependent on sustained world economic growth. 
1.1.4. World economic growth continues to be held 
back by the very limited scope of many heavily indebted 
developing countries for growth. Debt servicing costs, 
relatively low commodity prices and subsequent, by the 
same token, weak export earnings, leave little room for 
investment and improved per capita income. Needless 
to say, aid and measures to reduce the debt and debt 
servicing costs of these countries are urgently needed. 
But free access to the markets of the industrialized 
countries would also considerably boost the develop­
ment prospects of some LDCs. 
1.1.5. Instead, trade imbalances have triggered off 
calls for protectionism in the OECD. The Commission 
believes that there is worrying evidence of a drift away 
from multilateral trade, but at the same time feels that 
the preliminary results of the Uruguay Round have 
paved the way for further negotiations newt year on 
the renewal of freer trade arrangements. The GATT 
Secretary-General has however pointed to the major 
obstacles to the success of the Uruguay Round. The 
new US Trade Act and the non-tariff barriers of Japan 
and South Korea in particular threaten to hinder freer 
world trade. 
1.2. Economic trends in the Community 
(a) The short-term outlook for growth 
and employment 
1.2.1. Despite world economic pressures, the strong 
growth rates achieved by the Community in 1988 (GDP 
growth 3,8%) and 1989 (3,4%) will be down in 1990 
(3,1 %). This growth is occurring against a background 
No C 56/58 Official Journal of the European Communities 7. 3. 90 
of high average capacity utilization rates, which in 1990 
are expected to exceed even the 1973 figure. With regard 
to these recent forecasts, the Committee would point 
out, however, that appropriate growth would not be 
achievable in the EC in the event of a sharp fall-off in 
growth in the USA and Japan, or if the USA were even 
to go into recession. 
1.2.2. Given this background of high capacity utiliza­
tion levels, it is particularly important that — particu­
larly in plan and machinery — investment should be 
the main plank of growth, as is still the case in all the 
Member States except the Netherlands and the United 
Kingdom. In some countries exports are growing even 
faster, but imports are rising strongly too. In 1990 
domestic demand will, overall, no longer be rising faster 
than GDP, so that the Community's balance of pay­
ments will remain in equilibrium. 
1.2.3. In 1990 employment expansion on the back of 
economic growth will unfortunately slow somewhat. 
No single country is expected to see a fall in employ­
ment in 1990. As the work force continues to expand 
unemployment will fall only slightly. Unfortunately it 
is at the moment difficult to compare unemployment 
rates, as the Commission's 1989/90 Economic Report 
uses a new method of calculation. Under the new 
method, the unemployment rate comes out at 9,0 % in 
1989 and is estimated at 8,7% for next year. Under the 
previous method, the 1989 forecast was 10,2%. The 
Committee is however pleased that the divergences 
between the two methods of calculation are commented 
on in detail in the Annual Report. Unenmployment 
rates in individual countries continue to diverge sharply 
however. The specific problems of above-average 
female, youth and long-term unemployment persist. 
The labour market situation indicates that growth and 
employment prospects can be expected to improve still 
further in the medium-term. This can also be seen from 
the fact that investment rates have still not reached the 
levels of the 1960s. 
1.2.4. The Committee alerts the Commission to the 
need to take account in future of the vagaries of the 
international financial markets which began in the USA 
with another stock exchange collapse on 13 October 
1989. The Committee feels that conditions are now less 
favourable for an expansionary liquidity policy (which 
would tend to shore up the markets) than they were in 
the autumn and winter of 1987). 
(b) Convergence 
1.2.5. One of the positive features of economic 
growth in recent years has been the catching-up process which has taken place in Spain, Portugal and Ireland. 
However, economic growth in Ireland has not been 
reflected in the net job creation. Whilst Spain and 
Portugal experienced a massive increase in investment, 
(which was not however accompanied by an overall 
increase in saving), Ireland's catching-up process was 
above all export-led. In 1990 Spain, Portugal and Ire­
land will continue to grow faster than the Community 
average. Only Greece seems at risk of lagging behing 
in terms of per capita income. 
1.2.6. The 1980s have also seen significant progress 
in terms of greater convergence of price and cost trends. 
This applies in particular to the seven member States 
participating in the narrow fluctuation band of the 
EMS exchange rate mechanism. In 1990 the highest 
inflation rates within this group of countries (Belgium 
and Ireland) can be expected to diverge by only 0,3 % 
from the group average. Yhe gap between this group 
and the other participants is however in some cases 
growing, and in others inflation rate differences remain 
considerable. After accelerating in 1989, average 
inflation in the Community is expected to fall to 4,6 % 
in the coming year, as one-off prices rises in some 
countries (consumer taxes, charges) work through and 
import price rises moderate. In some countries there is 
however the danger of a price-wage spiral, as price 
trends have meant further increases in profit margins. 
(c) Divergence 
1.2.7. Balance of payments trends have largely 
mirrored price and cost trends. Whilst those countries 
participating in the narrow fluctuation band of the 
EMS exchange rate mechanism, with the exception of 
Denmark, are running surpluses or small, tolerable 
balance of payment deficits, the other countries have 
high or growing deficits. The deficits of the United 
Kingdom and Greece are expected to shrink in 1990, 
but in both countries this will only be possible at the 
cost of relatively slow growth. The large, and in 1989 
still growing, German balance of payments surplus (at 
roughly 5 % of GDP) is potentially a major problem. 
This surplus has been run up mainly with the other 
Member States and through trade with countries which 
are growing fast but have relatively high inflation rates. 
1.2.8. Altough there has been a clear reduction in 
average public sector budget deficits since 1985 and 
although no real deterioration is in prospect for 1990, 
the most significant divergences still exist in the finan­
cing of public sector budgets. A small group of countries 
have financing surpluses and another has more or less 
tolerable deficits but there is a relatively big group of 
countries with very large deficits. This latter group even 
7. 3. 90 Official Journal of the European Communities No C 56/59 
includes two countries which belong to the narrow 
fluctuation band of the EMS exchange rate mechanism; 
their indebtedness is rising and current revenue does 
not even cover current expenditure (dissaving by the 
State). In some Member States the high level of public 
sector indebtedness is a major contributor to burgeon­
ing domestic demand and balance of payments deficits. 
d) Medium-term prospects 
1.2.9. The dynamic investment rates of the last few 
years will mean that in 1990 the Community's capital 
stock will again grow at 3%. In conjunction with 
improved capital productivity this means that the trend 
growth rate (of productive capacity) in the Community 
will even be somewhat above 3 %. As growth has also 
become more job intensive, a growth rate of this order 
should mean that employment will increase by at least 
1 % per annum in the medium-term. The Committee 
shares the Commission's view that the outlook is unsat­
isfactory in view of the labour market situation and the 
rise in the working population. Not only must the 
growth rate of productive capacity be increased, but 
demand needs to develop in such a way as to ensure 
that productive capacity is properly utilized. 
1.2.10. The Community's internal initiatives and 
policies have contributed to the promotion of growth 
and higher employment. The internal market pro­
gramme, promotion of convergence and the first stage 
of economic and monetary union must, the Committee 
feels, be backed up by renewal and effective implemen­
tation of the cooperative growth strategy at national 
and Community level; so that existing divergences can 
be gradually reduced and trend growths of 3,5 and 
1,5% achieved for total production and employment 
respectively. 
2. The main challenges 
2.1. The Committee shares the Commission's view 
that the economic situation described above poses at 
least two major challenges. First, the basic components 
of healthy growth must be strengthened so as to acceler­
ate the process of reducing unemployment, promote 
catching up by the less developed regions and exploit 
to the full the expected improvement in the standard of 
living generated by the internal market. The structural 
policies must also be maintained and strengthened. 2.2. The second major challenge is the continuing 
step-by-step reduction of divergences in the financing 
of public sector budgets, in balance of payments situ­
ations, social conditions, and, in some cases, inflation 
rates which are to some extent the result of the different 
policies pursued in the various Member States. This 
is a precondition for progress towards economic and 
monetary union and for the continuation of growth 
with stability beyond the short-term. 
2.3. The Committee would also like to stress the 
need for greater environmental protection. It is essential 
that economic development should be structured for 
qualitative growth to allow real par capita incomes to 
continue to rise whilst ensuring balanced use of natural 
resources and funding of environmental protection. 
Above all, Community environmental policy must be 
expanded (see point 3.1 below). 
3. The policies needed 
3.1. The most important task is completion of the 
internal market. It can be assumed that, together with 
increased profitability and capacity utilization, this pro­
gramme has accelerated investment in Europe. The 
Commission should attempt to quantify this effect so 
as to demonstrate to national politicians the vital 
importance of the harmonization and liberalization 
measures which remain to be adopted. 
In tandem with economic integration, it is essential that 
the Committee's proposals for economic cohesion and 
for giving the internal market a social dimension be 
implemented. With regard to the additional back-up 
policies required for completion of the internal market, 
the Committee would refer to its opinion (CES 752/89) 
adopted during the first half of 1989. In the light of 
subsequent developments the Committee wishes to 
make the following additional comments: 
— research into the structural impact of the internal 
market programme must be stepped up to enable 
possible consequences for various sectors and 
regions to be spotted early. The proposed sectoral 
committees should be set up so that economically 
and socially balanced strategies can be drawn up 
for coping with structural change. 
— the European Environment Agency proposed by the 
Commission should be empowered to compile and 
process all information and data relevant to 
researching and solving environmental problems. 
One of its first main tasks should be to calculate the 
cost of inadequate protection of the environment, or 
none at all, so that the loss of natural resources can 
be quantified, incorporated in the calculation of 
growth and set against the cost of conservation. 
No C 56/60 Official Journal of the European Communities 7. 3. 90 
Calculations have shown that investment in conser­
vation is in the long run highly 'profitable', as it 
generally costs much less than putting right the 
damage which would otherwise occur. The Com­
mission should also provide concrete support for 
national conservation programmes and use its influ­
ence to secure the conclusion and implementation 
of international agreements on the environment. 
As the Committee urged in its last opinion on the 
economic situation, and as the European Council 
resolved at its meeting in Rhodes, all requisite research 
resources must be mobilized without delay in order to 
establish whether the enormous dangers ascribed to the 
'greenhouse effect' are in fact likely to materialize. If so, 
investment on an unprecedented scale will be urgently 
needed in countermeasures. 
— finally, the Section would point out that the pro­
cedure for completing the internal market clearly 
has to be speeded up. To this end the Commission 
and the Council of Ministers must draw up, or 
adopt as appropriate, the measures and Directives 
outlined in the White Paper in good time. (This at 
least does not seem to be in doubt.) But in addition 
initiatives must be taken to ensure that process of 
incorporating Directives into national law is acceler­
ated and that Regulations are also effectively 
implemented. 
3.2.1. During 1989, monetary policy has been angled 
towards stability, with rising interest rates and slower 
money supply growth. The measures adopted up until 
the summer were appropriate in the light of the strength 
of the US dollar and slight inflationary tendencies. In 
general, long-term interest rates had risen much less 
than short-term. Against a background of higher 
returns on fixed capital, inflationary expectations were 
stabilized without significant damage to growth pros­
pects. The sharp interest rate increases introduced by 
several major European central banks in early August 
could well have an undesired restrictive impact. It is 
particularly surprising that several countries whose 
interest rates were already high have pushed them up 
still further. Exchange rate considerations no doubt 
weighed heavily here but in view of the labour market 
situation, the impact of interest rates on growth must 
not be ignored. The Committee therefore feels that 
monetary policy should be relaxed in most Member 
States as soon as it appears that the danger of furhter 
demand-pull inflation and a price-wage spiral has been 
averted. In high-inflation countries it is important that tight monetary policy should be coordinated with 
budgetary and wages policy so as to minimize any 
detrimental effect on growth and jobs. 
3.2.2. EMS parities have remained unchanged since 
January 1987. Although there was a greater conver­
gence of price and cost trends, considerable disparities 
emerged in price and cost levels which contributed to 
divergent balance of payments positions. In economic 
circles in Germany, e.g. the Bundesbank, there is 
increasing pressure for a revaluation of the German 
mark. This is quite understandable as the extraordinary 
strength of external demand coupled with high capacity 
utilization, promotes inflationary tendencies and stands 
in the way of the necessary stimulation of domestic 
demand. The Committee feels however that a number 
of other currencies would also be in a position to 
revalue in the wake of the necessary German mark 
revaluation. An early re-alignment of parities could 
obviate the threatened further interest rate rises and 
should smooth the way towards the internal market and 
liberalization of capital markets, as progress towards 
integration would no longer be hamstrung by expec­
tations of imminent exchange-rate adjustments. When 
economic and monetary union is achieved with a com­
mon European currency, restrictive measures to support 
national currencies in the event of balance-of-payments 
deficits between Member States will no longer be 
necessary. 
3.3.1. Almost all the Member States are faced with 
the need for major changes in the revenue and/or expen­
diture side of their budgetary policies so as to deal 
more effectively than hitherto with the main challenges 
outlined above. This also applies to countries where 
the size of the deficit is no longer the real budgetary 
problem. In general, public-sector budgets need to allow 
more scope for private and public-sector investment, 
e.g. in environmental conservation so as to strengthen 
qualitative growth. To this end, Germany should, for 
example, consider how the tax cuts scheduled for 1990 
can be used to give a fiscal impetus to the switch 
to domestic demand, above all investment and the 
expansion of private and public sector services. Even 
budget surpluses cannot be considered a good thing if 
they go hand in hand with neglect of public-sector 
investment in economic infrastructure and/or environ­
mental conservation. 
3.3.2. Still more serious budget problems exist in 
Belgium, Ireland, the Netherlands, Portugal and 
especially Greece and Italy, where, despite some success 
with consolidation, deficits remain very large. The 
Committee shares the Commission's view that gradual 
progress must be made towards striking a balance 
between current expenditure and current income, so 
that public-sector borrowing is used to finance public-
sector investment. It should be borne in mind, however, 
7. 3. 90 Official Journal of the European Communities No C 56/61 
that the Member States' financial contributions to the 
implementation of the necessary structural measures 
pose particular funding problems. A further problem is 
that in some of these countries deficits are financed, at 
least in part, by direct central bank lending or commit­
ments by the banking system. This practice runs counter 
to certain medium-term financing principles, to be 
agreed by the Council and which are to play a key role 
in preventing regional disequilibria in an economic and 
monetary union. The aim should in general be to finan­
ce deficits as far as possible under equal, market-related 
conditions. Given that the burden of interest payments 
leaves some Member States little room for manoeuvre, 
the Council will have to take on the difficult, protracted 
task of coordination. 
3.4.1. In the light of continuing high growth rates, 
productivity gains and greater investment profitability 
in almost all the Member States, wages policy should 
be aimed at securing an appropriate and economically 
sustainable rise in real wages, non-inflationary 
increased consumer demand and an improvement in 
the employement situation. In this context wages policy 
can work on the basis that certain external factors 
(levies, taxes on consumption) which stoked up 
inflation in some countries in 1989 will no longer apply 
in 1990. So, if economic policies aimed at stability are 
pursued, the inflation rate may be expected to fall. 
Wage claims should take account of the need for firms 
to plough back profits to create the extra capacity 
needed to meet demand and create jobs. 
Efforts should be made to ensure that wages, monetary 
policy and budgetary policy do not conflict. 
3.4.2. A collective bargaining policy based on further 
cuts in working time, where this is feasible, and a 
simultaneous reorganization of production processes 
enabling better use of productive capacity would help 
boost employment. At hte present stage of the economic 
cycle, better utilization of industrial production 
capacity would also create more scope for a stability-
orientated wages policy and an expansion of supply 
which would prevent excessive demand in some sectors 
and countries. 
3.4.3. The current expansionary phase of the econ­
omic cycle should not blind us to the fact that the 
competitiveness of Community firms on world markets 
is constantly under threat, above all from Japanese and 
other Sout-East Asian firms. The 1989/90 Economic 
Report points out that between 1984 and 1987 exports 
of manufactures by Community firms experienced a 
further slight decline as a proportion of total OECD manufactured exports. Although there were market 
share gains in sales of modern goods for which global 
demand is strong, these did not quite compensate for 
lost market share in traditional goods for which world­
wide demand trends are slack. The Community there­
fore needs to make still greater efforts in the fields of 
investment, research and training so as to be in a 
better position to cope with the ineluctable process of 
structural change. The Commission should emphasize 
this more (cf. European Economy, No 42, table 2.3, 
p. 3 and chapters 5 and 6; European Economy, No 39, 
especially chapters 3 and 6). 
3.4.4. The Commission's 1989 report on employ­
ment confirms that the trend towards employment in 
service industries has been accompanied by a rise in the 
number of part-time jobs and of temporary employ­
ment. (Studies show that most women working part-
time do so from choice.) The findings on temparary 
jobs are striking however. Data from 10 Member States 
show that on average almost 70 % of men and 50 % of 
women accept a temporary job only because they can­
not find a permanent one. In Spain and Greece this 
applies to approximately 85% of the temporarily 
employed, and the corresponding figures for Portugal, 
Ireland and Italy range between 60 and 70 %. But part-
time work also frequently does not meet job-seekers 
requirements, nor does it always entitle workers to 
social security protection. On average approximately 
30% of men and roughly 10% of women accept part-
time work only because they cannot get a full-time job. 
In some countries some 50 % of male part-time workers 
fall into this category. 
3.4.5. The Committee regards the spread of insecure 
terms of employment as a serious problem which needs 
to be tackled via national legislation, collective bargain­
ing policy, employment policy and European social 
policy. The Committee therefore feels that the incomes 
of these workers, the impact of low-paid jobs on per­
sonal income distribution and the quality of these jobs 
should be studied. 
3.5. The labour-market situation remains the Com­
munity's most serious problem. Macro-economic stra­
tegies to secure economic growth and job creation must 
therefore be backed up by measures to ensure that 
growth, is job-intensive. A cut-back on overtime, part-
time work only for those who want it and with adequate 
social security provisions, shorter working hours and 
more sabbaticals can all play a part here. A drive 
to enhance qualifications and promote retraining is 
important, making it possible to prepare workers for 
new employment opportunities and to counter short-
No C 56/62 Official Journal of the European Communities 7. 3. 90 
ages in specific segments of the labour market. Lack of 
skills among workers, training staff and even manage­
ment is a major problem, particularly in those industries 
and service sectors which rely heavily on new technol­
ogies. Solving the problem is a matter both for public 
educational establishments and for firms. The action 
Done at Brussels, 16 November 1989. 
1. General comments 
1.1. The Committee welcomes the proposal concern­
ing the further development of the Handynet system as 
part of the Helios programme for the social, economic 
and vocational integration of disabled people. 
1.2. It would once again draw attention to the fact 
that there are more than 30 million severely disabled 
people (physical or mental) in the European Com­
munity, as well as increasing numbers of elderly people 
prone to the disabilities of old age. In the same context, 
the Committee would highlight that the draft Com-
(J) OJ No C 272, 25. 10. 1989, p. 10. programme for the long-term unemployed should be 
borne in mind, as should national measures to combat 
long-term and youth unemployment. If unemployment 
continues to fall, firms should be asked to provide new 
workers with on-the-job and further training to an 
increasing degree. 
The Chairman 
of the Economic and Social Committee 
Alberto MASPRONE 
munity charter of fundamental social rights, rightly 
includes reference to the rights of disabled people to 
concrete social and professional integration measures. 
The final charter must retain this vital Community 
commitment. 
The Handynet system accounts for a substantiel pro­
portion of the Helios programme funds and also is 
of key interests to supportive neighbouring and third 
countries, as well as to relevant NGOs and international 
organizations. The system is likely to be cost-effective 
in that economies of scale would result from the devel­
opment of existing networks and through cutting com­
munication costs by the widespread use of discs and 
print-outs instead of telecommunications. Certain Opinion on the Commission Report to the Council on the establishment of the Handynet 
system (European Community computerized information system on disability questions) and 
the proposal for a Council Decision concerning the further development of the Handynet 
system in the context of the Helios programme (*) 
(90/C 56/15) 
On 12 October 1989 the Council decided to consult the Economic and Social Committee, 
under Article 128 of the Treaty establishing the European Economic Community, on the 
Commission report to the Council on the establishment of the Handynet system (European 
Community computerized information system on disability questions) and the proposal for 
a Council Decision concerning the further development of the Handynet system in the context 
of the Helios programme. 
The Section for Social, Family, Educational and Cultural Affairs, which was responsible for 
preparing the Committee's work on the subject, drew up its opinion on 9 November 1989. 
The rapporteur was Mrs Williams. 
At its 271st plenary session (meeting of 15 November 1989) the Economic and Social 
Committee adopted the following opinion unanimously.