ARCHIVES HISTORIQUES
DELACOMMISSION
COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(82)677
Vol.1982/0212

Disclaimer
Conformément aurèglement (CEE,Euratom) n°354/83duConseildu1erfévrier1983
concernant l'ouverture aupublicdesarchiveshistoriques delaCommunauté économique
européenne etdelaCommunauté européenne del'énergieatomique (JOL43du15.2.1983,
p.1),telquemodifiéparlerèglement (CE,Euratom) n°1700/2003 du22septembre 2003
(JOL243du27.9.2003, p.1),cedossierestouvertaupublic.Lecaséchéant,lesdocuments
classifiés présentsdanscedossierontétédéclassifiés conformément àl'article5dudit
règlement.
Inaccordance withCouncilRegulation (EEC,Euratom) No354/83of1February 1983
concerning theopeningtothepublicofthehistoricalarchivesoftheEuropean Economic
Community andtheEuropean AtomicEnergyCommunity (OJL43,15.2.1983, p.1),as
amended byRegulation (EC,Euratom) No1700/2003 of22September 2003(OJL243,
27.9.2003, p.1),thisfileisopentothepublic.Wherenecessary, classified documents inthis
filehavebeendeclassified inconformity withArticle5oftheaforementioned regulation.
InÜbereinstimmung mitderVerordnung (EWG,Euratom) Nr.354/83desRatesvom1.
Februar 1983überdieFreigabe derhistorischen Archive derEuropäischen
Wirtschaftsgemeinschaft undderEuropäischen Atomgemeinschaft (ABI.L43vom15.2.1983,
S.1),geändertdurchdieVerordnung (EG,Euratom) Nr.1700/2003 vom22.September 2003
(ABI.L243vom27.9.2003, S.1),istdieseDateiderÖffentlichkeit zugänglich. Soweit
erforderlich, wurdendieVerschlusssachen indieserDateiinÜbereinstimmung mitArtikel5
dergenannten Verordnung freigegeben.

COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(82)677 final
-Brussels,21stOctober 1982
ANNUAL ECONOMIC REPORT 1982-83
(Communication fromtheCommission totheCouncil )

COMMISSION
OFTHE
EUROPEAN COMMUNITIES
AnnualEconomicReport1982-83
(Communication fromtheCommissiontotheCouncil)
Contents
Foreword
PARTI:TheCommunityeconomy
1.Shorttermtrendsandprospects
1.11982:Disinflation andstagnation
1.2Prospectsfor1983
2.Assessmentoftheoutlookforthe'eigthies
3.ApolicyframeworkfortheEuropeanCommunity
3.1Medium-termpoliciestorestructuretheeconomyandcounte
theunemployment problem.
3.1.1Budgetarydisciplineandeconomicconvergence
3.1.2Investment technologyandindustrialperformance
3.1.3Employmentandsocialpoliciesandlabourcost
adjustments
3.2Short-termissuesofcoordination andfinancialpolicymix
3.2.1Evolutioninsystemsofpolicymanagementand
coordination
3.2.2Thepolicymixintheimmediatesituation
4.Summaryandconclusionsforpolicyintheperiodahead
PARTII:TheeconomiesofMemberStates
Annex:DraftDecisionoftheCouncil
–Telegraphicaddress:"COMEURBrussels'

ListofTables
1.
2.
3.
4.
5.
6„
7.
8.
9.
10.
11.
12.
13.
14.TheEuropeanCommunity'seconomy,1960-1983
Indicatorsofconvergenceanddivergenceinthe
EuropeanCommunity'seconomy,1960-1983
Forecastevolutionofgrossdomesticproductin1982and1983
Indicatorsofmacroeconomicdisequilibriaandconstraints
in1982
Belgium:maineconomieaggregates1960-83
)enmark:maineconomieaggregates1960-83
ìermany:maineconomieaggregates1960-83
jreece:maineconomieaggregates1960-83
rance: ""aineconomieaggregates1960-83
.reland:maineconomieaggregates1960-83
taLy:mai"economieaggregates1960-83
uxembourg:maineconomieaggregates1960-83
maineconomicaggregates1960-83BeIgium:
Denmark:
Germany:
Greece:
France:
Ireland:
Italy:
Luxembourg :
Netherlands
UnitedKingdom:maineconomicaggregates1960-83

1.-
Foreword
TheCommission 'sproposed AnnualEconomic Reportfor1982-83is
submitted totheCommunity institutions inaccordance withtheCouncil's
1974Decision (1)forattainment ofahighdegreeofconvergence ofecono­
micpolicies ofMemberStates.TheCouncilisrequired inthefourth
quarterofeachyear-onproposal oftheCommission andafterconsulting
Parliament andtheEconomic andSocialCommittee -toadoptanannual
reportontheeconomic situation intheCommunity andtoseteconomic
policyguidelines tobefollowed byeachMemberState.
Asinprevious yearstheCommission hasalsoprepared,asa
separate background document totheAnnualEconomic Report,anAnnualEco­
nomicReviewwhichcontains amoredetailed factualanalysis ofeconomic
trendsandtheoutlookfortheyearahead.Thisseconddocument issub­
mittedtotheCouncil,Parliament andEconomic andSocialCommittee for
information .
(1)Article 4ofDecision 74/120/EECof18February 1974,amended byDeci­
sion75/787/EECof18December 1975.

2.-
PARTI.TheCommunityEconomy
1.Short-termTrendsandprospects
1.11982;Disinflation andstagnation
Therecoverywhichwasforecastforthesecondhalfof1982Last
springhasnotmaterialised .Thepositivefactorsinthelasthalfof1981,
whichappearedtobepointingtoanupswing,werereversedinthefirst
halfof1982.Thelikelyoutcomefor1982isnowapproximatestagnation
withariseinthevolumeofoutputintheCommunityofonly0,3%.This
compareswithaforecastof2%growthcontainedinlastyear'sAnnual
Report(seeTable1)aswellasinmostnationalandinternational
forecasts.
However,morerecentCommunications oftheCommissiontotheCoun­
cilandEuropeanCouncilhaverepeatedlywarnedthatvariousfactorsandin
particulartheextremelyhighlevelandvolatilityofworldinterestrates,
heavilyinfluenced bythoseoftheUnitedStates,riskedcreatinganecono­
micenvironment inwhichtheexpectedcyclicalrecoveryinEuropecouldbe
aborted.Thisseemsnowtohaveoccurredinthefirsthalfof1982,bothin
Europeandotherregionsoftheworld-especiallythosewhichwerein
highlyexposedinternational indebtedness situations.Realshort-term
interestratesremainedintheUnitedStatesandEuro-dollar marketsat
nearto5%formuchofthetwelvemonthstothespringof1982inspiteof
thecontinuingrecessionintheOECDareaasawhole.Thisandthegeneral
climateofuncertainty andpessimismmayhavedampenedthenormaldynamics
ofthebusinesscycle.Somanyenterprises havebeencaughtinunexpectedly
difficultfinancialsituations,thattheynowneedalotofconvincingthat
lowerinterestratesareadurableprospect,beforetakingpositiveinvest­
ment,stock-building andemploymentdecisionsonthatbasis.

Inflationhasdecelerated somewhatfasterthanexpected.Despite
thecontinueddepreciation oftheECUagainstthedollarduringthefirst
halfof1982,theCommunity'simportpricesarelikelytohavedecelerated
bymorethanforecastayearago;theirrisein1982isnowestimatedat
9,2X(14,7%in1981).Dollarcommodityprices,includingoilprices,have
reactedevenmorestronglyoverthelasttwelvemonthstothecombined
influenceofexchange-rate movements,highrealinterestratesandweak
demandconditions.TheCommunityhasthusprofitedfromanappreciation in
itstermsoftradein1982(1,5%),afterthelargedeteriorations
registeredin1980and1981.
UnitlabourcostsintheCommunityarelikelytohavedecelerated
quitesignificantly in1982,increasing by8,5X(innationalcurrencies)
asagainst10,0%in1981.Togetherwiththeslowdowninimportprices,and
despiteariseinindirecttaxesperunitofoutput,thismayhaveallowed
aslightrestoration ofprofitmarginstogetherwithsomereductionof
inflation.Atthelevelofconsumerprices,therateofinflationin1982
islikelytobe10,5%asagainst11,8Xin1981.

Table 1
TheCommunity Economy
GDP GDP GDP Consumer Compensât ionCurrent GeneraI Money Unemployment
value volume price price per account ofGovernment supply rate
increase growth increase increase employee balance ofnetlending growth
payments orborrowing
%(4) %(4) %(4) %(4) %(4) %GDP %GDP %(4)(5) %
1961-70 9,1 4,7 4,3 3,7 8,9 0,4 -0,4 10,4 2/1
1971-80 13,0 2,9 9,8 9/513,3 -0,1 -2,8 13,8 4/2
1980 12,3 1,4 10,8 11,1 12,8 -1,4 -3,5 10,5 6,0
1981 9,9-0,6 10,6 11,8 11,9 -0,8 -4,8 10,8 7/8
1982Lastreportd )12,7 2,0 10,5 11,2 11,2 -0,9 -4,2 9,9 8,5
1982Thisreport(2 )10,9 0,3 10,6 10,5 10,8 -0,7 -5,0 10,8 9/4
1983 (3) 10,0 1,1 8,8 8,8 9,8 -0,4 -4,9 10,0 10,3
(1)OfOctober 1981(Thefiguresfromthelastreportcarrying footnote (4)havebeenrecalculated
according topurchasing powerparityweights).
(2)Estimates oftheCommission services (October 1982)
(3)Forecast oftheCommission services (October 1982)onthebasisofpresentoranticipated
policies
(4)ECaverages calculated withcurrent GDPweightsatpurchasing powerparities.
(5)Endofperiod(annualgrowthrates)

5.-
SomeLimitedprogressisbeingmadein1982inthestruggleagainst
inflation,butunemployment hascontinuedtoincreasesharply,andthereis
nosignthatthisrateofincreasewillslowdownthisyear.Onaveragefor
1982thenumberofunemployedcouldreach11million(9,4%ofthelabour
force)andwillbehigherthanthatbytheendoftheyear.Thesedevelop­
mentsresultbothfromafallinemployment (probablybyabout1,1%)anda
continuedriseinthelabourforce(nearly1%).
TheCommunity'scurrentaccountdeficitislikelytofallslightly
fromUSD20,8thousandmillion(0,8%ofGDP)in1981tojustoverUSD
15thousandmillionin1982.Thustheoveralldeficitisnowquitesmall,
butthereareseriousinbalances inindividualcountries.
Asregardspolicyindicatorsitnowseemslikelythatmoneysupply
intheCommunityasawholewillhavegrownbyabout10,8%through1982,a
rateratherhigherthanthe10%forecastinlastyear'sAnnualReport.
Thelikely1982rateofincreasewouldthusbealmostthesameasthe1981
rateafterthreepreviousyearsofdeceleration .
Asregardsbudgetdeficits,below-trend growthinmostMemberSta­
tesin1982ledtoashortfallintaxrevenuesandanincreasein
unemployment benefits.Inaddition,debtservicecostshavebeen
increasingrapidly.OffsettingmeasureshavebeentakeninmostMemberSta­
tes;fortheCommunityasawholethebudgetdeficitasapercentageofGDP
islikelytoremaincloseto5%in1982,asin1981.Thedivergence among
MemberStatesinrespectofbudgetdeficits,afterincreasingsharplyin
1981,willprobablyhavebeenreducedsomewhatin1982.
WithintheEuropeanMonetarySystemtherehavebeentwo
realignments,inFebruaryandJuneof1982,sincethelastAnnualReport
waspublished.Asaresultofthem,variabilityofexchangeratesamongthe
countriesparticipating intheexchangeratemechanismoftheEMSwillhave
increasedin1982(seeTable2).

Table2
Indicators ofconvergence anddivergence intheCommunity economy,1901-83
6DPperheadof Consumer GuPde~ Excha¡•-ci–rate Netborrow- Ploneytotalpopulation ;prices flator %change;meaningofgeneral supply
coefficient of %change;%change; government %change;variation standard standard %GDP;standard standard
deviation deviat:ion deviation deviation
EC10 EC10 EC9(3> EC9(3 >EdQ EMS EC10 EC9(3)
PPP EXCH
1961-70 15,4 21,5 1,5 1,6 1,1 1,0 1,7 3,21971-80 13,8 29,1 3,7 4,4 4,0 3/7 3,5 6,2
1980 14,2 26,2 5,2 5,8 4,6 2,4 3,9 5,9
1981 14,4 23,8 4.,7 5,0 2,1 2,0 5,3 4,7
1982 14,5 24,1(2)4,1 4,7 5,7(1)5,4(1)4,8 3,9
1983(fore-14,9 23,7 3,4 3,7 ;0
• 4,8 3,6cast)
Notes:
coefficient ofvariation=standard deviation divided bymean
standard deviation =rootofthesumofthesquares οτthedeviation ofeachcountry® s
figurefromtheECaverage
mean =simpleaverageofthechangesallcurrencies againsttheECU,
takingtheaverage levelfortheyearoverthecorrespondingΟ
ι
ppp
EXCHfigurefortheprevious year.
=purchasing powerparity
=current marketrateofexchanae
(1)Firsthalfofyear.
(2)Atmid-1982 exchange rates.
(3)Excluding Greecefortechnical reasons
Source:Commission services

Nonetheless,therealignments andtheinternalpolicymeasures
whichwereplannedtoaccompanythem,again"confirmedtheabilityofthe
systemtomakeorderlyadjustments inaccordancewithfundamental economic
criteria,whilepreventingerraticorirrationalexchangeratemovements"
(AnnualEconomicReport,1981-82,p.10).
Theserealignments reflectedtheinsufficient fundamental con­
vergencenotedinthelastAnnualReport.Thepolicymeasurestakenor
announcedbyBelgium,FranceandItalyinconjunction withtheEMSrealign­
mentsin1982should,ifcarriedthrough,improvethissituation.Indeed,
oneofthemostpositivedevelopments intheCommunity'ssystemofcoor­
dinationinthepastyearhasbeenthetendencyforparticipants intheEMS
topreparemoreadequateaccompanying measurestosecuresuccessful
exchangerateadjustments .
1.2Prospectsfor1983
Theforecastfor1983suggeststhatthetrendofoutputgrowthin
theCommunityislikelytoremainveryweak.
Outputin1983isexpectedtogrowby1,1%intheCommunity,which
supposessomeupturninthesecondhalfof1983.Theannualreportlast
yearexpecteddomesticdemandtorisein1982afterthesharpincreasein
exportsof1981.Exportsinfactheldupwellthrough1981butwith
increasingfinancialconstraints onOPECandtheLDCsandfurtherstagna­
tiononOECDcountriesin1982,worldtradeinvolumetermsdeclined.This
declinewasfollowedbyarenewedweakeningindomesticdemandintheCom­
munity.
Thelowgrowthforecastfor1983isbasedontheanticipation that
bothprivateconsumption andinvestmentwillpickupthecourseof1983
undertheinfluenceoflowerinflationandfallinginterestrates.Invest­
mentisforecasttogrowby0,6%in1983.Thisgrowthrateassumessome
reductioninEuropeaninterestratesandanimprovementintheprofitabi­
lityofthebusinesssector.Demandisalsolikelytobesupportedby
limitedrestockingactivityafterdestockingofthesecondhalfof1982.

8.-
WithsomeGDPgrowthintheU.S.A.(2,0%in1983),inspiteof
continuing lowimportvolumesinOPECandLDCs,worldtradeshouldrecover
somewhatin1983(2.2%)butitisunlikelythattheforeignsectorwill
rakeanimportantcontribution togrowthintheCommunity.Howeverthe
termsoftradearelikelytoswingfurthertotheadvantageoftheCom­
munity,withthecurrentaccountbeingroughlyinbalance.Atthenational
levelhoweveraverydifferentiated pictureappearswithcurrentaccount
surplusesinGermanyandtheNetherlands,anddeficitsinFrance,Italyand
severalsmallercountries.
Inflationisexpectedtofallfasterin1983thanwasanticipated
earlierthisyear.Theprivateconsumptiondeflatorisforecasttoriseby
only8,8%in1983.Thisreflectssomemoderationinimportpricesand
lowerinternalcostdevelopments insomecountries,notablyGermany,the
UnitedKingdomandtheNetherlands .InFrancetooinflationislikelytobe
lowerin1983thanhadbeenpreviouslyforecast.
ThelowerthanexpectedGDPgrowthin1983willtendtoraise
budgetdeficits.Withmeasuresbeingtakenbyseveralmemberstatesto
limittherise,theoutcomemayonaveragebenearstabilityasapercen­
tageofGDP.
Unemployment islikelytorisethroughintothesecondhalfof1983
toreachwellover12millions.Thisresultsfromafurtherslightfallin
employment andacontinuation intheincreaseinthelaboursupplywhich
hascharacterised recentyears.
Thesesharplyrevisedestimatesandforecastsfor1982and1983
meansthattheEuropeaneconomyisnow(inautumn1982)seenashaving
enteredaseconddownwardphaseinadouble-diprecession.Thebeginnings
o'■arecoveryphasewhichwereinevidencetowardstheendoflastyear
havenowclearlybeenextinguished .Therecessionwillinafewmonthstime
bemovingintoitsfourthyear.Theproximatecausesofthisextremelygra­
veresultmaybetracedtothesuperimposition ofthe1981-82interestrate
problemontopofthe1979-80oilshock.Buttothismustbeaddedadeeper
assessmentofthestructuralvulnerability oftheEuropeanandworldeco­
nomythathasevidentlybeenbuildingupoverthepastyears,andwhich
formsthebackgroundtotheoutlookforthe'eighties.

2.Assessmentoftheoutlookforthe'eighties
ThepossibilitythattheEuropeaneconomyisenteringalongperiod
ofslowgrowth,orevendepression,maybefoundedontwobroadlinesof
concern.Onefocussesontheoccurrenceofexternalaccidentsorsystem
shocks,suchasoilshocks,majordisturbances inworldfinancialmarket,
orgeopolitical conflicts.Asecondfocussesontheaccumulated back-logof
adjustments andonourgrowingincapacitytorespondquicklytotherecent
changesintheeconomicenvironment .Theincreasedstructuralrigiditiesin
oureconomiesandsocialbehaviourhavechangedprofoundlythelong-term
dynamicsofthebusinesscycle.
Bothtypesofrisksarepresentintheactualsituation.Ina
highlyinterdependent worldtheimpactofunexpecteddisturbances arecom­
municatedextremelyrapidly,andtranslatedintonegativemultiplier
effectsonnationaleconomies(thisisparticularly trueoftheCommunity
economies,beingmoredependentonexternaltradeandmoreopenthanthe
othermajorindustrialised countries).Itistheroleofeconomicpolicy
coordination intheindustrialised worldtominimisetheserisksinthe
managementofnationalpolicies,butrecentexperienceisnotsoreassuring
inthisregard.
Theshocksandaccidentsarebytheirverynatureunpredictable,
butthisisnotareasonforneglectingopportunities totakeoutcompre­
hensivelong-run'insurancepolicies'evenandforemostataEuropean
level.
Thebuildupofenergyindependence -beitthroughnuclear
programmesorpricepolicyforenergyproducts-toavoidthechancesofa
thirdoilshockisafirstandmostimportantexample.Actionalongthese
linesprovedintheeventinsufficient afterthefirstoilshock,andthe
recentdeferralofmajorenergyprojectsinsomepartsofthe
industrialised worldinvitesthequestionwhetherthesamemistakeisbeing
repeated.
Currentdifficulties ininternational debtsituations showhow
greattheneedisforadequateprudentialarrangements intheworld
bankingsystem,bearinginmindthespectacular growthofsovereignrisks.
ForEuropetherearespecialconcernsthatarisefromitslocationashost

tomuchoftheworld'sxeno-currency market/whichitcannotfullycontrol
duetotheverysubstantialfractionofthemoneyandbondsbankedor
tradedinEuropebeingdenominated innon-European currencies.
Thereareseveralpossibleroadsintolong-runstagnationthatdo
notrelyon'accidents'.Attentionhasbeenconcentrated ontheebband
flowoftidesoftechnological innovationandproductdevelopment.Atthe
worldwidelevelnewwavesofproductsandprocessesseemindeedtobe
constantlyforthcoming .HoweverEuropeislaggingbehindinseveralfields,
dueinparttotheinsufficient unityofthelargeEuropeanmarket,aswell
asthemaintenance ofprotectivedevicesandsubsidiesatthenational
level.
Theriskofstagnationhasinrecentyearsbeencharacterised by
growingrigiditiesandgreaterdifficulties inadaptingsufficiently
systemsofaidstotheeconomyandofsocialprotection,andinhaltingthe
weakeningofinvestmentandprofitability .Manycountrieshavelostcontrol
oftheirfinancialpolicy,allowingpublicexpendituretoriseandwithout
adequatemasteryoftaxation,deficitsandmonetaryexpansion.
Whilethereisrecognition oftheneedtofacethesestructural
malaises,thereisnoundisputedpreferenceforaparticularstrategy.At
presentonecandiscernthreemainstreampositionsinpublicdebate:
-first,theviewthatprovidedrigorousfinancialandadjustmentpolicies
areperseveredwith,aspontaneous improvementinrealeconomicperfor­
mancewillbeforthcoming,althoughthetime-lagsareuncertainandpro­
bablyquitelong;
–secondly,theviewthat,whilerigorousfinancialandadjustmentpoli­
ciesarenecessarytoavoidreexcitinginflationary expectations,they
riskbeinginsufficient toinduceaspontaneous recovery,andthat
thereforesomepolicyactionsshouldsupporteconomicactivityinthe
macroeconomi candstructuraldomains;

11.-
-andthirdly/theviewthattheeconomyhasenteredaperiodofprolonged
quasi-stagnation inoutput/thatanessentialpolicytaskisnowto
adapttothisrealityinordertoreducedisruptions andinequalities
derivingfromit.
Noneoftheseapproaches-relianceonspontaneousrecovery/the
supportofactivitybymacroeconomi candstructuralmeasures/andmanaged
slowgrowth-willalonebesufficienttoovercomethepreentdifficulties .
Thepolicyframeworkthatissuggestedbelowisbasedontheideathatto
bringaboutalastingimprovement oftheeconomicsituationintheCom­
munity/whatisrequiredisadiversifiedsetofactions/thatvarynot
onlyaccordingtodifferencesincountrysituations/butalsodrawonall
thethreeapproaches.
3.AnoutlineofeconomicpolicyfortheEuropeanCommunity
3.1Medium-termpoliciestorestructuretheEuropeaneconomyand
countertheunemployment problem.
Thefollowingsections-onpublicfinance/investment/labour
costsandemployment-concernthemaincomponentsofastrategytoreallo­
cateresourcesandfinancetotheendsofhigheremployment and
production.Theobjectiveistoincreaseinvestment,andconsequently to
assureatransferoffinanceandresourcesinfavourofrealactivity.This
requiresasignificantadaptationinpublicfinancesandcosttrends,par­
ticularlywages.Inthiscase/therefore,appropriate mechanismsshouldbe
devisedtoensurearealandeffectivetransferofresourcesfromconsump­
tiontoinvestment.
3.1.1Budgetarydiscipline andeconomicconvergence .
Withpublicexpenditure nowamountingonaverageintheCommunity
toalmost50%ofgrossnationalproduct,(withextremesof60%reachedin
theBenelux,DenmarkandIreland)andpublicborrowingamountingalsoto
halformoreofcreditexpansionintheeconomy,governments havebecome
responsibleforamassivepartoftheeconomy'sdevelopment.Forthese
reasonspublicfinancepoliciesinmuchoftheCommunitymustlieatthe
heartoftheprocessofimprovedconvergence-evenifthisconceptembra­
cesmanyotheraspectsofeconomicperformance.

Inasignificant numberofMemberStatesithasbecomeevidentthat
budgetarypolicieshaveescapedeffectivecontrol,asmanyspending
programmesacquiredpowerfulgrowthtendencies.
ThissummertheCommissionaddressedtotheCounciladetailedCom­
municationonthemeansbywhichabettercontrolofbudgetpolicypriori­
tiesmaybepursued:reducedcurrentexpenditures withahigherpriorityto
expenditureaidingeconomicdevelopment,adjustmentoftaxstructureswith
aviewtofavouringemployment,moreextensiveusercharges,reduced
borrowing,theaimingatequilibrium oncurrenttransactions,andseveral
typesofimprovement inmanagerialandpoliticalcontrol.
Thereislittledisagreement overthedirectionofthesepolicy
recommendations ,buttheyneedtobeimplemented withamaximumofpoliti­
calconsensus.Delicateissuesarethoseofchoosingthetiming,speedand
amplitudeofpolicycorrections .Onewouldwishtoimplementinternal
adjustment programmesinaninternational settingofrisingeconomicacti­
vity.Somecountriesareclearlyonunsustainable trajectories intermsof
thepresentscaleoftheirforeignborrowing,toadegreethatmanyofthem
neednowtoadjustrapidlyatthesametimetogetherwiththeeconomic
upswingnotyetassured.
Therecommendation ofrapidandsubstantialactionmustsurelybe
addressedinthefirstplacetocountrieswhicharenowbuildingup
excessiveexternalofficialdebt,andinwhichlargebalancesofpayments
deficitsaccompanylargepublicsectordeficits.Theseeconomies,andespe­
ciallytherelativelysmallonesbecauseoftheireconomicopenness,will
deriverelativelyquicklysomeofthemajorbenefitsofmakingaclear
breakinpasttrendsinachievingbudgetdeficitcuts,notablyintermsof
improvements inthebalanceofpaymentsandineconomicexpectations .

13.-
3.1.2Investment,technology andindustrial ,performance
Recentorientations fromtheEuropeanCouncilonthepromotionof
investment (1)showthattheauthorities intheCommunityfavouran
employmentstrategythattakesthehighroadofadvancedtechnology,and
productivity growth,ratherthanthelowroadofdecreasingproductivity
growth.Someofthemeansthatwilldeterminethesuccessofthisstrategy
areinthedirecthandsofgovernment.
Analysisofpublicfinanceinrecentyearstendtoshowaweakening
ofpublicinvestmentintotalpublicexpenditure .Therearerepeatedexam­
plesofpublicexpenditurecuttingexercisesthatseemtohaveresultedin
heaviercutsinpublicinvestmentthaninmanycurrentexpenditure program­
meswithstrongerin-builtdynamics,andoftenlargerinterestgroupsin
support.Thesetendenciesshouldbereversed.Withintotalpublicinvest­
mentadifferentbalanceshouldbeachieved:forexampleincertain
countriestheeffortmadefor20yearsinfavourofinfrastructure insome
sectors(schools,universities,motorways)maypermitsomereductioninthe
publicresourcesallocatedtothem.Itisnotobvioushowtheseeconomies
balanceoutagainstthecostofprogrammesthatwarrantincreasedspending,
eitherthosewhichcontributedirectlytoeconomicactivity(researchand
development,vocationaltraining,newformsofcommunication,public
transport),orindirectly (housing,urbanrenewalinoldcitycentres
etc.).Economiesinsomebranchesofpubliccapitalspendingshouldease
thefinancingofnewprioritiesthatundoubtedlyexist.
Thefosteringofincreasedprivateinvestmentmustrelyinthe
firstplaceonmacroeconomi candgeneraltradingconditions.Evidenceof
thisisseenintrendstowardsmorecapital-deepening investmentandless
capacity-extension investment.Highinterestrates,duetodevelopments in
(1)c.f.-Communication oftheCommissiontotheCouncilontheProblemof
Investment (C0M(82)365finalof8.6.82)
-Communication oftheCommissiontotheEuropeanCouncil
(C0M(82)390finalof14,6.82)
-Communication ofthe^T:missiontotheCouncilonInitiatives
forPromotingInvestmenL (C0M(82)641finalof8.10.82).
-Conclusions oftheEuropeanCouncilsof29-30.3.82
(point4to6)andof28-29.6.82 (page6).

theUnitedStatesandincreasingbudgetaryexpenditure.Lowself-financing
ratiosandprofitability asthecounterparttoexcessivecostsarefun­
damentaldeterrantstoinvestment.Stabilityineconomicconditionsare
alsofundamental,asregardstherateofinflation,exchangeratesand
interestratesandtheinternational tradingenvironment.
Nothwithstanding thelimitstothesupporttoinvestmentthatcan
beaffordedbygovernment,importantmeasuresshouldnonetheless betaken
bynationalandCommunityauthorities .AsregardstheCommunityinpar­
ticular,thereareresponsiblities inworldtradingpolicyandtheinternal
marketwhosecompletionshouldbeaccelerated.Theseresponsibilities
extendalsotoindustrialpolicynotablyforcertainadvancedtechnologies,
andloanfinancingofinvestmentprojectsinselecteddomainssuchas
energy,industrialmodernisation andregionaldevelopments;the
strengthening ofthesepoliciesshouldbeactivelypursued.
Inexternaltradepolicythereisanevidentdangerofconflict
betweenincreasingprotectionist pressuresandtheobjectiveofachieving
anadvancedandcompetitiveindustrialstructure.Analysisoftradesta­
tisticsshowsthatitisaboveallintheinternalEuropeanmarketthatthe
Communityhaslostgroundinitsmarketsharesfortechnologically
advancedproducts.Inseekingtomaximisetheopennessoftheworldtrading
system,alltradingregionswillhavetoshareinimportliberalisation and
adjustmentprocesses.Theoldindustrialised countriesshouldrequirethat
theirprincipaltradingpartners,notablyJapanaswellassomenewly
industrialised countriesacceptimportregimesasopentheirown.
3.1.3Employmentandsocialpoliciesandlabourcostadjustment
Europe'smostpervasiveeconomicproblemisnowthehighlevelof
unemployment .Sinceanincreasingmajorityofthepopulationofworkingage
(increasingfastatarateof1%peryear)wanttowork,theproblemis
fundamentally oneofinsufficient employmentcreation.Whilethisproblem
hasworsenedinmostindustrialised countriesinthecourseofthelast
year,itisontheotherhandafactthatemploymenthasnotincreasedat
allintheCommunityduringthelastdecade,whileitadvancedbymorethan
20%inNorthAmerica(even30%inCanada),by15to20%incertainScan­
dinavianandotherEuropeancountries,andbyabout10XinJapan.

15.-
Itisstrikingtoobservethatemploymentcreationin,forexample,the
UnitedStatesandJapan-countrieswhoseeconomicweightiscomparableto
thatoftheCommunity-hasbeenonascalesufficienttomorethansolve
Europe'spresentunemployment problem.
Admittedlytheseperformances havebeeninfundamentally different
settings:thustheJapaneseeconomyhascombinedahighgrowthrateof
employment,productivity,investment andrealincomes;whereasinthe
UnitedStatesthegoodemploymentperformance hasbeenachievedinthe
midstofarelativelyslowgrowthofinvestment,productivity andreal
incomes.Thispointstothepracticability ofarangeofemploymentstra­
tegies.Europe'sownproductivity growthperformance hasbeenbetweenthat
oftheUnitedStatesandJapan.
ItisalsothecasethattheCommunity,inrelationtotheUnited
StatesandJapan,hasdistinctcharacteristics :itismuchmoreopento
international tradeanditssocialstructureissignificantly different.
Nonetheless,andevenifitisdifficultdrawfromsuchcomparisons models
ofgeneralapplication,theperformance oftheJapaneseandAmericanecono­
miesinemploymentcreationjustifiesreflectiononitsunderlyingcauses,
especiallysinceithasbeencombinedinthesetwocountrieswithcom­
parativesuccessincontrollinginflationandtheexternalbalance.Itis
inparticularapparentthattheJapaneseandUnitedStatesexampleshavein
commonapositiveemploymentcreationrecord,amorepositiverecordof
enterpriseprofitability,oflabourcostadaptability toeconomiccircum­
stances,and-forreasonslinkedtosocialstructure-oflessonerous
labourregulationsthatplaceconstraints ontheuseofproductioncapa­
city.Bycomparison,enterpriseprofitability hasfallentomuchlower
levelsoverthepastdecadeinEurope(especiallyintheUnitedKingdomand
Belgium,butelsewheretooinlesserdegree).Theadaptability oflabour
coststomacroeconomi cconditionsandthoseoftheenterpriseislessin
Europe.
Inthewakeofthesecondoilcrisis,anddrawingonthelessonsof
thegeneraltrendofrealwagesfrom1974to1976andmoreparticularly
ofthemannerinwhichindexationmechanisms haddirectlytransmitted the
effectsofthefirstoilshockintowageincreases,theCommissionadvo­
catedin1981certainprinciplestoguideincomeindexationpracticesin

16.-
theCommunity.Thusindexationshouldexcludefactorsoutsidecorporate
controlsuchastermsoftradelossesduetorawmaterialprices,the
inflationary impactforexchangeratedepreciation andchangesinindirect
taxes;otherlimitationsshouldbeputonthespeed,automaticity or
fullnessofwage-priceindexation.Intherecentpast,therehasbeena
certainconvergence ofpracticesinlinewiththeseprinciples.Thusin
BelgiumandItalychangesincertainregimesoffullindexationhavebeen
implementedorannounced.Inothercountries,forexampleDenmarkand
France,thereisincreasingacceptanceoftheneedforlabourcostadjust­
ments,andforarevisioninindexationhabits.
ButmuchremainstobedonetoensureinEuropeapatternofwage-
profitrelationscapableofsettingunemployment onadownwardtrend
throughthedevelopment ofeconomicactivityandthecreationofnew
wealth.Asinthecaseofbudgetarypolicycorrections,thereareunde­
niabledifficulties indetermining thebesttrajectory.Labourcostadjust­
mentisanecessarybutnotsufficientconditionofimprovingenployment.
Moreoverawageadjustment,especiallyifitisnotappropriately phasedin
itstiming,cancarryarealriskofdeflation;macroeconomi cpolicyshould
enablethisrisktobeavertedinwaysindicatedbelow(p.20seq).Thismay
havetodependoneffectiveconcertation betweengovernmentandthesocial
partners,implyingamuchstrongerneedforasocialconsensus.
Otherwaysofhelpingthereallocation ofresourcestowards
employmentandinvestmentexpansionmaybefoundinarrangingagreater
flexibility oflabourcostsasafunctionofprofits,alliedinsomecir­
cumstancestogreateraccesstoequityshares,orvariouscooperative
systems.Inadditiontheremaybelinkstoschemes,whichaimataworker
participation incorporateplanning.Althoughthegeneralapproachwill
surelyhavetobedecentralised andvaried,accountmustalsobetakenof
thetwinobjectivesofsocialjusticeandparticipation intheprocessof
restructuring theeconomy.
Thereareimportantandlastingissuesofsocialpolicywhichare
nowraisedasaresultofhighunenployment.

Theyfallbroadlyintotwocategories :
-theneedtoadaptsocialbenefitsandregulationsthatweresetina
macroeconomi cenvironment ofhighgrowthandlowunemployment,tothe
conditionsoflowgrowth,highunemployment andimperativebudget
constraints.Thisraisestwodistincttypesofproblem:thatofkeeping
anappropriatefinancialequilibriuminthesocialsecurity accounts,and
thatofcorrecting (oraverting)excessivelevelsofbothbenefitsand
levieswhichmayprejudicesupplypotential.
-measuresdesignedtominimisethesocialhardshipanddamageinflictedby
thehighunemployment level,ortodistributethehardshipinan
equitableway.
Confrontedwiththepresentdifficulties thatresultfromtheslow­
downingovernmentrevenuesandatthesametimethestronglyincreasing
trendinsocialtransferspaidtotheunemployed,ithasbecomeinevitable
thatthetechniques andmagnitudeofthesetransfersandbenefits-notably
unemployment andredundancybenefits-bereexaminedinMemberStatesin
relationtopriorityneeds.Thisprocesshasmoreoveralreadybegunin
Belgium,Denmark,France,GermanyandtheNetherlands .
Suchareexamination shouldtakeintoaccountboththetrendof
incomesingeneralandthefactthatunemployment strikessocialcategories
veryunequally-hittinginparticularlessqualifiedlabourwhichissome­
timesconcentrated incertainsectorsorregionsorcertainunderpriveleged
socialgroups.Theauthorities havetobeguidedbytheneedtopreservein
aperiodofrecessionthefundamentals ofsocialjustice,andtoassure
that,asapriority,incomemaintenance andothersocialprogrammesreally
reachfamilieswiththelowestincomes.
Sincethetotalcostofsocialtransferswillinevitablyremain
highforseveralyears,theauthorities shouldalsobecautiousincom­
mittingthemselvestolong-termexpenditure,particularly onpensions,
andensurethattheymatchthelikelytrendinthereceiptswhichare
designedtofinancethem.

18.-
Asregardsthedistribution ofunemployment/therehavebeenimpor­
tanteffortsinthelastyeartogiveprioritytoschemestoreducethe
particularity highlevelofyouthunemployment .TheCouncilhasaccepted
theprincipleofthesocialguarantee,wherebyallschool-leavers shouldbe
assuredofeithercontinuingeducation,orprofessional trainingorwork
experience.Programmesinimplementation ofthisprinciplearebeingbuilt
up,notablyinFrance,DenmarkandtheUnitedKingdom,whereasGermanyhas
longhadwelldevelopedpoliciesofthiskind.Butthenextstageinthe
problemisthatofensuringrealemploymentopportunities .Thiswill
requireacontinuingflowofinitiativestomaketherecruitment ofyoung
peopleaneconomicpropositionforemployers.Measurestoreorganiseand
reduceworkingtimecouldmakeacontribution tothecreationofemployment
opportunities insofarastheyhelptoreducethepresentrigiditiesin
thelabourmarketandstructuresofproduction anddonotincreaselabour
costs.Inordertotakedueaccountofinstitutionalsocialorwage-
determination differences betweencountries,aswellasthespecialnature
ofvariousactivities,thesemeasuresshouldbenegotiatedatan
appropriate levelbetweenthetwosidesofindustry.Theyshouldalsoaim
atachievingagreaterdegreeofflexibility andmobilitysoastomaintain
orimprovethecompetitiveness ofenterprises .Awiderangeofreducedand
flexibleworkinghoursinboththepublicandprivatesectors(part-time
work,"job-sharing",training-leave ,lengthening andstaggeringofholi­
days,short-timeworking)shouldbemadeattractivethroughabetterutili­
sationofproductivecapacitiesandthereductionoflegaland
institutional obstacles.Flexibleandvoluntaryretirementarrangements for
elderpeoplemayhelpyouthrecruitement .

19.-
3.2Short-termissuesofcoordination andfinancialpolicymix
3.2.1Evolutioninsystemsofpolicymanagementandcoordination
Theproblemsofmanagingstructuralchangeineconomicperformance
areextremelydifficult.Todescribetheobjectiveisrelativelyeasy.But
therearemajoruncertainties surroundingthetime-lagsinvolvedinkey
economicadjustments,suchasthosefollowingbudgetaryreforms,changesin
monetarypolicyorinthedistribution ofincome.
Thesedifficulties affectallcountries.Ontheonehandcountries
havingmanagedtomaintainagoodpricerecordorrecoveramuchbetterone
-suchasGermanyandtheUK-areatpresentuncertainwhenanimprovement
intherealeconomywillmaterialise.Ontheotherhand,countriesin
seriousfinancialdisequilibrium -suchasBelgium,DenmarkandIreland-
finditdifficulttojudgethebestmixandtrajectoryfortheirinevitable
policycorrections.
Asymptomofthesedifficulties hasbeenseenoverthelastyears
intheprogressive abandonment oftarget-setting fortheindividualobjec­
tivesofeconomicpolicy:output,pricestabilisation,employment.The
instruments ofpolicycontrolwereseentobeinsufficient forthecredible
fixingofmultipleobjectives.Moreoverthesettingofunrealistically
optimisticobjectivescouldhaveharmfuleffectsonthewholeoftheeco­
nomy.
Meanwhiletheimportanceof'intermediate 1policyobjectives,such
asbudgetary,monetaryandexchangeratetargets,increased.Withthishas
comeincreasedawarenessoftheimportanceofexpectations ofprivateeco­
nomicagents.Thecredibilityofgovernments' commitmentstotheirfinan­
cialtargetshasbecomeanintegralpartofthetaskofpolicymanagement.
Financialobjectiveswhosecredibilityaresuspectaresanctionedheavily
inthemarket,notablythroughinterestrates.

Therelationship whichhasbecomemostuncertainisthesplitof
thenominalgrowthofgrossdomesticproduct(GDP)betweenoutputand
inflation.Therelationship betweenthegrowthofthefinancialaggregates
andnominalGDPhasprovedrelativelyrobust.Butthereislittleconsensus
overhowfaranactoffinancialpolicyrestrictionorexpansionwill
affectrealoutputversusprices.
Inthelightofrecentexperienceitmaybethatthebalancebet­
ween'final1and'intermediate' objectivesshouldbeadjustedinthedirec­
tionofaclosermonitoringofaggregatenominalGDPtrends,ashasbeen
thecaseinacertainnumberofMemberStatesforsometime.Thiswould
avoidthepitfallsofoverspecific targettingofinflationandoutput
separately,wherethepolicyinstruments underthedirectcontrolof
governmentwereinsufficient toassuresuccess.Itwouldprovideapointof
referencefortheconsistentsettingandmonitoringofmonetaryandbudge­
tarypolicies,andaidinthediscussion,betweenandwiththesocialpart­
ners,ofthetrendofincomescompatiblewitheconomicandemployment
objectives.Financial,i.e.budgetaryandmonetary,policywouldhaveto
assureacertaintrajectoryfornominalGDPandexternalequilibrium,while
incomedevelopments (underfreecollectivebargainingorincomes
'policies')andsupplysidepolicieswouldberesponsiblefordetermining
therateofemployment andproductivity growth.
Existingcoordination proceduresshouldbecombinedwiththereview
ofeconomicperformance inrelationtothefinalobjectives (fornominal
GDP)settoguidefinancialpolicies.Inthecaseofeconomieswithagood
pricestabilisation performance andweakrealactivitythemanagementof
financialpolicyadjustments couldbelessbedevilledbythe"expectations
trap",i.e.thedangerthattheneedtosupportthecredibilityoffinan­
cialpoliciesleadstoanover-rigidcommitmentto'intermediate *financial
targets.Butadjustments ofpolicyinthelightofperformance wouldstill
havetotakeintoaccountthefullrangeofconstraints.Themajor
constraints andindicationofdisequilibriaintheCommunityin1982are
summarised belowinTable4.

Table3
Forecastevolutionofgrossdomesticproductin1982and1983/
percentagechanges
1982 ~~ 1983
GDPGDP GDPGDP
nominaloutputprice(p.m.consumer nominaloutputprice(p.m.consumer
GDPvolumedeflatorpricedeflator)GDPvolumedeflatorpricedeflator)
Β 6,8-0,57,3 9,0 7,9ν0,57,4 8,5
DK 12,82,010,6 9,9 8,61,66,9 7,0
D 4,3-0,54,8 5,0 4,71,03,7 3,6
GR 22,60,721,7 23,0 23,01,920,7 21,0
F 13,61,112,4 11,0 10,81,09,7 8,9
IRL 21,02,018,6 18,5 15,52,412,8 13,0
I 18,40,817,5 16,6 16,91,015,7 15,0
L 8,4-0,38,7 11,0 8,81,07,7 9,0
NL 5,7-0,56,2 6,3 3,3-0,33,6 4,5
UK 9,70,68,4 8,8 8,21,76,4 6,9
EC 10,90,310,6 10,5 10,01,18,8 8,8
Source:Commissionservices
ro
I

3.2.2Thepolicymixintheimmediatesituation
Ithasbeenforecastin1981thatthebusinesscyclewouldsoonbe
ontheupswing;thisforecastwasbasedonaseriesofdevelopments and
signsobservedduringtheprecedingtwelvemonths.Buttherecoveryprocess
stoppedatanearlystage.TheEuropeaneconomywillthusprobably,in
1983,beenteringintoitsfourthconsecutiveyearofquasi-stagnation .The
riskofalastingdeflationary situationcannotbeexcluded.
Policymakingmusttakeaccountofthisnewenvironment,which
makesevenmoreurgenttheimplementation incertainMemberStatesoffun­
damentaladjustmentpolicieswithrespecttopublicfinances,costdevelop­
mentsortheexternalbalance;thesebeingessentialfortherecreationof
subsequentpossibilities forsatisfactory growth.
Thissameriskrequiresontheotherhandthatcountrieswhose
situationissoundensurethemaintainance ofalevelofactivitycom­
patiblewithgeneraleconomicstabilityandbalance,butsufficientto
avoidthepitfallofadeflationary spiral.
Therefollowsfromthisanalysisageneralorientationforthetwo
broadcategoriesofpoliciestobeeffectedintheCommunity:
-therapidachievement ofeconomicadjustments,whicharenecessary,
althoughindifferentdegrees,inthecountrieswhosepublicdeficits,
balanceofpaymentsdeficitsorinflationareexcessive;
-themaintenance ofasufficientlevelofeconomicactivityincountries
whosesituationsarebetter,butwhich,becauseoftheprevailing
environmentinternationally orintheCommunity,areunabletoexploit
alltheirpotentialforgrowth.
Ingeneral,policyinbothsituationsshouldbeimplementedinways
suchthatthetechniquesusedtoreduceinflationandreestablish com-
petivitityresultnotinareductionofaggregateperformance,butina
reallocation ofresourcesinfavourofproductiveactivity.

23.-
Inallcasesitmustremainclearthatthebasicguidelines for
structural adjustment andstabilisation stillholdgood,andtheirimple­
mentation mustbeaccelerated andintensified .Inparticular countries in
exposedfinancial situations mustrapidly andconvincingly showthatthey
aretakingthenecessary stepstobringtheirpublicandexternal borrowing
ontosustainable trajectories .Thecontinued recession increases the
dangersofinaction.
Forcountries instronger financial situations theimmediate
constraints areobviously less,butthetaskofachieving moreoutputand
notmoreinflation through aneasingoffinancial policyremainsextremely
delicate .Thefirstreasonable stepincurrentcircumstances istolet
moneysupplygrowthmovetothetopofitstargetrange.Thishasbeendone
bytheBundesbank ,andshort-term interest rateshavebeenreducedfrom
101/2%atthebeginning of1982to8%inmid-September .Thisishelpful
forrealactivity,andwillinduecoursedoublyhelpreducethebudget
deficit,directly throughofficial debtservicecostsandindirectly when
activity strengthens andtaxreceipts increase faster.Itisalsohelpful
intheEMSexchange ratesetting,inwhichotherparticipating countries
mayrelaxtheirinterest ratesmoreorlessinstepwiththoseofthe
Bundesbank .TheUKisalsoreducingitsinterest ratessteadily .
Oneshouldexpecttheprocessofinterest ratereduction tocon­
tinueincircumstances ofrecession anddecelerating inflation,although an
indicative limitcouldnormally beseeninarealrateofinterest closeto
theeconomy'sunderlying rateofgrowth-atleastforlong-term rates.
Belowthislimittherewouldberisksofdiscouraging theformation of
savingsrequired tofinance astronger investment performance .Ifthe
likelyrateofinflation andrealactivity continue toberevised down­
wards,therewouldbeastronger casestillfortheeasingoffinancial
policies .Intheoutlookfor1983,itnowseemsquitepossible thatGermany
andtheUKwillbeinsuchasituation andpossibly theNetherlands also.
Iftheeconomicsituation worsened,countries suchasGermany and
theUnitedKingdomshouldavoidactiontooffsettheincreases inbudget-
deficits thatwouldresultfromthelossofactivity .Interest ratereduc­
tionsshouldstillinthepresent phasebethemainagentofcounter
cyclicalpolicy.Butasandwhenthesopeforinterest ratereductions is

Table4
Indicatorsofmacroeconomi cdisequilibriaandconstraints in1982
Unemployment 6DPdeflatorBalanceofRealrate Publicfinance Public
rate Xchange payments
currentaccount
%ofGDPofinterest
(1)Budgetbalance
%ofGDPCorrected
balance(2)
%ofGDPdebt
%ofGDP
(1981)(3)
Β13,9 7,3 -4,0 3,7 -12,8 -5,8 88,6
DK 9,1 10,6 -4,1 12,0 -9,5 (-9,0)(46,4)
D6,9 4,8 0,1 4,6 -3,9 -3,1 5,1
GR (3,8)21,7 -2,4 ('7,0) "9,2 -1,4 40,4
F8,3 12,4 -2,6 5,4 -3,0 -1,9 (17,3)
IRL12,1 18,6 -9,0 1/1-15,2 -3,7 98,4
I9,9 17,5 -1,3 6,0 -11,6 -1,1 64,9
L 1/2 8,7 19,7 0,6 -0,9 1/2 (21,0)
NL10,4 6,2 4,0 5,7 -5,7 "2,5 (34,0)
UK12,2 8,4 0,8 6,9 -0,9 2,4 56,0
EC9,4 10,6 -0,7 4,8 -5,0 -1,6 (42,3)
(1)Long-terminterestrateinJuly1982lesstheincreaseofconsumerpricesover6months
(January-July )inannualrate.
(2)Budgetbalancecorrectedfortheimpactofinflationontherealvalueofdomestic
publicdebt(seechapter6)
(3)CentralgovernmentdebtforDK,GR,F,IRL,L,NL;generalgovernmentdebtforD,"settorestatale"forI,
publicsectorforBandUK.

25.-
exhausted,andifnominalGDPisstilldecelerating fromalowrate,budget
policyinitiativestosupporteconomicactivitycouldinthesecircumstan­
cesbewhollycompatiblewithmonetarypolicyobjectives.Suchbudgetary
actioncouldtypicallyincludetax-cutsorchangesintaxandexpenditure
structuresdesignedtohavemaximumsupply-side andemploymentbenefits.
Inothercountries,untilandunlessinterestrateshavebeen
broughtdowninconditionsofsoundpolicymanagementclosetotheselower
limits,thereisunlikelytobeacaseforbudgetpolicyrelaxation.These
interestrateconditionsarethemselvesrelatedtothescaleofcurrent
publicborrowing,theoutstandingpublicdebtandotherdisequilibria(see
Table4).Thuscountrieswithchronicbudgetdeficitsshouldnotexpectto
undertakeanyfiscalpolicyrelaxation:theprobability of'perverse' (i.e.
negative)effectsonrealactivitywouldbehigh.Thesamewouldappearto
betrueofaneconomysuchasFrance,inwhichthereisabalanceof
paymentsdisequilibrium ,eventhoughpublicborrowinghasbeenrelatively
low.Inthesecountrieswhichfaceseverefinancialconstraints,andthose
whoseinflationperformance hasnotyetsolidlyimproved,theirstabilisa­
tioneffortscouldbesupportedbymoreclearlymarkingoutadecelerating,
normativetrajectoryfornominalGDP.Inthiswaytheywouldbesignalling
aceilingtotheflowofmoneytransactions theywerepreparedtofinance,
anddefinetheframeworkforpaynegotiations betweensocialpartners.
Franceforexamplehasnowsetanambitiously lowworkinghypothesisfor
nominalGDPtounderlieits1983budget.
Theroleofpaynegotiations willalsobecrucialinpullingthe
economyoutofrecession.Adeceleration innominalpayandinflationwould
itselfbeamajormotorforceofeconomicrecoverytotheextentthatit
permittedfurthernominalinterestratereductions,improvedprofitability
andbettergeneralconditionsforinvestment.Inthepresentsituationof
stagflation andweakprofitability andinvestment,economicrecoverywill
inmanycountriesrequireaperiodinwhichpaymustbedirectedtowards
bothnominaldeceleration ofwagesandtheirrealadjustment.Thepointof
satisfactory disinflation maybereachedsoonerinsomecountries,for
exampleGermany.Meanwhiletherisksofunduetransitional deflationof
realdemand,understandably fearedintheprocessofdisinflation and
labourcostadjustment,cannotberuledout.Inthiscase,financialpolicy
instruments shouldbeusedtooffsetthenegativeeffectsandensurethat
thetrendofnominalGDPconformstoitsdesiredtrajectory.

26.-
4.Summary andconclusions forpolicyintheperiodahead
TheEuropean business recovery hasnotmaterialised inthecourse
of1982sofar,andrecentindicators showsignsofarelapseofbusiness
confidence ,particuarily inGermany andtheUnitedKingdom.Abouthalfof
theCommunity economyremainsafflicted byseriousdisequilibrium problems
asregardsinflation,thebalanceofpayments andpublicfinance;almost
allMemberStatesareexperiencing gravelyhighlevelsofunemployment .
Theprospects fornextyeararegoverned byconflicting influences .
Therehasbeenaneasingofworldvariables suchasthepriceofoiland
rateofinterest,butitmustbeavoidedthatthesetrendsarereversed in
theearlystagesofanupswing.Theprospects arehoweverfarfrombeing
reassuring ,andtheriskofadeflationary spiralmustnotbeexcluded .All
mustbedonetodissipate rapidlythepresent pessimism .
Theseproblems mustbecountered byattacking thestructural
weaknesses oftheEuropean economy,andarereflected especially inalow
propensity oftheprivatesectortoinvestandincrease employment .These
weaknesses arealsomanifest inmuchoftheCommunity inaninbalanced
distribution ofresources betweenthegovernment andproductive sectors,of
incomebetween wagesandprofits,andofexpenditure between consumption
andinvestment .
Reversal oftheseimbalances wouldseemtobeinescapable com­
ponentsofastrategy toreturntoaneconomywithhigheremployment ,
investment andproductivity ;indeedtheseendshavetobethecounterpart
.andjustification ofsevereincomeandpublicfinanceadjustments .Policy
andconcertation betweenthesocialpartners havetobeconcerned with
assuring thatthecomplete processmaterialises .
Management oftheprocessofsimultaneous cyclical andstructural
recovery isextremely difficult .Nothing canrelieve eachcountryfromits
ownefforts,buttakingintoaccounttheinterdependence ofeconomies and
thepresentinternational situation,asecondobjective mustbepursued
withdetermination :improvement ofeconomicpolicycoordination amongthe
industrialised countries inordertoincrease thechancesofsuccess.

Internationally theCommunityshouldcontinueinitseffortsof
persuasionthatpolicyinthemaininternational reservecurrencycentres
shouldbeactivelyconcernedtoavoidexcessivefluctuations ofinterest
andexchangerates.Tothisenditisnecessarytomaintaineffortsto
organisearealinternational monetarycooperation betweentheprincipal
monetaryauthorities .Thestabilityoftheworldfinancialsystemrequires
thattheinternational currenciesbemanagedwiththisevidentlyinmind,
andthatagreementsarenowpromptlyreachedbetweentheindustrialised
countriesonstrengthening thefinancialcapacityoftheIMFandtheWorld
Bank.
Forthepresent,interestratesarebeingreduced,andcareshould
betakentoconsolidatethistrendintheUnitedStatesandEurope.Mone­
tarypolicyinEuropehasingeneralavoidedextremelysharpmovementsin
financialconditions.Withevidenceoffurtherdeceleration ininflation
andweakeconomicactivityespeciallyinGermany,theUnitedKingdomand
theNetherlands,thesecountriescanaffordtoleadcontinuinginterest
ratereductionsinEurope.OthercountriesintheCommunityfacesubstan­
tialbalanceofpaymentsconstraints andmosthavecommitments withinthe
EMS.Inthesecountriestheremaybescopeforparallelinterestrate
reductions.Howeverinsomeofthemostinflationary countrieswherethe
realrateofinterestisverylowornegative,theobjectivemustbeto
reduceinflationfasterthannominalinterestrates.
Asregardsbudgetarypolicy,countriesexperiencing bothcontinuing
recessionandasatisfactory reductionininflationandwhichfaceslight
disequilibriaorconstraints,shouldavoidablockingof'automatic
stabilisers' .Inseveralothercountrieslargepublicsectordeficitsrule
outanypossibility oftheiradmittingcyclicalbudgetaryactionforthe
foreseeablefuture,and,onthecontrary,imposearapidreductionof
budgetandexternaldeficits.Tax-cuttingstimulation oftheeconomyshould
onlybeenvisagedoncetheprocessofinterestratereductionhasreached
itslimits,andincountrieswhosepublicfinancesareinasoundcon­
dition.

27.-bis
InthefunctioningoftheEuropeanMonetarySystemapositive
featureintheLastyearhasbeentheundertakingofmorethoroughbudget
andincomeadjustmentmeasurestoaccompanyexchangeraterealignments.
Thesetendenciesshouldbefurtherstrengthenedintheperiodahead/soas
graduallytorestoreabetterconvergenceinfundamentaleconomicperfor­
mance.
However,evenasuccessfulmanagementofacyclicalrecoveryinthe
yearaheadwillnotsolvetheproblemofunemployment.Thisrequiresdeep
changestodiminishinmanycountriesexcessivepublicexpenditure,to
increaseprofitableinvestment,andincreasemassivelythepropensityto
employ.Onthislatterpointtheroleofagreatermoderationandflexibi­
lityinreallabourcostsshouldbestressed.Totheextentthatthis
policymayriskcontributingtoatransitionaldeflationofdemand,the
weaknessshouldbecompensatedthroughmonetaryandwherepossiblebudge­
tarymeasurestosupportdemand,forexample,accordingtocircumstances,
throughareductionininterestratesortaxation.
Theaimoftheforegoingstrategyisbasicallytoreestablish a
betteremploymentsituation.Itisevidentthatitssuccessdependson
achievingaconsensusontheoverallpolicypriorities.Itisvitalthat
thestrategycovers,notably,theneednottorelaxinthestruggleagainst
inflationandtotakeintoaccountthedevelopment ofimportprice
increasesindecidingwageadjustments.Moreoveritisclearthatevery
effortshouldbemadetoencourageemploymentcreation,ineconomically
soundconditionsandnotablyinasystematicfavouringofinvestment,
throughremovingobstaclestothesettingupofnewenterprises andthrough
reinforcingflexibility intheorganisation ofworkingtime.Itisequally
necessarytohaveconstantlyinviewthefactthattheimpactof
unemployment differsamongsocialgroups:inthisrespecteffortsshouldbe
made(forexampleinthefieldofincomesorofthereorganisation of
workingtime)toensurethattheconsequences ofthepresentsituationdo
nothaveanexcessiveimpactoncertainsocialgroups.
ThepresentlowlevelofEuropeanexchangeratesagainstthe
dollar,whichseemstobepersistingdespitechanginginterestratedif­
ferentials,maybetakenasafavourablestartingpointforalasting
adjustmentofincome,investmentandemploymentfundamentals inEurope.The
recentchangesinworldinterestratesshouldalsonowfacilitate areva­
luationoftheYen.Theaccompanying internaladjustmentofincomesand
publicfinancesareasimportantinEurope'seconomicrelationvis-S-vis
therestoftheworld,astheyareforindividualcountrieswhoseexchange
ratesarerealignedwithintheEMS.

PARTII.TheeconomiesofMemberStates28.-
InBelgium,,thestanceofeconomicpolicyfollowingtherealignment
ofthefranchasmadeitpossibletostartcorrectingthebalanceofpayments
andthegovernmentdeficit,andimprovingthecompetitivepositionofBelgian
firms.Thesemeasureshavenecessarily temperedgrowthandemploymentin
1982,andtherecoveryofthesevariablesin1983willstilldependtoa
largeextentontheinternational situation,inviewoftheinevitabledomestic
constraints .Theriseinconsumerprices,temporarily fuelledbythedepre­
ciationoftheeffectiveexchangerate,shouldslowdownconsiderably,andthe
balanceofpaymentsdeficitoncurrentaccountmaybeexpectedtocontract
oncemore.
Therehabilitation policyintroducedin1982,inconformitynotably
withtherecommendations oftheCouncilandtheCommission,willneedtobe
followedbyaneffortin1983,probablysustaineduntilthemid-1980s,to
establishmorefavourable andstableconditionsforgrowth.
Progresshasbeenachievedtowardsgreatercompetitivity ,andthe
consumption demandofhouseholdshasbeenkeptwithinthelimitsrequired
foranimprovement inthebalanceofpaymentsoncurrentaccount;butto
consolidate theseachievements,theexpansionofincomesmustremainmoderate
forsometimetocome;themeasuresregardingtheindexationofwagesand
otherincomesappliedin1982couldbeprolongedinanapproprioate format
in1983,tocontributetothisaim.Definingtheguidelinesforthedraft
1983budgetearlyinAugust,thegovernmentannounceditsintentionof
consultingbothsidesofindustryaboutthepracticalarrangements fora
formulatokeeptheriseinwagecoststonomorethan7%in1983.
Astobudgetarypolicy,thegovernmentannounceditsintentionof
keepingtherateofexpansionofexpenditureto7.5%in1983thismeans
arealdeclineinaggregate,andaslightnominalincreaseinexpenditure
otherthanthatrelatingtounemployment andthepublicdebt.Itfurther
intendstoreducethecentralgovernmentborrowingrequirementto10.5%
ofgrossdomesticproduct.

Theseadjustments aretheveryleastthatwillberequiredboth
for1983andwithaviewtorestoringtheeconomytohealthinthemedium
term;anydeparturefromtheseobjectivesduringtheyearwillhavetobe
rapidlycorrected.
Thesuccessofthegovernment'smeasuresisnecessarilyforthe
recoveryofprivateinvestment,whichisessentialtotherestructuring of
economicactivity,andtoalastingimprovement inemployment;the1982
taxmeasuresshouldalsocontributetothis.Thenewindustrialpolicy
stance,involvingstricterconditionsforaidandgreaterselectivity,should
itselfcontributetoagreaterrationalisation offirmsindifficulties and
stimulatethefoundingofnewfirms.
Themarginofmanoeuvreformonetarypolicywillremain
narrow,forthecurrentbalanceofpaymentsdeficitandtheTreasury's
sizablefinancingneedswilllimitthescopeforanautonomousreduction
ininterestrates.
Inthemediumterm,themoderationofcostsandindustrialrestruc­
turingarestillessentialconditionsforalastingimprovement inemployment.
Similarly,itisimportant,asplannedbytheauthorities,tohalvethegeneral
governmentborrowingrequirement asapercentageofgrossdomesticproductby
1985,soastobreaktheviciouscircleofdeficitandinterestpaymentsthat
weighssoheavyonpublicbudgetsandthecurrentbalanceofpayments,and
thushamperseconomicexpansion.

30.-
InDenmark,economicactivity in1982wasmoredynamicthanin
theotherCommunity countries ,withagrowthrateforgrossdomestic
productofabout2%.Asin1981,growthwasstimulated byimproved
competitiveness dueinparticular tothedepreciation oftheeffective
exchange rateofthekrone.Theemployment trendwassupported by
measures takeninJunebytheGovernment tosustain investment ,develop
vocational training andcreatenewjobs.
Afterimproving considerably in1981,thebalanceofpayments on
currentaccountdeteriorated onceagainin1982,asthesubstantial
increase inthecostofservicing theexternal debtmorethanoffsetthe
continuing improvement inthebalance ongoodsandservices .Atthesame
time,thepublicfinancesituation hasgrownsteadily worse.Thenet
central government borrowing requirement for1982isputatOKR57000
million,orabout12%ofGDP,muchlargerthanthedeficitprovided for
inthedraftbudgetandintheguidelines adopted bytheCouncilinDecember
1981,inspiteoftheincrease intaxation inmid-1982 .Themainreasons
forthisarethespecific measures infavourofemployment ,
butespecially theever-growing costofservicing thepublicdebtandthe
rapidlyexpanding trendofcertain components ofsocialsecurity expenditure .
Thepresenttrenddepartsinseveralimportant waysfromthestrategic path
mappedoutatthebeginning of1980,whichaimed,amongotherthings,ata
steadyimprovement inthebalance-of-paymentsdeficit.
Oneoftheimportant objectives foreconomicpolicyin1983will
thusberesolutely toundertake there-establishment ofmacro-economic
equiLibrium.
Tothisend,averystrictbudgetary policywillberequired in
1983.EarlyinOctoberthenewGovernment announced aprogramme designed,
amongotherthings,toholdbacktheexpansion ofsocialtransfer payments
tolimitpublicsectorpay,to
raisecertainpublicservicechargesandtointroduce taxesonpension
fundsandinsurance companies .Thesemeasures shouldleadtoareduction
ofaboutDKR11000millioninthedeficitprovidedforintheinitial
budgetfor1983whichwouldhavereachedalmost15.5%ofgrossnational
product.

31.-
Thenetcentralgovernmentborrowingrequirement shouldthusbe
limitedtosome13%ofgrossdomesticproductin1983.Thisshouldbe
thefirststageinasteadydeclineinthebudgetdeficitafterthevery
rapidexpansionoverrecentyearsandwillrequireasustainedeffort
inthecomingyears.Itisalsoimportantthatthecentralgovernment
initiativeshouldbesupportedbysimilaractionatlocalauthority
level.Strictmanagementofpublicfinanceshouldcontributetoa
declineininterestratesandtocreatingfinancialconditionsconducive
toadurablerecoveryofinvestment.
Toensureamoremoderatetrendofpricesandincomes,awage
freezehasbeenintroduced,inforceuntilMarch1983.Billsnowapprovedby
Parliamentprovidethatthisfreezeshouldbefollowedbythesuspensionof
costoflivingadjustment andafreezeoncertainnon-wageincomesover
thenexttwoyears.Iftheresultsofnegotiations betweenthetwosides
ofindustrynextspringleadtosufficiently moderatewagedevelopments,
therewillbesomereductionintaxesonpersonalincome.Allinall,
thesemeasureswillcontributetostrengthening Danishcompetitiveness ,
onwhichthedevelopment ofexportsandeconomicactivityingeneraldepend.

32.-
IntheFederalRepublic ofGermanyactivity declined in1982
particularly inthesecondhalfoftheyear.Unemployment rosesharply,
bothbecauseofafallinthenumbers employed andbecauseofdemographic
developments whicharenowbringing alargenumberofyoungpeopleonto
thelabourmarket.However,inflationary trendseased,andtheexternal
position improved markedly,withthecurrentaccountexpected tobein
equilibrium fortheyearasawhole.
Thepresentoutlookisatbestforaverymodestrateofgrowthin
1983(about 1%)whichshouldgatherstrength astheyearproceeds asa
(1)resultofaslightrecovery ofexports andfixedinvestment .These
aggregates willbenefit fromthefavourable impactoffallinginflation and
interest rates,together withthevarious measures introduced bythe
Government in1982tostimulate capital spending .
Themonetary authorities roomformanoeuvre increased substantially
in1982,partlybecauseofanimproving balanceofpayments andfalling
inflation andpartlybecauseofthedeclineininterest ratesondollar
denominated assets.Accordingly ,Germaninterest rateseasedandthe
Central BankMoneystockwasallowedtogrowatarateclosetotheupper
limitofthetargetrange.However,asaresultofthelackofeconomic
growth,thedevelopments ofpublicexpenditure andborrowing wereless
favourable thantheauthorities hadhoped,andtheGovernment wasobligedto
introduce supplementary budgetsinthecourseoftheyear,topermit a
higherlevelofborrowing bytheFederation .
Onthebasisofpresentpolicies theunderlying trendsofoutput
andemployment areunsatisfactory intheperiodahead;lowratesof
expansion couldwellpersistintothemediumterm.
TheFederalRepublic 'sexpected economic growthratesfor1982
and1983willbe-incontrast tothesixties andseventies -lowerthanthe
Community average andsupported toalesserextentthaninthepastby
exportdemand.Amorebuoyanteconomic recovery musttherefore dependupon
; ./.
(UAccording tothelatestassessments azerorateofgrowthin1983,compared
with1982,cannotberuledout.

asignificantstrengthening ofinternaldemand,especiallyinan
environmentofmorerigorouseconomicpoliciesinGermany'stradingpartners.
Moreover,nowthatmostoftheadverseeffectsofthesecondoilprice
shockoninflationandthebalanceofpaymentshavebeenovercomein
Germanymuchquickerthanelsewhere,themixofpolicyshouldcontributeto­
wardsanimprovement ininvestmentandavoiddeflationaryeffectswhichcould
arisefromanexessivelyrapidreductionofthebudgetdeficitoradjustments
totheLevelofrealwages.
Giventheimportanceofbothdemandandprofitexpectations and
financialconditionsforencouraging investment,fiscalpolicyshould
principallyconcentrate,intheimmediatefuture,onrestructuring public
expenditures infavourofcapitalformation,researchanddevelopment and
professional train-'->ci,ratherthanonareductioninthedeficitinayear
ofloworzerogrowthand,ensureaprogressive reductioninthelonger
term.Therefore,the netborrowingofgeneralgovernmentcould(should)
beheldstablein1983atsome4%expressedasapercentageofgross
domesticproduct.
Inviewofthefavourableoutlookforinflation,monetarypolicy
shouldbeconductedinamannersuchthateconomicexpansionis
facilitated notablybylettingCentralBankMoneyincreaseata
sufficiently highrate.Theroomformanoeuvregeneratedbythe
improvements ontheexternalsideandthedeclineintherateofinflation
shouldbeusedtoencourage,asamatterofpriority,furtherfallsin
interestrates.
Evenwitharateofgrowthclosetoonewhichispresently
forecastfor1983,itwouldnotbepossible,inthenearfuture,to
avoidafurtherdeterioration onthelabourmarket.Onthewhole,
Germany'scompetitiveposition,itsproductivity recordandtheprofitability
ofitsfirms,donotsuggestthatamajorreductioninrealwagesingeneral
isanecessaryprerequisite forstrongergrowth.Greaterattentionshould
nevertheless begiventotheappropriatestructureofwagedifferentials,
ensuringthattheycontributetothemobilityoflabour,sofostering
thenecessaryreadjustments intheeconomy.

Greeceisstillconfrontedwiththeproblemoftheresumptionofeconomic
growthinanexternalcontextwhichhasbecome,andislikelytoremain,evenmore
difficultthanbefore.Theshort-term outlookfor1983isalittlebetterin
thatrespect,andshould,iftheforecastsproveaccurate,helptherecovery
togetunderway.Buttheproblemofadjustingtheeconomytoitsenvironment
ismainlyastructuralmatter:nodurableimprovement inproduction
ispossiblewithoutatonpdrawn-outsys­
tematicefforttoincreasethescopefordomesticsupply,whichinvolvesrestor­
inghighinvestmentratios.Suchaneffortmustbecombinedwithvigourous
measurestocombatinflation,whichpresentlydistortstheallocationofproductii
factorsandsoinevitablyhampersdesirablestructural change.
Presentpolicyhasattemptedtolayfoundationsforactiononthese
twofronts,tobespecifiedcomprehensively inthefive-yearplanatpresent
inpreparation .Bycombiningalargeincreaseinthelowestincomesearlyin
1982withpricecontrolsonnecessities andamajorselectiveincreasein
taxation,thispolicyhasaimedtostimulateacautiousrecoveryinconsumer
demandwhileslowingdowntheriseinprices.Anindicationsystemofadapting
incomesandpensionshasbeenintroduced,anditseffectsshouldleadto
spontaneous moderationofthenominaltrendofincomes,aslongasthereisno
immediatepressuretorestorethedifferentials thathavebeeneroded.Another
aimofthepolicyistoreduceaggregatedomesticcreditasaproportionof
grossdomesticproduct,byvigorouslyrestraining theexpandingtrendofthe
publicsectordeficit.Lastly,thepolicyaimsatencouraging therecoveryof
investmentthroughaselectivecreditpolicythathassucceededinkeepingreal
interestratesataverylowlevel,andbycompletingthesystemofavery
variedrangeofsectoralandregionalaids.
Theseeffortsarepresentlybeingmade.Howeverexportshave
stagnatedsofarand
investmenthasgivennosignsofpickingup.Inthecircumstances ,the
growthratemightapproach 1%in1982.Moreover,ithasproved
impossibletocompressliquiditybecausethepublicsectordeficticouldhithertonot
berestrainedasfaraswashoped.Astothedrachma,ithasdepreciatedfurther,
astheauthorities wereseekingtooffsettheeffectofinflationdifferentials
onGreece'scompetitiveness . '"J

Inspiteoftheserelativelypoorresults,presenttightpolicyshould
notberelaxed;foritisessentialtocontrolinflationifthefinancial
conditionsaretobeestablishedtoallowthemajorinvestmentdriverequired
totransform economicstructures .
Economicpolicywillthushavetomakeuseofallthemeansavailable
toensurethatnominaltrendsbegintoslowdownin1983.Inparticular,
effortstorestraintheriseinincomeswillhavetobecontinued,inapplyingthe
index-linking mechanismthedisadvantages ofexcessivelynarrowingtheoverall
rangeofwagesandsalariesshouldbeavoided.
Pricecontrolsmustalsocontinuesoastopreventexcessiveincreases.
Theliquidityratiointheeconomywillhavetobeconsiderably reduced
bybringingthenetpublicsectorborrowingrequirement downtobelow
10%ofgrossdomesticproductviacutsincurrentexpenditure andincreases
inpublicservicecharges,bytighteningcreditcontrolsandbyencouraging
stablesavings.Toachievethelastaim,interestratescannolongerbe
keptatanartificially lowreallevel:moreaccountwillhavetobetaken
ofmarketconditions whentheyarefixed.

InFrance,therecovery engendered bytheupturnindemandin1981hasre­
sultedinasharpdeterioration ofthetradebalance.Theexternalposition as
wellasthefinancial equilibrium andcompetitive position ofcompanies
havebeendisturbed .Theexpansion ofdomesticcreditresulting fromagrowing
public deficit andfinancial problems amongfirms,hasfuelledinfla­
tionwhenitwasdeclining elsewhere .Theexchange ratefortheFrench
francwasadaptedinOctober 1981andinJune1982.
Therealignment withintheEuropean Monetary SysteminJune1982was
accompanied byarigorous recovery programme .Itwasimmediately followed
bytemporary unilateral measures toblock,deferorlimitrisesinpricesand
incomes,inanattempttobreaktheviciouscircleofinflation,andbythe
announcement ofavigorousefforttocontroltheexpanding trendofthe
publicdeficit.Atthesametime,themoneysupplygrowthtargets
for1982and1983havebeenrevised downwards totakeaccountoftheexpected
contraction innominaltrends.Thischangeofcourseshouldhelptobring
inflation downfaster,towellunder10%in1983,andatthesametime
leadtosomeimprovement inthecurrentbalanceofpayments .Butthiswill
entail aconsiderably lowerrateofgrowthofdomestic demand,nohigher
than1%ayearin1982andagainin1983.Specific budgetary andfinancial
measureswill,moreover,aimatshifting thebalanceofdemandfromconsump­
tiontoinvestment .
Thisprogramme cansucceedonlywiththeactivesupportofbothsides
ofindustry,forthemaincondition ofsuccessforthepresentadjustment
policyisalsotheprincipal factorofuncertainty :areduction intherate
ofexpansion ofcosts.Itisimportant thatthecompulsory measures in
forceuntil31October 1982befollowed byapricesand
incomespolicywhich,whilegradually restoring asmuchfreedomofdecision
aspossible,canneutralize thedetermining factorintheinflationary
spiral:thedefactoindex-linking ofremunerations -andmoregenerally
incomes-topastpricerises.

Thepolicyadoptedforfinancingtheeconomy,moreover,willhavetostrike
theappropriate balancebetweentherestrictivestancerequiredbytheobjective
ofreducinginflationary pressuresandensuringexchangeratestability,andthe
needforfinancingbusinessonconditionsthatwillnothindertheirinvestment
effort.Thecontroloftheexpansionofdomesticcreditisthereforeessen­
tial.Thisassumesthat:
-thegrowthofthegeneralgovernmentborrowingrequirementishalted,atleast
inrelativeterms,andthatthetargetannouncedfortheborrowingrequirement,st;
bilizationin1983atthe1982levelof3%ofgrossdomesticproduct,willbe
achieved,and,consequently,
-thattheSocialSecuritysystem,whichismovingtowardslargedeficits,will
bebalanced,astheGovernmenthasannounced,bothbymakingeconomiesandbyin­
creasingcontributions .
Inthisway,itwillbepossibletocreatethemarginofmanoeuvreneededto
financepriorityresearchprojects,reinforceindustrialstructureandpromote
employment,andensurethat,asinflationdeclines,realinterestrateswillbe
lowenoughtominimizethefinancial -burdenonbusiness.Thecompletesuccess
ofthenewincentivestolong-termsavings,particularly inventurecapital,are
animportantelementinthisstrategy.
Theeventualrestoration ofsustainedgrowthwillnotdependonlyonthe
successofdisinflation policyandonimprovement intheinternational environ­
ment.Itwillalsorequireastructuralpolicytoensurethattheeconomy
adaptsefficientlytothatenvironment .Amongotherthings,industrialaction
bytheauthorities willhavetoguidetheeconomytowardsmorecompetitive
structures bymodernizing theweakersectorsandencouraging thedevelopment
ofadvancedtechnologyindustries,mostofwhicharenowinthepublicsector.
It.isalsonecessarythatpossiblemeasuresforworksharingareentirely
compatiblewiththeneedsofenhancingproductivity,andthattheyavoidany
directorindirectincreaseonfirms'costs.

*7OJOt
ThegrowthofeconomicactivityinIrelandin1982hasbeenmodest
comparedwithratesachievedintherecentpast.Therateofpriceinflation
wasfaroutoflinewiththeCommunityaveragealthoughitseemsto
moderaterecently.Boththebalanceofpaymentsandthepublic
sectoraccountscontinuedinseriousdeficithowever,whileforeign
borrowing,arelatedproblem,hassurgedaheadtonewhighlevels.These
trendsappearparticularly worryingwhenviewedinthelightoftherapidly
risingunemployment ratewhichmayexceed12%in1982.
Theoutlookfor1983isuncertain.Withoutnewcorrectivemeasures,
andnotwithstanding agrowthrateinGDPofabout2%,theExchequerBorro­
wingRequirement couldwellapproachthisyear'slevelofabout15%ofGDP
whiletherateofinflation,althoughfallingwouldstillberunningatthe
rateof13%.Undertheseconditions,thecurrentpolicystancemustnotonly
bemaintainedbutmustbevigorouslypursued.
TheproblemsintheIrisheconomyoriginatetoalargedegreein
thefailuretoadjustafterthetwooilshocks.TheopennessoftheIrish
economyanditsheavydependence onexternalenergyresourcesmadeadjustment
imperative.Impressiveratesofexportgrowth,oftenachievedindifficult
tradingcircumstances ,couldnotoffsetthesteadyforwardmarchofimports,
whichreflectedthefailureofdomesticconsumptiontotakeaccountofthe
deterioration inthetermsoftrade.Therealvalueof
earningswasmaintainedinthefaceofrisingimport
costsandtaxincreases,thuscontributing toaveryrapidrateofpricein­
flationwellabovethelevelsexperienced inIreland'sotherEMSpartners.
Thisreducedtheeconomy'sabilitytocompete.Onlybyreversingthesetrends
cancompetitiveness bestrengthened,therateofgrowthinoutputbeincreased
andprogressinreducingthelevelofunemployment bemade.
Inthelastfewyears,publicexpenditurepolicieshavetendedto
accomodatethesedevelopments byallowingarapidadvanceinpublicsector
paylevels,maintaining andimprovingtherealvalueofsocialtransfersand
continuingtheambitiousscaleofthePublicCapitalProgramme.Although
publicborrowingforcapitalinvestmentpurposeshadbeenacceptedpractice
./.

inIreland,the growthofcurrentexpenditureresultedinLargedeficitsonthe
currentbudgetaawell.Thereisawideconsensusthatthecurrentdeficitmust
beeliminatedsinceitaddstopublicdebt,muchofitforeigndenominated,
withoutgenerating astreamofincomewithwhichtomeettheheavyservicing
charges.Todothiswillrequiresubstantialrealcutsincurrentexpendi­
tureprogrammessincelargeannualtaxincreasessuchasthoseimposedin
recentyears,areunlikelytobeprudenteconomically .
Moreover,theobligatorynatureofalldebtchargesreducesthe
Government'sroomformanoeuvre.Thus,whilerecognisingtheneedforfur­
therpubliccapitalinvestmentinIreland,thesituationdemandsthateach
project'spotentialbenefitstotheeconomymustbeseverelyscrutinised
withaviewtoobtaining abetterreturnfromscarceresources.
ToreversethedivergentperformanceoftheIrisheconomystern
actiontoreducethepublicsectordeficitisnecessary.Theconsequent
reductionindeficitfinancingthroughmonetarymeanswouldassistinreducing
inflation,bearinginmindthatfurthertighteningofthecurrentCentral
Bankcreditguidelines maynotbeappropriate inpresentcircumstances .The
packageofexpenditurecutsannouncedinearlyAugustisawelcomefirst
stepinthedirectionofbringingthepublicsectordeficitundercontrol.
Theseeffortshowever,willneedtobecarriedthroughandamplifiedin
1983ifthepublicaccountsaretoberestoredtoasoundbasis.Inthisrespect;
aCurrentBudgetDeficitof5%ofgros's'domestic productandanExchequerBorro­
wingRequirementof12%ofgrossdomesticproductwouldbeappropriatetargetsfor
1983.Atthesametime,itisessentialthat,inparticular,workersin
theshelteredsectorsoftheeconomytakeamorerealisticviewofthe
economicpossibilities andmoderatewageincreasedemands.
Thesemeasureswillnotautomatically removealltheeconomy'sdiffi­
culties,but,afteraperiod,bystrengthening competitiveness andrestoring
theExchequer'sscopeforgrowthpromotingpolicies,theywillenablethe
problemsofjobcreationanddeficiencies onthesupplysidetobetackled
effectivelyandthegoodprogressmadeinindustrialisation tobeconsoli­
datedandbuiltupon.Inthisconnection,thesettingupbytheauthorities
ofamediumtermframeworktotackletheproblemsofhighunemployment and
largeexternaldeficitswhilerestoringbalancetothepublicfinancesand
bringinginflationundercontrolisanindispensable element.

Italyhasmadeprogresstowardsadjustingitseconomytoexternalconstraints .
Ithasmanagedtodothisbyaccepting acontraction indomesticdemand-achieved
in1981-andwiththehelpofdynamicexports.Thesegoodresultshavebeendue,
amongotherthings,toamorestringentmonetarypolicy.Nevertheless therateof
inflation(17,5%in1982)isstillfaroutoflinewiththeCommunityaverage(10%
thesameyear)andotherlargeindustrialised countries.Thebalanceofpayments
hasremainedindeficitdespitetherecession.
Progresstodateisnot,however,sufficienttojustifyanythingmorethana
limitedexpansionindomesticdemand,andinparticularconsumption,intheshort
term.Therestoration ofagrowthtrendcommensurate withmedium-termpotential
dependsnotonlyonanimprovement intheinternational environment,butalsoon
theprogressmadeinreducingthegovernmentdeficit,thecontrolofcostsandthe
adaptation ofproductivestructures.Monetarypolicycanonlyberelaxedtothe
extentthatprogressismadeinreducingtherateofinflationandtheexternal
disequilibrium .Inthecircumstances ,growthwillnotreach1%in1982,andwill
hardlyexceedthatfigurein1983.Ontheotherhand,thebalanceofpayments
deficitoncurrentaccountwillcontinuetocontractanddisinflation willmake
slowbutsteadyprogress.
AnimportantsetoffinancialdecisionswastakenattheendofJuly1982.
Arapidacceptance byParliamentofallthemeasuresproposedbythegovernment
wouldbeanimportantsteptowardsareturntobalancedgrowth.Themainmeasures
involvedalargeincreaseinpublicrevenue.Theyincludedincreasesinpublic
servicecharges,increasedratesforVATandmostexciseduties,ahigherrate
ofcorporatetaxation,ataxamnestywithimmediatepaymentsindischargeof
liability,andincreasesincertainsocialsecuritycontributions .Theextra
burdenofcompulsoryleviesmightbesomewhatattenuated bynewmeasuresfor
personalincometaxreductionssubjecttowageagreementsthatcomplywith
Governmentguidelines.TheFinanceActshouldalsoextendtheinsuredperson's
contribution tothecostofhealthservice.Itisforeseenthatthe
overalleffectofthesemeasures,combinedwithothersstilltobespecified,
shouldbetoreducetheTreasury'snetborrowingrequirement fromabout15%of
grossdomesticproductin1982toabout12%in1983.Suchaneffortisindis­
pensabletoensurethattotaldomesticcreditdoesnotexpandbeyondreasonable
limits,andthattheliquidityratiodeclineswithoutimposingexcessivelyhigh
interestratesontheprivatesector.

41.-
Itisnowuptothetwosidesofindustry,duringthepresentroundof
negotiations fortherenewalofworkingconditionstocommitthemselvesto
voluntaryrestraints onthenominaltrendofincomes.Onlyifthistop
priorityaimcanbeachievedcanthedifferential betweeninflationin
Italyandthatinitsmaintradepartnersbereduced;withoutsuchareduc­
tiontheeconomywouldsufferforalongtimefromtheadverseeffectsofa
lossincompetitiveness .Atallevents,inordertoextracttheeconomyfromthe
inflationary spiral,itisimportanttogaindefinitiveacceptanceforthe
ideathatanactualpracticewagesshouldbelinkedtoexpectedfuture
developments ratherthanfollowingpastpricemovements.Asafirststep
towardsgradualdisinflation,atargetratefortheriseinpricesand
unitlabourcostsofabout13%shouldbesetfor1983,some4pointslower
thanin1982.
Astrategyofgradualdisinflation isthemajorconditionforamore
satisfactory development oftheeconomyinthemediumterm.Apersistently
highinflationratecreatesfinancialpressuresandleadstouncertainty
aboutprofitability ,thusdistortingtheallocationofthefactorsofproduc­
tion.Itcould,inparticular,depressinvestment andresearch,onwhich
dependthedevelopment ofadvancedtechnologysectorsandthegeneral
dissemination oftechnological progressthroughouttheeconomy.Production
structureswillinfacthavetobeadaptedinthiswaytocompensateforthe
declinewhichthreatenscertainbasicindustries andinsomeconsumergoods
industries whosecompetitiviness wouldberapidlyerodedifpresentoutput
conditions weretolast.

EconomicactivityinLuxembourg improvedonlyveryslightlyin
1982.Thedevaluation oftheLuxembourgfrancinFebruary1982didnot
significantly stimulateexportsbecauseoftheparticularstructureof
Luxembourg'sexternaltrade.Prices,whichwerealreadyrisingfairly
rapidlyearlyintheyear,havesincegainedmomentum;atthesametime,
aslowerriseinwagesfollowingthemeasuresconcerningtheindexation
arrangements ledtoadeclineinprivateconsumption .Thepublicfinance
deficitremainedmoderate.
Economicactivitycouldrecoverslightlyin1983underthe
influenceofexpandingexports,buttheeffectsonemploymentwillbe
modest.Therateofconsumerpriceincreasewilldeclinesubstantially
nowthattheeffectsofthedevaluation aregraduallybeingdissipated,
andowingtotheslowdownintheriseofcostsin1982.
Inprinciple,theindexationmechanismistoberestoredinJanuary
1983.Itwouldnevertheless bedesirable,tomaintaincompetitiveness and
consolidatedisinflation ,ifthegovernment andthetwosidesofindustry
couldcometoanagreementonneutralizing -atleastpartiallyortempo­
rarily-therelationship betweenwagesandotherincomesontheonehand,
andthepricetrendontheother.Thiswouldhelptoholddowncosts,and
thusmakeanessentialcontribution totheeconomicrestructuring onwhich
theeventualimprovement oftheemploymentsituationdepends.Themeasures
takenin1982toincreasegeographical andsectoralmobilityinthelabour
forceshouldbereinforcedsoastoreducethecosttothebudgetofthe
actiontoalleviateunemployment .
Fiscalpolicyasawholeshouldremaincautioustopreventany
accentuation oftheexpandingtendencyofthedeficitthathasemergedover
thepastfewyears,andtoprovidesomemarginformanoeuvreforspecific
measuresinfavourofemploymentshouldtheyprovenecessary.This
requirementcouldbemetbykeepingthecentralgovernmentborrowingrequire­
mentfor1983tonomorethan1,2%ofgrossdomesticproduct.

IntheNetherLands,afterseveralyearsofsluggishactivity,
theoutlookislimitedforgrowthin1983,withlittlelikelihoodofan
improvement intheemploymentsituation.Whilstthisforecastis
similartothatforanumberofotherMemberStates,thesituationin
theNetherlands appearsmuchmorefavourable fromthepointofviewof
economicbalance.Disinflation willcontinue,withtherateofincrease
ofconsumerpricesfallingto3,5%bytheendof1983?
balanceofpaymentssurplus,alreadyverylargein1982,couldonceagain
besubstantial,perhaps5%ofgrossdomesticproduct.
Theoutlookbeyond1983does,however,givesomecauseforconcern:
employmentopportunities willbeinsufficient toabsorbthestronggrowth
ofthelabourforce,andinforeigntradethefavourableeffectsonthe
balanceofpayementsoftheexportofnaturalgaswillgraduallyrunout
ofmomentum.
Althoughtheeconomywillbelessunbalancedthanthatofthe
otherMemberStates,governmentfinancewillstillrequirestrictcontrol;
forunlessfurthermeasuresaretaken,thedisparitywillwidenbetween
revenue,affectedbythelowgrowthpredictedfor1983,andexpenditure,
risingfastinaggregateasaresultofthesociallegislation adopted
duringtheperiodoffulleconomicexpansion.Despitethemajorefforts
thathavealreadybeenmadetoreducethedeficit,theborrowingrequirement
ofcentralgovernment andlocalauthorities couldwellamounttomorethan
10%ofnationalincomein1982.Thegovernementthatcomestooffice
aftertheelectionsof8September1982willthereforehavetotakefurther
measurestolimitit,whileavoidinganewincreaseinthetaxburden,
alreadyoneoftheheaviestintheCommunity.Savingsonexpenditure should
begearedessentially tobringingdowntherapidgrowthofsocialtransfer
payments,notablybyreducingthenumberofbeneficiaries forcertain
schemes,andtolimitingtheincreaseincivilservicepay.Onbalance,
itwouldbedesirablethatnetgeneralgovernmentborrowingshouldnot
exceedappreciably,in1983,the1982level(8,4%ofgrossdomestic
product).

44.-
Stabilising thedeficitandreducingitinthemediumterm
shouldalsofacilitatetherecoveryofinvestment.
Itisanessentialconditiontoenablethemonetaryauthorities tocontinue
toreduceinterestrates,afterthesubstantialfallthatoccurredin1982.
Thisinturnisakeyelementinamedium-termstrategy,whoseaimmustbe
tooffset,byradicalrestructuring ,basedonamajorinvestmentdrive,and
bythedevelopment ofadvancedtechnological industries,theadverseeffects
ofthede-industrialization processthathasbeengoingonforovertenyears
now.
Thisstrategyalsoinvolvescontinuedeffortstokeepwagecostsdownon
thewholeintheprivatesector;itshouldhoweverbepursuedcautiouslyin1983,
toasavoidthattheNetherlands economy,alreadysufferingfromtheconse­
quencesoftheworldeconomicslowdown,wouldbeaffectedinthenearfuture
byanexcessively weakoveralldemand.

IntheUnitedKingdomtherewasasmallincreaseinGDPin1982
incontrasttothefallsinactivityintheprevioustwoyears.Afurther
markedfallintherateofinflationhastakenplacewiththeannualincrease
inconsumerpricesapproaching 7%bytheendoftheyear.Unemployment
hashowevercontinuedtogrowwhilethesurplusonthebalanceofpayments
positionhasdeclinedconsiderably .Nevertheless asubstantialsurplusis
stilllikelytoberecordedfortheyearasawhole.
Despitesomestrengthening intherecoveryinthecomingyear,the
rateofgrowthislikelytoremainverymodestin1983,perhaps11/2%and
unemployment isexpectedtocontinuerisingalbeitataslowerpace.Lower
wagesettlementscouldleadtoafurthersubstantialreductionintherate
ofinflation (towards5%attheendof1983).
TheUK,likeallotherCommunitycountries,facessevereimbalances
inthelabourmarket.InmanyotherrespectshowevertheUKeconomy'srelative
positionhasimprovedconsiderably,reflectingthecombinedeffectsofthe
development ofoilresourcesandadherencetotightfinancialpolicies.
TherateofinflationisnowwellbelowtheCommunityaverageanddeclining,
thepublicsectordeficitbothinabsolutetermsandasapercentageofGDP
hasfallenmarkedlywhilstthebalanceofpaymentsposition,althoughithas
weakenedsomewhat,isstillveryfavourable.Thedepthoftherecessionhas
encouraged companiestoshedaconsiderable amountoflabourwhichhasbeen
reflectedinverylargeproductivity gains.Theseinturnledtoverylow
increasesinunitlabourcostsintheUKreversingsomeofthelossin
■competitiveness associatedwiththeappreciation ofsterlingin1979and1980.
Forthefinancialyear1982-83,thereshouldapparentlybenodifficulty
inkeepingpublicsectorborrowingbelowthelevelssetoutinthemostrecent
MediumTermFinancialStrategy(MTFS)(31/2%ofGDP).Themonetarygrowthtarget
rangewasadjustedupwardscomparedtotheoriginalintentions,andthisrangenow
appliestoanumberofmeasuresofmoneysupply.Overallthepresentstance
offiscalandmonetarypolicymustbeconsidered acautiousone,which
shouldbeconducivetoafurtherdeclineininflationary pressuresandto
fallsininterestrates.

Theoutlookforgrowthandemploymentin1983isstillunsatisfactory
andinconsideringplansforeconomicpolicyfor1983-84itisdesirable
toensurethatgainsmadeinthepublicsectorfinancialposition,in
reducinginflationandinraisingproductivity levelsaretranslatedintoa
moresatisfactory overalleconomicperformance .Giventhespeedatwhich
therateofinflationisimproving,andnotingthattheunderlyingrateis
alreadywellbelowthatfortheCommunityasawhole,thenthethrustof
monetaryandfiscalpolicy,whilstbeingdirectedtowardsensuringafurther
reductionininflation,shouldbedesignedtocontributetotherecoveryin
activity.
Onthemonetarysidethemainemphasisshouldthereforebeona
steadyexpansionofthemonetaryaggregatesconsistentwithapick-up
inactivity.Thereisacaseforensuringthatthegrowthofthemonetary
aggregatesin1983-84remainsatthetopendofthepublishedtargetrange
of7-11%.Adegreeoflendingtotheprivatesectorsufficienttobenefit
significantly investmentandstockbuiIding,consistentwithdownwardmoving
longer-terminterestrates,canbeachievedwithinthisframeworkgiventhe
foreseeabletrendsinpublicfinance.
Althoughtheauthorities havemadeitclearinthemostrecentMTFS
thattheywishtoseeafurtherreductioninthesizeofthepublicsector
deficit,thepresentoutlookforpublicsectorborrowingin1983-84isnow
favourablesothatthereshouldberoomformanoeuvreinfiscalpolicyin
ordertoensurethatthefinancialframework,nowthatinflationisreceding,
issufficiently widetoaidanupturninactivity.Onthebasisofthe
presentoutlook,atargetforthepublicsectorborrowingrequirementfor
1983-84,somewhatabovetheillustrative publishedfigureofUKL8,5billion
(23/4%ofGDP)wouldseemappropriate .Thewayinwhichtheroomfor
manoeuvreisexploitedwoulddependpartlyontheevolutionoftheUK's
externalposition,andshouldtakeaccountoftheneedtoimprovethe
employment andsupplypotentialoftheeconomy,forexamplethrougha
reductioninthenationalinsurancesurchargeorincreasedpublicsector
spendingonconstruction activities.However,inthenearfuture,an
extensionofthespecificpoliciesalreadyinplacetodealwith
unemployment couldberequired.

Table5
Belgium:maineconomicaggregates,1961-83
GDP
value
growthGDP
volume
growthGDP
priceRisein
consumerCompensation
per
employeeCurrent General
accountgovernmentofbalance balance
ofpaymentsMoney
supplygrowth
M2>Unemployedinlabour
forcedeflator
7. % %•/J %2%GDP%GDP % %
1961-1970 8,54,83,53,27,8+0,2-1,38,62,2
1971-1980 10,43,27,07,011,9+0,4-4,610,35,8
10*0 6,92,54,36,58,9-4,6-9,42,79,4
1981 3,6-1,75,49,17,5-5,4-13,46,611,7
1982(1>6,8-0,57,39,07,1-0,4-12,86,513,9
1983(1)7,90,57,48,57,0-3,2-12,17,014,8
PreliminaryestimateoftheCommissionservicesODthebasisofpresentoranticipatedpfrlicitf,/fchangeoverpreviousperiod,annualrate.
■*Endofyear.

Table6
Denmark:maineconomicaggregates,1961-&3
GDP
value
growthGDP
volume
growth
1GDP
price
deflatorRisein
consumer
pricesCompensation
per
employeeCurrent
account
ofbalance
ofpaymentsGeneral
government
balanceMoney
supplygrowthM2JUnemployedinlabour
force
-/. % 7. %2%2%GDP%GDP % %
1961-1970 11,24,96,05,2lo,5-2,20,710,21,1
1971-1980 12,22,39,710,211,1-2,90,011,83,8
8,1–0,28,411,59,0-3,8-5,910,96,1
1981 9,3-0,29,510,79,8-3,2-7,19,68,1
1982(1)12,72,010,69,9ίο,6-4,1-9,512,09,1
1983(1>8,61,66,97,06,9-4,0-9,611,09,2
1estJmateoftheCommissionservicesonthebasisofpresentoranticipatedpolicies.acnangeoverpreviousperiod,annualrale
Hodofyear.Until1979M2

Table7
F.R.ofGermany :maineconomicaggregates,1961-1983
GDP
value
growthGDP
volume
growthGDP Risein
DΓiC6consumer^ pricesdeflatorCompensation
per
employeeCurrent
account
ofbaiance
ofpaymentsGeneral
government
balanceMoney
supplygrowth
M23Unemployedinlabour
force
v. % % %2%GDP%GDP % %
1961-1970
1971-19808,4
8,24,7
2,93,52,9
5,25,2"8,6
8,6+0,7
+0,6+0,5
-2,210,4
9,80,8
2,8
1980 6,82,04,75,36,5-1,8"3,56,23,4
1981 4,20,14,16,05,3-1,1-4,05,04,8
1982<1)4,4-0,54,95,04,60,0-3,97,06,9
1983(1>4,71,03,73,64,60,2-4,15,08,3
5 estimateoftheCommissionservicesonthebasisofpresentoranticipatedpolicies.
/£changeoverpreviousperiod,annualrate.
3Endofyear.
?

Table8
GreeceI maineconomicaggregates,1961-83
GDP
value
growth 'GDP
volume
growthGDP
price
deflatorRisein
consumer
pricesCompensation
per
employeeCurrent
account
ofbalance
ofpaymentsGeneral
government
balanceMoney
supplygrowth
M23Unemployedinlabour
force
7. % % %2%2%GDP %GDP % ·/.
1961-197011,07,63,12,59,8-3,1 ■·17,6 •·
1971-198019,14,713,813,618,3-2,7 •m23,8 •m
1980 19,71,717,923,716,2-0,9 m·24,7 2,8
1V81 18,9-0,719,724,421,8-2,2-10,134,3 3,1
1982(1)22,50,721,723,027,4-2,4-9,229,1 3,8
1983(1)23,01,920,721,021,0-2,3-8,623,0 4,0
PreliminaryestimateoftheCommissionservicesonthebasisofpresentoranticipatedpolicies.
i/>changeoverpreviousperiod,annualrale.JEndofyear.

Table9
France: maineconomieaggregates,1961-83
Q[)P GDPGDP RiseinCompensation CurrentGeneralMoneyUnemployedvolumeDT1CGconsumer peraccountgovernment supply IDlabourVaIUGgrowth , pricesemployeeofbalancebalancegrowth forcegrowth deflator ofp«yn«Dtt mî'
•% % %%2%2%GDP%GDP % 7.
1961-1970 10,25,64,44,39,40,20,412,70,9
1971-1980 13,43,69,59,513,8-0,4-0,114,83,8
1980 12'91'311'513,214,6-1,4-9,76,4
1V81 12/°0,311,712,514,8-2,0-1,511,57,3
1982(113'71'112'41^012,2-2,6-3,012,58,3
1983(1)11'°1'09'78*99^5-1,9-3,012,09,3
PreliminaryestimateoftheCommissionservicesonthebasisofpresentoranticipatedpolicies.
•£changeoverpreviousperiod,annualrate.
3Endofyear.

Table10
Ireland:ma*Reconomicaggregates,1961~1983
GDP
value
growth ¡GDP
volume
growth6DP
price
deflatorRisein
consumer
pricesCompensation
per
employeeCurrent
account
ofb&lasce
ofpaymentsGenera]
government
balanceMoney
supply
growth
M23Unemployedinlabour
force
■% % ·/.y.2 %2%GDP%GDP % %
1961-1970 9,94,25,54,69,9-2,3-2,710,44,5
1971-1980 18,34,113,613,818,0-4,6-8,118,57,4
1980 17,02,614,018,319,7-8,4-12,816,98,3
1981 19,01,117,820,419,0-13,2-15,417,410,3
1982(1>21,62,019,218,514,1-9,0-14,716,812,1
1983(1>15,42,412,713,011,1-7,6-14,416,514,0
PreliminaryestimateoftheCommissionservicesonthebasisofpresentoranticipatedpolicies.
*Achangeoverpreviousperiod,annualrate.iEndofyear.

Table11
Italy: maineconomicaggregates ,1961-83
GDP
value
growth ιGDP
volume
growthGDP
price
deflatorRisein 1
consumer
pricesCompensation
per
employeeCurrent
account
ofbalance
ofpaymentsGeneral
government
balanceMoney
supply
growth
M23Unemployedinlabour
force
-/. V/o % •/.J %2%GDP %GDP % %
1961-1970 10,5 5,74,5 3,810,71,8-2,313,3 5,2
1971-1980 18,3 3,114,7 14,618,4-0,2-8,019,5 6,0
■•98025,1 4,020,4 20,422,0-2,5-8,412,0 8,0
1V81 17,4-0,217,6 19,022,0"2,3-11,916,0 8,9
1982(1) 18,4 0,817,5 16,618,2-1,3-11,615,8 9,9
1983(1> 16,9 1,015,7 15,017,7"0,5-11,016,2 10,5
2Jje^mtnary estimateoftheCommission servicesonthebansofpresentoranticipatedpolicies.'/ichangeoverpreviousperiod,annualrate.
3Endofyear.

Table12
Luxembourg :"a*"économieaggregates,1961-83
GDP
value
growthGDP
volume
growthGDP Risein
DΓiCGconsumerH prices
,deflatorCompensation
per
employeeCurrent
account
ofbalance
ofpaymentsGeneral
government
balanceMoney
supplygrowth
M23Unemployedinlabour
force
v. % ' V2β /« %2%GDP%GDP % %
1961-1970 7,63,63,92,56,7+7,1+1f6;0,1
1971-1980 9,53,06,36,710,5+18,5+2,0••0,3
1o*0 7,50,76,87,78,2+22,8-1,8 :0,7
1981 2,5-2,45,08,17,720,3-0,8 >1,0
1982i1)8,4-0,38,711,06,219,7-0,9 :1,2
1983(1>8,81,07,79,09,018,8-1,0••1,3
PreliminaryestimateoftheCommissionservicesonthebasisofpresentoranticipatedpolicies.
Achangeoverpreviousperiod,annualrate.
}Endofyear.

Table13
Netherlands ïmaineconomicaggregates,19(2.-83
GDP
value
growthGDP
volume
growth
«GDP
priceRisein
consumerCompensation
per
employeeCurrent
account
ofbalance
ofpaymentsGeneral
governmentMoney
«upplygrowth
M23Unemployedinlabour
forcedeflator
-/. % % %2%2%GDP%GDP V. %
1961-1970 10,65,25,24,110,60,0-0,99,10,9
1971-1980 10,72,87,67,710,7+1,3-1,410,83,4
1980 5,90,65,36,65,6-1,4-3,43,64,7
1981 4,4-1,15,66,53,32,3-4,55,27,5
1982(1>5,6-0,56,16,35,64,0-5,77,610,4
1983(1>3,3-0,33,64,53,35,0-5,57,013,1
1
2
3

Table14
UnitedKingdom :maineconomicaggregates,1961-1983
GDP
value
growth ¡GDP
volume
growthGDP
price
deflatorRisein
consumer
pricesCompensation
employeeCurrent
account
ofbalance
ofpaymentsGeneral
government
balanceMoney
supply
irowtn
M23Unemployed
inlabour
force
% % %2 %2%GDP%GDP % %
1961-19707,22,84,24,07,1-0,0-0,75,91,9
1971-1980 16,01,913,913,316,2-0,7-3,214,54,4
1980 17,2-1,418,915,520,91,2"3,518,66,9
1V81 9,9-1.912,110,913,62,4-2,114,610,6
1982(1>9,10,68,48,89,40,8-0,910,212,2
1983(1>8,2 1/76,46,98,4-0,2-0,510,112,5
2Vch?n^v?r^^rt° scrvioe#onthebasisofpresentoranticipatedpolicies,/icnatureoverpreviousperiod,annualrate.
SterlingM3
In1979and1980thestatisticsconcerningthemoneysupplyaredistortedbytheexistence
ofthe'corset'controlsandbytheirsuppressioninmid-1980.Ifthesedistorsionsare
correctedthegrowthratewouldbeabout14,6%in1979andin1980.
Note:Figuresupto1980..areonanESAbasisunlessotherwisestated.
;

Proposal fora
COUNCIL DECISION
adopting theannualreportontheeconomicsituation intheCommunity and
layingdowneconomicpolicyguidelines for1983
THECOUNCIL OFTHEEUROPEAN COMMUNITIES ,
HavingregardtotheTreatyestablishing theEuropean Economic Community,
HavingregardtoCountilDecision 74/120/EECof18February 1974onthe
attainment ofahighdegreeconvergence oftheeconomicpolicies ofthe
MemberStatesoftheEuropean Economic Community (1),asamended byDeci­
sion75/787/EEC(2),andinparticular Article 4thereof,
Havingregardtotheproposal fromtheCommission ,
HavingregardtotheopinionoftheEuropean Parliament (3),
HavingregardtotheopinionoftheEconomic andSocialCommittee (4),
HASADOPTED THISDECISION :
Article 1
TheCouncil herebyadoptstheannualreportontheeconomic situation in
theCommunity,contained insections 1and2ofthepartIoftheannexed
draftReport,andlaysdowntheguidelines tobefollowed bytheMember
Statesineconomic policyfor1983,ascontained insections 3and4of
partIandpartIIoftheannexeddraftReport.
Article
ThisDecision isadressed totheMemberStates.
DoneatBrussels, 1982
FortheCouncil
ThePresident
(1)OJNoL63,5.3.1974,p.16
(2)OJNoL330,24.12.1975,p.52
(3)OJNo