8. 8. 88 Official Journal of the European Communities No C 208/33 
Opinion on the economic situation of the Community in mid-1988 
(88/C 208/11) 
On 15 December 1987 the Economic and Social Committee, acting under the fourth paragraph 
of Article 20 of its rules of procedure, decided to draw up an Opinion on the economic 
situation of the Community in mid-1988. 
The Section for Economic, Financial and Monetary Questions, which was responsible for 
preparing the Committee's work on the subject, adopted ist Opinion on 16 May 1988. The 
rapporteur was Mr Drago. 
At its 256th plenary session (meeting of 2 June 1988), the Economic and Social Committee 
adopted the following Opinion by a very large majority, with two dissenting votes and no 
abstentions. 
Foreword 
The present own-initiative Opinion focuses on a few 
priority areas for economic policy action to stimulate 
the European economy and encourage international 
economic cooperation. Analysis of the social situation 
is contained in the Committee's Opinion on social 
developments in 1987. The Committee has always con­
sidered that economic and social policies should comp­
lement each other: provided it is given the necessary 
flexibility, social policy can support the economy, while 
the economy can provide a guarantee of improved social 
conditions. 
1. General considerations 
1.1. Against an international background of unusual 
instability, the Committee considers that the Member 
States must give priority in their economic policies this 
year to freeing Europe's economy from the uncertainties 
which have carried over from 1987. To this end, the 
national governments and Community Institutions will 
have to coordinate their economic policies as part of a 
coherent and mutually-supportive plan, in order to: 
— raise the level of economic growth, which is at 
present too modest to bring down unemployment 
—now the economic indicator of social marginaliza-
tion, 
— help restore more stable relations between the major 
currency areas and financial markets, 
— help significantly reduce international imbalances, 
thereby alleviating the impact first and foremost on 
the most vulnerable areas. 1.2. Stronger growth in Europe and greater macro-
economic convergence can revitalize the cooperative 
growth strategy for more employment and can also help 
strengthen international cooperation. The cooperation 
strategy has so far failed to achieve the results expected 
of it because of a lack of commitment from Member 
State governments. This leads to a feeling of disappoint­
ment among the social partners, and may form an 
obstacle to a sound, undisputed strategy. 
In the view of the Committee, the combined effects 
of convergence, coordination and harmonization can 
contribute to balanced progress towards economic and 
social cohesion in the Community. At the same time, 
they can help to see that the single internal market is 
completed by 1992 and that the potential of and stimuli 
from such a market are fully exploited. 
1.3. It is now clear that growth and development 
on the one hand, and stability and the correction of 
imbalances on the other, are interrelated objectives 
which cannot be pursued in isolation. It is therefore of 
vital importance that all economic policy measures and 
intermediate goals be interlocked, to avoid undermining 
their overall effectiveness at Community level and to 
help further international cooperation. The Uruguay 
Round of the General Agreement on Tariffs and Trade 
(GATT) is a key part of this. 
1.4. The signals sent out by the financial and monet­
ary markets during 1987 gave rise to a climate of 
uncertainty which may still have an unsettling effect on 
real economic activity. Concerted action to influence 
exchange rates, and joint declarations by the leading 
industrialized nations, can no longer instill the necess­
ary confidence in the business world and financial mar­
kets, nor guarantee effective coordinated action in the 
medium term to ward off the dangers of recession. 
1.5. European and international cooperation is 
urgently needed to steer the major economic parameters 
No C 208/34 Official Journal of the European Communities 8. 8. 88 
towards more sustained growth, and to achieve the 
necessary adjustment between geo-economic areas. 
This calls for the adoption of policy decisions to avert 
a crisis and to bring currency movements back into line 
with real economic changes. 
2. The Commission's economic forecasts for 1988 
2.1. Like other international bodies (International 
Monetary Fund, IMF; Organization for Economic Co­
operation and Development, OECD), the Commission 
assumed at the beginning of 1988 that there would be 
a serious slowdown in growth following the turbulence 
on the financial markets and the crash on the stock 
exchanges. 
Since then, the negative effects of these events have 
proved less serious than expected, and forecasts have 
been revised upwards accordingly. 
2.2. The Commission bases its forecasts on the tech­
nical assumption that exchange rates will stabilize at 
the levels reached in the first three months of 1988 (one 
US dollar = 1,67 DM and 127 yen). It also considers 
that economic growth at world level will continue. 
World trade is expected to increase by 5 to 6% in 
1988 and 1989. The achievement of this forecast is 
an important condition for the Community's growth 
prospects. 
2.3. Gross Domestic Product (GDP) rose by just over 
2,5 % in 1987, and a similar annual rate is expected for 
1988. As in the last two years, growth will continue to 
be supported by a rise in internal demand, whose rate 
of growth will however drop slightly in 1988 and 1989. 
The brake placed on growth by the foreign trade bal­
ance will slacken slightly. 
2.4. As in 1987, the most dynamic factors in internal 
demand will be private consumption and investment in 
plant and machinery. 
2.5. Economic growth will bring a 0,8% rise in 
employment for both 1988 and 1989. Unemployment 
will fall slightly (0,2% down on the 1987 rate), although 
it will still exceed 11% of the workforce. This means 
there will be over 15 million unemployed in 1989. 
Inflation rates will converge downwards (around 3%). 
The EC's current account surplus (1 % of GDP in 1987) 
is likely to fall ( + 0,25% of GDP in 1989). 2.6. These forecasts show that even if growth does 
not slow down in 1988, current growth rates are still 
not high enough to have a significant effect on unem­
ployment. Moreover, current trends may come up 
against the obstacle of external constraints which are 
beginning to be felt in the Member States with the 
fastest growth (Spain, Portugal, United Kingdom, Ire­
land) who have made a substantial contribution to 
intra-Community trade and economic activity. 
3. Political and economic foundations for dynamic 
growth 
3.1. The Committee believes that the combined 
effects of two positive developments offer the best 
chance of success in revitalizing the European economy. 
The first concerns the Community's longer-term pros­
pects, while the second relates to the macroeconomic 
forecasts for the Community in 1988. 
3.2. The first development is the overall compromise 
reached by the European Council in Brussels on 11 and 
12 February. This contains agreements on structural 
funds, budgetary discipline, own resources and farm 
spending cuts. The package satisfies the political and 
institutional criteria set out in Mr Delors' plan for 
Making a success of the single act, as well as being in 
accord with the views expressed in the relevant ESC 
Opinions. 
3.3. With credibility restored, the Community of 
Twelve is now in a position to speed up the decision­
making process for the completion of the internal mar­
ket; all the Member States must adhere fully to their 
renewed commitment to the approximation, harmon­
ization and liberalization which full integration implies. 
3.4. The momentum achieved towards the develop­
ment of the internal market will become an increasingly 
important parameter for ascertaining whether general 
macroeconomic, growth-producing policies are com­
patible with the 1992 objective. 
3.5. Secondly, as the Commission forecasts confirm, 
the economic upswing is expected to continue during 
1988; yet the continuing high level of unemployment 
makes this improvement unacceptable. 
3.6. The Committee is aware that the Commission 
has commissioned studies on the advantages of the 
internal market (Cecchini report) and the impact of 
8. 8. 88 Official Journal of the European Communities No C 208/35 
regional policies (Cambridge University). The Commit­
tee regrets that its members were not sent these docu­
ments, and have read of them only in the press. The 
Committee therefore reserves the right to issue an Opin­
ion on the matter. 
4. Means of achieving dynamic growth 
4.1. The Committee considers that the stimulus for 
dynamic, self-sustained economic growth in the Com­
munity can be achieved by adjusting the mix of Member 
State economic policies and by firmer and more decisive 
action from certain countries. 
4.2. If pursued consistently enough, such a policy 
will halt the cumulative effect of curbs on growth 
and initiate a multiplier effect in terms of allocative 
efficiency, meshing macroeconomic policies with Com­
munity and national structural policies. In the short 
term, the priority measures should therefore be to: 
— Sustain internal demand, by boosting investment 
and private consumption, whilst increasing the pur­
chasing power of the least favoured sections of 
society (unemployed, pensioners) and at least safe­
guarding it for employees. 
— Improve overall and specific conditions for expan­
sion-orientated investment and the innovative sec­
tors, encouraging policies likely to reduce real inter­
est rates so as to consolidate medium-term stability 
without reviving inflationary expectations. 
— Further strengthen the European Monetary System 
(EMS), and expand the role of the ECU, the aim 
being to improve the management of the system 
and enhance the acceptability of the ECU. 
A. Stimulation of overall demand 
4.3. The growth in aggregate demand triggered by 
the steps taken to boost the internal economy must be 
in keeping with the real capacities of national econom­
ies. This means that: 
— the Member States with low inflation, surplus lab­
our, and a deflationary exchange rate must do more 
to stimulate internal demand. These countries are 
still pursuing restrictive fiscal policies. West Ger­
many in particular should show a greater willing­ness to reduce its trade surplus and encourage inter­
nal demand rather than export demand, 
— the Member States which have heavy budget deficits 
and are subject to considerable external constraints 
must maintain a level of internal demand consistent 
with the changes needed in spending patterns and 
with a fall in the financial component of the deficit. 
However, these countries cannot carry out an 
expansionist policy independently. In the case of 
the new Member States, the Committee wonders 
whether the export ceilings negotiated in the 
Accession Treaties should stay as they are. 
4.4. Secondly, public and private investors must be 
given greater choice within supply-side oriented tax 
systems. Taxation should be used more effectively to 
stimulate the sort of productive investment which can 
help to boost the quantity and quality of jobs by encour­
aging, among other things, the savings necessary for 
these investments. 
A consistent policy should be pursued on State support 
for investment. Priority here should be given to innova­
tive sectors, environmental policies, infrastructure 
works, and areas likely to reduce dependence on exter­
nal constraints. 
The Community also urgently needs to improve its 
transport system, and the integration of the different 
modes (road — rail — inland waterway — ports). 
Public and private marketing and distribution facilities 
for goods and services also urgently need to be 
improved. 
4.5. Efforts to secure more dynamic influence over 
the business cycle should ensure that improvements 
in capital accumulation and investment processes are 
subsequently reflected in openings for new businesses, 
skilled employment, and scientific and technological 
research. 
B. Action at microeconomic level 
4.6. Measures to stimulate overall development must 
be accompanied by measures to encourage enterprise 
in its various forms. Member States must remember 
that corporate behaviour is influenced by the structure 
of production costs and the efficiency of services, as 
well as the other factors which determine investment 
(demand, profit, and relative prices). 
It is therefore necessary to make sure that superfluous 
rules and red-tape do not hinder the productive use of 
resources. 
No C 208/36 Official Journal of the European Communities 8. 8. 88 
4.7. The Committee also considers that selectively-
targeted demand and supply policies should provide 
support for small firms, craft industries, commerce and 
tourism (through access to credit, export services and 
the acquisition of technology and know-how), as this 
sector still has the potential to increase its workforce. 
Besides promoting the market sector, encouragement 
should also be given to activities which are socially 
useful and can provide extra jobs, even though they 
have no direct or immediate impact on the wealth-
producing sector. 
4.8. The growth of employment must also be 
improved by pursuing policies designed to help match 
job supply with demand. A boost to employment should 
come inter alia from measures designed to restructure 
and reduce working hours while satisfying productivity 
requirements. The Committee has already given its 
views on this matter, emphasizing the interest aroused 
by the ideas developed by the Commission. 
4.9. The Committee considers that only greater allo-
cative efficiency, combined with a fairer distribution of 
benefits and incomes, can secure stable conditions for 
definitive liberalization of capital movements, and, sub­
sequently, the harmonization of tax systems. 
C. Financial integration and the strengthening of the 
European Monetary System 
4.10. Special attention should be paid to the relation­
ship between the financial activities of the individual 
countries and their national product. Decisions on port­
folio management and the composition of financial 
wealth have an increasing influence on consumer, 
investment and production decisions. 
Accordingly, the increase in capital movements conse­
quent upon liberalization will require a better coordi­
nation of policies on interest and exchange rates. 
4.11. In conjunction with the acceleration of inte­
gration triggered by greater convergence of the Mem­
ber economies, the European Monetary System— 
strengthened by the enhanced role of the ECU—will be 
instrumental in securing progress towards a proper level 
of monetary autonomy for Europe. 
The completion of the internal market and economic/ 
commercial integration will thus have to be 
accompanied by measures which go beyond current 
intergovernmental cooperation on monetary questions. 4.12. The Basle and Nyborg agreements have helped 
to strengthen the financing mechanisms for intramargi-
nal intervention; to increase the maximum duration 
of very short-term financing (VSTF); to double the 
automatic renewal ceiling; and to ensure 100 % accept­
ance of the ECU in VSTF. 
4.13. Although these agreements are unlikely to pre­
empt discussion of the idea of a European Central Bank, 
they are a step towards achieving the preconditions for 
progress on other fronts. In the short term, it is necess­
ary to: 
— bring the pound sterling into the exchange rate 
mechanism, 
— narrow the lira's fluctuation band, 
— end the system of a two-tier exchange-rate market 
in Belgium and Luxembourg, 
— extend the EMS to all Member States, subject to 
the terms of the Accession Treaties. 
The thinking behind these measures must be reviewed 
in the light of the changing situation, bearing in mind 
the liberalization of capital movements, and the cre­
ation of a European financial area. 
4.14. While satisfied with the coordination of central 
bank monetary policies, which remain more or less 
autonomous, the Committee considers that more sus­
tained growth in the country with the strongest cur­
rency could produce greater momentum. At present, 
growth is being kept in check, and is not producing the 
advantages which would lead to real progress towards 
economic and monetary union. 
In the absence of a change of this sort, the System may 
in the long term put a further brake on growth and 
employment in those countries where costs and prices 
are rising fastest. 
4.15. The financing mechanisms and the role of the 
European Monetary Cooperation Fund (EMCF) must 
also be strengthened to provide a clearing system among 
Member States in the event of influxes or outflows of 
capital, as well as effective joint management of reserves 
and an independent power of intervention for the 
EMCF on exchange markets. 
Similarly, the Committee considers that the establish­
ment of a European Monetary Fund could be a step 
8. 8. 88 Official Journal of the European Communities No C 208/37 
towards the eventual creation of a European Central 
Bank modelled on the Federal Reserve Board. 
4.16. Progress in these areas is linked with the possi­
bility of using the official ECU more widely as a work­
ing currency in international trade. 
Moreover, an increase in the number of government 
stocks quoted in ECU could foster the necessary linkage 
between the official and private markets. 
The 'private ECU' is penalized by a supply and demand 
for the official ECU which are not adequate to the 
needs of industry, and its potential uses continue to 
be restricted by the lack of appropriate institutional 
measures. Completion of the internal market and estab­
lishment of common rules for European companies 
could form the ideal vehicle for transition to use of the 
ECU in company accounts, in non-domestic invoicing, 
for services provided at Community level, and for inter­
national tendering procedures. 
5. The adjustments needed to remove international 
imbalances 
5.1. The world's major trading partners will have to 
take coordinated action to tackle the real causes of 
international imbalances. Current signs of vulnerability 
and foreseeable trends show that such action must be 
taken without delay. 
At European level, the Community institutions and 
Member State governments must strengthen their coop­
eration with the European Free Trade Association 
(EFTA) and Comecon countries. 
The EFTA countries are among the Community's main 
trading partners, as well as being the bloc most closely 
affected by the completion of the internal market and 
its economic, monetary and financial aspects. These 
countries could now strengthen monetary cooperation 
in Western Europe by encouraging more solid ties 
between their currencies and the ECU. 
The changing situations in the Comecon countries will 
of necessity lead to closer trade relations and economic 
cooperation with the EC at both bilateral and multilat­
eral levels, once negotiations on the Joint Declaration 
have been completed. 
5.2. At international level, the danger of a slowdown 
in world demand and the current shakiness of the 
foreign-exchange and financial markets bring a need 
for concerted action to tackle structural problems. 
Achieving consensus on structural problems is not easy but, when successful, is more effective than short-term 
stabilization measures. 
5.3. The Committee therefore considers it essential 
that the process of gradual, controlled adjustments 
between the dollar, yen and mark areas should be 
clearly visible in adjustments to trade flows and in the 
realignment of real exchange rates (which themselves 
influence the volume of trade). 
5.4. The twelve EC Member States, the United 
States, Japan and the newly industrializing countries 
(NIC) of Asia will have to move together through the 
various economic phases leading from 'competitive' to 
'structural' adjustments. This will have to be done in a 
non-protectionist trading environment in which inter­
national trade is allowed to operate freely without 
isolating the most indebted and non oil-producing less 
developed countries (LDC). 
5.5. To achieve this, domestic political interests will 
have to be reconciled with collective responsibilities, 
the latter being shared out on the basis of economic 
power, role and capacity. The following complemen­
tary measures will have to be taken: 
— the twelve Member States will have to give priority 
to unemployment problems, sustaining economic 
growth by (a) stimulating internal demand in those 
countries where conditions are most favourable, 
and (b) supporting the supply side in those countries 
most vulnerable to production difficulties and most 
susceptible to inflationary pressures, 
— the United States will have to show that it is should­
ering the main responsibility for gradually eliminat­
ing its real trade deficit and correcting its current 
account; in the United States, internal demand, 
interest rates and fiscal/monetary policies will have 
to be combined to guarantee non-inflationary 
growth, 
— Japan will have to reduce its trade surplus substan­
tially, sustaining the growth of internal demand, 
developing a satisfactory social policy and consoli­
dating the adjustments it has started to make but 
which still do not go far enough to restore equilib­
rium, 
— the Asian NICs, and particularly those applying 
greater import restrictions, will have to encourage 
further trade liberalization, while taking steps to 
expand internal demand and strengthen their cur­
rencies. 
5.6. Only by a much more rapid improvement in the 
balance between surplus and deficit areas will we avert 
No C 208/38 Official Journal of the European Communities 8. 8. 88 
the dangers of a recession in the next two years and 
allow the process of European integration to continue 
unfettered by retaliatory measures and tit-for-tat pro­
tectionism. 
6. Multilateral coordination procedures 
6.1. The Committee fears that the Community econ­
omy may pay for its failure to coordinate adjustment 
and that its external account deficit will rise sharply by 
1989. 
Consequently, the Community must do its utmost to 
persuade its trade partners to join in adopting a number 
of multilateral coordination procedures, without which 
it is currently proving difficult to coordinate real econ­
omic variables. 
6.2. 'Objective indicators' are increasingly necessary 
for multilateral monitoring of the world economy. Dur­
ing the adjustment stage, the existence of certain com­
parable reference criteria would help ensure that econ­
omic measures remain compatible. Such indicators, in 
line with the approach hammered out at the Tokyo 
summit (May 1986), should focus on economic policies, 
intermediate economic objectives and economic per­
formance. 
6.3. The Committee also notes that inadequate econ­
omic policy coordination in 1987 forced the central 
banks to step up intervention on the currency and 
financial markets. One risk of such intervention is that 
the central banks (the lender of last resort) assume the 
role of guarantor for the entire financial system, despite 
its very varied instruments and agents. 
Done at Brussels, 2 June 1988. 6.4. The industrialized countries should direct their 
political sovereignty towards achieving a new inter­
national monetary order, rather than trying to exercise 
economic sovereignty in areas where economic and 
financial interdependence should prevail. 
6.5. The Committee is adamant that monetary rela­
tions—which involve substantial capital flows between 
the major reserve currencies—must be governed by 
rules that, while not a carbon copy of the EMS, are 
capable of achieving the impact currently expected of 
the exchange-parity intervention mechanism. 
6.6. Lastly, bearing in mind the existing interaction 
between the developing countries' debt burden and the 
consequences of adjustment, the Committee urges the 
Member States to join with the relevant international 
bodies in restoring conditions conducive to re-opening 
loan facilities to the developing countries. Any 
additional funding provided to the developingcountries 
will lessen the need to reduce the creditor countries' 
surpluses. 
The question of writing off the debts at least of the 
poorest countries should be examined by the creditor 
countries within the forum of the international cooper­
ation and development aid agencies. 
7. The socio-economic groups represented within the 
ESC therefore call on the Heads of State or Govern­
ment, at the forthcoming European summit in Hanover, 
to step up the political and institutional momentum 
which is vital for implementing the cooperative growth 
strategy for more employment through a more 
efficiently targeted economic policy underpinned by 
more balanced procedures and greater international 
coordination. 
The Chairman 
of the Economic and Social Committee 
Alfons MARGOT