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COM(79)680
Vol.1979/0232

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(79)680 final
Brussels ,21November 1979
CONVERGENCE ANDBUDGET Aïïï QUESTIONS
(Communication totheEuropean Council –Dublin ,
29and30November 1979 )
*/· 1
CP * ^
COK(79 )680final

COMMUNICATION TOTHE COUNCIL
CONVERGENCE AND BUDGETARY QUESTIONS
I. INTRODUCTION
The Commission has made two communications tothe
Council ofMinisters (COM(79 )462of12September and
COM(79)620 of31October )analysing certain problems
connected with economic convergence andbudgetary matters
within theCommunity .Onthebasis ofthese communications
there has been extensive discussion within the institutions
oftheCommunity ,including theEuropean Parliament ,in
Member States andbypublic opinion generally .The
Commission believes that themoment isnowright topropose
totheCouncil theapproach anddecisions which will be
necessary ifpresent difficulties are toberesolved .
2.These difficulties cover anumber ofinter-related
questions ,including some concerned with theCommon
Agricultural Policy .These need tobedealt with ontheir
merits ,andarethesubject ofaseparate paper bythe
Commission fortheEuropean Council .Thepresent communica
tion deals with theCommunity budget ,both asconcerns
convergence andtheparticular problems which have arisen
fortheUnited Kingdom .
II.THESTRUCTURE OFTHECOMMUNITY BUDGET
3.TheCommission believes that alarger proportion of
budgetary spending should bedevoted totheimprovement
/of

ofstructures and togeneral investment purposes within
theCommunity .Such expenditure was envisaged inthe
Commission 'slatest three-year forecast torise from 14%
in1980 to22%in1982 ontheassumption that market support
»
expenditure foragriculture would rise over theperiod at
around 6%ayear .
4.Onexpenditure within theagricultural sector ,the
Commission pointed outinitscommunication of31October
that anincreasing number ofmeasures hadbeen adopted in
V.
recent years tostrengthen market suppoi't arrangements for
Mediterranean products and toimprove theincomes ofthe
producers concerned .TheCommission will doall itcanto secure
therapid execution ofthese andother measures andthe
rapid adoption bytheCouncil offurther measures inother
agricultural sectors ofparticular interest toItaly and
Ireland .This should lead toabetter balance inthepattern
ofagricultural production asawhole .
5.Intheview oftheCommission theapproach suggested
bytheItalian Government offixing objectives fora
rising proportion ofCommunity expenditure devoted to
structures andgeneral investment purposes over aperiod
isuseful .The achievement ofsuch objectives will depend
ontheability oftheCommunity tobring agricultural
expenditure under control 0Moreover thesignificance
oftheeffects will berelatively small solong aspresent
•»
limitations onthe size ofthebudget remain 0
/6.In
"2–

6.Inthelight ofthese considerations theCommission
invites theEuropean Council toendorse theprinciple that
toachieve abetter balance between Community policies ,
therate ofincrease inexpenditure onstructural and
general investment policies should from 1980 onwards "be
significantly greater than therate ofincrease inthe
size oftheCommunity budget .Ifduring thebudgetary
process this principle isnotrespected ,theCommission
undertakes todraw theattention oftheInstitutions to
thesituation without delay .
III .BUDGETARY DIFFICULTIES
7.The Commission believes that theachievement ofa
better balance within thebudget will ,together with other
factors mentioned initscommunication of31October ,
eventually solve most ofthepresent difficulties ofthe
United Kingdom inrespect oftheCommunity budget .But
itrecognises that fortheimmediate future there isa
serious problem .
8.Thetransitional period fortheUnited Kingdom ,Ireland
andDenmark was designed topermit thegradual integration
ofthese Member States into thesystem ofCommunity financing .
TheCommission believes that this approach wasandremains
right .Inconsequence such further measures asmaybe
agreed should betemporary innature .Thenecessary resources
should befound from within thebudget .
9.TheCommission believes that anysolutions adopted
should notonly beCommunity solutions butdesigned to
/strengthen

strengthen thecohesion andsolidarity oftheCommunity 0
They should conform totwobasic principles 0First they
should respect the integrity oftheownresources system ,,
Second they should nothave astheir objective toput a
Member State inaposition of"juste retour "inrespect
oftheCommunity budget 0
10.Initsreference document of12September theCommission
forecast that theUnited Kingdom *sfinancing share would
rise sharply over her forecast share ofCommunity GNP
between 1979 and 1980 .Themain reason isthat payments
under the transitional arrangements set out inArticle 131
oftheAccession Treaty will come toanend .
11.One simple way ofapproaching theproblem thus created
would betocreate anew adhocmechanism tocompensate for
any British contribution offull ownresources going beyond
apredetermined percentage increase inagiven year .In
itscommunication tothe Council of31October ,,the Commission
indicated that ifnopercentage increase over 1979 were
allowed ,the forecast share oftheUnited Kingdom in
financing the1980 budget would bereduced bysome 500MEUA
gross (390MEIJA net )0Butunless theBritish contribution
were tobefrozen atagiven level 9thearrangement would
have diminishing impact c
12oAmore promising approach would betoadapt theexisting
Financial Mechanism® The Commission recalls that when
the Heads ofState aridGovernment agreed inprinciple to
create theMechanism in1974 ,they hadexpressly inmind
/the
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theCommunity declaration during theaccession
negotiations that "ifunacceptable situations were to
arise thevery life oftheCommunity would make itimpera­
tive fortheInstitutions tofind equitable solutions ".
Atitsmeeting inStrasbourg ofJune 1979 ,theEuropean
Council requested theCommission toexamine theextent
towhich theMechanism could play itspart in1980 and
fulfil theobjectives assigned toit.
13.For the reasons set out inthe Commission 'sreference
document of12September ,payments made under theMechanism
asatpresent constituted could scarcely solve theproblem .
TheCommission believes that thequalifying criteria for
theoperation oftheMechanism remain avalid measure of
therelative prosperity ofMember States within theCommunity
andshould remain unchanged .Buttoenable theMechanism
tofulfil more closely therole assigned toit,the
Commission recommends removal ofthe limitation that if
there were abalance ofpayments surplus thecalculation
oftheexcess contribution must berelated solely toVAT .
This would produce apayment of300MEUA gross (250MEUA
net)inrespect of1980 whether ornotthere was abalance
ts
ofpayments surplus .ButastheUnited Kingdom will
anyway find itself inpayments deficit in1979 andalmost
certainly in1980 ,theCommission further recommends that the
European Council inDublin should define theconditions
<under which thetwofurther restrictions ontheoperation of
theMechanism could belifted .These arethetranche
system which provides that only apart oftheexcess
/contribution

contribution isreimbursed ;and theceiling of3^ofthe
budget •Ifthese restrictions were also removed ,
payments under theMechanism inrespect of1980 would
rise from 300MEUA gross to .some 630MEUA gross (520MEUA
(net).*
14«There would bedifficulty ^Lnanyapproach designed
tocombine asystem oflimiting increases inthe British
share offinancing thebudget with improvements inthe
operation oftheFinancial Mechanism .This isbecause
thereduced share offinancing which would result from
any such limitation would logically have tobeused in
applying theFinancial Mechanism .Payment under theFinancial
Mechanism would therefore bereduced bytheamount resulting
from the limitation .
15.This difficulty would not exist forarrangements
affecting theexpenditure side ofthebudget .
Such arrangements would have toflow from thestrengthening
ofCommunity policies which arenecessary toimprove the
cohesion oftheCommunity and are therefore central tothe
interest oftheCommunity asawhole® Itwould bepossible
toenvisage special ?temporary andadhocmeasures which
would ensure agreater participation bytheUnited Kingdom in
anumber ofCoiramraifcy policies andwhich would increase the
present lowlevel ofCommunity expenditure inthe
United Kingdom ,Such arrangements which would need
/to
These figures ,which were contained inCOM(79}620 were
based onexchange rates o£mid-August 1979 0
6-

need tobeinfull conformity with theprinciples
setoutinparagraphs 8and 9,could ,forexample ,
take theform ofimmediate assistance forexploitation
ofcoal resources ,measures topromote transport infra­
structure ,and some agricultural improvement schemes .
IftheUnited Kingdom were tojoin theEuropean Monetary
System aninterest rebate system inrespect ofCommunity
loans could comprise onevehicle for such payments .
16.Ifthis approach were tobepursued ,theCommission
would stress that anycontribution should bemade onthe basis
oftheCommunity budget and should belimited intime
(perhaps three orfour years ). The .volume ofresources
tobefound must necessarily besettled bydiscussion within
the Council ,
17.Sofaronly short andmedium term solutions tothe
problems ofconvergence andthebudget have been discussed .
ButastheEuropean Parliament haspointed out ,theexisting
policies oftheCommunity areinsufficient tobring about
thedegree ofconvergence between theeconomies ofthe
Member States which isnecessary fortheprogress and
cohesion oftheCommunity .TheCommission believes that
theEuropean Council should bear this longer term considera­
tion inmind when examining theproposals inthis paper .
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