ARCHIVESHISTORIQUES
DELACOMMISSION
COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(79)117
Vol.1979/0058

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(79)117 final
Brussels.7thMarch1979
THEECONOMIC ANDSOCIALSITUATION INTHECOMMUNITY
(Communication oftheCommissiontotheEuropeanCouncil
Paris.12and13March1979)
COMC79)117final

THE ECONOMIC AND SOCIAL SITUATION INTHE COMMUNITY
There aresome promising ,andsome disquieting features inthe
general economic situation intheCommunity atpresent .
The favourable features are thestrengthening business upswing
nowunder way,the lower andmore convergent price performance actually
achieved in1978 ,andthegenerally fairly good balance ofpayments si­
tuation .
Theunfavourable features arethedanger ofarenewed divergence
ofinflation rates inthe course of1978 orinsufficient further progress
forthepurpose ofastable European Monetary System ;thepossible effects
oftheunsettled oilsupply andprice situation ;and thepossible damage
that these factors combined could dotothebusiness upswing ,andthere­
fore also totheprospects ofreducing unemployment .
Real economic growth wasslightly stronger inlate 1978 than that
assumed atthetime theEuropean Council last met,andtheGDPgrowth for
last year turned out at2,8 %(0,2 %higher than expected ).According to
theCommission 'sforecasts made inJanuary improved industrial production
performance (asrecently recorded ,and asexpected forthenext fewmonths
onthe basis oftheEuropean Community business surveys )isseen asbeing
themain component raising theGDPgrowth rate to3,4 %in1979 .Most
Member States areexpected toshare inthis faster growth .
With theimproved price performance in1978 ,thetask for1979 is
toconsolidate these achievements and strive forfurther improvements .
This isnotgoing tobeeasy .Theachievements of1978 remain precarious ,
asshown bysome recent acceleration ofprice increases inItaly and the
United Kingdom ,and thedifficulties experienced insome other countries
insecuring adefinite reduction intheunderlying rate ofinflation .The
further convergence ofinflation performance within theCommunity ispar­
ticularly vital toasuccessful implementation oftheEuropean Monetary

-2-
System.Paynegotiations nowunderwayinseveralcountriesareofcrucial
importanceinthisregard.
Unfortunately itwouldnotseemlikelythateventhestrongergrowth
ratelikelyin1979willprovesufficienttomakeforasignificant reduction
inthelevelofunemployment .Therateofgrowthforecastfor1979isabout
thatwhichshouldstabilise/orveryslightlyreduceunemployment,giventhe
substantial demographicriseinthelabourforceandprobableproductivity
trends.Takingintoaccounttheconstraintsatpresentbearingontheuse
ofdemandmanagementpolicy,astrongercombination ofotherpolicies(labour
market,social,fiscal,incomesandindustrialpolicies)mustbeinvolvedin
thepursuitofamoresatisfactory,positiveapproachtotheoutstanding
employmentproblem.TheCommunitymustgiveahighprioritytotheworking-
outofsuchanapproach.
WhilethebalanceofpaymentsoftheCommunityisoverallinsizeable
currentaccountsurplus,thedistribution ofbalancesbetweenMemberStates
requiresfurthercomment.ThesurplusoftheFederalRepublicofGermanyin­
creasedin1978,andatpresentshowsnosignofdeclining.Thissituation
willreinforcepressuresmakingforanincreasedinternational roleofthe
DM-whichtheGermanauthorities wishtorestrain.Changesinbalanceof
paymentstrendsaretobenotedinthecaseofFrance,whosesurplusisten­
dingtoincrease,andinthecaseoftheBeneluxcountrieswhosepayments
positionshavemuchweakened.Italy'slargesurplushasnodoubtasubstan­
tialcyclicalcomponent.TheUnitedKingdom'sbalanceofpaymentsshouldim­
provein1979.DenmarkandIrelandhavepersistentdeficits.
ItisagainstthisbackgroundthatthepossibleimpactoftheIranian
situationhastobeassessed.Theanalysisabove,andthefiguresinAnnex1
takeintoaccountonlyOPEC'sDecemberpricedecisions.Althoughseveral
OPECcountrieshavealreadyincreasedtheirpricesbeyondthescheduleagreed
inDecember,theoverallpricesituationmayremainunclearatleastuntil
thenextOPECmeetingon26March.Itwouldbeprematuretoadoptanynew,
specificassumption.TheCommissionhassetoutinanotherdocumentsome
hypothetical calculations astothepossibleconsequences fortheEuropean
economyofafurtheroilpricerise.Apartfrompriceandbalanceofpay­
mentseffects,whoseestimationissubjecttomajoruncertainties,thefinal
effectsonrealdemandandthelevelofeconomicactivitywoulddependon

-3-
whethermonetaryandfiscalpolicyaccomodated thehigherpricelevel,and
onotherfeaturesoftheeconomicsituationwhichcanhardlybespecified
inadvance.
TheCommunity needstolookaheadto19&0.TheCommunity needs
tofollowverycloselydevelopments intheeconomicenvironment atboth
theinternational andnationallevel,soastobeabletodeveloprapidly
itsassessmentoftheprospectsfor1980,ofthepoliciesthatwouldneed
tobepursuedbyMemberStates,andofthevalueandspecificcontentofa
concerted Communityactioninthisregard.Introduction oftheEuropean
MonetarySystemwillmoreoverheightenthesignificance ofthepoliciesof
eachMemberState,andofthedegreeofconvergence whichneedstobethere
byattained.
TheCommunity needstoprepareitspositiononcertainissuesof
international economicpolicywhichwillbeontheagendaoftheTokyosum­
mitscheduledforJune.Asregardsdemandmanagementpolicytherisksto
theCommunity economyofaslow-downintheUnitedStatesdonotyetseem
tobetoogreat,especially whenoffset,asislikelytobethecase,bya
strengthening oftherestoftheEuropean(non-Community )economy.However
therecoveryoftheUnitedStates'currentaccountmaybequiteseriously
affectedbytheoilpricesituation,andthiswillhaveimplications for
exchange-rate aswellasenergypolicy.Japan'seconomicandtradepolicy
willrequirecloseattention (seeAnnex2).Asregardsmacroeconomi cpo­
licyitisessentialthatJapanmaintains afasterrateofgrowthofinter­
naldemandthanofitsgrossnationalproductduringasufficientperiodof
timetoachieveandsustainabetterexternalbalance.

Annex1
Growth,prices,unemployment andcurrentbalances1977-79
Growth
GDPvolume
%change IPrices
Privateconsumption
%changeUnemployment
%Worktng
populationBalanceofpayments
currentaccounts
billions USD
197719781979197719781979197719781979197719781979
DK1,91,12,610,19,96,95,86,56,9-1,8-1,4-1,6
D2,83,14,05,82,63,04,03,93,63,97,78,1
F3,02,93,49,19,2.9,04,95,35,4"3,32,23,1
IRL5,56,05,013,97,69,59,78,77,9-0,2-0,3-0,5
1,72,24,618,013,012,56,47,06,52,36,84,6
NL2,42,42,16,84,54,84,24,24,40,4-1,6-1,5
|**3
I1,82,86,64,04,17,88,38,4-0,1-0,5-0,7
LM3,22,26,73,13,50,50,81,0
ι0,60,70,9
UKI
1,33,42,314,78,49,75,75,75,70,7-0,20,7
E0-2,42,83,48,26,97,05,35,55,42,413,513,1
USA4,93,92,25,77,2I
7,57,06,06,5-15,3-■16,3"8,5
JAP.5,15,75,07,04,04,22,02,12,210,716,711
Sourms?sCommissionstaff,January1979forecasts .
Natter:UHieT979forecaststakeintoaccountOPEC'sDecemberpricedecisionsbutno
furtheroilpriceadjustments ,onwhichseetext.

Annex2
JAPAN
In1978Japan'scurrentaccountsurplusreachedtherecordLevelof
US816.5billion(higherthanthatofanyothercountrywiththeexception
ofSaudiArabia).
For1979itisexpectedthatJapan'scurrentaccountsurpluswillfallback
toapproximately thelevelof1977CUSS11billion).Thisassessment assumes
thatin1979thegrowthofJapan'sinternaljem-nd(7%)willbeabout2
percentage pointsgreaterthanthatofdomesticproduction (5%).Thiswould
entailavolumegrowthofJapaneseimportsandavolumedeclineofitsexports
in1979comparedwith1978. s•
TheCommunity'sbilateraltradingprospectsjithJapanappear,however,
tobelesssatisfactory .TheCommunity'sbilateraltradedeficitrose
\fromUS5S5.2billiontoapproximately USS6.4billion(provisional )between
1977and1978.Thebilateral tradedeficitcouldwellcontinuetobeof
thesameorderofsizein1979asin1978. -•' .
Thisunfavourable development istobeattributedprimarilytotheUS's
^enhancedcompetitive strengthfollowingthefastrevaluation oftheYen
withrespecttotheDollar.Also,althoughthe.announcement oftheJapanese
purchaseofAirbusisanencouraging development ,therearesignsthat"Buy
'•American"policies-maydevelopinJapanunderUS-pressure :
Jfie'Cornmission"wi11thereforepressaheadfor"tfie"urgent-"implementation
byJapanofspecificmeasurestosecurebetter ,accessforCommunityexports
-toJapan;-•BeforetheJuneSummitinTokyo,the*."Cornmissionwillmakea
^comprehensive assessmentof..Community-Japan "relations andprospectswith
aviewtoasubstantive discussionintheCoun'ciLofMinisters .V"