26. 4. 79 Official Journal of the European Communities No C 105/27 
of nectars must be printed on the label 'in immediate 
proximity to the description' and must be at least 25 to 
50% depending on the fruit involved. It would be 
illogical for drinks that contained less than this amount 
of fruit juice (or none at all) to be subject to national 
provisions that were much less strict than those of the 
Community and thus enabled a confusion to arise 
between such drinks and fruit juices. 
Done at Brussels, 30 November 1978. 
The full text of the opinion is as follows: 
THE ECONOMIC AND SOCIAL COMMITTEE, 
Having regard to the Treaty establishing the European 
Economic Community, and in particular Article 198 
thereof, 
Having regard to the resolution of 22 March 1971 of the 
Council and the representatives of the Governments of 
the Member States concerning the realization, by stages, 
of economic and monetary union in the Community, 
Having regard to the Council Decision of 18 February 
1974 on the attainment of a high degree of convergence 
of the economic policies of the Member States of the 
European Community, 
Having regard to the request made by the Council of the 
European Communities on 31 October 1978 for an 
opinion on the Commission's annual report on the 
economic situation in the Community in 1977, The Committee therefore calls upon the Commission and 
the Council to start work again immediately on 
preparing and adopting the Directive on refreshing 
non-alcoholic drinks. 
It would also like the Commission to get to work on 
finding a lasting solution to the problem of bringing 
tomato juice once again within the scope of the Directive. 
The Chairman 
of the Economic and Social Committee 
Fabrizia BADUEL GLORIOSO 
Having regard to the decision taken by its Bureau on 
30 May 1978 instructing the Section for Economic and 
Financial Questions to draw up an opinion on the 
Commission's annual report on the economic situation 
in the Community, in anticipation of a Council referral, 
Having regard to the verbal report made by the 
rapporteur, Mr Goris, and to the opinion adopted by the 
Section on 22 November 1978, 
Having regard to the discussions at its 163rd plenary 
session held on 29 and 30 November 1978 (meeting of 
30 November), 
HAS ADOPTED THE FOLLOWING OPINION 
by 35 votes to 27 with 12 abstentions: Opinion on the annual report on the economic situation in the Community in 1978 with an 
Annex dealing with the economic situation in the Federal Republic of Germany 
The text referred to the Committee has not yet been published in the Official Journal of the 
European Communities. 
A. LEGAL BASIS FOR THE OPINION 
The Council Decision of 18 February 1974 on the attainment of a high degree of convergence 
of the economic policies of the Member States of the European Economic Community. 
B. OPINION OF THE ECONOMIC AND SOCIAL COMMITTEE 
The Economic and Social Committee prepared its opinion on the above matter at its 163rd 
plenary session held in Brussels on 29 and 30 November 1978. 
No C 105/28 Official Journal of the European Communities 26. 4. 79 
1. Introduction 
1.1. The Commission's 1978/79 annual report differs 
from previous annual reports. Besides the annual report, 
which is mainly concerned with political questions, there 
is a separate annual review containing a factual analysis 
of the economic situation. This changed format is 
intended to ensure that the Community's decision­
making process operates as swiftly and efficiently as 
possible and also to provide the institutions and the 
public with a systematic and objective analysis of the 
Community economy. 
1.2. Whilst the Committee is only being asked for its 
opinion on the Commission's annual report on the 
economic situation in the Community i1), it cannot 
ignore the annual economic review submitted with it by 
the Commission. Without this second document the 
annual report would give an incomplete picture of the 
economic situation in the Community. The Committee 
has previously pointed out the need for more up-to-date 
statistics (1). The Committee is impressed by the in-depth 
factual analysis of economic developments contained in 
the annual review. The Committee would like to see this 
information supplemented by a forecast of the principal 
economic indicators for the coming year, if possible 
within the context of the medium-term outlook. 
1.3. Despite the fact that the annual review contains a 
lot of information on the economic situation, the 
Committee thinks that the annual report should go into 
greater detail. It thinks that the annual report being 
submitted to the Council would thus gain in clarity and 
weight. 
1.4. The Committee notes that the annual report 
devotes much more attention to national than to general 
Community guidelines. It sees this as being consistent 
with the Commission's aim of encouraging the Member 
States to focus their efforts on the achievement of shared 
economic and social goals through a truly effective 
concertion of national policies. 
1.5. The Committee does not think it desirable to go 
into the national policy guidelines presented by the 
Commission in greater detail. An exception is made in 
the case of the Federal Republic of Germany, on whose 
economic situation the Committee happens to be 
currently reporting in some detail. The following opinion 
therefore concentrates on the more general parts of the 
Commission's annual report, i.e. the observations on the 
objectives to be pursued, concerted action and the 
European monetary system. 
(') In accordance with Article 4 of the Council Decision of 18 
February 1974. 
(2) OJ No C 297, 16. 12. 1976, p. 3. 2. The political background against which the 1978 
annual report should be seen 
2.1. Before examining what the annual report has to 
say about concerted action and the European monetary 
system (EMS), the Committee considers it useful to 
outline the background against which the Commission 
prepared its annual report. 
2.2. The European Council met in April 1978 in 
Copenhagen and again in July in Bremen. In April the 
Council set the Community a target annual growth rate 
of 4 • 5 % by mid-1979. At the July meeting emphasis was 
laid however on the need for concerted action in the 
economic and monetary sphere. 
2.3. Agreement was reached on the framework for a 
European monetary system and on a tentative timetable 
for its implementation. The European Council also 
declared that concerted action in the form of 
complementary measures would help to minimize the 
internal and external policy constraints of individual 
Member States and would increase the effectiveness of 
such measures. In short the effectiveness of such 
measures is increased by truly concerted action. 
2.4. The Council meeting in Brussels on 24 July 1978 
adopted a Commission draft Decision on the adaptation 
of public budgets for 1978 and the preparation of public 
budgets for 1979 in the framework of the Community's 
concerted action. It provides made-to-measure budgetary 
policy suggestions for individual Member States. It was 
said by the Commission, following this Council meeting, 
that some of the commitments contained in the 
individual guidelines could not have been taken at the 
purely national level but needed the Community 
framework for implementation, according to 
Vice-President Ortoli at the press conference after the 
Council meeting. 
2.5. The experts on the Monetary Committee and the 
Committee of Central Bank Governors were asked by the 
same 24 July Council to research more fully the 
implications of introducing a European monetary system 
as outlined in Bremen — including the 'conditions of 
convergence between debtor and creditor countries'. 
2.6. After the Bonn Summit Meeting in July, the 
representatives of the seven major industrialized countries 
committed their countries to a package of specific 
interdependent measures to stimulate economic growth, 
reduce inflation and ward off protectionism. 
26. 4. 79 Official Journal of the European Communities No C 105/29 
2.7. The Committee sees these events as being a 
positive demonstration of a renewed political 
determination among Member States to continue on the 
road towards economic and monetary union. 
3. Community objectives 
3.1. Whereas in previous annual reports the 
Commission established a quantified normative 
scenario for growth including specific objectives for, 
among other things, the growth in GNP, inflation and 
inflation spread, it has failed to do so in its 1978 annual 
report. 
3.2. The Commission's objective of an expansion of 
the Community's central economic mechanisms and 
consultation procedures is to be applauded as a 
contribution to the re-establishment of acceptable levels 
of employment, inflation and monetary stability. The 
Committee nevertheless wonders whether these levels 
can be achieved in the short term. 
3.3. In the annual report the Commission states that 
the Community is seeking to strengthen the basis for its 
cooperation with third countries. The Committee agrees 
with this objective. But to say, as does the Commission, 
that the strengthening of its economic and monetary 
mechanisms and procedures will restore conditions 
favourable to a rapid growth of an open world trading 
system, and thus also to a continuous evolution of 
economic structures, is in the Committee's view, passing 
over the matter too lightly (see point 6). 
3.4. The Committee shares the Commission's view 
that the Community has a major interest in the 
maintenance and expansion of an open world trading 
system. Here account must however be taken of the fact 
that the Community is vulnerable to competition from 
industrialized third countries and from the young 
industrializing nations among the developing countries. 
The fact that the economies of these countries are 
interdependent with those of the Community and that in 
the longer term each represents a growing market for the 
other must govern policy now. 
4. Concerted action and the European monetary system 
4.1. The Committee notes with satisfaction the 
agreement reached by the Bremen European Council 
Meeting (July 1978) on a new European monetary 
system. It also approves of the measures announced to 
improve employment and Community energy supplies, 
to facilitate sectoral and regional structural changes, to 
strengthen an open world trading system and to help 
developing countries. This also applies to the Decision 
taken by the Finance Ministers' Council later that month on specific and more detailed financial and budgetary 
policy proposals, conceived as part of the Community's 
concerted action. 
This means that the Member States will have to succeed 
in defining common macro-economic targets (on 
inflation control, on restoring growth, on employment 
and on regional policy) simultaneously and in a truly 
coordinated manner. In the Committee's opinion this 
means that the success of this new system is dependent 
on a greater convergence of trends in the Member States. 
4.2. The Committee thinks that if the policy referred 
to in 4.1 is to be implemented it will be necessary to carry 
out the intentions that have been expressed earlier 
regarding the coordination of national targets for 
growth, inflation and employment, taking into account 
in particular, regional imbalances. 
4.3. In its opinion on the Community approach to 
the present international monetary disorder (*) the 
Committee made proposals which were in large measure 
akin to the proposals enunciated by the European 
Council in Bremen in July 1978. 
4.4. The Committee does not consider it possible at 
the present time to make a full assessment of the 
proposed system. Further details of the EMS proposals 
have yet to be made available. The Committee considers 
that it should go into this matter further at a later stage. 
5. The current economic situation and outlook 
5.1. The account of the economic outlook contained 
in the Commission's annual report is brief. The 
Commission merely illustrates the economic situation on 
the basis of six economic indicators for the Community 
as a whole. 
5.2. The Committee considers that this description of 
the economic situation is too brief to form an adequate 
basis for Community policy guidelines. The Committee 
therefore takes into account information contained in the 
annual economic review, which is presented as a separate 
study. 
5.3. In its annual report the Commission refers to the 
stronger economic outlook for 1979. It sees the current 
economic performance of the Community improving in 
several respects. The table in the annual report, however, 
indicates a deterioration in certain areas. Partly, for this 
reason, the Committee would like to see more detailed 
justification for the Commission's conclusions in the 
annual report. 
H OJ No C 283, 27. 11. 1978, p. 1. 
No C 105/30 Official Journal of the European Communities 26. 4. 79 
In this connection the Committee would appreciate 
figures showing the economic trends in the individual 
Member States. 
5.4. Real GNP growth in the Community is expected 
to be 3 • 5 % in 1979 as against not more than 2 -5 % in 
1978. The Committee asked that in future calculations of 
GNP account should be taken of negative factors such as 
the deterioration of the environment and the quality of 
life as a result of the destruction of free goods, which are 
priceless and are not yet covered in the national accounts 
(purity of air and water, quiet, natural landscapes, areas 
for recreation, etc.). The growth of GNP in the 
industrialized countries as a whole will probably remain 
in 1979 at the same level as in 1978, viz. 3-5%. The 
Commission has taken account of the positive effects of 
concerted action in its growth forecasts. 
The Committee shares the Commission's view that there 
will be only a partial recovery in the coming period. 
5.5. In most third countries the situation in the 
autumn of 1978 was little better than in previous years: 
slow growth of output and trade, high unemploy­
ment, continuing inflation, balance-of-payments dis­
equilibrium, recurrent bouts of monetary instability, 
weak investment activity and in general a lack of 
confidence. 
5.6. The relatively vigorous growth of the US 
economy has helped in recent years to prevent any 
further falling-off in the growth of the industrialized 
countries as a whole. Growth prospects in the USA are 
less favourable. There is also the uncertainty about the 
position of the US dollar, the value of which is being 
undermined by a sizeable current account deficit. Despite 
the recent recovery of the dollar exchange rate, the dollar 
is still under pressure on the international exchange 
. markets. 
5.7. Confronted with the situation described above, 
governments are finding themselves increasingly obliged 
to resort to specific measures to support employment and 
output in certain sectors and to protect national 
production against disruptive foreign competition. This 
applies both to Member States and to third countries. 
5.8. Partly on account of the above, the volume of 
trade will probably continue to grow this year by no 
more than the 5 % recorded in 1977. (This figure should 
be compared with the long-term average expansion rate 
of 8 % and the figure of 11 % in 1976). 
For the Community as a whole a considerable surplus on 
both the balance of trade and on current account is 
forecast. This surplus is to a large extent the result of a 
favourable trend in the terms of trade. It is expected that in 1979 world trade will grow by 4 to 5 % and that the 
Member States as a whole will not be able to increase 
their market share. 
5.9. The line taken in labour market policy is 
undoubtedly the main reason why there has been no 
further deterioration in the employment situation in the 
Community since the autumn of 1977. According to the 
annual report, unemployment as a percentage of the 
labour force will, however, rise in 1978 to 5*7% from 
the 1977 average figure of 5 • 5 %. Unemployment among 
young people (aged under 25) is showing a downward 
trend. The annual report indicates a slight improvement 
in unemployment in 1979. 
The Committee, however, considers the claim made in 
the annual report that unemployment in the Community 
has peaked, to be premature and without much 
foundation. The continuing unsatisfactory situation on 
the labour market calls for intensified measures to 
promote employment. The measures should be designed 
to strengthen economic growth and the redistribution of 
work available, and should also include action in the 
structural sphere. Anti-cyclical measures alone are not 
enough to achieve an acceptable level of employment 
within a reasonable space of time. 
5.10. Inflation rates in 1978 are lower than in the 
previous year in all Member States. In the Community as 
a whole, consumer prices will rise this year by about 7 % 
as against 10% in 1976 and 9% in 1977. While this 
improvement is gratifying, it is regrettable that inflation 
has not been reduced to the same extent for all 
currencies. Alignment should take the form of a 
convergence towards stability. The durability of the 
planned EMS depends on this. 
5.11. As already noted, the annual report does not go 
into the structural problems facing the Community, 
problems that call for appropriate policies in both the 
short and medium term. The Committee thinks that the 
most important elements of the annual economic review 
should be incorporated in the annual report. This applies 
in particular to Chapter 9 of the annual review, in which 
an analysis is given of the structural changes in demand 
and production and of the structural causes of 
unemployment. 
6. Continuing economic problems and policy options 
6.1. In the light of the comments made above 
regarding the present structure of the annual report, the 
Committee would like to go into several problems, so far 
unmentioned, that in its view should certainly receive 
more attention in an annual report on the economic 
situation. 
26. 4. 79 Official Journal of the European Communities No C 105/31 
6.2. Prospects of economic growth 6.4. Slower growth of world trade 
The Committee doubts whether the growth figures 
recorded in the 1950s and 1960s can be repeated in the 
1980s. 
6.2.1. Factors on both the supply side and the demand 
side can be pointed to as causes of the expected modest 
rate of growth. Differences of emphasis are possible here. 6.4.1. A major reason why expansionary policies have 
been less successful is that foreign demand has been less 
expansive than expected. Before the energy crisis the 
annual increase in Western industrialized countries' 
imports was almost twice as high as the real growth in 
output. Between 1974 and 1978, however, imports have 
increased only 1 -2 times as fast as output. 
For a number of years now economic growth in the 
industrialized world has been considerably lower than 
the long-term trend. A number of industries have got into 
difficulties, partly as a result of the fall-off in the 
expansion of world trade, the steep increase in energy 
and raw materials prices, the high inflation rates and the 
keener competition. The problems are to a large extent 
structural. 6.4.2. The Committee considers that in this 
connection the Community should submit proposals 
regarding the problem of deficit countries' debts. The 
imbalances have an adverse effect on the world economy 
and world trade; they cause recurrent monetary unrest 
and induce the deficit countries to introduce restrictive 
measures. 
6.2.2. The Committee thinks that fiscal stimuli, 
support for branches of industry in difficulties and 
macro-economic demand management cannot by 
themselves restore balanced growth in the medium term. 
These measures are very important in the short term. The 
introduction of the EMS, too, would help in this respect. 
However, such a package alone is not sufficient to solve 
all the current problems and should be backed up by 
measures of a structural nature. 
6.2.3. The Committee also thinks that the requisite 
structural changes should be implemented more rapidly. 
The greater the number of countries in which the growth 
rate is accelerated, the sooner it will be possible to make 
these changes. 
The Committee would urge the Commission to study the 
possibilities at Community level for pursuing economic 
growth policy that will promote the restructuring of 
industry within the Community, and at the same time 
take into account factors such as employment, energy, 
the environment, the position of developing countries 
and the social and regional implications of structural 
changes. 
6.3. Obstacles facing expansionary policies 
The existence of surplus capacity in a number of 
important sectors of production along with difficulties in 
obtaining finance and doubts about whether the recovery 
will last, have meant that, despite the increase in private 
consumption and the investment of government money, 
there has been only a modest increase in private 
investment. An increase in investment is one of the main 
preconditions for a cumulative expansion process. 
The Committee hopes that the Commission, as part of 
Community-wide efforts, will place great emphasis on 
the promotion of investment. 6.4.3. The Committee hopes that the current GATT 
negotiations will have a favourable outcome, so that 
many of the existing non-tariff restrictions on imports 
will be lifted. The Committee is very much aware that the 
further expansion of world trade might otherwise be 
jeopardized. 
6.4.4. The Committee draws attention to the strong 
political and social pressures being exerted to prevent 
the international division of labour based on the 
comparative cost differences from being used as the sole 
criterion in international trade. While measures must be 
taken in the Committee's view to soften the negative 
impact of economic changes, specific adjustment aid 
measures should be carefully blended and should be 
transparent and temporary. 
6.4.5. The Committee regrets that the link between 
the development of trade on the one hand, and 
industry-aids on the other is not always clearly seen. The 
regional problems are frequently the result of inadequate 
adaptation to changing demand. It is desirable that the 
Community's approach to protectionist questions, State 
aids to industry, competition in general, and regional 
problems should be seen as one cohesive whole. 
6.4.6. The Committee thinks that protectionist 
policies can offer the Community few and then only 
short-term advantages. Whilst it is tempting to protect 
certain industries permanently in order to ward off 
unemployment, the competitiveness of the Community 
may be threatened as a result. 
6.5. Small and medium-sized enterprises 
In so far as State aids are used to speed up adaptation to 
structural change made necessary by international 
No C 105/32 Official Journal of the European Communities 26. 4. 79 
developments over the past few years, there is much to be 
said for these aids being used more than in the past for 
the development of small and medium-sized enterprises. 
Not only have such enterprises considerable potential for 
innovation, they are also likely by their nature to be more 
flexible. 
Since smaller firms are labour-intensive as a rule, they 
can help a lot in the fight against unemployment. 
7. Labour market and employment policies 
7.1. The Committee thinks that it will not be possible 
in the short term to keep the demand for and supply of 
labour in balance, even if a slight drop in the average 
unemployment rate for 1979 is possible according to the 
annual report. Looking at the factors affecting the supply 
of labour (population growth, activity rate, etc.), one of 
the few positive things to emerge is that, as a result of the 
downward trend in births in the 1960s, the Community's 
worst unemployment problem (i.e. the young 
unemployed) will be eased somewhat from the early 
1980s onwards. 
The Committee urges the Commission to carry out a 
study into what the link should be between demographic 
factors on the one hand and industrial training 
possibilities and the sectoral requirements for labour on 
the other. The Committee reserves the right to go into 
this matter itself more deeply in due course. 
7.2. The Committee is concerned by the slowdown in 
the number of new jobs being created in the 1970s, as 
mentioned in the annual economic review. It thinks that, 
in view of the serious consequences of the cyclical 
unemployment stemming from the recession and of 
structural unemployment, there is a need for a labour 
market policy which takes both short and long-term 
aspects into consideration. 
7.3. Special attention must be paid by the 
Commission to unemployment arising in industries 
where world capacity exceeds present and/or likely 
future demand. 
7.4. Community subsidies to national programmes 
for increasing employment using all available resources, 
together with training programmes are considered 
important by the Committee. It has, however, to be 
accepted that in many cases the symptoms rather than 
the causes are cured. 
8. Consensus of social partners 
8.1. The Committee thinks that a mutual 
understanding between all important social and economic interest groups is an essential precondition for 
solving today's problems, and for bringing about the 
requisite structural changes. 
8.2. The main theme of the Tripartite Conference held 
on 9 November 1978 was the fight against 
unemployment in the Community. There was general 
agreement amongst those present regarding the analysis 
of the problem as submitted by the Commission. It is to 
be noted here that the analysis generally touches upon 
the points dealt with in this opinion. There was 
agreement too, that measures to promote growth as well 
as special and additional labour market policies, are 
needed in order to reduce unemployment. However, the 
degree of emphasis to be given by governments to one or 
the other of these options provoked some disagreement. 
No agreement was reached about the contribution 
which work-sharing would possibly be able to make in 
this context. However, the Commission was asked to 
study a number of measures related to employment 
policy and work-sharing. The Committee hopes that 
agreement will be able to be reached shortly on these 
points. 
9. Case study: The economic situation in the Federal 
Republic of Germany 
9.1. Following its established practice of looking at 
the economic problems and policies being applied in 
individual Member States of the Community, the 
Committee has examined the economic situation in the 
Federal Republic of Germany. It was helped in its task by 
the willing cooperation of the German organizations, 
including those representing the German social partners. 
All of these provided information and views on policies 
which should be pursued in the future. 
9.2. The case study of Germany illustrates the 
situation of a country which has succeeded in attaining 
the objectives of price stability and external balance 
whilst at the same time failing to achieve its potential 
growth targets or to reduce the level of unemployment to 
an acceptable norm. 
9.3. Since the 1975 recession GNP did not develop in 
line with potential; on the contrary, some slippage 
occurred (1976: 5-5% increase; 1977: 3% increase; 
1978: 3% increase). On average, capacity was 
inadequately utilized — although there were naturally 
considerable differences from sector to sector. Capacity 
reserves have now been exhausted in the building and car 
industries, and there is once again a fairly satisfactory 
level of capacity utilization in a number of consumer 
goods industries; on the other hand, capacity utilization 
in certain capital goods industries is only slightly above 
that obtaining during the recession. 
26. 4. 79 Official Journal of the European Communities No C 105/33 
9.4. Since 1975, the economy has made only faltering 
progress towards the employment target. Between 1975 
and 1977 there was only a slight drop in unemployment 
from 4 • 7 to 4 • 5 %. The average number of young people 
out of work fell from 87 000 at the end of May 1977 to 
77 000 at the end of May 1978 - or from 9 -2 to 8 -4 % 
of the total unemployment figure. However, the number 
of unemployed among other groups (e.g. people with 
some disability, women seeking part time work) 
increased from 415 000 (43%) to 48 000 (47%). The 
number of unemployed for at least a year rose from 
170 000 (18%) to 203 000 (22%). 
In 1979, the demand for labour will increase faster than 
the labour supply. It is estimated there will be 40 000 to 
50 000 fewer unemployed in 1979 than in 1978. The 
average unemployment rate will be between 4 and 4 • 5 % 
which is still high. 
9.5. The objective of an external balance can be 
interpreted, arguably, as meaning that the exchange rate 
of the German mark must offset the difference between 
internal and external inflation rates. There was an 
imbalance in this respect at least in the second half of 
1977 and the first half of 1978, since the increase in the 
external value of the DM was probably much greater 
than the difference in inflation rates. This increase 
impaired competitiveness on the export and the import 
markets. 
9.6. The question has been raised as to whether lower 
unemployment may be achieved in the short-run only at 
the expense of price stability; and as to whether in the 
medium-term the objectives of full-employment, price 
stability, growth, and an external balance, can in fact be 
attained if policies affecting any one of these are 
neglected. 
9.7. It would seem that the short-term 
counter-cyclical policy was inappropriate because it 
often had a pro-cyclical effect in practice. Stabilization of 
monetary policy, financial and economic policy and 
incomes policy seems more appropriate. Such a strategy 
should be geared to medium-term productive potential 
and would help to stabilize the expectations of the 
private sector. 
9.8. The Committee considers that there are two 
stages on the path to marcro-economic objectives. 
9.9. In the first stage, structural distortions must be 
curbed so that the foundation can be laid for solid 
economic growth. 
9.10. In the second stage, the money supply and 
public expenditure must be geared to productive 
potential. Changes in the profits-wages ratio cannot be implemented abruptly. Nor can social advances (e.g. 
shorter working hours) be introduced abruptly. Where 
appropriate, they must be backed by profit-sharing 
measures. Tax reforms dictated by growth and social 
policy should not be implemented on an ad hoc basis but 
should be the subject of long-term planning. 
9.11. Unemployment, however, will remain the 
number one problem in the coming years. Full 
employment could be achieved by 1985 if real GNP rose 
by 3 • 5 % per year. The growth rate in GNP could of 
course work out higher if there were an increase in 
productivity in excess of the estimated 3 % per year. 
9.12. To achieve full employment, the State will have 
to make a vital contribution by actively promoting 
economic growth. Opinions within the Committee 
regarding the instruments which should be chiefly used, 
differ. 
One opts for policy measures affecting the supply side 
(investment, production, training, etc.). The object of 
such policy measures would be to create a stable 
economic climate conducive to private investment. Fiscal 
policy should from this point of view be aimed at 
bringing costs down, increasing net profits and the 
rewards generally available to those involved in the 
economic process. 
To force the introduction of a shorter working week 
would have an adverse effect on the efficiency of 
production processes, particularly in the small and 
medium sized companies, if effected too rapidly. 
9.13. The other standpoint would give preference to 
those measures directly affecting the demand side. They 
lean on the argument that an increase in profits brought 
about merely by lowering prices will not by itself 
stimulate enough new investment; the essential element 
affecting new investment is rather the anticipation that 
turnover will steadily increase, thus increasing capacity 
utilization. For this condition to come about, the State 
must increase its own demand for goods and services 
(State consumption to be increased by 2-5 to 3 %, and 
State investment to be increased by 5 to 6%). Fiscal 
measures are needed that will stimulate private 
investment. This would have the secondary effect of 
bringing demand in the private sector (both investment 
and consumption) onto a higher growth-path. The 
policies of this sort would be tied in with the 'programme 
for future investments' and aimed more at the 
medium-term; to that extent it would differ 
fundamentally from the policies affecting the short-term 
position put forward in 9.12 above. 
No C 105/34 Official Journal of the European Communities 26. 4. 79 
9.14. In conclusion, it has to be said that experience 9.15. The long-term move in the direction of shorter 
has shown that any attempt to reduce the budget deficit working hours should be continued. It would be 
by cutting the government expenditure - particularly mistaken, however, to regard this as being the only 
investments - hampers the growth of production and solution to the problem of unemployment, and to give up 
leads to deficits in the medium term. the task of generating more economic growth. 
Done at Brussels, 30 November 1978. 
The Chairman 
of the Economic and Social Committee 
Fabrizia BADUEL GLORIOSO 
ANNEX 
to the opinion of the Economic and Social Committee on the annual report on the economic situation in 
the Community in 1978 
THE ECONOMIC SITUATION IN THE FEDERAL REPUBLIC OF GERMANY 
1. Present situation and main problems 
1.1. The economic problems become clear if one compares the present situation and the short-term 
forecast with the objectives laid down in Section 1 of the stability and growth law (StabGes): these are 
price stability, sustained, adequate economic growth, high level of employment and external balance. 
Such a comparison indicates that growth and employment are the two main problems. The prices stability 
problem, although present in latent form, is less acute. There is no external trade problem in the 
traditional sense (large surplus or deficit on current account or on the overall balance of payments); 
'external imbalance' is today often associated with the exchange rate situation. 
1.2. Low inflation rate 
1.2.1. The rate of inflation (increase in consumer prices over a 12-month period) has fallen from nearly 
8 % in the spring of 1974 to less than 2 • 5 % at present. It is very low by international and even German 
standards. 
1.2.2. In 1979 the inflation rate will rise somewhat for the first time in a fairly long period, since 
economic activity is picking up, VAT is being increased and import prices will not fall again. The rise in 
food prices will, however, continue to be slight in the coming year. The longer-term danger is considered 
by many to be the large increase in the money supply since the autumn of 1977. The inflationary potential 
here is, however, often overestimated (see point 5.1.1). 
1.3. Unsatisfactory economic growth 
1.3.1. The call for sustained adequate growth made in the stability and growth law is based on the idea 
that real GNP (GNP at constant prices) should follow the 'potential curve', i.e. national productive 
potential should be optimally utilized. In addition to the fact that technical capacity is difficult to calculate 
anyhow, this raises considerable analytical problems: technical capacity does not coincide with 
economically justified capacity. Maximum utilization is not identical with optimum utilization. Even with 
a satisfactory average level of capacity utilization there can be considerable upward and downward 
variations. Furthermore there are good reasons for interpreting the term 'potential' more widely than 
usual. If there had been more investment in recent years the productive potential would today be greater 
than it actually is. Whereas the overall productive potential rose by 5 % per year in the period 1970 to 
1973, the annual rate of increase in the period 1976 to 1978 was only 2 %. Such a large decline would 
certainly not have occurred if a more successful economic policy had been pursued. 
26. 4. 79 Official Journal of the European Communities No C 105/35 
1.3.2. These points having been made, we have to note that after the 1975 recession (real GNP (2 %)), 
GNP did not continuously develop in line with potential — on the contrary, some slippage occurred (1976: 
5-5% increase; 1977: 3% increase; 1978: 3% increase). On average, capacity was therefore 
inadequately utilized; after an increase from 1975 to 1976 (from just under 82 to 84%) capacity 
utilization in 1978 remained at about 86%, i.e. 3% below the normal level. There were, however, 
considerable differences from sector to sector: capacity reserves have now been exhausted in building and 
in the car industry; there is once again a fairly satisfactory level of capacity utilization in a number of 
consumer goods industries. On the other hand, capacity utilization in certain capital goods industries is 
only slightly above that during the recession. This assessment does not become any more favourable when 
one considers that the potential production capacity of many industries (particularly the building 
industry) is greater than the current capacity (see point 1.3.1). 
Appropriation of the German GNP at 1970 prices 
Private consumption 
Public consumption 
Gross investment (x) 
including: 
— equipment 
— buildings 
Exports 
minus imports 
GNP DM 
1 000 
million 
1977 
455-5 
143 1 
188-3 
74-7 
106-1 
233-2 
206-3 
813-8 1970 
7-3 
4-6 
9-3 
17-7 
6-7 
7-2 
15-5 
5-9 1971 
5-2 
6-3 
-0-2 
5-9 
6-8 
61 
8-9 
3-3 1972 
4-0 
4-6 
2-6 
-1-0 
6-3 
6-4 
6-9 
3-7 Increase 
1973 
2-6 
5-5 
2-1 
0-8 
-0-2 
115 
3-1 
4-9 in % over the previous year 
1974 
0-3 
4-3 
-10-5 
-10-2 
9-8 
11 -8 
3-6 
0-4 1975 
2-9 
4-5 
-8-0 
0-4 
-6-9 
-60 
3-5 
-2-0 1976 
3-7 
2-5 
12-5 
6-5 
4-7 
11-2 
111 
5-7 1977 
31 
10 
2-8 
7-7 
1-7 
3-9 
4-3 
2-6 1978 (2) 
3-5 
3 
3-5 
5 
4-5 
4 
5 
3 1979 (2) 
3-5 
2-5 
6-5 
6 
5 
6 
6-5 
4 
For information 
Rate of growth of 
productive potential 
Degree of capacity 
utilization (in %) 
Rate of increase in 
consumer prices 
Rate of increase in gross 
income from: 
— employment 
— business and property 
Level of unemployment 
Rate of increase in the 
external value of the 
German mark (3) — 
— 
— 
— 5 
91 
3-5 
181 
9-5 
0-7 
— 5 
89 
5-4 
13-0 
6-4 
0-8 
— 5 
88 
5-6 
9-9 
7-6 
11 
— 4 
88 
7-1 
13-5 
7-5 
1-2 
— 3-5 
86 
7-0 
100 
01 
2-6 
5-0 3-5 
82 
6-2 
41 
4-4 
4-7 
1-6 2 
84 
4-4 
7-3 
15-2 
4-6 
7-3 2 
85 
3-8 
7-1 
3-5 
4-5 
8-8 2 
86 
2-5 
6 
8-5 
4-5 
8 2 
87 to 88 
3-5 
7 
9-5 
4 to 4-5 
— 
(') Including in stock changes. 
(2) Estimate. 
(3) vis-a-vis 22 important trading partners. 
1.3.3. In 1979 economic performance will be somewhat 
nearer the growth target. After the slowdown in economic 
activity in the opening months of 1978 (caused, in particular, by 
the unrest on the foreign exchange markets and the serious wage 
conflicts) there have, since the summer, been increasing signs of 
an improvement in the economic situation. The rate of growth 
in real GNP, will increase from 3% in 1978, to 4% in 1979, 
which will mean a somewhat better utilization of productive 
potential, which is expanding by slightly over 2 %. The growth 
in private consumption, in real terms, will continue at the 
current rate of 3V2%. There will only be a slight falling-off in 
the increase in public consumption in real terms (3 % in 1978). Gross investments in real terms will increase by 6%, as 
compared with 3-5% in 1978. There will also be a slight 
increase in the rate of growth of exports of goods and services 
(from 4 to 6 %). Imports will expand further. What is uncertain, 
however, is whether the anticipated higher growth in 1979 will 
be maintained in subsequent years. 
1.3.3.1. Signs of an upturn are the improvement in business 
expectations, and the increase in orders, production and the 
demand for credit in many industries, coupled with a continuing 
strong growth in demand in the building industry. 
No C 105/36 Official Journal of the European Communities 26. 4. 79 
1.3.3.2. The main causes of the present and coming 
economic revival are the following: The external value of the 
German mark, which had risen by 10% between the middle of 
1977 and the spring of 1978 and had brought about a 
considerable increase in the mark's real exchange rate (adjusted 
for differences in inflation), fell slightly between the spring of 
1978 and the middle of September 1978. In the second half of 
September it rose again, however. The economic situation in the 
industrialized countries of Europe is expected to improve 
somewhat in 1979. In the second half of 1977 the Bundesbank 
followed a more expansive policy which involved an 
appreciable reduction in short and medium-term interest rates 
up to the spring of 1978 and helped to stimulate house-building 
in particular. In the autumn of 1977 and the summer of 1978 
the Federal Government took a series of financial, and in 
particular fiscal measures to stimulate private investment and 
private consumption. In 1979 the budget deficit will be about 
DM 10 000 million higher than in 1978. In contrast to the 
situation in 1977, there has been an improvement in the level of 
business profits, though they remain low; income from business 
and property will increase somewhat more than income from 
employment in 1978 and 1979. The fact that capacity reserves 
have been exhausted in some industries (building) and an 
improvement in capacity utilization is expected in other 
industries is inducing many firms to expand their capacity 
further, i.e. engage in more investment. 
1.4. High unemployment 
1.4.1. Since the 1975 recession, the economy has made only 
faltering progress towards the employment target. Between 
1975 and 1977, there was only a slight drop in unemployment 
from 4-7 to 4-5%. The average figure for 1978 will be one 
million, i.e. only slightly less. Over the past few years, there has 
been a considerable change in views as to what is an 'acceptable' 
level of unemployment. At the beginning of the 1970's a figure 
of 1 • 5 % was regarded as high. Today, an unemployment figure 
of 2 to 2-5 % would be regarded as an exceptional 
improvement. It is pointed out that little or nothing can be done 
for about 300 000 to 400 000 of the unemployed, in particular 
those suffering from some disability, women seeking part-time 
work and persons aged between 55 and 65. But it must also be 
noted that there is a hidden labour reserve of probably 500 000 
to 700 000 at the present time. Moreover, unemployment 
would be even higher, if a lot of foreign workers had not 
returned to their own countries. 
1.4.2. The number of young people out of work fell from 
87 300 at the end of May 1977 to 77 000 at the end of May 
1978, or from 9-2 to 8-4% of the total unemployment figure. 
However, unemployment among the other 'problem groups' 
mentioned above (1.4.1) increased from 415 000 (43-8%) to 
430 000 (47%). The number of people unemployed for at least 
a year rose from 170 000 (18 %) to 203 000 (22 %). 
1.4.3. Unemployment in the building industry which was 
above average in the past few years has dropped substantially 
recently; in many cases there has even been a shortage of labour 
in this sector. There has also been an improvement in the 
services sector. But employment has been on the decline in 
manufacturing industry (e.g. the metal and electrical 
engineering industries). 1.4.4. There are considerable regional differences in the level 
of unemployment. At the end of August 1978, the 
unemployment figure was well above the average (4 %) in 
Saarland (7-6%), Nordrhein-Westfalen and Niedersachsen 
(both 4-9%), but was much lower in Baden-Wiirttemberg 
(2-4%) and southern Bavaria (3%). 
1.4.5. In 1979, the demand for labour will increase faster 
than the labour supply. It is estimated that there will be 40 000 
to 50 000 fewer unemployed in 1979 than in 1978. The average 
unemployment rate will be between 4 and 4-5% which is still 
very high. 
1.5. Rise in the real external value of the German mark 
1.5.1. The call for external balance made in the 'stability and 
growth law' can be interpreted as follows: the exchange rate 
must offset the difference between internal and external 
inflation rates. According to this rather controversial definition, 
there was an imbalance at least in the second half of 1977 and 
the first half of 1978, since the increase in the external value of 
the mark was probably much greater than the difference in 
inflation rates. This increase impaired competitiveness on the 
export and import markets and could not therefore be said to be 
'wettbewerbsneutral' (neutral in effect on competition). 
2. The required economic strategy 
2.1. There are two important lessons to be learned from 
economic developments in the period 1969 to 1972: 
2.1.1. The objectives of the 'stability and growth law' are 
inseparable. Lower unemployment, for example, may in the 
short run be achieved at the expense of price stability, but in the 
medium-term, none of the objectives can be achieved if the 
others are neglected. 
2.1.2. The short-term counter-cyclical policy was 
inappropriate because it often had a pro-cyclical effect in 
practice. Stabilization of monetary policy, financial and 
economic policy and incomes policy seems more appropriate. 
Such a policy should be geared to medium-term productive 
potential and help to stabilize the expectations of the private 
sector. 
2.2. There are two stages on the path to macro-economic 
objectives. 
2.2.1. In the first stage, wage and price inflation must be 
curbed and structural distortions must be exposed so that the 
foundation can be laid for solid economic growth. 
2.2.2. In the second stage, the money supply and public 
expenditure must be continuously geared to productive 
potential. Changes in the profits-wages ratio and social 
advances (e.g. shorter working hours) cannot be implemented 
abruptly; where appropriate, they must be backed up by 
profit-sharing measures. Tax reforms dictated by growth and 
social policy should not be implemented on an ad hoc basis but 
should be the subject of long-term planning. This holds good 
also for changes in other basic conditions. 
26. 4. 79 Official Journal of the European Communities No C 105/37 
3. The actual course of events 
3.1. Developments since 1973 differ sharply from the ideal 
picture outlined above. 
3.1.1. In the first stage (1973 to 1975), there was an 
unexpectedly sharp decline in production and employment. 
Under the protection of flexible exchange rates, the central bank 
introduced severe restrictive measures in the spring of 1973 
(increases in bank rate and a radical curtailment of bank 
liquidity); various growth-inhibiting instruments of financial 
policy were deployed (e.g. an investment tax). Inflationary 
expectations were stimulated by the price hikes sparked off by 
the oil crisis in autumn 1973; this was a factor in relatively high 
wage settlements. The tight monetary policy meant that only 
part of the increased wage costs could be passed on, and profits 
suffered as a result. Finally, in 1974/75, there was a distinct 
downturn in the international business cycle. Although in 1974 
the Government had brought in a number of financial measures 
designed to encourage private investment, employment and 
consumption, the economic situation in 1975 was marked by a 
sharp recession and high unemployment. 
3.1.2. In the second stage (1975 to 1978), despite the 
significant fall-off in inflation, production and employment 
suffered frequent reverses. 
3.1.2.1. During 1974 the Bundesbank abandoned its 
restrictive strategy and began to boost bank liquidity again. 
Since late 1974 it has sought to stabilize monetary policy. A 
money supply target is fixed for every calendar year. So far the 
aim has been an 8 % annual increase. Up to 1977 this target was 
exceeded every year, albeit moderately. The constant trend in 
the actual annual rates does, however, conceal the fact that 
there was in practice a lack of continuity in monetary policy. In 
1976 bank liquidity was considerably curtailed, so that there 
was a fall-off in the current growth of the money supply. This in 
turn was a factor in the failure to maintain the economic upturn 
in 1977. It was only in the course of 1977 that the central bank 
re-embarked on a more expansive strategy involving increased 
bank liquidity. By doing so it laid the foundations for the 
economic recovery which began this summer. 
3.1.2.2. Financial policy, too, has been alternately 
expansionist and restrictive. During 1975 the public authorities 
drastically curbed the rate of expansion of their expenditure -
indeed in 1976 and 1977 there were appreciable cuts in 
investments — in order to reduce the big deficits. This helped to 
depress economic activity. But in autumn 1977 and the middle 
of 1978 expansionist economic programmes were again 
adopted. 
3.1.2.3. Pay policy has in recent years followed a course that 
largely takes account of the requirements of growth and 
stability. The overall increases in hourly pay rates have been as 
follows: 13% in 1974; 9-5% in 1975; 6% in 1976; 7% in 
1977 and 5-5% in 1978. But despite this, the trend in both 
output and profits deteriorated in 1977, although pay policy 
cannot be held responsible. If monetary and financial policy had 
been geared more to productive potential, then overall demand, 
output and productivity would have risen more, wage costs 
would have increased less and profits would have been higher. 4. The main problem in the medium term: unemployment 
4.1. Unemployment will remain the number one economic-
problem in the coming years. This medium-term problem can be 
illustrated by the following trends. 
4.1.1. In 1985 the potential labour force will be roughly as 
large as it is today; although the population is declining and 
foreign workers will be returning to their own countries, the 
proportion of gainfully employable people is continuing to rise. 
However, the demand for labour will fall and unemployment 
will rise to roughly double the 1977/78 rate if: 
— real GNP rises at an annual rate of only 2 • 5 % and 
— productivity per worker increases by just under 3 % per 
year. 
4.1.2. Under these conditions full employment could 
presumably be achieved by 1985 if real GNP rose by 3 • 5 % each 
year. GNP would, however, have to grow more rapidly if the 
growth in productivity were greater than the figure assumed in 
4.1.1. 
4.2. The State would have to make a major contribution 
towards encouraging economic growth. However, opinions 
differ as to the main instruments it should use. It is possible to 
distinguish here between two main schools of economic 
thought, which, however, are only seldom found in their purest 
form in practice. 
4.2.1. The hallmark of the first of these two schools is that it 
recommends measures which tackle the problem from the 
supply angle (cf. inter alia the annual economic survey for 
1977/78 of the Council of German Economic Experts, and in 
particular point 266 et seq.). The main task is considered to be 
the creation of a stable economic policy framework for the 
encouragement of private investment, production and 
employment. In the field of financial policy, the chief emphasis 
must be placed on tax measures which will lower costs, raise net 
profits and give everyone engaged in business and trade 
incentives to step up activities. These recommendations are 
based on the idea that a greater demand for goods and services 
will not lead to sustained economic growth if the added cost of 
new investment, increased production and higher employment 
is not accompanied by adequate returns. 
4.2.2. The other school of thought shows a preference for 
measures which get to grips with demand directly. This school 
of thought uses the argument that an increase in profits resulting 
simply from a lowering of costs will not lead to sufficient 
investments; instead, a sine qua non for new investments is the 
expectation that there will be a sustained increase in sales and 
the utilization of capacity. Therefore, the State too should 
increase its own demand for goods and services (2 • 5 to 3 % rise 
in public consumption and 5 to 6 % growth in public investment 
each year), while financial measures to encourage private 
investments (including a 3 % annual increase for housing) are 
also desirable (see Weekly Report 15/1978 of the German 
Institute for Economic Research (DIW), Berlin). Demand in the 
private sector (investment and consumption) would also be 
No C 105/38 Official Journal of the European Communities 26. 4. 79 
boosted by the secondary effects of these measures. Such a 
policy would be tied in with the 'programme for future 
investments', which would thus be of a medium-term nature 
and would, to that extent, differ fundamentally from previous 
short-term economic programmes. It should be borne in mind in 
this connection that there will be no shortage of urgent work in 
the foreseeable future (quality of the environment, urban 
renewal, development of new technologies for conserving 
energy and raw materials, better services for the underprivileged 
sections of the community). 
4.3. In passing judgment on the two strategies referred to in 
points 4.2.1. and 4.2.2. - both of which strategies are aimed at 
generating more economic growth - the following should be 
taken into consideration. 
4.3.1. The only way to put public finances on a permanently 
sound footing is through stronger economic growth, i.e. an 
increase in revenue-raising capacity and a reduction in the 
volume of transfer payments to unemployed persons. 
Experience has shown that any attempt to reduce the budget 
deficit by cutting government expenditure (investments) will 
hamper the growth of production and lead to higher deficits in 
the medium-term. Pressure on the budget could be eased if a 
number of future measures were carried out in cooperation with 
the private sector (joint ventures). 
4.3.2. The long-term move in the direction of a shorter 
working week — interrupted in the past few years — should be 
continued. This would be in keeping with the wish of many 
people to enjoy more free time (holidays, flexible retirement 
age) in order to improve the quality of their life. It would be 
mistaken, however, to regard this measure as being the main 
solution to the problem of unemployment and to give up the 
task of generating more economic growth. 
4.3.2.1. Doubts as to whether Government economic policy 
ensures sufficient growth from an employment angle cannot be 
dismissed outright. Therefore, the shorter working life - in all 
its various forms - may obviously be considered a further way 
of solving unemployment. It should be borne in mind in this 
connection that more free time also increases the demand for 
consumer goods and that longer periods of vocational training 
make workers more flexible and improve their job prospects. 
4.3.2.2. A frequent argument against the enforced shortening 
of the working life is that it puts too much pressure on 
production technology, workers and firms, especially the 
smaller ones. It is therefore not a suitable way of reducing 
unemployment. 4.3.3. Measures need to be taken to encourage the 
geographical and occupational mobility of the labour force so 
that structural discrepancies between supply and demand on the 
labour market can be lessened. This, however, will not solve the 
problem of the overall shortage of jobs. 
5. Outlook 
5.1. Whether the present upturn in economic activity will 
lead to sustained, adequate growth depends largely on whether 
the following conditions are met. 
5.1.1. The Bundesbank should refrain from either a big 
expansion or a big reduction in bank liquidity. If it does so, then 
growth of the money supply - which has been very vigorous in 
1978 - will slow down of its own accord. Calls are frequently 
made for measures to contract the money supply on the grounds 
that the continuous reduction of the velocity of circulation of 
money points to the build-up of a considerable inflationary 
potential. But this is not a valid argument, rather the reduction 
in the velocity of circulation of money that over the past few 
years has accompanied the fall in interest and inflation rates is 
largely due to a process of normalization. 
5.1.2. Wage policy should not deviate too much from the line 
adopted in 1978. A strong upward movement would refuel 
inflation and/or bite into profit margins. A strong downward 
pressure, on the other hand, would hit the real purchasing 
power of private households and thus also sales. 
5.1.3. The receipt of more orders by firms should be used as 
an opportunity for increasing capacity, creating new jobs and 
training skilled workers and not for making excessive price 
demands. For this to happen, however, firms must be able to 
count on the Government not reverting after 1979 to a 
restrictive policy towards expenditure — and especially towards 
investment. The building trade would be directly affected by 
such a move, while other sectors of the economy would also 
suffer indirectly. 
5.1.4. An adequate rate of sustained economic growth can 
only be achieved if there are no unduly great disturbances on the 
foreign trade front. There is no international monetary system 
which in itself provides absolutely reliable protection against 
upheavals on the foreign currency markets and the importation 
of inflationary and deflationary pressures. However, it is 
possible to find a justification for the planned European 
monetary union in the fact that the participant countries 
consider it to be an obligation to cooperate more closely than in 
the past and to jointly create the basis for economic growth 
coupled with as little inflation as possible. 
Opinion on the draft Council Regulation on the importation free of Common Customs Tariff 
duties of materials for the use of the blind and other handicapped persons 
(Doc. COM(78) 348 final) 
The text referred to the Committee has been published in Official journal of the European 
Communities No C 187 of 5 August 1978, page 2. 
A. LEGAL BASIS FOR THE OPINION 
On 4 August 1978 the Council referred the abovementioned proposal to the Economic and 
Social Committee in accordance with Article 198 of the Treaty establishing the European 
Economic Community.