No C 53/2 Official Journal of the European Communities 3. 3. 80 
The Committee urges the Community bodies respon­
sible for the decisions regarding the size of the 
Done at Brussels, 25 October 1979. 
The full text of the opinion is as follows: 
THE ECONOMIC AND SOCIAL COMMITTEE, 
Having regard to the Treaty establishing the Euro­
pean 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 Govern­
ments of the Member States concerning the realiza­
tion by stages of economic and monetary union in 
the Community, 
Having regard to the Council Decision of 18 Feb­
ruary 1974 on the attainment of a high degree of 
convergence of the economic policies of the Mem­
ber States of the European Community, 
Having regard to the request made by the Council 
of the European Communities on 23 October 1979 
for an opinion on the Commission's annual econ­
omic report 1979/80, Regional Development Fund to take account of the 
top priority which it attaches to this matter. 
The Chairman 
of the Economic and Social Committee 
R. VANNI 
Having regard to the decision taken by the Bureau 
of the Economic and Social Committee on 26 June 
1979 instructing the Section for Economic and 
Financial Questions to draw up an opinion on the 
Commission's annual economic report 1979/80, in 
anticipation of a Council referral, 
Having regard to the opinion of the Section for 
Economic and Financial Questions adopted at its 
54th meeting on 23 October 1979, 
Having regard to the report submitted by the rappor­
teur, Mr Drago, 
Having regard to the discussions at its 172nd plen­
ary session held on 24 and 25 October 1979 (meeting 
of 25 October 1979), 
HAS ADOPTED THE FOLLOWING OPINION Opinion on the annual economic report 1979/80 
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 con­
vergence of the economic policies of the Member States of die European Community. 
B. OPINION OF THE ECONOMIC AND SOCIAL COMMITTEE 
The Economic and Social Committee prepared its opinion on the above matter at its 
172nd plenary session held in Brussels on 24 and 25 October 1979. 
3. 3. 80 Official Journal of the European Communities No C 53/3 
by 50 votes to 32 with 18 abstentions: 
1. The current situation and outlook 
1.1. It transpires from the survey of the current 
situation in the accompanying report and from the 
Commission document that economic growth in the 
Community is likely to weaken in 1980. 
The Community GDP is expected to grow at much 
the same rate in 1979 as in 1978 (3 1 %), i.e. less 
than the figure predicted at the start of the year. In 
1980, however, the Commission anticipates the aver­
age growth rate to be at least one percentage point 
down on 1979. 
1.2. This implies an additional 700 000 or so job­
less, pushing up the unemployment rate from 5 • 6 % 
of the labour force in 1979 to 6-2 % in 1980. Whilst 
male unemployment seems to be more or less static, 
the already higher female unemployment rate is 
worsening. The trend and level of youth unemploy­
ment is particularly serious. 
1.3. The balance on current account will deterior­
ate from a surplus of 14 000 million EUA in 1978 to 
a deficit of 3 300 million EUA in 1979 and in excess 
of 5 000 million EUA in 1980. 
1.4. 1979 was the year in which inflation took off 
again, rising from the 1978 level of 6-8 % to getting 
on for 9 %. The Commission expects it to remain at 
this level in 1980. 
1.5. The Commission reckons that 'past long-run 
productivity trends, for example the 4-3% annual 
average experienced in the Community during 1960 
to 1973 will not be restored in the foreseeable future. 
While on balance average productivity growth is 
likely to be lower, the contributing factors are not 
helpful to employment.' the outlook is better in the tertiary sector than in 
industry. Generally, this can be seen in current trends 
in the various Member States and in the persistent 
increase in potential supply and demand. 
2. Comments on the Commission's analysis 
2.1. The Committee considers that the Commis­
sion describes a worsening overall economic situa­
tion. The feeble growth expected in 1980 may fuel 
inflation, and lead to longer dole queues which 
from the economic and social standpoint constitute 
a massive under-utilization of human resources. 
2.2. The Committee agrees with the Commission 
that at the root of these troubles lie the energy crisis 
and the current economic situation in the USA, but 
feels that other causes are contributing too. In the 
Committee's view, the disorder on the international 
monetary front (which has admittedly been atten­
uated in the Community area by the introduction of 
the EMS) and, more generally, the world economic 
and trade disputes are having an adverse effect as 
well. 
2.3. In the Committee's view, the re-emergence of 
major problems potentially harmful to European in­
tegration is also the result of the Member States' 
failure to adopt an effective energy strategy after the 
first oil crisis. It would have been advisable among 
other things to develop Community energy supplies, 
even if the initial costs of doing so were higher. 
2.4. The Committee stresses that insufficient coor­
dination of economic policies — a factor in deter­
mining the 1974/75 recession — can still be seen in 
the behaviour of the more industrialized countries, 
as witness the escalation of interest rates. 
It did not receive adequate attention at the Toyko 
Summit. If continued, it could adversely affect 
economic conditions. 
1.6. As far as prospects of mopping up unemploy­
ment are concerned, the Commission reckons that 2.5. The Committee would point out that the resto­
ration of economic growth depends on restoring the 
profitability of firms. This is affected by the need to 
No C 53/4 Official Journal of the European Communities 3. 3. 80 
maintain high interest rates, leading to a squeeze on 
investment, and this in turn affects not only expan­
sion but also rationalization in respect of certain 
factors, such as energy. 
3. Objectives and policies proposed by the Commis­
sion 
3.1. As far as economic structures are concerned, 
the Commission considers that the Community 
should tackle two categories of delicate issues, viz. 
the complex relationships between productivity 
trends, employment policy, industrial policy and 
energy problems. 
3.2. The solution to the first of these seems to be to 
strive for balance between the requirements of 
growth, employment and monetary stability. 
3.3. On the energy front, the Commission's view is 
that failing greater indigenous energy production 
and conservation, the prospects for non-inflationary 
growth are very small. 
The objectives set at Community level can only be 
attained by doing away with the traditional link be­
tween the growth of GDP and oil consumption, 
even though achievement of this change is still sub­
ject to major uncertainties. 
3.4. The Commission stresses the desirability of re­
ducing personal savings rates in order to support 
consumer demand. This will entail a climate of con­
fidence concerning economic policy objectives. 
3.5. The outlook for investment is not unfavour­
able. There is a further cause for optimism in the fall 
in stockbuilding over the last 18 months. 
The report takes the view that investment levels are 
sensitive to the financial situation of firms, both 
from the point of view of returns and the availability 
of credit. 
3.6. The Commission singles out two possible 
stages of economic policy for the short term. 
The first and immediate need, given that the oil 
price rise be fully communicated to the consumer, is 
to prevent a secondary increase in the rate of infla­tion. This means that in the period from now to 
about mid-1980 the evolution and the distribution 
of incomes has to be adjusted either through lower 
real income claims or through a temporary adjust­
ment to the full working of indexation mechanisms 
(the details of course would vary here by country). 
In the second stage, room for manoeuvre could be 
created by a more active budgetary policy and/or a 
reduction in interest rates. 
3.7. As regards monetary policy, the Commission 
believes that there must be a further reduction in the 
rate of expansion of the money supply, so that by 
1980 this rate will be slightly lower than the nominal 
GDP growth rate. 
The interest rate would thus remain high, at least 
initially. 
3.8. The Commission's annual report emphasizes 
that budgetary policy has hitherto been expansion­
ist: the overall financial deficit of the public sector 
rose from 3 -3 % of GDP in 1977 to 4 % in 1978 and 
will probably remain unchanged in 1979. 
In the Commission's view, a slight reduction in this 
figure during the coming year is felt to be necessary 
in order to increase the financial resources available 
for private investment and to reduce the contribu­
tion of public finance to monetary growth. This re­
duction would be achieved in various ways in the 
different Member States. 
3.9. The Commission believes that both sides of 
industry have a potentially very responsible role to 
play in income trends. In the past 18 months, pay 
trends helped to reduce inflation in 1978 and did 
not play a part in the subsequent rise in inflation. 
The Commission considers that pay trends should 
still be held down. In particular, in some countries 
energy prices should be taken out of the wage-in­
dexing system and wage contracts should not be re­
negotiated before their normal expiry. 
Overall, disposable incomes should only rise barely 
to the extent necessary to maintain purchasing 
power. 
3.10. With regard to employment, the Commission 
feels that positive results were achieved from 1976 
3. 3. 80 Official Journal of the European Communities No C 53/5 
to 1978 and stresses the importance of the services 
sector in promoting employment, given the need to 
increase productivity in the manufacturing industry. 
The Commission does not look upon a reduction in 
working hours as a panacea for creating new jobs, 
unless the necessary conditions for economic recov­
ery are realized. 
One should envisage — without, however, aggravat­
ing the costs of enterprises — some strengthening of 
the long-term trend in the reduction of annual work­
ing hours (the working week or holidays), alongside 
other forms of work-sharing (schemes for earlier and 
flexible retirement, part-time working, reduced over­
time) and the development of a wider array of voca­
tional training and further training schedule. 
4. Observations on the objectives and policies re­
commended by the Commission 
4.1. The Committee feels that the Commission's 
report fails to clearly pinpoint the links between the 
proposed objectives. 
4.2. The Committee considers that the Commun­
ity's economic policy must give priority to the fight 
against both unemployment and inflation. 
4.3. The rise in unemployment is dangerous be­
cause of the social pressures and disintegration it 
generates, especially among the young. It can rea­
sonably be argued that the absence of any prospect 
of getting a job lies behind certain manifestations of 
malaise and anti-social behaviour. 
4.4. A Community commitment to fight inflation 
is of the utmost importance, but counter-inflation­
ary measures must be carefully selected to ensure 
that they do not worsen unemployment. In a flexi­
ble overall economic strategy, the two objectives are 
not necessarily mutually exclusive. 
4.5. As far as the policies proposed by the Com­
mission are concerned, the Committee stresses that 
there should be close and continual interplay be­
tween monetary policy and the manipulation of the 
public budget. In particular, the Committee em­
phasizes that budgetary policy is an instrument 
which, when deployed together with monetary pol­
icy, enables intervention measures to be better se­lected and the adverse effects on investment of 
higher interest rates to be attenuated. 
4.6. In this connection, it can be observed that in­
terest rates are largely determined by inflation rates, 
and this is thus an investment disincentive which 
boosts production costs, brings up the cost of living 
and erodes the competitiveness of Community en­
terprises. 
4.7. In order to contain rising living costs — the 
most visible manifestation of inflation — within 
reasonable limits, the governments and the public 
authorities are recommended to refrain from in­
creasing levies. As for public tariffs, these should be 
adapted cautiously in line with retail price trends. 
4.8. In the Committee's view, the behaviour of the 
two sides of industry is of great importance, 
although the interdependence of the two sides of in­
dustry means that the governments, generally speak­
ing, can only mediate. The Committee therefore 
feels that an effective drive to squeeze out inflation 
must be conducted above all by the governments 
using the instruments which fall within their com­
petence, namely budgetary policy, monetary policy 
and social policy. 
4.9. The Committee considers that the inflation 
brought about by the oil price hike must not be off­
set by wage moderation on the part of employees 
alone. In its view, the oil bill should be borne by the 
entire Community on the basis of equitable criteria. 
If there is going to be a recovery in investment for 
purposes other than rationalization, consumption 
and, by the same token, purchasing power will have 
to be supported. 
4.10. As for wages, the Committee counts on the 
two sides of industry to tailor wage trends in their 
negotiations to the new economic reality. 
4.11. More emphasis should be placed on the role 
of structural policies, especially with respect to the 
objectives which can be attained by coordination 
and more selective use of the various financial in­
struments. 
5. Conclusions and proposals 
5.1. In view of the EEC's world-wide responsibili­
ties, the Section feels that the Community should 
No C 53/6 Official Journal of the European Communities 3. 3. 80 
consider the differences between oil producers and 
non-oil producing LDCs when seeking a solution to 
its economic problems. 
5.2. As far as the oil-producing countries are con­
cerned, the Community should pave the way for 
mutually satisfying cooperation through agreements 
that ensure that economic and trading relations are 
more closely coordinated and put on a more stable 
footing. 
5.3. As far as the non-oil-producing countries are 
concerned, the Committee would like to see more 
decisive action in the field of cooperation and de­
velopment aid. Encouragement should also be given 
to the establishment of an international economic 
order allowing their citizens to achieve a standard of 
living comparable to that of the industrialized coun­
tries. 
5.4. The Committee considers that the Commis­
sion disregards the importance of the level of Com­
munity exports in the general balance between 
growth, prices and employment, and consequently 
regrets the absence of a Community strategy in this 
area. 
5.5. The Committee considers that with a view, 
among other things, to consolidating the European 
Monetary System the Community countries must 
stick by • the common stand vis-a-vis the United 
States and Japan which they adopted at the Tokyo 
Summit Conference. 
5.6. The Committee considers that Member State 
policies must — within a Community framework — 
be aimed at tackling the dangers associated with 
slow growth: namely, an increase in sectoral re-
Done at Brussels, 25 October 1979. gional difficulties, structural unemployment, and 
growing difficulties with public finances and social 
security schemes. 
5.7. The Committee therefore hopes that in the at­
tempt to bring about increasing convergence of poli­
cies and economic performance, the Community 
will put forward a number of priority recommenda­
tions of a structural character which the Member 
States should use after tailoring them to suit their 
needs. These recommendations should concern: 
— eliminating regional, sectoral and agricultural 
structural imbalances, 
— stepping up and improving special measures de­
signed to create new jobs so as to improve the 
balance of labour supply and demand, 
— supporting consumption, namely through 
maintenance of purchasing power and an in­
crease in the lowest incomes. 
Because the Committee is currently taking a stand 
on the whole problem of working hours, this 
opinion is not the place to put forward views on the 
Commission's recommendations on this matter. 
5.8. As far as energy is concerned, the Committee 
would reiterate the support it has given to date to 
priority political solutions of a structural nature and 
ask that they be given a concrete follow-up. 
5.9. In the Committee's view, a package of prop­
erly designed and coordinated measures, together 
with more decisive action on the part of the institu­
tions, might well bring about a move away from 
slow growth towards a phase of recovery based on 
interdependence between the three objectives of 
growth, stability and employment. 
The Chairman 
of the Economic and Social Committee 
R. VANNI 
3. 3. 80 Official Journal of the European Communities No C 53/7 
ANNEX 
to the opinion of the Economic and Social Committee 
The following amendments were rejected during the discussions: 
After paragraph 4.10 insert a new paragraph: 
'On page 10 of the economic report, the Commission states that... "to limit to the minimum 
the repercussion of energy prices into incomes ..." it is necessary "... to withhold payment 
of some part of future indexation adjustments". The Committee would stress the following 
foreseeable consequences of such interference by the Commission and governments in collec­
tive bargaining: 
— it would aggravate industrial strife at company level, 
— it would increase the importance of inflationary expectations in collective bargaining, 
— it would affect only earned incomes and disregard the impact of inflation on return on 
capital, and the adverse effects on growth and on employment of failure to plough profits 
back, 
— it would symbolize a deflationary strategy, with all its attendant consequences for econ­
omic and social democracy.' 
Reasons 
Page 10 of the Commission's annual economic report 1979/80 (COM(79) 557 fin) contains cate­
gorical recommendations on wage increases and the indexing machinery contained in collective 
agreements. Given the strong wording of these recommendations, the Committee must oppose 
this inadmissible — and unheard of— Commission interference in collective bargaining. 
Voting 
For: 39, against: 52, abstentions: 6. 
Paragraph 5.7 
Replace the third indent by: 
4— the adoption of Community instruments to speed up the phased cut in working hours.' 
(This amendment was withdrawn on the instructions of the chairman following the adoption of 
another amendment to the same indent). 
The following passages were replaced as a result of an amendment adopted during the discus­
sions: 
Paragraph 4.2 
4.2. The Section considers that the priority given to squeezing out inflation — as recommended 
in the conclusion of the Commission's report — must not counter the objective of fighting unem­
ployment, which is still of primary importance. 
Paragraph S.7, third indent 
4— continuing the trend towards reductions in working hours in keeping with cyclical and 
structural economic trends. The Section thinks that the Community should gradually per­
fect an instrument by means of a common approach.'