31. 12. 87 Official Journal of the European Communities No C 356/21 
Opinion on the Commission's Annual Economic Report 1987-1988 
(87/C 356/07) 
On 12 November 1987 the Council decided to consult the Economic and Social Committee 
on the Commission's Annual Economic Report 1987-1988 (doc. COM(87) 500 final), in 
accordance with Council Decision No 120/74/EEC of February 1974 on the achievement of 
a high degree of convergence of the economic policies of the Member States of the European 
Economic Community (*) as amended by decision No. 787/75/EEC (2), and especially Article 4 
thereof. 
The Section for Economic, Financial and Monetary Questions, which was asked to prepare 
work on the matter, adopted its Opinion on 10 November 1987 in the light of the report by 
Mr Collas. 
At its 250th plenary session (meeting of 19 November 1987) the Economic and Social 
Committee adopted the following Opinion by 93 votes to 4 with 20 abstentions: 
1. Introduction 
As last year, the Commission's view of the economic 
situation and outlook has been summarized in Chap­
ter 2. The Commission's analysis, however, was carried 
out before the recent spectacular slump on the world's 
stock markets and so is already likely to be somewhat 
out of date. 
Chapter 3 comprises critical comments on the Com­
mission's analysis of the situation and proposals. The 
key issues, as seen by the Committee, are set out in 
Chapter 4. 
Finally, in Chapter 5, the Committee makes the point 
that the world is currently in the throes of a macro-
economic crisis requiring appropriate, energetic and 
swift action by Governments. This further enhances the 
timeliness of the present Opinion being submitted to 
the Council. 
2. The Commission's analysis of the economic situ­
ation and outlook 
2.1. International environment and world trade 
— The dollar continued its slide in 1986 and the first 
two months of 1987. Between March 1985 and 
February 1987, it fell 40% against the ECU. Foreign 
exchange markets only settled down after the 
Louvre Accord (February 1987). For 1987 as a who­
le, the Commission has based its calculations on the 
assumption that the dollar will slip back 13,4% 
against the ECU. A further fall of the dollar of 
3,7% is expected in 1988. 
— At 17 dollar a barrel, the average price of oil import­
ed by the Community in 1987 will be higher than 
originally expected—up by as much as 25 % on last 
year (13,7 dollar). Although the situation is far 
from stable (Gulf tension, precarious quotas), a 
significant oil price hike is not projected for 1988. 
(!) OJ No L 63, 5. 3. 1974, p. 16. 
(2) OJ No L 330, 24. 12. 1975, p. 52. — Other commodity prices should not alter substan­
tially (in dollar terms) in 1987 and 1988, a slight 
drop being forecast for this year; this will mean a 
further deterioration in producer countries' terms 
of trade. 
— As a result of the worldwide adjustment process, 
the expected growth in 1987 world trade forecast 
last year has not occurred and will in fact be less 
than in 1986: a 3,5% rise in the volume of world 
imports as against 4,9% in 1986; this falls to a mere 
2,1 % (3,8 % in 1986) if the Community is excluded 
(imports by the Twelve standing at 5,7% compared 
to 6,7 % in 1986). Given the structure of Community 
exports, the Commission reckons that European 
export markets will continue to shrink but less 
rapidly than world trade: 0,59% and 0,7% in 1986 
and 1987 respectively. A slight improvement is fore­
cast for 1988 (3,1%). 
1988's virtually stable scenario ties in with a predicted 
3,8 % increase in imports in the rest of the world next 
year, with Community imports rising more slowly. 
The Community's foreign trading position, which is 
already affected by the slowdown of world economic 
growth, is further affected by the behaviour of certain 
countries and areas, which tends to disrupt normal 
trade patterns (protectionism, unfair trading, etc.). 
Finally, last October's prediction of a 3,7% rise in 
Community exports in 1987 now appears overopti-
mistic, with current estimates putting it at 1,9% (as 
against 1,6% in 1986) and 3,2% in 1988. 
All in all, the 1986 pattern will continue with trade in 
goods and services contributing to negative growth in 
1987 and again, though to a lesser extent, in 1988 
(-1% and -0,4% respectively). 
Japan is in a similar situation. On the other hand, the 
No C 356/22 Official Journal of the 
growth in the United States will be fuelled by a 0,5% 
growth in foreign trade in 1987, and 0,7% in 1988. 
These figures indicate that a new equilibrium is devel­
oping between the United States on the one hand and 
Europe and Japan on the other. 
2.2. The Community situation and outlook for 1987 
and 1988 
— The 1987 gross domestic product (GDP) growth 
estimate is 2,2%, less than 1986's 2,6% and the 
October 1986 forecast of 2,8%. This average of 
2,2% covers a spread from —0,8% to +4,1% 
according to country. This means that the European 
economy is likely to grow more slowly than in 
Japan and the United States (2,3%). 
The Commission's forecast for 1988 is 2,3% (0,5%-
3,7% according to country) which is lower than for 
the United States and lags considerably behind Japan's 
3,5 %. Nevertheless, if Member States with the lowest 
growth rates make no effort to boost their economies, 
growth might be held in check in those Member States 
with the highest growth rates. An excessive imbalance 
in intra-Community trade is the danger inherent in the 
current gap between growth levels. 
— Domestic demand (excluding changes in stock-
building) will slacken considerably from 3,6% in 
1986 to 2,9% in 1987 and 2,7% in 1988. 
— In particular, consumption will increase by only 
3,1 % in 1987, a less vigorous pace than the October 
1986 forecast (3,5 %). A rate of 3,0% is likely to be 
maintained in 1988. 
— Productive investment in 1987 fell short of the level 
predicted in Community business surveys last year. 
The latest estimate is that GFCF(1) by companies 
will not exceed 3,6% this year (as against 5,1% 
forecast in October 1986), and will only reach 3;3 % 
in 1988, due mainly to a slowdown in capital invest­
ment. 
— Inflation (average annual private consumption 
deflator) fell from 5,9% in 1985 to 3,7% in 1986 
and will probably be down to 3,2% in 1987, rising 
slightly in 1988 (the Commission's estimate is 
3,4%). Allowing for national variation, price con­
vergence will be more marked in 1987-1988 with 
inflation retreating most in those countries where it 
is still relatively high. 
With nominal wages being quick to come into line with 
the moderate rise in prices, firms' internal costs are 
I1) Gross Fixed Capital Formation. uropean Communities 31. 12. 87 
now moving in the right direction and laying the foun­
dations for lasting stability. 
— After falling for five years (at the rate of 0,6% a 
year), total employment picked up in 1986 
( + 0,8%). It should continue to expand in 1987 
(+ 0,8 %) and 1988 (+ 0,6 %), rising fastest in those 
countries with above average growth. The rise in 
employment observed over the past two years is 
attributable to a combination of factors such as the 
growth in production, the expansion of jobs in 
service industries, and various measures taken to 
cut working hours, extend part-time working and 
reorganize working-time. However, although new 
jobs in services more than compensate for declining 
industrial employment ( — 0,5% a year in 1987 and 
1988 — much slower than in 1980-1985), this is not 
yet enough to reduce unemployment. 
— The Commission is predicting that unemployment 
in 1987 and 1988 will fall slightly but will still be 
running at around 12 % of the workforce. 
While youth unemployment shows some improvement 
(22,7 % in 1986 compared to 23,5 % in 1984), as a result 
of a range of specific measures, female unemployment 
has risen (from 12,5% in 1984 to 13,2% in 1986), 
mainly due to socio-cultural factors. There has also 
been a sharp rise in long-term unemployment which in 
1985 accounted for 52% of total unemployment. 
Overall the jobless figure is likely to remain at around 
the same level (16 million) in 1988, although the impact 
of unemployment varies greatly by country, region and 
workforce category. 
2.3. Medium-term outlook: 1987-1991 
Given the improved conditions for stronger growth, 
generated by domestic factors, the Commission has 
drawn up a series of projections to 1991 which are not 
so much forecasts as a scenario based on five main 
premises: a slight appreciation of the ECU against the 
dollar, a gradual rise in the price of oil which will not 
however cause an 'oil price shock'; an upturn in world 
trade (4%-5% p.a. in 1989-1991); budgetary policies in 
the Community countries (including planned tax cuts 
and higher public investment), at levels equivalent to 
what they are today; stable monetary policy. (It should 
be noted that these projections do not take account of 
the creation of the Single Market.) 
Salient features of the 1987-1991 projection 
— higher GDP growth: 2,6% p.a. rising to 2,8% 
towards the end of the period (1980-1987; 1,2% 
p.a.), 
31. 12. 87 Official Journal of the European Communities No C 356/23 
— stabilization of inflation at its present level: 3,3 % 
p.a., 
— maintenance of real long-term interest rates at their 
1988 level (5,5% until 1991), 
— stable growth of domestic demand and consumption 
at an average of 2,8% p.a. for 1987-1988, 
— private-sector productive investment to rise at the 
rate of 3,9% p.a. with 4,3% in 1990-1991, 
— stable growth of jobs (0,7% p.a.) and a very slight 
fall in unemployment (10,6% by 1991), 
— significant reduction of public sector deficits (4,5 % 
of GDP in 1986-1988, 3,4% in 1991), 
— reduction in the Community's current account sur­
plus which will be more or less in balance towards 
the end of the 1980s. 
The Commission's simulations demonstrate that the 
slight improvement in certain areas (employment, 
investment, growth) is not spontaneous but springs 
from economic policy choices in the areas of public 
finances (notably tax concessions) and wages. 
3. Comments on the Commission's report 
The report, as already stated, was drawn up before the 
stock market crisis. The exact consequences of this 
crisis are difficult to predict but the general tendency 
seems reasonably clear. 
The crisis will curb growth: 
— Firstly, firms will invest more cautiously, especially 
since there might be some fall in demand; firms will 
also obviously find it more difficult to raise internal 
funds. 
— Secondly, individuals will have seen their stocks and 
share prices fall and are likely to be worried about 
the future, especially in those countries most alive 
to the risks of a real depression, i.e. basically the 
United States; this will affect individual spending 
and overall demand, particularly demand for con­
sumer durables, is likely to fall. 
Governments themselves, shaken hard by the warning 
signals sent out by the financial markets, will no doubt 
decide to tackle the root causes of the crisis with greater 
vigour. 
A sharper reduction in the budget of the United States 
deficit is one likely consequence. But the fear is that 
this reduction (now essential from a pyschological point 
of view) coupled with the spontaneous reactions of consumers (referred to above) will cause the brakes to 
be slammed on too hard, holding back growth of the 
United States and leading to a world recession. 
Just as the Government of the United States should 
have made greater efforts to reduce the budget deficit, 
so it is now hoped that the Government of Japan 
(whose trade surplus plays a significant role in the 
world trade disequilibrium) will, for the same reasons, 
do more to stimulate the Japanese economy and open 
it up more to imports. The Committee also hopes that 
Community Governments — led by Germany whose 
cautiousness is praiseworthy but probably now mis­
placed — will make a concerted, vigorous effort to 
reflate their economies; the Committee in fact calls 
upon them to do so as the dangers of a recession are 
now much more serious than the risks of inflation. 
There are therefore some grounds for hope that monet­
ary and interest rate policies will be used throughout 
the world as increasingly powerful economic levers, 
especially since real interest rates are running at histori­
cally very high levels. 
After these basic introductory remarks we would return 
to the present report of the Commission. 
The Committee put forward its own proposals in an 
Opinion adopted by a very large majority in July 1987. 
We do not see the need to set out these proposals again 
in detail. We would nevertheless make the following 
comments: 
3.1. There are perhaps three aspects to the issue of 
external trade: 
— the need to reduce the American trade deficit. 
As firm advocates of world monetary stability, we 
strongly regret the fact that current foreign exchange 
trends would seem to preclude the possibility of the 
dollar rate being kept within the brackets laid down 
under the Louvre accords. 
On the one hand stabilization is necessary if the effects 
of the fall in the dollar are to work through to the full; 
on the other hand the dollar is somewhat undervalued 
by Louvre accord standards if judged solely in terms of 
the price index and labour costs. But permanently lower 
rates are likely to have unhealthy long-term effects, 
particularly because they distort investment decisions 
(some of the current difficulties no doubt stem excessive 
US investment abroad when the dollar was overvalued). 
A further fall in the dollar cannot be ruled out but 
every reasonable effort must be made to avoid this since 
it would severely disrupt the world economy. What is 
needed is a considerable improvement in the growth 
differential between the United States and its main 
trading partners. 
No C 356/24 Official Journal of the European Communities 31. 12. 87 
The Wall Street collapse will, as has been said, some­
what curtail American growth. The Government of the 
United States will also have to trim its budget deficit 
without excessively damping down the economy. This 
will no doubt call for parallel fine-tuning of interest 
rates and the money supply while steering clear of 
refuelling inflation. A further fall in the dollar was 
doubtless no longer needed and will only stoke up 
inflation rates in the United States and adversely affect 
the commodity-producing countries (particularly less 
developed countries (LDC) and countries of the Organ­
ization of Petrol Exporting Countries (OPEC). 
The present monetary and financial crisis makes it more 
vital than ever before to hasten the creation of a new 
international monetary order which will keep exchange 
rate fluctuations within reasonable limits. 
What is certain is that, more than ever before, European 
and particularly the Japanese Government must take 
all reasonable steps to boost their economic growth (a 
subject to be expounded on later). 
— the equally urgent need to reduce Japan's trade 
surplus and curb the growing surpluses of those 
newly industrializing countries (NIC) which are not, 
or not heavily, in debt. 
The Commission needs to pursue a tough line on Japan 
(whose trade surplus as a percentage of its GDP is of 
the same scale as the American deficit) in order to 
encourage it to boost its growth and open up its markets 
much more to imports. 
Moreover, should the dollar slide despite the hopes 
expressed above, then it should definitely fall more 
against the yen than the ECU. 
The Commission also needs to take a tough line on 
those NIC, by and large to be found in South-East Asia, 
which are not heavily in debt. The Commission must 
insist that they set their exchange rates at a realistic 
level (especially as it is essential that the recent fall in 
the dollar should not be followed by countries which 
do not have the USA's problems) and that they satisfy 
the same international trading obligations as developed 
countries. If need be, the Commission must also review 
trade concessions granted to NIC under the generalized 
system of preferences (GSP). 
The Commission must also address itself to the real 
problem of 'social dumping' pursued by some of these 
countries. The Committee feels that the Commission 
should raise this question in GATT just as others have 
done. 
— finally there is a need to take steps (including the 
writing off certain debts) to enable genuine LDC to 
build up enough credit to enable them to play a 
normal role in world trade. Above all it should not be forgotten that the possibilities 
of expanding trade relations with LDC as well as with 
Eastern bloc countries are of great interest to the Com­
munity. 
The Committee would in any case reaffirm its support 
for the development of free and fair international trade 
and expresses its fear of the increasing drift towards 
protectionism which is manifesting itself throughout the 
world in the present turbulent period. The Committee is 
particularly concerned about the draft trade legislation 
currently before the Congress of the United States, 
which if adopted would escalate protectionism. 
3.2. The Committee attaches the greatest importance 
to the chapter on growth and employment in the Com­
mission report. 
The chapter shows that growth has become more con­
ducive to job-creation for a whole series of resasons, 
particularly the expansion of service industries and 'the 
reduction in the average number of hours worked by 
an employed person, which makes it possible to spread 
work over a larger number of people'. 
The Commission expects unemployment to remain 
intolerably high in the medium-term. The financial 
and monetary crisis points to a recession though the 
Commission predicts that the achievement of a single 
Community-wide market will generate substantial pro­
ductivity gains. Against this background, the Commit­
tee feels that a phased long-term reduction of working 
hours negotiated between the social partners, in particu­
lar via collective agreements, holds out the best pros­
pects for boosting employment provided it is 
implemented in such a way that will avoid damaging 
the competitiveness of Community industry. 
It might also be considered that shorter working hours 
involving a real cost to firms should be offset by a 
specific gain, i.e. that the reductions should, for 
example, be implemented in such a way as to enable 
more effective (which would generally mean longer) use 
to be made of plant. 
The Committee welcomes the Commission emphasis 
on the importance of social dialogue at all levels. This 
should go beyond a straightforward comparison of 
viewpoints, yield firm conclusions and if possible facili­
tate agreements. 
3.3. The Committee would remind the Commission 
that its July Opinion called for a comparative study of 
the tax and social security burden borne by firms in the 
EC Member States, the USA and Japan respectively, 
and of the impact of any differences on competitiveness 
and employment. 
Since competitiveness levels depend on a large number 
of factors, it would also be useful to carry out a com­
parative study of the impact on economic performance 
31. 12. 87 Official Journal of the European Communities No C 356/25 
and employment of differences in the average financial 
structure and legal environment of firms both in Europe 
and elsewhere. It would likewise be useful to examine 
the effects of differences in the fields of research and 
development. 
4. Committee's basic comments 
4.1. The Commission draws the conclusion that 
given current Community and Member State policies 
(leaving aside the effects of the gradual progress 
towards completion of the internal market), no more 
than a slight increase in growth and a very small drop 
in unemployment can be expected (and then only if 
there is no substantial change in the dollar exchange 
rate). By 1991, 10,6% of the workforce is still expected 
to be out of work. Recent events only reinforce these 
fears. 
Whilst acknowledging the accuracy of the Com­
mission's analysis and approving the different measures 
proposed, the Committee cannot under any circum­
stances stand idly by. 
The Committee cannot in fact accept that the present 
intolerable situation will improve only slowly; nor can 
it accept that the initial objectives of the cooperative 
growth strategy for more employment have become 
more remote. The Community itself must find ways 
and means of boosting growth internally. 
But under present circumstances — when it is con­
sidered of paramount importance that the USA should 
trim its own deficit, when Japan has only begun reduc­
ing its trade surplus slowly and when the NIC are 
regularly increasing their own surpluses — the Com­
munity has little chance of boosting growth by increas­
ing foreign trade, even though it must sustain its efforts 
to defend its corner by improving the ability of its 
economy to compete with its direct rivals, on both the 
internal and the international market. 
The Community will therefore first and foremost have 
to generate growth from within. It is the Community's 
bounden duty (and in its interests) to increase growth 
in Europe so as to help the world economy overcome 
the dangers of recession inherent in the present crisis. 
The Community has examined what avenues remain 
open to the Community, focussing its attention on the 
main lines of attack in the sort, medium and long-term. 
4.2. In the short term there must be greater solidarity 
and bolder action to stimulate the Community's 
economy. 
The Communitee, like the Commission in its report, 
has already underlined this point: Individual attempts to launch a recovery will be nipped 
in the bud by foreign trade constraints. As the Com­
mission report underlines, some national growth rates 
(particularly those of the new Member States) will be 
at immediate risk if they continue to climb too steeply. 
External constraints, on the other hand, will be sharply 
reduced if the Member States act in concert, for the 
bulk of their trade is within the Community. Just as 
the Community must reduce its albeit slight trade sur­
plus, so too can it safely launch a reasonably bold 
recovery provided the effort is concerted. Those 
countries with the lowest growth rates will have to set 
an example as long as their balances of account are not 
under excessive threat. (However, Japan must set an 
example by taking really vigorous action, whilst the 
Community will have to join forces with the United 
States in trying to achieve the same objective.) 
The risk of inflation will clearly limit this recovery, 
though there does seem to be some room for 
manoeuvre. The outlook still appears to be extremely 
rosy even after the 1986 figures have been corrected to 
take account of the oil counter-shock. 
Naturally, the recovery should be spearheaded by meas­
ures which fuel inflation as little as possible, or even 
by measures which have a slight inflationary effect in 
the short term but help to reduce inflation in the long 
term. Countries with the lowest inflation rates will have 
to take bolder action than the others. 
The Committee is categorical that government efforts 
to revitalize national economies must not be too timid 
since any risk of inflation is outweighed by the dangers 
that unemployment will remain unacceptably high. 
Recent events and the consequent dangers of recession 
make it even more imperative to reflate our economies. 
The Committee hopes in particular (and this point was 
made forcefully in July) that Member State monetary 
policies will not unduly restrain growth. It believes that 
the Commission report is too restrictive in this respect. 
In reality, the recent measures taken by European 
Governments would appear to be aiming in the right 
direction even if they clearly do not go far enough. 
In a nutshell, the Committee believes that the cooper­
ation growth strategy for more employment needs to be 
implemented by governments with the utmost vigour. 
The Committee considers that action to revitalize 
Europe's economy must be taken with a sense of 
urgency. Pump priming makes it easier to find solutions 
to short-term problems in the run-up to the completion 
of the internal market, whilst the latter — as is made 
clear further on — will itself provide certain structural 
solutions. 
Reflationary measures will also facilitate the establish­
ment of the single market and limit any disturbances 
which might be caused thereby. 
No C 356/26 Official Journal of the European Communities 31. 12. 87 
Governments must not, however, confine action to 
monetary policies but must ensure closer coordination 
of macroeconomic policies and more vigorous budget­
ary policies. Given the higher growth rates of the last 
few years, these policies should be given more promi­
nence and be able to operate within a framework of 
European-wide coordination. 
The report singles out two key instruments of budgetary 
policy: tax concessions and the growth of productive, 
public-sector investment. The Committee fully endorses 
the Commission's views on these. 
4.2.1. Reductions in taxation and other fiscal contri­
butions must be used, where possible, for the benefit 
of both firms and individuals. Such reductions boost 
household income (and hence domestic demand) and 
do not place an excessive strain on firms in terms of 
labour costs. 
We feel however that this instrument must be used with 
circumspection: 
— it must not lead to the public sector running up 
structural deficits which cannot be sustained in the 
medium term, 
— it must not curb the upswing in public investment 
(both these constraints would trigger cuts in other 
areas of government expenditure, e.g. non-justified 
subsidies and certain types of operating expendi­
ture), 
— it must not jeopardize the social and redistributive 
function of tax and quasi-tax systems. 
These constraints will undoubtedly compel most Mem­
ber States to couple tax reductions with a reorgan­
ization of their taxation systems. 
It will also be necessary to work gradually towards a 
satisfactory level of convergence in the field of taxation. 
In the long run, indirect taxes will undoubtedly have 
to be harmonized or even unified within the single 
market — as will corporate taxation if there is to 
be fair competition. Moreover, excessive divergencies 
between direct personal taxation rates will almost cer­
tainly spark off a brain drain in certain Member States. 
All this poses a great many problems and there will no 
doubt be long delays before measures are implemented. 
In the long term, however, the goal of convergence will 
be achieved. 
4.2.2. As the Commission itself proposes, productive 
public-sector investment in particular will have to 
be boosted (which does not mean that investments 
designed to improve the quality of life have to be 
neglected). 
Productive public-sector investment has fallen over the 
last few years, so it is now time to make up lost ground. 
The recovery will have to be launched on a European 
scale. Besides its intrinsic advantages, public investment is very often expected to back up and even stimulate 
an upsurge in private investment. Infrastructure invest­
ment in particular leads to economies of scale which 
are of benefit to everyone. 
Insofar as we are referring only to productive invest­
ment, there will be no burden on national budgets, at 
least not in the medium term. By fostering growth and 
employment, productive investment will in fact ease the 
strain on national budgets. 
The Committee would reiterate its view that certain 
types of investment in the environmental field can con­
tribute significantly to job creation. 
4.2.3. At the same time ways have to be found of 
boosting not only public but all other forms of invest­
ment, including company investment and investment in 
research and training. 
The Committee would refer here to the view expressed 
in its July Opinion, namely that investment is the least 
inflationary method of securing economic recovery and 
improving the Community's competitiveness. Invest­
ment-led recovery is particularly suitable at the present 
time. It can be encouraged: 
— by improving the financial situation and viability of 
firms, 
— by tax incentives, 
— by improving investment opportunities through 
additional research and innovation and through the 
establishment of the single market, 
— by expanding demand through an increase in house­
hold revenue, and 
— finally, by lower interest rates. 
4.2.4. The Committee's July Opinion emphasized 
the importance of lower interest rates which have many 
other advantages (i.e. they stimulate the demand for 
consumer durables, encourage risk capital, etc.). 
The Committee is pleased that the Commission defends 
the same ideas and has highlighted the positive effects 
of lower interest rates on public budgets, showing how 
this can provide greater room for manoeuvre, which in 
turn is a further powerful argument for lower interest 
rates. 
The Committee would point out that if there is one 
area which calls for concerted Member States policies, 
it is that of interest rates. Most Member States can 
only cut their rates if the countries with the strongest 
currencies (particularly Germany) take the lead. 
The Committee believes that the present level of real 
interest rates justifies a cut and that recent events 
require it. It also believes that the risks of inflation are 
low enough to be worth taking. The Committee further 
believes that substantial interest rate differentials 
31. 12. 87 Official Journal of the European Communities No C 356/27 
between the United States, Europe and Japan are 
undoubtedly needed to peg the dollar at an acceptable 
level. As far as possible, European interest rates should 
be substantially below rates in the United States. 
Achieving all this will require greater cooperation 
between the Governments of the industrialized nations. 
The Committee believes that the public authorities can 
to some extent help to bring interest rates down: 
— by pursuing anti-inflationary policies, thus reducing 
the psychological safety margins which long-term 
lenders demand, 
— by influencing short-term interest rates (even though 
this can be hindered by the currency stabilization 
adjustments needed) which in turn influence long-
term rates insofar as money can be borrowed long 
term at variable rates, 
— by reducing the demand for public-sector capital, 
and 
— finally, by speeding up the process of monetary 
harmonization in Europe, by strengthening the 
European monetary system (EMS), by coordinating 
monetary policies more closely, and by using the 
ECU more widely as a European and reserve cur­
rency, — all action to which the Committee sub­
scribes wholeheartedly. The Committee would also 
reiterate its commitment to the creation of a Euro­
pean Monetary Fund, particularly in order to sta­
bilize exchange rates. 
The Committee would finally like to re-emphasize that 
any action to cut interest rates is bound to bring us a 
step nearer to s.olving the LDC's debt problem (even 
though what really counts here are the dollar interest 
rates). 
In conclusion, the Committee strongly urges Com­
munity Governments to take swift, concerted action to 
cut interest rates in the spirit of the Nyborg decisions. 
Following the slump in the financial markets this would 
probably be one of the most effective counter-measures 
that can be taken. 
4.2.5. The Committee would also suggest that 
Governments endeavour to curb financial speculation 
which has recently developed new techniques that bear 
a considerable responsibility for the collapses on the 
stock exchanges. 
4.3. In the medium term the Community has a trump 
card which none of its major partners holds: the effects 
of establishing a genuine single market. 
The Committee thinks that the Commission has per­
haps not yet given sufficient prominence to the likely 
benefits of the single market. 
Judging by the impact of the abolition of customs 
duties in the sixties, the creation of a single Community 
market is likely to give growth a considerable boost. As stated above, 
— the harmonization of standards, 
— the opening-up of public purchasing, and 
— the free movement of capital 
will make it possible to establish a single Community-
wide market in the manufacturing sector even if there 
are delays in abolishing tax frontiers. Considerable 
economies of scale will thus be achieved and firms will 
be encouraged to work more closely together, with 
significant benefits for efficiency. This will lead to 
a considerable improvement on the supply-side and 
consequently in the rate of growth. Completion of the 
single market will undoubtedly entail risks, especially 
if it takes place against a background of sluggish 
growth. Yet at the same time, the very establishment 
of the single market is undoubtedly the best way to 
increase growth. In other words, as long as precautions 
are taken (and the Opinion will takes these up again 
later) the risks will have to be taken. The Member 
States themselves will have to resist residual protection­
ist tendencies which are still hampering the creation of 
the single market. 
Perhaps because of these tendencies the Commission's 
programme is falling more and more behind schedule 
and while governments fully subscribe to the principle 
of the single market, they are less eager to be at grips 
with the details. This unsatisfactory state of affairs 
must not only be severely condemned, it must stop. 
The Committee thinks that it is the binding duty of all 
Community citizens, and first and foremost of their 
governments, to complete the single market as quickly 
as possible. 
However, if they are to be convinced of the need for 
this, they should be shown what is at stake. It is 
certainly no easy matter to gauge exactly the extra 
growth which the completion of the single market (and 
above all the achievement of the three aforementioned 
points) would generate, but it should at least be possible 
to indicate a maximum and minimum figure. 
The Committee therefore urges the Commission to 
compile and publish these figures. 
Economic models for the entire Community would no 
doubt be a help here (and could perhaps be developed 
in conjunction with national economic research insti­
tutes). 
The Padoa-Schioppa report estimated that the cooper­
ative growth strategy would boost growth by an extra 
0,5 % p.a. 
It is even more difficult to predict to what extent 
unemployment will be reduced by the completion of 
the internal market. Everything depends on how the 
resulting increase in productivity would be utilized. 
No C 356/28 Official Journal of the European Communities 31. 12. 87 
If, as might be hoped, the proposed study indicated 
that there was a good chance of cutting unemployment, 
its publication would be bound to motivate govern­
ments and public opinion and secure the unification of 
the market much sooner. 
This measure, which is entirely in the hands of the 
Community must, the Committee feels, receive top 
priority. 
The Committee would also stress that the single market 
has many other aspects besides the impact on growth: 
problems relating to the social dimension of the single 
market, the environment, product quality, etc. as well 
as issues of monetary and budgetary coordination, the 
new policy on competition etc. Regardless of their 
importance, however, it is not possible to deal with 
them in the present Opinion. They will have to be 
tackled in other Opinions (and notably the Opinion on 
the European social area to be discussed at the present 
session). 
Nevertheless, the fact that it would not be appropriate 
to deal with them here, does not in any way detract 
from their importance in the Committee's eyes. 
They provide all the more reason for completing the 
single market as soon as possible. 
4.4. Care should, however, be taken to ensure that 
the single market does not make the strong stronger 
and the weak weaker. Additional growth triggered by 
the measures advocated in 4,2 will limit the likelihood 
of this happening. Nevertheless, the creation of a single 
market will have to be backed up by an additional 
effort to secure cohesion. 
Greater cohesion presupposes that growth in the back­
ward regions is much higher than it is in the developed 
regions. However, if this difference in growth rates is 
not to lead to an unacceptable and lasting deterioration 
of these countries' trade balances (and the deterioration 
is already disquieting), growth and exports must be 
promoted hand in hand in order to counterbalance 
the inevitable sucking in of imports. Therefore, as the 
Commission report clearly indicates, the basic problem 
is to improve the competitive supply of goods and 
services in the countries in question. 
Productive investment should therefore be expanded 
in the countries concerned. From this point of view, 
membership of the Community has had and will have 
beneficial effects. But this alone will not be sufficient 
and the Community's regional funds will have to be 
brought into play. 
The Committee would like to make a number of 
remarks in this connection. 
4.4.1. The additional growth generated by greater 
cohesion offers the poorest Member States clear advan­tages — starting with a reduction in unemployment 
which, in certain cases, is running at record levels in 
Community terms. However, the expansion of intra-
Community trade resulting from such growth will 
undoubtedly have a positive impact on the richest 
countries as well and there are signs that this is already 
happening on a considerable scale. (An interesting exer­
cise would be to try to actually quantify the future 
gains.) The richest countries therefore have a direct 
stake in European cohesion and there is a case for them 
making a few sacrifices. 
4.4.2. The Committee endorses the proposal to 
increase the Commission's structural funds twofold in 
real terms over five years and considers this a minimum. 
It approves the fact that the Commission has given 
priority to the development of the most underprivileged 
regions, i.e. those regions with the lowest per capita 
GDP. The other objectives set by the Community for 
the use of the structural funds are certainly worth 
noting, even if the Member States could just as well 
assume responsibility for some of them. 
Given their budgetary constraints, the rich Member 
States are somewhat reticent about stepping up their 
contributions to the Community's structural funds. 
However, as a first step, they can solve their own 
structural problems, thereby allowing the Community 
to concentrate its efforts on the problems of cohesion, 
particularly inter-Member State cohesion — as the 
Commission has expressed its intention of doing. If 
there is one area where Community-level action is vital 
and where the principle of a 'fair return' should be 
jettisoned, it is regional development. And, as we have 
said earlier, the rich countries' efforts will be rewarded 
by the spin-off effects on their own economies of the 
faster growth rates in the worst-off Member States. 
4.4.3. Since it is the supply side which has to be 
improved, efforts made by the Community and the 
countries in question should be channelled into the 
most profitable forms of operation and not spread too 
thinly over the Community. This means: 
— Avoiding at all costs the current practice of merely 
refunding certain types of expenditure incurred by 
the Member States. 
— Encouraging infrastructure investment, but only 
where this is necessary for cohesion, i.e. to open up 
the countries in question. By comparison with the 
promotion of productive investment, the problems 
involved in infrastructure investment are relatively 
straightforward; this means that infrastructure 
investment is likely to be allocated an excessively 
high proportion of funds. 
31. 12. 87 Official Journal of the European Communities No C 356/29 
— Concentrating the main line of attack on productive 
investment (including vocational training pro­
grammes), for example within the framework of 
integrated programmes. 
— Achieving a 'pump-priming' effect by securing an 
adequate contribution from regional and local 
authorities and by encouraging the investment of 
private capital (mainly but not exclusively Euro­
pean) in the regions in question. In this connection 
it will be necessary to combat chauvinistic attitudes 
which are an anachronism in today's world, 
especially when directed against other Member 
States. 
Steps must of course be taken to ensure that, as far as 
possible, integrated industrial units are promoted and 
not mere assembly shops. 
4.5. Finally, to further increase long-term growth 
and ensure that such growth is sustained after com­
pletion of the single market, the Committee believes 
that the Community should drastically boost the effec­
tiveness of its research and innovation drive — a meas­
ure which depends on Europeans and Europeans alone. 
In reality, overall research expenditure (approx. 65 000 
million ECU) in the Community is not far behind that 
of the United States (approx. 100 000 million ECU as 
far as can be estimated given the fluid situation on the 
exchange markets) and well ahead of that of Japan 
(approx. 45 000 million ECU). 
Yet despite this, the Community's results do not bear 
comparison with those achieved in the USA and Japan, 
particularly in the field of technologies of the future. 
This has been clearly demonstrated in various reports 
(Albert-Ball Report to the European Parliament and the 
1986 Commission Report on the Competitiveness of 
European Industry, document COM(86) 40 final). The 
same point is also made with pertinence in the 1987-
1988 Economic Report. 
An overall expansion of European research is certainly 
desirable but the most important thing is to coordinate 
existing research more closely. 
This will no doubt be achieved by greater business 
cooperation within the single market but it should also 
be achieved if the Community itself steps up its efforts 
to promote coordination. 
The Community's research programmes (SPRINT, 
ESPRIT, BRITE, RACE, EURAM, etc.) have already 
yielded excellent results (as has EUREKA although it 
is not strictly speaking a Community project). 
Done at Brussels, 19 November 1987. The catalytic effects of these programmes must be 
stepped up; in particular the programmes must be allo­
cated more funds. 
The Committee reiterates its profound regret that the 
Community proposals regarding the 1987-1991 five-
year programme (7 700 million ECU) have not been 
accepted and have been cut to 5 400 million ECU. The 
Committee considers that the minimum increase should 
be 50%, i.e. equivalent per annum to just over 1% of 
the Community budget and to 0,02 % of Europe's GDP. 
The stakes are so high that it would actually pay to 
make a much bigger financial commitment since the 
long-term benefits for national and Community budgets 
would be infinitely higher. 
The major European resource-mobilizing programmes 
(Airbus, Ariane, etc.) should naturally be viewed in the 
same light. 
4.6. Finally, the Committee emphasizes the crucial 
role of high-quality vocational training in reducing 
unemployment (particularly youth unemployment and 
long-term adult unemployment). 
It is a well-known fact that, other things being equal, 
unemployment is concentrated (a) in those workforce 
categories which receive the least training, and (b) in 
regions where there is the biggest dearth of vocational 
training schemes. 
There are a number of excellent vocational training 
models in the Community. The Commission and 
national governments should endeavour to make such 
models better known and to introduce them on a wider 
scale. 
Concrete conclusions should be drawn from the studies 
already carried out by the Commission. In this context 
the activities of the Berlin-based European Centre for 
the development of vocational training (Cedefop) 
should be stepped up. 
4.7. The Committee would finally point out that the 
measures advocated in the monetary field (par. 4.2.4) 
are necessary not only in the short term, but in the 
medium and long term as well. 
5. In conclusion the Committee would solemnly 
appeal to European Governments to finally shed their 
reserve and, in the face of mounting perils, announce 
in concert a number of major economic and monetary 
measures designed to give a new, vigorous boost to 
economic growth, thereby encouraging Europe's major 
economic partners to do likewise in order to forestall 
the serious world recession which would be the inevi­
table consequence of insufficiently firm action. 
The Chairman 
of the Economic and Social Committee 
Alfons MARGOT 
l^oOS^A^ CO^hc^l]ourn^lotrhcLuroo^nC^ornrnun^n^ ^11^^ 
to the Opinion of the Ecot^om^ca^d Social Committee 
The following amendment was defeated during the debate 
^aragraph5 
Chapter5to be replaced by the following text^ 
^5. multilateral coordination for an overall growth strategy. 
5.t. Once again, the Economic and Social Committee is forced to note that efforts to shield the money 
^capital and currency^ markets from upheavals resulting inaloss of confidence and from fears ofarecession 
have been constrained by technical and political factors at both Community and international level. In spite 
of this,it wouldurge the Commissiontoencourageimtiativesandtouse the powers grantedtoitby the 
Treaties and the Single Act to safeguard existingachievements and economic and social cohesion in the 
Community. 
5.^. The economic and social interest groups represented in the Committee agree that the^wait and see^ 
tactics adoptedsofarshouldbe dropped. Urgentmeasuresare required, particularly by governmentsand 
the monetary authorities who bear the greatest responsibility in the present situation. 
5S. The deteriorating internationalsituation,foreshadowedby aslowdownmeconomicgrowthanda 
decline in the volume of international trade, can only be halted byapohtical and technical strategy on the 
partofthemaintradmgblocl^s,theaimbeingtorestore confidence to international markets, toimprove 
trading conditions and to mal^e for more stabled balances of trade. 
5.^. tf economic and monetary policies are to be coordinated, leading to credible international cooperation 
and ^omt progress towards stabihty,the Community will have to tal^e appropriate measures. 
5.5. A return toamultilateral consensus on monetary stability should help torestore an atmosphere of 
trust to international trade, putting an end to protectionist tendencies and continual disputes, decent events 
should serve to hasten both the pinpointing and acceptance of ^target areas^for exchange rates between the 
dollar, yen and Community currencies, and the introduction of multilateral surveillance indicators. 
5.^. It is the Economic and Social Committee^sview that member States should mal^e haste to complete 
the technical arrangements and prepare the ground politically for the second institutional phase of the E^tS. 
Anadhochneshouldbeadopted,withintheE^vtCE,toprotectpantiesfromoutside forces. This would 
operate alongside the improvement mechanisms adopted under the cyborg agreements. 
5.7. Withmacontextofmultilateralcooperationbetweeneconomicareas,the ESC also callsuponthe 
Commission to tal^e action to determine how to mamtamabalance between rising income andBor wealth on 
theonehand,andtheexpansionof financial activities and the proliferation of different l^inds of financial 
instruments of the other. In any event, such instruments should not be allowed to weaken control of monetary 
policies. 
The main priority is to identify ways of protecting the economic efficiency and mobility of capital, the growth 
of company financial structures, and the finances of individual savers and their families. 
5.^. Emally,beanng in mind the linkage between the indebtedness of developing countries and the impact 
of adjustment by the industrialized countries, the ESC calls upon Community authorities and member States 
topromote agreements with LOC aimed at restoring access to credit,encouragmg structural adjustments, 
and creating conditions for boosting the purchasing power of those who,while they are not responsible for 
economic recession, are in danger of again failing to benefit from economic growth and sociocultural 
development. 
5.^. TheCommunity shouldbe constantly aware of the importance of multilateral actionintheabove^ 
mentionedsectors,providmgasitdoesaframewor^for the policies and forecasts contamedmthe L^7 
t^^ Annual Economic report. 
The aim is to complete the Opinion. 
Eor^O, against. 5^, abstentions ^.