19.4.93 OfficialJournaloftheEuropeanCommunities NoC108/31
OpinionontheAnnualeconomicreportfor1993
(93/C108/08
On18February1993theCouncildecidedtoconsulttheEconomicandSocialCommittee,
inaccordancewithCouncilDecision90/141/EECof12March1990ontheattainmentof
progressiveconvergenceofeconomicpoliciesandperformanceduringStageOneofEconomic
andMonetaryUnion,ontheAnnualeconomicreportfor1993.
TheSectionforEconomic,FinancialandMonetaryQuestions,whichwasresponsiblefor
preparingtheCommittee'sworkonthesubject,adopteditsOpinionon9February1993.
TheRapporteurwasMrVascoCal.
Atits303rdPlenarySession(meetingof24February1993),theEconomicandSocial
CommitteeadoptedthefollowingOpinionbyamajorityvotewithoneabstention.
1.Introduction Communityhasthechanceofattainingitsgrowth
potentialofaround3%peryearoncemore.
2.2.Themacro-economic materialincludedinthe
reportcannolongerhidethegravityoftheeconomic
situationfacingtheCommunity .
2.2.1.CommunityGrossDomesticProduct(GDP)
rosebyover3%duringtheperiod1988-1990.However
sincethen,contrarytoforecastsandexpectations,
growthinCommunityGDPhasbecomesosluggish
thattheratefor1991-1993asawholeisnohigherthan
therateforeachyearbetween1988and1990.
2.2.2.GrossfixedcapitalformationintheCom­
munity,aftergrowingatanannualrateofaround7%
between1987and1989,fellto3,8%in1990,0,5%in
1991,and1%in1992.Theforecastfor1993isnow
negative(—0,5%).Thetrendininvestmentinequip­
mentisevenworse.1.1.TheCommissionapproveditsannualreporton
theeconomicsituationintheCommunityon3February
1993.TheCouncilPresidencywishestheESCtodraw
upitsOpinionbytheendofFebruary.Thistight
deadlinehasobviouslyhamperedtheorganizationof
workandthedraftingoftheOpinion.
However,theimportanceandurgencyofthematters
consideredinthereportjustifytheESCmakingan
efforttoreplyandvoiceitsviewsontime.
TheCommitteeisalsodrawingupanOwn-initiative
OpiniononGrowthandEmployment .
1.2.AttheEdinburghSummit,theConclusionsof
thePresidencyincludedaDeclarationonPromoting
EconomicRecoveryinEurope,designedto'reinforce
thefundamentalsofeconomicgrowthandencourage
thecreationofnewjobs'.
1.2.1.Immediatemeasureswereproposedbythe
EuropeanCouncil:inadditiontothestrengtheningof
themultilateralsurveillancesystem,theseincludedthe
establishmentofanew,temporarylendingfacilityof
ECU5000millionwithintheEuropeanInvestment
Bank.Thiswouldbeusedtospeedupthefinancingof
capitalinfrastructureprojectsaspartoftheTrans-
EuropeanNetworks,andtosetupaEuropeanInvest­
mentFundwithacapitalofECU2000million(this
figureshouldbeconsideredinthelightoftheECU
1000000millionspentannuallyoninvestmentinthe
EC).2.2.3.TheECaverageforinflationhasremained
since1989ataround5%peryear(since1989theprivate
consumptiondeflatorhasstoodat4,9%,4,5%,5,3%
and4,6%,with4,6%forecastagainfor1993).Over
thesameperiodtheUSratehasfallenfrom5%in
1989/1990toaround3%in1992/1993,whileinJapan
ithasremainedatbetween2and3%peryear.
2.2.4.ThemainfactorbehindtheCommunity's
worseningtradedeficithasbeenthedeclineinthe
Germantradesurplussince1989.
2.Theeconomicsituation,itscausesandprospects,
asviewedbytheCommission
2.1.Theannualeconomicreportseesnopossibility
ofeconomictrendsalteringintheshortterm,and
considersthatitisonlyinthemediumtermthattheThebalanceoncurrenttransactions,asapercentage
ofGDP,hasmovedfromparityin1989todeficit:-0,3%in1990and-1%in1991and1992,witha
forecastof—1%againfor1993.
2.2.5.MemberStates'budgetarysituationscon­
tinuedtodivergefromthetargetslaiddowninthe

NoC108/32 OfficialJournaloftheEuropeanCommunities 19.4.93
2.3.6.lastly,thecombinationoftheabovefactors
whichhassteadilyerodedconsumerandbusinessconfi­
dencesince1989,reachingalltimelowsattheendof
1992.
2.4.TheCommissionisnotveryoptimisticabout
theeconomicoutlookfor1993.Itseesnoalternative
tothepresenteconomicandfinancialpolicy,whichit
considersmustbecontinued.protocolappendedtotheMaastrichtTreaty;general
governmentnetborrowingintheCommunityasa
whole,asapercentageofGDP,rosefrom2,9%in1989
to4,1%in1990,4,6%in1991,and5,3%in1992,with
aforecastof5,75%for1993.
2.2.6.TotalemploymentintheECroseby1,5%in
1989/1990,causingadropinunemployment to8,3%
attheendof1990.However,in1991employmentgrew
byonly0,1%andin1992itcontractedby0,5%.
Afallof0,8%isforecastfor1993.Thiswouldmean
anunemployment rateof11%—theequivalentof
15millionunemployed—in1993.
Capacityutilizationinmanufacturing industry,which
stoodataround85%in1990,fellto82%in1991and
wasbelow80%in1992.
2.2.7.Theannualincreaseinrealcompensationper
employee(applyingtheprivateconsumptiondeflator)
fellfrom2,8%in1990to1,8%in1991and1,3%in
1992;for1993,noincreaseisforecast.
Theprofitabilityoffixedcapitalcontinuedtoriseuntil
1990/1991,nearingthehistoriclevelsoftheperiod
1961-1973 .2.4.1.Asregardstheconditionslaiddowninthe
MaastrichtTreaty,theCommissionconsidersitnecess­
arytoreaffirmMemberStates'commitmenttothe
goalsfornominalconvergencetargetsinordertocreate
theclimateforahealthyeconomicrecoveryandhelp
boostbusinessandconsumerconfidence .
2.4.2.IntheCommission'sview,themainshort­
termproblemsremaininflationarypressures,budgetary
consolidation ,andwagemoderation (notablyinthe
publicsector).Itfeelsthatifanyoftheseweretoget
outofcontroltheycouldjeopardizetheconditionsfor
higherCommunitygrowthfrom1995/1996.
3.Commentsontheeconomicsituationandthe
measuresneeded
3.1.Thenominalconvergencecriterialaiddownin
theMaastrichtTreatymustbeseenasmedium-term
criteriaforpavingthewaytowardsnon-inflationary
growthandtheestablishmentoftheEconomicand
MonetaryUnion(EMU).Theymustnowbeflanked
byastrongerrealgrowthtarget,withoutwhichthe
deteriorationintheeconomicsituationandunemploy­
mentcouldjeopardizetheeconomicandsocialcohesion
andsteadyimprovementinlivingstandardsenshrined
inArticle2oftheTreaty.2.3.ThereasonsputforwardbytheCommissionto
explainsuchaseriousdeteriorationintheeconomic
situationoverthelastfewyears,andtheinaccuracyof
successiveforecasts,areasfollows:
2.3.1.theeconomiccycle:aperiodof'abnormal'
above-potential growthin1988/1989fuelledinflation­
arypressuresthathadtobecorrected(intermsofboth
wagesandbudgets)bymeansofatightermonetary
policyfrom1989/1990;
2.3.2.developments intheUnitedStates(whereGDP
roseby0,7%in1990andfellby1,3%in1992)and
Japan(wheregrowthslackenedfrom5,2%in1990to
4,4%in1991and1,5%in1992),togetherwiththe
exchangerateofthedollar,whichmusthavecaused
problemsforECexporters;
2.3.3.Germanunification,whichinitiallystimulated
domesticdemand(5%peryearin1990/1991)butthen
ledtoimbalances (higherinflationthanusual,budget
deficitofaround3,5%ofGDP,nottomentionfactors
whichremainoutsidethebudgetbutwhichwillbe
includedfrom1995onwards);
2.3.4.speculationonthemoneymarketsduringthe
summerof1992,causingthePoundSterlingandthe
LiratoleavetheExchangeRateMechanismandthe
mostvulnerablecurrencies (Peseta,Escudo,IrishPunt)
tobedevalued;
2.3.5.thepoliticalsituationinallMemberStates,
whichworsenedaftertheDanishandtheFrenchrefer­
enda,creatingaclimateofuncertaintyaboutprogress
inPoliticalUnionandEconomicandMonetaryUnion;3.2.Thegrowthandemploymentinitiativedecided
bytheHeadsofStateandGovernmentistobewel­
comed,asitrecognizesthegravityofthesituationand
itsadverseeffectsonunemployment ,andmakesgrowth
andjobcreationthepriorityconcernofCommunity
policy.
However,giventheseriousnessoftheeconomicsitu­
ation,onemighthaveexpectedswifterandmoreeffec­
tivedecisions,sothatthegeneralpubliccouldfeelthe
impactoftheactiondecidedatEClevel.
3.3.Thegrowthandemploymentinitiativemustbe
backedbyconcertedactioninthefieldofinternational
economicrelations,soastocurbrisingprotectionist

19.4.93 OfficialJournaloftheEuropeanCommunities NoC108/33
pressuresandsecureaninternationalclimateconducive
totheCommunitygrowthstrategy.by0,25%willtriggerageneralizedcutinthecostof
moneyinEurope.
3.7.3.Acutininterestratesisthewaytocreate
theconditionsforariseininvestmentandprivate
consumption,andforreducingpublicdebtburdens.3.4.Thegrowthandemploymentstrategymustnot
beputatriskbyrestrictivebudgetarypolicieswhich
couldhampereconomicgrowth.Whilstrespectingthe
targetsfornominalconvergenceinthemedium-term ,
urgentstepsartneverthelessneededtore-launch
growth.
InflationrateshavetobereducediftheECisto
withstandworldcompetitionandregainitscompeti­
tivenessworldwide.3.7.4.Theimplicitinterestrateonthedebtishigher
thanthenominalGDPgrowthrate(comprisinggrowth
inrealtermsandpriceincreases,bothofwhichare
slackening).Thishashadasnowballeffectandwor­
seneddebtlevels,despitetheimprovementinthepri­
marybudgetbalanceofcountriesstrivingtoreinforce
budgetarydiscipline.
3.5.Communitycoordinationmustbesteppedup.
TheeconomicmeasurestobetakenbytheMember
Statesunderthegrowthandemploymentinitiativemust
becoordinatedandannouncedatCommunitylevel,
andmustnotsimplyreflectdomesticcontingencies .3.8.Inrecentyearsthefinancialinstitutionsinmany
OECDcountrieshaveshownapreferenceforproperty
loans,sincepropertyassetsappearedtooffersound
guaranteesfortheloansgranted.
3.8.1.Astheincreasedcompetitionwasnotalways
matchedbypropermonitoringofthecreditinstitutions,
itledtoanexplosioninpropertyprices,whichthese
institutionsfeltreinforcedthoseguarantees.3.6.Theconflictsbetweendomesticandexternal
economicpolicyobjectivesinsomeEuropeancountries
mustbeclarifiedandresolvedasrapidlyaspossible,
particularlywheretheyconcernthemaintenanceof
currencyparities,theerosionofcompetitiveness ,
budgetdeficitsandpublicsectordebts.
3.6.1.TheCommitteerecommendsthatthereshould
bearenewedcommitmenttocommon,coordinated
andtimelyactionbyallMemberStatesinrelationto
exchangerates.3.8.2.Propertypricesthencollapsedinanumberof
countries,triggeringbankruptciesandcallingforlarge
injectionsofpublicfunds.Moregenerally,thequality
oftheassetswascalledintoquestion.
3.8.3.Thegravityofthesituationishavingserious
consequences—whichneedtobecarefullyassessed—
ontherateofeconomicrecovery.Thisisacknowledged
tobeslowerandweakerthanatsimilarperiodsinthe
past.3.7.Realinterestrates,particularlyshort-termrates,
areatoneofthehighestlevelseverinthedeveloped
worldasawhole.AstheOrganizationforEconomic
CooperationandDevelopment (OECD)recognizesin
itslatestannualreport(December1992),highinterest
rateshavehamperedgrowthinEurope.Althoughfall­
inginflationinmostMemberStateshasledtoadrop
indepositrates,lendingrateshavenotfollowedsuit.3.8.4.Currentdebtlevels(household,corporate,
publicsector)aresuchthatafallininterestratesalone
willnotbeenoughtoinjectgreatermomentuminto
theeconomy.Measuresarealsoneededtomakemore
efficientandproductiveuseofcapital,sothatlending
ischannelledintoproductiveinvestmentratherthan
speculativeprojectsinthepropertysector,forexample.3.7.1.However,adistinctionhastobemade
betweenshort-termrates,whicharedirectlyinfluenced
bytheactionoftheCentralBanks,andlong-termrates,
whichdependmainlyonthebalancebetweensavings
andinvestment,andaboveall,onexpectationsfor
inflation. 3.9.Infrastructureinvestment,notablyontheTrans­
Europeannetworksinthetransport,energyandtele­
communications sectors,nowcomesunderCommunity
responsibilityfollowingtheinclusionofanewTitlein
theTreaty,designedtoensurethatthesinglemarketis
ofrealbenefit.3.7.2.InGermany,forexample,thelong-term
depositrateiscurrentlyaround0,3%belowtheAmer­
icanrate,whileitsshort-termrateisaround5,4%
lower.
ItistobehopedthattheBundesbank'srecentdecision
tocuttheLombardrateby0,5%andthediscountrate3.9.1.Preparatoryworkontheprojects(manyof
whichhavealreadybeenidentified)shouldbespeeded
up,andboththeMemberStatesandtheECauthorities

NoC108/34 OfficialJournaloftheEuropeanCommunities 19.4.93
shouldstatenowwhichprojectscouldbeginaheadof
schedule.
3.9.2.TheCohesionFundshouldalsobebrought
intoforceassoonaspossible.
3.9.3.Inadditiontothedirecteffectsofthese
decisionsonasectorwhichisbeingseriouslyhitbythe
presentrecession,anearlierstartontheworkwould
demonstratethecommitmentto,andconfidencein,
economicrecovery.
3.10.Theannualeconomicreportmakesnomention
ofthemacroeconomic effectsofthedecisionstakenat
theEdinburghSummitconcerningtheCommunity's
financialperspectiveuptotheyear1999,includingthe
increaseintheStructuralFunds,buttheseshouldbe
includedamongthefactorslikelytoencourage
recovery.
3.10.1.Althoughtheperspectiveapprovedisless
ambitiousthantheCommission'sinitialproposals,the
ownresourcesceilinghasbeenraised,theStructural
Fundshavebeengivenasignificantboost,andincreases
incommitmentsforinternalpolicyandexternalaction
(notablyvis-a-visCentralandEasternEurope)arealso
guaranteed .
3.10.2.Intotal,theCommunitybudgetwillrisefrom
approximately ECU70000millionin1993toaround
ECU84000millionin1999;ofthelattersum,ECU
30000millionwillgotostructuralmeasures.
3.10.3.Theimportantdirectandindirecteffectsof
thesetransfersonbeneficiarycountries,aswellasthe
increaseddemandonsuppliersinotherMemberStates,
willundoubtedlyplayamajorpartincreatingaclimate
ofconfidence,particularlyastheexistenceofamulti­
annualframeworkwillavoidtheuncertaintiesgener­
atedbyannualbudgets.3.11.Theroleofthesocialpartnersandtheircontri­
butiontoendingthepresentrecessionhasbeenan
abidingfeatureofCommunitydocumentssinceitwas
realizedthattheeconomicsituationhadgotfarworse
thanexpected.
3.11.1.Thesocialpartnersareaskedtoexercisepay
restraint,thisbeingconsideredaprerequisiteforfinan­
cialstability.Theyarealsocalledupontoacceptlabour
marketflexibility,inordertoincreaseemployers'readi­
nesstotakeonnewworkers.
Onthesubjectofpaytrends,theCommissionalso
specifiesthatonlyhalftheincreaseinproductivity
shouldgoonrisesinrealwages.Theotherhalfshould
beusedtoboostprofitability .
3.11.2.Lessattentionhasbeenpaidtothesocial
partners'requeststotheCommunitydecision-making
bodies,notablyinthestatementadoptedon3July1992
undertheCommunitySocialDialogueprocedure;these
requestsconcerntheneedforamoredynamiceconomic
policy,acutininterestrates,anincreaseininvestment
andmonetarystabilityandthecreationoflastingjobs.
3.11.3.Greaterworkerparticipationincorporate
decisions(forexampleregardingtheimprovementof
workingmethods,theintroductionofnewtechnologies
andinnovationsinproductionprocesses),isvitalifthe
Europeaneconomy'scompetitiveness istoberestored
andreinforcedoverthelongterm.Thedelaysinmod­
ernizinglabourrelationsinsomeMemberStatesare
oneofthereasonsfortheseriousshortageofskilled
labourandforfirmsbeingunabletomeettheirrequire­
ments,atatimeofhighunemployment (theothermain
reasonistheinadequacyofvocationaltrainingsystems,
whichdonotmeetcompanies'realneeds).
DoneatBrussels,24February1993.
TheChairman
oftheEconomicandSocialCommittee
SusanneTIEMANN