COMMISSION OF THE EUROPEAN COMMUNITIES 
C0M(91)484 final 
Brussels,4 December 1991 
Proposal for a 
COUNCIL PECISIQN 
ADOPTING THE ANNUAL ECONOMIC REPORT 1991/92 ON 
THE ECONOMIC SITUATION IN THE COMMUNITY AND 
DETERMINING THE ECONOMIC POLICY ORIENTATION 
FOR THE COMMUNITY IN 1992 
ANNUAL ECONOMIC REPORT 1991/92 
STRENGTHENING GROWTH AND 
IMPROVING CONVERGENCE 
(presented by the Commission) 
m: 
Proposal for a 
COUNCIL DECISION 
ADOPTING THE ANNUAL ECONOMIC REPORT 1991/92 ON 
THE ECONOMIC SITUATION IN THE COMMUNITY AND 
DETERMINING THE ECONOMIC POLICY ORIENTATION 
FOR THE COMMUNITY IN 1992 
THE COUNCIL OF THE EUROPEAN COMMUNITY, 
having regard to the Treaty establishing the European Economic 
Community, 
having regard to Council decision 90/141/EEC of 12 March 1990 on the 
attainment of progressive convergence of economic policies and 
performance during Stage One of Economic and Monetary Union, and in 
particular article 4 ('), 
having regard to the proposal of the Commission, 
having regard to the opinion of the European Parliament (2), 
having regard to the opinion of the Economic and Social Committee 
(3). 
HAS ADOPTED THIS DECISION: 
Article 1 
The Annual Economic Report 1991/92, annexed to the present decision 
is adopted, and the economic policy orientations for the Community 
for 1992 put forward in the report are adopted. 
Article 2 
This decision is addressed to the Member States. 
Done at Brussels, 
For the CounclI 
The President 
(1) O.J. No L 78, 24.03.1990, p. 24. 
(2) Opinion 
(3) Opinion 
ANNUAL ECONOMIC REPORT 1991/92 
INTRODUCTION AND SUMMARY 1-V 
1 ECONOMIC SITUATION AND OUTLOOK 
1. 1991, a phase of slower growth — .... 1 
A. A less dynamic worId economy ..... ..... 1 
B. A diversified growth pattern In the Community ........ 1 
2. The outlook for 1992 and 1993: a gradual recovery ........ 9 
11. PROGRESS IN ECQNQMIC CONVERGENCE IS STALLINQ 10 
1. Nominal convergence Is slipping, but fundamentals 
remain pos I1 Ive , 10 
2. Real convergence Is slowing .............. .,. 14 
III. PRIORITi*« ftg m»»*** ptm t*y iu TUC rr+MMmirv .... .......... 16 
IV. tiACRO-P^NnyiC POLICIES AND POLICIES FOR STRUCTURAL ADJUSTMENT 19 
1. Monetary pol Icy and ttoe BUS . .... *...., 19 
2. Budgetary Pol rcy ........ 21 
3. Po 11 c les for structura I adjustment 26 
- / -
ANNUAL ECONOMIC REPORT 1991-92 
INTRODUCTION AND SUMMARY 
1991-1992: two years of slower growth 
World economic growth has practically ground to a halt In 1991: +0.2 per 
cent In real terms. Cyclical factors, reinforced by the negative effects of 
the Gulf crisis, have pushed Into recession the economies of many Important 
industrialized countries: United States, Canada, some EFTA countries and 
the United Kingdom. In addition, the far reaching transformation occurring 
In Central and Eastern Europe Is Inevitably provoking a temporary, but 
substantial decline In output In those countries: the Impact on the 
Community remains limited though. The end of the recessionary phase In 
output In some countries and a certain Improvement In world trade lead to 
the expectation of a recovery to growth rates of about 2 per cent In 1992. 
The economy of the European Community has also been affected by these 
factors, but It has withstood them much better than many other world 
regions. The fundamental Improvement In the functioning of the Community 
economy which took place during the 1980s and the strong positive growth 
Impulses stemming from German unification have ensured the continuation of 
growth, albeit at a reduced rate. The rate of growth In the Community Is 
estimated to drop In 1991 to about 1\k per cent from the 2.8 per cent 
recorded In 1990. 1992 should see a slight Improvement of growth - about 
2& per cent for the Community as a whole - as the expected recovery In the 
United Kingdom Is offset by a slow-down In Germany once the effects of 
unification peter out. 
The current economic slow-down must be seen against the backdrop of the 
strong growth which preceded It. The Community economy has been growing at 
a satfsfactory pace since 1984. The last few years have been characterized 
by unusually high rates of growth of Investment which were difficult to 
susta/n: In 1990 the amount of Investment In equipment made by Community 
firms was about 50% higher In real terms than that of 1984. The 
expectations created by the Internal market programme may, In 1987-1989, 
have led firms to bring Investment forward In anticipation of the actual 
Internal market effects. These effects will be felt In the years to come as 
the political and legislative decisions already taken are Implemented and 
lead to an actual dismantling of the residual Internal barriers. 
- // 
Trie Community economy - Key Indicators 
** Average Average ** 
1983-87 1988-89 1990 1991 1992 1993 
Real GDP (annual % Increase) 2.4 3.7 2.8 1.3 2¥L 2% 
Inflation (a) (") 5.9 4.3 5.2 5.0 4k 4* 
Real compensation per head 1.3 1.6 2.3 2.0 1hk 7% 
Employment (") 0.1 1.6 1.4 0.5 # hit 
Unemployment 10.5 9.3 8.4 8.6 9 9)4 
(% of active population) 
Budget deficit (b)(% GDP) 4.9 3.3 4.1 4.4 4& 4* 
Current account balance 0.7 0 -0.2 -0.8 -1 -3/4 
(% of GDP) 
** Forecast (a) private consumption deflator 
(b) general government borrowing requirement 
Slower growth contains risks for the major Community projects 
The current economic slow-down carries a double economic policy message for 
the Community. 
I) On the one hand, It represents an unwelcome development which Is 
reducing the margin for manoeuvre for economic policy In many 
countries. The lower rates of growth are leading, already In 
1991, to an Increase In unemployment, thus bringing to a halt the 
continuous downward trend evident since 1986. Social resistance 
to change risks Increasing as the positive consequences of the 
present structural adjustment take more time to materialize and 
become thus less visible than the temporary negative ones. 
Convergence Is Interrupted In the run up to EMU and slower growth 
further complIcates the task of budgetary consol/dation where 
this Is still necessary and creates less favourable conditions 
for a rapid catch/ng-up process. 
il) On the other hand, It constitutes a powerful reminder that the 
economic policy adjustment which took place during the 1980s, 
although substantial, was not sufficient or complete. Wage 
moderation helped Improve the profitability of Investment which 
had deteriorated substantially In the wake of the two oil shocks 
and of the unsettled conditions which followed them. This 
positive trend, however, came to a halt In 1990 when the 
correction was not yet complete. Further efforts are necessary to 
bring Investment profitability back at least to Its level of the 
1960s. 
- /// -
The strong growth of 1988-1990 was not exploited to further the 
adjustment process where this was necessary. In some Member 
States the rates of Inflation, even If substantially reduced by 
comparison with the beginning of the 1980s, were at the end of 
the decade still too high for the stated ambition of moving 
rapidly towards Economic and Monetary Union. Insufficient 
structural adjustment had taken place. The strong employment 
growth of 1988-90 led to unwarranted wage Increases In 1990 
notwithstanding still high unemployment. Equally worrying Is the 
situation In the budgetary area. The strong rates of growth 
offered a golden opportunity, which was not seized, to take bold 
steps to consolIdate the budgetary position at little cost. In 
many cases, strong consolIdatIon would have helped In preventing 
overheating with positive consequences on Inflationary pressures. 
In some countries there remained problems of external 
competitiveness as shown by continuing fragile external 
positions. Very often efforts were Interrupted too soon In this 
area as well . 
The policies which have brought about the turn around In the performance of 
the Community economy during the 1980s must be Implemented again with more 
determination. In an Interdependent world economy, healthy fundamentals and 
a flexible economy go a long way towards ensuring that the effects of 
adverse external developments do not put In danger the pursuits of 
fundamental Community economic policy objectives. 
With appropriate policies medium term perspectives remain good 
Jhe rate of growth of the Community economy Is currently expected to pick 
up to about 2te per cent In 1993. The slow pace of the recovery constitutes 
a reflection of the fact that many Member States are expected to embark 
Into policies aimed at resuming the adjustment efforts. Under these 
conditions, the Community economy could return to stronger rates of growth 
sustainable In both economic and environmental terms. 
The processes launched with the great Community programmes - completion of 
the Internal market, transition to Economic and Monetary Union, 
reinforcement of economic and social cohesion - are Irreversible. Bold 
decisions and determined actions would have a substantial positive effect 
on the confidence of economic agents and give an Immediate Impulse to 
economic growth. 
The efforts to complete the Internal market have resulted In the most wide-
ranging supply side Initiative In the history of the Community. Most of 
the required decisions have been taken. Their transposition Into national 
law, however, Is lagging behind and a number of difficult Issues have still 
to be solved. The recent agreement on the setting up of a European Economic 
Area will extend and reinforce the effects of the Internal market 
programme. 
- IV -
Economic and Monetary Union will result In an amplification of the type of 
economic benefits that follow from the 1992 programme. Indeed only a single 
currency will allow the full potential benefits of the Single Market to be 
achieved. The primary aim of EMU Is therefore to strengthen the Integration 
of the Community and Improve Its economic performance. After many years 
of remarkable progress, the trend towards the degree of nominal convergence 
necessary for a smooth transition to EMU has come to a halt In 1989/90. Few 
Member States are yet In a position to make the transition to EMU without 
considerable adjustment. Recognizing the need to resume the movement 
towards greater convergence, Member States have agreed to embark upon 
ambitious convergence programmes. It Is Important that these programmes be 
Implemented In a resolute way. The Members States, where the adjustment 
needs are still large will be reinforced In their determination by a 
successful and clear outcome of the Maastricht meetings, the results 
already achieved by their partners and by enhanced coordination procedures 
at the Community level. 
The Community policy priorities require a consistent Implementation of 
appropriate macroeconomlc policies and policies for structural adjustment. 
Continued efforts are required In all countries to Improve the flexlblIIty 
of the economy. The coexistence of very high overall levels of unemployment 
and bottle-necks In certain sectors of the labour market suggest that 
greater efforts must be deployed to Improve training and reduce skill 
mismatches. At the same time, greater flexlbl I Ity will be needed both In 
wage determination and the wage structure. It Is Important to review wage 
setting procedures so as to make them more responsive to macroeconomlc 
considerations and to the need of furthering structural adjustment. 
The Community, and the whole world, are facing a shortage of savings which 
risks becoming more acute In the years to come. Notwithstanding a subdued 
demand for Investment In the Industrial I zed world, real long term Interest 
rates In 1991 are high which points to the fact that available savings are 
Insufficient to meet the demand for capital. This situation risks becoming 
even less favourable once Investment activity picks up again and the huge 
pent-up capital demand from Central and Eastern Europe translates Into 
actual demand for funds. Authorities should embark on a systematle review 
of all structural Impediments to saving. 
The single most Important contribution to Increased national saving, 
however, would be a significant reduction In public deficits In most 
countries. Various Member States (Greece, Italy, Portugal, Belgium, the 
Netherlands, Ireland and Germany) present, to different degrees, 
unsatIsfactory budgetary positions. These positions must be corrected to 
Improve macroeconomlc conditions In the countries concerned and to allow 
for a smooth transition to EMU. The necessary progress towards these goals 
would also help to reduce the overall shortage of savings and would ease 
the burden presently carried by monetary policy. 
- y -
The success of monetary authorities In preserving price stability and 
exchange rate stability within the Community has been acknowledged by the 
markets and Interest rate differentials among the EMS currencies have come 
down substantially. They have all but disappeared at the short end of the 
market between the currencies of the Initial narrow band participants. 
Under these conditions the room for manoeuvre at the national level Is 
extremely reduced. It Is therefore the more urgent to move to full EMU. 
Given the continued strength of Inflationary pressures In the vast majority 
of Member States, however, overall monetary policies should remain 
cautious. 
Given the constraints that the high degree of economic Integration and 
exchange rate stability now prevailIng In the Community exert on monetary 
and budgetary policy, the task of creating conditions conducive to an 
harmonious development of all Community countries and regions falls more on 
policies for structural adjustment. Such policies need to be supported by 
appropriate policy measures In key sectors of the economy to facilitate the 
required adjustment. Member States and the Community must ensure that 
supply conditions Improve everywhere to create additional employment. 
Conditions must be created which will attract Job creating Investment where 
unemployment Is high. Such conditions would also contribute to the 
catchlng-up process, that could be further reinforced by a strengthening of 
the Community's cohesion policies. Better Infrastructure, closer 
cooperation, less rigid labour markets and tax structures which do not 
penalize entrepreneurial activities are all particularly Important factors. 
Member States should give the Improvement of supply policies a prominent 
place In their economic policy concept. Cooperation at the Community level 
and supply side policies In Member States are a necessary complement to 
macro-economic strategies. 
Improvement of supply conditions must go hand In hand with maintaining open 
and undlstorted competition. Public subsidies can threaten the functioning 
of a competitive market process by confining specific advantages to 
competing companies. In the run-up to EMU state aids should come under 
closer scrutiny to Improve convergence. The Commission strives to limit 
subsidization and to Incorporate It In a context of restructuring. 
A commitment to more disci pi I ne on subsidies would also contribute to the 
achievement of a more open International trading system. A timely 
conclusion of the Uruguay Round would not only ensure market access and 
reduced protect Ion In the traditional areas of trade negotiation but also 
allow the extension of mult I lateral I y agreed rules to new areas of great 
relevance for the Community.- services, Intellectual property rights and 
International Investment . It Is Important to Improve access to our trade 
markets for those products with which Central and Eastern European 
countries can compete effectively on the world stage: agriculture, 
textiles, coal and steel. This Improvement In market access will not be 
carried out at the expense of existing commercial relations with other 
partners, In particular developing countries. Only a strong, competitive 
and open Community economy will be able to satisfactorily assist the 
developing world and Central and Eastern Europe In their development . 
- 1 -
L ECONOMIC SITUATION AND OUTLOOK 
1. 1991. Phase of slower growth 
A. A less dynamic world economy 
Over the last two years the Community has had to operate in an In-
T K. « i^.^nD^ ^-^_ \ ^ -...—^ creaslngly unfavourable eco-
TaUe 1 : Real GDP. domestic demand and world trade (% change) " 
1981-85 1986-89 1990 1991* 1992* 1993* 
World (excl. EC) 
U.8A 
Japan 
EC 
U.S.A. 
Japan 
EC 
World imp.(excl. EC) 
German imports 
EC imports** 
U.S.A. 
Japan 
EC**'*:::: 2.6 
2.9 
3.9 
1.5 
3.7 
2.9 
0.9 
3.0 
1.6 
2.0 
-1.2 
1.9 3.8 
3.5 
4.4 
32 GDP 
1.8 
0.9 
5.6 
2.8 -0.2 
-0.4 
4.6 
1.3 
Domestic demand 
3.0 
5.6 
42 0.5 
5.8 
2.9 -1.0 
3.4 
1.1 
World trade nomlc climate. After peaking In 
1988 at around 4%, the growth 
of worUd output excluding the 
EC has been slowing 
continuously and was near zero 
In 1991, the weakest rate since 
1982. The growth In the volume 
of world trade (again excluding 
the EC) has declined even more 
from a rate In excess of 7% in 
1988 to less than 2% In 1991 
(table 1). The decline in 
activity has been more 
pronounced than assumed at the 
beginning of the year with the 
expected recovery less forth­
coming. The previous assessment of the economic outlook has been 
clearly too optimistic. 6.0 
6.1 
8.8 3.0 
11.4 
4.7 1.8 
12.8 
2.5 2.1 
2.1 
3.5 
2.2 
2.1 
3.7 
2.2 
5.1 
5.0 
5.2 
Current account (% of GOP) 
-2.8 
3.2 -1.6 
1.2 -0.1 
1.5 -0.7 
1.6 
;£bi»:: 3.1 
2.2 
3.5 
2.4 
2.1 
3.7 
2.6 
6.1 
4.7 
5.5 
-0.6 
1.7 
-OX 
* Forecast 
** EC excl. Germany 
*** EC including Unified Germany from 1991 onwards. 
Source : Commission Services 
B. A diversified growth pattern In the Community 
The picture of the Community Is rather differentiated: relatively 
weak activity In France, Italy and a recession In the United 
Kingdom, which seems to have reached Its bottom, contrast sharply 
- 2 -
with continued rates of expansion In Germany, Luxembourg and 
Spain, while the other countries hover between these extremes. 
a) Expansion continued, particularly In Germany, but at a slowing 
rate 
Germany continued Its buoyant growth path under the Impact of the 
significant expansionary impulse of fiscal policy stemming from 
unification. Fiscal policy gave a strong boost to private 
consumption, while the Investment performance was underpinned by 
Investors' intentions to widen production capacities in order to 
serve the market of the five new Lander. These demand pressures 
could not be met by domestic supply, resulting In a strong spill­
over to foreign suppliers implying a swing in the current account 
position from a surplus of 4.7% of GDP (West Germany) In 1989 to a 
deficit of 1.1% of GDP (unified Germany) in 1991. 
But even this strong external leakage of domestic demand was not 
sufficient to prevent Internal pressures from developing. A 
number of factors, including Indirect tax Increases, have 
contributed to an upward movement of the price level. Core 
inflation crept up and Inflation in West-Germany is now above 4%. 
Wage agreements have been concluded that granted pay rises of 6 to 
7%. With productivity growth declining, this resulted in an 
increase of unit labour costs of almost 6% with profit margins 
declining, although from high levels. 
On account of the strong rise of transfer payments in the context 
of unification, the fiscal balance has shifted from equilibrium in 
1989 to a deficit of 3.6% of GDP in 1991, despite revenue 
increasing and expenditure dampening measures of about 2% of GDP 
adopted In early 1991. 
- 3 -
Since about mid 1991 the growth process has been losing momentum 
as the expansionary Impulse from unification Is petering out and 
as It had to be flanked with a restrictive monetary policy 
intended to quell inflationary expectations. Furthermore the 
outlook for profitability has deteriorated following the Increase 
in unit labour costs. At the same time, the capacity widening 
effect of the Investment of recent years has led to some fali in 
the high rate of capacity utilization since the spring of this 
year. Although the danger of a demand-led inflation has eased 
somewhat, there are considerable risks of tax and cost-push 
Inflation Implied in the present fiscal policy choices, which have 
unduly relied on the revenue side. 
b) Slower growth In the rest of the Community 
The United Kingdom registered a deep recession in 1991, with GDP 
declining by close to 2%. Private consumption and particularly 
Investment declined significantly under the delayed influence of 
the restrictive monetary policy pursued In 1989 and 1990 to cool 
off the overheating of the economy in the previous consumer boom. 
The rest Of the Community registered a 
Graph 1 : Confidence indicators - EC 
(businness surveys) 
10 
I a I o I a 
1088 1989 
Source : Commission Ssrvlcaa more subdued rate of 
growth of 1.5% compared to 
2.7% In 1990. Overall, it 
was In particular, the 
growth of private 
consumption and exports 
that retreated, while 
Investment even stagnated. 
Confidence of consumers 
and Industry has been low 
since the outbreak of the 
Gulf crisis and has shown 
a limited recovery since 
(graph 1). 
- 4 -
Investment stagnated for the first time after a particularly 
strong Investment boom during the last five years, in the course 
of which the European capital stock grew by close to 15% in real 
terms. Such a pause for breath was almost unavoidable after the 
first wave of invest-
Table 2: Key indicators of the EC economy 
1983-871988-89 1990 1991* 1992* 1993* 
Employment 0.3 1.6 1.4 0.5 0.3 0.5 
::Reàt:cQ'mpèiroat^ 
Inflation*** 5.8 4.3 5.2 5.0 4.5 4.2 
' ;RQai:urtit labour costs •ï:::-i:.i:;:;:;:-i:;o^::ïà5::::ï:b:.6:::^o;7::;::-o:.7: 
Investment 2.6 7.9 4.1 -0.5 2.2 3.7 
:. erf which; -equipment- ;;••;•: ::4.9::;;Ï-9,9::Ï:::4:.7Ï: ^Q^4; >x:2,e^-;>:;4;.e; 
* Forecast 
** Real compensation ot employees per head(private consumtion deflator) 
*** Private consumption deflator 
Source: Commission Services ment In anticipation of 
the completion of the 
Internal market. The 
effects of the Internal 
market measures will be 
felt In the years to 
come as the political 
and legislative deci­
sions already taken are 
Implemented and lead to 
an actual dismantling of 
the residual internal 
barriers (table 2). 
However, the dent in growth would have been more pronounced In 
the absence of German unification. Indeed the growth performance 
of the Community countries was strongly sustained by the demand 
effects coming from the German economic expansion. The total 
Impact of German unification on the other Community countries Is 
estimated at 0.5 of a percentage point per year on average over 
the period 1990-91 (see box). 
The slowdown In growth was largely cyclical in countries such as 
Spain, Portugal, the Netherlands, Belgium, Luxembourg, Ireland, 
Italy and France. The cyclical downswing has brought out 
underlying structural weaknesses in some countries. Italy and 
France would have had difficulty In maintaining a more sustained 
pace of economic activity relative to their trading partners in 
- 5 -
Economic consequences of German unification for the Community 
In general terms, German unification had both real effects via Intra-Community trade Impulses 
and monetary effects via Interest rate and exchange rate movements. 
On the real side, the transmission mechanisms are working via real trade balance effects: the 
considerable current and capital transfers In favour of the 5 new Under Is partly converted 
Into additional demands mostly addressed to Hest-German firms, given their comparative 
advantages (geographical proximity, common language, common currency). The Induced boost on 
West- Germany's final demand In turn results In Increased Imports addressed to the rest of the 
World and, notably to the other Member States of the Community, with positive Impacts on their 
own final demand and GDP growth, all other things being equal. 
The amplitude of these positive effects of 
course depends not only on the relative 
Importance of exports to Germany In total 
exports but also on the share of exports In 
GDP (cfr. table 2). Thus, the smaller, open 
economies having close ties with Germany like 
the Benelux countries and Denmark are likely 
to be more positively affected, In relation 
to GDP, than the larger countries. Table 1: Quarterly bilateral exporte to Germany, 
(X change over same quarter of the previous year) 
BLEU 
Denmark 
Greece 
Spain 
Fronce 
Ireland 
Italy 
Netherlands 
Portugal 
United Kingdom 1990 
III IV 
7.8 3.2 
10.8 8.8 
3.4 -2.7 
16.3 9.8 
18.9 -«.4 
9.0 8.8 
13.0 8.0 
8.7 -0.8 
21.8 14.8 
6.7 -0.8 12.1 
22.8 
3.8 
30.8 
15.1 
11.7 
17.8 
8.7 
17.8 
7.1 31.9 
31.2 
8.4 
38.0 
10.6 
6.9 
20.1 
17.1 
20.1 
13.4 1991 
I II 
28.8 27.0 
33.9 29.2 
8.1 4.9 
48.7 41.2 
21.0 38.7 
13.6 13.3 
22.0 19.1 
20.9 18.8 
22.8 21.3 
17.8 21.6 
Source: Bundesbank, monthly report, supplement 3, 1991 In the first twelve months since the 
unification, trade movements confirmed the 
estimates made in Hay/June 1990: purchases of 
the 5 new Lender from the rest of the world 
Including tlest Germany went up from 18 bil­
lion DU to about 130 billion, an amount close 
to the equivalent of public transfers 
received by these Under. At the same time 
all other EC-countries except Greece 
registered considerable upswings In their 
bilateral trade with Germany (see table 1). 
From these elements, It can be estimated that the growth Impact for the Community In 1990 
(second semester) and 1991 would be respectively around 0.4 and 0.6 points (see table 2). 
Smaller and more open economics generally display a higher Impact, particularly In the second 
year when they also benefit from the Indirect effects of unification. 
In May/June 1990, It was expected that the 
unification would cause a general rise In 
German Interest rates and a revaluation of 
the DM, movements that would have to be 
followed by all other countries member of the 
ERM with negative effects on their growth 
rates. The reaction of financial markets In 
the first quarters of 1990 seemed to confirm 
those views. Since then, however, the 
effective exchange rate, after Its Initial 
revaluation, fell back near Its pre-
uniflcatlon level and nominal Interest rates 
both long and short for most EC-countries, 
followed the same profile of Initial rise 
followed by a decrease. 
* Second semester, in yearly terms 
Source: Corrmlesion Services Table 2: Impact of German unification on the growth rate 
of the other Member Countries 
Memorandum Items 1990 Impact on 
rate of growth 
Share of exp. Share of in % points 
to 0 In total exports per year 
exports X In GOP (X) 1990» 1991 
BLEU 19.8 78.3 40.6 4-1.0 
Denmark 18.2 38.1 40.4 40.7 
Greece 28.1 23.4 40.2 40.4 
Spain 11.1 17.7 40.3 40.8 
Fronce 18.7 23.4 40.4 40.7 
Ireland 12.2 63.8 40.3 40.8 
Italy 17.4 20.6 40.3 40.6 
Netherlands 28.1 86.4 40.7 40.9 
Portugal 18.8 37.3 40.3 40.4 
United Kingdom 12.7 24.8 40.2 40.8 
EUR 11 12.8 28.0 40.4 40.6 
- 6 -
It may therefore be estimated that the monetary effects of the unification on Member States 
will be somewhat weaker than initially expected and will not have much Impact on the estimates 
presented In table 2. Thus, although ceteris paribus reasoning Is always difficult in 
economics, It may be estimated that, without the unification effect, Germany would have 
followed the same downward cyclical movement as the other countries and the EC-economy would 
have registered very low growth In 1991. 
It is moreover to be noted that In this document all historical data labelled Germany are for 
West Germany only since major statistical problems impede to present a reliable picture for the 
whole of Germany. However, there are a few noteworthy exceptions to this general rule, Implying 
a methodological break In the time-series concerned. First, trade figures based on customs data 
cover exports and Imports of goods of Unified Germany. Second, the forecast of the general 
government account includes public transfers to the five new Under as well as the deficit of 
the territorial authorities of these Lander from 1991 onwards. Third, current account data 
relate also to Unified Germany. When expressed as a percentage of GDP, In these three cases the 
GDP of Unified Germany Is used. 
Obviously, the aggregation of national data to an EC total takes Into account the retained 
treatment for Germany. In the table below, an Idea Is given to what extent the forecasts for 
unified Germany, uncertain though they are, affect the aggregates for the Community as a whole, 
In particular with regard to real growth, the unemployment rate and Inflation. 
1991 1992 1993 
Heal GDP growth (% p.a.) 
E C 
EC* 
E C 
EC* 
E C 
EC* 
E C 
E C 
E C 
E C 1.3 
0.9 
8.6 
9.3 
5.0 
5.3 
-4.3 
-4.4 2.2 
2.2 
Unemployment rate 
9.1 
9.8 
Inflation (% p.a.)a 
4.5 
4.7 
Met borrow Ingb 
-4.3 
-4.4 
Current account balance0 
-0.3 
-0.8 -0.3 
•0.9 2.4 
2.5 
9.2 
9.9 
4.2 
4.3 
-4.1 
-4.3 
-0.4 
-0.8 
* E C Including the new five German Lender 
a) Deflator of private consumption 
b) General government; as a percentage of GDP 
c) As a percentage of GDP 
- 7 -
view of the fragility of their external accounts. Price 
competitiveness has significantly deteriorated In Italy. In 
France, the sectoral composition of the trade balance gives reason 
for concern: while the surplus on agricultural products is 
growing, Its surplus on manufactured goods of the mid 1980s has 
turned into a significant deficit, although some improvement could 
be noticed in recent months. 
The lower growth performance has had, of course, significant 
consequences for the employment situation In the Community, which 
had developed favourably over the 1980s with a net addition of 9 
million jobs since 1984 (table 3). Despite the fact that growth 
became more employment intensive, employment growth slowed down 
markedly for the first time since 1982, resulting In a 
significant increase In the unacceptable high level of 
unemployment. 
Table 3 : Employment in the Community 
Total employment 
in million %change Nonetheless, despite the greater 
slack In the labour market, wage 
pressures abated only marginally: 
nominal compensation per employee 
rose by 7% in 1991, a rate only 
marginally below the one in 1990 
(7.6%). With the cyclical 
slowdown In productivity growth 
this resulted in a new increase 
in nominal unit labour cost and, 
due to the inability to raise 
sufficiently prices, In a further 
rise In real unit labour costs with a consequent negative impact 
on profitability and international competitiveness. 1980 
1984 
1990 
1991 
1992 
1993 128.0 
124.8 
133.6 
134.2 
134.6 
135.3 -0.6 *** 
1.4 
0.5 
0.3 
0.5 Unemployment 
rate ** 
6.0 
10.7 
8.4 
8.6 
9.1 
9.2 
* Forecast 
** in percent of the civilian labour force 
*** average 1980-84 
Source : Commission Services 
- 8 -
Graph 2 : Profitability of fixed capital 
Net profit rate of fixed capital 
(1961 - 73 • 100) 
<l«lt »0«l*> 
Gross fixed capital formi 
(In % of OOP. right «oal») 
wee «TO «re 1 
luro* : Cemmlaalon 8»rvlo»« Despite this decline, pro­
fitability remains at a high 
level. But if unit profit rates 
per value added have recovered 
to levels prevailing In the 
period 1961-73, the profi­
tability of the capital stock 
has not yet. The productivity of 
capital declined sharply from 
1970 to 1983 and only recovered 
slowly from 1985 onwards. As a 
consequence, the profitability 
of fixed capital Is still below 
Its 1961-73 level so that 
further efforts are needed to 
achieve a full restoration of 
profItablIity (graph 2) 
Table 4 : Supply-side factors in the Community 
(annual % change, unless otherwise stated) 
1981-86 1987-89 1990-91 1991* 1992* 
Total investment 
of which : 
equipment 
construction 
capital stock 
capital productivity 
real compensation 
per employee ** 
real unit labour costs 
profitability *** 
real l.t. interest rate**** 0.1 
1.7 
-1.0 
2.3 
-0.6 
0.9 7.1 
9.4 
4.9 
2.7 
0.7 
1.7 1.8 -0.5 
2.2 
1.7 
2.9 
-0.8 
2.1 -0.4 
-0.5 
2.0 
-1.0 -0.7 0.5 
73.8 90.2 92.5 
4.3 5.0 5.3 
* Forecast 
** Adjusted by the private consumption deflator 
"** Net return on net capital stock (1961-73 - 100) 
""Adjusted by the GOP deflator 
tabillty would therefore 
investment and employment 2.2 
2.6 
1.8 
2.6 2.8 
-1.5 -0.6 
1.3 The deterioration of pro-
f itabl I ity in 1990 and 1991 
Is certainly not dramatic 
(table 4). However, while 
relative factor prices and 
profitability have only a 
limited Impact over the 
short-term on Investment, 
their impact becomes 
stronger in the longer run. 
A continuation of this 
tendency of faltering prof I 
be detrimental for a recovery In 
Since 1985 Investment has strongly 0.6 -0.7 
91.6 92.9 
5.1 
- 9 -
recovered on the basis of significantly Improved profitability: 
real Investment Is now about one third higher than In 1985. 
Nevertheless the Investment GDP ratio Is still more than a full 
percentage point below the average level of the 1961-73 period. 
Further progress In this ratio is still warranted In view to 
reduce the high level of unemployment in the Community. 
Sustained wage pressures and increases in taxation in some 
countries did not allow price Increases to abate despite the 
cyclical slowdown. Consumption prices and the GDP deflator 
increased at the same pace as In 1990 at around 5%. 
The outlook for 1992 and 1993: a gradual recovery 
After bottoming out In the second half of 1991, activity is 
expected to pick up moderately In 19J22 mainly because of domestic 
factors. Although the external environment is expected to Improve 
as a result of a take off of world output and trade, the Member 
States of the Community may only benefit to a limited degree from 
this recovery, since this positive development would be 
compensated by the petering out of the demand-pull effect of 
German unification. The foreign balance therefore Is not expected 
to significantly support GDP growth In most countries. Still, 
extra Community markets are expected to play a more important part 
In the growth of Community exports than In the last few years. The 
preservation of external competitiveness Is therefore crucial. 
Confidence is expected to be restored gradually leading to a 
modest recovery In private consumption and investment in 1992. 
With the pursuit of sound policies, the price and cost performance 
is expected to improve, reversing the deterioration in 
profitability during the period 1990-91. 
As a result of slower activity, employment growth Is expected to 
slow down further from 1.5% on average over the period 1988-90 to 
- 10 -
0.5% in 1991 and to 0.3% in 1992. Combined with the sustained 
growth of the labour force in the Community, this slower 
employment growth will lead to a further increase in the 
unemployment rate from 8.6% In 1991 to 9.1% In 1992. 
For 1993 a further strengthening of the recovery is anticipated 
with real GDP growth rising to around 2%%. Still the higher level 
of activity Is not yet expected to result in sufficient job 
creation to match the rise in the labour force resulting in a 
further, but marginal rise In the unemployment rate. 
The risk factors surrounding the outlook lie clearly more within 
the Community than outside it, although external uncertainties 
could still affect significantly the outcome in the Community. The 
outlook for a gradually strengthening recovery Is very much 
predicated on the maintenance of adequate policies. 
An improvement in the cost performance after the deterioration In 
1990-91 is likely to support a gradual pick up of investment. But 
if this improvement were not to materialize, it Is uncertain how 
Investment would respond. Stronger growth is, however, needed to 
reduce the still high level of unemployment and to facilitate the 
structural adjustment In relation to the completion of the 
internal market and the transition towards Economic and Monetary 
Union. 
II. PROGRESS IN ECONOMIC CONVERGENCE iS STALLING 
1• Nominal convergence is slipping, but fundamentals remain positive 
After deteriorating significantly in 1990, price convergence (measured 
by the dispersion of private consumption deflators1^ has improved 
somewhat in 1991 but on a less favourable Infiatlon average than in 
1) Dispersion is measured as the unweighted mean of the absolute 
deviation from the weighted mean. 
- 11 -
Graph 3 : Price convergence in the 
Community < m % ) 
20 
1980 «82 1964 1986 1988 1990 1992 
Eur 7 • B, Dk, D, F, IRL, L, NL 
Eur 5 • GR, E, IT, P, UK the period 1987-89 (graph 3). This 
was mainly due to an Increase of 
the average inflation in the 
original narrow-band countries 
(EUR-7) attributable essentially 
to special developments in Germany 
and the Netherlands, while price 
performance generally Improved in 
the other ERM countries, in the 
countries not originally belonging 
to the narrow-band price Increases 
declined and particularly In the 
United Kingdom. Price developments 
In the Community are, however, 
still a matter of concern, because 
the average level of Inflation Is 
st111 near 5% at a moment of 
slowing down of economic activity. 
Graph 4 : Wage convergence in the 
Community ( m % ) 
Average 
Dispersion 
\EUH 5 
EUR 12 
EUR 7 
1980 1982 1984 1988 1988 1990 1992 
Eur 7 • B, DK, D, F, IRL, L, NL. 
Eur 5 • GR, E, IT, P, UK. Wage developments and tax 
increases seem to be the main 
factors responsible for the 
slippage in price performance. 
Among the original narrow-band 
countries wage developments have 
been unsatisfactory In 1991 (graph 
4) and In Germany, In particular, 
there is a potential risk of the 
development of cost-push in­
flation. 
The growing tendency to rely more 
on the revenue side to correct 
budget deficits is not without 
danger for price performance, as 
- 12 -
It may reignlte the struggle over the distribution of income. 
In the framework of EMU, the Community's price and cost performance Is 
still unsatisfactory. For EMU It would be desirable to have average 
price Infiatlon down to the 2-3% range, while divergence is being 
reduced at the same time. 
in the budgetary area the lack of Improvement In convergence, as In 
the field of prices and costs, Is due mainly to a less favourable 
situation in countries that performed well In the years before. In 
1990, the budget situation 
Table 5 : General government net lendwig (+) or borrowing (-) ** 
(in%ofGDP) worsened In most countries, 
despite a still sustained 
level of activity, but the 
deterioration was parti­
cularly marked in Germany and 
the United Kingdom (table 5). 
In 1991 again, the less 
favourable budget position in 
the Community as a whole is 
mainly due to the widening 
deficit In the UK and in 
Germany. In most other 
countries the deficit more or 
less stabilised In terms of GDP, In a context of slower activity. 
Hence, even automatic stabilizers have not been allowed to exert their 
full effect. This was needed to prevent a further increase of the 
budget deficits. 1981 1985 1989 1990 1991* 1992* 
EC -5.3 -5.2 -2.9 -4.1 -4.4 -4.4 
Greece -11,0 -13.6 -10.3 -19,0 -17,3 -14.0 
Italy -11.4 -12.5 -10.1 -10.6 -9.9 -9.3 **' 
Belgium -12.8 -8.5 -«.7 -5.6 -6.3 -6.2 
Portugal -9.3 -10.1 -3.4 -5.8 -5.4 -4.6 
Netherland» -5.5 -4.8 -5.Z -5.3 -4.4 -4.1 
Germany -3.6 -0.9 0.2 -1.9 -3.6 -3.4 
Ireland -13.4 -11.2 -3,5 -3.6 -4,1 -4,1 
Spain -3.9 -6.9 -2.7 -4.0 -3.9 -3.6 
United Kingdom -2.6 -2.8 1.3 -0.7 -1.9 -3.6 
Denmark -6.9 -2.0 -0.5 -1.5 -1.7 -1.5 
France -1.9 -2.9 -15 -1.6 -1.5 -1.7 
Luxemburg -3.5 5.3 4.3 4.7 1.9 2.0 
* Forecast on the basis of unchanged policies. 
•• Countries are ranked by size of deficit In 1981. 
*** Does not fully Incorporate the effect of the measures of the convergence program 
Source: Commission Services 
German unification has also contributed to a significant change In the 
external position of the EC. The EC current account position has 
deteriorated continuously since 1986 from a surplus of 1.4% of GDP to 
an expected deficit of close to 1% of GDP In 1991 (table 6). This is 
- 13 -
Table 6 : Balances on current transactions 
(in % of GDP) 
1980 1986 1990 1991* 1992* 
EC •:•:•:•:•:•:•:• 
Belgium 
Denmark; ; ; ; 
Germany 
Greece 
Spain : ::: : 
France 
Ireland 
Italy' : : : 
Luxemburg 
Netherlands 
Portugal : : 
United Kingdom :-:t.-2: 1^4 -0 2 -ae 
-4.3 2.1 
-1.7 4.4 
0.5 
-2.4: 
-0.6 -5.3 -6.1 -4.1 
^tèïx^à.fifxï-^à.ï: 
0.5 -1.0 -0.7 
11.8 -2.9 3.4 2.3 
18.7 
-1.5 0,5 
39.4 
2.7 ^1;.4:ï:^1.3: 
31.2 28.1 
3.8 4.1 
1.5 •:-:2-.:4-
-0.9 -2.6 -1.1 
* Forecast 
Source : Commission Services -o:9 
1.0 1.0 1.1 
;o,é:;:;:vi:4x>:x2.2; 
3.2 -1.1 -0.9 
-3.4 
:3.2: 
-0.8 
2.0 ^1,5 
26.1 
4.4 
-1.4 due to a weakening of the current 
account In most countries, except 
Denmark, Ireland and the Nether­
lands. The deterioration was 
particularly marked In the United 
Kingdom (from 1986 to 1989), Spain 
(from 1987-1989) and Germany (from 
1989-1991). But also in France and 
Italy the external accounts 
weakened significantly. This dete­
rioration resulted in most 
countries from high domestic 
demand In relation to production 
potential. 
The most outstanding development of recent years In the external 
accounts Is the complete disappearance of the German current account 
surplus. The counterpart of the disappearance of this surplus is not 
to be fully found within the Community. About half of the demand 
impact of German unification seems to have leaked outside the 
Community. The deterioration In the external accounts is particularly 
marked in the trade of manufactured goods: extra-community imports of 
manufactured goods have grown on average more rapidly than intra-EC 
imports; among high-tech products more specifically, Community 
producers seem to have conceded some ground to extra-EC producers. 
Also on the export side the growth of export of manufactures has been 
modest, well below the rate of growth of Intra-EC export volumes. This 
trend points to a reorientation of trade flows to a particularly 
dynamic internal market. 
However, of great concern is the fact that this deterioration In the 
external account also signals a reduced level of competitiveness, 
particularly in third markets and, even more disquieting, in the high-
tech segment of the market. The Community's currencies have, on 
- 14 -
balance, continuously appreciated in real terms since 1984, leading to 
a loss of market shares. This development raises questions about the 
strength of the economy in some Member States, and its capacity to 
compete effectively with the outside world. Wage competitiveness is 
therefore an Issue that certainly warrants closer scrutiny in the 
cases of France and Italy, where the external position remains 
fragile. 
In order to improve convergence during Stage I of EMU, Member States 
have therefore been called upon to draw UP so-called convergence 
programs that are to be discussed and agreed upon at the Community 
level in the context of multilateral surveillance. Such programs have 
been presented or are In the process of being formulated by most 
Member States, with a view to achieving lasting progress on 
convergence. 
Real convergence Is slowing 
Table 7 : The catching up process in the Community 
(GDP per head of population, EC = 100) 
Spain Greece Ireland Portugal 
1975 
1980 
1986 
1991 * 
1992 * 
Differences 
1986-80 
1991-86 81.9 
74.2 
72.8 
79.0 
79.9 
-1.4 
6.2 57.3 
58.1 
55.9 
52.5 
52.1 
-2.2 
-3.4 62.7 
64.0 
63.4 
68.9 
68.9 
-0.6 
5.5 52.2 
55.0 
52.5 
56.3 
56.3 
-2.5 
3.8 
* Forecast 
** Reference to GDP may overstate progress to the ex-
I tent that income transfers to abroad may have out-
! paced nominal GDP growth. 
ÎSource: Commission Services Over recent years, the 
catchlng-up countries, with the 
exception of Greece, have 
succeeded in reducing their 
income gap with the Community 
average (table 7). Appropriate 
domestic policies and the 
doubling of resources made 
available through the Struc­
tural Funds, have contributed 
to this outcome. 
In Spain 
catching-up and 
was Portugal, 
led by 
- 15 -
investment as a result of strongly Improved profitability and the 
opening up of the Community market. The share of Investment In GDP 
expanded by almost a quarter between 1986 and 1990 (table 8). Domestic 
savings were Inadequate to support such expansion so that the current 
account of the balance of 
Table 8 : Investment and export shares and real unit labour 
costs in the catching-up countries 
1986 
1990 
1992* 
1986 
1990 
1992* 
1986 
1990 
1992* GR 
18.5 
18.9 
18.5 
22.4 
22.6 
21.2 IRL EUR 4 EUR 8 
Investment shares (in % of GDP) 
19.5 18.1 22.1 
24.4 
24.1 18.6 
18.7 26.7 
26.0 19.6 
23.7 
23.4 
Export shares On % of GDP) 
19.9 55.2 33.2 23.8 
22.8 
22.0 17.2 62.1 36.4 
17.3 65.0 30.0 
Real unit labour costs (1961-73 = 100) 
102.3 91.1 92.8 98.4 
88.9 
92.5 102.4 87.5 
95.0 86.3 93.8 
97.6 94.2 
90.8 
90.0 18.9 
20.3 
19.6 
28.0 
28.9 
29.9 
98.1 
96.8 
96.9 payments moved to a 
significant deficit. The 
continuation of the catch Ing-
up process in these countries 
will therefore rely, among 
other Important factors, on 
the generation of adequate 
domestic saving resulting 
mainly from further re­
ductions in public dissaving. 
* Forecast 
Source : Commission Services In Ireland, however, the 
acceleration of growth was 
mainly export-led. Budget 
consolidation efforts and 
moderate wage developments dampened domestic demand while at the same 
time improved competitiveness boosted exports. This export led 
expansion made Ireland more vulnerable than Spain and Portugal to the 
deterioration In the international economic climate. Now that Ireland 
has established a sound basis for further catching-up, more emphasis 
should be given to the development of domestic production potential. 
The investment ratio is still relatively low and has not Increased 
much. The supply side of the economy, In particular, needs further 
improvement. 
In Greece, the catchlng-up process has receded over recent years as a 
result of Inadequate policies. The 1991 stabilization and structural 
- 16 -
adjustment programme adopted by the government is a serious effort to 
reverse the country's macro-economic decline and restore Its 
production potential. The broad aims of the programme are fiscal 
reform and structural renewal. The measures for fiscal adjustment and 
structural reform are Interdependent and if applied effectively should 
allow Greece to exploit the gains from the process of European 
integration. Recent developments Indicate, however, that the 
implementation of the programme has encountered serious difficulties 
and delays. Failure to fully Implement the programme will further 
delay the resumption of the catching-up process. 
III. PRIORITIES OF ECONOMIC POLICY IN THE TOMMUNITY 
With the international environment likely to improve only moderately in the 
year ahead, It Is particularly Important for the Community to reinforce its 
internal potential. Economic policies should therefore contribute to the 
swift realization of the major Community projects. 
Graph 5 : Transposition of internal market directives * The complet ion of the Internal 
maJLfcûi remains an Immediate 
priority for the Community and the 
remaining work is still 
considerable: of the 282 White 
Paper measures, 69 still require a 
Council decision. The trans­
position of directives Into 
national law needs to be speeded 
up. 166 White Paper measures have 
entered Into force of which 134 
require national implementing measures. Of these national measures on 
average 71% have ai ready been taken (graph 5). Member States seem to have 
recognized their responsibilities and the need for greater haste. Ssss Transposed 
J Not transposed 
Source : Commission Services • Derogations 
Î2J No action required 
situation as of 15/10/91 
- 17 -
The Internal market programme has already been a decisive driving force in 
adding to EC growth prospects and prosperity: economic agents have already 
to some extent anticipated the highly competitive environment and the new 
operating conditions and opportunities that will prevail by 1993. This has 
resulted In a strong expansion of investment In the period 1986-1990. 
The real effects of the Internal market measures will be felt In the years 
to come, especially as residual Internal barriers are actually dismantled. 
Determined actions and decisions would have a substantial positive effect 
on the confidence of economic agents and give a new impulse to economic 
growth. 
An Eçonom IC m$ Monetary Union in the Community will result in an 
amplification of the economic benefits that will follow from the 1992 
programme. Indeed only a single currency will allow the ful! potential 
benefits of a Single Market to be achieved. 
The primary aim of EMU is to strengthen the integration of the Community 
and improve, its economic performance. EMU will ensurs a climate of 
stability so that the process of self-sustaining growth would be 
strengthened. The experience of the 1980s has clearly confirmed that there 
is no long-term trade-off between higher inflation and lower unemployment. 
On the contrary a climate of stability is Increasingly perceived as an 
essential prerequisite for an Improved real economic performance. 
The Income gap between the catchlng-up countries and the Community average 
remains sizable and it will therefore take many years to bridge the gap. 
This process can only be built on the basis of sound growth, which 
increases domestic production potential. 
Policies at the national and Community level have to provide the basis for 
a continuous relative stronger growth of real GDP, without Inflationary 
pressures and unsustainable internal and external imbalances. First and 
- 18 -
foremost, responsibility for rapid economic and social convergence lies for 
the most part In the least favoured countries themselves. Recent 
developments have confirmed that sound macro-economic policies are an 
essential condition to improve their internal growth conditions by all 
aval I able means. 
The economically stronger countries must also contribute to this process by 
supporting dynamic medium-term growth. 
The Community shall take into account the objective of strengthening 
economic and social cohesion In the implementation of Its common policies 
and of the Internal market. The economic policy actions at Community level 
must act In a synergetlc way to national policies to strengthen economic 
performance in the least favoured Member Countries. The structural Funds 
and other financial Instruments, provided they are efficiently used in a 
conducive national framework, will considerably Improve both supply and 
demand conditions In the recipient countries. These Instruments should be 
reinforced to take account of previous developments and the stronger 
integration In the Community. 
The envIronment and Its Importance In the overall context of the quality of 
life is Increasingly becoming a matter for Community preoccupation. The 
Commission has recently outlined a coherent Community strategy aiming to 
stabilise C02 emissions in the Community by the year 2000 at their 1990 
level. The strategy consists of a range of regulatory, voluntary and 
possible fiscal measures taken at the Community level In combination with 
complementary national programmes. The envisaged reliance on fiscal 
Instruments, notably a new combined C02/energy tax, which respects fiscal 
neutrality, is considered an Important condition for reaching ~the 
Community's C02 emission stabilization objective in the most cost 
effective way. By giving the right price signals all economic agents will 
be induced to adopt environmentally sound behaviour. It Is In the Interest 
19 -
of long-term economic sustalnablIIty and prosperity, as well as of the 
environment, that environmental considerations are satisfactorily 
integrated Into the Community's other policies, notably In the fields of 
energy, transport and agriculture. 
IV. MACRO-ECONOMIC POLICIES AND POLICIES FOR STRUCTURAL ADJUSTMENT 
1. Monetary policy and the EMS 
The aim of the EMS Is to contribute to achieving price stability and 
nominal convergence In the Community through exchange rate stability 
and an appropriate monetary policy. The conditions for attaining this 
have become more difficult over the past year. In the autumn of 1990, 
monetary conditions In the Community were tightened In response to 
rising oil prices. But during the course of 1991, monetary conditions 
appear to have eased again. This easing occurred against a background 
in which Inflationary pressures In several countries of the Community 
persisted or even strengthened despite the fall In oil prices after 
the Gulf war. 
With the Community economy slowing In 1991, a certain easing of 
monetary conditions was welcome and does not appear to have adversely 
affected long-term Inflation expectations: yield curves have tended to 
shift downwards this year rather than simply to steepen In response to 
the easier monetary policy, and long rates In most markets are 
somewhat lower than a year ago. Despite this easing, monetary policies 
still remain tight. It is Indeed essential to ensure that nominal 
convergence goes together with an absolute, not a relative, standard 
of price stability and that the functioning of the EMS remains a 
powerful force for preserving price stability up to a full EMU. 
In this respect, the mechanism through which monetary policy in the 
- 20 -
Community appears to have eased this year presents some difficulties. 
During the 1980s the disinflation process in the Community was 
determined by Germany and transmitted through the exchange rate 
discipline of the EMS to other ERM narrow-band countries. This link 
was reinforced after the last realignment In January 1987, when 
anticipation of further realignments gradually disappeared. The German 
strategy was based on fiscal consolidation and the successful 
targeting of monetary aggregates. This strategy left underlying 
Inflation at low, If gradually rising, levels even when monetary 
targets were applied with greater flexibility in response to external 
circumstances. 
The progressive disappearance of realignment expectations have 
significantly altered this configuration. The considerable 
expansionary swing In fiscal policy in Germany as a result of 
unification coupled with the pursuit of a stability oriented monetary 
policy leads to a real appreciation of the currency as real demand 
exceeds real domestic supply. This policy mix and the impossibility to 
allow the ensuing real appreciation to take place through a nominal 
exchange rate adjustment in the ERM, put considerable additional 
pressure on Interest rates in Germany. Indeed the excessive demand 
pressures have had a strong influence on the wage bargaining process, 
feeding creeping price rises. This process has been exacerbated by the 
heavy reliance on revenue measures to limit the fiscal impact of 
un ification. 
Uncertainty over the extent to which the Bundesbank will be able to 
preserve the same policy strategy as in the past has at times surfaced 
in the markets. These uncertainties and the expectations of stable 
exchange rates and decreasing inflation differences have resulted in a 
significant reduction within the ERM In interest rate differentials 
vis-à-vis the DM, where the exchange risk premium has more or less 
disappeared. 
- 21 -
Given that Inflationary pressures remain significant In the Community 
as a whole, any further loosening of the stance of overall monetary 
policy is at present not warranted. The necessary collective character 
of the EMS Implies that other members of the ERM than Germany, and In 
particular the bigger countries must accept a share of responsibility 
for achieving a monetary policy In the Community consistent with the 
lowest level of price Increases and with continued downward 
convergence by the high-infI at Ion countries. 
In the two countries not yet participating in the ERM, Portugal and 
Greece, inflation is In double digits although It has recently 
decelerated in both countries. In Portugal, the Immediate priority is 
to maintain monetary policy tight enough to reduce overheating In the 
labour market. Given the scale of capital inflows, this will probably 
have to Involve some continued upward flexibility, for a time, of the 
real exchange rate. The aim should be to adhere to the ERM at a time 
when sufficient steam had already been taken out of the economy to 
ensure that the ERM constraint did not lead to an Inappropriate 
loosening of monetary policy. 
In Greece, monetary policy must continue to try to contain the 
inflationary pressures created by a clearly excessive budget deficit. 
But monetary policy cannot cope Indefinitely with the consequences of 
the public finance problem. Only adherence to the budget ceilings laid 
down In the stabilization programme can hope to ensure early and 
lasting nominal convergence In Greece. 
Budgetary DO I lev 
Since budgetary authority will remain at the level of the member 
state, progress towards EMU necessitates Increased coordination by 
reference to principles or rules that ensure that fiscal policy will 
not undermine stability in the Community. 
- 22 -
A first group of countries (Greece and Italy) have been showing 
excessive budget deficits for many years and steadily Increasing 
public debt burdens (table 5 and graph 6). 
Graph 6: Trends in gross public debt 
(in % of GDP) 
140 
120 
100 
ao 
I 60 
I 
40 
! 20 
i 
I 
i 
j 140 
! 120 
j 100 
i BO 
; so 75 ao BS 90 92 
71 75 80 85 
Source : Commlaalon Servie** In Greece, budgetary developments 
In 1991 show a departure from 
previous trends as a result of 
the Implementation of the new 
three-year convergence programme. 
Budgetary adjustment and reform 
will, however, fall short of the 
targets. The programme needs to 
be Implemented more vigorously to 
ensure a significant reduction of 
the budget deficit and a 
stabilization of the public debt 
rat io. 
The budgetary performance of 
Italy, continues to diverge from 
the other narrow-band members of 
the ERM. The budget deficit has remained persistently above 10% of GDP 
despite repeated attempts to correct It. As a result the public 
debt/GDP ratio passed the 100% mark In 1990 and has continued to 
increase since then. There has clearly been no lack of adjustment 
programmes but rather of forceful implementation. More emphasis should 
be laid on the Instruments that will be used to meet the targets and 
on structural measures to Improve the public finances. Even If 
forcefully implemented, the present programme still risks falling 
short of the announced targets as it rests on a very positive growth 
scenario. Moreover, this programme is markedly tax-centred. The 
forward shifting of increases in direct taxation, on the part of tax 
- 23 -
payers, on to higher wage claims could contribute to Inflationary 
pressures. It Is encouraging though, that the Italian Government has 
confirmed its willingness to take corrective measures should targets 
not be met. 
A second group of countries (Belgium, Netherlands, Portugal and 
Ireland) still has sizable deficits and excessively high public debt 
ratios. In Belg I urn. consolidation efforts undertaken during the period 
of strong growth (1988-90) were not sufficient to prevent a new rise 
of the public debt ratio in 1991, when economic activity slowed down. 
The double government norm aimed at freezing real non-interest 
expenditures and keeping the central government deficit constant in 
nominal terms, is clearly insufficient and needs to be extended to all 
levels of government, including social security. A significant 
reduction of the deficit is needed to bring the public debt ratio, 
which is still double the Community average, on to a clearly 
dec IInlng trend. 
Consolidation efforts In the Netherlands have also been inadequate 
during the period of strong growth (1988-90). Additional measures have 
been taken In 1991 so that public finance targets will be reached. The 
persistence of public dissaving, however, would warrant a tightening 
of government medium term targets in order to reduce the public debt 
ratlo. 
The reduction In public finance Imbalances in Portugal in recent 
years reflects the complete overhaul of the tax system which Increased 
its efficiency, an effort of expenditure restraint, the cyclical 
upturn of the economy and the privatization process. However, the 
relative size of both the general government deficit and public debt 
are above the Community average. Consequently and also in order to 
assist the disinflationary process, fiscal adjustment remains one of 
the main priorities of economic policy and should continue to be 
vigorously implemented. 
- 24 -
Ireland has been remarkably successful In consolidating Its public 
finances In the late eighties. Further consolidation has since been 
slowed because of the effects of weaker growth on revenue and 
pressures on public expenditure from rising unemployment and increases 
in public sector pay. Consolidation efforts should be maintained over 
the medium term to keep the public debt ratio on a firm downward path. 
Germany and the United Kingdom are separate cases. 
In Germany. as a direct consequence of the large financing needs 
arising from unification, the swing in the public sector accounts has 
been significant close to 4% of GDP between 1989-91 despite a 
sustained level of activity. Even If the present deficit is less a 
matter of concern, apart from contributing to a biased policy mix, the 
medium-term prospects for bringing the deficit under control are 
rather disquieting. Even If consumption supporting outlays will be 
reduced, they will gradually be replaced by large scale infra-
structural Investment; the dynamics between a steeply rising public 
sector indebtedness and Interest charges will put further pressure on 
outlays. Fiscal consolidation will therefore be a major policy 
challenge for the years to come. 
Moreover, considerable emphasis has recently been laid on Increasing 
revenues. Higher direct or Indirect taxes are, however, very likely to 
be reflected in higher wage demands to compensate for the Income loss. 
In these conditions, excessive reliance on tax increases may Initiate 
a new cycle of ever rising claims on income distribution. There is 
still considerable scope on the expenditure side to reduce the budget 
deficit. In addition income support schemes should be designed in such 
a way as to ensure their temporary character. 
In the United kingdom, deterioration In the budget balance is 
- 26 -
primarily due to the working of the automatic stabilizers during the 
severe recession. The authorities medium-term objective remains that 
of attaining broad budget balance on a cyclically adjusted basis. A 
cautious policy stance remains appropriate to maintain compliance with 
the medium-term objective of a balanced budget and continued positive 
pub IIc saving. 
In the last group of countries (Denmark, Spain, France and Luxembourg) 
budget balances and public debt burdens are broadly under control. 
These countries have positive public savings, meet the golden rule and 
have a public debt ratio below the Community average. There Is still a 
need to maintain a cautious policy stance In these countries since 
some of them have strong inflationary pressures and large external 
deficits (Spain) or a high foreign debt (Denmark). 
The Insistence on bjidflej consolidation Is motivated by several 
considerations: first It is Intended to redress the presently lopsided 
policy mix of a relatively loose fiscal policy combined with a 
relatively restrictive monetary policy. Even when budget deficits are 
Justifiable by temporary and exceptional factors, It would still be 
appropriate to reduce them as fast as possible to achieve a more 
balanced policy mix. Second, there Is a need for higher saving within 
the Community for which the reduction of public deficits should 
provide a significant contribution. Finally, a more restrained fiscal 
policy Is likely to result in more balanced wage developments, which 
would contribute to better convergence. 
A desired additional Increase in the Investment ratio to Increase 
growth and employment raises the Issue of the adequacy of aavIno. 
Although there are few signs that the low level of saving has had 
major repercussions on economic performance so far, It has contributed 
to keeping real long interest rates high. The inadequacy of saving, 
- 26 -
however, risks becoming a more decisive constraint on growth in the 
future, particularly for the newly liberalizing countries in Eastern 
and Central Europe and the developing world. A saving surplus can only 
be realized if the considerable public dissaving in the Community and 
In the other major Western countries is reversed. The generation of 
sufficient public saving Is therefore also an essential precondition 
for a successful take-off of market economies in Central and Eastern 
Europe. 
Finally, in a full fledged EMU fiscal policy and particularly monetary 
policy will have less room for manoeuvre. Therefore more emphasis will 
have to be laid on structural measures to bring about the necessary 
adjustment in the Community economies. 
3. Policies for structural adjustment 
The efforts to establish an internal market have resulted in the most 
wide-ranging supply side Initiative In the history of the Community. 
The dynamic of the Internal market has, however, not only Increased 
the growth potential of the Community, it has also highlighted the 
still sizable rigidities present in markets. Such rigidities become 
more visible when competition increases. In the present less 
supportive International environment It is also important for the 
Community to reinforce its own domestic growth. 
Policies of structural adjustment, supported by adequate industrial 
policies , Improve the adaptability and efficiency of the Community 
economies. In line with the implementation of the 1992-programme, the 
Commission has emphasized the need for industrial policy measures in 
various Important sectors and has put forward proposals to this 
effect. Policies of structural adjustment must accompany the 
completion of the internal market in order to ensure that its full 
benefits are actually forthcoming. 
- 27 -
Furthermore in EMU the nominal exchange rate will no longer be 
available between full participants as an Instrument for adjustment. 
Increased flexibility in all markets will therefore be necessary to 
ensure a balanced development of all areas of the union. In EMU, 
adaptability of the labour market will be an important element for 
adjustment If one wants to avoid further Increases in unemployment. 
Both national and Community policies for structural adjustment will 
have to play an even more important role. Together with prudent macro-
economic policies and the Community policy on economic and social 
cohesion which will have to be reinforced, this must constitute the 
Community's response to restore sustainable growth rates above 3të% a 
year in order to reduce the still high level of unemployment. Four 
areas in particular deserve further structural improvements: 
cooperation, the labour market, competition policy and international 
trade. 
Cooperation can Improve the underlying conditions within which 
companies operate and strengthen the Community's international 
competition by mustering energies and Innovation. A policy to improve 
infrastructure, and especially transportation, is an indispensable 
element In the creation of the internal market. It is equally an 
element In the cohesion process in the sense that a better working 
Infrastructure lowers transportation and communications costs and 
brings the peripheral regions closer to the centre of the Community. 
Further efforts will also have to be undertaken in the area of 
Innovation, research and development. Research and development 
policies will stimulate the competitiveness of the Community 
companies, but, In a period of intense technological change often 
involving massive development costs, the results of such efforts must 
be spread more widely through Increased cooperation. This wl I I hasten 
the adjustment of our economies to new technological advances. Also In 
- 28 -
the area of industrial restructuring and the environment, increased 
cooperation is likely to facilitate adjustment. Cooperation in these 
areas should allow the Community to better face International 
competition. The Community can play an important stimulating role in 
bringing enterprises together. 
Labour markets In the Community have been showing greater adap­
tability, but this Improvement is still Insufficient. Rising wage 
pressures at a time when more than 9% of the civilian labour force Is 
still unemployed suggest that significant structural problems persist 
in labour markets. 
The completion of the internal market at a time of reduced growth in 
the Community economy and increased competition from abroad means that 
companies and workers have to adapt working methods and practices to 
these new circumstances. Flexibility In companies' responses to the 
new operating environment have to be matched by flexibility in the 
labour market In terms of training and skills as well as In the 
employment conditions and practices. 
In most countries, the adjustment of wage costs is still Insufficient 
to ensure full employment. If Increased unemployment is to be avoided, 
the social partners must take the need for adjustment more into 
account in their negotiations. Member States' authorities should 
therefore make their policy objectives more visible so that macro-
economic prospects can be better taken Into consideration in wage 
negotiations. Credible commitment to convergence by member governments 
provides one such approach. 
Rigid wage structures, employment practices and lack of training have 
accentuated the problems of those outside the work force. The large 
number of untrained unemployed illustrates the problem of cost and 
adequate skills in relation to their productive potential. Member 
States should examine labour market regulations and social security 
- 29 -
provisions In order to rectify features that Impede entry or re-entry 
into the labour market. 
Finally, there seems to be a good case for encouraging a more active 
labour market policy with greater emphasis on retraining than on the 
provision of unemployment support. 
Competition is bound to Intensify with the completion of the Internal 
market as barriers are systematically reduced. European companies must 
be prepared for this greater competition, that has already generated a 
wave of merger activities within the Community. To avoid dominant 
positions that reduce competition and lower overall welfare, the 
Community pursues an active competition policy. 
Increased competition may also lead to calls for more aid to defend 
companies or Industries that are coming under pressure from such 
competition. State subsidies can threaten, however, the functioning of 
the market process by confining specific advantages to competing 
companies. They also risk preventing the necessary restructuring of 
Industry. Therefore the Commission strives to limit subsidization and 
to Incorporate It in a context of restructuring. 
The economically stronger countries In the Community should resist the 
temptation to compensate by domestic subsidies the greater competition 
resulting from the opening of markets. Indeed such subsidies risk 
cancelling out the competitive advantages gained by the least favoured 
countries In specific sectors. 
Free and undistorted competition In the Community requires efficient 
surveillance of state aids. The Commission has undertaken two surveys 
on public aids in the European Community In 1988 and In 1990 and is 
consistently striving for greater transparency In this field. Public 
aids still absorb a significant share of public resources In Member 
States (table 9). The second survey Identified total national public 
aids amounting to 2.2% of Community GDP, or more than twice the 
- 30 -
Community budget. The differences between Member States are 
considerable, with Denmark and the United Kingdom spending Just 1% of 
their GDP, but Belgium, Greece, Italy and Luxembourg spending 3% and 
more. 
Table 9 : State aids in the Community * 
(average 1986-88) 
B 
Ok 
D 
Gr 
E 
F 
hi 
It 
L 
NI 
P 
UK in%of in%of 
GDP public 
expenditure Granted in the form of (%) 
public tax 
expenditure expenditure 
3.2 
1.0 
2.5 
3.1 
2.3 
2.0 
2.7 
3.1 
4.1 
1.3 
2.3 
1.1 5.8 
1.7 
5.3 
6.5 
5.5 
3.8 
5.2 
6.2 
7.6 
2.1 
5.3 
2.6 100 
36 
100 
100 
82 
63 
64 
91 
70 
41 
94 11 
0 
64 
0 
0 
18 
37 
36 
9 
30 
60 
6 
* Refers to subsidies thai are subject to Community rules. The total of sub­
sidies granted Is drfficut to establish due to the various forms subsidies 
can take and the lack of comprehensive national data. 
Source : Commission, Second survey on state aids. 
would also contribute to the 
international trading system. State aids are heavily 
concentrated: the manufacturing 
sector took 41%, the transport 
sector 30%„ the coal industry 16% 
and agriculture (national aids) 
13%. 
In the run-up to EMU, national 
expenditures on subsidies should 
come under closer scrutiny to 
improve convergence. A commitment 
to more discipline on subsidies 
achievement of a more open 
The resurgence of protectionist tendencies In International trade is 
a worrisome development. Friction among trading partners has been 
intense, particularly with regard to the subsidization of agriculture 
and some declining Industries. The use of non-tariff measures to 
protect domestic products has Intensified In various parts of the 
world. The Community is committed to achieving by the end of 1991 an 
ambitious, global and balanced result to the Uruguay Round, which Is 
presently in a crucial phase. This is necessary in order to strengthen 
the multilateral trading system and to reverse the trend towards 
protectionism. Further delays could undermine the adjustment strategy 
of many developing and Central and Eastern European countries which 
have adopted an outward-looking market oriented approach to growth and 
- 31 -
development. The major Industrial countries carry a large 
responsibility In this area and should strive for an early conclusion 
of the Uruguay Round. 
A successful outcome of the Round would not only serve the interests 
of the Community by ensuring market access and reduced protection In 
the traditional areas of trade negotiations. It would also allow the 
extension of mult I laterally-agreed rules to new areas of great 
relevance for the Community: services, Intellectual property rights 
and International Investment. 
The negotiations between the Community and EFTA countries with the aim 
of erecting an European Economic Area have been concluded and will 
increase the benefits of the Internal market to an even greater area. 
By facilitating the flow of goods, services, capital and labour 
between the EC and EFTA, the agreement wl 11 make a further 
contribution to more competition and the improvement of the supply 
side of the economy. 
The Community is actively involved in assisting Central and Eastern 
European countries to advance political and economic reforms. The 
Commission not only manages the Community's own programmes of 
assistance, but Is also coordinator for the G-24, a group comprising 
all major industrialized countries. 
Assistance takes a variety of forms, Including support for economic 
reconstruction, food-aid and emergency assistance, technical 
assistance, balance of payments support, investment finance and export 
credits. The Community has become the main source of funds for 
Central and Eastern European countries, providing about half of the 
total aid they receive. Moreover, the Community has completed 
negotiation for Europe agreements establishing relations of 
association with Hungary, Poland and Czechoslovakia. These agreements 
- 32 -
will enable Central and Eastern European countries to participate in 
the process of European integration. They are of an overriding 
political and economic importance, at a time when these countries' 
reforms are at a crucial stage and their main traditional export 
market (the USSR) has collapsed. The establishment of free trade will 
encourage private investment in these countries, which is one of the 
main conditions for the economic reforms to be successful. The 
Community is ready to negotiate similar agreements with other Central 
and Eastern Europe countries which satisfy the necessary political and 
economIc condItIons. 
The Community has shown Its willingness to Improve access to its 
markets to Central and Eastern Europe for products with which these 
countries can compete effectively on world markets including, 
agriculture, textiles, coal and steel. Account should be taken of the 
implications and difficulties of this Improved access for the sectors 
and regions concerned In the Community. This Improvement in market 
access will not be carried out at the expense of existing commercial 
relations with other partners, In particular developing countries with 
which the Community has cooperation agreements. Such market access is 
critical for successful development of these economies. 
MAIN ECONOMIC INDICATORS 1989-1993 
Community, USA and Japan 
(a) 
B 
OK 
O 
GR 
E 
F 
IRL 
NL 
P 
UK 
EC 
USA 
JAP GDP at constant prices (1) 
(annual % change) 
1989 
3.9 
1.2 
3.3 
2.8 
4.8 
3.6 
5.9 
3.2 
6.1 
4.0 
5.4 
2.2 
3.3 
2.8 
4.9 1990 1991* 1992* 1893* 
3.7 
2.1 
4.7 
-.3 
3.7 
2.8 
5.7 
2.0 
.9 
3.9 
4.0 
.8 
2.8 
.9 
5.6 1.3 2 1/4 2 1/2 
1.8 3 3 1/4 
3.3 2 1/4 1 3/4 
.7 
2.5 
1.3 
-.4 
4.6 1 1/4 
3 
2 1/4 
1/4 1.3 2 
1.1 2 
3.0 3 1/2 
2 
3 1/2 2 
3 1/4 
2 1/2 
2 3/4 
2 1/2 
3 1/2 
2.3 1 1/4 2 
2.0 1 3/4 2 
-1.8 2 2 3/4 
1.3 2 1/4 2 1/2 
2 1/4 
3 1/2 (b) Domestic demand at constant prices 
(annual % change) 
B 
DK 
D 
GR 
E 
F 
IRL 
I 
L 
NL 
P 
UK 
EC 
USA 
JAP 1989 
4.9 
.3 
2.7 
3.3 
7.8 
3.2 
6.0 
3.6 
7.8 
4.9 
4.0 
3.1 
3.7 
22 
5.7 1990 1991' 1992* 1993* 
3,4 
-.7 
5.0 
3.3 
4.6 
3.2 
5.4 
1.9 
2 2 
36 
58 
-1 
2.9 
.5 
5.8 1.2 
.4 
3.0 
-.3 
3.1 
1.1 
.6 
1.5 
4.3 
2.1 
4.6 
-3.0 
1.1 
-1.0 
3.4 2 1/4 
2 
2 1/4 
1 
3 1/2 
2 
1 1/4 
2 1/4 
3 3/4 
1/4 
3 1/4 
2 1/4 
2 
3 3/4 2 1/4 
3 1/4 
2 
2 1/4 
3 1/2 
2 1/4 
1 3/4 
2 3/4 
3 3/4 
1 1/2 
3 1/4 
3 
2 1/4 2 1/2 
3/4 
(c) Deflator of private consumption 
(annual % change) 
B 
DK 
D 
GR 
E 
F 
IRL 
NL 
P 
UK 
EC 
USA 
JAP 1989 
3.5 
5.1 
3.1 
14.7 
6.6 
3.5 
3.9 
5.8 
3.4 
2.9 
12.8 
5.9 
4.9 
4.5 
1.7 1990 1991' 1992* 
3.5 
2.5 
2.6 
20.2 
6.4 
2.9 
2.6 
6.2 
4.2 
2.5 
13.6 
8.4 
52 
5.0 
2.4 3.2 
2.4 
3.5 
18.3 
5.8 
3.0 
3.0 
6.4 
3.4 
3.2 
11.7 
6.5 
4.4 
2.8 1/2 
1/4 
1/4 1993* 
14 1/4 
5 1/2 
1/4 
3/4 
3 1/2 
9 1/2 
4 1/2 
4 3/4 
2 1/2 3 
2 
4 
11 
5 
2 
2 
5 
3 
(*) Based on the forecasts of October 1991. 
( I) GNP for USA and Japan from 1990 onwards. 
Source : Commission services. 1/2 
1/2 
1/4 
3/4 
3/4 
1/4 
1/4 
3 1/4 
7 3/4 
4 
50 4 1/2 4 1/4 
5 
2 1/2 (d) Balance on current transactions 
(as a % of GDP) 
B 
DK 
D 
GR 
E 
F 
IRL 
NL 
P 
UK 
EC 
USA 
JAP 1909 
1.1 
-1.2 
4.7 
-4.8 
-3.2 
.1 
1.3 
-1.4 
34.4 
3.3 
-2.9 
-4.8 
-.1 
-1.9 
2.1 1991' 1992* 
1.0 
.8 
3.2 
-6.1 
-3.5 
-1.0 
3.4 
-1.4 
31.2 
3.8 
-.3 
-2.6 
-1.6 
1.2 1.0 1 
1.4 2 1/4 
-1.1 -1 
4.1 3 1/4 
-3.1 -3 1/4 
-.7 -3/4 
2.3 
-1.3 
28.1 
4.1 
-1.1 
-1.1 
-.1 
1.5 2 
-1 1/2 
26 
4 1/2 
-1 1/2 
-1 1/2 
-1 1993* 
1 1/4 
2 1/2 
-3/4 
-2 3/4 
-3 1/4 
-3/4 
1 3/4 
-1 3/4 
25 1/2 
4 3/4 
-2 1/2 
-1 1/4 
-3/4 
-3/4 -3/4 
1 1/2 1 3/4 
d3 
(e) 
B 
DK 
D 
GR 
E 
F 
IRL 
NL 
P 
UK 
EC 
USA 
JAP Number of unemployed as % of the 
civilian labour force 
8.5 
7.7 
5.5 
7.5 
17.1 
9.4 
16.0 
10.7 
1.8 
8.7 
4.8 
7.0 
8.9 
5.3 
2.3 1990 1991' 1992* 1993* 
8.1 
7.9 
5.1 
7.5 
16.1 
9.0 
15.6 
9.8 
1.8 
8.1 
4.6 
6.4 
8.4 
5.5 
2.1 8.6 8 1/2 
9.2 9 
4.6 5 
8.8 9 1/4 
15.8 15 1/2 
9.5 10 
16.8 18 
9.4 9 1/2 
1.6 1 1/2 
7.2 7 3/4 
4.0 4 1/4 
8.4 9 3/4 
8.6 9 
6.7 
2.2 7 
2 1/4 8 1/2 
8 1/2 
5 1/2 
9 3/4 
15 1/4 
10 1/4 
18 1/2 
9 1/4 
1 1/2 
7 3/4 
4 3/4 
10 
9 1/4 
6 3/4 
2 1/4 (f) General government lending and 
borrowing (as a % of GDP) 
B 
DK 
D 
GR 
E 
F 
IRL 
I (2) 
L 
NL 
P 
UK 
EC 
USA 
JAP 1989 
-6.7 
-.5 
.2 
-18.3 
-2.7 
-1.2 
-3.5 
-10.1 
4.3 
-5.2 
-3.4 
1.3 
-2 9 
-1.7 
2.5 1990 1991' 1992* 1993* 
-5.6 
-1.5 
-1.9 
-19 8 
-4 0 
-16 
-3.6 
-10.6 
4.7 
-5.3 
-5.8 
-.7 
-4.1 
-2.4 
2.2 -6.3 
-1.7 
-3.6 
-17.3 
-3.9 
-1.5 
-4.1 
-9.9 
1.9 
-4.4 
-5.4 
-1.9 -6 1/4 
-1 1/2 
-3 1/4 
-14 
-3 1/2 
1 3/4 
1/4 
4 
-4 1/2 
-3 1/2 
-2.3 
1.8 -5 3/4 
-1/2 
-3 3/4 
-10 1/4 
-3 1/4 
-1 1/2 
-4 
-9 1/2 
2 
-3 3/4 
-4 
-3 1/4 
-4.4 -4 1/2-4 1/4 
-1 1/2 
2 
(g) 
B 
DK 
D 
GR 
E 
F 
IRL 
I 
L 
NL 
P 
UK 
EC 
USA 
JAP Total employment 
(annual % change) 
1989 
1.6 
-.6 
1.4 
.4 
3.6 
1.1 
-.1 
.2 
4.0 
1.6 
1.0 
2.8 
1.5 
2.3 
1.9 1990 1991' 1992" 
.9 
-.4 
2.8 
.2 
2.6 
1.2 
1.3 
1.0 
4.2 
2.1 
1.1 
.4 
1.4 
.5 
2.0 -.3 
-1.0 
2.8 
-.8 
.7 
.4 
.0 
.9 
1.9 
1.0 
1.1 
-2.3 
-.8 
1.6 0 
0 
1 
-0 
1 1/4 
-0 
1/4 
1/2 
-1/4 
0 
-3/4 
1/4 
1 
1 1/2 1993* 
1/4 
1 
1/4 
1/4 
1 1/2 
1/2 
3/4 
3/4 
1 1/2 
-1/2 
1/2 
1/2 
1 1/2 
1 1/2 (h) Real compensation of employees per head 
(annual % change) (3) 
B 
DK 
D 
GR 
E 
F 
IRL 
NL 
P 
UK 
EC 
USA 
JAP 1989 
.1 
-1.6 
-.2 
2.9 
.5 
1.2 
2.2 
3.0 
3.0 
-2.4 
.8 
2.8 
1.1 
-1.0 
2.5 1990 199V 1992* 
2.8 
1.0 
1.5 
.0 
1.2 
1.9 
5.9 
3.9 
.8 
1.1 
3.7 
2.7 
2.3 
-.1 
1.8 1.9 2 1/4 
1.1 1 1/4 
2.6 1 1/2 
-1.7 
1.8 
1.5 •2 1/4 
1 1/4 
1 
3.5 3 
1.7 1 1/2 
1.3 1 1/4 
1.5 
6.6 
1.7 
2.0 
.3 
1.0 1/2 
1/2 
1/4 
1 1/4 
( * ) Based on the forecasts of October 1991. 
(2) 1992 and 1993 : Does not fully Incorporate the effects of the measures of the convergence program. 
(3) Deflated by the deflator of private consumption. 
Source : Commission services. 1993* 
1/2 
1/2 
-3/4 
1/4 
1/4 
1/2 
3/4 
1/2 
1/4 
-1/4 
Bk 
(I) Investment in construction at constant prices 
(annual % change) 
B 
DK 
D 
GR 
E 
F 
IRL 
I 
L 
NL 
P 
UK 
EC 1989 
8.9 
-4.6 
5.1 
2.0 
14.9 
5.3 
9.8 
3.6 
4.4 
1.6 
3.5 
2.5 
5.3 1990 1991' 1992* 
6.7 
-6.1 
5.3 
2.1 
10.7 
2.3 
8.4 
2.5 
.9 
1.3 
6.5 
-1.1 
3.6 -1.4 3 1/4 
-6.5 -1 
3.5 2 1/2 
-5.0 2 1/2 
5.3 4 
1.2 2 
-2.9 
.4 
5.8 
-.6 
4.5 
-12.9 
-.5 4 
1 1/4 
4 1/2 
-1 
3 
-3/4 
1 3/4 1993* 
2 3/4 
4 
1 3/4 
5 
4 
3 
4 
1 1/4 
3 
1 1/4 
4 
4 3/4 
2 3/4 (j) Investment in equipment at constant prices 
(annual % change) 
B 
DK 
D 
GR 
E 
F 
IRL 
r 
L 
NL 
P 
UK 
EC 1989 
18.2 
6.3 
10.0 
17.4 
13.0 
5.8 
15.3 
6.2 
26.3 
4.5 
10.0 
8.3 
8.5 1990 1991* 1992" 1993" 
10.3 
3.0 
12.9 
7.9 
1.2 
5.0 
6.8 
3.5 
6.0 
7.7 
8.5 
-3.6 
47 3.0 2 3/4 2 3/4 
3.0 5 10 
10.0 5 4 1/2 
3.0 4 1/2 
-2.5 3 
-1.8 1 1/2 
3.0 
4.5 
-12.8 -1 1/4 
3 
1 6 
4 
3 1/2 
1.8 3 3/4 4 1/2 
-1.1 3 1/2 4 1/2 
6.7 5 5 
1/2 
1/2 
2 1/2 4 3/4 
(k) Gross fixed capital formation at constant 
prices (annual % change) 
B 
DK 
D 
GR 
E 
F 
IRL 
I 
L 
NL 
P 
UK 
EC 
USA 
JAP 1989 
13.6 
.2 
7.1 
8.6 
13.7 
5.8 
11.3 
5.1 
13.4 
3.0 
7.5 
4.8 
6.7 
2.7 
11.0 1990 1991' 1992" 
8.3 
-1.9 
8.8 
4.8 
6.7 
3.8 
7.5 
3.0 
3.3 
4.2 
7.5 
-2.4 
4.1 
.9 
10.9 1.1 
4.5 
-12.8 
-4.4 
4.6 -3/4 
4 1/2 
3 1/2 1993* 
.6 3 2 3/4 
-1.9 2 7 1/4 
6.6 3 3/4 3 
-1.2 3 1/2 5 1/2 
2.2 3 3/4 4 
-.6 1 3/4 3 1/4 
-.4 3 3/4 4 1/4 
-.4 2 1/2 3 
6.2 4 3/4 4 
2 
3 3/4 
6 1/2 
2 1/4 3 3/4 
5 1/2 
4 (I) GDP per head (EC = 100) at current 
prices and current PPS 
B 
DK 
D 
GR 
E 
F 
IRL 
I 
L 
NL 
P 
UK 
EC 
USA 
JAP 1960 1973 1986 1992* 
95.4 
118.3 
117.9 
38.6 
60.3 
105.8 
60.8 
86.5 
158.5 
118.6 
38.7 
128.6 
100.0 
189.6 
55.8 101.2 
113.1 
111.1 
56.8 
79.0 
110.4 
58.9 
93.3 
141.9 
113.1 
56.4 
108.5 
100.0 
161.6 
96.2 100.6 
117.0 
114.0 
55.9 
72.8 
110.1 
63.4 
103.0 
126.2 
106.0 
52.5 
105.4 
100.0 
155.7 
110.6 103.4 
110.2 
113.6 
52.1 
79.9 
108.8 
68.9 
103.2 
130.0 
102.7 
56.3 
102.1 
100.0 
146.8 
124.3 1993* 
103.8 
111.4 
112.3 
52.0 
80.7 
108.8 
69.2 
103.4 
132.6 
102.0 
56.2 
102.5 
100.0 
145.9 
125.6 
(*) Based on the forecasts of October 1991. 
Source Commission services. 
25 

ISSN 0254-1475 
COM(91) 484 final 
DOCUMENTS 
EN 01 
Catalogue number : CB-CO-91-572-EN-C 
ISBN 92-77-78557-8 
Office for Official Publications of the European Communities 
Lr2985 Luxembourg