ARCHIVESHISTORIQUES
DELACOMMISSION
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DOCUMENTS "COM"
COM(78)398
Vol.1978/9027

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(78)398 Final
Brussels.24:thJuly1978
COMMUNICATION OFTHECOMMISSION TOTHECOUNCIL
ONTHEADAPTATION OFPUBLICBUDGETSFOR1978,ANDTHEPREPARATION
OFPUBLICBUDGETS FOR1979INTHEFRAMEWORK OF
THECOMMUNITY'SCONCERTED ACTION
C0M(78)398final.

TheCouncilwillon24thJulydiscusstheImplementation ofthe
commonapproachtoeconomicpolicydecidedonbytheEuropeanCouncilat
ItsmeetinginBremenon6-7thJuly1978.
TheCouncilwillalsocompleteitssecondexamination ofthe
(1)economicsituation 1ntheCommunity
TheEuropeanCouncil.atBremen,decidedthattheCommunity
»
andtheMemberStatesshouldcloselycoordinatetheiractionwiththe
othermajorindustrialcountrieswhicharetheirpartners,sincethe
problemsinvolvedwillbeovercomebetterbymeansofcloseinternational
cooperation extendingbeyondEurope,inwhichheedmustalsobepaidtothe
developingcountries'interests .TheCouncilwilldiscussinthisregardthe
resultsofthemeetingofHeadsofStateandGovernmentoftheseven
majorindustrialnationsinBonnon16and17thJuly1978,atwhichthe
Community wasrepresented bythePresidentoftheCouncilandthePresident
oftheCommission.Itistobenotedthatthestrategies workedout
atthetwomeetingsaremutuallyreinforcing .
Inadditiontosettinginhandfurtherworkonmonetaryquestions,
andwithaviewtoabetterconvergenceofgrowthandeconomicpolicy,
theCouncilisinvitedtoagreetothebudgetarypolicycontributions
ofeachMemberState,thusdetailingfurtherthecommonapproachadopted
bytheEuropeanCouncilatBremen.Itisrecalledthatthegeneralconclusions
ofthePresidencyoftheEuropeanCouncilatBremenwereasfollows:
(1)InconformitywiththeCouncilDecisionof18thFebruary1974onthe
attainmentofahighdegreeOfconvergence oftheeconomicpoliciesofthe
MemberStatesoftheEuropeanEconomicCommunity.

"TheEuropeanCouncildecidedonacommonapproach1norderto
achieveaconsiderably higherrateofeconomicgrowthandthusreduce
thelevelof,unemployment InEuropebyfightingInflation,establishing
agreatermeasureofmonetarystability,expandinginternational trade,
achievingprogressintheenergysector,reducingregionaldisparities
andstimulating demand.Inpursuingthiscourse110newdangersmustarise
tothreatentheeconomicbalance.Inparticular,theeffortstoreduce
Inflationanddisparitiesincostandpricetrendsbetweentheindividual
countriesmustbecontinued.
Acommonapproachbymeansofcomplementary measureswillhelp
tominimizetheInternalandexternaleconomicpolicyconstraints of
Individual MemberStatesandincreasetheeffectiveness ofsuchmeasures.
AllMemberStateswilltakethenecessarymeasuresaccordingto
theroomformanoeuvreundertheirrespectiveeconomicpolicies.Thescope
availabletoIndividual MemberStatesdepends,ofcourse,ontheirdifferent
situations,notablythesuccessoftheireffortstofightinflation,their
balance-of-paymentssituation,theirforeigncurrencyreserves,thesize
of,theirpublic.-sector deficitsandtheextentoftheirunusedproduction
capacities.Countrieswithoutinflationandbalance-of-paymentsproblems
willdomoretoincreasedomesticdemand,inparticularinvestment demand.
Countrieswithsteeplyrisingpriceswillfirstconcentrateinparticular
onundesirableinflationary developments .
Thiscoordinated approachinallareasofeconomicpolicyshould
help,strengthentheconfidenceofinvestorsandcortsumersinlonger-term
growthperspectives".
TheconcertednatureofthisactionmakesitpossibleforMemberStates
toprovideformeasureswhichwillbetoalargeextentadditionaltowhat
wouldotherwisehavebeenpossible.

3.
Il
Thecontributions ofIndividual MemberStatesthroughbudgetary
policytotheconcertedactionoftheCommunitywillbeasfollows:
(1)InDenmark,themarginformanoeuvre1sextremelylimited.Asa
•■contribution totheconcertedaction,however,personalIncome-tax
concessions amountingto500mill,kr.,or0.2percentofGDP,
/willbemadeInthe1979budget(beyondtheautomaticadjustments
thatarelegallyprovidedfor),andthisactionwillbefurther
linkedtosecuringastability-oriented outcometoforthcoming -
incomenegotiations .Thepublicsectorborrowingrequirement mayalso
beallowedto.widensomewhat.
(11&Intheframeworkofconcertedactionthecontribution ofthe
l
FederalRepublicofGermanywillbetoproposebytheendof
Augusttothelegislative bodiesadditional andquantitatively
substantial measuresupto1percentofGNP,designedtoachieve
asignificant strengthening ofdemandandahigherrateofgrowth.
Theorderofmagnitudewilltakeaccountoftheabsorptive
capacityofthecapitalmarketandtheneedtoavoidinflationary
pressures.Thechoiceofspecificmeasureswillhaveto.depend
onthetime-lagswithwhichtheimpactoneffective demandcouldbe
achieved. •
(111)InFranceimprovedeconomicprospectshavebeenestablished in
recentmonths,inpartthroughmeasurestoassureamorehealthy
„functioning ofthepricemechanism.Animportantaspectofthese
measuresistomakeavailabletoenterprises theresourcesnecessary
tostrengthen Investment'.Intheframeworkofconcertedaction
the1978budgetdeficitwillbeincreasedby0.SpercentofGDP.
Theframingofthe1979budgetwillfurthercontributetothecommon
strategy,withincreasesintransferpaymentstocertaincategories
ofhouseholds anddefermentofdiscretionary actiontoreducethe
budgetdeficitbeneaththelevelforeseenfor1978.
/

(iv)InIrelandanexpansionary policyin1978issustainingthehighest
rateofgrowthintheCommunity.ConcertedactionwillhelpIreland
towardstheobjectivessetoutintherecentGovernmentGreenPaper
"DevelopmentforFullEmployment",and,notablyachievein1979
acontinuedstronggrowthofoutputwithareductioninthecentral
governmentborrowingrequirementto101/2percentofGDP(compared
to13percentin1978).Ireland'sowncontribution willtherefore
bemodest.However,somefurthergrowth-oriented measureswillbe
takenin1979,involvingashiftofbudgetaryresourcesfromcertain
categoriesofcurrentsubsidiesintoexpenditures withgreater
employment-creating effects.TheCommunitywillforitsparthelp
strengtheninvestmentthroughapriorityintheallocationofits
financialresources.
(v)InItalythepriorityobjectiveofconcertedactionistoattaina
durablerealgrowth,within1979anincreaseintherateofgrowth
of11/2percenthigherthanin1978,throughareductioninthepublic
sectordeficitandtheestablishment ofasounderfinancialbasisfor
futuredevelopment .In1978therehasalreadybeenasubstantial increase
inthepublicsectordeficit(enlargeddefinition)from12.1percentof
GDPin1977.TheItalianGovernmentisintroducing measurestoreduce
thisdeficitsignificantly intheremainderof1978,andin1979.Tothis
end,budgetarymeasuresarenowbeingpreparedtoraisecertain
taxesandpublictariffs,reducepublicexpenditure,and'solimitthe
publicsectordeficitin1978to31,500billionLire(15.7percent
ofGDP).For1979furthersignificantprogressmust,withthesupport
ofthesocialpartners,bemadeinreducingthisdeficitasapercentage
ofGDP,principally throughmeasurestostemthenominalgrowthof
socialtransferpaymentsandpublicconsumption,andtoreducesubsidies
*
tonationalised enterprises.Inthecontextofstrongergrowthprospects
inEuroperesulti-ng--from-concertedaction,theobjectiveistoreduce
theenlargedpublicsectordeficitbysomewhatinexcessof1percent
ofGDPbycomparisonwiththerevisedobjectivefor1978,withfurther
reductionstobeplannedforthefollowingtwoyearsinthecontext
ofthenewtriannualbudget-programming envisagedbytheGovernment.
TheCommunitywillforitsparthelpstrengtheninvestmentthrougha
priorityintheallocationofitsfinancialresources.
••tmm

(vi)IntheNetherlands,theauthorities haverecentlyrevisedtheir
medium-term budgetpolicyorientations onthebasisofaforecast
medium-termrateofgrowthofDutchrealnationalincomeof3percent
Althoughthebudgetarypolicyincentiveistoreducethefinancial
deficitofthepublicsectorto4-5percentofnationalincomein
198?,•intheshortrun,andnotablybecauseofthegreatermargin
ofmanoeuvremadeavailablebytheconcertedaction,thestanceof
fiscalpolicywillbeexpansionary .Inmid-1978theauthorities
implemented newinvestmentincentivesandreducedemployer.s'social
securitycontributions .Thedeficitwillriseasaresultoffurther
measurestobetakenintheframeworkofthe1979budgetby1percent
ofnationalincomebycomparisonwiththe1978level.Thesemeasures
willincludeincentivesforenergy-saving investmentandforimproving
thefunctioningoflabourmarkets,andastabilisation oftheburden
oftaxesandsocialsecuritycontributions .
(vii)InBelgium,theriseinthepublicsectordeficitin1978,duein
parttotheslowerthanforecastexpansionofactivityandofincomes,
hasledtheauthoritiestoproposeaseriesofrestrictive measures
(increasesintariffs,tighteningofcertaincurrentexpenditure
programmes)andtorequestspecialpowers-lastingtotheendof
1978-tomakeadditionaleconomiesinthe1978budgetas.wellasin
thebudgetfor1979nowunderpreparation.Thesemeasuresareintended
toprovidemoreroomforexpenditure-favouring investmentandfor
taxreductionsbenefitingchieflysmallandmedium-sized enterprises.
Estimatesoftheoverallbudgetimplications ofthemeasurestaken
orenvisagedarenotyetavailable.However,preliminaryindications
suggestthatthedeficitforthepublicsectorasawholemaybe
expectedtoincrease.from5.3percentofGDPin1977to5.7percent
in1978.In-viewoftheincreasedmarginofmanoeuvrederivingfrom
concertedaction,theBelgianauthorities envisagefor1979afurther
increaseinmeanstobedevotedtothestimulation ofprivateinvest­
mentand/oralleviations inthefiscalorpara-fiscal domains.

6.-
(viii)Luxembourgwillbeabletocontributewithafiscalstimulusin
excessof1percentofGDP,throughincometaxcuts,increased
transfer'paymentstocertaincategoriesofhouseholdsandaidsto
investmentandindustrialreconversion,thesemeasuresprincipally
takingeffectthroughthe1979budget.
(ix)Asacontribution towardstheconcertedactionprogramme,theUnited
KingdomGovernmentannounced,initsAprilBudgetproposalsfor
1978/79,taxcutsof2billionpounds(or11/4percent.ofGDP)*
Theseproposalsusetheroomformanoeuvrecreatedbythestabil­
isationpolicyofthetwoprecedingyearsandraisetheforecast
PublicSectorBorrowingRequirement (PSBR)for1978/79uptothe
limitcommunicated totheInternational MonetaryFund(asconfirmed
inthestand-bycreditrenewalinMay1978).Becauseoftheamendments
madebyParliamenttotheBudgetproposals,whichfurtherraised
theforecastPSBRtheU.K.authorities wereobliged,inearlyJune,
totakerestrictivefiscalandmonetarymeasuresinordertorestore
theborrowingrequirementtotheintendedlevel,andtoensurethat
monetarygrowthremainedwithinthelimitsannounced.Whethera
furthermodeststimuluscouldbeconsideredlaterwoulddependupon
theprogressofconcertedactionandtheUnitedKingdom'sfinancial
andeconomicsituationatthetime.
TheCouncilwillatitsforthcoming meetingsreviewtheimplement­
ationofthisprogrammeofconcertedaction,notablyinthecontextofits
thirdexamination oftheeconomicsituationintheCommunitylaterin1978
andinestablishing atthattimeeconomicpolicyguidelinesfor1979.

PROPOSAL FORACOUNCILDECISION
of24thJuly1978
ontheadaptationofpublicbudgetsfop1978
•. .andthepreparation ofpublicbudgetsfor1979
intheframeworkoftheCommunity'sconcertedaction
THECOUNCILOFTHEEUROPEAN COMMUNITIES/
HavingregardtotheTreatyestablishing theEuropeanEconomicCommunity,
HavingregardtotheCouncilDecision74/120/EECof18thFebruary1974onthe
attainmentofahighdegreeofconvergence oftheeconomicpoliciesofthe
MemberStatesoftheEuropeanEconomicCommunity (1),andinparticular
Articles 1and3thereof.
HavingregardtotheproposalfromtheCommission,
WhereastheCommunityispursuingaprogrammeofconcertedaction
HASADOPTEDTHISDECISION :
Article 1
MemberStatesshallpursueeconomicpolicieswhichconformtotheguidelines
ontheadaptationofpublicbudgetsfor1978andthepreparation ofpublic
budgetsfor1979setoutintheAnnex(2).
Article2
ThisDecisionisaddressedtotheMemberStates.
DoneatBrussels,24thJuly1978.
FortheCouncil
ThePresident
(1)OJNoL63,5.3.1974,p.16.
(2)PartIIoftheCommunication totheCouncil.