ARCHIVESHISTORIQUES
DELACOMMISSION
COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(80)377
Vol.1980/0135

Disclaimer
Conformément aurèglement (CEE, Euratom) n°354/83 duConseil du1erfévrier 1983
concernant l'ouverture aupublic desarchives historiques delaCommunauté économique
européenne etdelaCommunauté européenne del'énergie atomique (JOL43du15.2.1983,
p.1),telquemodifié par lerèglement (CE, Euratom) n°1700/2003 du22septembre 2003
(JOL243du27.9.2003, p.1),cedossier estouvert aupublic. Lecaséchéant, lesdocuments
classifiés présents dans cedossier ontétédéclassifiés conformément àl'article 5dudit
règlement.
Inaccordance with Council Regulation (EEC, Euratom) No354/83 of1February 1983
concerning theopening tothepublic ofthehistorical archives oftheEuropean Economic
Community andtheEuropean Atomic Energy Community (OJL43,15.2.1983, p.1),as
amended byRegulation (EC, Euratom) No1700/2003 of22September 2003 (OJL243,
27.9.2003, p.1),this fileisopen tothepublic. Where necessary, classified documents inthis
filehave been declassified inconformity with Article 5oftheaforementioned regulation.
InÜbereinstimmung mitderVerordnung (EWG, Euratom) Nr.354/83 desRates vom 1.
Februar 1983 über die Freigabe der historischen Archive der Europäischen
Wirtschaftsgemeinschaft undderEuropäischen Atomgemeinschaft (ABI. L43vom 15.2.1983,
S.1),geändert durch dieVerordnung (EG, Euratom) Nr.1700/2003 vom 22.September 2003
(ABI. L243vom 27.9.2003, S.1),istdiese Datei derÖffentlichkeit zugänglich. Soweit
erforderlich, wurden dieVerschlusssachen indieser Datei inÜbereinstimmung mitArtikel 5
dergenannten Verordnung freigegeben.

COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(80 )377 final
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Brussels /3rdJuly 1980
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Sorlic'uSvctciariat fcZ/
COMMUNICATION FROM THE COMMISSION TOTHE COUNCIL
ONTHE ECONOMIC POLICY TOBEFOLLOWED IN1980 AND
ONTHE PREPARATION OFPUBLIC BUDGETS FOR 1981
COM (80)377 final

Economictrendsandprospects
\•
Followingaperiodwithcomparatively favourablegrowthperformance
(3.4%onaveragefortheyears1976to1979)aslowdownofeconomicactivity
isnowunderwayintheCommunity.Asaconsequence mainlyofthedeflationary
impactofthe1979/80oilpriceincrease(estimatedat150%fromend1978
to1stJuly1980)realgrossdomesticproductoftheCommunityisexpected
todeclinefromthefirsttothesecondhalfof1980,butmayfortheyear
asawholeshowanincreaseofabout1.5%. '
Thecurrentlyavailabledatasuggestthattheexpansionary forces
mayregainacertainstrengthinthecourseof1981.Privateconsumption,which
islikelytostagnateinmostof1980,shouldrecoverundertheimpactoftheacce­
lerationofrealdisposableincomesresulting "fromaslowdownofpriceincreases
realtivetonomiYialincomes.Moreover,theprocessofinventoryadjustments,which
exertsahighlydeflationary inpactin1980,should "cometoanendandbesucceeded
inthesecondhalfof1981byamorenormalrateofinventoryformation.
Exports,notablytotheOPEC'countries,shouldremainafactorof-buoyancy
bothin1980and1981.Onthewhole,thegrowthofgrossdomesticproduct
isexpectedtoexceed2%inthesecondhalfof1981buttheaverageincrease
over1980mayamounttoonly0.5to1%.Theseforecastsare,however,the
aggregateresultofrelativelydivergentgrowthperformanceswithinthe
Community,withUnitedKingdomexpectedtoseeadeclineofGDPbothin
1980and1981,whereasotherMemberStateswillexperiencemorebuoyant
conditions.
Giventhatthe.slowdownofeconomicgrowthcoincideswitharelatively
large,inpartdemographicallydetermined,increaseinthelabourforce,an^
extensionofunemploymentisunavoidabledespitethefactthatshortageof
skilledlabourremainsinmanybranches.v
Thepriceincreasesforrawmaterialsandfuelsarenowbeing
reflectedstronglyontheretailpricelevel;insomeMemberStates,thishas
sparkedoffanewwaveofcompensatoryincomeadjustments,whereasothers
havesucceededtosomeextentinstemmingthesecondaryeffects.For
theCommunityasawhole,thedeflatorofprivateconsumptionIsexpected
torisebymorethan12%in1980.(partlyreflecting,however,increasesin..
indirecttaxes).Inthecourseofnextyear,therateofpriceincreases

shouldgetbackintosinglefiguresbutmayfortheyearonaverage(over
1980)remainabove10%.Thedifferencebetweenthelowestandthehighest
inflationratesshouldbereducedsomewhatcomparedtothe15percentage
pointsexpectedfor1980,buttheunderlyingrateofinflationwouldremain
5pointshigher1nItalyandtheUnitedKingdomthantheCommunityaverage,
and31/2pointshigherinIreland.
Ahighdegreeofdivergence wouldseemlikelytoprevailinthe
fieldofgeneralgovernmentborrowingrequirements,expectedtoamountto.
closeto12*ofGDPinIrelandandItalyandaround8%inBelgiumT "Withthe"
Communityaverageexceeding 4%.
FortheCommunityasawhole,thedeficitonthecurrentexternal
accountisexpectedtoexceed28mrdECUin1980andtodecreasetosome
22mrdECUin1981(includinganestimatedimpactoftheoilpriceincrease
decidedinJune1980).Twocountries(FranceandUnitedKingdom)are
expectedtoseeasharpimprovement intheircurrentexternalbalances,
whereas,onpresentpolicies,theothercountrieswouldseem.likelyto
experi«pceonlylittlechangeor(inthecaseoftheNetherlands )a
deterioration .Thecurrent ,externaldeficitofGermanyisexpectedto
amounttoabouthalfthetotaldeficitfortheCommunitybothin1980and
1981;itsfinancingisnotexpectedtopresentmajorproblems,whereasthe
deficitsenvisagedforDenmark(4%ofGDP>,Ireland(7%)and.
Belgium(5%)areasourceofpreoccupation .

PolicyissuesfortheCommunity
Φ
OnceagaintheCommunityisconfronted withtheeconomic ,
consequences ofamajorincreaseinthepriceofoil,creatingnewbalanceof
paymentsdisequilibria,acceleration ofinflation,additionalstructural
problemsandrealincomelos5forallcitizens.Moreover,asurplusis
expectedtoremainforseveralyearsonthecurrentaccountofthebalanceof
paymentoftheoil-exporting countriesincreasingtherebyconsiderably the
taskstobesolvedbytheinternational monetaryandbankingsystem.
IntheopinionoftheCommission,theCommunityisnotnecessarily
condemnedtoanextendedperiodofeconomicstagnation.However.,abalanced
economicgrowthandastrengthening ofemploymentopportunities caqnotbe
obtainedatthepresentratesofinflation.Areductionintherateofincrease
inpricesandwagesistherefore amainconditionforalastingimprovement
ofeconomicprosepcts.Given,moreover,thegravityofsupplyconstraints inthe
fieldofenergy,thepersistent shortageofskilledlabourinkeygrowth
sectorsandtheobsolescence ofpartsofthecapitalstock,atemporaryslow­
down-oftherateofexpansionofeconomicactivityseemsunavoidable .Enter­
/ '
prisesandconsumersneedsometimetoadjust,toanewsetofrelativecosts
andpricesandattemptstoforcethroughastrongerriseindemandwouldcarry
aheavyriskofacceleration ofinflation,additionalconstraints on-supplyof•
oilandotherrawmaterials andexternalfinancialdifficulties .
TheCommissioninsists,inparticular,upontheimportanceofthefor­
mulationandimplementation ofavigorousenergypolicyasasupportofgrowth.Such.
apolicy,aimednotablyatenergysavingandincreaseofdomesticenergypro­
duction,shouldbeaccompanied bya.strengthening ofthestructuralbaseof
theeconomythroughanincreaseintheinvestmentpropensity andsupply
orientedpolicies..-
TheCommunityisnowfacedwiththedangerthatstronglydivergent
priceandwagemovements mayreduceitscohesioninaperiodwithmajor
challenges.Theratesofpriceincreasesinmembercountries,whichinApril1979
u 9 .rangedfrom3.3to13.9%overayearearlier,inApril1980rangedfrom6to
/
22%.RatiosofpublicsectordeficitstoGDPare,insomecountries,twoto
threetimes-largerthantheCommunityaverage.Insomecountriesincreasesin
relativeunitlabourcostshaveresultedinadeterioration oftheexternalaccount
inadditiontotheimpactfromtheoilpriceincrease.Thediversityovprice
developments,budgetbalancesandexternalbalancesissuchthatthegeneral
policyguidelinesfortheCommunitymustbeinterpretedforeachindividual

-4
MemberStateinthelightofitsspecialsituationandpossibilities .
V•Intheopinionof"theCommissiontheneedforarapidreduction
ofthedegreeofdivergencyjustifiesacertainrankingofprioritiesin
MembeeStates*economicpolicy.Incountrieswheregeneraleconomicconditions
tasdescribedabovedivergesignificantly fromtheCommunityaverage,highest
prioritymustbegiventomeasuresofadjustment.Suchmeasuresshouldreduce
aggregatedemandthroughreductioningovernmentborrowingrequirements;but.
shouldalsoremovefactorsofinflationandexternaldisequilibrium operating .
on'thesupplyside,suchasproductivity andcostconditions.Quickresults
aredifficult,toobtaininthisfieldbutallpossibilities todampentheprice/-
wagespiralshouldbeexploited.Ahigherdegreeofconvergence ofprice/
wagemovementsintheCommunitywouldinparticular befacilitatediftherules
ofoperationofthestrongformalorinformalindexationmechanisms,which
existinsomeMemberStates,weremodifiedin,suchawayastoexcludethe
effectofexternalpriceshocksorothertemporaryfactorslikeincreases
inindirect,taxation^,without ,reducingthelevelofprotectionofthelower
incomegroups.Suchmeasuresofeconomicadjustment wouldpartlyimprovethe
overallexternalpositionoftheCommunity,andpartlybe.reflectedintheexternal
accouhtsofothermembercountries,wherefundamentalconditionsaremorestable."
Thelattercountriesshouldbereadytoaccommodatetheconsequences,ontheir
balanceofpayments,ofadjustmentpoliciescorresponding tothegeneralobjective
ofreducingdivergencewithintheCommunity. < ,
Adecline,recentlystarted,ofshort-terminterestrateswould
favourthepossiblerecovery,which>.on-thebasisofavailableevidence "could_
starttowardstheend,of1980.Suchadeclineshouldbeconsistent withthe
moneysupplytargetsof.MemberStates.Asinterestratesreflectexpected
ratherthanactualratesofinfation,inadditiontointernational interest-,.,
ratedifferentials ,adeclineinshort-termratescouldbethefirst :sign
ofachangeinpriceexpectations andwouldatthe.sametime.assisttheslow­
downof,priceincreasesthroughareductionofthe.financialburdensonthe
enterprisesector.Long-term ,rates ,onthewhole.arelikelytodeclinemore
slowlythanshort-termrates,althoughamajor.reductionofinflationary
expectations couldleadtoaswift.changealso,inthisfield.

WhilethebasicpolicystanceinmostMemberStatesappear
appropriateinviewofthecircumstances,acertainflexibility maybe
requiredinthefaceoftheuncertainties concerningcyclicaldevelopments
overthecomingyear.Amajorrecessioncoulddoconsiderable damagetothe
economyintermsbothofrealperformance andofacceleration ofcostpres-sures.
Incasetheslowdownofeconomicgrowthoverthecomingmonthsshouldprovemore
pronouncedthanhithertoforeseen,governments shouldthereforebeprepared ..
atleasttoaccommodate thebudgetaryconsequence ofalossoftaxreceipts.
Toconcludethereis,thus,nocrediblealternativeto
maintaining thepresentpolicystancefortheCommunityasawhole.Acertain
flexibility indemandmanagement would,however,becalledforiftheslowdown
ofactivityin1980and1981provedtobemuchmorepronouncedth|nnow
envisaged.MemberStateswithhighbudgetdeficitsand/orexternalfinancial
problemsshouldinanycasepursueeffortstoreduceimbalanceswithoutdelay.
Moreemphasisshouldbegiveninallcountriestosupplypoliciesand,notably,
policiestoeconomiseenergyandreducedependence uponimportedoil.
Closesurveillance andcoordination ofeconomicpolicywithin
N' ( ' •'
theCommunity-notablyofmonetarypolicyintheframeworkoftheEMS-remains
akeyelementinstabilisation effortsandcouldcontributeimportantlytoa
slowdownoftherateofinflationandtoareductionofthedegreeofinflation
divergence,necessaryconditionsforastrengthening oflonger-runprospects
forgrowthandemployment.