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COM (83) 154 
 
 
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In accordance with Council Regulation (EEC, Euratom) No 354/83 of 1 February 1983 
concerning the opening to the public of the historical archives of the European Econom ic 
Communit y and the European Atom ic Energy Communit y (OJ L 43, 15.2.1983, p. 1), as 
amended by Regulation (EC, Euratom) No 1700/2003 of 22 September 2003 (OJ L 243, 
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file have been declassified in conformity with Article 5 of the aforementioned regulation.  
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COMMISSION OF THE  EUROPEAN  COMMUNITIES 
COM(83)  154 final 
Brussels,  16th March 1983 
THE ECONOMIC AND SOCIAL SITUATION IN THE COMMUNITY 
(Communication from the Commission to the  Council, 
in accordance  with  Article 2 of the Convergence 
Decision  of 18th February 1974) 
COM(83)  154 final 

THE ECONOMIC AND SOCIAL SITUATION IN THE COMMUNITY 
CONTENTS 
1. Introduction 
2. The facts and immediate prospects 
3. Guidelines 
Tables 1-3 : Main economic indicators  1981-83 

I. Introduction 
In early 1983, the Community economy is hesitating. 
1. Recent indicators point to some incipient recovery in a number of 
Member States  that  is attributable  in part  to the more favourable trend 
of the US economy since the end of 1982, to the downward movement in 
interest rates internationally and,  with  some reservations, to the 
prospect  of an easing of the oil constraint. 
This  does not mean  that  the end to the recession is already assured. 
The favourable developments observed still need to be confirmed as to 
their scale and duration. In addition, many of the world's economies 
have not as yet adjusted sufficiently to the consequences of the 1979 
oil shock and the trend in the dollar since 1980. The international 
financial situation also needs to be closely monitored. 
2. There is thus the chance of a positive turnaround, but  there  are also 
uncertainties. This chance to  start  bringing down unemployment through 
non-inflationary and hence sustained growth is offered to us for the first 
time  in several years and must be seized. 
For this reason, the ways and means of accentuating the favourable 
tendencies  and initiating a period of sound growth must be the main point 
of the debate  that  is started at this European  Council,  will  continue at 
the OECD  and at the Williamsburg Summit, and  will  be completed at the 
European  Council to be held in June. 
3. This memorandum should help to launch the  discussion  and prepare the 
ground  for follow-up action at Community level: 
- it gives a brief description of the current economic situation and of 
the outlook for the immediate future, 
- and sets out a number of thoughts on how to manage the recovery,  that 
is to say on how to reinforce it and make it last. 

- 2 -
II. The present situation and immediate outlook 
A. Developments in 1982 
1. On account of a very pronounced fall-off in the third quarter, growth 
in the Community in 1982 was weaker than forecast: it was 0.2% in volume 
terms,  with  Denmark showing the largest increase of 2.3% and Germany and 
the Netherlands recording declines of 1% and 1.5% respectively. This 
experience was common to all the industrialized countries, their real 
output falling in 1982 for the first  time  since 1975. 
Much  of the deterioration was due to the combined impact of: 
- a worsening in the recession in the United States,  where  real GDP 
declined  by 1.7%; 
- a contraction in world  trade  attributable  to cyclical conditions but 
also  to the growing difficulties in international financing. World 
trade, which had expanded at an average annual  rate  of 6.9% in volume 
terms between 1976 and 1979, declined by 1.5% in 1982,  after  having 
been  flat  in 1981. 
2. The number of people out of  work  continued to climb, to reach 9.6% 
of the labour force in 1982 on average, i.e. a level 75% higher than in 
1979. As a result, unemployment in the Community, which, on average, 
has not shown any contraction since 1973, has risen steadily since 
1978/79. 
3. Two more positive aspects should be stressed: 
- inflation, which dropped from 11.8% in 1981 to 10.5% in 1982, has eased 
in all Member States. However, the slowdown is less pronounced than in 
the United States or Japan and,  what  is more, quite marked divergences 
are still discernible  within  the Community.  Inflation  is below 6% in 
Germany and the Netherlands and has been brought down from 15.5% in 
1980 to 8.5% in 1982 in the United Kingdom but it is still running at 
over 15% in Greece,  Ireland  and  Italy; 
- for the Community as a whole, progress in bringing the current account 
of the balance of payments back into equilibrium has been faster than 
anticipated; the deficit was equivalent to only 0.5% of GDP in 1982 
compared  with  1.3% in 1980. 

- 3 -
Here too, the overall result masks sharp divergences between Member States. 
Belgium,  Denmark, Greece, France,  Ireland  and  Italy  are in deficit while 
Germany,  Luxembourg, the Netherlands and the United Kingdom are running a 
surplus,  in some  cases  a large one. 
B. Outlook for  1983 
1. The forecasts at present available for  1983  are subject to three external 
factors of uncertainty: 
- the first is the scale and duration of the US recovery, which are bound up 
inter alia  with  the prospects for interest rates, themselves dependent to 
a large degree on how developments in the Federal budget deficit  will  affect 
monetary policy; 
- the second factor of uncertainty has to do  with  international financial 
developments; 
- lastly, there is no way of knowing at the moment  what  the full  extent  or 
effects of the fall in oil prices  will  be. 
Confirmation of the upturn in the US economy and, under certain conditions, 
a decline in oil prices should make it easier for the European economy to pick 
up again, although the combined effect of these two factors cannot be expected 
to alter fundamentally the profile for  1983. 
2. The poor performance in the third quarter of  1982  has made it necessary to 
revise  the GDP forecast for  1983  downwards for virtually all Member States 
(an increase of only  0.4%  in volume terms compared  with  one of just over  1% 
forecast  at the end of last year). Growth is expected to pick up during the 
seconu  half of the year, helped by restocking, some support from public-sector 
demand and a recovery in exports, while private consumption and, at least in 
the first half of  1983,  investment are unlikely to make any major contribution 
to a revival in activity. 
These  forecasts are based on a very cautious assumption regarding oil prices. 
All in all, in the present cyclical situation, the strength and duration of the 
hesitant expansion which is now getting under way are not assured even if the 
tendency towards recovery  were  to be more pronounced than expected. 

- 4 -
3. According  to present forecasts, there  will  probably  be a  further 
slowdown  in the  rate  of inflation:  in 1983,  this  rate  is likely  to be 
8.6% for the  Community  as a  whole, which  is the  lowest  for  seven years 
(with  the  exception  of 1978  when  it was 7.1%).  While  the  need  for 
consolidation  remains  as pressing  as ever  and  differences  in inflation 
rates  will  not  disappear,  1983 is  likely  to see  some narrowing  of the 
differences  in price rises  within  the  Community:  the  rate  of inflation 
will  probably  be slow  in the  Federal Republic  of Germany  and the 
Netherlands  and  relatively moderate  in many countries (Belgium, Denmark, 
Luxembourg,  France  and the  United Kingdom). 
4. Unemployment,  on the  other hand,  is likely  to continue  to rise  in 
1983 throughout  the  Community:  the  average  rate  of unemployment  as a 
proportion  of the  labour force  will  easily exceed  10% in 1983,  giving 
a total  of more than  12 million jobless;  the  rates  of increase  will 
vary from  one  Member State  to another. 
5. The  prospects  in 1983  should  see  further improved equilibrium  in 
the balance  of payments  on current account,  with  the  deficit  for the 
Community  as a  whole likely  to fall  to  approximately  0.3% of GDP, 
notably  as a  result  of reduced deficits  in Belgium, Denmark, France, 
Ireland  and Italy. 
III. Guidelines 
Despite  the  modest outlook  for  growth  and the  present uncertainties, 
there  is a  possibility  of a  change  of trend,  of a  gradual upturn  in the 
economy  and  therefore  of a  check  to and  then  a reversal  of the  unemploy­
ment trend.  If we  miss this opportunity,  the  danger  of continued 
stagnation  is likely  to increase.  It is  therefore more than ever necessary 
to define  a common approach which  can  encompass  the  various elements  of 
healthy  and  sustained growth. 
The following three  lessons  can be  drawn from  the  experience  of recent 
years: 
(a) The  crisis,  which  is both cyclical  and  structural  in nature, calls 
for national policies which  are  directed equally towards stability 
(the fight against inflation)  and - if the  employment problem  is to 
be solved  - towards  the  development  of productive activities through 
creation  of the  conditions necessary  for  growth (improvements  in 
supply,  investment, mobility  and  competitiveness).  No  international 
cooperation  will  remove  the  need  for  such  efforts. 

- 5 -
(b) The Community, which is a Large integrated market heLping, through 
the EMS, to  puLL  individual policies closer together and so to 
make them more effective, which acts as a catalyst for the strategies 
pursued  in the fields of investment, industrial de\-'  • , men" 3nd energy, 
and which is an influential spokesman in dealings  with  the outside 
world, is an asset which must be exploited at ail  costs.  This theme 
is one which constantly underlies the Commission's actions 2nd which 
the European Council has begun to examine. The fact  that  It is not 
set out in detail in this Communication in no way lessens the degree 
of priority it is given nor the obligation to observe the p ogrammes 
laid down and to propose new courses of action. 
(c) Economies are now so interdependent  that  no national policy can be 
sure  of success  without  an orderly external framework. It is this 
order which is lacking, depriving economies and firms of a suffici­
ently stable environment, distorting expectations and altering 
management conditions through abrupt and unforeseen changes which do 
not reflect economic fundamentals. The economies which are most 
market-oriented cannot endure the present level of disorganization 
in the international economic system. Here lies also one of the 
dangers of rising protectionism, which we must join forces to roll 
back.  The Community must cooperate  with  its main partners in order 
to assure the international conditions of a recovery - particularly in 
trade, financial, monetary and interest  rate  policies, but also in 
the economic domain proper. 
This  document, drawn up ahead of important international meetings, is 
largely centred on this final aspect. If recovery is to be brought about, 
it is not so much ad hoc measures, however firm they may be, but rather the 
awareness of interdependence and the manner of administering  that  inter­
dependence  more effectively which must form the substance of future concerted 
action. 
It is  with  this in mind  that  the  Commission,  aware  that  the evidence 
which it has cited is now beginning to be generally accepted, proposes  that 
discussions  should cover five points relating to the strengthening of inter­
national economic organization or to the search for a cohesion in national 
policies  which  will  improve the chances of a return to growth. 

- 6 -
A. The security of the international financial system 
1. The level, in absolute terms, of the indebtedness of the developing 
countries,  the level of real interest rates and the effects of stagnation 
have created strains in the international financial system. Reactions 
have been rapid and effective: the amendment of the General Arrangements 
to Borrow, the increase in IMF quotas and the way in which a number of 
specific  cases  have been settled all bear witness to this  faet. 
2. These results do not obviate the need for continued and more thorough-
going  work  to consolidate a still fragile situation. In addition to the 
decisions  already taken,  lessons  must be  learnt  from developments which 
the western world has been unable to  ward  off. 
Priority must be given to establishing an information and monitoring 
mechanism,  to reinforcing the capacity of the international financial 
system  as a whole to react, and to improving preventive machinery. In 
these various fieids, the Community must define common positions and co-
operate  with  its partners in order first to consolidate the results 
achieved  and then to establish means of preventing a repetition of similar 
situations. 
3. The solutions adopted  will  have to  take  account of a  second  factor: 
one of the reasons for the present stagnation lies in the low level of 
international demand. The Community and its Member States must therefore 
actively help to maintain an adequate flow of funds to the developing 
countries,  both via the banking sector and through official development 
aid. The aim must be to carry out the necessary adjustment and at the 
same  time  to maintain international  tråde  at an adequate level. 
This  last point is all the more important in  that  the health of the 
international financial system  will  depend greatly - through the develop­
ment of  tråde,  improved terms of  tråde  and the reduction of indebtedness -
on strong and lasting growth. 

- 7 -
B. The stability of the international monetary system 
1. One of the major  lessons  to be  learnt  from recent events is  that  the 
international economy can no longer withstand upheavals in its essential 
components.  This applies not only to energy prices and interest rates, 
but also to exchange rates. 
Volatile exchange rates, whose financial function is ominously tending 
to supplant the  tråde  function: 
- make business decisions more difficult at a  time  when a vigorous 
investment  effort  is a key condition for recovery; 
- above all, disrupt  tråde  relations to an intolerable  extent,  and jeopardize 
the maintenance of  free  tråde. 
2. The EMS, an essential element of stability, has shown, despite its 
setbacks,  the value of systematic monetary cooperation. It is a major 
asset  for internal Community purposes and a valuable means of influencing 
international monetary developments. Consequently: 
- the Council of Ministers, and subsequently the European  Council,  should 
give careful thought to strengthening it and extending it to include 
sterling and the drachma; 
- for the reasons which led to the setting up of the EMS and for basic 
economic  reasons, the Community must get its partners to share its 
determination to stabilize international exchange  rate  relationships. 
3. A step in this direction was  taken  at the Versailles summit. The 
Community must not be content  with  adopting a common position on the follow-
up to the study of intervention problems. It must also persuade the United 
States and Japan of the importance of bringing exchange rates more into 
line with  economic facts and of bringing down real interest rates. It must 
put across  to them its view of how monetary cooperation should be organized. 
The Commission  will  put forward guidelines for this purpose and hopes  that 
a Community position on these points can be voiced clearly at Williamsburg. 

- 8 -
C. Oil prices, growth and energy policy 
1. The recent drop in oil prices is Likely under certain conditions to 
produce  a moderate but real increase in growth, and this is to be welcomed. 
However, the net results are difficult to forecast in any detail: they 
will depend on the impact of physical, financial and psychological threshold 
effects. Price falls  that  are visible but smooth are likely to be beneficial 
in terms of prices, external equilibrium and growth,  without  affecting unduly 
the pursuit of energy policy. But tumbling prices would jeopardize the policy 
on energy restructuring and impose strains on the international financial and 
trade  equilibrium. 
2. The Community must therefore help to keep  matters  on an even keel; this 
requires close cooperation  with  the Community's partners, notably the 
industrialized countries, so as to ensure a common view and consistent 
attitudes, including, if necessary, the provision of safety nets. 
In this area of essential importance for economic growth and the pursuit 
of energy objectives, the Community must establish its general approach at 
the highest level. It  will  then be for the Commission and the Council of 
Ministers to implement it and follow up its effects. 

- 9 -
D. Monetary policy 
1. In last December's guidelines, priority was given,  < ' -. -ver  '..conomic policy 
conditions  allowed, to the pursuit of monetary policies  that  would make for a 
fall in real interest rates and underpin the recovery in grow':!':. 
2. The Commission  proposes  that  the European  Council  confirm this priority. 
It is a key element in consolidating the recovery both  within  the Community 
and internationally, especially as a fall in real interest rates is the best 
way of stimulating investment and reducing the burden of internal and external 
indebtedness. 
It is therefore essential  that  those Member States which have been the 
first to achieve favourable results in terms of inflation and the balance of 
payments  (the Federal Republic of Germany, the Netherlands and the United 
Kingdom)  should pursue their monetary policy  with  the degree of flexibility 
and openness  that  is consistent  with  a steady and lasting fall in real interest 
rates.  Closer  monetary policy coordination and greater efforts to achieve 
economic  convergence  within  the EMS would help to extend the benefits of this 
policy  to the whole of the Community. 
3. The same need to provide rapid support for the early  signs  of recovery is 
evident at international level, especially as the results achieved in the 
United States  will  be decisive even for the  success  of our own efforts. The 
Community  must endeavour to get its main partners to recognize explicitly the 
central role of lower interest rates in improving the economic situation and 
the need to pursue the measures  that  will  allow this objective to be attained, 
and to affirm their desire to establish the necessary  close  cooperation. 

- 10 -
E. Public finance 
1. With  regard to public finance, the two-pronged approach adopted in December 
remains entirely valid. The first element was the steadfast pursuit of efforts 
to bring the deficits and the growth of the budget aggregates under control and 
to change the emphasis of budget structures,  with  a shift towards investment. 
But provided  that  this general line was observed, a  second  element was  that  in 
certain Member States, for example the Federal Republic of Germany and the 
United Kingdom, when the results of current policies permitted, public finance 
could  be used to fuel the upturn, in fostering the development of productive 
activities by stimulating investment, adjusting  taxation  or reducing company 
costs. 
2. At any event, the present situation holds out two definite, and one  possible, 
courses  of action for these few countries in the use of public expenditure: 
- the  basic  principle to be respected absolutely must be to restore or to 
reinforce confidence in governments' ability to bring budgets under control; 
this means  that  every instance of the use of public finance must be 
compatible  with  the  fight  against inflation, must comply  with  the imperatives 
for restructuring public expenditure, and must not impede the rundown of the 
deficits;  these are the essentials for credibility in a situation  where  Lack 
of confidence is rife; 
- even if the "automatic stabilizers" must, in any event, operate on the 
assumption  that  developments are disappointing, they must not be allowed, 
with  the first uncertain  signs  of recovery, to move prematurely in the 
direction of lowering deficits; 
- lastly, despite the hopes  that  the economic situation  will  improve, should 
it not do so as rapidly and as substantially as wished,  there  is no reason 
why, in the present situation, certain Member States should rule out the use 
of cyclical  budgetary action which satisfies the above conditions and  will 
consolidate  an upturn which is still hesitant. 
By "automatic stabilizers" is meant those public expenditures or receipts 
whose impact tends to  attenuate  economic fluctuations. 

- 11 -
The question whether to pursue  such  a course of action must be decided 
soon,  i.e. as  soon  as the facts are clearer, so  that  if it is decided 
to go ahead action can be taken at the right  time  in the  cycle.  The 
decision  ought to be taken as  part  of the process of determining inter­
nationally coordinated economic action in the few weeks between the 
next European Council meeting and the Williamsburg Summit. 
To permit Europe to approach the forthcoming international meetings in a 
position  of initiative, the European Council should approve the proposed 
guidelines  on the five main domains of action indicated above, and  take 
the procedural decisions necessary for the Council of Ministers to assure 
their rapid and precise implementation. 

TABLE  1 : Gross  domestic product at constant and current prices, and 
deflator  of GDP  (percentage  change  on preceding  year,  EC 
countries.  FX",  198I-I983) 
al constant price* GDP  deflator at current prices 
1981 1982 1983 1981 1982 198.1 1981 1982 1983 
B - 1,7 -0,7 -0.4 5.4 7.7 6,6 3.6 6,9 6,2 
DK 0.1 2.3 0,9 10.9 10.3 7,7 10.9 12,8 8.6 
D 0.1 - 1.0 -0.2 4.2 4.8 3,9 4.2 3,7 3.6 
GR -0,7 0.4 0,8 19.7 18.1 20.9 18.9 18.5 21.9 
F 0,3 1.4 0.8 11.7 11.3 10,3 12.0 13.4 11.2 
1RL 1,1 1,4 1.5 17.8 18.5 12.5 19,0 20,2 14.2 
1 -0,2 -0.2 -0.3 17.6 17.6 15.0 17.4 17.5 14.7 
I. - 1.8 - 1,6 - 1.1 8.1 8,6 8.5 6.1 6.9 7,3 
NL - 1.2 - 1.5 0.1 5,6 5.9 1.7 4.3 4.3 1.8 
UK -2,0 1,2' 1.5 12.1 8,2 5.8 9,9 9,5 7.4 
EC -0.4 0.2 0.4 10,6 10.5 8.6 10,1 10.7 9.1 
.' Expendilure-based measure. The compromise estimate which also takes into account the 
output and income measures of GDP is expected to rise by 0,75 V 
Source:  Commission services. 
TABLE2 : Components  of demand  (percentage  change  on preceding 
period  at constant  prices,  EC, 1981-1983) 
half years' 
1981 1982 1983 82/1 82/2 83 1 83 2 
Private consumption 0,2 0,1 0,1 -0,1 0.3 0,1 0,2 
Government consumption 1,5 0,8 0,6 1,7 -0,4 0,7 0.9 
Fixed  capital  formation -4,7 • -3,0 -0,4 -2,9 -3,7 0,0 2,7 
GDP -0,4 0,2 0,4 1.2 -2,0 0,8 2,1 
1 Half-yearly figures at annual rates, seasonally adjusted  (82/01:  first half 1982, elc). 
Source.  Commission  services. 
TABLES:  Main  economic  aggregates  (EC  countries,  EC,  1981-1983) 
Unemployment Private Balance General Money supply 
rate^ consumption on current account government M2 M3 
prices-  in "„ of GDP net borrowing 
in of  GDP  . -
1981 1982 1983 1981 1982 1983 1981 1982 1983 1981 1982 1983 1981 1982 1983 
B 11,7 13,9 15,4 9.1 8.8 7.4 -5.4 -3,8 -3,1 13.3 13,2 12.3 6,6 5,8 6.0 
DK 8,4 9,1 10,0 12,1 9,9 8,0 -3,1 -4,5 -3,8 7,1 9,2 9.7 9.6 12.0 9.0 
D 4,7 6,8 8,9 6,0 5,3 3,7 - 1.1 0.5 0,6 4.0 3,9 4.1 5.0 7.1 6,5 
GR 4,0 5,0 5,2 24,4 21,3 22.0 -2.1 -5,7 -4.7 10,1 8.7 8,9 34.3 27.8 26.0 
f . -. ' 7,3 8,3 8,9 12,5 11.2 8.9 -1.8 -2.4 - 1,7 1.5 2.8 3.1 11,4 12.5 10.5 
JftU 10,5 12.1 14,7 19,6 17,5 12,0 - 13.2 -8,0 -5,9 15.4 15.0 13.0 17.4 14.2 16,1 
1 8,8 10.4 11.3 19,0 16,5 14,0 -2,3 - 1,5 -0,7 11.9 12.0 10.5 16,0 19.0 17,0 
L 1,0 1,2 1.8 7.7 10,0 9.0 31,0 30.2 29,8 0.7 1.7 1.6 
NL 7,5 10,5 13,3 6,5 5.5 3.0 2.4 3.3 4,4 4.6 6.0 6.2 5.2 7.6 5.2 
UK 9,7 11.4 12,2 10.9 8.5 7.0 2.4 1,5 0.3 2.1 1.0 0,9 14.6 10.3 10,3 
EC 7,9 9,6 10.6 11.8 10.5 8,6 -0.8 -0,5 -0,3 4,8 5.0 5.0 10,8 11,5 10,4 
* Number of unemployed as percentage of civilian labour force (SOEC definition), except GR (national definition); UK  : new definition in 1982. 
~. * Percentage change on preceding year. 
5 Percentage change al end of year on  twelve  months earlier; F. NL: M2; D, GR. IRL, I: M3; B. DK; M2H: UK: UKL M.V 
Source:  Commission  service*. 
Mote:  The above forecasts  were  completed in early February 1983 and do not  take  into 
account  the effects of the  Irish  budget of 9 February.