ARCHIVESHISTORIQUES
DELACOMMISSION
COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(78)145
Vol.1978/9020

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(78)145 final
Brussels ,22March 1978
CONFIDENTIAL
ECONOMIC SITUATION OFTHE .COMMUNITY
WORKING DOCUMENT
from the Commission tothe
European Council foritsmeeting on
7and 8April 1978

I.TheCommission communication ontheadjustmentoftheeconomic
policyguidelinesfor1978,placedbeforetheCouncilmeetingofFinance
Ministers on20thMarch,setsoutthereasonswhythe4-4.5%growth
targetisnowoutofreach.TheCommission hasnot,however,proposed
changingtheseguidelines .Itconsiders suchamovetobepremature,
sinceneithertheeffectsoftheexpansionary measurestakenbycertain
countriesintheautumn,northeconsequences oftherecentexchangerate
movements canasyetbefullyassessed.
Nevertheless thetimehascometolookintowaysandmeansof
securingalastingreversalofcertaindisquieting trends.The1974-77
growthrateaveragedonly1.6%,athirdofwhathadbeenrecordedpreviously
Thestagnationofeconomicgrowthhasseriouseffects:itincreasesthe
cautionoffirmsandconsumers;itpromptstheauthorities toadoptsocial,
commercial andindustrial measureswhichhampertheadaptation andmodern­
isationofstructures;aboveallitisquite-insufficient toguarantee
areductioninunemployment ,thepersistence ofwhichatahighlevelis
aparticularly worryingproblem,especiallyatatimewhenthelabourforce
isgrowingfast(anaverageerf0.8%perannum,insteadof0.25%inprevious
years).
TheCommunity'sobjectiveshouldtherefore betoreturninthe
period1978-79toasatisfactory growthratewhichwillrepresentthe
pointofequilibrium betweentwonecessities :continuing thefightagainst
inflation andbringingdownunemployment .Thisaimcanbeattained.The
production capacitiesexist,thesavingsarethere,inflationisbeginning
tobebroughtundercontrol,severaleconomiesareshowingsignsofrecovery
AndthereisgreaterawarenessoftheimportanceofCommunity andintern­
ationalcooperation asapowerfulfactormakingforcoherence,theeasing
ofconstraints andanoptimumimpactofthemeasurestaken.

TheCommission ,takingnoteofthesetrendsandofthefactthatthe
economicresultsforthefirstpartof1978cannolongerbechangedsignificantly ,
considersthatnewtargetsshould "besetoutfortheperiodJuly1978-June1979.
duringwhichanymeasureswhichmightbetakenwillproducetheireffects;a
growthrateof4*5(Communityaverage)wouldseemtobeagoodtargetforthis
period.
II.Thesecondquarterof1978shouldthereforebedevotedtothepreparation
andestablishment ofaCommunitystrategy,withaviewtotheJulyEuropean
Councilandtotheindustrialised countries' summitthatisenvisaged.
Thepreparation shouldfirsttaketheformofareviewtobedrawnup
bytheCommissionincollaboration withtheMemberStates.Thiswouldinvolve,
asandwhenthisbecomespossible,assessing-
-thesituationandtrendsineachMemberStateandtheeffectofthesupport
measurestakensincelastautumn;
-determining theroomformanoeuvre-whereitexists-whichmaybeused
toenabletheCommunity,in1978–79»"toachievethe.extragrowthnecessary
whilemakingfurtherprogresstowardspricestability;
-andfinallytakingthedecisionsrequiredbytheoverallanalysis.
Thisroomformanoeuvremaytakevariousforms:itmaybedirectwhere
stimulationofdomesticdemandiseconomically possibleandcanbeeffective,
andindirectwhereitpermitsparticipation inCommunityactiontoboostgrowth
oreasebalanceofpaymentsconstraints.Itmustbeassessedinthelightnot
onlyofthesituationpeculiartoeachMemberState,butalsoofthestabilising
andspillovereffectwhichwouldbeexertedbycoherentCommunityaction.The
opportunities foraction,whichmaybelimitedineachMemberStatetaken
individually ,benefit-ifusedaspartofaCommunitypolicy-fromamultiplier
effectwhich,byitsnature,hasdynamicproperties.Thisisclearlytrueof
balanceofpaymentsproblemsandpriceconstraints ,whicharelargelydueto
exchangeratemovements.Thesameistrueofgrowthconstraints andbudgetary
constraints ,sinceextraexpenditurewillproducemorerapideffectsifthe
Europeaneconomyregainssomeofitsbuoyancy.
III.ThemeasureswhichMemberStatesmaydecidetotakeindividually on
thebasisofthisreviewshouldbefittedintoacommonframework.Oneimportant
point,thoughnottheonlyone,isthattheymustbebasedonacommonapproach

i.e.onobjectives andstrategy,txperlence hasshownthatitisnot
enoughtodefinegeneralobjectives which,whennotachieved,havemainly
theeffectofdistorting prospects andjeopardising theimplementation of
programmes .Theneedisrathertoexamine,withinaCommunityframework,
thesoundnessoftheassumptions madeandmeansenvisaged andtoassess
howrealistictheyare.Whentakingmajordecisions,MemberStatesshould
alsotakefullaccountoftheeffectseachofthesedecisions mayhaveon
theCommunity asawhole.Tothisend,everyeffortmustbemadetoensure
that,betweenthetwoEuropeanCouncilmeetingsinAprilandJuly,the
actiontakenformspartandisseentoformpartofacoherentprocess.
Theadvantagesofcoordinated actionatCommunitylevelarenotmerely
technical.Atatimewhentheeconomyissufferingfromalackofconfidence
onthepartoffirmsandconsumers,convincingjointpolicymeasureswould
clearlyhelptorestorethenecessaryconfidence .Theywouldalsoenable
theCommunitytoprepareinthemosteffective waypossibleforthewestern
summitmeetinginJuly.
IV.TheCommunityitselfcan,withinthesameframework,givedirect
supporttotheactiontaken,notonlybyensuringthatthemeasuresare
mutuallyconsistent,butalsobyhelpingdirectlytosustaingrowthor
byeasingtheconstraints onexpansion.
TheCommunity has,foranumberofyears,improvedandextended
thesetofinstruments enablingittosustaindemandandreinforcethe
economicstructuresintheeconomically weakerregions.Itisgoingtoset
upthenewlendingsystemapprovedinprincipleatthelastEuropeanCouncil
meeting.Althoughtheseinstruments aredesignedmainlytoservestructural
purposes,theycould,underpriesentcircumstances ,beusedtosupplement
thestimulatory measurestakenatnationallevel.Itshouldtherefore be
examinedtowhatextentthefinancialinstruments availabletotheCommunity
mightbeusedtowidentheMemberStates 1collective roomformanoeuvre.
Foranother,theCommunitycanalsohelpbyeasingtheconstraints
which'wouldnormallypreventsomeMemberStatesfrompursuingthepolicy
»
whichbestmeetstheneedsoftheEuropeaneconomy.
Themainconstraint concernsthepaymentsdeficitsoncurrentaccount
If,inordertoparticipate inthejointlydefinedstrategy,someMember
Statesneededmoretimetorestorebalanceofpaymentsequilibrium,without,
however,jeopardising theirpriceobjectives,theCommunityshouldmakethe

necessaryextraefforttopreventthemtobeingforced,tothedetriment
ofthewhole/nottoparticipate inthecommonpolicy.
V.Allthesemeasurescanbefullyeffectiveonlyifasufficient degree
ofstabilityisrestoredtothemonetarysystem.Thisobviousneedmeans
thattheCommunity hastotackleasecondurgenttask.
Internally,theweaknessofthedollar,therepercussion ofmonetary
instability onnationaleconomicpoliciesandthepossibleimpactofthe
moreexpansionary demandmanagementpoliciespursuedbysomecountriescall
formovestostrengthenthecohesionoftheEuropeanmonetaryentity.
Toachievethis,domesticmonetarypoliciesshouldbecoordinated rapidly
However,inasituationwheretheCommunityexchangeratescheme
affectsonlyhalfoftheCommunityeconomy,.itisalsonecessary
tolookintowaysofensuringmorestablerelationships betweenthe
•snake*(anirreplaceable instrumentofcohesionanddiscipline,andascheme
readytoreceivetheotherEuropeancurrencies),whichmustnotthereby
beweakened,andthoseotherCommunitycurrencies .
Externally,greaterinternalmonetarystabilitywouldenablethe
Communitytoplay*amoreinfluential roleinthenecessarydiscussions on
theinternational monetarysystem,particularly withtheUnitedStates.
TothisendtheCommunity mustexamine,intheperiodahead,howitcan
usefullyhelpdeviseandsetupabetteradaptedmachinery ,andprocedures .
VI.Lastly,therequirements ofinterdependence andcohesion,which
mustbringtheCommunitytoactassuchinordertoachieveitsgrowthand
employment targets,alsocallforactivecooperation withitsOECDpartners
(theUnitedStates,Japan,andotherEuropeancountries,whichdomoretrade
withtheCommunitythandoestheUnitedStates)andthedevelopingcountries.
Cooperation ofthissortislikelytoincreasethe"optimisation "effect
referredtoabove.Jointpreparations musttherefore bemadeforthe
forthcoming meetingsdealingwithinternational economicandmonetary
cooperation :InterimCommitteeoftheIMFinApril,OECDCouncilofMinisters
inJune,continuation ofthemultilateral tradenegotiations andmoreover,
aWesternsummitinJuly.

Moregenerally/theCommunitymust,initstraderelations,bring
itsinfluencetobeartopreventaslideintoprotectionism andworkfor
anexpansionofinternational trade,withoutwhichtherecanbenogrowth.
Thestrategyputforwardinthisdocumentisinstrumentalinattainingthis
objectivebecauseitenhancesourowncapacitytocombatprotectionist
tendencies.Steadiergrowthfacilitatesstructuraladjustmentandthe
acceptanceofchangesthatare,inanycase,inevitable.Itisexactly
thistypeofdynamismwhichhasenabledEurope,withinaspanofthirtyyears
toachievearadicaltransformation ofitseconomy,nottothedetriment,
butwiththehelpoffreetrade.Anditiswiththisinmindthat,as
proposedbytheCommissioninitsprogrammeforeconomicandmonetaryunion,
vigorouseffortsmustbemadetodeveloptheinternalmarketfurtherin
ordertoconsolidatefreetradeonourownmarkets,therebyensuringgrowth.
*
**
*
Tosumup,theCommissionproposesthatanoverallpolicybe
adoptedwhichwillenabletheCommunitytoachieveahigherrateof
growthinthenexteighteenmonths.
Thispolicy,basedontheprinciplesstatedinthiscommunication,
shouldbeintroducedintheinterval ,betweentheEuropeanCouncilof
AprilandtheJulySummitmeetings.
Thisimplies:
-thattheEuropeanCouncilof7and8Aprilshouldagreeona
Communitystrategy,takingintoaccountthediscussionsattheCouncil
meetingof20March,whichwouldhaveasitsaimtheachievementofextra
growth;
-that,forthispurpose,theCommissionshouldproduce,inApril
orinMayasappropriate andincooperationwiththeMemberStates,a
reviewofthesituationandofthepossibilities orneedsforgrowth
ineachMemberState;
-thatinApril,MayandJune,thepolicybeestablishedandthe
worknecessaryforthemainmeetingsinJulybecontinued,withthe
Commissionreservingtherighttosubmitattheappropriatetimeanypro­
posalsitmightwishtomaketothecompetentbodies.

Theobjectiveofthispolicywouldbetoachieveanoptimum
rateofgrowthin1978-79andforthispurpose:
-toensurethatthemeasurestakenbyMemberStatesnowand
throughout 1978becomefullyeffectivebyfittingthemintoaCommunity
framework,andthustomakebetteruseoftheopportunities thatwill
ariseaspartofthereviewexercise;
-tofacilitate,throughgenuineCommunityaction/theimplemen
tationofnationalpolicymeasures;
-andtocontributetoagreaterdegreeofmonetarystability,
bothatanationalandataninternational level.