ARCHIVESHISTORIQUES
DELACOMMISSION
COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(77)20
Vol.1977/0007

Disclaimer
Conformément aurèglement (CEE, Euratom) n°354/83 duConseil du1erfévrier 1983
concernant l'ouverture aupublic desarchives historiques delaCommunauté économique
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Community andtheEuropean Atomic Energy Community (OJL43,15.2.1983, p.1),as
amended byRegulation (EC, Euratom) No1700/2003 of22September 2003 (OJL243,
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InÜbereinstimmung mitderVerordnung (EWG, Euratom) Nr.354/83 desRates vom 1.
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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(77)20final
Brussels.22tfarch1977
F|23
*d»Sr|,;
k'•»/
^: JCOMMUNICATION FROMTHECOMMISSIONa\
TOTEEJOINTCOUNCIL
■OFMINISTERS FORFOREIGNAFFAIRSANDMINISTERS OFFINANCE
ANDTOTHEEUROPEANPARLIAMENT
OverallassessmentoftheCommunity's
budgetaryproblems
C0M(77)20final

CONTENTS
Page
PREFACE ' 1
I.PERSPECTIVES FORTHECOMMUNITY BUDGETIN1978:
Introduction andsummary 2
II.THEFEATURESOFTHEGENERALBUDGET 7
A.TheGeneralBudget:anintervention "budget 7
B#ThedynamicsoftheGeneralBudget 8
C.Thewayahead:outlookfortheGeneralBudget 9
D.Moreefficientimplementation oftheGeneralBudget 11
III.1978,ATURNING-POINT INTHEHISTORYOFTHEBUDGETOF
THEEUROPEANCOMMUNITIES 33
A*VAT,thenewownresource;andfullfinancial
autonomy •23
B«UseoftheEUAintheGeneralBudget 16
C*Theearlyestablishment oftheEuropeanCourtof
Auditors 20
D.TheharmonizedapplicationofArticle203/EEC 21
E.TheupdatingoftheFinancialRegulationof
25April1973 22
F»Towardsareinforcement offinancialcontrol 24
IV.OBJECTIVES OFTHEBUDGET 26
A.Containmentofagriculturalexpenditure 27
B.Measuresrglatingtoemploymentandeconomiostructures 34
C.GreaterCommunityself-sufficiency inenergy 44
D.Continuation andimprovementofaidtodeveloping
countriesandtonon-membercountries 45
V.CONCLUSIONS - 46
ANNEX:
A.DraftCouncilResolutionconcerning -applicationoftheEUA50
B.Evolutionofthe"budgetsoftheEuropeanCommunities 51
C.Listofappropriations madeavailableinthe"budget 52

PREFACE
AttherequestoftheEuropeanCouncilatitsmeetingof
1and2December1975»ajointCouncilmeetingofMinisters
forForeignAffairsandMinistersofFinancetookplacein
Luxembourgon5April1976,atwhichanoverallassessment
wasmade,togetherwiththeCommission,ofbudgetaryproblems
inthecontextoftheCommunity'sgeneralpolicy(COM(76)83
finalof10March1976).
Asthismeetingproveduseful,theCouncilhasagreedtohold
asimilarmeetingin1977*ThisCommunication isintendedto
serveasabasisfordiscussion .
ThisCommunication isalsobeingsenttoParliament,asoneof
theholdersofthebudgetaryauthority,toenableittostate
itsviewsontheguidelineshereinsetout.

-2-
I.PERSPECTIVES FORTHECOMMUNITYBUDGETIN1978
Introduction andSummary
TheCommunityBudgethasbecomeacentralpoliticalissuein
theCommunity *Itistheinstrumentbywhichmanyofthemain
Communityactivitiesfindtheirexpression.Astheirsizeand
scopehaveincreased,sohastheroleoftheBudget.Soalso
hastheimportanceofthedecisionstakenintheBudgetaboutthepurpose
ofthedifferentsectionsofactivity*Inturnthepoliticalproblem
offinancingtheBudgethasbecomemoreimmediate,especiallyin
economiccircumstances whichhaveledtopressuresinallMemberStates
tolimitpublicspending*Moresignificant ,theBudgetinitselfisone
ofthemostdevelopedCommunitymechanisms,intheestablishment and
executionofwhichthebalancebetweentheParliament,theCounciland
theCommissionhasevolvedfurthest;nevertheless ,thisbalanceisa
matterofcontinuinginterinstitutional debate*
TheCommissionwelcomestheoccasiontodebateingeneralterms
andoutsidethebudgetprocedurestheproblemswhichtheBudgetposeswith
aCouncilofbothFinaneeandForeignMinistersandwiththeEuropean
Parliament,formanyoftheseproblemshavetobeplacedinageneral
politicalcontextandarehardtoresolveamongstthemoredetailedissues
whichnecessarilyariseduringtheestablishment oftheannualBudget
itself*
Thecharacteristics .oftheCommunityBudgetclearlydistinguishitfromnational
budgets.Whileduringthelastfewyearsithasasimilarrateof"growth,its
levelofadministrative expenditureislow,andthelevelofintervention
spendingveryhighbecauseofitsconcentration onlargelyautomatic
agricultural expenditure *Thismeansthatthescopeforsavingonsome
activitiestofinanceothers,whichisoftenavailableinnationalbudgets,
simplydoesnotexisttoanyusefulextentintheCommunityBudget*Yet,
unlesswearetoacceptastandstillin.theCommunity'sevolution,the
Budgetmustgrow*TheemphasismustthereforebeondevelopingCommunity
policieswhichcanbetterormorecheaplysecureobjectivesalreadybeing

pursuedorwhichwouldbeessentialatnationallevel*Inthisway,the
growthoftheCommunityBudgetneednotaddtooverallpublicexpenditure
andtaxation *
Evenso,lookingaheadtheexistingstructureofBudget
financingmayproveinsufficient anddifferenttypesoffinancingshould
beconsideredwhichcouldinduecourseprovidesolutionstothisproblem*
Perhapsthemostpromisingisthedevelopment "oftheCommunity'scapacity
toborrow*Quiteapartfromtheneedforsuchborrowingasonemeans
ofcopingwithshorttermproblemsofcashflow,whichwillariseinthe
future,longertermborrowingwouldbeanappropriate formoffundingfor
specificactionsforwhichlendingisasuitableformoffinance*This
wouldallowanexpansionofsuchactionswithoutrequiringadditional
currentrevenue*Indeed,thisformoffinancingwouldbeparticularly
appropriateforcertainCommunityactivitieswhichcouldbeparticularly
adaptedtothealleviationofpresentemploymentandstructuralneeds*
Meanwhile,theCommissionisdoingallitcantomakethemostof
thebudgetaryresourcescurrentlyavailable;itisstrengthening its
examinationofnewexpenditureproposalsandofdaytodaymanagement,
andhastakenimportantstepstoimprovetheimpactofitsstructural
policiesbyimprovingthecoordination oftheintervention funds*
.Butthereisaseparateseriesofissueswhichdemandurgent
attention,fortheyarerelatedtochangesintheBudgetwhichshouldoccur
in1978*•">Inthatyear,thefinalstageoftheownresourcessystemwill
comeintoeffectaslaiddownintheTreaty,thecollectionofaCommunity
percentageofValueAddedTaxshouldbegin,theEuropeanUnitofAccount
shouldbeintroducedtotheBudget,andthenewFinancialRegulationshould
beadopted*
Thesedecisionsareofgreatsignificance *Itispolitically
essentialthatthelastobstacletotheimplementation ofaCommunityVAT
shouldbeovercome,notleastasatestoftheCouncil'sabilitytomeet

itsowndeclared ,intent *Itisequally essential that thenewunit of
account should beadopted :without itimportant Community activities –external
commitments –will "hehindered ,while "both anomalies ofpresentation anddifficulties
ofexpenditure oontrol will persist tothe_disoredit oftheBudget ."...In
parallel ,thenewFinancial Regulation isurgently needed tocomplement
these other twosteps ,aswell astobring into force other important
changes *
TheCommission very muoh hopes that theCouncil will beable
toresolve outstanding difficulties ontheSixth Directive (should any
persist )* Itcalls ontheCouncil on6April toadopt thedraft
resolution already before it(andofwhich acopy isatAnnex A)which
engages theCommunity toapply theUnit ofAccount from 1January 1978 ;
this cannot bedelayed longer without calling inquestion thedate ofthe
change *And ,this done ,thedeadline must befixed bywhich the
necessary implementing revisions of30June 1977 $and -therevised Financial
Regulation asawhole ,should beadopted *
There isasecond group ofimportant institutional problems
towhich the attention ofthe Council and the Parliament isdrawn -
theestablishment oftheCourt ofAuditors ,thesearch foranagreement
between theCouncil andtheParliament about theprocedures fortheadoption
oftheBudget ,development oftheconcert ation procedures which have become
central totheestablishment oftheCommunity budget ,andfurther reinforce­
ment offinancial control *These matters areless likely torequire debate
onthis occasion *Butthey areessential iftheCommunity istodevise
themechanisms foreffective discussion andcontrol towhich lipservice
isoften paid *TheCommission hopes that theParliament andtheCouncil
asappropriate will take thenecessary steps toensure that each ofthese
iBdealt with expeditiously *
Butwhat ofthestructure oftheBudget for1978?The
options arelimited *Asinearlier years ,themajor part ofexpenditure
must continue tobeopen-ended spending onagricultural support *The
Commission must emphasise theneed totake measures which will reduce

-5-
this predominance ofagricultural spending *Inpractice that means
attention must "begiven urgently anddeterminedly toreducing structural surpluses
intheproduction ofavery fewproducts ,which have heavy budgetary
costs .Italso requires theestablishment ofasystem ofobligatory
degressivity formonetary compensatory amounts ,toreduce thebudgetary
costs andother economic distortions atpresent sovery evident# The
Commission believes theCouncil should atanearly date decide onthe
principle ofobligatory degressivity andfixadeadline bywhich the
appropriate mechanisms canbeput inplace *.
Apart from agricultural spending ,theBudget must be
constructed inthe light ofcurrent economic problems *Inevery Member
State ,public spending islimited ,although the pressures forpublic actions
torelieve economic problems arehigh andhave ledtoshifts ofresources
andtheareas ofspending *TheCommunity Budget must accept similar
discipline ,even ifthescope foroffsetting savings issmall *Only
priority actions canbeconsidered forneworincreased activity *"And
thetest ofpriority must bewhether action proposed relates tothe
economic problems which confront theCommunity *Inthese circumstances ,
rigorous coordination oftheCommunity 'sdecisive instruments foraction
isessential *
Clearly ,themain priority must betheattack onunemployment ,
andonthereinforcing oftheCommunity 'seconomic structure *Regional ,
andSocial Fundexpenditure iscritical inthis context *Thefixing of I
theamounts ofthese Funds ,andtheir use ,will beacentral feature of
this year 'sbudget process while separate examination ofproposals for
thereview oftheir working will benecessary *TheCommission hopes the
Council andtheParliament will confirm their willingness toseethat these
activities develop with increased Regional Fund andconsolidated Social
Fund activity in1978 *Industrial ,research andtransport policies also
allhaveamajor contribution tomaketothestrengthening ofthe j
Community 'seconomic foundations *TheCommission believes that actions :
inthese .areas alsomust begiven priority * J

ItremainsasimportantaseverthattheCommunityshould
reduceitsdependence onimportedenergy*Measuresto-this
endshouldalsoberegarded,theCommissionbelieves,asanimportant
priority#
Finally,theeconomicdifficulties theCommunityfacesare
sharedbymanyothercountries,andbearmoreheavilyonthedeveloping
worldthanonthedeveloped# TheCommunity'-sefforttowardsdeveloping
countriesmust,theCommissionbelieves,remainapriority*Ithopesthe
Councilwillconfirmthisview*
TheCommissionhopesthatonthesepointstheCouncilandthe
Parliamentwillgiveaclearindicationoftheirviews*Inthelight
ofsuchviewsthefurtherworkontheinterinstitutional problems,and
thedraftingoftheexpendituresideoftheBudgetfor1978canbe
carriedforward*

IE.THEFEATURES OPTHE GENERAL BUDGET
The content oftheGeneral Budget oftheEuropean Communities israther
unusual anddiffers considerably from that ofnational "budgets .This
state ofaffairs ,theoutcome ofthepresent stage ofEuropean integration ,
shapes thefeatures oftheGeneral Budget ,which inturn influence the
"budget policies oftheEuropean Communities .
A. THE GENERAL BUDGET :ANINTERVENTION BUDGET
Expressed asapercentage oftheGUPoftheCommunity ,Community expenditure
hasrisen from virtually zero in1959 tosome 0.4% in1968 and0.6% in
1976 .During thesame period ,public expenditure inalltheMember States
hasrisen ,ingeneral ,from 25-35% tosome 45-50 %oftherespective GNPs
(spreads "between thelowest andhighest percentages ).Thegrowth rate of
theBudget oftheEuropean Communities isrunning roughly parallel to-and
notfaster than -thenational "budgets .
Compared with thenational budgets ,theGeneral Budget isstill very small
therefore -about 2%ofthetotal ofthenational budgets .Although the
annual fixation ofagricultural prices hasamacro-economic influence ,this
small volume renders itimpossible fortheBudget toexert anyregulating
influence ontheoverall economy -byuse either oftherevenue orofthe
expenditure .Itcanhave noreal macroeconomic influence .ThiB
situation hasarisen because thepowers andthemeans foraction granted
totheCommunity arestill very limited .
TheGeneral Budget isessentially anintervention budget (87.2% ).
Only 6.2% isdevoted toexpenditure ontheadministrative machinery ,and
6.6% istaken bytheflat-rate reimbursements totheMember States of10%
ofownresources forthecosts incurred incollecting them (customs duties
andagricultural levies ). (Therate ofstaff expenditure inthenational
budgets isaround 2%»)
\
Thefinancing oftheintervention policies isconcentrated incertain
major fields ,with amarked -butdecreasing -predominance of
agriculture ;expenditure onagriculture 74«7% »social policy 2%;

-a-
regional policy 4*5$5research /energy /industry /transport 2.9$ ;
development cooperation 3.1$ »Theexpenditure fortheEAGGF
Guidance Section ,fortheRegional Fond andpart oftheexpenditure
fortheenergy /industry /transport sector areinvestment aids
thus represent transfers ofcapital ;theother intervention expenditure
-inparticular ,that oftheEAGGF Guarantee Section -arecurrent
transfers .
Theconsiderable proportion accounted forbyexpenditure under the
.EAGGP Guarantee Section -72.9$ -isnotduetoaCommunity policy
under which agriculture would beintrinsically more important than
theother sectors oftheeconomy :this situation merely reflects the
fact that this policy istheonjy oneinwhich action bytheCommunity
replaces action bytheMember States .Intheother sectors -including
theother agricultural sectors such astheEAGGF Guarantee Section -
Community action generally complements that oftheMember States .
Policy regarding agricultural markets ishowever completely integrated
andfinanced entirely bytheGeneral Budget ,andistheresult of
almost automatic intervention mechanisms which leave little scope for
discretionary adjustments .Incontrast ,theother items ofintervention
expenditure areassessed onaflat-rate basis ;they areallocated amounts
fixed bythebudgetary authority ,often inarestrictive spirit .
B. THEDYNAMICS OFTHEGENERAL BUDGET
This budget structure makes itdifficult toexpand existing operations
toanygreat extent ortoinitiate newones .Because thebudgetary
resources available are limited and itisdifficult tocontain or
reduce thelevel ofagricultural expenditure ,difficult compromises
areinevitable asregards other policies .TheCommunity Budget isnot
asflexible asnational budgets ,which areinfinitely bigger andmore
diversified .
Theincrease inCommunity activity need notnecessarily lead
toageneral increase inthelevel ofpublic expenditure ortaxes .
Themeasures which should betaken atCommunity level arethose
that canbecarried outmore economically andefficiently atCommunity
level than bythenational governments .

-9-
However f-if-theactivity oftheCommunity ~istoexpand -,.there will
have tobeanincrease initsbudgetary resources .
Forexample ,during thelasttenyears ,theBudget expenditure ofthe
Community hasrisen from 1500mu.a.in1968 to8°00mu.a.in1977
(andto9600mu.a.inappropriations forcommitment ).
This trend reflects thefollowing developments :
(a)intheagricultural sector ,theestablishment ofthevarious market
organizations ,andthegradual bringing into theCommunity purview
ofeligible expenditure ;thisprocess wascompleted in1969 ;
(b)since 1973 »theprogressive integration of .thenewMember States ;
(c)thelaunching in1975 otaCommunity regional policy (thegenesis
oftheRegional Fond ),and
(d)theinitiation andgrowth ofother financial intervention operations ,
especially intheenergy sector .
C. THEWAY AHEAD :OUTLOOK FORTHE GENERAL BUDGET
Thefuture pattern oftheGeneral Budget cannot bedetermined bya
fixed andimmutable ratio between ,say ,itspresent volume andthe
present volume ofthenational budgets .Itwill begoverned by:
(a)thefirm resolve oftheGovernments andthepeoples oftheCommunity
toadvance along theroad towards economic andmonetary union ;
(b)adetailed investigation ofthecriteria foraneffective distribution
ofthetasks between theCommunity andthevarious national levels
ofgovernment and ,consequently ,abroadening oftherange of
Community intervention *activities ;
(c)specific requirements arising from economic situations which cannot
always bepredicted ;
(d)thegrowth oftheCommunity 'sownresources ;
(e)thefuture role tobeplayed bythenon-repayable subsidies ,onthe
onehand ,andloans financed from borrowings ,ontheother .

-10-
Ofthespecific requirements ,special attention should hepaid
tothe situation ofthe coal and steel industries which arenow
invery serious difficulty .Since therate ofthelevies oncoal
andsteel production cannot easily hechanged ,itisdifficult
toexpand activities substantially inrespect ofthese industries
under theECSC Budget .Thepossibility ofresorting totheGeneral
Budget should beconsidered forthese sectors .Theprinciple of
this hasalready been recognized ,inparticular bytheinsertion
intheCommission Budget for1977 ofArticle 322,Aids forcoal
stocks .Similarly ,theCommission hasintroduced aproposal forthe
granting ofaidtopromote theuseof .coal inthermal power stations .
In197° theentire anddefinitive ownresources arrangements should
beinoperation .Thecurrent level ofCommunity expenditure already
absorbs around two-thirds ofthetotal potential ofownresources as
defined bytheCouncil Decision of21April 1970 (which hasthestatus
ofaTreaty )andwhich consist ofagricultural levies ,customs duties
andamaximum 1%ofTATrevenue .However ,itmust hepointed out
that this margin could besubstantially eroded inthefuture because
ofcertain external factors ,even ifexpenditure were tofollow the
trend oftheCommunity GBP.More specifically ,these factors are
asfollows :
(a)theVATassessment base hasalways expanded less rapidly than
theGNP ,andthere isevery reason tosuppose that this trend will
continue ;
(b)customs duties arefollowing thesame trend ,andthis could be
accentuated even more asaresult ofwidespread tariff dismantling :
(c).theexistence andpossible application ofa"financial mechanism "
representing upto3$ofexpenditure :
(d)theinclusion intheBudget ofthefinancial resources ofthe
European Development Fund (EDF)starting from thenext Association
Convention ,since until I98O these resources aretobeprovided by
theMember States ,outside theGeneral Budget ;

-11-
(e)theconsequences ,intheform ofaprobable increase in
expenditure ,ofthepossible entry ofnewMember States which could
join after 1978 *
Itshould benoted here ,however ,that theEuropean Communities
already deploy avariety ofmethods in"their financial policy :in
addition tothetotal of8900mu.a .,earmarked fornon-repayable
expenditure in1976 (8470mu.a.under theGeneral Budget ,110mu.a.
tinder theECSC operational budget and320mu.a .under thethird and
fourth EEF),they have borrowed atotal of2720mu.a.(i.e. 950mu.a.
under theECSC ,750mu.a.under theEIBand 1020mu.a.as"Community "
borrowings tobeused asloans toredress thebalance ofpayment sin
someMember States ). Itwould therefore bepossible todevelop
more systematically aborrowing policy tofinance appropriate activities ;
this ,byavoiding recourse tocurrent funds ,could reduce thepossible
impact ofthelevelling-out ofownresources .Though this prospect is
distant enough ,apolicy ofthis type could besuitable forcertain
more immediate activities particularly inkeeping with thecurrent
economic problems .
D.MORE EFFICIENT IMPLEMENTATION OFTHEGENERAL BUDGET
Asanadjunct totheforegoing considerations ,afewthoughts should
beaired concerning theimproved coordination ofCommunity expenditure ,
atask incumbent ontheCommission .With this aiminview ,thenew
Commission hastaken twoimportant decisions .
First ,thenewCommission hasstressed theneed tocontinue theefforts
toincrease discipline andrigour atallstages inthelife ofthe
Budget -preparation ,implementation ,proposals fornewoperations ,
internal control –inorder toensure that theBudget hasthemaximum
possible economic impact compatible with theresources available .As

announced,theCommissionhasplacedtheresponsibility fortheBudget
inthehandsofaCommission Memberwhoisnotresponsibleforan
intervention policyaswell.
Secondly,oneCommissionMemberisnowresponsibleforcoordination of
themanagementoftheFundsandothermeansofintervention inthe
structuralfield.Therewillthereforebeunityofpolicyandobjectives
intheCommunity'sfinancialinterventionpolicy(theEEDF,theSocial
JVmd,theEAGGFGuidanceSection,CreditandInvestment,andEIBloans).
Amoreconsistentfinancialpolicyisobviouslynotanendinitself.
Thepolicymustbedesignedtoservethegeneralpurposesofthe
Community'seconomicandsocialpolicy,especiallytheobjectivesithas
setitselfinitsmedium-term economicpolicy-thecontrolofinflation
andunemployment ,alignmentoftheMemberStates*economies,thebalance
betweentheCommunity'sinternalcohesionandtheunityofitsexternal
policy-insuchawaythatthemeansofintervention notonlyfulfil
theirspecificobjectivesmoreeffectively ,butmayalsobedovetailed
tomeetthepriorityobjectivesoftheCommunity.

III.1978 ,ATURNING-POINT INTHEBISTORT OPTHEBUDGET OPTHE
EUROPEAN COMMUNITIES
Theyear 197° isayear ofnewdepartures :theBudget oftheEuropean
Communities stands ataturning-point initshistory *1978 marks
thefinal stage oftheownresources system forthesixoriginal
Member States andthepenultimate stage ofthesystem ofpayments "by
thethree newMember States *1978 hasbeen deolared theyear in
which theSixth Directive onVATwill come into force *1978 isthe
year when theEuropean unit ofaccount (EUA)will beapplied tothe
General Budget *1978 will bethefirst year offull operation forthe
European Court ofAuditors .1978 istobethefinancial year inpreparation
forwhich aninter-institutional agreement will bereached regarding the
prooedure foradopting theBudget .1978 istobetheyear inwhich the
amendments tothe .Financial Regulation proposed bytheCommission come
into force .Andfinally ,1978 istobemarked byafurther reinforcement
offinancial control .
Thefirst ofthese seven major events isbuttheculmination ofan
automatio mechanism brought inbytheDecision of2April 1970 on
ownresoixroes andbyArticle 131oftheActofAooession anddoes not
necessitate anyspecific decision atthepresent stage *This paper
does fhowever ,discuss theother sixevents ,which theCommission
regards asbeing within sight ,andwithout whioh there canbeno
dynamism intheCommunity 'sfinancial activities *
A.VAT .THENEW OWNRESOURCE :AND FULL FINANCIAL AUTONOMY
Animportant event in1978 istobetheallocation ofapart ofthe
revenue from Value Added Tax asanown resource ofthe Communities *
TheCouncil hasannounced itsintention toapprove very soon the
Sixth Directive onValue Added Tax ,which provides forauniform
assessment base inalltheMember States ,subject tocertain
exceptions which will not affect theamount ofownresources *

ItwillthenbepossibletoapplyaCommunityrate(fixedforeaoh
yearduringthebudgetaryprocedureandnottoexceed1%)toa
uniformbaseofassessmentofVATinallMemberStates,witheffect
from1January1978»andfortheproceedstobepaidintothe
BudgetoftheCommunities *Thisresourcewillreplacethepresent
contributions whicharebasedontheshareofeachMemberStateto
thegrossnationalproductoftheCommunity.
TheCommissionstronglyurgestheCounciltoadopttheSixth
DireotiveintimeforalltheMemberStatestoapplyitwitheffect
from1January1978,sothattheinoeptionofthefinancialautonomy
oftheCommunitieswillnotbeagainpostponed *TheCommission
intendstodrawupthepreliminarydraftBudgetfor1978onthe
assumptionthatalltheMemberStateswillbepayingownresouroes
derivedfromVATrevenue*ShouldtheCouncilfailtoapprovethe
SixthDirectiveintimeforthistohappen,theCommissionwillhave
tomakethenecessaryadjustmentstotherevenuesideoftheBudget
duringthecourseofthebudgetaryprocedure *
ItwasbecausetheCommissionbelievedthatin1978thefinalstages
ofthenewfinancialautonomyoftheCommunities wouldbeinitiated
thatinJune1976itsenttotheCouncilandtheParliamentproposals
foramendingpartsoftheFinancialRegulationandforamending
RegulationNo2/71ontheproceduresforapplyingtheDecisionof
1970*TheseproposalswillalsohavetobeadaptedassoonastheCouncil
hasapprovedtheSixthDirective.Aproposalontheapplication ofown
resourcesfromVATistobeintroducedshortly.TheCommissionmost
stronglyurgestheCounciltoapprovetheseamendments ,sothatthe
principleoffinancialautonomycanbeupheld.
Whataretheimplications ofthisfinancialautonomy?Itmakesthe
Communities moreself-reliant :butitinnowayimpliesany
enoroachment onthepowersofthetwoInstitutions withbudgetary
authority,i*e*theCouncilandParliament *Itimposesonthe
Communitiesgreaterobligations andgreaterresponsibilities ;it
imposesgreaterconstraintsinsomeareasaswellasgivingawider
latitudeinothers*Themainconsequences offinancialautonomy
areasfollows:

-15-
1*AlthoughtheBudgetmustbeinbalance,Itsimplementation
canproduceasurplusordeficit "becausetheforecastsofown
resourcesintheBudgetcanneverbeabsolutelyprecise.These
surplusesordeficitswillbecarriedforwardtotheBudgetsof
subsequentyears;butduringtheyeartheywillbethe
responsibility oftheCommission,representing theCommunities.
Waysmustthereforebefoundofreducingbothdeficitsand
surpluses*Thismeansthattheforecastingofownresources
mustbemorepreciseandthatexpenditure mustbesubjectto
morestringentcontrol*Nevertheless ,itmaybenecessaryto
adjusttheannualrateofVATduringthefinancialyear,
particularlyifasupplementary budgetisintroduced.
2*TheCommissionwillnotnecessarily beabletocoverits
dailycashneedsbyadvanoesfromtheMemberStates;itwillhave
torelyontheactualout-turnoftheforecastsofownresources
madeintheBudget*Thiswillhavetwoimportanteffects*
Firstly}therewillbeashortfallcorresponding tothreemonthsofpayments(about2000mu.a.)atthebeginningof1978,which
willnotbecoveredbytheflowofrevenuefromcustomsduties,
agriculturalleviesandVATestablishedin1978*Thisisa
particularproblemwhichcouldbesolvedinvariousways:
forexample,byanadvancefromtheMemberStates,orby
borrowingonthecapitalmarket,underthepowersconferredon
theCouncilbysubparagraph (b)ofArticle209oftheTreaty
establishing theEuropeanEoonomicCommunityasamendedby
Article18oftheTreatyofJuly1975*Inbothoasesrepayment
couldbemadeoverseveralyearsthroughtheBudgetofthe
Communities *Asecondimportanteffect,quiteapartfromthis
problem,isthattherewillalwaysbethepossibilitythatthe
flowofrevenueasownresourceswilltemporarilynotmatchthe
expenditure flowandthatshort-termborrowingswillbeneeded*
TheCommissionwillshortlymakeproposalsfordealingwith
thesedifficulties *

-16-
3«SincetheownresourceswillbelongtotheCommunities ,andnot
totheMemberStates,fromthemomentoftheirestablishment the
Commission shouldbeabletoexercisefirmercontrolovertheir
management,andinparticularshouldhavetheguaranteethattheywill
retaintheirvalueintermsoftheEuropeanunitofaccount.
Conclusions
TheCommissionurgentlyrequeststhattheCounciladoptatthe
earliestopportunity theSixthDirectiveonauniformbasisof
assessmentofVAT,andsubsequently adoptthetextswhichthe
Commissionherebyundertakestoforwardshortlythereafter.
Aconcertation procedurewiththeEuropeanParliament mayprove
necessary.
B.USEOPTHEEUAITTTHECENERALBUDGET
TheEUAhasbeenusedfortheEDFsincetheLomeConvention,theEIB
since.31December1974andtheECSCsince1January1976,andisto
beusedintheGeneralBudgetasfrom1January1978.
TheGeneralBudgetoftheEuropeanCommunitiesiscurrentlydrawnup
in"IMP"unitsofaccountequivalenttoO.88867088gramsoffinegold
andlinkedtothenationalcurrenciesbyofficiallydecleredfixedparities
(theoldestdeclarationdatesbackto1949in"thecaseoftheBelgianand
Luxembourgfranc).
Thegrowingdiscrepancy betweentheofficialparitiesandtheactual
ratesofexchangehascreatedanumberofproblems:theintroduction
ofspecificratesofconversionclosertothemarketratesforthe
commonagricultural policy,andforsomeadministrative appropriations

-17-
andthetransferoffundsbetweenMemberStates,givesrise,inthe
statementofexpenditure ,toa"dualrateofexchange"-particularly -
significantfortheEAGGFGuaranteeSection-and,inthestatement
ofrevenue,toappreciablegainsandlossesonexchangeratesresulting
fromtherequisitetransferoffundsbetweenMemberStates,thenet
impactofwhichisabsorbedbytheBudget.
IntheproposalforaCouncilRegulationamendingtheFinancial
RegulationofApril1973applicabletotheGeneralBudgetofthe
EuropeanCommunities ,theCommissionenvisagedthereplacement-on
1January1978-ofthecurrentunitofaccountbyaEuropeanunit
ofaccount(EUA)basedonabasketoftheMemberStates'currencies;
itsfixedcomposition hasbeenworkedoutonthebasisofeconomic
indicatorsanditsdailyvalueintermsofthevariousnational
currenciesiscalculatedfromtheratesoperatingontheexchangemarkets^.AdraftresolutionforwardedtotheCouncilon
30September1976isintendedtoconfirmtheCouncil'sdetermination
toapplythenewEuropeanunitofaccountinthe1978financialyear.
Despiteitsurgency,thisresolutionremainspending.
ThetransitiontotheuseoftheEUArequiresthatanumberofproblems
besolvedbeforehand.Toresolvethese,theCommissionforwardedto
the"budgetaryauthorityinOctober1976aproposalforaRegulation
ontheprocedureforapplyingtheEUAtothelegalactsadoptedbythe
institutions oftheEuropeanCommunities.
TheprovisionsrelatingtotheEUAarecontainedinArticles10,71
and119oftheproposal.

-18-
Theproposal foraRegulation ontheprocedure forapplying theEUA
provides fortheuse ofthenewunit ofaccount asaninstrument of
external and internal management .Theuse oftheEUA forexternal
management involves theuse oftheEUAfortheexpression ofthe
Communities' rights andobligations "expressed inEUA",andthe
replacement oftheu.a ."bytheEUA inallCommunity legislation
(regulations ,direotives ,decisions ).Tenders inrespect ofsupply
contracts andapplications foraidfrom thevarious Funds will have
tobesubmitted inEUA ;thecontracts awarded andaids granted will
beexpressed inEUA .
There are atpresent some exceptions totheprinciple ofexpressing stuns in
EUA ,themost important being inrespect ofthecommon agricultural
policy :forthetime being theEUAwill notbeapplied toCAP
legislation ;theprices andamounts atpresent expressed inu.a .
will continue tobeconverted into national currencies bymeans of
therepresentative rates ,andprices tofarmers andconsumers will
therefore remain unchanged .Agricultural appropriations vri.ll ,nevertheless ,
beentered intheBudget inEUA .Asstressed intheexplanatory
memorandum theapplication oftheEUAmust beanactofcontinuous creation ,
astheCommission -which isstriving togeneralize theuse ofthenewunit
ofaccount asswiftly aspossible -isconsidering thepossibility of
extending ittothecommon agricultural policy .
TheuseoftheEUAasaninstrument ofinternal management means
that theBudget will bedrawn up,theaccounts kept ,andtherevenue
andexpenditure accounts andthefinancial balance sheet presented ,
inEUA .Theconversion between national currencies andtheEUA is
tobemade attherate oftheday .TheCommission will keep bank
accounts inEUA .Inview ofcertain administrative difficulties ,
some exceptions have been allowed asregards the "rate oftheday".
Inparticular ,during the1978 budget year ,expenditure inrespect
oftheEAGGF Guarantee Section andtheFood Aidoperations financed
bymeans ofadvances aretobeentered intheaccounts onthebasis
oftherate applying onaspecific reference day .

-19-
Astheconsequenceoftheproposedrules,thereplacementoftheIMF
u.a.bytheEUAmeansthatthedrawingupandimplementation ofthe
Budgetwillbeclosertoreality,resultinginanappreciablereduction
intheexchangerategainsandlossesandthenewconsequences arisingfrom
thebookkeepingeffectofthe"dualrateofexchange".Ontheother
hand,thenationalcurrencyequivalentsofthetotalpaymentstobe
madebytheMemberStatestotheCommunityBudgetwillhardlychangeatallasaresultofthedisappearance –alsoon1January1978-of
the"dynamicbrakes"whichhavetodatelimitedtheannualvariation
inthe"relativeshares"oftheMemberStates.
TheBudgetaryAuthority,whichisexaminingtheCommission's
proposals,hasnotyetmadeitspositionknown.TheCommission
cannotbutpreparethe'1978Budgetontheassumption ,asthe
basisforitswork,thattheEUAwillbeusedasfrom1January1978.
TheCommissionhas,attheCouncil'swish,forwardedtothe
BudgetaryAuthorityproposalsconfirmingtheprincipleofadopting
theEUAon1January1978andsettingtherulesofapplication .The
transitiontothenev;unitofaccount(coupledwiththeimplementation
oftheproposedamendmentstotheFinancialRegulation)callsfor
earlydecisionsifthedeadlineof1January1978istobemet.
Conclusions
TheCommissionurgestheCounciltoadopton6ApriltheResolution
(seeAnnexA)wherebytheEUAwillbeusedintheBudgetasfrom
1January1978.
TheCommissionstressestheneedfortheCounciltoadopt,no
laterthan30June1977-followingtheOpinionofParliamentwhich
isexpectedinMarch1977-theproposalforaRegulationonthe
proceduresforapplyingtheEUA.Ifnecessary,aconcertation
procedurewithParliamentshouldbeinitiated.
4

20-
C. THEEARLY ESTABLISHMENT OPTHEEUROPEAN COURT OPAUDITORS
TheTreaty ofJuly 1975 provides iorthe creation ofaCo-art of
Auditors fortheEuropean Communities toreplace thepresent Audit
Board andtheECSC Auditor .Once theratification procedures for
theTreaty have "been completed -this should happen inthevery near
future -theCourt can "oesetup,since itislaid down that the
members oftheCourt ofAuditors shall be'appointed bythe Council
upon theentry into force ofthis Treaty .
Theestablishment ofthis control body ,with thestatus ofan
institution ,obviously means that anumber ofnewprovisions will
have tobeadopted toensure that theappointment andoperation of
the Court proceed smoothly .
Tothis end ,theCommission forwarded totheCouncil attheendof
December last year acommunication listing theprincipal measures
which will have tobeundertaken tofacilitate theappointment of
the Court ofAuditors ,
The Commission hasalready incorporated therequisite proposals in
itsdraft amendment oftheFinancial Regulation toprevent anybreak
incontinuity between thework oftheAudit Board andthat ofthe
Court ofAuditors .Ithasalso made provision inthedraft fora
review oftheArticles oftheFinancial Regulation which deal with
the jurisdiction andpowers oftheAudit Board ,once the Court of
Auditors itself isable topronounce onthem .
Inaddition ,adraft amendment totheStaff Regulations -incoporating
theCourt ofAuditors into theInstitutions oftheCommunity ,whereby
theStaff Regulations would apply toitsagents -isbeing prepared and
will belaid before the Council shortly .
Conclusion
\
TheCommission draws theattention oftheBudgetary Authority tothe
following points :
-toenable theCourt ofAuditors totake upitsduties ,Article 28
oftheTreaty of July 1975 nrtrst beimplemented :appointment
oftheMembers oftheCourt bytheCouncil ,after consulting
Parliament ,once theTreaty enters into force ;

-21-
-thestatutoryprovisions(amendmentstotheFinancialRegulation
andtheStaffRegulations)concerningtheCourtofAuditorsmust
beadopted "bytheCouncilassoonaspossible,asParliamenthas
alreadygivenitsopinioninDecember1976aridaconcertation
proceduremayberequired.
,D.THEHARMOJTIZED APPLICATION "OFARTICLE203/EEC
Articles203/EEC,177/eAECand78/ECSCgovernthebudgetprocess.
Theirprovisionshavethreemainobjectives.First,theydividethe
Budgetintotwoareas:compulsoryexpenditure ,overwhichtheCouncil
hasvirtuallyexclusivecontrol;andnon-compulsory expenditure ,over
whichParliamenthassomecontrol.Secondly,theycontroltheincrease
innon-compulsory expenditure throughtheestablishment ofamaximum
ratedeterminedeachyear.Andfinally,theygiveParliamentexclusive
controloveraspecificamountofnon-compulsory expenditure ,the
"marginformanoeuvre".
Afeatureofthe1977Budgetisthatmuchgreaterusehasbeenmade
thanhithertoofdifferentiated appropriations (adistinctionbeing
madebetweenappropriations forcommitmentandappropriations for
payment).Mostnon-compulsory expenditureisnowpresentedinthisnevi
way.However,theauthorsoftheTreatiesdidnotmakespecific
provisionforthisinnovationinbudgetarypresentation ,andthe
relevantArticlesmustbeinterpretedinaccordancewithobjective
criteria.ThisiswhattheBudgetaryAuthorityaskedtheCommission
tododuringthelastbudgetdiscussions.
Consequently,theCommissionrecentlysuggestedaninterpretation
totheBudgetaryAuthority:thegististhat,whereaismadebetweenappropriations ,theappropriationsforrepresenttherealbudgetarydecisionswhichexpressthefinanciaimplicationsoftheactionconcerned.Inthiscase,approprialforpayment,however,arethentheinevitableconsequenceofthese
commitmentauthorizations .

-22
Asaresult ,thevarious aspeots ofArticle 203 (application ofthe
maximum rate ,themargin formanoeuvre ,etc.)aretoapply in
future ,when adistinction ismade "between appropriations ,tothe
appropriations forcommitment andnottotheappropriations for
paywent .
Asregards procedure ,theCommission suggests that theinterpretation
ofArticle 203 ,along thelines indicated a"bove ,should "beembodied
inajoint declaration tobedrawn up "bytheInstitutions concerned ,
i.e. theParliament ,theCouncil andtheCommission .
Conclusion
TheCommission feels that theinter-institutional agreement which it
isproposing should besought swiftly ,andinanycasebefore it
embarks ontheprocess ofestablishing the1978 Budget ,aprocess
which will start on15June .
E.THEUPDATING OFTEE FINANCIAL REGULATION OF25APRIL 1973
TheCommunity Budget isprepared ,drawn upandimplemented in
accordance with theprovisions ofonesingle Financial Regulation ,
which wasadopted inApril 1973 - After three years of
application itbecame obvious ,however ,that certain amendments
would have tobemade totheRegulation tokeep itinstep with
thefairly rapid changes which have taken place inCommunity
finances .Theproposed provisions hinge onthree main points ,
thethird ofwhich -financial autonomy -was discussed in
point II.Aabove .
1.The bud /retary powers ofthe Institutions
The entry into force in1977 oftheTreaty ofJuly 1975 amending
certain financial provisions oftheTreaties establishing the
European Communities andoftheTreaty establishing aSingle Council
andaSingle Commission oftheEuropean Communities necessitates
theamendment ofthepresent provisions .

-23-
TheEuropean Parliaments sayinthebudgetary procedure hasbeen
increased , soitspowers must also "beincreased asregards
theimplementation ofexpenditure ,i.e. transfers .
2.Theupdating ,modernizing and simplifying ofbudgetary procedures
This heading embraces theproposals concerning theapplication ofthe
European unit ofaccount totheCommunity Budget (already discussed
inpoint II.B),expanding theuseofthedistinction between
appropriations forcommitment andappropriations forpayment ,
streamlining thefunction –orientated budget forresearch ,making the
presentation andmanagement ofthebudget oftheOfficial Publications
Office more function-orientated ,andmodifying thebudget nomenclature .
The Commission submitted itsdraft amendment oftheFinancial
Regulation totheCouncil inMay1976 . TheEuropean Parliament
wasconsulted bytheCouncil anddelivered itsOpinion in
December 1976 . TheCommission hasamended itsinitial draft
onthebasis ofthis Opinion .ItisnowuptotheCouncil to
give itsruling ,resorting ,ifnecessary ,totheconcertation
procedure expressly requested byParliament .
Conclusion
Since the197° Budget must bedrawn uponthebasis ofaFinancial
Regulation which isinkeeping with theprovisions oftheTreaty
ofJuly 1975 and takes account ofrecent developments ,the
Commission stresses theneed for theCouncil toadopt thedraft submitted
toitbynotlater than June ofthis year .Thebudget process
will already Mve started bythen ,butthefirst Council meeting
ontheBudget isdue totake place before theendofJuly 1977 •
Ifnecessary ,aconcertation procedure with Parliament should be
initiated .
«

-24-
p.TOWARDSAREINFORCEMENT OFFINANCIAL CONTROL
TheCommissionhassenttotheCouncilaproposalforadirectiveonthe
scrutiny,"bytheMemberStates,oftransactions formingpartofthesystem
offinancing "bytheGuaranteeSectionoftheEuropeanAgricultural Guidance
andGuaranteeFund,whichisintendedtoimproveandharmonizetheauditing
ofaccountskept"byrecipientsofEAGGFsubsidies.
TheCouncilhasnotyetmadeitspositionknownontheproposalfora
Regulationonmutualassistance,despitetheurgentremindersentbythe
CommissiontothePresidentoftheCouncilandtotheMinistersforForeign
Affairs.Itis,however,preciselyinthisfieldofcooperation (inthe
widestsenseoftheword)thattheCommissionhasbecomeincreasingly aware
oftheneedforprogress.ForthisreasontheCommissionintendstotake
practicalstepstoorganizedirectandeffectivecooperation betweenthe
Communityandthenationalauthorities involvedinthemanagementof
Communityfunds.
TheCommissionwillalsodirectitsinternalfinancialcontrolmoretothe
monitoringofsoundmanagement(inthebroadsenseoftheword).Thiswill
involveeliminatingalldisparitiesintheapplicationofCommunityrules
betweentheMemberStates.TothisenditwouldbewellifsomeMemberStates
wouldmakeaspecialpushtorationalize the-irownnationaldepartments ,andin
particularthecustoms,whoseadministration workisofparticularimportance
inthisconnection .
TheCommissionisalsoawareofthesignificance oftheconditionsinwhich
thefinancialoperationsareconducted.Withthisinmind,theCommission
intendstoconcentrateonthesimplification oftheregulations,somaking
themeasiertoapplyandhelpingtoensurethatfinancialmechanismsare
foolproof.Thisappliesbothtotheagricultural sectorandtothe
SocialFund.
TheCommissionwillalsosetuptherequisitemonitoringsystemtomeetthe
newexigenciesofEDFcontrolderivingfromtheLomeConvention.

-25-
Conclusion
Thedraftdirectiveonthescrutiny,bytheMemberStates,oftransactions
formingpartofthesystemoffinancingbytheGuaranteeSectionofthe
EuropeanAgricultural GuidanceandGuaranteeFundandthedraftRegulation
onmutualassistanceshouldbeadoptedbytheCouncilassoonaspossible.
4

-26-
IV.OBJECTIVES OPTHE BUDGET
Throughout Europe theeconomic circumstances ofrecent years have
imposed strict limits onthegrowth ofpublic spending ,ifonly because
thecircumstances themselves have caused governments toincur fresh
expenditure .Although there arenowprospects ofanimprovement in
theeconomic situation ,itisdear that itwill still benecessary to
curb thegrowth ofgovernment expenditure .
Consequently ,theGeneral Budget should beexpanded only fortop-priority
Community operations which mayhelp toremedy thedifficulties andthe
weaknesses oftheCommunity economy .
Inview ofthese factors ofconstraint there isalso aneed togroup
together thebudgetary resources ofthevarious Community intervention
mechanisms byestablishing ageneral intervention policy .The
Commission hastaken therequisite steps toachieve this coordination .
TotheCommission ^wayofthinking ,theobjective isnotuniformity ,
since thespecific character ofeach instrument must bepreserved ,
bearing inmind their different roles -Social Fund ,Regional Fund ,
EAGGF Guidance ,intervention intheindustry andenergy sectors .
Theattempt should bemade todefine acommon conception ofthe
financial intervention policy with theaidofgreater flexibility .
Inaddition ,itwill benecessary toexamine theobjectives ofthese
activities andhowfarthey complement andsupport each other ,in
such awayastoreveal anyobstacles tothecombined useand
dovetailing oftheinstruments ,andsubsequently toconsider the
extent towhich themechanisms are suited totheir specific
objectives andtheir effectiveness inmeeting these objectives .
Thepoint istoensure that ,over andabove amere redistribution of
money invarious directions ,these interventions actually serve the
Community 'spriority socio-economic objectives .Ifthey canattain
these objectives ,they will ,insodoing ,make acontribution tothe
process ofintegration .
Inview ofthese considerations ,theCommission believes that next
year 'sGeneral Budget should focus mainly onthefollowing four
themes :containment ofagricultural expenditure ;employment and
economic structures ;greater independence asregards energy ;aid
todeveloping countries .
«

-27-
A.C0NTAIM3JT OPAGRICULTURAL EXPENDITURE
Agriculturalexpenditureaccountsforthree–quartersoftheCommunityBudget.
Virtuallyallthespendinggoesonmarketmanagementandagri-monetary
expenditure.Inviewofthepresenteoonomiccircumstances andcurrent
pressuresonpublicspendinglevels,itisvitaltoexamineeverymeansof
cuttingagricultural expenditurewhichiscompatiblewiththehealthy
developmentofthecommonagricultural policy.Thisappliesinparticular
toeffortstobalancecertainproductmarkets,day-to-daymanagementand
monetarycompensatory amounts.
1.Abetterbalanceontheagricultural markets
FollowinguptheCommission'smemorandumof1973andthereportonthestate
ofthecommonagricultural policypresentedinFebruary1975»anumberof
improvementstomarketorganizations havebeendecidedupon,arenowbefore
theCouncilorareinpreparation.Theseimprovements areintendedto
achieveabetterbalanceontheagricultural markets.Theythereforehave
afavourableimpactontheBudgetwhichshouldbeperceptiblein1978.
Measurestakentostabilizeagricultural marketswill,bytheirnature,
occasionallyresultintemporarystocksofvariousproducts.Suchstocks
mustbeacceptedasaninherentelementinthecommonpolicy,intendedto
stabilizepricesandsecuresupplies.
Nevertheless ,whenstocksresultfromstructuralimbalancesandaremore
persistenttheycannolongerberegardedasanormalelementofagricultural
policy.
Moreover,themeasuresnecessarytodisposeofthemareextremelyexpensive
inbudgetaryterms.
«

Themajor problem with structural surpluses is,ofcourse ,inthe
milk–products sector *
Thesurplus inthemilk-products sector represents about 10%oftotal
production andatpresent there isnooutlet forover half the
production ofskimmed milk powder .Butproblems also arise inother
sectors :wine ,olive oil,apples andpears *Inthecereals sector ,
however ,earlier problems (i.e*denaturing )arediminishing with the
move that hasnowbegun asingle intervention price system .
In1976 "theCommission sent the
Council asetofproposals formodifying thecommon organization of
themarket inmilk products ,which isaffected byaserious imbalance
requiring very heavy expenditure onintervention (2000mu.a.budgeted
for1977 –after allowing forthefact that part oftheoperation is
financed bytheco-responsibi lity levy).
Until theCouncil takes adecision ,theproblem ofstructural imbalance
inthemilk-products sector will remain unchanged .TheCommission
added toitsinitial proposals when presenting the farm prices for
1977/78inFebruary 1977 .
TheCommission isalready planning tomake proposals byJuly 1977 for
anumber ofimprovements tothepresent market organizations ,particularly
inrespect ofbeef andveal ,olive oilandstarch .
Initsproposals toimprove themarket organizations ,theCommission
will seetoitthat thebudgetary resources allocated areused tothe
greatest effect .Itwill also seetoitthat thefarm prices fixed will
permit theattainment ofbalance onthevarious agricultural markets ,a
very important objective inview oftheneed forbetter balance .This
constraint wasborne inmind intheCommission *sproposal onthefixing
offarm prices for1977/78*
Further ,special attention will bepaid tothepotential long-term
contribution ofBocio -structural policy totheachievement ofbalance
onthe markets .
Finally ,careful thought must begiven totheconsequences forCommunity
agriculture oftheaccession ofanynewMember States after 1978 ,andof
thepreferential agreements with theMediterranean countries .Both are

liabletohavesubstantialrepercussions ,particularly intheoils
andfatssectorandthefruitandvegetablessector*
Conclusion
Notwithstanding theuncertaintyofexpenditure ontheagricultural
marketsbecauseoffluctuations ontheworldmarket,containment
ofagricultural expenditurerequiresthecombinedeffortsofall
theinstitutions toachievebalanceontheprincipalagricultural
markets.
Particularattentionshouldbepaidtothestructuralimbalancein
themilksector,whichaloneaccountsformorethan40%of
expenditureundertheEAGGFGuaranteeSection,or25$ofCommunity
expenditureinthe1977Budget;theCommissionhasalreadymade
proposalsonthematter,andhasaskedCouncilandParliamentto
makeallowanceforthiswhenfixingthefarmpricesfor1977»and
hasurgedthatthedecisionsbetakenassoonaspossible.
2.Agri-monetary expenditure
Expenditure underthishead-morethan1500mu.a.inthe1977
Budget–comprisesthemonetarycompensatory amounts(MCA)andthe
expenditureresultingfromtheapplicationofdifferentratesof
exchange(dualrate).
Theagricultural commonmarketwasconstructed upontheprinciple
oftheunityofpricesexpressedinunitsofaccount.Forsome
yearspast,thecommonpricespolicyhasbeendislocatedby
monetaryupheavals.Inordertoprotectproducersandconsumers
againstthesuddeneffectsoffluctuationsinexchangerates,an
MACsystemwasintroducedandrepresentative ratesfortheagricultural
policy(greenrates),calculatedbyreferencetorepresentative rates,
fortheagricultural policy,werebroughtin.However,themonetary
fluctuations havecontinuedandasaresulttheMCAsystemhasbecome
apermanentfeature.

-30
Atpresent,the"common"pricesarehigherorlowervasthecase
maybe,dependingonthestateofthecurrenciesconcerned}for
thepurposesoftradeinagricultural products.Attheendof
February1977#thefrontiercompensations were+1.4$for
Benelux;9«3$inGermany;–19*9$inItaly;–34*7$inGreat
Britain;-10.4$inIrelandand-16.2$inPrance;onlyDenmark
wasnotapplyingMCAsatitsborders.
Althoughthesemeasureshaveprotectedthesinglemarketdespite
thecurrencyfluctuations ,theyhavealsoproducedmanyadverse
effects–deflectionoftrade,distortionofcompetition between
products,poorallocationofresources,andsometimeshighbudget
costs.
InOctober1976theCommissionproposedtotheCouncilchangesto
thepresentsystemofmonetarycompensatory amountswhichwould
allowtheMCAstoadapttotherealmarketsituation.Thissystem,
ifadopted,wouldpalliatethemostglaringdisadvantages ,including
thecosttotheBudget.TheCommissionhasalsoproposedareduction
inthedifferences betweenthe"greenrates"aspartofitsfarmprices
proposalfor1977*
Itisclearthatthemonetaryupheavalsarelargelytheproductofthe
divergenteconomictrendsofMemberStatesandCommunityregions.
Nonetheless,toputanendtotheseriouseconomicdistortions,which
areliabletobecomepermanent,andtocontainagricultural expenditure
itisvitaltoconfinetheroleoftheMCAstotheirprimetaskas
strictlytemporary,preventivemeasurestocountertheeconomicimpact
ofexchangeratefluctuations .Tothisend,theCommissionstresses
theprinciple,alreadyembodiedintheproposalsbeforeCouncil,of
compulsoryphasedreductionoveraperiodoftime.

-31-
Conclusions
TheCommission asks theCouncil ,nowthat Parliament hasaccepted the
Commission 'sproposal ,toaccept theprinciple ofcompulsory degressivity
over aperiod oftime andtofixatime limit forsetting uptherequisite
machinery .
3.Thepolicv inrespect ofagricultural structures
TheCommunity policy foragricultural structures wasdesigned to
tethe indispensable complement totheprices policy .Aneffective
common structural policy would hold down increases inCommunity
agricultural prices tolevels more favourable totheconsumer ,while
guaranteeing theachievement oftheother objectives laid down for
thecommon agricultural policy byArticle 39of "theTreaty ,"to
ensure afair standard ofliving fortheagricultural community ".
However ,itmust beadmitted that while theagricultural markets
support policy isalmost entirely decided upon andfinanced bythe
Community ,things arevery different forstructural policy :witness
thepaucity ofappropriations allocated totheGuidance Section
compared with theGuarantee Section andwith total public expenditure
onagriculture byboth theCommunity andtheMember States .
Thereport ontheapplication ofthe1972 Directives (COM/76/87/final ),
published bytheCommission inMarch 1976 ,showed thesnail 's
pace ofthecommon structural policy .InPrance itwasnotuntil 1974 »
andinItaly 1975 »that thenecessary national legislation wasbrought
in,while thecorresponding administrative measures were notpromulgated
until 1976 inFrance ,while inItaly theregional legislation isstill
being adopted .
Thefinancial implementation oftheDirective onhill andmountain
farming didnotreally begin until 1976 .Inthat year payments from
theEAGGP Guidance Section for all socio –structural measures amounted
toonly*44»6 mu.a .instead ofthesumof91mu.a .intheoriginal
Budget .

Althoughitwasoriginallyintendedthat,asfrom1977»appropriations
shouldnolonger "becommittedforindividualprojects,inaccordance
withRegulationNo17/64,thedelayintheapplicationofthecommon
measureshasmejntthatindividualprojectscontinue.In1976thesumof264.2mu.a.wasusedtofinance808projects.Anappropriation
of91•2mu.a.isallocatedfor1977^
ExpenditureundertheEAGGFGuidanceSectionin1978willbecharacterized
bytheexpansionofthecommonmeasuresreferredtoinArticle6of
RegulationNo17/64anddrawingsontheMansholtreserve.
(a)/-TheCommissionwillcontinuetosupplementandreinforcethe
impactofthesocio-structural directivesbysuitablemeasures
(differentiating amongtheinstrumentsonaregionalbasisand
adjustingtheceilingsforaidstomatchpricemovementsin
theMemberStates).
(b)~~Itwillcontinueitscommonsectoralmeasurestorestorethe
balanceofthemarketwhereveritisendangered,particularly
asregardswine,somefruitsand,aboveall,milkproducts,as
wellasspecialmeasurestoimproveproductionandmarketing
structuresinthecitrusfruitssector.
(c)_TheCounciladoptedtheCommission'sproposal
onimprovingstructuresinthemarketingandprocessingof
agricultural products.Furthermore ,commonactioninthe
small-scale inshorefisheriessectoriscurrentlybeforethe
Council.
1Ofwhich235.5mu.a.aretransfersof1976appropriations (Council
Decisionof23November1976)and28.7niu.a.appropriations released
in1976underRegulation(EEC)No3171/75.

-33-
(d)Finally,"theCommissionhassentproposalstotheCouncil,
■underitsmilk-products programme,tospeeduptheeradication
ofcertaincontagiousdiseasesinanimals.Ifthesemeasures
areappliedfrom1977*theestimatedexpenditureunderthe
EAGGFGuidanceSectionin1978willbe39mu.a.againstwhich
canbesetoffsavingsintheEAGGPGuaranteeSection.
TheCommissionplanstosubmitappropriatemeasuresbyJuly1977
toimprovethepresentstructuralpolicy,takingparticularaccount
ofthespecialproblemsofthestructurallyworst-offregions.
TheCommissionplanstobegintodrawontheMansholtreserve
from1978,alwaysprovidedthatthesocio-structural projects
andnewcommonmeasuresprogressasplanned.
TheCommissionisexaminingtheeffectiveness ofwhatisnowbeing
doneinthissector.Thedirectives 011thereformofagricultural
structuresshouldbeimplemented morefullyin1978,andthiswill
havefinancialrepercussions onthe1979Budget.
Conclusions
As"thesemeasuresmustbepartofageneralplanforcoordinating
thevarioustypesofCommunityintervention ,theCommissionwill
endeavourtoenhancetheireffectiveness .
«

-34-
B.MEASURESRELATING TOEMPLOYMENT ANDECONOMICSTRUCTURES
Tocopewiththeeconomicproblemsmentionedatthe"beginningofthis
chapter,absoluteprioritymust"begiventoCommunitymeasureswhich
canhelptoreduceunemployment intheCommunityandimproveits
economicstructures.Obviously,giventhelimitedscopeof
Communityinstruments ,thesemeasurescanonlyservetosupplement
economicactiontakenbyMemberStatesandtheCommunitymustalso
makeeffortstoimprovecoordination ofeconomicpoliciesingeneral.
Nevertheless ,theseeffortsmustbebackedupbythebestpossibleuse
oftheresourceswhichtheCommission mayallocateforitsvarious
measures.
Tothisend,threetypesofinstruments shouldbeusedmoreextensively :
-theSocialFundandtheRegionalFundwhichhaveaspecialrole
toplayincreatingemploymentandtrainingworkers;
-sectoralindustrialdevelopment measurescapableofhavingasalutaryeffect
onemploymentlevelswhileatthesametimepursuingotherends;
-measuresrelatingtoresearchandtransportwhichwillhelpthe
Communitytochangeitseconomicbase,withoutwhichitcannot
maintainitsgrowthrateinthefaceofcontinualeconomic
difficulties .
-furthermore ,someofthemeasuresaimedatself-sufficiency inenergy,which
aredealtwithelsewhereinthispaper(seep.44)»couldhelptocreate
employment.
1.EuropeanRegionalDevelopment Fund
(a)SituationoftheRegionalFund(1975-77)
TheEuropeanRegionalDevelopment Fund(ERDF),setupin1975"tohelp
towardsremedyingregionalimbalancesintheCommunitybycontributing
tothefinancingofinvestments ,wasallocated 1300mu.a.fora
periodofthreeyears.CouncilRegulation(EEC)No724/75establishing
theFundrestrictedtheannualallocationsto300mu.a.in1975*
500mu.a.in1976and500mu.a.in1977•At31December1976,
799*9mu.a.hadbeencommittedand368mu.a.paidout.Theratio
betweenpaymentsandcommitments wasabout4&/°forthefirst18months
ofoperationand,generallyspeaking,thedeploymentofCommunity
regionalaidcanberegardedasasuccess.

-35-
Duringitsfirst18monthsinoperationtheERDFgavefinancialsupport
tomorethan2700projects;some100oftheseinvolvedinvestments of
morethan10mu.a.and.accountedforabout50%ofthetotalaid.The
ratioofaidforinfrastructure investmentstothatforindustrial,small
business("artisanat")andservice-sector investmentsisoftheorderof
69%:31$£.Itshould "bepointedoutthat,inlinewithitsaimsof
remedyingthemostacuteregionalimbalances,morethanJOfoofthesupport
providedbytheFundhasbeenchannelledtotheMeazogiorno ,Ireland,the
developmentareasoftheUnitedKingdom,thelargelyagricultural backward
areasofFranceandtoGreenland.
(b)Futureprospects
(i)AnybudgetaryforecastrelatingtotheERDFmustbeplacedinthe
contextofthecoordinating ofallmeansofintervention andconsequently
mustformpartofendeavourstousethesemeansforthebetterattainment
oftheCommunity *spriorityobjectives.Inthepresenteconomicsituation
oneobjectiveistherestorationoffullemployment^despitetheproblem
raisedbyanincreaseinpublicspending.Theremust,then,bethe
greatestpossibleimprovementinthecontribution thattheERDF,together
withotherpolicyinstruments ,canmaketothecreationofnewjobsand
theretentionofexistingones.
Almostallregionsareaffectedbyunemployment ;certainnew,structural
regionalproblemsmayarisefromchangesgoinghandinhandwith
developments orresultingfromthem.Inanyeventthecrisisishavingan
impactontherelativesituationsoftheregions.
Asfarastheless-favoured areasoftheCommunityareconcerned,itis
likelythattheirdevelopment prospectswillsuffermorefromdeclining
investmentopportunity ,owingtotheirlesserabilitytoattractnew
investment.Furthermore ,unemployment intheindustrialareaswill
reduceimmigrationopportunities and,insomecases,mayinduceimmigrant
workerstoreturnhome.Thissituationthereforedemandsagreater
efforttoachieveamorerationalandcoordinated utilization ofallthe
Community 1sfinancialinstruments.
«

–36'-
ThisistheprioritytaskwhichtheCommissionwishestotackleinthis
fieldin1978.
(ii)ItisstilltooearlytomakepreciseestimatesoftheERDP's"budgetary
allocationfor1978*Indeed,theCommissionisonlynow"beginningto
discussthenewproposalsitmaysubmittotheCouncil,underthereviewof
regionalpolicyandtheregulations governingtheoperationoftheERDF
providedforinArticle2(2)ofRegulation(EEC)No724/75«
(iii)AstoprocedurefordeterminingtheannualamountoftheFund,the
Commission'swish,inviewoftheconsensusreachedinconnectionwith
theconsultation procedurerelatingtothenon-compulsory natureofthis
expenditure ,istousethe"budgetaryprocedure.Thesumtobeentered
inthebudgetfor1978shouldthereforebedeterminedwhenthebudgetis
preparedandadopted.
(iv)TheoperatingrulesoftheFundmustalsobereviewedinthecontext
ofcoordinatingallmeansofintervention ,bearinginmindthatthisdemands
greaterflexibilityinthehandlingofpolicyinstruments ,andthatthis
greaterflexibilitywillalsomakeforasubstantial ,simplification of
certainprocedures,andtherebymoreefficientadministration .Butthe
impactofCommunityintervention onregionaldevelopmentisnotamatter
ofconcernsolelytotheERDF.ThereviewoftheSocialFund,atabout
thesametimeasthereviewoftheRegionalFund,providesanopportunity
tobeginaprocessofcoordination withaviewtobringingthetwointo
greaterconvergence.ThesamewillapplywhentheCommissionhasreviewed
theresultsofworkbegunearlieronregionalaspectsofstructuralmeasures
inagriculture (EAGGFGuidanceSection).Thedevelopmentofcomprehensive
regionalpolicy,i.e.onev/hichtakesintoaccounttheland-useaspects
ofthevariousstructuralpolicies,shouldbethemosttangibleoutcomeof
thecoordination ofpoliciesandpolicyinstruments.
Thisactionisalsotobelinkedcloselywith"thereviewofthemethod
ofcoordinating regionalaidschemes,whichexpiresattheendofthis
year.
«

-37-
TheRegional Pond wasbrought into operation very quickly ,
inoneoftheworst economic andsocial situations
that theCommunity hasever experienced .TheCommission 'sreview ofthe
Regulation governing theFund anditsproposals relating toregional policy
will therefore bemade incircumstances totally different from those
which prevailed when theCommission putforward its1973 proposals .This
demands agreater effort inthecoordinated andconvergent useofthemeans
ofintervention andofthepolicies which canhelp tocorrect regional
imbalances ,sothat theCommunity 'spriority objectives will beachieved all
themore effectively .These proposals ,andsimplification oftheFund's
operating rules ,will therefore fitintoanoverall approach which canbe
allthebetter initiated because atapproximately thesaae time areview of
theSocial Fund will becarried out .
Conclusion
TheCommission proposes that theBudgetary Authority recognize that inthe
current economic situation theRegional Fund should beinaposition to
contribute more tocorrecting theregional imbalance intheCommunity#
2.European Social Fund
(a)Sooial Fund activities
,Inactual fact theSocial Fund takes ahand inprojects designed :
(i)toprovide support ,inthefield ofemployment ,foraction taken
under other Community policies (farmers leaving theland ;workers
from thetextile andgarment industries needing different vocational .
skills ;migrant workers ;handicapped people )ortoensure that supply
anddemand forlabour within theCommunity arebetter matched
(unemployed persons below theageof25);
(ii) ^a^:eaction against protracted structural unemployment andunder-employment (workers inunderdeveloped regions orregions
where thechief fonns ofeconomic activity aredeclining ;workers
affected byproblems ofcertain groups offirms ;labour which has
toberetrained owing totechnical progress ).
«

TheSocial Fund 'scommitments have grown rapidly :250mu.a .
in1971 ,560mu.a .in1976 .Since thefinancial year 1976
assistance from theSocial Fund haschiefly gone toprojects designed
tocombat unemployment among young people (particularly first-job
seekers ),andunemployment inunderdeveloped regions orthose where
thechief forms ofeconomic activity areindecline .
Unemployment among young people has gradua-lly grown worse since the
recession began andtheproblem isnotgoing tobeovercome inthe
next fewyears .Underdeveloped anddeclining regions areoneofthe
Community 'sconstant concerns andthedepression haswidened thegap
relative toother regions .
(b)Prospecta
Inorder todeal with thesituation thebudgetary authority has
earmarked atotal allocation of617mu.a.fortheSocial Fund ,for
thefinancial year 1977 :45$forthefirst category ofprojects and
555®for the second .
Inview ofthefact that theemployment position hasnotchanged in
theCommunity asawhole ,andthat applications forassistance from
theSocial Fund areconstantly increasing (more than twice the
available appropriations in1976 ),theSocial Fund isstill atthe
centre ofthetop-priority Community operations .Itistherefore
essential that theeffort made under theBudget in1977 should be
continued in1978 ,with thesame ratio betxveen thetwocategories
ofprojects andasubstantial increase intheFund 'sactivities .
TheCouncil Decision of1971 onthereform oftheEuropean Social
Fund requires that theCouncil review theDecision in1977 *
Concurrently with this Communication ,theCommission istosend the
Council another inwhich itwill set out its ideas about the review
ofthe 1971 Decision .Itwill beaccompanied byanOpinion onthe
amendments tobemade tothe 1971 Decision andproposals forchanges
toanumber ofrules governing intervention under theFund and its
operation .Thereview andresulting changes must bring about :
(igreater concentration ofintervention bytheFund onpriority needs
andagreater economic andsocial impact bysuch intervention ;

-39-
(ii)improved -andmore expeditions -administrative andfinancial
procedures forthegranting andpayment ofaids from ^theFund ,
which should result inanincrease intheappropriations for
payment provided inthe1978Budget .Itshould "bepointed out,
however ,that theswitch ,from -1977 onwards ,tothesystem of
differentiated appropriations isamajor advance ,since itenables
theappropriations forpayment to "bespaced out.
Conclusion
After rapid expansion ,which istocontinue ,theSocial Fundnowhasan
urgent need toconsolidate what ithasachieved sofarwith aview to
becoming more efficient *
Thereview ofitsoperating rules ,which waswisely planned for1977
from theoutset ,will provide anopportunity forthis ,"bymeans of
discussions "between theInstitutions which must begin without delay .

-40-
3,Financingsectoralprojectsinindustry
(a)Sectoralreorganization
Theeconomiccrisishasrevealedandaggravatedthestructuralweaknesses
ofcertainindustrieswhichare"beingforced "byexternalcompetition and
thenewinternational divisionoflabourtoredoubletheireffortsto
modernizeandreorganize.IftheCommunityintendstomaintainfreedom
oftradethroughoutthecrisisandpreventprotectionist reflexes,
itmustparticipateintherequisiterestructuring bybringingintoplayall
themeansatitsdisposal:eithercommercialpolicy,competitionpolicy,
placingofpubliccontracts,harmonization oflegislation ,etc,orthe
introduction incertainwell-defined casesofaCommunityelementof
financialsolidarity.ThefinancialinstrumentsatpresentattheCommunity's
disposal,althoughdiverse,areinadequatefordealingwiththebiggest
sectoralproblemsconfrontingtheCommunity'sindustry,itsworkersandthe
publicauthorities.Althoughtheforthcomingrevisionofthesocialand
regionalfundsprovidesanopportunityforremedyingsomeoftheinadequacies ,
otherswillremain,andfortheseappropriatefinancialtoolsmaybeenvisaged.
Inconsultation withthesectorsconcerned,theCommissionisestablishing
aninventoryofthechiefaspectsinvolvedinrestructuring thesectorsmost
affected.TheCommissionreservestherightinduecoursetosubmittothe
BudgetaryAuthoritysuchfinancialproposalsasrelatetoanysectoral
projectsthatmaybeintroduced.
(b)Specific_a£i;ion £n_data£roc£sj3ing_aJid_the_a£ros£a£e_industr2r
Intwospecificsectors,studieswithaviewtoCommunityactionarealready
welladvanced.
OnthebasisoftheCouncilResolutionofJuly1974onnamingthedata-
processingsectormorecompetitive ,theCouncilapprovedthefirstdata-
processingprogrammeinJuly1976.

-41-
ACommissionproposalofSeptember1975concernedasecondsetof
projects.Takingintoaccountworkinhand,andwiththeaimof
evolvingapolicytinderafour-yearplan,theCommissionsubmitted
adocumenttotheCouncilinNovember1976summarizingitsmedium-
termpolicyinthisfield.
TheCommunityBudgetfor1977containstheentryoftheappropriations
neededforlaunchingthisprogramme.Theactionshouldbecontinued
andfollowedupbyimplementing thefour-yearplanasfrom1978.
Moreover,itisalsoessentialtoworkoutapolicyfortheaircraft
industryiftheCommunitywishestopreserveanindustrialcapability
inthissector.Inadocument,theCommissionhasalreadycommunicated
totheCouncilandtoParliamentpreliminary proposalsforanaerospace
policy.TheCommissionintendstomakeamoredetailedproposalshortly
ontheactualimplementation ofthemeasuresenvisaged.
Communityactionisanessentialpriorityinthissector.
Conclusion
TheCommissionthereforerequeststheBudgetaryAuthoritytotreat
actiononindustryasanimportantprioritywhenestablishing the1978
budget.
4«<Financingtransportpolicy
ReinforcingtheCommunity'seconomicinfrastractureinthis
sectorcannotbathelptheCommunitytoadjustinthepresent
difficulteconomicclimate.TheCommissionadvocatesdirect
financialintervention forthepurposeofcoordinating investments
n.nfjpromotingprojectsofinteresttotheCommunity.Thisaotion,
whichwillchieflytaketheformofsubsidiestoinfrastracture
projectsofEuropeansignificance ,aredescribedinaproposal
totheCouncilsubmittedinJuly1976.
Conclusion
Itismostimportantforthedecisiononthisproposaltobe
handeddownattheearliestpossibledateandtonotethatthe
costoftheseoperations,tobeginin197$,wouldbemoderate.

-42-
5.MoreintensiveCommunityresearchinrespectoftheCommunities'
policies
Asregardsscientificresearchandtechnological developmentproper,the
Commissionwillin1978concentrate onpursuingimportantactivities
already "begunandintroducingothersshortly,particularly undertheJRC
multi–annualresearchprogrammefor1977–80andintheformofindirect
action.
Amongthelatter,mentionshouldbemadeoftheplanstocontinue
themajorthermonuclear fusionprogrammewiththe"buildingofJET
(JointEuropeanTorus).TheCommissionisrelyingontheCouncil
takingadecisionontheprogrammeintheverynearfuture.This
wouldmakeitpossibletoresolvethepresentimpasse,whichis
oausinggreatconcern.TheCommissionalsointendstocontinuethe
multi–annualprogrammesonnewsourcesofenergyinthefollowing
fields!energysavings,productionanduseofhydrogen,solarenergy,
geothermalenergyandsystemsanalysis.
Thereisthusaneedtostepupworkonnewsourcesofenergywhichwillcertainlyberequiredinyearstocome,evenifitprovespossibletocontinuethemajorprojectsinthenuclearsector.
Inthenextfewyears,therefore,onepointoffocusinscientificresearch
willbethedevelopmentofprogrammeswithamoreorlessdirectbearing
?ppVer!i,en!r8yP°}icyadvocatedVtheCommission,usingthefourJRCestablishments (setupunderArticle8oftheEAECTreaty)fordirectactionprogrammesandthe"indirectaction"research,usuallydoneundercontractbrynationalresearchinstitutes.
Inadditiontothesequestions,ofwhichtheCommunityauthorities
arealreadyawareandwhichhavebeenthesubjectofearlier
proposals,theCommissionintendstoproposenewmeasuresina
reportontheCommunity'sactivitiessinceJanuary1974>whose
purposeistodefinethegeneralguidelinesforacommonpolicyon
scienceandtechnology.

-43-
TheCommission isplanning tosubmit proposals forcommon -
research anddevelopment measures on,forexample :
–rawmaterials with aview toincreasing theCommunity 's
self-sufficiency ,
–energy storage ,
–lon^-term forecasts andassessments forscience andtechnology ,
-medical research
Wemust therefore expect increased financial outlays forthewhole
sector ,corresponding totherequirements described above .Inthe
1977 Budget ithasbeen possible toincrease thefinancial intervention
forthis sector compared with other categories ofCommunity
expenditure .ButtheCommission hasnever dissimulated itsview that
these efforts arestill inadequate compared with theprimary importance
Oftheobjectives andtotal Community expenditure
Conclusion
TheCommission requests that theBudgetary Authority enter therequisite
appropriations tocover theresearch programmes ,including thesection
ofthethermonuclear fusion programme concerning theconstruction of
JET andthemulti-annual JRCprogramme .
TheCommission also hopes that theEuropean Parliament andtheCouncil
will examine asquickly aspossible thenewproposals discussed above
that theCommission may submit in1977 •

-44-
C-GREATER COMMUNITY SELF-SUFFICIENCY IFENERGY
The 1973 oilcrisis demonstrated theCommunity 'sweakness as
regards energy and thedisastrous consequences that theabsence
ofanycommon policy oreffort tofind alternative sources of
energy could have for the entire economy oftheCommunity .
TheEuropean Council which met atRome on 1and 2December 1975
expressed thecommon concern when itgave theCommission a
mandate toimplement energy policy guidelines bymeans of
suitable proposals tobesubmitted totheCouncil .
Asthepressure oftheoilcrisis which prompted theCommunity
tolaunch itsenergy policy was notmaintained ,theoriginal
aims were notachieved .TheCommunity remains extremely
dependent onexternal supplies ,andwould again beill–prepared
intheevent ofrenewed supply difficulties .Itmust therefore
plan ,asamatter ofpriority ,newmeasures onasubstantial
scale toachieve theobjective ofreducing theCommunity 's
dependence onexternal energy supplies from 63to50/&»since the
even more ambitious target ofadependence level ofonly 40% ^
nowinattainable .Anyfurther delay must'now be-avoided ."""
Furthermore ,Community action intheenergy sector would enable
considerable savings ofpublic funds inmany fields asitwould help
avoid costly duplication ofeffort atnational level .
Certain important projects arealready under way ,particularly
asregards support fortechnological development inthefield of
hydrocarbons andtheinitial phase ofuranium prospecting .These
activities will continue ,andtheCommission also envisages an
early start onahydrocarbons prospecting programme ;thebasic
regulation onthis subject isalready before theCouncil .The
Commission also intends tolaybefore theCouncil proposals for
newoperations ,including measures topromote theuse of_and .
toobtain thebest possible return from –Community "energy reserves .
Asregards borrowing operations ,itshould beremembered that in
1974 theCommission submitted aproposal tothe Council with aview
toraising loans tofinance nuclear power stations .Although this
proposal wasexamined indetail bythe Council andaroused great
interest ,ithasnotyetbeen finally approved .

-45-
YetthisisanactionwhichdoesnotusetheCommunity'sfinancial
resources "butsimplyprovidesaCommunityguaranteeforthefinancing
ofthose "borrowingandlendingoperationsofspecialinterestin
connectionwiththediversification ofenergyresources.
Conclusion
InviewoftheprioritywhichshouldbeaccordedtogreaterCommunity
self-sufficiency inenergy,theCommissionrequeststhattheBudgetary
Authorityentertheappropriations requiredtoimplementtheprogrammes
andproposalswhichtheCommissionhasalreadyintroducedorwhichwill
besubmittedtotheCouncilandtheParliamentinthenearfuture.
D.CONTINUATION ANDIMPROVEMENT OFAIDTODEVELOPING COUNTRIES ANDTO
NON-MEMBER COUNTRIES
TheCommissionproposesthatin1978priorityshouldbeaccordedtothe
furtherance ofprojectsalreadystarted;itdoesnotintendtopropose
anynewprojectsfor1978apartfromthoseresultingfromtreatiesalready
signedoragreementsundernegotiationforwhichpartofthecostswill
bechargedtotheCommunityBudget(e.g.,Maghreb,Mashrek,Euro-Arab
Dialogue).
ItwillmerelypursueandimproveCommunityactivityalreadyunderway:
technicalandfinancialaidtonon-associated developingcountries,food
aid,promotionoftradeandregionalcooperation andcooperationwith
non–governmental organizations .
TheCommissionisparticularly concernedthattheCommunitymakean
effortsubstantially toincreasethevolumeoffoodaid,andwouldrefer
totheproposalsitputtotheCouncilinitsthree-yearindicativefood
aidprogramme,1977–79•September1976.
Conclusion
TheCommissionwouldemphasizetotheBudgetaryAuthoritytheimportance
ofcontinuingandintensifying programmesofaidtodevelopingcountries
alreadyundertakenbytheCommunity.
4

-46-
V.CONCLUSIONS
Λ
Tosumup,theCommissionsubmitsthefollowingitemsfortheattention
oftheBudgetaryAuthority:
asregardstheinstitutional aspects
(a)Decisiononauniform "basisofassessmentforVAT
TheCouncilshouldtaketherequisitestepstoadoptthesixth
directiveonauniformbasisofassessmentforVATassoonaspossibleand
subsequently toapprovetheregulationsforitsapplication whichthe
Commissionwillsubmitshortlythereafter.Aconcentration procedure
withtheEuropeanParliamentcouldprovenecessary.
(b)ApplicationoftheEUA
TheCouncilshouldadopttheresolutionproposedbytheCommissionunder
whichtheEUAwouldbeappliedtotheBudgetasfrom1January1978•
TheCouncilshouldapprovetheproposalforaregulationontheapplication
oftheEUAby30June1977atthelatest.Aconcertation procedure
withtheEuropeanParliamentcouldprovenecessary.
(c)SettinguptheCourtofAuditors
TheCouncilshouldtakethenecessarystepstoappointthemembersofthe
Court,afterconsultingtheParliament,oncetheTreatyof22July1975
comesintoforce.
TheCouncilshouldadoptthenecessaryprovisionsfortheadministration
oftheCourtofAuditors(amendmentoftheFinancialRegulationandof
theStaffRegulations )assoonaspossible.Aconcertation procedure
withtheEuropeanParliamentcouldprovenecessary.
(d)Interpretation ofArticle203/EEC,177/EAECand78/ECSC
Before15Junenext-whenthenextbudgetaryprocedurecommences-the
CouncilshouldreachagreementwiththeParliamentalongthelines
suggestedbytheCommission ,asregardstheinterpretation ofthe
provisionsofArticle203oftheTreaty,takingintoaccountthenew
distinction betweenappropriations forcommitmentandappropriations for
payment•

(e)AdoptionoftherevisedFinancialRegulation
TheCouncilshouldadopttherevisedFinancialRegulation "bytheendof
Juneatthelatest.Aconcertation procedurewiththeEuropean
Parliamentcouldprovenecessary.
(f)Reinforcingfinancialcontrol
Assoonaspossible,theCouncilshouldapprovethedraftdirectiveon
control "byMemberStatesofoperationswhichcomeunderthesystemof
financingbytheEAGGFGuaranteeSectionandthedraftregulationon
mutualassistance .
asregardsimplementing policies
(g)Commonagricultural polic.y
Abetterbalanceontheagricultural market
Althoughagricultural expenditureisunpredictable becauseoffluctuations
ontheworldmarket,itisnevertheless essentialinordertoimprove
controloveragricultural expenditurethatalltheinstitutions unite
theireffortsinordertoachievebalanceonthemainagricultural markets.
Particularattentionshouldbegiventothestructuralimbalanceonthe
marketindairyproductswhichaloneaccountsfor40$ofEAGGFGuarantee
expenditure,or25$ofCommunityexpenditure (1977Budget).The
Commissionhasalreadyputforwardproposalsonthesubjectandwould
asktheCouncilandtheParliamenttotaketheseintoaccountwhenfixing
theagricultural pricesfor1977}andtheCommissionalsoasksthemto
taketheirdecisionsasrapidlyaspossible.
Agri-monetary expenditure
AstheParliamenthasaccepteditsproposal,theCommissionwouldaskthat
theCouncilaccepttheprincipleofcompulsoryphasedreductionandset
itselfadeadlineforsettingupthenecessarymachinery.
Agricultural structurepolicy
Asmeasurestakeninthisfieldshouldbeintegratedintoageneralscheme
forcoordinating thevariousintervention measuresoftheCommunity,the
Commissionwillmakeattemptstomakethemmoreeffective.

-48-
(h)European Regional Development Fond
TheCommission isproposing that theBudgetary Authority recognize
that thepresent economic circumstances dictate that theRegional
Fund beinaposition tomake agreater effort tocorrect the
regional imbalances intheCommunity .
(i)Social Pund
Following aperiod ofrapid expansion -which must goon-the
Social Fund nowhasanurgent need toconsolidate itsachievements
with aview tobeing more effective .
(j)Sectoral measures forindustry
TheCommission calls upon theBudgetary Authority toensure that
industrial measures beaccepted astoppriority indrawing up
the1978 Budget .
(k)Community research activities
TheCommission requests the -Budgetary Authority toenter thenecessary
appropriations tocarry outtheresearoh programmes including that
part oftheprogramme concerned with "Thermonuclear Fusion ",involving
theconstruction ofJUTandtheJRCmultiannual programme .
Inaddition ,theCommission requests theParliament andtheCouncil
toexamine attheearliest opportunity thenewproposals which the
Commission will beputting forward in1977 »"towhich reference hasbeen
made earlier .
(1)Transport policy
Itisvital that decisions betaken asquickly aspossible onthis
proposal ,bearing inmind that thefinancial impact ofoperations
duetobegin inI978 will belimited .
(m)Energy policy
Inview ofthepriority which must begiven toincreasing theCommunity fs
independence with regard toenergy ,theCommission calls upon the
Budgetary Authority tomake available thenecessary appropriations to
implement theprogrammes andproposals which ithasputforward .
4

-49-
(n)Improvingaidtothedevelopingcountriesandnon-mem'bercountries
TheCommissionwoulddrawtheBudgetaryAuthoritiesattentiontothe
importanceofcontinuingandexpandingthemeasuresalreadyundertaken
"bytheCommunitytoprovideaidtothedevelopingcountries.

-SO- ANNEX A
DRAFT COUNCIL RESOLUTION
TheCouncil takes note that theCommission hasputforward aproposal
foraRegulation introducing application oftheEuropean unit of
account totheBudget oftheCommunities from 1January 1978 *
Itnotes that this proposal *issubstantially based ontherelevant
provisions contained inthedocument submitted toiton26May1976
setting outageneral revision oftheFinancial Regulation of
25April 1973 .
Inview oftheurgent reasons underlying thetabling ofaproposal ,
theCouncil undertakes toactimmediately onthis proposal *inorder
that theEuropean unit ofaccount beeffectively applied tothe
Budget oftheCommunities bythe1978 financial year atthelatest .
*This proposal foraResolution wasforwarded bytheCommission to
theCouncil inSeptember 1976 (COM(76)515 final ).

-51-
Annex®
37OLUTIC0IOP THEBUDGETSOPTHEEUROPEANCOMMUNITIES
inmu.a.
uRtrvKKriiF ;'
1971197219731974197519761977V
LOWNRESOURCES Γ r
Customsduties
I582,3957,31-985,32737.83151,04117,34649,3
Agricultural levies713.3799.5510,2329.9590.19H.0L5M..5J
SUB-TOTAL 11295.1175VJ2,496.53067,713741.1 I5-023.3ÍTW.Tn
!.ECSCPAYMENTSΓ1^0ιε,ο18.018.0Γ18.018.0Ιβ,Ο
J.DEDUCTIONS/staff_13.115,519,724,729,035,237,4I
»
LFINANCIAL
CONTRIBUTIONS 923.»1-236,62087,31903,82152.03210,4[2*71,9
IMISCELLANEOUS 33.447.519.522,5273.5 1217.S1
TOTAL 2239.43-074.44-641,0 ι15036.76213.6 Is50?.rng#21.01–>1Including39*1mu.éi.surplus '• Including21.0mu.a.surplus. -
B.EXPENDITURE iJ
I■ 197119721973 I*97"Γ1975 I11375*-™i191r11
1.cor^nssioiï
1883.6Ί
EAGGFGuarantee 2.302.73593,83389.94-327.05877,76.418,4
EAGGPGuidance 174.9175.1II261.4259,6325,0,157.8
SocialPund 56.5 •97.5269,2290.7 .360.2501.0'.172.4
RégionalPund 150.0300,0400,0
Research,energyand65.878,777.4159,0138,3205.8254.1
miscellaneous
Cooperation,develop ^ina-countries 13,à69,730,1324,1241.7277,9269,7
Administrative 110.5 I133.7189,1229,7269.8352,6394,9
iexpenaivux'eRefundstoMember 129,6175.7250,1306,3374.2502,8 ;j584.6
TOTAL 2259-23032.94584,6493lT2|!6.120.3 •3.342,3 ,^651.?.
2.OTHERITCSTITUTIQII3
Parliament I11.014.922.8 •2,039,252,165.8
Council I16.723.127,936.645,664,570,2
Courtof"Justice I2^513,51hU6.9C,011.212,1J
-TOTAL 30.241.556.4I75.5iCOm!>2.5127.o^148.1 1
L_GRANDTOTAL 2.2C9.4 !3,074,414.641.0 5036,7i BÔO.Oj
1Appropriations includedinIncluding60mu.a.underChapter58:
theBudget. CommunityaidtothePruilidisasterarea.
EDPËXPEÏŒITURE
Iai]L_1212 l1973 1LI1974 IL_1975__I[Ϊ97υ_Ίι"1977"1
SECONDEDP 3,37,2!
I
THIRDEDP 232,8205.5201,0157-071.0100,0I-I
FOURTHEDP L-J J2.20.Q
3"20jb".300,0
lu236.11 [212.7 II201,0LJ£IÎO_71,0|v.pnr..
NB#Thefiguresrelatetoexpenditurecommitmentscarriedoutfortheyears1971
to1975andestimatedcommitmentsfor1976and1977.

Summaryofappropriations madeavailableunder AÏÏNEXC
theBudgetforthe1977financialyear
mmu.a.
Expressedasappropriationsforcommitment 1 *Expressedasappropriations I
forpayment <f0|
1.COMMISSION
EAGGF–Guarantee I6.418,4 66.87 6.418.4 72,94
EAGGF-Guidance 325.0 3.39 157.8 1.79
SocialPund 617.1 6.43 172.4 1.96
RegionalPund 500.0 5-21 400.0 4.55
Research,energyandmiscelleous j 340.1 3,54 254.1 2,88
Cooperationwithdevelopingcountries ■
Administrative expenditure269,7
394.92,81
4.12269.7
394,93,07
4,49
RefundstoMemberStates 584.6 6.09 584.6 6,64
I
TOTAL 9449.8 98.46 8.651.9' 98.32
2.OTHERINSTITUTIONS
+ MDavt1i«mParliament 65.8 0.69 65.8 0.75
Council I 70.2 0.73 70,2 '0,80
CourtofJustice 12.110.12 12.1 0.13
TOTAL 148,1 1.54 148.1 1,68
GRANDTOTAL 9597,9 100,00 8,800,0 100,00
2**Non-differentiated appropriations +appropriations forcommitment.
■Non-differentiated appropriations +appropriations forpayment.