Commission Recommendation for the Broad Guidelines of the Economic Policies of the Member States and of the Community "Restoring growth and employment - strengthening convergence"
Date: 1993-11-24
Institutions: European Commission
Subjects: EU employment policy, Economic and Monetary Union, economic convergence, fight against unemployment, price stability, public finance

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COVMISSION OF THE EUROPEAN  COMMUNITIES 

C0M(93) 629 final 

Brussels, 24 November 1993 

Commission  Recommendation 

for the 

Broad  Guidelines  of the  Economic  Policies 

of the Member States and of the Community 
drawn up in conformity with 
Article 103(2) of the Treaty on European Union 

"Restoring growth and  employment 

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Commission  Recommendation 

Article  103 of the Treaty on European Union provides the framework for  economic 
policy  coordination from the start of  Stage II of the process towards Economic and 
Monetary  Union.  The  economic  policy  guidelines  adopted  under  this  article  will 
constitute the reference  for the  conduct  of the  economic  policies  in the  Community 
and in the Member States. 

Main  Objectives 
The Community should aim to substantially increase employment creation so as to cut 
significantly  the present  high unemployment  levels.  A decrease  in unemployment  is 
imperative to reduce the negative economic and social consequences arising from this 
wastage of human resources.  Higher employment creation is also necessary to achieve 
a  more  active  society  where  all those  wishing  to join  in the  production  process are 
given a chance to do so and where the weight of the factors leading to social exclusion 
is substantially  reduced.  Reducing  unemployment,  for  instance cutting  it by half by 
the year 2000, would imply the creation of at least  15 million new jobs. 

This  employment  objective  should  be  obtained  by  a  non-inflationary,  strong  and 
employment-creating growth, lasting over many years and respecting the environment. 
Higher  growth  is  essential  not  only  in  relation  to  employment  creation  but  also  to 
enable  the  Community  to  reap  the  benefits  of  the  internal  market,  to  improve  its 
economic and social cohesion and to meet its growing commitments in relation to the 
rest of the world.  But  growth  cannot  be  artificially  generated,  it  must be brought 
about mainly by market forces and by the dynamism of the European internal market, 
open to the outside world. 

Achieving  higher  sustainable  growth  also  requires  a  strengthening  of  economic 
convergence among Member States.  Convergence will set in place the conditions for 
stronger job  creation  and will  allow  the  Community  to  reap  the  full  benefits  of the 
internal market.  It will also make possible a successful transition to EMU. 

In this respect the task of policy-makers is to allow market forces to display their full 
potential by: 
i)  providing a stable and coherent macroeconomic  framework; 
ii)  removing the macro and microeconomic obstacles to growth. 

In  the  present  situation  the  challenge  is  a  dual  one.  Firstly,  to  act  decisively  to 
support  growth  in  the  short-term  without  putting  at risk the  commitment  to  high 

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employment  creation  in the  medium-term.  Secondly,  to  create  the  conditions  which 
will permit a stronger, durable  and more employment intensive growth in the medium 
to longer term. 

Igniting  the  recovery process  will  require  a  restoration  of  confidence  through  a 
rebalancing  of  the  current  macroeconomic  policy  mix  combined  with  credible 
structural  measures.  Lower  interest  rates,  achieved  on  a  sound  basis,  represent  the 
most  potent  instrument  presently  available  to  boost  short-term  prospects  in  the 
Community.  The  sooner  current  and  expected  pay and  budgetary  trends  incorporate 
the stability objective, the sooner interest rates can  be further  reduced substantially on 
a sound basis.  Given the severity of the present situation, however, and the size of the 
budgetary  adjustment  to  be undertaken  in many countries,  the  recovery  process  may 
well be modest  and  hesitant.  In these circumstances it  may be necessary  to  envisage 
an  intensification  of  the  Community  initiatives  agreed  at  the  European  Council 
meetings in Edinburgh and Copenhagen, 

In  the  medium-term  policies  and  behaviour  must  remain  consistent  with  stability. 
They must help to overcome rigidities and to put  an end to the damaging reduction  of 
national  saving inflicted  by high budget  deficits,  thereby  strengthening  the  investment 
conditions and the growth potential of the Community so that many years of stronger, 
and more employment-creating, growth becomes possible. 

Policy  Guidelines 
In  order  to  create  the  conditions  to  realise  the  Community's  employment / 
unemployment  objectives,  the  Commission  recommends  to  the  Council  to  adopt  the 
following broad economic policy guidelines. 

Price and Exchange Rate Stability 
The  Community  will  aim  to  keep  a  stable  macro-economic  framework.  A  rate  of 
inflation  of no more than two to three per cent  should be reached  for the Community 
average by 1996. 

Achieving this target  implies that  all policies and behaviours should be consistent  with 
this  stability  objective.  Those  Member  States  who  have  already  reached  this  target 
range  should  ensure that  policy  measures  are  consistent  with  the  maintenance  of this 
performance.  For  the other  Member  States, more courageous  initiatives  are  needed 
involving  determined  action  in  relation  to  budgetary  consolidation  and  to  the  wage 
evolution in order to allow a loosening of monetary policy on a sound basis. 

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If these measures are implemented with sufficient  speed, short term interest rates could 
come down rapidly and  long term rates would  follow  as inflationary  expectations  are 
stabilised. 

The  high  degree  of  integration  and  the  reaping  of  the  benefits  of  the  single  market 
demand that the Community continues to aim for exchange rate stability built on sound 
economic fundamentals  embracing both nominal and real variables. 

The Community reaffirms  its commitment to the EMU process and timetable as agreed 
in the Treaty on European Union.  To this end it will intensify  its efforts  at  achieving 
economic convergence. 

Sound public finances 
The restoration of confidence requires that in 1994 Member States prevent any  further 
deterioration  in  their  budgetary  situations  and  aim  to  start  the  process  of  deficit 
reduction. 
In those Member  States facing more worrying fiscal positions,  confidence 
will benefit from an immediate strong pursuit of the consolidation process.  This holds 
The 
especially  for  Member  States  with  very  high  and  rising  public  debt  ratios. 
consolidation  process  should  also  start  in  those  Member  States  expected  to  face  a 
relatively  favourable  economic  situation  in  1994. 
In  other  Member  States  tight 
control  of  budgets  will  be  necessary  in  1994  but  the  emphasis  should  mainly  be  on 
credible medium-term consolidation  strategies with measures to be already  announced 
now which will take effect  in future years as the recovery strengthens. 

From  1995,  the  Community  will  aim  at  making  its  public  debt  position  sustainable 
again.  Under  the  expected  growth  path  for  the  years  ahead,  this  means  reducing 
budget deficits to the reference value indicated in the Treaty on European Union (three 
percent  of  GDP).  The  Community  could  achieve  this  goal  by  1996/97.  Most 
Member  States have the potential to reach this goal by  1996, with the others needing 
more time. 

The  measures  used  to  consolidate  public  budgets  will  give  priority  to  reductions  in 
current  expenditure  and  to  improving the efficiency  of the tax  system.  All Member 
States need to  re-orient  public expenditure to  more productive uses  and  to  increased 
In addition, it is necessary to adapt the tax system in a way 
investment in particular. 
which will contribute more to employment  creation.  Reductions in employers' social 
security  contributions  in  a  number  of  Member  States,  especially  for  the  lowest  paid 
and for younger workers, are particularly important in this regard  although any action 
taken  will  clearly  need  to  be  revenue  neutral  given  the  scale  of  the  budgetary 
adjustment  to be achieved in many countries. 

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In  the  long  term,  Member  States  budgetary  policies  will  be  directed  towards 
contributing  to  higher  national  savings and  investment.  This will  entail  much  lower 
budget deficits (perhaps close to balance by the year 2000). 

Creating more employment 
Member  States  and  the  Community  will  take  determined  action  to  improve  the 
functioning  of their  economies,  aiming  specifically  at  improving  competitiveness  and 
the Community's underlying capacity to create jobs.  Such structural measures will be 
highlighted  in  the  forthcoming  White  Paper  on  "Growth,  Competitiveness  and 
Employment" 

In  addition  to  the  micro-economic  measures  to  be  presented  in the  White  Paper  the 
overall evolution of wages and salaries will play a crucial role in creating jobs.  To this 
end,  governments  and  the  two  sides  of  industry  will  use  all  the  instruments  that 
national  arrangements  put  at  their  disposal  to  ensure  that  wage  developments  in  the 
Community adapt rapidly to the agreed inflation  objective. 

In the short term, the need to create new jobs will not allow for  real wage increases in 
most  countries.  Once  the  recovery  sets  in  and  real  wages  will  be  able  to  increase 
again, wage developments will allow an increase in investment  profitability  by keeping 
real  wage  increases  below  productivity  growth.  For  example,  between  1982  and 
1989 real wages per head increased by about  one percentage  point  less per year than 
productivity growth.  Furthermore, the wage evolution will provide for an appropriate 
differentiation  according  to  member  countries,  regions,  vocational  qualifications  and 
work experience. 

* 

* 

The policy guidelines laid out above will form the central core of all future  multilateral 
surveillance exercises.  The broad framework for,  and  assessment  of,  Member  States 
convergence  programmes  will  be  established  by  the  guidelines.  By  laying  out  a 
credible  and  coherent  implementation  programme  for  the  broad  policy  orientations, 
individual  convergence  programmes  will  act  as  symbols  of  the  degree  of  political 
commitment which individual Member States attach to the Community's overall policy 
objectives for the year 2000. 

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ISSN 0254-1475 

COM(93) 629 final 

DOCUMENTS 

EN 

04 IO 

Catalogue number : CB-CO-93-664-EN-C 

ISBN 92-77-62148-6 

Office  for Official  Publications of the European  Communities 

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