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No C 225/38 Official Journal of the European Communities 10. 9. 90

Opinion on the economic situation in the Community in mid-1990

(90/C 225/15)

On 14 November and 18 December 1989, the Economic and Social Committee decided, acting
under the fourth paragraph of Article 20 of its Rules of Procedure, to draw up an opinion on the
economic situation in the Community in mid-1990.

The Section for Economic, Financial and Monetary Questions, which was responsible for
preparing the Committee's work on the subject, adopted its opinion on 20 June 1990. The
rapporteur was Mr Kaaris.

At its 278th plenary session (meeting of 5 July 1990), the Economic and Social Committee adopted
the following opinion by a substantial majority, with two votes against and eight abstentions.

0. Preliminary comments

This opinion is being prepared at an important stage in the
Community's development, when crucial strategic decisions must be made. For this reason, the opinion cannot be
confined to its 'usual' coverage of current economic issues,
but must first establish the deep-rooted factors underpinning them.

Strategic issues are, of course, nothing new for an
institution which spans more than thirty years. During this
period, the Community has taken great steps forward
(from the Treaty of Rome to the Treaty of Brussels in 1965;
from the establishment of the customs union in 1968 to the

Hague Summit in 1969; from the establishment of the
European Monetary System in 1979 to the adoption of the
_White Paper_ on the completion of the single market, and
from successive enlargements of the Community to the
Single European Act and the Delors Plan). It has suffered
more or less open internal conflicts (the 'empty chair
policy' in 1965, monetary snake crises in 1973 and 1976,
and the problem of the British contributions to the
Community budget). It has had to cope with the
vicissitudes of international politics and economics, from
the dollar crisis in 1971 to the world energy crisis in 1973,
and from the second oil crisis to a variety of changes in the
world economy in the 1980s. If nothing else, all this has
helped to shape Community strategy and has thus made a
major contribution to the development of Community
structures and the consolidation of its position.

The difference today is that new and much more exciting
events are impinging on Community strategy. At the very
moment when the European venture is gathering mometum, a series of unexpected changes have swept across
Eastern Europe, with inevitable repercussions on the whole
continent and the world. In other words, a blueprint for
European integration has been negotiated and a time table
drawn up, based on premises whose parameters have
suddenly been radically disrupted by events in Eastern

Europe. These events are to be welcomed without reserve,
but they also place new demands on the Community.

The need to respond adequately to outside events should
not slow down the momentum of internal change within
the Community. This should be avoided at all costs. The
Community must hold on to its new-found internal
dynamism and must continue to make the implementation
of the internal market and the achievement of economic

and monetary union its top priorities. The acceleration of
outside changes only adds new urgency to these objectives.
Without maintaining its own rate of advance the Community will not have potential strength to play the active
part to which it aspires in the shaping of the future of the
European continent.

1. The world economy

1.1. _The world economy in 1990 and short and medium-_
_term development_ _prospects_

The world economy in 1990 is heavily influenced by trends
which began in the last decade, particularly in its closing

years.

Although global economic growth is expected to remain
buoyant if less accelerated — 1990 will be the eighth
consecutive year of positive growth — recent estimates
indicate that the growth rate will temporarily drop by a
significant one percentage point _(3,3_ % in 1989 and 2,4 %
in 1990), which is a cause for concern.

As for the other economic variables, buoyant growth rates
and various employment schemes have partly reduced
unemployment in the OECD area.

The main causes of increased international economic

instability are, as far as the OECD areas is concerned,
inflation, public finance and balance of payment problems:

— the recent stabilization of the consumer price index (at a
rise of around 4,5 %) has not completely offset the

10.9 90 Cofficialjournal of the European Communities ^ o C ^ B ^ 9

complex setoffactorsunderlying the price increases
recorded at the end of thel9^0s,

— the widespread budgetbalancing efforts of recent years
have asyet fallen far shortofachievmgconvergence
towards comparable levelsmn most countries they have
not even secured satisfactory budget consolidation,

— the recent improvement in the balance of payments
situation ineachofthema^orworldeconomic zones

should not disguise the constantly widening gap
between the American external deficit ^ECU 9^

thousand million in 1 9 ^ and the]apanese surplus
^ C U ^ t h o u s a n d million in the same year^nor should
it conceal the divergent trends within the Community
^although the Community is in an overall nearD
equilibrium position,^estC^ermany^ssurplus has been
increasing since the earlyl9^0s, and reached L C U ^
thousand million in 1 9 ^,

Broad areas of uncertainty will continue to mark the world
economy during the next few years, I^he behaviour of the
abovementioned key economic variables is determined by
highly unstable factors and only warrants guarded
optimism, furthermore, uncertainty persists on such
diverse issues as^

— international monetary^foreign exchange arranged

ments,

— financial market stability and efficiency which appears
seriously jeopardized by the most recent forecasts ofthe
alarming tripling of the U^ budget deficit forl991,

— I^hird^orlddebtandthedeteriorationoftheeconomic

performance of the development countries,

— the futureofthe multilateral trade system faced witha
resurgence of protectionism,

— the imponderables which will come into play now that
Last European countries have begun the move towards
a market economy, coupled with the additional
difficulties stemmmgfrom theexpectedmcrease in their
foreign debt,

— existing and emerging political obstacles should not be
forgotten either^ the precarious pohticoDeconomic
situation in Latin America ^Central and ^outh^, the
middle Last powder keg, Islamic fundamentalism,
dangerous instability and ethnic problems in the U^R,
uncertainties in relations between the Balkan countries,
the cracks appearing inthe^ugoslavEederation and
lastly,the great Chinese imponderable.

In short, despite increasing signs of progress in inters
national cooperation, the path ahead will undoubtedly be

long and fraught withobstacles. Inachmate of serious
political risks, the outlook for the 1990s therefore suggests
that coordinated efforts and cooperation are the only sure
way to secure effective, long-term stability on the macro
economic front. Phis will mean incontrovertible adD

vantages for economic operators and countries which are
able to use the intervening ^breathing spaced to prepare for
the future, either by redressing inherited imbalances or by
implementing the structural decisions which they feel will
best equip them to face the future.

^, Economic developments in the C^ommun^ty

Lhe above comments are particularly relevant to the
Commumty^ssituation,Lhe reasons for this are twofold,
Mrstly,the Community is entering the newdecade with
continuousprogressioninitsmameconomic indicators,
Lhis reflects an increasing awareness among the member
states of the importance of economic policy for successful
economic, financial, monetary and social integration,
secondly, moves to achieve such integration come at a
crucial period in the Community^ developments such
integration is the most effective way to help Europe regain
its pivotal role in the world economy as it moves into the
twentyDfirst century.

^, 1, ^ y r r ^ ^ ^, ^ ^ ^ o r ^ o ^ o ^ ^ ^ r ^ ^ ^ ^ r ^ o ^ r ^

Lhe Commissions 19^9B1990Annual Economic Report
stated that economic policy in the Community must enable
ittomeettwo major challenges consolidation of economic
growth factors and greater convergence of economic and
budgetary policies between member states to increase
stability and employment,

Loachieve these objectives, firm measures are required to
counter the risk that the unfavourable economic paraD
meters of the past years might persist or deteriorate even
further. Action is needed in some Aiember states to bring
down high unemployment levels and ensure that the
resurgenceof inflationary expectationsdoes not jeopardize
currentgrowth, and in other member states to reduce
substantial divergences in inflation, currentDaccount
balances and net budgetary positions.

^, A ^ ^ ^ B ^ r o ^ ^ r o r ^, ^ ^ ^ ^ r o ^ ^ ^ ^ ^ ^ ^ ^ ^

Economic forecasts are, of necessity,highly unreliable in
the present period of unprecedented rapid change in
Eastern Europe, Lhe long term benefits to the world
economy of societies withatotal population of ^00 million

No C 225/40 Official Journal of the European Communities 10. 9. 90

people determined to participate in international trade and
the international division of labour according to market
conditions will be spectacular. But the transition from the
current near total economic isolation of Eastern Europe to
full participation in the world economy is fraught with the
danger of massive unemployment, and with financial
uncertainties as regards the capacity to adapt to technological change, financial possibilities and access to
markets. This means that medium and long-term predictions are extremely hazardous.

The GDR stands out from the other East European
countries in that its considerable economic potential seems
more likely to be exploited in an early future. This will have
direct and major influence on growth and employment of
the European Community, comparable in economic terms,
as it is, to an expansion of the Community with a 13th
Member State and a 5 % increase in area and population.
The East German companies will be assured adequate
access to finance and western markets to safeguard their
economic prospects in the medium and long term.

The integration of East Germany into the Community
presents opportunities to investors from all member
countries. German investments in the eastern parts of
Germany and in the countries further to the East are bound
to alleviate the discrepancy between the positive German
trade balance and the growth restraining external deficits
of many other Community countries.

The State treaty concluded in May leaves no room for
doubt that the Deutsche Bundesbank will continue to

ensure a stable value of the Deutschmark and will

guarantee continued low inflation in the long term. The
initial inflationary effects of East German consumer
spending will hardly threaten long term monetary stability;
but it might well exercise a slight upward trend in German
prices, which will however have the effect of easing the
demands on the other Member States in the initial

convergence of economic policies required for the successful launch of the process towards economic and monetary
union.

The very swiftness of FRG/GDR integration, requiring
barely eight months from the opening of the Berlin wall of
the entry into effect of monetary union, is a challenge to the
more sedate time scale which has been set for the

completion of Community ambitions. When monetary
union for the Twelve is scheduled to last as many years as
Germany needs weeks, the credibility of the integration
process of the Community and the Community's claim to
provide an adequate European framework for German
integration is called into question.

2.3. _Implementation_ _of the Single Act_

It is because of the Single Act that the Community has been
able to complete the greater part of the European
legislation necessary for the completion of the internal
market by the end of 1992. The transformation into
national law and the monitoring of national compliance are
tasks, however, which remain to be resolved.

The Single Act did not change the requirement of
unanimity for fiscal decisions and thus did not help to make
it possible to obtain decisions in the Council on harmonization of VAT rates and collection of VAT in the country of
origin for goods traded inside the Community. The
Commission has therefore had to lower its ambitions to a

level corresponding to what is feasible on the basis of
unanimity. Fortunately this does not jeopardize the
abolition of frontier controls in so far as VAT checks do not

necessarily involve breaking the flow of traffic across the
border. It still remains an open question, however, whether
it will be possible to abolish frontier controls in view of the
fact that practically no progress has been achieved in the
harmonization of visa requirements and rules of immigration. No police cooperation has yet been established
which can replace the present reliance on border checks,
less than 1000 days before 1 January 1993.

Solemn Council declarations on political union are no
substitute for progress on the resolution of such fundamental political issues.

2.3.1. Economic and social cohesion and implementation of the February 1988 'package'

Seen in the framework of current Community objectives,
this issue has two dimensions: although current measures
were introduced to bolster the Community's role in the
world economy, this challenge was defined by the Twelve,
and thus places specific internal demands on the Community in terms of complementary measures which, quite
legitimately, seek to promote cohesion by helping the less
prosperous regions to catch up in economic developments.
There is a growing realization that measures already
proposed are unlikely to achieve this objective. Indeed,
capital movements from these areas (if not encouraged to
remain there) may neutralize the effect of the complementary measures so far proposed.

It should be noted here that, although two problems
(regional discrepancies and the possibility of more
pronounced imbalances to come) are immediately obvious,
the situation is particularly critical in the outlying regions
of the Community located far from the main economic and
political centres; consequently, transportation costs are
higher and resources are allocated wastefully.

10. 9. 90 Official Journal of the European Communities No C 225/41

This deplorable situation is certainly not helped by the
determination of a centrally located Member State
unilaterally to impose user charges on road transport. This
issue illustrates the need for an integrated transport policy
also coping with transit rights inside the Community and
through neighbouring countries. In this connection, there is
an urgent need for the harmonization of economic
framework, particularly at fiscal level, as a prerequisite of
such a policy.

At all events, 1990 will be a landmark in the development of
Community structural policy; this will be seen not only in
the implementation of Community support frameworks
and the corresponding operational programmes, but also in
the first package of 'Community initiative' programmes. At
the same time, in spite of their more controversal aspects,
moves to improve and stabilize the agricultural markets
and the new rural development policy, complement the
current reform process, and thus augur well for the next
few years.

These structural reforms highlight the need for budgetary
discipline and a review of the financial prospects up to
1992. Nevertheless, new issues will also provide cause for
concern, as Community solidarity with the changes in
Eastern Europe will most certainly require the Community
to shoulder new responsibilities. In a field where funds
were always scarce and compromise not always easy, the
necessary setting of priorities once again calls for careful
thought and strategic planning.

2.3.2. The technological dimension

Notwithstanding the reservations which the Economic and
Social Committee expressed about the 1990 to 1994
Framework Programme adopted on 15 December 1989, the
programme nevertheless provides the best guarantee of
progress in an area which, although of vital importance,
has been deprived of adequate funding.

However, there is still a pressing need to spell out the
importance of coordinating resources so that they are not
wasted: a problem caused largely by excessive concern for
national interests.

15 proposals were submitted under the three main
categories (broadcasting technologies, management of
natural resources and development of intellectual resources). The innovative measures resulting from these
proposals will add a European dimension to the training of
researchers, consolidate links with the Eureka project,
develop information an communication technologies for
trans-European networks, and promote mobility amongst
researchers. These, together with commitments in key
sectors such a aerospace, consumer electronics, and

biotechnology, demonstrate that this positive approach has
unparalleled potential for achieving the Community's goal
of enhancing its position in the world economy.

To this end coordination of expenditure is vital to avoid
dispersion in the pursuit of national prestige. European
performance in technical innovation does not compare
favourably to that of Japan even though the total R & D
expenditure of the Twelve surpasses Japanese investments.

2.3.3. Environment

Although Community environmental measures are only in
their infancy, Community policy in this sphere is
developing in the right direction.

It will become even more effective when (a) the European
Environment Agency and its monitoring network become
operative, (b) both the alignment of national measures and
the introduction of Community standards are addressed,
and (c) environmental protection actions are stepped up. In
this connection, serious consideration should be given to
issues such as enforcement of the 'polluter pays' principle
and compensation in the event of disasters or catastrophes.

Current and projected action in this sphere demonstrates
growing consensus on the premises underpinning the Single
European Act's approach to environment policy. This is
particularly so with regard to the interdependence between
(a) progress in the various areas of common policy, and (b)
the need to ensure a healthy environment and continued
economic growth; a fully-fledged environmental policy is a
prerequisite here. This is a clear example of an area where
the special nature of the Community's approach comes into
its own and where the various commitments it has made

cannot be downgraded under any circumstances (e.g.
limited funding).

2.4. _Progress towards economic and monetary union_

The Committee feels that completion of economic and
monetary union (EMU) is already one of the keystones of
the European edifice. With this in mind, the Committee
urges that the utmost commitment be given to the various
aspects of the first stage of economic and monetary union,
soon to enter into force. The multilateral surveillance

mechanism for economic policies, recently set up by the
Council, is one initiative which merits special attention,

No C 225/42 Official Journal of the European Communities 10. 9. 90

given the need for sustained progress towards convergence
of Member States' economic performance.

In the same vein, liberalization of capital movements,
further steps to strengthen the European Monetary System,
and development of the ECU, a key issue, are all areas
requiring well-planned study so that their economic and
institutional implications can be fully understood. In more
general terms, considerable thought will have to be put into
preparation for the second and third stages of EMU,
particularly the establishment of an independent European
Central Bank charged with the maintenance of the value of
money, if significant conclusions are to be reached at the
inter-governmental conference to be held under the Italian
Presidency in late 1990.

2.5. _External relations and trade and cooperation policy_

It is clear that the Community's aspiration to have an active
voice in the new world economic order now slowly taking
shape is inextricably linked to its stance in external
relations. To be a credible partner and discharge the
responsibilities which it feels are its own, the Community
requires (a) a common trade policy combining the strength
of accumulated willpower with the solidity of matching
practices, (b) a coherent cooperation policy to strengthen
its centuries-old links with other continents and regions
and (c) a common vision of its role in the multipolar world
now emerging.

Here too, there are a number of revealing and encouraging
signs; first and foremost (and increasingly clear) at
Community level, is the negotiation of cooperation
agreements to consolidate relations with EFTA nations,
and current and future commitments to provide economic
assistance to Eastern Europe. These are key steps in the
construction of a new arena in which the Community will
play a pivotal role: the European economic space.

Because of their geographical proximity and close contacts
with the Community, special — and maybe even closer —
attention should be devoted to Mediterranean countries.

Moves towards partnership, be it in funding or in
vocational training, are to be encouraged. This would
enable these countries to improve their economic growth
and hence cope decisively with problems such as very high
emigration, and its serious political implications for many
Member States.

Whilst not disregarding the case for closer cooperation
with other promising areas such as Latin America, China,
or Asia as a whole, it is hoped that aid and restructuring in
ACP States will produce significant medium-term results,
notably in the wake of the new and more weighty ACP
Convention which was signed recently. This is yet another
area which highlights the Community's position on the
international scene. It is one reason why the Community
will have to top up the resources required to pursue
decisively this positive approach to development aid.

Relations with the main industrialized blocs raise equally
important (albeit different) questions. The predominance
of trade negotiations in relations with the United States has
blurred the importance of increased cooperation; the US
response to the Community's internal market objective
(setting up a free trade area with Canada) probably
foreshadows greater US acceptance of and openness
towards Europe.

With Japan, only minor progress has been achieved; the
size of the Japanese trade surplus, the continuing difficulty
in penetrating its market and the visible spread in its
international economic presence, all force us to conclude
that only repeated pressure has prompted Japan to adapt its
expansionist strategy. As this indicates vulnerability in its
room for manoeuvre, the Committee recommends a more
resolute approach and closer attention to strategy.

The Committee especially appreciates the success of the G7
agreement in stopping the slide in the international value of
the yen, which threatened to jeopardize the harmonious
development of future trade flows by creating even larger
Japanese trade surpluses.

Nevertheless, incipient internal political change, a change
of monetary and recent financial and stock market setbacks
should induce this great country to be more flexible and
abide by the rules of fair competition in the process of
multilateral trade liberalization.

The conclusion of the Eighth Round of G ATT negociations
(Uruguay Round) scheduled for the end of 1990 could
initiate further quantum leaps in trade policy. The
Community can be expected to play an active role in such
issues as the opening of many markets (particularly in
South East Asia); progress on the agricultural front; global
strengthening of the multilateral system (safeguard clauses,

10. 9. 90 Official Journal of the European Communities No C 225/43

waivers, dispute settlement); and the inclusion of new
sectors of activity (intellectual property, services).

Similarly, the tabling of new generalized preference
schemes, the negotiation of new international agreements
on certain commodities and involvement in a variety of
multilateral contacts will all provide opportunities to assert
key Community principles on matters such as free trade,
labour relations and specific issues (e.g. anti-drugs
campaigns).

2.6. _Additional aspects_

The Committee would not wish to close this chapter
without expressing its support for the package of measures
designed to help make the Community a practical reality.
These cover the audiovisual sector, education and youth
policy, small businesses and the distribution trades,
tourism, consumer policy, citizens' rights, social solidarity
and health. The measures involved may appear minor, but
they are the cornerstones of a better Community.

The Committee feels that the current economic climate

calls for a special focus on consumer protection. Indeed at a
time when market principles are achieving a resounding
success, it makes considerable sense to highlight the
decisive role which consumers play in a market economy,
and particularly the growing interest in defending their
desire for quality.

3. Social aspects of the Community situation

Although this report focuses on the Community economic
situation, a reference to the social situation would
undoubtedly be apt. The special role of the Economic and
Social Committee makes this particularly appropriate, all
the more so since it is now clear that a balance will have to

be struck between the economic and the social aspects in
the internal market.

3.1. _The labour market and_ _unemployment_

The labour market continues to merit the priority concern
of national and Community authorities. Before tackling
this issue, one technical point should be highlighted:
statistics on the number of jobs created in the Community
still include different types of employment (full-time, parttime, temporary), and thus do not accurately reflect the
volume of employment actually created, given that this
overall figure is used to calculate the growth rate of overall

employment (which is structured differently from the
additional employment created every year).

Nevertheless, the Community employment rate seems to
have settled into steady growth (1989 was the third
consecutive year in which employment rose by 1,5 % on
average) and this was reflected in the unemployment
figures (down from 10 % in 1988 to 9 % in 1989). The
discrepancies _vis-a-vis_ our main partners' unemployment
figures, however, remain considerable (5,2 % in the United
States of America, 2,3 % in Japan, and an average of just
over 2,5 % in the EFTA countries).

It is a major cause for concern that growth in employment
has not been matched by a corresponding drop in
unemployment; moreover, in 1991, unemployment levels
will fall more slowly than in the previous two years (see the
Commission document on the budget, 1990 to 1991, p. 1).
With this in mind, the Committee reiterates its view
expressed in the past that the employment growth rate
should also be boosted by using suitable supply policies to
bring supply into line with demand. Measures to reorganize
and reduce working hours taking account of productivity
must also be used to improve the employment situation.

There are three other main points for concern.

Firstly, the structural factors responsible in the past for the
rise in unemployment remain latent, and may re-emerge.

Secondly, there are still enormous differences within the
Community [the 8,6 % January average includes significant levels in Ireland (16,7 %), Spain (15,9 %) and Italy
(10,9 %)]. This obviously limits progress towards conver
gence.

Finally, there appears to be a certain sluggishness in areas
with scope for remedial action, such as (a) better
distribution of the benefits of economic growth and (b)
vocational training and qualifications. Indeed, the sustained growth rates recorded in most Member States, the
generally high productivity gains and increased investment
returns must all be reflected in a fairer distribution of the

benefits of growth between workers (whose need for
increased purchasing power of net wages is undisputed)
and businesses. Such sluggishness goes hand-in-hand with a
disturbing increase in insecure employment, such as
temporary or part-time work, where there is little or no
social security cover.

Furthermore, despite major progress in key areas (health
and safety at work, work equipment safety and personal

No C 225/44 Official Journal of the European Communities 10. 9. 90

protective equipment, education and vocational training),
there have been serious delays in such areas as the extension
of freedom of movement and the right of residence within
the Community, the transfer of social welfare entitlements,
mutual recognition of qualifications, and the Community
framework for social integration of third-country migrants, even if such integration could be a source of tension
in the countries or regions where high unemployment is
accompanied by a high incidence of immigration.

3.2. _Social Europe_

The Community Charter of Fundamental Social Rights —
which is to be accompanied by a Social Action Programme
— has been approved by the Council in the form of a
declaration. The ESC gave its position on the Charter at an
early stage, calling for a broader approach embracing wider
societal and environmental values and covering consumer,self-employed, cooperative and non-profit groups.

The misgivings expressed by the Committee at that time
did not elicit the appropriate response from the relevant
authorities, so these comments still hold true. However,
without wanting to detract from the welcome efforts
undertaken on the social front, the Committee stresses that
action will be needed to halt a certain slackening off in this
crucial area.

Of the many points still pending, the Committee would
single out the legal basis of the proposals contained in the
Social Action Programme.

4. A final comment

At the end of this opinion, having run through the most
pressing European and world economic issues, the
Committee would like to conclude by expressing its hope
that this historic period will be remembered not so much as
a watershed, but rather as a period when national and
Community authorities resisted the temptation to put the
brakes on the project initially symbolized by 1992, gathered
mometum towards economic and monetary union and thus
towards an agreed form of democratic political integration,
and paved the way for a stronger, more united presence on
the world stage.

Done at Brussels, 5 July 1990.

_The Chairman_

_of the Economic and Social Committee_

Alberto MASPRONE

Opinion on social developments in the Community in 1989

(90/C 225/16)

On 5 July 1990 the Economic and Social Committee, acting under the fourth paragraph of Article
20 of its Rules of Procedure, decided to draw up an opinion on social developments in the
Community in 1989.

The Section for Social, Family, Educational and Cultural Affairs, which was responsible for
preparing the Committee's work on the subject, adopted its opinion on 17 May 1990. The
rapporteur was Mr Liverani.

At its 278th plenary session (meeting of 5 July 1990), the Economic and Social Committee adopted
the following opinion by a majority vote, with four abstentions.