Source: EURLEX
Language: en
Format: md

### `COMMISSION OF THE EUROPEAN COMMUNITIES`

```
                         C0M(91)484 final

                         Brussels,4 December 1991

                   Proposal for a

                 COUNCIL PECISIQN

          ADOPTING THE ANNUAL ECONOMIC REPORT 1991/92 ON

           THE ECONOMIC SITUATION IN THE COMMUNITY AND

           DETERMINING THE ECONOMIC POLICY ORIENTATION

                FOR THE COMMUNITY IN 1992

             ANNUAL ECONOMIC REPORT 1991/92

               STRENGTHENING GROWTH AND

                IMPROVING CONVERGENCE

               (presented by the Commission)

```

_**m:**_

```
                Proposal for a

               COUNCIL DECISION

      ADOPTING THE ANNUAL ECONOMIC REPORT 1991/92 ON

       THE ECONOMIC SITUATION IN THE COMMUNITY AND

       DETERMINING THE ECONOMIC POLICY ORIENTATION

             FOR THE COMMUNITY IN 1992

THE COUNCIL OF THE EUROPEAN COMMUNITY,

having regard to the Treaty establishing the European Economic
Community,

having regard to Council decision 90/141/EEC of 12 March 1990 on the
attainment of progressive convergence of economic policies and
performance during Stage One of Economic and Monetary Union, and in
particular article 4 ('),

having regard to the proposal of the Commission,

having regard to the opinion of the European Parliament ( [2] ),

having regard to the opinion of the Economic and Social Committee
( [3] ).

HAS ADOPTED THIS DECISION:

                  Article 1

The Annual Economic Report 1991/92, annexed to the present decision
is adopted, and the economic policy orientations for the Community
for 1992 put forward in the report are adopted.

                  Article 2

This decision is addressed to the Member States.

Done at Brussels,

                         For the CounclI

                          The President

( [1] ) O.J. No L 78, 24.03.1990, p. 24.
( [2] ) Opinion
( [3] ) Opinion

```

```
         ANNUAL ECONOMIC REPORT 1991/92

INTRODUCTION AND SUMMARY 1-V

1 ECONOMIC SITUATION AND OUTLOOK

   1. 1991, a phase of slower growth — .... 1

     A. A less dynamic worId economy ..... ..... 1

     B. A diversified growth pattern In the Community ........ 1

   2. The outlook for 1992 and 1993: a gradual recovery ........ 9

###### **`11. PROGRESS IN ECQNQMIC CONVERGENCE IS STALLINQ 10`**

   1. Nominal convergence Is slipping, but fundamentals
```

`remain pos` `I` _1_ `Ive` `,` `10`

```
   2. Real convergence Is slowing .............. .,. 14

```

**`III.`** **`PRIORITi*«`** **`ftg`** _**m»»*****_ **`ptm`** **`t*y`** **`iu`** **`TUC`** _**rr+MMmirv**_ **`....`** **`..........`** **`16`**

```
IV. tiACRO-P^NnyiC POLICIES AND POLICIES FOR STRUCTURAL ADJUSTMENT 19

   1. Monetary pol Icy and ttoe BUS . .... *...., 19

   2. Budgetary Pol rcy ........ 21

   3. Po 11 c les for structura I adjustment 26

```

                 - / 

**ANNUAL ECONOMIC REPORT** **1991-92**

**INTRODUCTION AND SUMMARY**

_1991-1992:_ _**two years of slower growth**_

_World economic growth has_ _practically_ _ground to a halt_ _In_ _1991: +0.2 per_
_cent In real_ _terms._ _Cyclical_ _factors,_ _reinforced_ _by the negative_ _effects_ _of_
_the Gulf_ _crisis,_ _have pushed Into recession_ _the economies of many Important_
_industrialized_ _countries:_ _United_ _States,_ _Canada, some EFTA countries_ _and_
_the United_ _Kingdom._ _In_ _addition,_ _the far_ _reaching_ _transformation_ _occurring_
_In_ _Central_ _and Eastern_ _Europe_ _Is_ _Inevitably_ _provoking_ _a temporary,_ _but_
_substantial_ _decline_ _In_ _output_ _In_ _those_ _countries:_ _the_ _Impact_ _on_ _the_
_Community remains_ _limited_ _though._ _The end of_ _the recessionary_ _phase In_
_output_ _In_ _some_ _countries_ _and a certain_ _Improvement In_ _world_ _trade_ _lead to_
_the_ _expectation_ _of a recovery_ _to growth rates of about 2 per cent In 1992._

_The economy of_ _the European Community has_ _also_ _been affected_ _by_ _these_
_factors,_ _but_ _It_ _has withstood_ _them much better_ _than_ _many other_ _world_
_regions._ _The fundamental_ _Improvement In the_ _functioning_ _of_ _the_ _Community_
_economy which took place during_ _the 1980s and the strong_ _positive_ _growth_
_Impulses_ _stemming from German_ _unification_ _have ensured the_ _continuation_ _of_
_growth,_ _albeit_ _at a reduced rate._ _The rate_ _of growth_ _In the Community Is_
_estimated_ _to drop_ _In_ _1991 to about_ _1\k_ _per cent_ _from the 2.8_ _per_ _cent_
_recorded_ _In_ _1990. 1992 should see a_ _slight_ _Improvement of growth -_ _about_
`2&` _per cent for the Community as a whole - as the expected recovery_ _In the_
_United_ _Kingdom_ _Is_ _offset_ _by a slow-down_ _In Germany once the effects_ _of_
_unification_ _peter_ _out._

_The_ _current_ _economic slow-down_ _must be seen_ _against_ _the_ _backdrop of_ _the_
_strong_ _growth which preceded It._ _The_ _Community_ _economy has been_ _growing_ _at_
_a_ _satfsfactory_ _pace since_ _1984. The last_ _few years have been_ _characterized_
_by_ _unusually_ _high_ _rates_ _of growth of_ _Investment_ _which were difficult_ _to_
_susta/n:_ _In 1990 the amount of_ _Investment_ _In equipment made by Community_
_firms_ _was about_ _50% higher_ _In_ _real_ _terms_ _than_ _that_ _of_ _1984._ _The_
_expectations_ _created_ _by the Internal_ _market programme may, In_ _1987-1989,_
_have led firms_ _to bring_ _Investment_ _forward_ _In_ _anticipation_ _of the_ _actual_
_Internal_ _market effects._ _These effects_ _will_ _be felt_ _In the years to come as_
_the_ _political_ _and legislative_ _decisions_ _already_ _taken are Implemented and_
_lead to an actual_ _dismantling_ _of the residual_ _Internal_ _barriers._

```
                                        //

```

**`Trie`** _**Community economy**_ **`-`** _**Key**_ _**Indicators**_

_Average_ _Average_ `**` `**`
_1983-87_ _1988-89_ _1990_ _1991_ _1992_ _1993_

_Real GDP (annual_ _% Increase)_ _**2.4**_ _3.7_ _2.8_ _1.3_ _2¥L_ _2%_
_**Inflation**_ _**(a)**_ _(")_ _5.9_ _4.3_ _5.2_ _5.0_ _4k_ _**4***_
_**Real compensation**_ _**per head**_ _**1.3**_ _**1.6**_ _**2.3**_ _**2.0**_ _1hk_ **`7%`**
_**Employment**_ _**(")**_ _**0.1**_ _**1.6**_ _**1.4**_ _**0.5**_ **`#`** _hit_
_**Unemployment**_ _10.5_ _9.3_ _**8.4**_ _8.6_ _9_ `9)4`
_(% of_ _active_ _population)_
_**Budget deficit**_ _**(b)(%**_ _GDP)_ _**4.9**_ _**3.3**_ _**4.1**_ _**4.4**_ _**4&**_ _**4***_
_**Current**_ _**account balance**_ _0.7_ _0_ _-0.2_ _-0.8_ _-1_ `-` `[3]` `/` `4`
_(% of GDP)_

_** Forecast_ _(a)_ _private_ _consumption_ _deflator_
_(b)_ _general_ _government_ _borrowing_ _requirement_

_**Slower growth contains**_ _**risks**_ _**for the major Community**_ _**projects**_

_The current_ _economic_ _slow-down_ _carries_ _a double_ _economic_ _policy_ _message_ _for_
_the_ _Community._

_I)_ _On the one hand,_ _It_ _represents_ _an unwelcome development_ _which_ _Is_
_reducing_ _the_ _margin_ _for_ _manoeuvre_ _for_ _economic_ _policy_ _In_ _many_
_countries._ _The_ _lower_ _rates_ _of_ _growth_ _are_ _leading,_ _already_ _In_
_1991,_ _to an_ _Increase_ _In_ _unemployment,_ _thus bringing_ _to a halt_ _the_
_continuous_ _downward_ _trend_ _evident_ _since_ _1986._ _Social_ _resistance_
_to_ _change_ _risks_ _Increasing_ _as the_ _positive_ _consequences_ _of_ _the_
_present_ _structural_ _adjustment_ _take_ _more_ _time_ _to_ _materialize_ _and_
_become_ _thus_ _less_ _visible_ _than_ _the_ _temporary_ _negative_ _ones._
_Convergence_ _Is_ _Interrupted_ _In_ _the run up to EMU and_ _slower_ _growth_
_further_ _complIcates_ _the_ _task_ _of_ _budgetary_ _consol/dation_ _where_
_this_ _Is_ _still_ _necessary_ _and creates_ _less_ _favourable_ _conditions_
_for_ _a rapid_ _catch/ng-up_ _process._

_il)_ _On the_ _other_ _hand,_ _It_ _constitutes_ _a powerful_ _reminder_ _that_ _the_
_economic_ _policy_ _adjustment_ _which_ _took_ _place_ _during_ _the_ _1980s,_
_although_ _substantial,_ _was not_ _sufficient_ _or_ _complete._ _Wage_
_moderation_ _helped_ _Improve_ _the_ _profitability_ _of_ _Investment_ _which_
_had_ _deteriorated_ _substantially_ _In the wake of_ _the two_ _oil_ _shocks_
_and_ _of_ _the_ _unsettled_ _conditions_ _which_ _followed_ _them._ _This_
_positive_ _trend,_ _however,_ _came_ _to_ _a_ _halt_ _In_ _1990_ _when_ _the_
_correction_ _was not yet complete._ _Further_ _efforts_ _are necessary_ _to_
_bring_ _Investment_ _profitability_ _back at_ _least_ _to_ _Its_ _level_ _of_ _the_
_1960s._

```
                      - /// 
```

_The strong_ _growth of 1988-1990 was not exploited_ _to further_ _the_
_adjustment_ _process_ _where_ _this_ _was necessary._ _In some Member_
_States_ _the rates_ _of Inflation,_ _even If_ _substantially_ _reduced by_
_comparison with_ _the_ _beginning_ _of the 1980s, were at the end of_
_the decade_ _still_ _too_ _high_ _for_ _the stated_ _ambition_ _of_ _moving_
_rapidly_ _towards_ _Economic_ _and_ _Monetary_ _Union._ _Insufficient_
_structural_ _adjustment_ _had taken_ _place._ _The strong_ _employment_
_growth_ _of_ _1988-90_ _led_ _to_ _unwarranted_ _wage_ _Increases_ _In_ _1990_
_notwithstanding_ _still_ _high_ _unemployment._ _Equally_ _worrying_ _Is the_
_situation_ _In_ _the_ _budgetary_ _area._ _The strong_ _rates_ _of_ _growth_
_offered_ _a golden opportunity,_ _which was not seized,_ _to take bold_
_steps_ _to_ _consolIdate_ _the budgetary_ _position_ _at_ _little_ _cost._ _In_
_many cases, strong_ _consolIdatIon_ _would have helped In_ _preventing_
_overheating_ _with positive_ _consequences on_ _Inflationary_ _pressures._
_In_ _some_ _countries_ _there_ _remained_ _problems_ _of_ _external_
_competitiveness_ _as_ _shown_ _by_ _continuing_ _fragile_ _external_
_positions._ _Very often_ _efforts_ _were_ _Interrupted_ _too soon_ _In_ _this_
_area as_ _well_ _._

_The_ _policies_ _which have brought about the turn around_ _In_ _the performance of_
_the Community economy_ _during_ _the 1980s must be_ _Implemented_ _again_ _with_ _more_
_determination._ _In_ _an_ _Interdependent_ _world economy, healthy_ _fundamentals and_
_a flexible_ _economy go a long way towards_ _ensuring_ _that_ _the effects_ _of_
_adverse_ _external_ _developments_ _do not_ _put_ _In_ _danger_ _the_ _pursuits_ _of_
_fundamental Community economic policy_ _objectives._

_**With**_ _**appropriate**_ _**policies**_ _**medium**_ _**term perspectives remain good**_

_Jhe_ _rate of growth of the Community economy_ _Is_ _currently_ _expected to_ _pick_
_up to about_ _2te_ _per cent_ _In_ _1993. The slow pace of the recovery_ _constitutes_
_a_ _reflection_ _of the fact_ _that_ _many Member States_ _are expected_ _to embark_
_Into_ _policies_ _aimed at_ _resuming_ _the_ _adjustment_ _efforts._ _Under_ _these_
_conditions,_ _the Community economy could return_ _to stronger_ _rates_ _of_ _growth_
_sustainable_ _In_ _both economic and_ _environmental_ _terms._

_The processes launched_ _with_ _the great Community programmes -_ _completion_ _of_
_the_ _Internal_ _market,_ _transition_ _to_ _Economic_ _and_ _Monetary_ _Union,_
_reinforcement_ _of_ _economic and social_ _cohesion_ _- are_ _Irreversible._ _Bold_
_decisions_ _and determined_ _actions_ _would have a_ _substantial_ _positive_ _effect_
_on the_ _confidence_ _of_ _economic agents_ _and_ _give_ _an Immediate_ _Impulse_ _to_
_economic_ _growth._

_The efforts_ _to complete the Internal_ _market have resulted_ _In the most wide-_
_ranging supply_ _side_ _Initiative_ _In_ _the history_ _of the Community._ _Most of_
_the required_ _decisions_ _have been taken._ _Their_ _transposition_ _Into_ _national_
_law,_ _however,_ _Is_ _lagging behind and a number of_ _difficult_ _Issues have_ _still_
_to be solved._ _The recent agreement on the setting_ _up of a European Economic_
_Area_ _will_ _extend_ _and reinforce_ _the_ _effects_ _of_ _the_ _Internal_ _market_

_programme._

`-` _IV -_

_Economic and Monetary Union_ _will_ _result_ _In_ _an amplification_ _of the type of_
_economic benefits_ _that_ _follow_ _from the 1992 programme. Indeed only a_ _single_
_currency_ _will_ _allow_ _the_ _full_ _potential_ _benefits_ _of the Single_ _Market to be_
_achieved._ _The_ _primary aim_ _of_ _EMU Is_ _therefore_ _to strengthen_ _the_ _Integration_
_of the Community and Improve Its_ _economic performance._ _After_ _many years_
_of remarkable progress,_ _the trend towards the degree of nominal_ _convergence_
_necessary for a smooth_ _transition_ _to_ _EMU_ _has come to a halt_ _In 1989/90. Few_
_Member States_ _are yet_ _In_ _a_ _position_ _to make the_ _transition_ _to_ _EMU_ _without_
_considerable_ _adjustment._ _Recognizing_ _the_ _need to_ _resume the movement_
_towards_ _greater_ _convergence,_ _Member States_ _have agreed_ _to_ _embark upon_
_ambitious_ _convergence_ _programmes._ _It_ _Is Important_ _that_ _these programmes be_
_Implemented In_ _a resolute_ _way. The Members States,_ _where the_ _adjustment_
_needs are_ _still_ _large_ _will_ _be reinforced_ _In_ _their_ _determination_ _by a_
_successful_ _and clear_ _outcome of_ _the_ _Maastricht_ _meetings,_ _the_ _results_
_already_ _achieved by_ _their_ _partners_ _and by enhanced_ _coordination_ _procedures_
_at the Community_ _level._

_**The Community**_ _**policy**_ _**priorities**_ _**require**_ _**a**_ _**consistent**_ _**Implementation**_ _**of**_
_**appropriate**_ _**macroeconomlc policies**_ _**and**_ _**policies**_ _**for structural**_ _**adjustment**_ _._

_Continued efforts_ _are required_ _In all_ _countries_ _to_ _Improve_ _the_ _flexlblIIty_
_of the economy. The coexistence_ _of very_ _high overall_ _levels_ _of unemployment_
_and_ _bottle-necks_ _In certain_ _sectors_ _of_ _the_ _labour_ _market_ _suggest_ _that_
_greater_ _efforts_ _must be deployed_ _to_ _Improve training_ _and reduce_ _skill_
_mismatches._ _At the same_ _time,_ _greater_ _flexlbl_ _I Ity_ _will_ _be needed both_ _In_
_wage_ _determination_ _and the wage structure._ _It_ _Is Important_ _to review wage_
_setting_ _procedures_ _so as to make them more_ _responsive_ _to macroeconomlc_
_considerations_ _and to the need of furthering_ _structural_ _adjustment._

_The Community, and the whole world,_ _are facing_ _a shortage_ _of savings_ _which_
_risks_ _becoming more acute_ _In_ _the years to come._ _Notwithstanding_ _a subdued_
_demand for_ _Investment_ _In_ _the_ _Industrial_ _I_ _zed_ _world,_ _real_ _long term_ _Interest_
_rates_ _In 1991 are_ _high_ _which points_ _to the fact_ _that_ _available_ _savings_ _are_
_Insufficient_ _to meet the demand for capital._ _This_ _situation_ _risks_ _becoming_
_even less favourable_ _once Investment_ _activity_ _picks_ _up again and the huge_
_pent-up_ _capital_ _demand from Central_ _and Eastern_ _Europe translates_ _Into_
_actual_ _demand for_ _funds._ _Authorities_ _should embark on a_ _systematle_ _review_
_of_ _all_ _structural_ _Impediments_ _to_ _saving._

_The single_ _most_ _Important_ _contribution_ _to_ _Increased_ _national_ _saving,_
_however,_ _would be a significant_ _reduction_ _In public_ _deficits_ _In_ _most_
_countries._ _Various_ _Member States_ _(Greece,_ _Italy,_ _Portugal,_ _Belgium,_ _the_
_Netherlands,_ _Ireland_ _and_ _Germany)_ _present,_ _to_ _different_ _degrees,_
_unsatIsfactory_ _budgetary_ _positions._ _These_ _positions_ _must be corrected_ _to_
_Improve macroeconomlc conditions_ _In_ _the_ _countries_ _concerned and to_ _allow_
_for a smooth_ _transition_ _to_ _EMU._ _The necessary progress_ _towards these goals_
_would also help to reduce the_ _overall_ _shortage_ _of savings_ _and would ease_
_the burden presently_ _carried_ _by monetary_ _policy._

**`-`** _**y**_ _**-**_

_**The success**_ _**of**_ _**monetary**_ _**authorities**_ _**In**_ _**preserving**_ _**price**_ _**stability**_ _**and**_
_**exchange rate**_ _**stability**_ _**within**_ _**the Community has been acknowledged**_ _**by the**_
_**markets and Interest**_ _**rate**_ _**differentials**_ _**among the EMS currencies**_ _**have come**_
_**down**_ _**substantially.**_ _**They have**_ _**all**_ _**but disappeared**_ _**at the short**_ _**end of**_ _**the**_
_**market**_ _**between**_ _**the**_ _**currencies**_ _**of**_ _**the**_ _**Initial**_ _**narrow**_ _**band**_ _**participants.**_
_**Under these**_ _**conditions**_ _**the**_ _**room for**_ _**manoeuvre at**_ _**the**_ _**national**_ _**level**_ _**Is**_
_**extremely**_ _**reduced.**_ _**It**_ _**Is therefore**_ _**the more urgent**_ _**to move to**_ _**full**_ _**EMU.**_
_**Given the**_ _**continued**_ _**strength**_ _**of**_ _**Inflationary**_ _**pressures**_ _**In the vast**_ _**majority**_
_**of**_ _**Member States,**_ _**however,**_ _**overall**_ _**monetary**_ _**policies**_ _**should**_ _**remain**_
_**cautious.**_

_**Given**_ _**the**_ _**constraints**_ _**that**_ _**the**_ _**high**_ _**degree**_ _**of**_ _**economic**_ _**Integration**_ _**and**_
_**exchange rate**_ _**stability**_ _**now**_ _**prevailIng**_ _**In**_ _**the Community exert**_ _**on monetary**_
_**and budgetary**_ _**policy,**_ _**the**_ _**task**_ _**of**_ _**creating**_ _**conditions**_ _**conducive**_ _**to**_ _**an**_
_**harmonious development of**_ _**all**_ _**Community countries**_ _**and regions**_ _**falls**_ _**more on**_
_**policies**_ _**for**_ _**structural**_ _**adjustment.**_ _**Such**_ _**policies**_ _**need to be supported**_ _**by**_
_**appropriate**_ _**policy**_ _**measures In key sectors**_ _**of the economy to**_ _**facilitate**_ _**the**_
_**required**_ _**adjustment.**_ _**Member States**_ _**and the**_ _**Community**_ _**must ensure**_ _**that**_
_**supply**_ _**conditions**_ _**Improve**_ _**everywhere**_ _**to**_ _**create**_ _**additional**_ _**employment.**_
_**Conditions**_ _**must be created**_ _**which**_ _**will**_ _**attract**_ _**Job creating**_ _**Investment**_ _**where**_
_**unemployment**_ _**Is**_ _**high.**_ _**Such**_ _**conditions**_ _**would**_ _**also**_ _**contribute**_ _**to**_ _**the**_
_**catchlng-up**_ _**process,**_ _**that**_ _**could be further**_ _**reinforced**_ _**by a strengthening**_ _**of**_
_**the**_ _**Community's**_ _**cohesion**_ _**policies.**_ _**Better**_ _**Infrastructure,**_ _**closer**_
_**cooperation,**_ _**less**_ _**rigid**_ _**labour**_ _**markets**_ _**and tax**_ _**structures**_ _**which do not**_
_**penalize**_ _**entrepreneurial**_ _**activities**_ _**are**_ _**all**_ _**particularly**_ _**Important**_ _**factors.**_
_**Member States**_ _**should**_ _**give**_ _**the**_ _**Improvement of supply**_ _**policies**_ _**a**_ _**prominent**_
_**place**_ _**In**_ _**their**_ _**economic**_ _**policy**_ _**concept.**_ _**Cooperation**_ _**at the Community**_ _**level**_
_**and supply**_ _**side**_ _**policies**_ _**In**_ _**Member States**_ _**are**_ _**a necessary**_ _**complement**_ _**to**_
_**macro-economic**_ _**strategies.**_

_**Improvement of supply**_ _**conditions**_ _**must go hand In hand**_ _**with**_ _**maintaining**_ _**open**_
_**and**_ _**undlstorted**_ _**competition.**_ _**Public**_ _**subsidies**_ _**can threaten**_ _**the**_ _**functioning**_
_**of**_ _**a**_ _**competitive**_ _**market**_ _**process**_ _**by**_ _**confining**_ _**specific**_ _**advantages**_ _**to**_
_**competing**_ _**companies.**_ _**In**_ _**the**_ _**run-up**_ _**to EMU state**_ _**aids**_ _**should**_ _**come under**_
_**closer**_ _**scrutiny**_ _**to**_ _**Improve**_ _**convergence.**_ _**The Commission strives**_ _**to**_ _**limit**_
_**subsidization**_ _**and to**_ _**Incorporate**_ _**It**_ _**In**_ _**a context**_ _**of**_ _**restructuring.**_

_**A commitment to more disci**_ _**pi I**_ _**ne on subsidies**_ _**would also**_ _**contribute**_ _**to**_ _**the**_
_**achievement**_ _**of**_ _**a**_ _**more**_ _**open**_ _**International**_ _**trading**_ _**system.**_ _**A**_ _**timely**_
_**conclusion**_ _**of**_ _**the Uruguay Round would not only**_ _**ensure**_ _**market**_ _**access and**_
_**reduced protect**_ _**Ion In**_ _**the**_ _**traditional**_ _**areas**_ _**of trade**_ _**negotiation**_ _**but**_ _**also**_
_**allow**_ _**the extension**_ _**of**_ _**mult I lateral**_ _**I**_ _**y agreed**_ _**rules**_ _**to new areas**_ _**of**_ _**great**_
_**relevance**_ _**for**_ _**the**_ _**Community.-**_ _**services,**_ _**Intellectual**_ _**property**_ _**rights**_ _**and**_
_**International**_ _**Investment . It**_ _**Is**_ _**Important**_ _**to**_ _**Improve access**_ _**to our**_ _**trade**_
_**markets**_ _**for**_ _**those**_ _**products**_ _**with**_ _**which**_ _**Central**_ _**and**_ _**Eastern**_ _**European**_
_**countries**_ _**can**_ _**compete**_ _**effectively**_ _**on**_ _**the**_ _**world**_ _**stage:**_ _**agriculture,**_
_**textiles,**_ _**coal**_ _**and steel.**_ _**This**_ _**Improvement**_ _**In market**_ _**access**_ _**will**_ _**not**_ _**be**_
_**carried**_ _**out**_ _**at**_ _**the**_ _**expense**_ _**of**_ _**existing**_ _**commercial**_ _**relations**_ _**with**_ _**other**_
_**partners,**_ _**In**_ _**particular**_ _**developing**_ _**countries.**_ _**Only a strong,**_ _**competitive**_
_**and open Community economy**_ _**will**_ _**be**_ _**able**_ _**to**_ _**satisfactorily**_ _**assist**_ _**the**_
_**developing**_ _**world and Central**_ _**and Eastern**_ _**Europe**_ _**In**_ _**their**_ _**development**_ **`.`**

**-** **1** **-**

**L** **ECONOMIC SITUATION AND OUTLOOK**

```
1. 1991. Phase of slower growth

   A. A less dynamic world economy

     Over the last two years the Community has had to operate in an In
```

_**T**_ **`K.`** **`« i^.^`** **`nD`** **`^`** **`^-^_`** _**\**_ **`^ -...—^`** **`creaslngly`** **`unfavourable`** **`eco-`**
**TaUe** **1 : Real GDP. domestic demand and world trade** (% change) _"_

1981-85 1986-89 1990 1991* 1992* 1993*

**G D P**

-0.2

**-0.4**

**4.6**

1.3

**World** **(excl.** **EC)**
U.8A
Japan
EC

U.S.A.
Japan
EC

World imp.(excl. EC)
German imports
EC imports**

U.S.A.
Japan
**EC**'*::::**

1.8

0.9

5.6

2.8

**2.6**

**2.9**

**3.9**

**1.5**

**3.7**

**2.9**

**0.9**

3.0

1.6

2.0

-1.2

1.9

3.8

3.5

**4.4**

3 2

**-2.8**

**3.2**

```
nomlc climate. After peaking In

1988 at around 4%, the growth

of worUd output excluding the

EC has been slowing

continuously and was near zero

In 1991, the weakest rate since

1982. The growth In the volume

of world trade (again excluding

the EC) has declined even more

from a rate In excess of 7% in

1988 to less than 2% In 1991

(table 1). The decline in

activity has been more

pronounced than assumed at the

beginning of the year with the

expected recovery less forth
```

**Domestic demand**

**2.1**

**2.1**

**3.5**

**2.2**

**2.1**

**3.7**

**2.2**

**5.1**

**5.0**

**5.2**

3.0

5.6

**4 2**

6.0

6.1

8.8

3.0

11.4

**4.7**

**0.5**

**5.8**

**2.9**

**-1.0**

**3.4**

**1.1**

**World trade**

1.8

12.8

**2.5**

**Current account** **(%** **of** GOP)

3.1

2.2

3.5

**2.4**

2.1

3.7

2.6

6.1

**4.7**

5.5

-0.6

1.7
_**-OX**_

**-1.6**

**1.2**

**-0.1**

**1.5**

**-0.7**

**1.6**
**;£bi»:** **[: ]**

- Forecast
** EC excl. Germany
*** EC including Unified Germany from 1991 onwards.
Source : Commission Services

```
   coming. The previous assessment of the economic outlook has been

   clearly too optimistic.

B. A diversified growth pattern In the Community

   The picture of the Community Is rather differentiated: relatively

   weak activity In France, Italy and a recession In the United

   Kingdom, which seems to have reached Its bottom, contrast sharply

```

```
                  - 2 
  with continued rates of expansion In Germany, Luxembourg and

  Spain, while the other countries hover between these extremes.

a) Expansion continued, particularly In Germany, but at a slowing

  rate

  Germany continued Its buoyant growth path under the Impact of the

  significant expansionary impulse of fiscal policy stemming from

  unification. Fiscal policy gave a strong boost to private

  consumption, while the Investment performance was underpinned by

   Investors' intentions to widen production capacities in order to

   serve the market of the five new Lander. These demand pressures

   could not be met by domestic supply, resulting In a strong spill
   over to foreign suppliers implying a swing in the current account

   position from a surplus of 4.7% of GDP (West Germany) In 1989 to a

   deficit of 1.1% of GDP (unified Germany) in 1991.

   But even this strong external leakage of domestic demand was not

   sufficient to prevent Internal pressures from developing. A

   number of factors, including Indirect tax Increases, have

   contributed to an upward movement of the price level. Core

   inflation crept up and Inflation in West-Germany is now above 4%.

   Wage agreements have been concluded that granted pay rises of 6 to

   7%. With productivity growth declining, this resulted in an

   increase of unit labour costs of almost 6% with profit margins

   declining, although from high levels.

   On account of the strong rise of transfer payments in the context

   of unification, the fiscal balance has shifted from equilibrium in

   1989 to a deficit of 3.6% of GDP in 1991, despite revenue

   increasing and expenditure dampening measures of about 2% of GDP

   adopted In early 1991.

```

```
                - 3 
  Since about mid 1991 the growth process has been losing momentum

  as the expansionary Impulse from unification Is petering out and

  as It had to be flanked with a restrictive monetary policy

  intended to quell inflationary expectations. Furthermore the

  outlook for profitability has deteriorated following the Increase

  in unit labour costs. At the same time, the capacity widening

  effect of the Investment of recent years has led to some fali in

  the high rate of capacity utilization since the spring of this

  year. Although the danger of a demand-led inflation has eased

  somewhat, there are considerable risks of tax and cost-push

  Inflation Implied in the present fiscal policy choices, which have

  unduly relied on the revenue side.

###### **`b) Slower growth In the rest of the Community`**

  The United Kingdom registered a deep recession in 1991, with GDP

  declining by close to 2%. Private consumption and particularly

   Investment declined significantly under the delayed influence of

  the restrictive monetary policy pursued In 1989 and 1990 to cool

  off the overheating of the economy in the previous consumer boom.

```

```
The rest Of the Community registered a

```

**Graph 1 : Confidence indicators - EC**

**(businness** **surveys)**
**10**

**I** **a** **I** **o** **I** **a**
**1088** **1989**
**Source : Commission** **Ssrvlcaa**

```
more subdued rate of

growth of 1.5% compared to

2.7% In 1990. Overall, it

was In particular, the

growth of private

consumption and exports

that retreated, while

Investment even stagnated.

Confidence of consumers

and Industry has been low

since the outbreak of the

Gulf crisis and has shown

a limited recovery since

(graph 1).

```

```
              - 4 
Investment stagnated for the first time after a particularly

strong Investment boom during the last five years, in the course

of which the European capital stock grew by close to 15% in real

terms. Such a pause for breath was almost unavoidable after the

                         first wave of invest
                         ment In anticipation of

```

**Table** **2: Key indicators of the EC economy**

1983-871988-89 1990 1991* 1992* 1993*

Employment 0.3 1.6 1.4 0.5 0.3 0.5

: :Reàt:cQ'mpèiroat^

Inflation*** 5.8 4.3 5.2 5.0 4.5 4.2

' ;RQai:urtit labour costs  - ï: [:] :-i [:] .i: [;] : [;] : [;] :-i [:] ;o^ [:] :ïà5 [:] : [:] :ï:b [:] .6 [:] ::^o;7 [:] : [;] : [:] -o:.7:

Investment 2.6 7.9 4.1 -0.5 2.2 3.7

:. erf which; -equipment- ;;••;•: [ :] :4.9:: [;] ;Ï-9,9 [:] :Ï: [:] :4:.7Ï: ^Q^4; >x:2,e^-;>:;4;.e;

  - Forecast
** Real compensation ot employees per head(private consumtion deflator)
*** Private consumption deflator

Source: Commission Services

```
the completion of the

Internal market. The

effects of the Internal

market measures will be

felt In the years to

come as the political

and legislative deci
sions already taken are

Implemented and lead to

an actual dismantling of

the residual internal

barriers (table 2 ) .

```

```
However, the dent in growth would have been more pronounced In

the absence of German unification. Indeed the growth performance

of the Community countries was strongly sustained by the demand

effects coming from the German economic expansion. The total

Impact of German unification on the other Community countries Is

estimated at 0.5 of a percentage point per year on average over

the period 1990-91 (see box).

The slowdown In growth was largely cyclical in countries such as

Spain, Portugal, the Netherlands, Belgium, Luxembourg, Ireland,

Italy and France. The cyclical downswing has brought out

underlying structural weaknesses in some countries. Italy and

France would have had difficulty In maintaining a more sustained

pace of economic activity relative to their trading partners in

```

```
                 - 5 
```

_**Economic consequences**_ _**of**_ _**German unification**_ _**for the**_ _**Community**_

_**In**_ _**general terms,**_ _**German unification**_ _**had both real effects**_ _**via Intra-Community**_ _**trade Impulses**_
_**and monetary effects**_ _**via**_ _**Interest**_ _**rate and exchange rate**_ _**movements.**_

_**On the real**_ _**side,**_ _**the transmission**_ _**mechanisms**_ _**are working**_ _**via**_ _**real trade balance effects:**_ _**the**_
_**considerable current and capital**_ _**transfers**_ _**In**_ _**favour of the**_ **`5`** _**new**_ _**Under**_ _**Is partly converted**_
_**Into**_ _**additional**_ _**demands mostly addressed to**_ _**Hest-German**_ _**firms,**_ _**given**_ _**their**_ _**comparative**_
_**advantages (geographical**_ _**proximity,**_ _**common**_ _**language,**_ _**common**_ _**currency).**_ _**The**_ _**Induced**_ _**boost on**_
_**West-**_ _**Germany's**_ _**final**_ _**demand In**_ _**turn results**_ _**In Increased Imports**_ _**addressed to the rest of the**_
_**World and, notably to the other**_ _**Member**_ _**States of the**_ _**Community,**_ _**with**_ _**positive**_ _**Impacts on their**_
_**own final**_ _**demand**_ _**and**_ _**GDP**_ _**growth,**_ _**all**_ _**other things being equal.**_

```
Table 1: Quarterly bilateral exporte to Germany,

     (X change over same quarter of the previous year)

```

_**The**_ _**amplitude**_ _**of these positive**_ _**effects**_ _**of**_
_**course depends not**_ _**only**_ _**on the**_ _**relative**_
_**Importance**_ _**of exports to Germany In**_ _**total**_
_**exports but**_ _**also**_ _**on the share of exports**_ _**In**_
_**GDP (cfr.**_ _**table 2).**_ _**Thus, the**_ _**smaller,**_ _**open**_
_**economies**_ _**having close**_ _**ties with Germany like**_
_**the Benelux countries and**_ _**Denmark**_ _**are**_ _**likely**_
_**to be more**_ _**positively**_ _**affected,**_ _**In**_ _**relation**_
_**to**_ _**GDP,**_ _**than the larger**_ _**countries.**_

_**In**_ _**the**_ _**first**_ _**twelve**_ _**months since**_ _**the**_

_**unification,**_ _**trade**_ _**movements**_ _**confirmed**_ _**the**_
_**estimates made in Hay/June**_ _**1990: purchases of**_
_**the 5 new**_ _**Lender**_ _**from the rest of the**_ _**world**_

_**Including**_ _**tlest Germany**_ _**went up from 18**_ _**bil-**_
_**lion**_ _**DU to about 130**_ _**billion,**_ _**an**_ _**amount**_ _**close**_
_**to**_ _**the**_ _**equivalent**_ _**of**_ _**public**_ _**transfers**_
_**received by these**_ _**Under.**_ _**At the same**_ _**time**_
_**all**_ _**other**_ _**EC-countries**_ _**except**_ _**Greece**_
_**registered**_ _**considerable**_ _**upswings In**_ _**their**_
_**bilateral**_ _**trade**_ _**with Germany**_ _**(see table**_ _**1).**_

```
1990

 III IV

```

```
31.9

31.2

 8.4

38.0

10.6

 6.9

20.1

17.1

20.1

13.4

```

```
  1991

 I II

28.8 27.0

33.9 29.2

 8.1 4.9

48.7 41.2

21.0 38.7

13.6 13.3

22.0 19.1

20.9 18.8

22.8 21.3

17.8 21.6

```

```
12.1

22.8

 3.8

30.8

15.1

11.7

17.8

 8.7

17.8

 7.1

```

```
BLEU

Denmark

Greece

Spain

Fronce

Ireland

Italy

Netherlands

Portugal

United Kingdom

```

```
 7.8 3.2

10.8 8.8

 3.4 -2.7

16.3 9.8

18.9 -«.4

 9.0 8.8

13.0 8.0

 8.7 -0.8

21.8 14.8

 6.7 -0.8

```

```
Source: Bundesbank, monthly report, supplement 3, 1991

```

_**From these elements,**_ _**It**_ _**can be estimated that the growth Impact for the**_ _**Community**_ _**In 1990**_
_**(second semester) and**_ _**1991**_ _**would be respectively**_ _**around 0.4 and 0.6 points (see table**_ _**2).**_
_**Smaller**_ _**and more open**_ _**economics generally display**_ _**a**_ _**higher**_ _**Impact,**_ _**particularly**_ _**In**_ _**the second**_
_**year**_ _**when**_ _**they also**_ _**benefit**_ _**from the Indirect**_ _**effects of**_ _**unification.**_

```
 Table 2: Impact of German unification on the growth rate

      of the other Member Countries

            Memorandum Items 1990 Impact on

                           rate of growth

```

`Share of exp.` `Share of` `in` _%_ `points`

```
           to 0 In total exports per year

           exports X In GOP (X) 1990» 1991

 BLEU 19.8 78.3 40.6 4-1.0

 Denmark 18.2 38.1 40.4 40.7

 Greece 28.1 23.4 40.2 40.4

 Spain 11.1 17.7 40.3 40.8

 Fronce 18.7 23.4 40.4 40.7

 Ireland 12.2 63.8 40.3 40.8

 Italy 17.4 20.6 40.3 40.6

 Netherlands 28.1 86.4 40.7 40.9

 Portugal 18.8 37.3 40.3 40.4

 United Kingdom 12.7 24.8 40.2 40.8

 EUR 11 12.8 28.0 40.4 40.6

```

_*****_ **`Second semester, in yearly terms`**

```
 Source: Corrmlesion Services

```

_**In**_ _**May/June**_ _**1990, It**_ _**was expected that the**_
_**unification**_ _**would cause a general**_ _**rise**_ _**In**_
_**German Interest**_ _**rates**_ _**and a revaluation**_ _**of**_

_**the DM, movements that**_ _**would have to be**_
_**followed**_ _**by**_ _**all**_ _**other countries**_ _**member**_ _**of the**_
_**ERM with**_ _**negative**_ _**effects**_ _**on their**_ _**growth**_
_**rates.**_ _**The reaction**_ _**of financial**_ _**markets In**_

_**the**_ _**first**_ _**quarters of 1990 seemed to**_ _**confirm**_
_**those**_ _**views.**_ _**Since**_ _**then,**_ _**however,**_ _**the**_
_**effective**_ _**exchange rate,**_ _**after**_ _**Its**_ _**Initial**_
_**revaluation,**_ _**fell**_ _**back**_ _**near**_ _**Its**_ _**pre-**_
_**uniflcatlon**_ _**level and nominal Interest**_ _**rates**_

_**both long and short for most**_ _**EC-countries,**_
_**followed**_ _**the same profile**_ _**of**_ _**Initial**_ _**rise**_
_**followed**_ _**by a decrease.**_

```
                 - 6 
```

_**It**_ _**may therefore**_ _**be estimated that the monetary effects**_ _**of the**_ _**unification**_ _**on**_ _**Member**_ _**States**_
_**will**_ _**be**_ _**somewhat**_ _**weaker than**_ _**initially**_ _**expected and**_ _**will**_ _**not have**_ _**much Impact**_ _**on the estimates**_
_**presented**_ _**In table**_ _**2.**_ _**Thus, although**_ _**ceteris**_ _**paribus**_ _**reasoning**_ _**Is**_ _**always**_ _**difficult**_ _**in**_
_**economics,**_ _**It**_ _**may be estimated**_ _**that,**_ _**without**_ _**the unification**_ _**effect,**_ _**Germany would have**_
_**followed**_ _**the same**_ _**downward cyclical**_ _**movement**_ _**as the other**_ _**countries**_ _**and the**_ _**EC-economy**_ _**would**_
_**have registered very low growth In 1991.**_

_**It**_ _**is moreover to be noted that**_ _**In this document all**_ _**historical**_ _**data**_ _**labelled Germany**_ _**are for**_
_**West**_ _**Germany**_ _**only since major statistical**_ _**problems impede to present a reliable**_ _**picture for the**_
_**whole of**_ _**Germany.**_ _**However, there are a few noteworthy exceptions to this general rule,**_ _**Implying**_
_**a**_ _**methodological**_ _**break**_ _**In**_ _**the time-series**_ _**concerned.**_ _**First,**_ _**trade**_ _**figures**_ _**based on customs data**_
_**cover exports and Imports of goods of**_ _**Unified**_ _**Germany. Second, the forecast**_ _**of the general**_
_**government account includes**_ _**public**_ _**transfers**_ _**to the**_ _**five**_ _**new Under as**_ _**well**_ _**as the**_ _**deficit**_ _**of**_
_**the territorial**_ _**authorities**_ _**of these**_ _**Lander**_ _**from 1991 onwards.**_ _**Third,**_ _**current**_ _**account data**_
_**relate also to**_ _**Unified**_ _**Germany.**_ _**When**_ _**expressed as a percentage of GDP, In these three cases the**_
_**GDP**_ _**of**_ _**Unified Germany Is**_ _**used.**_

_**Obviously, the aggregation of national**_ _**data to an EC total**_ _**takes Into account the retained**_
_**treatment for Germany.**_ _**In**_ _**the table below, an**_ _**Idea Is**_ _**given to what extent the forecasts**_ _**for**_
_**unified**_ _**Germany,**_ _**uncertain though they are, affect**_ _**the aggregates for the**_ _**Community**_ _**as a whole,**_
_**In**_ _**particular**_ _**with**_ _**regard to real growth, the**_ _**unemployment**_ _**rate and**_ _**Inflation.**_

_**1991**_ _**1992**_ _**1993**_

_**Heal GDP**_ _**growth (%**_ _**p.a.)**_

_**2.4**_

_**2.5**_

_**9.2**_

```
9.9

```

_**4.2**_

_**4.3**_

_**-4.1**_

_**-4.3**_

_**-0.4**_

_**-0.8**_

_**2.2**_

_**2.2**_

_**Unemployment**_ _**rate**_

_**9.1**_

_**9.8**_

_**Inflation**_ _**(%**_ **`p.a.)`** **`[a ]`**

```
    4.5

    4.7

```

_**Met borrow**_ _**Ing**_ _**[b ]**_

_**-4.3**_

_**-4.4**_

_**E**_ _**C**_

_**EC***_

_**E**_ _**C**_

_**EC***_

_**E**_ _**C**_

_**EC***_

_**E**_ _**C**_

_**E**_ _**C**_

_**E**_ _**C**_

_**E**_ _**C**_

_**1.3**_

_**0.9**_

_**8.6**_

_**9.3**_

```
5.0

5.3

-4.3

```

_**-4.4**_

_**-0.3**_

_**-0.8**_

_**Current account**_ _**balance**_ _**[0 ]**_

_**-0.3**_

_**•0.9**_

_*****_ _**E C Including the new**_ _**five German Lender**_

_**a)**_ _**Deflator**_ _**of private consumption**_
_**b) General government; as**_ **`a`** _**percentage of**_ _**GDP**_
_**c) As a percentage of**_ _**GDP**_

```
              - 7 
view of the fragility of their external accounts. Price

competitiveness has significantly deteriorated In Italy. In

France, the sectoral composition of the trade balance gives reason

for concern: while the surplus on agricultural products is

growing, Its surplus on manufactured goods of the mid 1980s has

turned into a significant deficit, although some improvement could

be noticed in recent months.

The lower growth performance has had, of course, significant

consequences for the employment situation In the Community, which

had developed favourably over the 1980s with a net addition of 9

million jobs since 1984 (table 3 ) . Despite the fact that growth

became more employment intensive, employment growth slowed down

markedly for the first time since 1982, resulting In a

significant increase In the unacceptable high level of

unemployment.

```

```
Table 3 : Employment in the Community

```

```
Nonetheless, despite the greater

slack In the labour market, wage

pressures abated only marginally:

nominal compensation per employee

rose by 7% in 1991, a rate only

marginally below the one in 1990

(7.6%). With the cyclical

slowdown In productivity growth

this resulted in a new increase

in nominal unit labour cost and,

due to the inability to raise

sufficiently prices, In a further

```

```
1980

1984

1990

1991

1992

1993

```

```
 Total employment

in million %change

 128.0

```

**Unemployment**
**rate ****

**6.0**

**10.7**

**8.4**

**8.6**

**9.1**

**9.2**

```
124.8

133.6

134.2

134.6

135.3

```

**-0.6** *******

**1.4**

**0.5**

**0.3**

**0.5**

 - Forecast
** in percent of the civilian labour force
*** average 1980-84

Source : Commission Services

```
rise In real unit labour costs with a consequent negative impact

on profitability and international competitiveness.

```

**- 8 -**

**Graph 2 : Profitability of fixed capital**

**Net profit rate of fixed capital**
**(1961** **- 73 • 100)**

**<l«lt »0«l*>**

**Gross** **fixed capital** **formi**

**(In % of OOP. right** **«oal»)**

**wee** **«TO** **«re** **1**

**luro*** **:** **Cemmlaalon 8»rvlo»«**

```
  profItablIity (graph 2)

```

**Table 4 : Supply-side factors in the Community**

**(annual % change, unless otherwise stated)**

```
Despite this decline, pro
fitability remains at a high

level. But if unit profit rates

per value added have recovered

to levels prevailing In the

period 1961-73, the profi
tability of the capital stock

has not yet. The productivity of

capital declined sharply from

1970 to 1983 and only recovered

slowly from 1985 onwards. As a

consequence, the profitability

of fixed capital Is still below

Its 1961-73 level so that

further efforts are needed to

achieve a full restoration of

   The deterioration of pro
   f itabl I ity in 1990 and 1991

```

**1981-86 1987-89 1990-91** **1991*** **1992***

**Total investment**

**of** **which** **:**

**equipment**
**construction**

**capital stock**
**capital productivity**
**real compensation**
**per employee ****

**real unit labour costs**
**profitability *****
**real** **l.t.** **interest rate******

**-1.0** **-0.7** **0.5**

**73.8** **90.2** **92.5**

**4.3** **5.0** **5.3**

**0.1**

**1.7**

**-1.0**

**2.3**

**-0.6**

**0.9**

**7.1**

**9.4**

**4.9**

**2.7**

**0.7**

**1.7**

**1.8** **-0.5**

**2.2**

**1.7**

**2.9**

**-0.8**

**2.1**

**2.0**

**-0.4**

**-0.5**

```
2.2

2.6

1.8

```

```
 2.6 2.8

-1.5 -0.6

```

```
1.3

```

```
Is certainly not dramatic

(table 4 ) . However, while

relative factor prices and

profitability have only a

limited Impact over the

short-term on Investment,

their impact becomes

stronger in the longer run.

A continuation of this

tendency of faltering prof I

```

```
 0.6 -0.7

91.6 92.9

 5.1

```

***** **Forecast**
**** Adjusted by the private consumption deflator** **"**** **Net return on net capital stock** **(1961-73** **- 100)**
**""Adjusted by the GOP deflator**

```
  tabillty would therefore

  investment and employment

```

```
be detrimental for a recovery In

 Since 1985 Investment has strongly

```

```
                - 9 
recovered on the basis of significantly Improved profitability:

real Investment Is now about one third higher than In 1985.

Nevertheless the Investment GDP ratio Is still more than a full

percentage point below the average level of the 1961-73 period.

Further progress In this ratio is still warranted In view to

reduce the high level of unemployment in the Community.

Sustained wage pressures and increases in taxation in some

countries did not allow price Increases to abate despite the

cyclical slowdown. Consumption prices and the GDP deflator

increased at the same pace as In 1990 at around 5%.

The outlook for 1992 and 1993: a gradual recovery

After bottoming out In the second half of 1991, activity is

expected to pick up moderately In 19J22 mainly because of domestic

factors. Although the external environment is expected to Improve

as a result of a take off of world output and trade, the Member

States of the Community may only benefit to a limited degree from

this recovery, since this positive development would be

compensated by the petering out of the demand-pull effect of

German unification. The foreign balance therefore Is not expected

to significantly support GDP growth In most countries. Still,

extra Community markets are expected to play a more important part

In the growth of Community exports than In the last few years. The

preservation of external competitiveness Is therefore crucial.

Confidence is expected to be restored gradually leading to a

modest recovery In private consumption and investment in 1992.

With the pursuit of sound policies, the price and cost performance

 is expected to improve, reversing the deterioration in

profitability during the period 1990-91.

As a result of slower activity, employment growth Is expected to

slow down further from 1.5% on average over the period 1988-90 to

```

```
                    - 10 
     0.5% in 1991 and to 0.3% in 1992. Combined with the sustained

     growth of the labour force in the Community, this slower

     employment growth will lead to a further increase in the

     unemployment rate from 8.6% In 1991 to 9.1% In 1992.

     For 1993 a further strengthening of the recovery is anticipated

     with real GDP growth rising to around 2%%. Still the higher level

     of activity Is not yet expected to result in sufficient job

     creation to match the rise in the labour force resulting in a

     further, but marginal rise In the unemployment rate.

     The risk factors surrounding the outlook lie clearly more within

     the Community than outside it, although external uncertainties

     could still affect significantly the outcome in the Community. The

     outlook for a gradually strengthening recovery Is very much

     predicated on the maintenance of adequate policies.

     An improvement in the cost performance after the deterioration In

     1990-91 is likely to support a gradual pick up of investment. But

     if this improvement were not to materialize, it Is uncertain how

     Investment would respond. Stronger growth is, however, needed to

     reduce the still high level of unemployment and to facilitate the

     structural adjustment In relation to the completion of the

     internal market and the transition towards Economic and Monetary

     Union.

II. P R O G R E S S IN ECONOMIC C O N V E R G E N C E iS STALLING

1• Nominal convergence is slipping, but fundamentals remain positive

   After deteriorating significantly in 1990, price convergence (measured

   by the dispersion of private consumption deflators [1] ^ has improved

   somewhat in 1991 but on a less favourable Infiatlon average than in

1) Dispersion is measured as the unweighted mean of the absolute
    deviation from the weighted mean.

```

**- 11 -**

**Graph 3 : Price convergence in the**
**Community** **< m % )**

**20**

**1980** **«82** **1964** **1986** **1988** **1990** **1992**

Eur 7 • **B,** **Dk,** D, F, IRL, L, NL

Eur 5 • GR, E, IT, **P,** UK

```
Graph 4 : Wage convergence in the
```

**`Community`** **`(`** **`m %`** _**)**_

```
        Average

```

Dispersion

\EUH 5

EUR 12

EUR 7

1980 1982 1984 1988 1988 1990 1992

Eur 7 • B, DK, D, F, IRL, L, NL.
Eur 5 • GR, E, IT, P, UK.

```
 the period 1987-89 (graph 3). This

 was mainly due to an Increase of

 the average inflation in the

 original narrow-band countries

 (EUR-7) attributable essentially

 to special developments in Germany

 and the Netherlands, while price

 performance generally Improved in

 the other ERM countries, in the

 countries not originally belonging

 to the narrow-band price Increases

 declined and particularly In the

 United Kingdom. Price developments

 In the Community are, however,

 still a matter of concern, because

 the average level of Inflation Is

 st111 near 5% at a moment of

 slowing down of economic activity.

 Wage developments and tax

 increases seem to be the main

 factors responsible for the

 slippage in price performance.

Among the original narrow-band

countries wage developments have

been unsatisfactory In 1991 (graph

4) and In Germany, In particular,

there is a potential risk of the

development of cost-push in
flation.

The growing tendency to rely more

on the revenue side to correct

budget deficits is not without

danger for price performance, as

```

```
                - 12 
 It may reignlte the struggle over the distribution of income.

 In the framework of EMU, the Community's price and cost performance Is

 still unsatisfactory. For EMU It would be desirable to have average

 price Infiatlon down to the 2-3% range, while divergence is being

 reduced at the same time.

 in the budgetary area the lack of Improvement In convergence, as In

 the field of prices and costs, Is due mainly to a less favourable

 situation in countries that performed well In the years before. In

                          1990, the budget situation
```

**Table 5 : General government net** **lendwig** **(+) or borrowing (-)** ******

```
     (in%ofGDP) worsened In most countries,
          1981 1985 1989 1990 1991* 1992*
                         despite a still sustained

 EC -5.3 -5.2 -2.9 -4.1 -4.4 -4.4
                         level of activity, but the

```

Greece -11,0 -13.6 -10.3 -19,0 -17,3 -14.0
Italy -11.4 -12.5 -10.1 -10.6 -9.9 -9.3 **'
Belgium -12.8 -8.5 -«.7 -5.6 -6.3 -6.2
Portugal -9.3 -10.1 -3.4 -5.8 -5.4 -4.6
Netherland» -5.5 -4.8 -5.Z -5.3 -4.4 -4.1
Germany -3.6 -0.9 0.2 -1.9 -3.6 -3.4
Ireland -13.4 -11.2 -3,5 -3.6 -4,1 -4,1
Spain -3.9 -6.9 -2.7 -4.0 -3.9 -3.6
United Kingdom -2.6 -2.8 1.3 -0.7 -1.9 -3.6
Denmark -6.9 -2.0 -0.5 -1.5 -1.7 -1.5

France -1.9 -2.9 -15 -1.6 -1.5 -1.7
Luxemburg -3.5 5.3 4.3 4.7 1.9 2.0

 - Forecast on the basis of unchanged policies.

- • Countries are ranked by size of deficit In 1981.
*** Does not fully Incorporate the effect of the measures of the convergence program

Source: Commission Services

```
deterioration was parti
cularly marked in Germany and

the United Kingdom (table 5 ) .

In 1991 again, the less

favourable budget position in

the Community as a whole is

mainly due to the widening

deficit In the UK and in

Germany. In most other

countries the deficit more or

```

```
less stabilised In terms of GDP, In a context of slower activity.

Hence, even automatic stabilizers have not been allowed to exert their

full effect. This was needed to prevent a further increase of the

budget deficits.

German unification has also contributed to a significant change In the

external position of the EC. The EC current account position has

deteriorated continuously since 1986 from a surplus of 1.4% of GDP to

an expected deficit of close to 1% of GDP In 1991 (table 6 ) . This is

```

**- 13 -**

**Table 6 : Balances on current transactions**

(in % of GDP)

```
         1980 1986 1990 1991* 1992*

```

```
due to a weakening of the current

account In most countries, except

Denmark, Ireland and the Nether
lands. The deterioration was

particularly marked In the United

Kingdom (from 1986 to 1989), Spain

(from 1987-1989) and Germany (from

1989-1991). But also in France and

Italy the external accounts

weakened significantly. This dete
rioration resulted in most

countries from high domestic

demand In relation to production

potential.

```

EC - :•:•:•:•:•:•:•

Belgium
Denmark; ; ; ;
Germany

Greece
Spain [ :] ::: :
France

Ireland

Italy' : : :
Luxemburg

Netherlands

Portugal : :
United Kingdom

**:-:t.-2:** 1^4 -0 2 -ae

-o:9

-4.3 2.1

-1.7 **4.4**

1.0 1.0 1.1
**;o,é:;:;:vi:4x>:x2.2;**

3.2 -1.1 -0.9

0.5

-2.4:

-0.6

-5.3 **-6.1** **-4.1**
^tèïx^à.fifxï-^à.ï:

**0.5** **- 1 . 0** **-0.7**

**11.8** **- 2 . 9** 3.4 2.3

^1;.4:ï:^1.3:
31.2 28.1

3.8 **4.1**

-3.4

: 3.2:

-0.8

2.0
**^1,5**

**26.1**

4.4

**-1.4**

18.7

-1.5

1.5

- :-:2-.:4-0.9 -2.6 -1.1

**0,5**
**39.4**

2.7

- Forecast
Source : Commission Services

```
The most outstanding development of recent years In the external

accounts Is the complete disappearance of the German current account

surplus. The counterpart of the disappearance of this surplus is not

to be fully found within the Community. About half of the demand

impact of German unification seems to have leaked outside the

Community. The deterioration In the external accounts is particularly

marked in the trade of manufactured goods: extra-community imports of

manufactured goods have grown on average more rapidly than intra-EC

imports; among high-tech products more specifically, Community

producers seem to have conceded some ground to extra-EC producers.

Also on the export side the growth of export of manufactures has been

modest, well below the rate of growth of Intra-EC export volumes. This

trend points to a reorientation of trade flows to a particularly

dynamic internal market.

However, of great concern is the fact that this deterioration In the

external account also signals a reduced level of competitiveness,

particularly in third markets and, even more disquieting, in the high
tech segment of the market. The Community's currencies have, on

```

```
                - 14 
balance, continuously appreciated in real terms since 1984, leading to

a loss of market shares. This development raises questions about the

strength of the economy in some Member States, and its capacity to

compete effectively with the outside world. Wage competitiveness is

therefore an Issue that certainly warrants closer scrutiny in the

cases of France and Italy, where the external position remains

fragile.

In order to improve convergence during Stage I of EMU, Member States

have therefore been called upon to draw U P so-called convergence

programs that are to be discussed and agreed upon at the Community

 level in the context of multilateral surveillance. Such programs have

been presented or are In the process of being formulated by most

Member States, with a view to achieving lasting progress on

convergence.

Real convergence Is slowing

```

**Table 7** : **The catching up process in the Community**

(GDP per head of population, EC = 100)

**Spain** **Greece** **Ireland** **Portugal**

```
Over recent years, the

catchlng-up countries, with the

exception of Greece, have

succeeded in reducing their

income gap with the Community

average (table 7 ) . Appropriate

domestic policies and the

doubling of resources made

available through the Struc
tural Funds, have contributed

to this outcome.

```

52.2

55.0

52.5

56.3

56.3

-2.5

3.8

**62.7**

**64.0**

**63.4**

**68.9**

**68.9**

-0.6

5.5

57.3

58.1

55.9

52.5

52.1

**-2.2**

**-3.4**

```
 1975

 1980

 1986

 1991 *

 1992 *

```

Differences

**1986-80**

**1991-86**

81.9

74.2

72.8

79.0

79.9

**-1.4**

**6.2**

 - Forecast
** Reference to GDP may overstate progress to the exI tent that income transfers to abroad may have out! paced nominal GDP growth.
ÎSource: Commission Services

```
In Spain

catching-up

```

```
Portugal,

led by

```

```
and

was

```

```
                  - 15 
investment as a result of strongly Improved profitability and the

opening up of the Community market. The share of Investment In GDP

expanded by almost a quarter between 1986 and 1990 (table 8). Domestic

savings were Inadequate to support such expansion so that the current

                         account of the balance of
```

**Table 8 : Investment and export shares and real unit labour**
**costs in the** **catching-up countries** **`payments`** **`moved`** **`to`** **`a`**

IRL EUR **4** EUR **8**

**Investment shares (in** % **of GDP)**

**17.2** **62.1** **36.4**

17.3 65.0 30.0

```
significant deficit. The

continuation of the catch Ing
up process in these countries

will therefore rely, among

other Important factors, on

the generation of adequate

domestic saving resulting

mainly from further re
ductions in public dissaving.

In Ireland, however, the

acceleration of growth was

mainly export-led. Budget

consolidation efforts and

```

1986

1990

1992*

1986

1990

1992*

1986

1990

1992*

- Forecast

GR

18.5

18.9

18.5

22.4

22.6

21.2

19.5 18.1 22.1

19.6

23.7

23.4

**26.7**

**26.0**

**24.4**

24.1

18.6

18.7

**Export shares** **On** **% of GDP)**

19.9 55.2 33.2 23.8

22.8

22.0

**Real unit labour costs (1961-73** = **100)**

18.9

20.3

19.6

28.0

28.9

29.9

98.1

96.8

96.9

102.3 91.1 92.8 98.4

**94.2**

**90.8**

**90.0**

**102.4** **87.5**

**95.0** **86.3**

88.9

92.5

93.8

97.6

Source : Commission Services

```
moderate wage developments dampened domestic demand while at the same

time improved competitiveness boosted exports. This export led

expansion made Ireland more vulnerable than Spain and Portugal to the

deterioration In the international economic climate. Now that Ireland

has established a sound basis for further catching-up, more emphasis

should be given to the development of domestic production potential.

The investment ratio is still relatively low and has not Increased

much. The supply side of the economy, In particular, needs further

improvement.

In Greece, the catchlng-up process has receded over recent years as a

result of Inadequate policies. The 1991 stabilization and structural

```

```
                   - 16 
   adjustment programme adopted by the government is a serious effort to

   reverse the country's macro-economic decline and restore Its

   production potential. The broad aims of the programme are fiscal

   reform and structural renewal. The measures for fiscal adjustment and

   structural reform are Interdependent and if applied effectively should

   allow Greece to exploit the gains from the process of European

   integration. Recent developments Indicate, however, that the

   implementation of the programme has encountered serious difficulties

   and delays. Failure to fully Implement the programme will further

   delay the resumption of the catching-up process.

 III. PRIORITIES O F ECONOMIC POLICY IN THE TOMMUNITY

With the international environment likely to improve only moderately in the

 year ahead, It Is particularly Important for the Community to reinforce its

 internal potential. Economic policies should therefore contribute to the

 swift realization of the major Community projects.

Graph 5 : Transposition of internal market directives * The complet ion of the Internal

                        maJLfcûi remains an Immediate

                        priority for the Community and the

                        remaining work is still

                        considerable: of the 282 White

                        Paper measures, 69 still require a

                        Council decision. The trans
                        position of directives Into

                        national law needs to be speeded

```

```
up. 166 White Paper measures have

entered Into force of which 134

```

Ssss Transposed

J Not transposed

Source : Commission Services

- Derogations

Î2J No action required

situation as of 15/10/91

```
require national implementing measures. Of these national measures on

average 71% have ai ready been taken (graph 5 ) . Member States seem to have

recognized their responsibilities and the need for greater haste.

```

```
                    - 17 
The Internal market programme has already been a decisive driving force in

adding to EC growth prospects and prosperity: economic agents have already

to some extent anticipated the highly competitive environment and the new

operating conditions and opportunities that will prevail by 1993. This has

resulted In a strong expansion of investment In the period 1986-1990.

The real effects of the Internal market measures will be felt In the years

to come, especially as residual Internal barriers are actually dismantled.

Determined actions and decisions would have a substantial positive effect

on the confidence of economic agents and give a new impulse to economic

growth.

```

**`An`** **`Eçonom IC`** _**m$**_ **`Monetary`** **`Union`** `in` `the Community` `will` `result` `in an`

```
amplification of the economic benefits that will follow from the 1992

programme. Indeed only a single currency will allow the ful! potential

benefits of a Single Market to be achieved.

The primary aim of EMU is to strengthen the integration of the Community

and improve, its economic performance. EMU will ensurs a climate of

stability so that the process of self-sustaining growth would be

strengthened. The experience of the 1980s has clearly confirmed that there

is no long-term trade-off between higher inflation and lower unemployment.

On the contrary a climate of stability is Increasingly perceived as an

essential prerequisite for an Improved real economic performance.

T h
 e Income gap between the catchlng-up countries and the Community average

remains sizable and it will therefore take many years to bridge the gap.

This process can only be built on the basis of sound growth, which

increases domestic production potential.

Policies at the national and Community level have to provide the basis for

a continuous relative stronger growth of real GDP, without Inflationary

pressures and unsustainable internal and external imbalances. First and

```

```
                    - 18 
foremost, responsibility for rapid economic and social convergence lies for

the most part In the least favoured countries themselves. Recent

developments have confirmed that sound macro-economic policies are an

essential condition to improve their internal growth conditions by all

aval I able means.

The economically stronger countries must also contribute to this process by

supporting dynamic medium-term growth.

The Community shall take into account the objective of strengthening

economic and social cohesion In the implementation of Its common policies

and of the Internal market. The economic policy actions at Community level

must act In a synergetlc way to national policies to strengthen economic

performance in the least favoured Member Countries. The structural Funds

and other financial Instruments, provided they are efficiently used in a

conducive national framework, will considerably Improve both supply and

demand conditions In the recipient countries. These Instruments should be

reinforced to take account of previous developments and the stronger

integration In the Community.

The envIronment and Its Importance In the overall context of the quality of

life is Increasingly becoming a matter for Community preoccupation. The

Commission has recently outlined a coherent Community strategy aiming to

stabilise C0 2 emissions in the Community by the year 2000 at their 1990

level. The strategy consists of a range of regulatory, voluntary and

possible fiscal measures taken at the Community level In combination with

complementary national programmes. The envisaged reliance on fiscal

Instruments, notably a new combined C02/energy tax, which respects fiscal

```

**`neutrality,`** **`is considered`** **`an`** **`Important`** **`condition`** **`for`** **`reaching`** _**~the**_

```
Community's C0 2 emission stabilization objective in the most cost

effective way. By giving the right price signals all economic agents will

be induced to adopt environmentally sound behaviour. It Is In the Interest

```

```
                      19 
of long-term economic sustalnablIIty and prosperity, as well as of the

environment, that environmental considerations are satisfactorily

integrated Into the Community's other policies, notably In the fields of

energy, transport and agriculture.

IV. MACRO-ECONOMIC POLICIES AND POLICIES FOR STRUCTURAL ADJUSTMENT

1. Monetary policy and the EMS

   The aim of the EMS Is to contribute to achieving price stability and

   nominal convergence In the Community through exchange rate stability

   and an appropriate monetary policy. The conditions for attaining this

   have become more difficult over the past year. In the autumn of 1990,

   monetary conditions In the Community were tightened In response to

   rising oil prices. But during the course of 1991, monetary conditions

   appear to have eased again. This easing occurred against a background

   in which Inflationary pressures In several countries of the Community

   persisted or even strengthened despite the fall In oil prices after

   the Gulf war.

   With the Community economy slowing In 1991, a certain easing of

   monetary conditions was welcome and does not appear to have adversely

   affected long-term Inflation expectations: yield curves have tended to

   shift downwards this year rather than simply to steepen In response to

   the easier monetary policy, and long rates In most markets are

   somewhat lower than a year ago. Despite this easing, monetary policies

   still remain tight. It is Indeed essential to ensure that nominal

   convergence goes together with an absolute, not a relative, standard

   of price stability and that the functioning of the EMS remains a

   powerful force for preserving price stability up to a full EMU.

   In this respect, the mechanism through which monetary policy in the

```

```
                  - 20 
Community appears to have eased this year presents some difficulties.

During the 1980s the disinflation process in the Community was

determined by Germany and transmitted through the exchange rate

discipline of the EMS to other ERM narrow-band countries. This link

was reinforced after the last realignment In January 1987, when

anticipation of further realignments gradually disappeared. The German

strategy was based on fiscal consolidation and the successful

targeting of monetary aggregates. This strategy left underlying

Inflation at low, If gradually rising, levels even when monetary

targets were applied with greater flexibility in response to external

circumstances.

The progressive disappearance of realignment expectations have

significantly altered this configuration. The considerable

expansionary swing In fiscal policy in Germany as a result of

unification coupled with the pursuit of a stability oriented monetary

policy leads to a real appreciation of the currency as real demand

exceeds real domestic supply. This policy mix and the impossibility to

allow the ensuing real appreciation to take place through a nominal

exchange rate adjustment in the ERM, put considerable additional

pressure on Interest rates in Germany. Indeed the excessive demand

pressures have had a strong influence on the wage bargaining process,

feeding creeping price rises. This process has been exacerbated by the

heavy reliance on revenue measures to limit the fiscal impact of

un ification.

Uncertainty over the extent to which the Bundesbank will be able to

preserve the same policy strategy as in the past has at times surfaced

 in the markets. These uncertainties and the expectations of stable

exchange rates and decreasing inflation differences have resulted in a

significant reduction within the ERM In interest rate differentials

vis-à-vis the DM, where the exchange risk premium has more or less

disappeared.

```

```
                  - 21 
Given that Inflationary pressures remain significant In the Community

as a whole, any further loosening of the stance of overall monetary

policy is at present not warranted. The necessary collective character

of the EMS Implies that other members of the ERM than Germany, and In

particular the bigger countries must accept a share of responsibility

for achieving a monetary policy In the Community consistent with the

lowest level of price Increases and with continued downward

convergence by the high-infI at Ion countries.

In the two countries not yet participating in the ERM, Portugal and

Greece, inflation is In double digits although It has recently

decelerated in both countries. In Portugal, the Immediate priority is

to maintain monetary policy tight enough to reduce overheating In the

 labour market. Given the scale of capital inflows, this will probably

have to Involve some continued upward flexibility, for a time, of the

real exchange rate. The aim should be to adhere to the ERM at a time

when sufficient steam had already been taken out of the economy to

ensure that the ERM constraint did not lead to an Inappropriate

 loosening of monetary policy.

 In Greece, monetary policy must continue to try to contain the

 inflationary pressures created by a clearly excessive budget deficit.

But monetary policy cannot cope Indefinitely with the consequences of

the public finance problem. Only adherence to the budget ceilings laid

down In the stabilization programme can hope to ensure early and

 lasting nominal convergence In Greece.

Budgetary D O I lev

Since budgetary authority will remain at the level of the member

state, progress towards EMU necessitates Increased coordination by

reference to principles or rules that ensure that fiscal policy will

not undermine stability in the Community.

```

```
                  - 22 
A first group of countries (Greece and Italy) have been showing

excessive budget deficits for many years and steadily Increasing

public debt burdens (table 5 and graph 6 ) .

```

```
Graph 6: Trends in gross public debt
```

**(in** **% of** **GDP)**
**140**

**120**

**100**

**ao**

**I** **60**

**I**

**40**

**!** **20**
**i**

```
In Greece, budgetary developments

In 1991 show a departure from

previous trends as a result of

the Implementation of the new

three-year convergence programme.

Budgetary adjustment and reform

will, however, fall short of the

targets. The programme needs to

be Implemented more vigorously to

ensure a significant reduction of

the budget deficit and a

stabilization of the public debt

rat io.

The budgetary performance of

Italy, continues to diverge from

the other narrow-band members of

```

**I**
**i**

**j** **140**

**!** **120**

**j** **100**

**i** **BO**

**;** **so**

**75** **ao** **BS** **90** **92**

**71** **75** **80** **85**

**Source** **:** **Commlaalon** **S e r v i e * ***

```
the ERM. The budget deficit has remained persistently above 10% of GDP

despite repeated attempts to correct It. As a result the public

debt/GDP ratio passed the 100% mark In 1990 and has continued to

increase since then. There has clearly been no lack of adjustment

programmes but rather of forceful implementation. More emphasis should

be laid on the Instruments that will be used to meet the targets and

on structural measures to Improve the public finances. Even If

forcefully implemented, the present programme still risks falling

short of the announced targets as it rests on a very positive growth

scenario. Moreover, this programme is markedly tax-centred. The

forward shifting of increases in direct taxation, on the part of tax

```

```
                  - 23 
payers, on to higher wage claims could contribute to Inflationary

pressures. It Is encouraging though, that the Italian Government has

confirmed its willingness to take corrective measures should targets

not be met.

A second group of countries (Belgium, Netherlands, Portugal and

Ireland) still has sizable deficits and excessively high public debt

ratios. In Belg I urn. consolidation efforts undertaken during the period

of strong growth (1988-90) were not sufficient to prevent a new rise

of the public debt ratio in 1991, when economic activity slowed down.

The double government norm aimed at freezing real non-interest

expenditures and keeping the central government deficit constant in

nominal terms, is clearly insufficient and needs to be extended to all

levels of government, including social security. A significant

reduction of the deficit is needed to bring the public debt ratio,

which is still double the Community average, on to a clearly

dec IInlng trend.

Consolidation efforts In the Netherlands have also been inadequate

during the period of strong growth (1988-90). Additional measures have

been taken In 1991 so that public finance targets will be reached. The

persistence of public dissaving, however, would warrant a tightening

of government medium term targets in order to reduce the public debt

ratlo.

The reduction In public finance Imbalances in Portugal in recent

years reflects the complete overhaul of the tax system which Increased

 its efficiency, an effort of expenditure restraint, the cyclical

upturn of the economy and the privatization process. However, the

relative size of both the general government deficit and public debt

are above the Community average. Consequently and also in order to

assist the disinflationary process, fiscal adjustment remains one of

 the main priorities of economic policy and should continue to be

vigorously implemented.

```

```
                 - 24 
Ireland has been remarkably successful In consolidating Its public

finances In the late eighties. Further consolidation has since been

slowed because of the effects of weaker growth on revenue and

pressures on public expenditure from rising unemployment and increases

in public sector pay. Consolidation efforts should be maintained over

the medium term to keep the public debt ratio on a firm downward path.

Germany and the United Kingdom are separate cases.

In Germany. as a direct consequence of the large financing needs

arising from unification, the swing in the public sector accounts has

been significant close to 4% of GDP between 1989-91 despite a

sustained level of activity. Even If the present deficit is less a

matter of concern, apart from contributing to a biased policy mix, the

medium-term prospects for bringing the deficit under control are

rather disquieting. Even If consumption supporting outlays will be

reduced, they will gradually be replaced by large scale infra
structural Investment; the dynamics between a steeply rising public

sector indebtedness and Interest charges will put further pressure on

outlays. Fiscal consolidation will therefore be a major policy

challenge for the years to come.

Moreover, considerable emphasis has recently been laid on Increasing

revenues. Higher direct or Indirect taxes are, however, very likely to

be reflected in higher wage demands to compensate for the Income loss.

 In these conditions, excessive reliance on tax increases may Initiate

a new cycle of ever rising claims on income distribution. There is

still considerable scope on the expenditure side to reduce the budget

deficit. In addition income support schemes should be designed in such

a way as to ensure their temporary character.

 In the United kingdom, deterioration In the budget balance is

```

```
                  - 26 
primarily due to the working of the automatic stabilizers during the

severe recession. The authorities medium-term objective remains that

of attaining broad budget balance on a cyclically adjusted basis. A

cautious policy stance remains appropriate to maintain compliance with

the medium-term objective of a balanced budget and continued positive

pub IIc saving.

In the last group of countries (Denmark, Spain, France and Luxembourg)

budget balances and public debt burdens are broadly under control.

These countries have positive public savings, meet the golden rule and

have a public debt ratio below the Community average. There Is still a

need to maintain a cautious policy stance In these countries since

some of them have strong inflationary pressures and large external

deficits (Spain) or a high foreign debt (Denmark).

The Insistence on bjidflej consolidation Is motivated by several

considerations: first It is Intended to redress the presently lopsided

policy mix of a relatively loose fiscal policy combined with a

relatively restrictive monetary policy. Even when budget deficits are

Justifiable by temporary and exceptional factors, It would still be

appropriate to reduce them as fast as possible to achieve a more

balanced policy mix. Second, there Is a need for higher saving within

the Community for which the reduction of public deficits should

provide a significant contribution. Finally, a more restrained fiscal

policy Is likely to result in more balanced wage developments, which

would contribute to better convergence.

A desired additional Increase in the Investment ratio to Increase

```

**`growth and employment raises the`** **`Issue`** **`of the adequacy of`** **`aavI`** _**no**_ **`.`**

```
Although there are few signs that the low level of saving has had

major repercussions on economic performance so far, It has contributed

 to keeping real long interest rates high. The inadequacy of saving,

```

```
                    - 26 
   however, risks becoming a more decisive constraint on growth in the

   future, particularly for the newly liberalizing countries in Eastern

   and Central Europe and the developing world. A saving surplus can only

   be realized if the considerable public dissaving in the Community and

   In the other major Western countries is reversed. The generation of

   sufficient public saving Is therefore also an essential precondition

   for a successful take-off of market economies in Central and Eastern

   Europe.

   Finally, in a full fledged EMU fiscal policy and particularly monetary

   policy will have less room for manoeuvre. Therefore more emphasis will

   have to be laid on structural measures to bring about the necessary

   adjustment in the Community economies.

3. Policies for structural adjustment

   The efforts to establish an internal market have resulted in the most

   wide-ranging supply side Initiative In the history of the Community.

   The dynamic of the Internal market has, however, not only Increased

   the growth potential of the Community, it has also highlighted the

   still sizable rigidities present in markets. Such rigidities become

   more visible when competition increases. In the present less

   supportive International environment It is also important for the

   Community to reinforce its own domestic growth.

   Policies of structural adjustment, supported by adequate industrial

   policies, Improve the adaptability and efficiency of the Community

   economies. In line with the implementation of the 1992-programme, the

   Commission has emphasized the need for industrial policy measures in

   various Important sectors and has put forward proposals to this

   effect. Policies of structural adjustment must accompany the

   completion of the internal market in order to ensure that its full

   benefits are actually forthcoming.

```

```
                  - 27 
Furthermore in EMU the nominal exchange rate will no longer be

available between full participants as an Instrument for adjustment.

Increased flexibility in all markets will therefore be necessary to

ensure a balanced development of all areas of the union. In EMU,

adaptability of the labour market will be an important element for

adjustment If one wants to avoid further Increases in unemployment.

Both national and Community policies for structural adjustment will

have to play an even more important role. Together with prudent macro
economic policies and the Community policy on economic and social

cohesion which will have to be reinforced, this must constitute the

Community's response to restore sustainable growth rates above 3të% a

year in order to reduce the still high level of unemployment. Four

areas in particular deserve further structural improvements:

cooperation, the labour market, competition policy and international

trade.

Cooperation can Improve the underlying conditions within which

companies operate and strengthen the Community's international

competition by mustering energies and Innovation. A policy to improve

infrastructure, and especially transportation, is an indispensable

element In the creation of the internal market. It is equally an

element In the cohesion process in the sense that a better working

Infrastructure lowers transportation and communications costs and

brings the peripheral regions closer to the centre of the Community.

Further efforts will also have to be undertaken in the area of

Innovation, research and development. Research and development

policies will stimulate the competitiveness of the Community

companies, but, In a period of intense technological change often

 involving massive development costs, the results of such efforts must

be spread more widely through Increased cooperation. This wl I I hasten

the adjustment of our economies to new technological advances. Also In

```

```
                  - 28 
the area of industrial restructuring and the environment, increased

cooperation is likely to facilitate adjustment. Cooperation in these

areas should allow the Community to better face International

competition. The Community can play an important stimulating role in

bringing enterprises together.

Labour markets In the Community have been showing greater adap
tability, but this Improvement is still Insufficient. Rising wage

pressures at a time when more than 9% of the civilian labour force Is

still unemployed suggest that significant structural problems persist

in labour markets.

The completion of the internal market at a time of reduced growth in

the Community economy and increased competition from abroad means that

companies and workers have to adapt working methods and practices to

these new circumstances. Flexibility In companies' responses to the

new operating environment have to be matched by flexibility in the

labour market In terms of training and skills as well as In the

employment conditions and practices.

 In most countries, the adjustment of wage costs is still Insufficient

to ensure full employment. If Increased unemployment is to be avoided,

the social partners must take the need for adjustment more into

account in their negotiations. Member States' authorities should

therefore make their policy objectives more visible so that macro
economic prospects can be better taken Into consideration in wage

negotiations. Credible commitment to convergence by member governments

provides one such approach.

Rigid wage structures, employment practices and lack of training have

accentuated the problems of those outside the work force. The large

number of untrained unemployed illustrates the problem of cost and

adequate skills in relation to their productive potential. Member

States should examine labour market regulations and social security

```

```
                  - 29 
provisions In order to rectify features that Impede entry or re-entry

into the labour market.

Finally, there seems to be a good case for encouraging a more active

labour market policy with greater emphasis on retraining than on the

provision of unemployment support.

Competition is bound to Intensify with the completion of the Internal

market as barriers are systematically reduced. European companies must

be prepared for this greater competition, that has already generated a

wave of merger activities within the Community. To avoid dominant

positions that reduce competition and lower overall welfare, the

Community pursues an active competition policy.

 Increased competition may also lead to calls for more aid to defend

companies or Industries that are coming under pressure from such

competition. State subsidies can threaten, however, the functioning of

the market process by confining specific advantages to competing

companies. They also risk preventing the necessary restructuring of

 Industry. Therefore the Commission strives to limit subsidization and

to Incorporate It in a context of restructuring.

The economically stronger countries In the Community should resist the

temptation to compensate by domestic subsidies the greater competition

resulting from the opening of markets. Indeed such subsidies risk

cancelling out the competitive advantages gained by the least favoured

countries In specific sectors.

 Free and undistorted competition In the Community requires efficient

 surveillance of state aids. The Commission has undertaken two surveys

on public aids in the European Community In 1988 and In 1990 and is

 consistently striving for greater transparency In this field. Public

 aids still absorb a significant share of public resources In Member

 States (table 9). The second survey Identified total national public

 aids amounting to 2.2% of Community GDP, or more than twice the

```

```
                  - 30 
Community budget. The differences between Member States are

considerable, with Denmark and the United Kingdom spending Just 1% of

their GDP, but Belgium, Greece, Italy and Luxembourg spending 3% and

more.

```

**Table 9 : State aids in the Community** *****

**(average 1986-88)**

**in%of** **in%of**

**GDP** **public**
**expenditure**

**Granted in the form of (%)**

**public** **tax**
**expenditure expenditure**

**11**

**B**

**Ok**

**D**

**Gr**

**E**

**F**

**hi**

**It**

**L**

**NI**

**P**

**UK**

```
3.2

 1.0

2.5

3.1

2.3

2.0

2.7

3.1

4.1

 1.3

2.3

 1.1

```

```
5.8

1.7

5.3

6.5

5.5

3.8

5.2

6.2

7.6

2.1

5.3

2.6

```

```
100

 36

100

100

 82

 63

 64

 91

 70

 41

 94

```

**0**

**64**

**0**

**0**

**18**

**37**
**36**

**9**
**30**
**60**

**6**

*** Refers to subsidies thai are subject to Community** **rules.** **The total of** **sub-**
**sidies granted** **Is drfficut** **to establish due to the various forms subsidies**
**can take and the lack of comprehensive national data.**
**Source** **:** **Commission, Second survey on state aids.**

```
would also contribute to the

international trading system.

```

```
State aids are heavily

concentrated: the manufacturing

sector took 41%, the transport

sector 30%„ the coal industry 16%

and agriculture (national aids)

13%.

In the run-up to EMU, national

expenditures on subsidies should

come under closer scrutiny to

improve convergence. A commitment

to more discipline on subsidies

achievement of a more open

```

```
The resurgence of protectionist tendencies In International trade is

a worrisome development. Friction among trading partners has been

intense, particularly with regard to the subsidization of agriculture

and some declining Industries. The use of non-tariff measures to

protect domestic products has Intensified In various parts of the

world. The Community is committed to achieving by the end of 1991 an

ambitious, global and balanced result to the Uruguay Round, which Is

presently in a crucial phase. This is necessary in order to strengthen

the multilateral trading system and to reverse the trend towards

protectionism. Further delays could undermine the adjustment strategy

of many developing and Central and Eastern European countries which

have adopted an outward-looking market oriented approach to growth and

```

```
                  - 31 
development. The major Industrial countries carry a large

responsibility In this area and should strive for an early conclusion

of the Uruguay Round.

A successful outcome of the Round would not only serve the interests

of the Community by ensuring market access and reduced protection In

the traditional areas of trade negotiations. It would also allow the

extension of mult I laterally-agreed rules to new areas of great

relevance for the Community: services, Intellectual property rights

and International Investment.

The negotiations between the Community and EFTA countries with the aim

of erecting an European Economic Area have been concluded and will

increase the benefits of the Internal market to an even greater area.

By facilitating the flow of goods, services, capital and labour

between the EC and EFTA, the agreement wl 11 make a further

contribution to more competition and the improvement of the supply

side of the economy.

The Community is actively involved in assisting Central and Eastern

European countries to advance political and economic reforms. The

Commission not only manages the Community's own programmes of

assistance, but Is also coordinator for the G-24, a group comprising

all major industrialized countries.

Assistance takes a variety of forms, Including support for economic

reconstruction, food-aid and emergency assistance, technical

assistance, balance of payments support, investment finance and export

credits. The Community has become the main source of funds for

Central and Eastern European countries, providing about half of the

 total aid they receive. Moreover, the Community has completed

negotiation for Europe agreements establishing relations of

association with Hungary, Poland and Czechoslovakia. These agreements

```

```
                  - 32 
will enable Central and Eastern European countries to participate in

the process of European integration. They are of an overriding

political and economic importance, at a time when these countries'

reforms are at a crucial stage and their main traditional export

market (the USSR) has collapsed. The establishment of free trade will

encourage private investment in these countries, which is one of the

main conditions for the economic reforms to be successful. The

Community is ready to negotiate similar agreements with other Central

and Eastern Europe countries which satisfy the necessary political and

economIc condItIons.

The Community has shown Its willingness to Improve access to its

markets to Central and Eastern Europe for products with which these

countries can compete effectively on world markets including,

agriculture, textiles, coal and steel. Account should be taken of the

 implications and difficulties of this Improved access for the sectors

and regions concerned In the Community. This Improvement in market

access will not be carried out at the expense of existing commercial

relations with other partners, In particular developing countries with

which the Community has cooperation agreements. Such market access is

critical for successful development of these economies.

```

**MAIN ECONOMIC INDICATORS 1989-1993**

Community, USA and Japan

(b) Domestic demand at constant prices

(annual % change)

**(a)**

B

OK

O

**GR**

**E**

**F**

IRL

**NL**

P

**UK**

EC

USA
JAP

**1989**

**3.9**

**1.2**

**3.3**

**2.8**

**4.8**

**3.6**

**5.9**
**3.2**
**6.1**

**4.0**

**5.4**

**2.2**

**3.3**

**2.8**

**4.9**

GDP at constant prices (1)
(annual % change)

**1990** **1991'** **1992*** **1993***

3,4
-.7

5.0

3.3

**4.6**

3.2

5.4

1.9

2 2

3 6

5 8

 - 1

**2.9**

.5

5.8

**1990** **1991*** **1992*** **1893***

**3.7**

**2.1**

4.7

-.3
3.7
2.8

5.7

**2.0**

.9

**3.9**

4.0

.8

**2.8**

.9

5.6

B

DK

D

GR

E

F

IRL

**I**

**L**

**NL**

**P**

**UK**

**EC**

USA
JAP

**1989**

4.9

.3

**2.7**

**3.3**

**7.8**

**3.2**

6.0

3.6

7.8

4.9

4.0

**3.1**

**3.7**

**2 2**

5.7

1.2

**.4**

3.0

-.3
3.1
1.1

.6

1.5

4.3

2.1

4.6

-3.0

**1.1**

-1.0
3.4

2 1/4

3 1/4

2

2 1/4

3 1/2
2 1/4

1 3/4

2 3/4

3 3/4

1 1/2

3 1/4

3

2 1/4

2

2 1/4

1

3 **1/2**

2

**1** **1/4**

**2** **1/4**

**3** **3/4**

**1/4**

**3** **1/4**

**2** **1/4**

**2**

**3** **3/4**

```
1.3 2 1/4 2 1/2
1.8 3 3 1/4
3.3 2 1/4 1 3/4

```

```
2
3 1/4
2 1/2

2 3/4
2 1/2
3 1/2

```

```
 .7
2.5
1.3

```

```
1 1/4
3
2 1/4

```

```
1.3 2 1/4
1.1 2
3.0 3 1/2

```

```
2.3 1 1/4 2
2.0 1 3/4 2
-1.8 2 2 3/4

```

`1.3` `2` `1/4` _2_ `1/2`

**2** **1/4** **2** **1/2**

```
 -.4
4.6

```

```
2

3 1/2

```

3/4

**1993***

**1** **1/4**

2 **1/2**

-3/4

-2 3/4
-3 1/4

-3/4

1 3/4

-1 3/4

25 1/2

**4** 3/4

-2 1/2

-1 1/4

**-3/4**

```
2 1/4

3 1/2

```

**1993***

(c) Deflator of private consumption

(annual % change)

(d) Balance on current transactions

(as a % of GDP)

**1990** **1991'** **1992***

**3.5**
**2.5**
**2.6**

20.2
**6.4**
**2.9**

2.6

6.2

4.2

**2.5**

13.6

**8.4**

**5 2**

**5.0**
**2.4**

**1.0**
**.8**

**3.2**

**-6.1**
**-3.5**
**-1.0**

3.4

-1.4

31.2

**3.8**

**-.3**

**-2.6**

**-1.6**

**1.2**

**2.3**

**-1.3**
28.1

**4.1**

**-1.1**

**-1.1**

**-.1**

**1.5**

**1991'** **1992***

**1.0** **1**
**1.4** **2 1/4**

**-1.1** **-1**

**4.1** **3 1/4**
**-3.1** **-3 1/4**
**-.7** **-3/4**

B

DK

D

GR

**E**
**F**

**IRL**

NL

**P**

**UK**

**EC**

USA
JAP

**4.4**

**2.8**

1/2
1/2

1/4
3/4

3/4
1/4
1/4

B

DK

D

GR

E
F

IRL

NL

P

UK

**EC**

USA
JAP

**1989**

**3.5**

**5.1**
**3.1**

14.7
**6.6**
**3.5**

**3.9**
**5.8**
**3.4**

**2.9**
12.8

**5.9**

4.9

**4.5**

**1.7**

**3.2**
**2.4**
**3.5**

18.3
**5.8**
**3.0**

3.0

6.4

3.4

**3.2**

**11.7**

6.5

**1/2**
**1/4**
**1/4**

14 1/4

5 1/2

1/4

3/4

3 1/2
9 1/2

4 1/2

**3**
**2**

**4**

**11**

5

2

**2**

**5**
**3**

**1909**

1.1
**-1.2**

**4.7**

**-4.8**
**-3.2**

**.1**

**1.3**

**-1.4**

34.4

**3.3**
**-2.9**
**-4.8**

**-.1**

**-1.9**

**2.1**

**2**

**-1** **1/2**
**26**

**4** **1/2**

**-1** **1/2**

**-1** **1/2**

**-1**

-3/4 -3/4
1 1/2 1 3/4

3 1/4

7 3/4

4

5 0 **4 1/2** **4 1/4**

4 3/4

2 **1/2**

5
2 1/2

_**(*)**_ _**Based on the forecasts of October 1991.**_
_(_ _I)_ _GNP for_ _USA and_ _Japan from_ _1990_ _onwards._

_Source : Commission_ _services._

##### **d3**

(f) General government lending and

borrowing (as a % of GDP)

**(e)**

B

DK

D

GR

E

**F**

IRL

NL

P

UK

**EC**

USA

JAP

**(g)**

**B**

**DK**

**D**

**GR**

**E**
**F**

IRL
**I**

**L**

**NL**
**P**

UK

**EC**

USA
JAP

Number of unemployed as % of the

civilian labour force

**1990** **1991'** **1992*** **1993***

8.5

7.7

5.5

7.5

17.1

**9.4**

**16.0**
10.7

**1.8**

**8.7**
**4.8**
**7.0**

**8.9**

**5.3**
**2.3**

**1989**

1.6
-.6
1.4

.4

3.6

1.1

-.1

.2

4.0

1.6
1.0
2.8

**1.5**

**2.3**
**1.9**

**1990** **1991'** **1992*** **1993***

**-5.6**

**-1.5**
**-1.9**

**-19 8**

**-4 0**

**-16**

**-3.6**
**-10.6**

**4.7**

**-5.3**

**-5.8**

**-.7**

**-4.1**

**-2.4**

**2.2**

**-6** **1/4**

**-1 1/2**

**-3 1/4**

**-14**

**-3 1/2**

**1 3/4**

**1/4**

**4**

**-4** **1/2**

**-3** **1/2**

**-6.3**

**-1.7**

**-3.6**

-17.3

**-3.9**

**-1.5**

**-4.1**

**-9.9**

**1.9**

**-4.4**

**-5.4**

**-1.9**

**-2.3**

**1.8**

**-5** **3/4**
**-1/2**
**-3** **3/4**

**-10** **1/4**

**-3** **1/4**

**-1** **1/2**

**-4**

**-9** **1/2**
**2**

**-3** **3/4**

**-4**

**-3** **1/4**

**-1** **1/2**

**2**

**1989**

**-6.7**
**-.5**
**.2**

-18.3

**-2.7**

**-1.2**

**-3.5**
-10.1

**4.3**

**-5.2**

**-3.4**

**1.3**

**-2 9**

**-1.7**

**2.5**

**-4.4** **-4** **1 / 2 - 4** **1/4**

B

DK

D

GR

E

F

IRL
I (2)
L

NL

P

UK

EC

USA

JAP

B

DK

D

GR

E

F

IRL

NL

P

UK

**EC**

USA
JAP

8.1
7.9
5.1

7.5

16.1

9.0

15.6

9.8

**1.8**

8.1
4.6
6.4

**8.4**

5.5
2.1

**.9**

**-.4**

**2.8**

**.2**

**2.6**

**1.2**

**1.3**
**1.0**
**4.2**

**2.1**
1.1

**.4**

**1.4**

**.5**
**2.0**

8.6 8 1/2
9.2 9

4.6 5

8.8 9 1/4

15.8 15 1/2

9.5 10

16.8 18
9.4 9 1/2

1.6 1 1/2

7.2 7 3/4

4.0 4 1/4
8.4 9 3/4

**8.6** **9**

**6.7**
**2.2**

**7**

**2 1/4**

Total employment
(annual % change)

**1990** **1991'** **1992"**

(h) Real compensation of employees per head
(annual % change) (3)

**1990** **199V** **1992***

**2.8**
**1.0**

**1.5**

**.0**

**1.2**

**1.9**

**5.9**

**3.9**

**.8**

1.1
**3.7**
**2.7**

**2.3**

**-.1**

**1.8**

**1989**

.1

-1.6

-.2

2.9

.5
1.2

2.2
3.0
3.0

-2.4

.8
2.8

**1.1**

-1.0
2.5

**8 1/2**

**8 1/2**
**5** **1/2**

**9 3/4**

**15 1/4**

**10 1/4**

**18 1/2**

**9 1/4**

**1 1/2**

**7 3/4**

**4 3/4**

**10**

**9 1/4**

**6 3/4**

**2 1/4**

**1993***

**1/4**

**1**

**1/4**

**1/4**

1 1/2

1/2

3/4
3/4

1 1/2

-1/2
1/2

**1/2**

1 1/2
1 1/2

**1.5**
**6.6**

**1.7**

**2.0**

**.3**
**1.0**

**1.9** **2** **1/4**
1.1 **1 1/4**
**2.6** **1 1/2**

**-.3**
**-1.0**
**2.8**

**-.8**

**.7**

**.4**

**.0**
**.9**
**1.9**

**1.0**

1.1
**-2.3**

**-.8**
**1.6**

**0**
**0**

**1**

**-0**

**1 1/4**
**-0**

**1/4**

**1/2**

**-1/4**
**0**
**-3/4**

**1/4**

**1**

**1 1/2**

**-1.7**
**1.8**
**1.5**

**•2 1/4**

**1 1/4**

**1**

**3.5** **3**

**1.7** **1 1/2**
**1.3** **1 1/4**

**1/2**
**1/2**

**1/4**

**1 1/4**

**1993***

**1/2**
**1/2**

**-3/4**
**1/4**

1/4
1/2
3/4

1/2

**1/4**

-1/4

_**(**_ ***** _**) Based on the forecasts of October**_ _**1991.**_
_**(2)**_ _**1992**_ _**and**_ _**1993**_ _**: Does not fully**_ _**Incorporate**_ _**the effects of the measures of the convergence program.**_
_**(3)**_ _**Deflated by the deflator of private consumption.**_

_**Source : Commission services.**_

###### **Bk**

(I) Investment in construction at constant prices
(annual % change)

(j) Investment in equipment at constant prices
(annual % change)

(I) GDP per head (EC = 100) at current

prices and current PPS

**1960** **1973** **1986** **1992***

**1990** **1991'** **1992***

**6.7**

**-6.1**

**5.3**

**2.1**

**10.7**

**2.3**

8.4
2.5

.9

**1.3**

**6.5**

**-1.1**

**3.6**

**1990** **1991*** **1992"** **1993"**

3.0 4 1/2

-2.5 3

-1.8 1 1/2

**6**

**4**

**3** **1/2**

3.0 2 3/4 2 3/4
3.0 5 10

10.0 5 4 1/2

2 **1/2** 4 3/4

B

DK

D

GR

E

**F**

IRL

**I**

**L**

**NL**

**P**

**UK**

**EC**

**1989**

8.9
**-4.6**

**5.1**

2.0

14.9

**5.3**

**9.8**

**3.6**

**4.4**

**1.6**

**3.5**

**2.5**

**5.3**

**1989**

18.2

**6.3**

**10.0**

17.4

**13.0**

5.8

15.3

**6.2**

**26.3**

**4.5**

**10.0**

8.3

**8.5**

10.3

3.0

12.9

**7.9**

**1.2**

**5.0**

6.8

3.5

6.0

7.7

8.5
-3.6

**4 7**

-1.4 3 1/4

-6.5 -1
3.5 2 1/2

-5.0 2 1/2

5.3 **4**

1.2 2

B

DK

D

**GR**

**E**

**F**

IRL

**r**

L

NL

P

UK

**EC**

**-2.9**

**.4**

**5.8**

**-.6**

**4.5**
-12.9

**-.5**

**4**

**1** **1/4**

**4** 1/2

**-1**

**3**
**-3/4**

**1** **3/4**

1.8 3 3/4 4 1/2
-1.1 3 1/2 4 1/2
6.7 5 5

1/2

1/2

**3.0**

**4.5**

**-12.8**

-1 1/4

3

**1**

(k) Gross fixed capital formation at constant
prices (annual % change)

**1993***

2 3/4

4

1 3/4

5

4

3

4

1 1/4

3

1 1/4

**4**

**4** 3/4

**2** **3/4**

**1993***

**1990** **1991'** **1992"**

100.6
117.0
114.0

**55.9**
72.8
110.1

63.4
103.0
126.2

106.0

52.5

**105.4**

**100.0**

155.7
110.6

1.1

**4.5**
-12.8

**-4.4**

**4.6**

.6 3 2 3/4
-1.9 2 7 1/4
6.6 3 3/4 3

-1.2 3 1/2 5 1/2
2.2 3 3/4 **4**
-.6 1 3/4 3 1/4

-.4 3 3/4 **4** 1/4

**-.4** 2 1/2 3
6.2 4 3/4 4

**4** 1/2
**3** 1/2

101.2
113.1
111.1

56.8
79.0
110.4

58.9
93.3
141.9

113.1

56.4
108.5

**100.0**

161.6
96.2

103.4
110.2
113.6

52.1

**79.9**
108.8

68.9
103.2
130.0

**102.7**

**56.3**
102.1

**100.0**

146.8
124.3

**1993***

103.8

**111.4**

112.3

52.0
80.7
108.8

69.2
103.4
132.6

**102.0**

**56.2**
102.5

**100.0**

145.9
125.6

B

DK

D

GR
E

F

IRL

I

L

NL

P
UK

**EC**

USA

JAP

**1989**

**13.6**

**.2**

**7.1**

8.6
13.7

5.8

11.3

5.1

**13.4**

3.0
7.5
4.8

**6.7**

2.7

11.0

8.3
**-1.9**
8.8

**4.8**
6.7
3.8

**7.5**
3.0
3.3

4.2

7.5
**-2.4**

**4.1**

**.9**
10.9

95.4
118.3
117.9

**38.6**

**60.3**

**105.8**

**60.8**
86.5

**158.5**

118.6

38.7

**128.6**

**100.0**

189.6
55.8

**-3/4**

2
3 3/4
6 1/2

**2** **1/4** **3 3/4**

**5 1/2**

**4**

B

DK

D

GR
E

**F**

IRL

**I**

**L**

**NL**

**P**

**UK**

**EC**

USA

JAP

_**(*)**_ _**Based on**_ _**the**_ _**forecasts of October**_ _**1991.**_

_Source_ _Commission services._

_**25**_

###### **ISSN 0254-1475**

#### **COM(91) 484 final**

# **DOCUMENTS**

## **EN 01**

### **Catalogue number : CB-CO-91-572-EN-C** **ISBN 92-77-78557-8**

###### **Office for Official Publications of the European Communities** **Lr2985 Luxembourg**