CELEX: 31987D0609
Language: en
Date: 1987-12-22 00:00:00
Title: 87/609/EEC: Council Decision of 22 December 1987 adopting the annual report on the economic situation in the Community and laying down economic policy guidelines for 1988

31 . 12 . 87                                   Official Journal of the European Communities                                    No L 394 / 1
                                                                        II
                                                 (Acts whose publication is not obligatory)
                                                             COUNCIL
                                                           COUNCIL DECISION
                                                            of 22 December 1987
               adopting the annual report on the economic situation in the Community and laying down economic
                                                          policy guidelines for 1988
                                                                ( 87 / 609 / EEC )
THE COUNCIL OF THE EUROPEAN COMMUNITIES ,                                     HAS ADOPTED THIS DECISION:
Having regard to the Treaty establishing the European                                                    Article 1
Economic Community ,
                                                                              The Council hereby adopts the annual report on the
                                                                              economic situation and the policy guidelines to be followed
Having regard to Council Decision 74 / 120 / EEC of 18                        by the Community which are contained in Part I of the
February 1974 on the attainment of a high degree of                           Report attached to this Decision and which lay down the
convergence of the economic policies of the Member States of                  economic policy guidelines to be followed by the Member
the European Community ( x ), as amended by Decisions                         States , contained in Part II of the said Report .
75 / 787 / EEC ( 2 ) and 79 / 136 / EEC ( 3 ), and in particular
Article 4 thereof,
                                                                                                         Article 2
Having regard to the proposal from the Commission ,                           This Decision is addressed to the Member States .
Having regard to               the opinion     of the     European            Done at Brussels, 22 December 1987 .
Parliament ( 4 ),
                                                                                                                       For the Council
                                                                                                                        The President
Having regard to the opinion of the Economic and Social
Committee ( 5 ),                                                                                                        N. WILHJELM
(')  OJ No  L 63 , 5 . 3 . 1974 , p. 16 .
(2 ) OJ No  L 330 , 24 .   12 . 1975 , p . 52.
(3)  OJ No  L 35 , 9 . 2 . 1979 , p. 8 .
(4 ) OJ No  C 345 , 21 .   12 . 1987 .
(5)  OJ No  C 356 , 31 .   12 . 1987 .
 ---pagebreak--- No L 394 / 2 Official Journal of the European Communities 31 . 12 . 87
             ANNUAL ECONOMIC REPORT
                             1987 / 1988
 ---pagebreak--- 31 . 12 . 87                                Official Journal of the European Communities                      No L 394 / 3
                                               ANNUAL ECONOMIC REPORT 1987 / 1988
                                                               CONTENTS
                                                                                                         Page
             Preamble                                                                                       4
                                                     Part I — The Community economy
             1.    More dynamic growth is necessary and possible                                       -    5
                   Summary and economic policy conclusions                                                  5
             1.1 . Economic situation in the Community and outlook for 1988                                 5
             1.2.  Imbalances in the world economy                                                          5
             1.3 . The task ahead: growth , cohesion and the internal market                                6
             1.4.  Economic policies                                                                        7
             2. Economic developments and outlook                                                           8
             2.1 . World economy                                                                            8
             2.2 . The adjustment process and international cooperation                                     9
             2,3 . The economic outlook for the Community for 1987 and 1988                                10
             2.4. Employment and unemployment                                             -                12
             2.5 . The medium-term economic outlook for the Community                                      13
             3.    Internal determinants of growth and the interdependence of the Member States            14
             3.1 . The internal market and the adjustment of economic structures as engines of growth      15
             3.2 . The macroeconomic process                                                               16
             3.3 . Interdependence between the Member States                                               17
             3.4 . The prerequisites for success                                                           1°
             4.    Community and national structural policies                          V                   19
             4.1 . Improving market adaptability                                                           19
             4.2.  Competitiveness, research and development, industry and services                        21
             4.3 . Measures for improved economic and social cohesion                                      23
             5. '  Macroeconomic policy stances and problems                                               24
             5.1 . Monetary developments and policy                                                        24
             5,2 . The liberalization of capital movements and the strengthening of the EMS           ..   25
             5.3 . Budgetary developments and policies                                                     26
             Technical boxes: Growth and Employment                                                        30
                                Interest rates                                                             34
                                               Part II — The economies of the Member States
             Chapters covering Member States                                                               37
             Belgium                                                                                       37
             Denmark                                                                                  <•   40
             Federal Republic of Germany                                                                   43
             Greece                                                                                        47
             Spain                                                                                         50
             France                                                                                        53
             Ireland                                                -                                      56
             Italy                                                                                         59
             Luxembourg                                                                                    62
             The Netherlands                                                                               64
             Portugal                                                                                      67
             United Kingdom                                                                                70
             Statistical Annex: Tables                                                  •                  76
                                Graphs                                                                    106
 ---pagebreak--- No L 394 / 4                               Official Journal of the European Communities                                 31 . 12 . 87
                                                            PREAMBLE
              Since the Commission adopted the draft Annual Economic Report 1987 / 1988 on 14 October 1987 ,
              share prices have fallen substantially on the stock exchanges of the main industrial countries . Interest
              rates have dropped by varying degrees in the United States and in almost all Community countries. On
              very unstable markets the dollar has depreciated against the ECU and the Yen .
              In the light of these events the economic forecasts included in the Report should obviously be revised.
              The size and nature of these revisions will strongly depend on when, and at what level , financial and
             exchange markets stabilize.
              The basic analysis of the international environment and of the problem of slow growth and
             unemployment in the Community, given in the Annual Economic Report, remains valid.
             A significant and durable reduction of the federal budget deficit in the United States is an essential
             element for the solution of the present problems of the world economy. The plan to reduce
             expenditure and raise revenues by a net amount of $ 30,2 billion in fiscal 1988 and $ 45,9 billion in
             fiscal 1989 is encouraging, but it is important that early Congressional approval is followed rapidly by
             its implementation.
             The guidelines for economic policy for the Community included in the Annual Economic Report
             remain relevant. Their implementation has become even more urgent . Pursuing macroeconomic and
             structural policies designed to accelerate growth is in the first instance in the Community's own
             interest. At the same time this contributes to the correction of international imbalances. As stated by
             the Council at its meeting on 16 November 1987 , the Member States of the Community are resolved to
             improve the supply and demand conditions necessary to further internally generated non-inflationary
             growth and to contribute to the reduction of external imbalances .
             The Member States intend to cooperate actively with other countries in decisions to ensure a more
             stable development of world financial and foreign exchange markets. Credible macroeconomic
             policies have to be implemented on a multilateral scale so as to accelerate the adjustment of
             international payments imbalances.
             Given the uncertainties in the world economy which could seriously affect the behaviour of investors
             and consumers, it is all the more necessary that the Community and its Member States be ready to
             adapt their economic policy to the necessities of the situation as it evolves .
 ---pagebreak--- 31 . 12 . 87                               Official Journal of the European Communities                                  No L 394 / 5
                                                                 PART I
                                                  THE COMMUNITY ECONOMY
                                1.    MORE DYNAMIC GROWTH IS NECESSARY AND POSSIBLE
                                             Summary and economic policy conclusions
1.1 . Economic situation in the Community and outlook for             rates in excess of 3 % . They have thus made a large
        1988                                                          contribution to sustaining intra-Community trade and
                                                                      growth in the Community. In order to preserve balance on
                                                                      their external accounts , some of these countries run the risk
                                                                      of being forced to put a brake on their own growth if
Since 1982 , the Community economies have strengthened .              expansion in their partner countries remains mediocre. This
The level and degree of convergence of inflation rates are            would affect the whole Community. This danger would
unmatched since the 1 960s. Rates of return of capital and the        grow if the international environment were to deteriorate
adaptability of markets have improved significantly and               further .
structural adjustment, which has often been painful , has
reinforced productive potential . Until 1986 economic
growth effectively strengthened to reach 2,6 % on average
last year for the Community.
                                                                       1.2 . Imbalances in the world economy
However , growth in 1987 , only barely over 2 % , is lower
than in 1986 . Hopes for a further acceleration have not,
therefore, been realized. At the end of 1986 and again in             The world economy continues to be affected by two severe
1 987 , Community exports to third countries have fallen back          imbalances: the structure ofpayments ' balances between the
                                                                       industrialized countries and the indebtedness of developing
in real terms , influenced by two factors . Firstly, the effective
                                                                       countries. In 1987 , the current exteral deficit of the United
appreciation of European currencies has led to a
deterioration in Community competitiveness , not only                  States is still increasing to reach US $ 150 billion ( 3,5 % of
vis-h-vis the United States , but also with respect to other           GDP). The Japanese surplus ( around US $ 85 billion or
areas such as the newly industrialized countries. Secondly,            3,8 % of GDP) remains very high . The Community surplus is
traditional Community markets show practically no growth               undoubtedly falling, but the counterpart of this fall is to be
on average, with imports of OPEC countries falling very                found for 1987 , essentially, in the improvement in the
                                                                       current balance of oil-exporting countries in particular as a
sharply. On the other hand , Community imports have                    result of the fall in their imports . The debt of developing
remained buoyant. Accordingly, the external balance has                countries has continued to increase ( US $ 1 200 billion
cost the Community one point of growth both in 1986 and
                                                                       1987 ). Restructuring agreements and falling interest rates up
1987 . This represents a contribution of the Community to              to the end of 1987 have moderated its burden , but the recent
the international adjustment process which cannot be
                                                                       rise in interest rates again works against these countries .
regarded as negligible . This deterioration in the external
climate was offset in 1986 by the impetus given to domestic
demand by the improvement in the terms of trade , but the
effects of this improvement on real incomes and private                Positive elements are appearing. Real trade flows are
consumption are petering out. An added factor is that many             contributing to re-establishing balance on trade accounts.
firms in export sectors have been led to revise their                  International cooperation is established and is leading to
investment plans downwards. The fall in extra-Community                policy adjustments in the right direction. The dollar
trade as well as the uncertainty attached to exchange rates            exchange rate is more stable following the Louvre accord of
and interest rates has contributed greatly here .                      February 1987. The thrust of this policy was confirmed at the
                                                                      June 1987 summit of industrialized nations in Venice and
                                                                       subsequently at the Group of Seven meeting of September
                                                                       1987 in Washington . UNCTAD VII has shown that it is
In 1988 , growth should remain a little above 2 % . This level         possible to arrive at a common view with the developing
of growth is just about sufficient to hold the unemployment            countries on the main problems affecting the world
rate at nearly 12 % , an intolerable level . Extra-Community           economy. Meetings of the World Bank and the IMF in
trade will undoubtedly recover slightly. Its contribution to           September 1987 have made some progress, in particular on
growth , however, is likely to remain negative, while that of          the subjects of the indebtedness of African countries and an
domestic demand should decrease anew . A threat is now                 increase in World Bank funding. Finally, the Uruguay Round
emerging. A number of countries — Spain, Italy, Portugal               of negotiations within GATT provides a basis for continuing
and the United Kingdom — have so far maintained growth                 efforts to halt and roll back protectionism .
 ---pagebreak---  No L 394 / 6                               Official Journal of the European Communities                                        31 . 12 . 87
 However, there are still appreciable dangers ahead . In 1988 ,        To strengthen the Community's economic and social
 progress towards the restoration of international balance of          cohesion, all the Member States must coordinate their efforts
 payments equilibrium will remain slow. The continuation of            as provided for in Article 130 B of the EEC Treaty, as
 a large measure of stability on foreign exchange markets               amended by the Single European Act. Three conditions must
 remains necessary to allow time for the considerable                  be fulfilled . Firstly, the task is to create in Europe a climate of
 exchange rate adjustments which have already occurred to              buoyant growth ; an adequate rate of growth in the most
 produce their full positive effects . Central bank intervention       advanced countries is necessary for this. Secondly , for the
 and international management of interest rate differentials           less-advanced countries it is crucial to implement policies
 can still contribute here . In order to stabilize durable             which improve the domestic conditions for their growth ,
 exchange rate expectations , however, it is above all necessary       notably the return on, and effectiveness of, their investment
 to progress more rapidly towards the restoration of                   as well as the public finance position . This would create the
 international payments' equilibrium , otherwise the gap               sort of conditions needed to attract inflows of private capital .
 between interest rates in the United States on the one hand,          Thirdly, the Community should support the adjustment
 and Europe and Japan on the other, runs the risks of needing          process through the structural funds, as well as through its
 to widen still further < Additional rises in interest rates in the    financial instruments and the EIB .              The Commission
 United States could then prove necessary. The situation of            proposes to double the resources of the structural funds in
 developing countries, already affected by the weakening of            real terms by 1992 , and to increase their effectiveness.
 world trade , would be correspondingly worsened.
 In these circumstances , it is desirable for relative trends in
 domestic demand         between   the   various industrialized        The completion of the internal market up to 1992 creates an
 countries to continue helping to reduce trade imbalances,             important new momentum . It is essential not to disappoint
 while at the same time preserving a high level of world               the expectations of those involved in economic activity in this
 growth . The current prospects for 1988 are not encouraging.          enterprise . Rapid progress should be made towards the
 It is essential for the United States to continue reducing its        abolition of frontier controls and customs formalities , the
 budget deficit , but Japan must also make greater efforts to          removal of tax and other impediments to the free movements
 create conditions which are favourable to a more rapid                of goods and services , the harmonization of technical
growth in imports , by strengthening growth and further                standards and the unification of public procurement. In this
opening up its markets . The Community, in addition, by                connection , the Commission has in 1987 made proposals for
reinforcing its own growth , would help to support world               the approximation of indirect tax rates and the
                                                                       harmonization of their structure and for the unification of
trade, while at the same time playing its part in the
absorption of international payments' imbalances .                     public procurement markets .
                                                                      The reduction in costs which will result from the completion
                                                                      of the internal market, economies of scale , increased
                                                                      competition , and the broadening of the economic basis for
1.3 . The task ahead: growth, cohesion and the internal               research and development , will lead to an easing of the
        market
                                                                      burden on public budgets, productivity gains , an
                                                                      improvement in competitiveness on external markets and a
                                                                      boost to intra-Community trade. The internal market will
                                                                      create fresh opportunities for investment by opening up new
Given the present situation of the world economy, the                 horizons for entrepreneurs . For these opportunities to be
Community will no longer benefit from an external impetus.            quickly and fully seized , the irreversible nature of the
Implementing the cooperative growth strategy for more                 enterprise must be demonstrated by speeding up its
employment now means : successfully accomplishing the                 completion. The completion of the large internal market
switch from growth underpinned by external factors to                 should also derive benefit from an infrastructure network
growth based on internal forces , shortening the period of            which matches it in scale. The completion of large-scale
conjunctural weakening and thus escaping more rapidly                 infrastructure projects of Community interest should
from the trap of slow growth extending into the medium term           contribute here .
into which the Community seems to have fallen. In this way,
the Community will once again be able to reduce
unemployment, derive full benefit from the completion of the
large internal market and reinforce its economic and social
cohesion . In order to exploit Community strengths to the
full , increased cooperation and the pursuit of ambitious             The productivity gains made possible will not, however,
Community policies remain essential . It also remains                 result in additional jobs and a faster rise in living standards
necessary to reinforce the consensus with and between the             unless productive potential is fully exploited . Stronger
social partners on the policies required by a more intensive          growth will also make it easier for the social and regional
dialogue on all aspects of the strategy at both Community             dimension of the internal market to                 be taken into
and national level .                                                  account .
 ---pagebreak--- 31 . 12 . 87                                Official Journal of the European Communities                                    No L 394 / 7
1.4 . Economic policies                                                stabilization of exchange rates. Swift liberalization of capital
                                                                       movements should continue to go hand in hand with efforts
                                                                       to strengthen the system. The outcome of the Economic and
                                                                       Finance Ministers Council at Nyborg constitutes an
Firstly, it remains essential to pursue structural policies            important step in this regard. In the interests of permanent
aimed at a greater adaptability of the markets. In this                stability of the system, however, it is vital that this
connection the recommendations for supply-side policies                cooperation should continue to be based on a broad
contained in the most recent Annual Economic Reports                   consensus on the need for stability-oriented monetary
remain entirely valid. In particular, the loosening of the             policies .
constraints on small and medium sized enterprises , improved
competition, and the reduction in subsidies affecting the
productive use of resources will permit a further
reinforcement of the domestic determinants of growth . Also ,          The scope for monetary policy is now limited. Budgetary
the greater adaptability of the labour market, the                     policy therefore has a greater role to play. First, the efforts to
reorganization and reduction of working time, neutral for              restructure public expenditure and receipts must be pursued
the level of costs, and investment in vocational training              with determination. From the point of view of the public
should also boost employment-creation .                                deficits, each country in the Community taken individually is
                                                                        still subject to severe constraints. In some countries the level
                                                                        of public debt is still increasing at an excessive rate and major
                                                                        efforts are being made to put public finances in order.
The completion of the internal market and the structural                However, the impact of those efforts on deficits is weakened
policies provide substantial stimuli, which will be able to             and delayed by low levels of growth and the, resultant
exert their full effects if they form part of a dynamic                 shortfall in tax revenue. In other countries, the budgetary
macroeconomic process . Investment should increase at a                 situation is easier and the tax reductions planned for next
significantly faster rate than GDP over the years to come in            year and beyond will provide a welcome boost to growth , the
order to make up the shortfall of jobs. The outlook for                 positive effects of which will also be felt in the medium-term.
demand , profitability and real interest rates are determining          In some of these countries , the consequences on tax receipts
 factors . In the absence of an external stimulus , the outlook         of the slowdown in growth , combined with the tax cuts
for demand depends to a great extent on a satisfactory trend            planned, are already leading to an increase in public
of private consumption and therefore on the trend of                    deficits .
personal disposable income. However, to improve
 profitability and competitiveness further, real wage costs per
 head must remain moderate . Under these conditions ,
                                                                        There is a grave risk in a situation in which growth remains
 reductions in the tax burden on households and business
                                                                        poor: the countries whose budgetary situation is more
 should also contribute to greater momentum . Additional                difficult could be compelled to take additional measures to
 cost-effective public investment would also boost productive           attain their objective of public finance consolidation. This
 potential and at the same time provide welcome support for             would have adverse effects on their own growth and on that
 internal demand . In addition , a fall in real interest rates is       of their partners, whose room for manoeuvre would in turn
 desirable . To this end , it is important to avoid calling into        be affected. This shows how important it is for national
 question the credibility of the medium-term consolidation of           budgetary authorities to take account of the interdependence
 public finances, that inflationary expectations stabilize at a         among economies of the Community in their policy choices.
 low level , and that financial external imbalances are                 The accession of Spain and Portugal , which are currently
 absorbed . Such falls would also take pressure off public              giving substantial support to intra-Community trade, has
 budgets. If it is to be durable, an acceleration in growth must        made this interdependence even wider. It is likely to increase
 be compatible with the maintenance of an external position             further with the completion of the internal market and the
 that is sustainable in the medium-term . When supply                   liberalization of capital movements .
 conditions are improved at the same time, some acceleration
 of growth is thus possible without jeopardizing the balance of
 payments objective and without the danger of a resurgence of
 inflation .                                                             In the event of a further slowdown in growth , a joint and
                                                                        well-timed effort will permit a positive use of the
                                                                         interdependence among Member States, as envisaged in the
                                                                         conclusions reached by the Economic and Financial Affairs
 Despite the high level of real interest rates, monetary policy is       Council at its meeting in July 1987. Such an effort will, of
 currently creating sufficient room for financing growth . Even          course, have to be consistent with the objectives and
 if account is taken of financial innovation in certain                  constraints which exist at national level . However, if each
 countries, monetary growth remains strong. The task now is              country can count on more rapid growth elsewhere in the
 to prevent the build up of an excessive accumulation of                 Community, its own external and budgetary constraints will
 liquidity which would be inflationary. The more favourably              be reduced and it will be able to contribute to a
  that other determinants of inflation, in particular the trend of       non-inflationary strengthening of growth .
  wage costs, develop , the smaller the risk will be.
                                                                         The Community is faced with a difficult international
  Within the EMS , the management of interest-rate                       environment. Its performance must rely mainly on its own
  differentials has contributed better than in the past to the           efforts. It has major strengths to draw on: the structural
 ---pagebreak---   No L 394 / 8                              Official Journal of the European Communities                                     31 . 12 . 87
  adjustments in train, the improvement in profitability, the            social cohesion . Closer cooperation between the Member
  reduction of inflation , all create conditions favourable to           States will improve the effectiveness of economic policy. To
  stronger growth which will create jobs. The large internal             reinforce consensus on the policies to be followed , a
  market will give the economies of the Community additional             continuation of social dialogue remains essential . Exploiting
  momentum and accelerate technical progress . Its completion           the Community dimension will thus enable Europe to make
  will have to be supplemented by effective Community                   its economies more dynamic and to contribute to stabilizing
  policies which should also contribute to better economic and          the international environment .
                                          2. ECONOMIC DEVELOPMENTS AND OUTLOOK
  2.1 . World economy                                                   remained flat in volume terms . The expectation at the
                                                                        moment is that total world imports ( including the
                                                                        Community) will grow by some 3,5 % in 1987, compared
                                                                       with close on 4,9 % in 1986 (see Table 3 ). The prospects for
 The overvaluation of the dollar that gradually became                 the Community are even gloomier. If world imports
  apparent in the first half of the 1980s was sharply corrected        (excluding the Community) are weighted to take account of
 in 1985 , 1986 and in the first two months of 1987 ( see Graph        the structure of Community exports , this gives for the current
  1 ). The unsatisfactory progress in reducing the United States'      year a figure of less than 1 % for the expansion in
 current account deficit and the expectation of a further fall in      Community export markets ( see Table 5 ). World trade is not
 the dollar temporarily fuelled a self-sustaining process of           expected to stage a recovery of sorts until 1988 . Its sluggish
 depreciation . The dollar thus lost some 40 % of its value
                                                                       expansion in 1 987 is due essentially to the squeeze on imports
 against the ECU between March 1985 and February 1987.                 in the OPEC countries and to a much slower rate of growth of
 There was a return to more settled conditions on the                  imports in the United States .
 exchanges only after the Louvre accord of February 1987
 between the leading industrialized countries had underscored
 the need to keep exchange rates close to their prevailing
 levels, and only after this consensus was accompanied by              In the United States, the federal budget deficit fell
 massive central bank intervention. As a result, the real              significantly in fiscal 1987, but mainly under the impact of a
 effective exchange rate of the dollar was stabilized at about         once-off increase in tax revenue as a result of the tax reform .
 the level recorded in 1981 , a year marked by relatively small        This specific effect will , however, no longer be felt in 1988 .
current-account imbalances .
                                                                       Moreover, the balanced budget originally foreseen under the
                                                                       Gramm-Rudman legislation for 1991 has now been put back
                                                                       to 1993 . The fall in the dollar and the resulting increase in
The rise in crude oil prices was greater in 1987 than had been         import prices will push up inflation in 1987 . At the same
expected a year earlier. The average price for Community              time , the first signs of the anticipated impact on merchandise
imports is expected to be in the region of US $ 17 per barrel ,       trade of the fall in the dollar are being felt. For the first time
compared with US $ 13,7 in 1986 . Unlike in 1986 , oil price           since 1980 , the external balance has contributed positively to
movements are no longer expected, therefore, to make any              the growth in real GDP. Nevertheless , with the negative
contribution to a lowering of inflation rates. A limited rise in      effects of changes in import and export prices exceeding for
the oil price is assumed for the coming year. However, oil            the moment the gains which they imply in movements in
prices are prey to major uncertainties stemming from the              export and import volumes, no contraction in the US trade
political tensions in the Gulf and from the precarious nature         deficit in nominal terms is to be expected this year (J-curve
                                                                      effect). The current account deficit should also widen further
of the production quotas agreed by OPEC .
                                                                      in 1987 and reach US $ 154 billion ( 3,5 % of GNP). An
                                                                      improvement can be expected only in 1988 . Investment
                                                                      should recover in 1988 after the fall in real terms this year. In
Other commodity prices may increase slightly in dollar terms          total , GNP growth could accelerate slightly from 2,3 % in
in 1987 and 1988 ( see Graph 2). As , at the same time, prices        1987 to 2,7 % in 1988 .
of manufactures will increase more rapidly, the terms of
trade of the commodity-exporting developing countries are
likely to show a further worsening.
                                                                      In Japan, a country heavily dependent on exports, the strong
                                                                      appreciation of the yen last year led to a sharp decline in the
                                                                      GNP growth rate, from 4,5 % in 1985 to 2,4 % in 1986 . For
The growth in world trade over the last 12 months has                 the current and coming years, growth could recover, since
remained below the forecast made last autumn . In the first           the development of domestic demand remains dynamic and
half of 1987, imports by non-Community countries actually             the negative contribution of the foreign balance to growth is
 ---pagebreak--- 31 . 12 . 87                               Official Journal of the European Communities                                     No L 394 / 9
fading . This process is underpinned by the fiscal package            heightened the risk of a 'hard landing'. In this context, the
announced by the Japanese government, worth over 6 000                major industrialized countries arrived at a consensus on the
billion Yen, that was adopted in 1987. Investment will                desired adjustment in parities which found its expression in
probably expand at a rate of more than 7 % , as a rise in             the Plaza agreement of September 1985 . It was reflected on
public investment and investment in residential construction          the foreign exchange markets by a persistent fall of the dollar.
looks set to make up for the sluggish nature of productive            Following what, over such a short period, were large
investment . Despite the recovery in growth , the                     exchange-rate adjustments, commitments were made, within
unemployment rate is expected to remain in 1987 , as in               the framework of the Louvre accord , to stabilize the dollar's
1988 , at the historically very high level of around 3 % . The        rate so as to enable trade flows to adapt to the new
Japanese current account surplus in dollar terms should be of         configuration of exchange rates, and thereby to initiate a
the same order of magnitude in 1987 as in 1986 , around US $          return to more balanced current-account positions . This
85 000 million , while falling as a percentage of GNP to              accord was confirmed at the Group of Seven meeting in
3,8 % from 4,5 % in 1986 .                                            September 1987 in Washington. Some progress in correcting
                                                                      external imbalances is evident, but the process also exhibits
                                                                      some worrying trends. It is true that the trade balances of
                                                                      Japan and the Community at constant 1985 prices are
Leaving aside the newly industrializing countries in Asia , the       moving in the desired direction: implying respective falls of
situation of the developing countries has scarcely improved           around US $ 23 000 million and US $ 36 000 million between
in 1986 / 1987 owing to the slack rate of growth in the world         1986 and 1988 ( see Table 6 ). These falls only , however,
economy and the depressed level of commodity prices (see              correspond to the improvement in the United States' balance
Tables 7 and 8 ). The deterioration in the current-account            of US $ 36 000 million between these two years . An
balances of the developing countries as a whole in 1986 is            important counterpart is furnished by the developing
attributable primarily to lower oil prices and reflects the fall      countries, in particular oil exporters who have substantially
in the oil revenues of oil-exporting countries . The                  reduced their imports. Thus, the adjustment process between
non-oil-exporting countries' current balances were,                   the industrialized countries is only advancing very
however, clearly eased . Nevertheless , the private external          modestly.
contribution to the financing of these external deficits
remains very small .
                                                                      It is difficult to tell whether the dollar's present exchange rate
The situation of the non-oil developing countries continues
to show large differences . While the countries of the Far East       is capable of redressing the current-account balance in the
                                                                      medium term . Nevertheless, real exchange-rate movements
continue to record high GDP growth rates, those with middle
                                                                       since 1985 have, to a large extent, compensated for the
incomes in Europe and Latin America have performed only
modestly. The situation in sub-Saharan Africa , on the other
                                                                      dollar's tendency to become overvalued during the first half
hand , remains extremely disturbing, with falling living              of the 1980s. As for the Japanese yen, its appreciation since
standards in certain areas .
                                                                       1985 has , in fact, more than offset its earlier real
                                                                       depreciation. It could, therefore, be concluded that the
                                                                      exchange rate modifications which have taken place since
                                                                       1985 may be sufficient to lead to significant progress towards
                                                                       balance in international payments, to the extent to which
                                                                       they are accompanied by overall macroeconomic policy
                                                                      compatible with a faster adjustment process.
 2.2 . The adjustment process and international
        cooperation
                                                                       In the first half of 1987 , central bank intervention
International cooperation has been directed towards                    contributed substantially to financing the United States
 reducing international imbalances and is leading to policy            current deficit and to stabilizing the dollar. In the medium
 adjustments that are pointing in the right direction. In              term , however, this alone cannot achieve the lasting
 particular, the efforts to stabilize the dollar's exchange rate       stabilization of exchange rates necessary for a smooth
 have proved fruitful , but further progress is still needed in        adjustment process. Such a stabilization is conceivable only if
 eliminating the major imbalances. The two main problems,              a positive interest rate differential is combined with weaker
 i.e. current-account imbalances between the leading                   growth of internal demand in the United States than in Japan
 industrialized countries and the debt burden of the                   and Europe. The movements in interest rate differentials
 developing countries, are still being acutely felt. Solving them      since the beginning of the year have already contributed to a
 will be a task of overriding importance in the years                  stabilization in exchange rates. Thus, for example, between
 ahead .                                                               January and August 1987, the interest rate differential
                                                                       between the United States and Germany, on both long- and
                                                                       short-term nominal rates , has increased by around one
                                                                       percentage point, thus preventing a further fall in the dollar.
 The unprecedented scale of current-account imbalances is              The short-term forecasts assume that this differential does
 illustrated in Graph 3 . As early as 1985 , these imbalances          not narrow in 1988 . In any event, while the necessary
 had become untenable; for the world economy, this                     differentials are being maintained, the average level of
 ---pagebreak---   No L 394 / 10                               Official Journal of the European Communities                                    31 . 12 . 87
  interest rates must be kept as low as is consistent with low           the developing countries on the main problems of the world
  inflation. This is because high United States interest rates not       economy. At the September 1987 annual meeting of the
  only harm investment but also lead to a worsening of the               World Bank and IMF in Washington , some successes could
  situation of the heavily indebted developing countries .                be noted , particularly the negotiations underway to raise the
                                                                         capital of the World Bank. Broad consensus is appearing on
                                                                         the need to support the adjustment efforts of the low-income
                                                                         countries , whose debts are primarily with official creditors ,
  However , the key to stabilization of the dollar and to a              by alleviating the burden of their debt and by stepping up the
  sustained reduction in external imbalances lies in the                 volume of capital flows made available at favourable rates . In
                                                                         the other indebted countries , in accordance with the
  establishment of an adequate domestic demand growth
  differential between Japan and Europe , on the one hand , and          objectives of growth and structural adjustment , it would be
 the United States , on the other. Experience has shown that             necessary to mobilize domestic resources and to tap a
 the effects of a large exchange-rate adjustment work through            sufficient amount of external financing, in particular private
                                                                         capital .
  more rapidly if growth in the surplus country speeds up ,
  triggering a pick-up in exports that is of crucial importance
 when it comes to rectifying the external balance of the
 country running a deficit. In 1987 , it would seem that                 Even so , the industrialized countries themselves must , while
 considerable progress is in the process of being made on this           helping to strengthen growth worldwide, spurn protectionist
 front. While the growth in final domestic demand in the                 measures and open up their markets in order to allow the
 United States is around 1 % below that of its 19 main partner           developing countries to expand their exports , thereby
 countries , Japan and the Community will register a positive            making it easier for them to repay their borrowings . Rapid
 growth differential with respect to their partners of around            progress would , therefore , be welcome at the current round
  1,6 % and 0,5 % respectively ( see Table 4). At the                    of negotiations within GATT (the Uruguay Round ). At any
 Community level it should , however, be recognized that this            event , the present problems at international level can be
 development is to a greater extent due to the slowdown in               resolved only if current-account imbalances are corrected
 world economic activity than to an acceleration in final                and the debt crisis defused ; given the growing
 domestic demand. What is more, according to the forecasts               interdependence of economies , this will be possible only if
 for 1988 these differentials, except in the Japanese case, will         international cooperation and coordination are stepped up .
 probably tend, if anything, to narrow instead of growing                In this respect , the improved multilateral surveillance
 wider as would be desirable and necessary. Then again, the              arrangements agreed upon back in 1985 at the Tokyo
 growth in domestic final demand in the United States in 1988            Summit and confirmed in June 1987 in Venice could prove to
 is expected to be only some 0,7 % lower than the average for            be a useful instrument in avoiding any incompatibilities in
 its major trading partners . In relation to the Community,              economic policy and, where appropriate , identifying any
 there will be probably no disparity in growth rates                     possible divergence in good time . It is also important that the
 whatsoever. If these forecasts were to hold good , external             Community speaks with one voice in the international
trade would only make a limited contribution next year                   meetings of the coming months . This applies not only to
towards reducing current-account imbalances between the                 trade policy and the indebtedness problems of developing
industrialized countries . This could damage the credibility of         countries but also in the area of economic and monetary
the adjustment process in the medium term . This would                  cooperation between the major industrialized blocs.
increase the risk of a further fall in the dollar and of escalating
protectionist measures . It is essential , therefore, that
economic policy should thwart such a development. At the
same time , steps must be taken to ensure that the necessary
disparities in growth are achieved at a high, but
non-inflationary level of growth . Without this , it will not be
possible to set about tackling the pressing problem of
unemployment in Europe. Furthermore, a recession in the                 2.3 . The economic outlook for the Community for 1987
United States would have an adverse effect on those countries                   and 1988
running an external deficit and on the heavily indebted
developing countries.
                                                                        Economic growth in the Community estimated at 2,2 % this
                                                                        year is significantly lower than expected in the last Annual
                                                                        Economic Report. The expectation of faster growth has not,
This year, the level of developing-countries debt will climb            therefore , been realised . Comparison of last year's forecasts
once again , partly as a result of exchange-rate adjustments.           with the most recent estimates pinpoints where the two main
Admittedly, the ratio of debt interest payments to exports has          causes of this development lie: exports , and investment in
declined slightly. The debt burden was eased by reductions in           plant and machinery ( see Table 9 ).
interest rates up to 1986 and by debt-rescheduling
agreements , in particular within the framework of the Paris
Club . However, the recent rises in interest rates will again
make the situation of the developing countries more difficult.          Although , for reasons to do with international adjustment
The Seventh United Nations Conference on Trade and                      ( see above), external trade cannot, basically, be looked to as
Development ( UNCTAD VII ), in July 1987 in Geneva ,                    a source of faster growth in Europe , the contraction in
showed that it was possible to make a common analysis with              exports to third countries has , even so , been more
 ---pagebreak--- 31 . 12 . 87                               Official Journal of the European Communities                                  No L 394 / 11
pronounced than expected. On the one hand, lower crude oil            foster progress towards the growth and employment
prices have caused the OPEC countries to reduce imports               objectives laid down in the Community strategy. The
significantly. On the other hand, the price competitiveness of        contribution of domestic final demand to GDP growth rose
European producers has deteriorated sharply in response to            steadily between 1981 and 1986 , from — 0,5 to + 3,5
exchange-rate adjustments. Compared with 1985 , the                   percentage points, but this has not been enough to offset, to
Community has had to contend with a rise of 20 % or so in its         the extent necessary, the distinctly adverse effect of external
real effective exchange rate against its major trading partners       trade during 1986 and 1987. Since the particularly benign
( see Table 10). Moreover , a number of newly industrializing         impact of the terms of trade in 1986 is fading, the slowdown
countries in the Pacific have benefited from an improvement           that occurred in 1987 could only have been prevented
in their international competitiveness as their currencies have       through even more flexible budgetary policy management.
fallen in line with the dollar . At the same time the Yen / ECU       During those two years, only intra-Community exports have
exchange rate has only risen some 9 % so that the                     expanded appreciably, with trade between Spain and
Community's price competitivity vis-h-vis Japan has only              Portugal, on the one hand, and the other Community
improved slightly. As highlighted by a business survey                countries , on the other, being particularly buoyant ( see
conducted in April / May 1987 on behalf of the Commission,            Chapter 3.3 ).
the magnitude of exchange-rate adjustment took many firms
by surprise, causing them to modify substantially their
forecasts and plans (see Table 11 ). The survey's findings
indicate that firms have , in particular, revised their profit
forecasts sharply downwards. At the same time, the
prospects for sales in the medium term have also become               No improvement seems likely for 1988 . On the contrary, the
much gloomier. In view of this simultaneous weakening of              growth in domestic final demand will probably decelerate
the two key determinants of investment , it is not surprising         further, to around 2,7 % as against 3,2 % in 1987 and
that investment projects have been deferred. This explains            3,8 % in 1986 . This situation is apparent at the same time
why the 1987 expansion in investment in plant and                     within the Community, with large disparities in growth
machinery as recorded in national accounts fell way below             rates . Among the larger countries of the Community, in
last autumn's forecast .
                                                                      France and Germany for example, the growth of final
                                                                      domestic demand , with rates of increase of only 2,0 % and
                                                                      2,3 % respectively in 1988 , is likely to be below the
                                                                      Community average. On the other hand, expected growth
                                                                      rates of 3,3 % in Italy and the United Kingdom and nearly
Revisions to business investment plans already occurred in            5 % in Spain and Portugal are well above the Community
the second half of 1986 . This revision is also showing up in         average. Furthermore, in some countries growth is coming
the regular investment surveys conducted in the Community.            up against mounting external constraints (see Table 1 ).
Whereas, in March / April 1986 , real investment growth of            These constraints could be eased if the more prosperous
 10 % in industry was still in prospect for the current year, by       Community economies notched up more buoyant growth.
October / November that year the figure had been scaled               Failing that, the rise in Community GDP will probably be no
down to 5 % . This was the largest revision since 1981 . The          higher in 1988 than in 1987. The external sector's
most recent forecasts indicate a rise of some 3,3 % in the            contribution is expected to remain only slightly negative, as
volume of gross fixed capital formation in 1988 , compared            the rise in imports loses momentum and the growth of
with 3,6 % this year, the slight recovery in construction             extra-Community exports picks up again .
 investment not compensating for a weaker growth of
 investment in plant and machinery.
                                                                       The favourable trend ofprices has continued and inflation is
 The trend of private consumption has also been slightly more          still on the wane in the majority of countries . The rise in
 disappointing than expected . In 1987 , a further fall in import      consumer prices (just over 3 % in the Community) is actually
 prices and the resulting marked increase in personal                  below the average for the 1960s. This stabilization process
 disposable income again boosted private consumption by                got under way at the beginning of the 1980s under the impact
 around 3 % . Nevertheless , with some of the extra income             of monetary policies directed towards stability, and has also
 being channelled into saving, the stimulus to growth is not           received a fillip since 1986 from the decline in energy and
sufficient to set off an appreciable dynamic growth . In 1988 ,        import prices. Since nominal wages have adjusted rapidly to
because of a slacker rate of increase in real disposable               lower inflation and since the growth of real wages has
 income, private consumption is forecast to grow at a rate of          remained moderate (see Table 14 ), the particularly
 only some 2,7 % .                                                     favourable external influences have resulted in a positive
                                                                       trend in internal costs, laying the foundations for lasting
                                                                       stability. Although the inflation reduction process is running
                                                                       out of steam at the Community level , a further strengthening
                                                                       of price convergence on the lowest inflation rate is also
 Although supply-side conditions have improved, the                    expected (see Table 12). This arises from the fact that the
 transition from growth underpinned by exports to growth               slide in inflation is particularly pronounced in those countries
 based mainly on domestic factors has not been sufficient to           where the inflation rate is still comparatively high .
 ---pagebreak---  No L 394 / 12                               Official Journal of the European Communities                                     31 . 12 . 87
 There has been little further progress towards convergence of          and 1988 , the manufacturing workforce is again expected to
 living standards in the Community, that is , real convergence.         fall slightly. Spain and the Netherlands will probably be the
 On the contrary, the disparities , measured in terms of per            only countries to register a significant rise in industrial
 capita GDP , have tended , if anything , to widen since the first      employment in those two years . Overall , the growth of
 oil shock. This compares with the appreciable progress                 employment in the Community is accounted for by the
 registered in the 1960s (see Table 13 ). At present, GDP per           service sector.
 head in Portugal and Greece is around 45 % , in Ireland
 35 % , and in Spain 25 % , below the Community average .
 Since 1985 , Spain and Portugal have succeeded in somewhat
 reducing their divergence from the Community average
 through a higher level of economic growth . In total the               New or modified forms of working as well as labour market
 improvement remains modest; nor is there any indication                measures have contributed to the rise in employment.
 that the less-favoured regions will manage to close the gap            Working time per person employed has fallen in almost all
 separating them from the rest of the Community in 1988                 Member States following a reduction and reorganization of
 quickly. It is, however, essential for economic and social             weekly working hours and an extension in part-time
 cohesion in the Community that this catching-up process                working. Where the reorganization of working time is
 should begin ( see Chapter 3.3 ).                                      concerned , flexible systems ( see Chapter 4.1.4 ) under which
                                                                        employees' working hours can be divorced from operating
                                                                        hours proliferated . The expansion in part-time working also
                                                                        makes for more flexible use of labour. In 1986 , 13,5 % of
                                                                        wage and salary earners (EUR 9 ) were in part-time
                                                                        employment, compared with only 10,8 % in 1979 . In
                                                                        Denmark, the Netherlands and the United Kingdom , just
                                                                        under one quarter of wage and salary earners were in
 2.4 . Employment and unemployment                                      part-time employment (see Table 16 ). The part-time labour
                                                                        force is mainly made up of women , and most of the jobs
                                                                        available are in the service sector. If the reduction in working
                                                                        time and the introduction of part-time working meet the
The slowdown in growth described above implies that the                 wishes of those in employment , and if both can be reconciled
 Community has failed to come nearer to meeting one of its              with the needs of firms , more flexible organization of
main objectives: the substantial reduction of unemployment.            working hours and operating hours opens up numerous
For 1987 and 1988 , employment is indeed expected to                   possibilities for job creation (*). The proliferation of
increase by around 0,8 % and 0,6 % respectively, compared               fixed-term employment contracts should have made it easier
with 0,8 % in 1986 ; but this is still not enough to bring about        for those without jobs to find employment . For instance, the
any major fall in the unemployment rate, which will                    proportion of persons coverd by a limited-duration contract
probably be close on 12 % for the Community as a whole                 rose from 5 % of the total number of persons employed in
during those two years (see Table 1 ). Nevertheless , the               1983 to 5,5 % in 1985 in the United Kingdom and from
relationship that seems to be emerging in 1987 and 1988                 2,3 % to 3,2 % in France . In the Federal Republic of
between economic growth and the rise in employment                     Germany, an increase from 4,2 % to 6,8 % was recorded in
confirms observations made over a number a years , namely              a single year (from 1984 to 1985 ). Young people and
that the job content of growth has increased (see the box              part-time workers account for an above-average proportion
'Growth and employment').                                              of those covered by limited-duration contracts ( see Table
                                                                        17). This often stems from new laws or specific employment
                                                                       measures ( see Chapter 4.1 ).
In 1987 and 1988 , total employment is set to rise at an
above-average rate in Spain , Italy and the United Kingdom
and at a below-average rate in Belgium , Denmark, Greece,
Ireland and France ( see Table 1 ). The growth in employment           In 1986 , for the first time since 1979 , the rise in total
since 1985 has been neither sufficiently broad-based nor               employment brought to an end the upward movement in
sufficiently strong to produce any substantial improvement             unemployment. Even so , the increase in the demand for
on the labour market. Rising employment in the service                 labour barely exceeds the expansion of the labour force .
sector is alone helping to compensate for the downward                 Demographic pressure on the labour market is easing, but the
trend of employment in agriculture and manufacturing ( see             participation rate, especially among women , will probably
Table 15 ) and the economy is not expanding fast enough at             continue to rise. Consequently, the number of people out of
the moment to reverse , or at least stem , the contraction in          work will remain high in 1988 , at 16 million .
manufacturing employment . In sectors subject to painful
restructuring vyithin the world adjustment process, such as
coal , steel and shipbuilding, employment has fallen sharply.
Of around 3,2 million jobs lost in industry between 1982 and           (*) An enquiry undertaken for the Commission shows that only 10
1986 , 100 000 have been in steel , nearly 150 000 in                      to 20 % of part-time workers would wish to increase their hours
                                                                           worked, while the proportion of full-time workers who would
coalmining and 80 000 in shipyards. Further employment                     prefer to work less is around 30 % (see European Economy, No
shedding in problem sectors are to be expected . This                      27 , 'Employment problems: views of businessmen and the
development will have particularly noticeable effects on                   workforce'). This enquiry also reveals that a more flexible
unemployment, since employment in certain regions often                    management of working-time and of production would enable
depends crucially on these industrial sectors. For both 1987               an increase in employment perhaps reaching 6 % .
 ---pagebreak--- 31 . 12 . 87                              Official Journal of the European Communities                                 No L 394 / 13
As far as the regional distribution is concerned,                    counted on , because of the necessary international
unemployment is not only higher in the weaker than the more          adjustment processes .
prosperous regions , but has additionally grown at a more
rapid pace than the Community average. Thus, in 1985 for
example , the unemployment rate was more than 20 % in the
25 weakest regions while it was 6,6 % in the more advanced
regions ( see Table 20 ). The most worrying factor is that,          Although an attempt may be made, against the background
according to the projections , half the total growth ( 6,7           of this situation , to quantify the medium-term economic
million from now to 1995 ) in the population of working age          outlook for the Community, the medium-term projections ,
in the Community, is in the less favoured regions ( see Table        unlike the short-term forecasts, can on no account be
21 ).                                                                interpreted as a prognosis of probable economic
                                                                     developments. But with the help of plausible assumptions as
                                                                     to international developments , key economic reaction
                                                                     mechanisms and behaviour patterns , and as to the economic
The various categories making up the labour force are being
                                                                     policy to be conducted , possible economic developments can
affected quite differently by high unemployment. The risk of         be discerned . The medium-term projections prepared by
unemployment is very pronounced among young people,                  Commission services since the start of the 1980s — in so far
women , the elderly and the unskilled . In the Community,            as it has so far been possible to observe their out turns — have
over a third of the unemployed are young people , although
                                                                     presented the Community's growth and unemployment
the situation differs a great deal from one country to another.
In 1986 , 48 % in Italy and 43 % in Spain of the unemployed
                                                                     problems fairly realistically (see Table 22). However, this
                                                                     relative success does nothing to change the fact that each new
were under 25 while the corresponding figures for Germany
                                                                     projection throws up new uncertainties and that certain
and Denmark were only 22 % and 23 % , respectively.
                                                                     developments can be only imperfectly gauged by
Nevertheless , in recent years, youth unemployment has               macroeconomic projections . This is not only true of the
fallen back little in the Community as a whole: in 1986 , 36 %       international environment, but also of developments in the
of the unemployed were under 25 as against 38 % in 1984 ;            internal economy. For example, macroeconomic projections
22,7 % of the labour force under 25 (those in employment
                                                                     take a long time to register — or have so far completely
plus the unemployed) were out of work in 1986 against                ignored — the gradual changes in economic relationships
23,5 % in 1984 . This development can be put down to an              which stem from the efforts made in all the Member States to
easing of demographic pressures and to the wide variety of
                                                                     improve the adaptability of markets or to promote the
programmes to combat youth unemployment, including
                                                                     completion of the internal market.
measures under the European Social Fund . Unemployment
among women is also a specific labour market problem. It
has risen steadily in recent years , to reach 13,2 % in 1986
(see Table 18 ). In April 1986 , on the basis of the
Community's labour force sample survey, it was particularly
high in Spain ( 25,9% ), Ireland ( 20,2% ) and Belgium               The present projection to 1991 assumes that the ECU will
( 16,8 % ). Labour market problems are also the reason for a         not appreciate by very much more against the dollar over the
disturbing increase in the number of long-term unemployed.           next few years, but the Yen will still have some margin for
According to the definitions of the labour force sample              appreciation; the price of oil could gradually increase in the
survey, at the moment over half of those out of work have            next few years but no new shock is assumed ; the situation of
been without a job for more than a year, compared with               the developing countries will remain difficult , but their
46 % in 1983 (see Table 19 ). This phenomenon is                     imports could again increase appreciably in line with the
particularly pronounced in Belgium, Italy and Ireland , where        upturn in world trade. Overall , on these assumptions, world
the figure is over two thirds. In Spain and the Netherlands ,        trade (world import volume , excluding the Community)
the proportion of long-term unemployment easily exceeds              could gradually return to a growth rate of slightly under 5 %
50 % . Given the sharp increase in long-term unemployment,           by 1990 / 1991 (see Table 23 ). With regard to economic
it is of even more pressing importance that a solution should        policy in the Community, it has been assumed that the
be found to the problems on the labour market.                       present stance of budgetary policy — including the tax cuts
                                                                     planned in major countries and a slightly more dynamic trend
                                                                     of public investment — would be maintained, that monetary
                                                                     policy would continue to be geared to stability but would
                                                                     leave sufficient margin for real growth and that increases in
                                                                     real wages would remain moderate , but accelerate slightly in
                                                                     comparison with the period 1981 to 1986 .
2.5 . The medium-term economic outlook for the
        Community
                                                                     On these assumptions, the average annual growth rate for the
In the medium term , unemployment can only be reduced if             Community would be 2,5 % in the years 1987 to 1991 (see
growth accelerates and at the same time becomes more                 Table 24 ). The inflation rate would stabilize at its present
employment-creating. As already shown, a series of domestic          level of a little over 3 % . The profitability of fixed capital
economic conditions for stronger growt^i has improved .              would go on rising, but at a markedly slower rate than in
Positive external economic conditions cannot, however, be            the previous five-year period (see Graph 13 ). Corporate
 ---pagebreak--- No L 394 / 14                               Official Journal of the European Communities                                    31 . 12 . 87
investment would improve a little, but not sufficiently to              The depreciation of the dollar continued in 1 986 and during
create the desired number of jobs . The increase in                    thefirst two months of 1 987. More settled conditions on the
employment achieved (0,7 % per annum) would certainly                  foreign exchange markets only came about as a result of
produce no more than a slight fall in the unemployment rate;           the Louvre accord of February 1987. The hoped-for
in 1991 it would still be likely to be standing at over 10 % .         repercussions of the depreciation of the dollar have begun to
The Community's current account surplus would gradually                be felt on real flows, but progress is still insufficient. To
diminish which, given the needs of the international                   succeed in stabilizing the dollar, until credible progress has
adjustment process, would be normal; the emergence of a                 been achieved on the international adjustmentfront, requires
large deficit as a result of growth being accelerated on                not only a positive differential in interest rates but also an
employment grounds should, however, be avoided.                        adequate negative growth gap between the United States on
However, this deterioration in the current account balance is           the one hand and Japan and Europe on the other. Although
chiefly attributable to the assumed rise in the oil price; if it        developments have been favourable in this respect in 1987,
were assumed that in 1989 the oil price stayed at 18 dollars           first indications for 1988 suggest that growth differentials
and thereafter did not increase more sharply than the export            will more probably shrink. If theseforecasts were to come to
prices of the industrialized countries, the Community would             pass, the credibility of the medium-term adjustment process
still have a comfortable current account surplus in 1991 .              could be compromised. This in its turn could only lead to a
                                                                       greater risk ofa furtherfall in the dollar and a strengthening
                                                                        of protectionist measures. Substantial and credible progress
                                                                        in the absorption of the United States budget deficit and a
                                                                        greater opening up of the Japanese market would contribute
                                                                        substantially to averting the danger. Within the Community,
From the point of view of growth and employment, this                   the sharp ebb in extra-Community exports, and the
projection is disappointing, and hardly seems to differ from            consequent worsening of the investment climate, have
the reference projection produced for the last Annual                   quashed the hopes ofan acceleration in growth which existed
 Economic Report, but, as has been indicated, it does not take          last Autumn. In addition, convergence in living standards in
 sufficient account of the improvement in market adaptability           the Community is only progressing slowly. On the other
 and does not yet integrate the completion of the internal              hand, the convergence of price developments towards a
 market. If we consider the annual progression of the                   lower ■ level of inflation is continuing. The growth in
 principal variables, once the externally determined low                employment noted since 1985 has enabled the rise in
 growth of 1987 and 1988 is over, this year's reference                 unemployment to be stemmed in 1 986for thefirst time since
 projection shows a somewhat more dynamic growth trend                   1 979. Reduction in working time, the extension ofpart-time
 than last year's projection (see Graph 14). Admittedly, the            working, moderation in real wages, new forms of working
 reduction of unemployment is still too small, but                      time reorganization, as well as other employment measures,
 employment at the end of the projection period is marginally           have made growth more employment-creating for several
 better, so that the unemployment rate then falls slightly more         years. Despite these favourable factors, the unemployment
 rapidly. Certainly, these are the first signs of a slight               rate in the Community will scarcely fall in 1987/1988 since
 improvement in the outlook; they should not be                         growth is slowing down. The increase in long-term
 overestimated , and on no account be interpreted as the                 unemployment is particularly worrying. In the medium term,
 probable course of the cycle. If the parameters are varied in          a more favourable international economic environment
 the projections, it can be seen, however, that the slight               cannot be counted on. Within the Community, there are
 improvement perceived is mainly connected with the                     some tentative signs of a slight improvement in growth and
 assumed reduction in taxes and the slightly more sustained              employment in the medium term. This stems essentiallyfrom
 increase in public investment. These support demand and, in             the hypotheses of a reduction in taxation and an increase in
 conjunction with a moderate development in wages, improve               public investment supporting demand which, in conjunction
 profitability. It remains the priority task of economic policy          with a moderate development in real wages, increase
 to strengthen and to accelerate these favourable                        profitability. At the beginning ofthe 1 990s, nevertheless, the
 developments .                                                          unemployment rate could still remain above 10 %.
                3.    INTERNAL DETERMINANTS OF GROWTH AND THE INTERDEPENDENCE OF THE MEMBER
                                                                 STATES
  Given the changed external situation, the Community's task             internal objectives: the reduction of unemployment, the
  is to strengthen its growth from its own forces. This is not           exploitation of all the advantages flowing from the
  only the best contribution it can make to restore international        realization of the large internal market and the strengthening
  equilibria at a highest possible level of growth. High growth          of economic and social cohesion in the Community .
  for the Community is above all necessary to achieve its                Achieving each of these central internal objectives requires
 ---pagebreak--- 31 . 12 . 87                                  Official Journal of the European Communities                                  No L 394 / 15
higher growth . Further, progress in achieving any one of the            The completion of the internal market can also, however,
three will contribute significantly to achieving the other               have positive effects on private demand:
two .
                                                                           (i) If competition is wider, lower unit costs lead to lower
                                                                                 product prices. As a result, competitiveness is
Achieving internally-led growth means applying the                               improved. This not only strengthens internal trade but
                                                                                 also enables demand outside the Community to be
cooperative growth strategy for more employment which
was adopted by the Council for the Community in the                              better exploited;
1985 / 1986 and 1986 / 1987 Annual Economic Reports.
Stronger growth , in order to be durable and, finally,                    (ii)) The greater variety of products available in the large
self-sustaining, must preserve achievements gained from the                       internal market meets the needs of enterprises and
internal and external economic stability, strengthening them                      consumers and is also likely to trigger additional
where necessary. It must be supported by improved                                 demand .
profitability and adaptability of markets. In this respect, the
recommendations on supply policies in the annual reports of
previous years remain valid .
                                                                         Completion of the market will also produce many cost
                                                                         savings in the public sector: expenditure on the supervision of
                                                                         national regulations will fall, and procurement opportunities
                                                                         will improve, if public contracts are awarded within the
                                                                         Community under conditions of free competition. This also
                                                                         increases the budgetary margin available for
                                                                         growth-promotion measures on both the supply and the
3.1 . The internal market and the adjustment of economic                 demand side .
          structures as the engines of growth
                                                                         The Commission has initiated a number of studies to
 The completion of an area without internal frontiers creates
                                                                         estimate the quantitative effects of completing the internal
                                                                         market in some sectors . The overall effect is likely to be
 important stimuli for both the supply and demand sides in the
 Community . Removing fiscal and administrative barriers ,
                                                                         significant even though it is difficult to quantify exactly
 mutual recognition of technical standards and the opening of
                                                                         because of the large number of factors involved. The overall
                                                                         effect will also depend on the circumstances in which the
 markets will have both an immediate as well as a progressive
                                                                         internal market is completed:
 impact . For the private sector, the following supply-side
 effects can be expected :
                                                                         — Considerable additional investment would enable the full
   (i) First, direct cost savings achieved in trade within the                 exploitation of the opportunities created by completion
         Community, if frontier formalities, additional                        of the large internal market. The earlier that firms realize
         inspections and certificates disappear;                               that the Community has embarked on an irreversible
                                                                               process, the more quickly this investment will be
                                                                               forthcoming. Additional investment creates additional
  ( ii ) The easier and less costly it becomes to offer products               demand and increases the momentum of growth . On the
         marketed in one member country in other countries as                  other hand , improved market expectations of growth are
         well , the greater is the incentive to expand production              also necessary , so that more is actually invested . The
         capacities and to produce for the large internal market;              execution of major projects of European interest is also
         the resultant economies of scale can be considerable:                 relevant to the completion of the internal market, since
         productivity rises while unit costs fall ;                            they help to establish modern and transnational transport
                                                                               and telecommunications networks and so to counteract
                                                                               the fragmentation of national infrastructure. In a suitable
 (iii) Because transparency for public and private goods is                    environment such projects can largely be financed on the
         greater, competition on the Community's internal                      private capital market .
         market will intensify . Firms will have a greater
         incentive to increase their efficiency and to improve the
         quality of their products. In the medium term this can           — In the Member States it is also necessary to increase the
         lead to a more efficient economic structure in the                    adaptability ofthe markets in goods , services , capital and
         Community;                                                            labour and to encourage entrepreneurial initiative ( see
                                                                               Chapter 4.1 ); this improves supply-side conditions ,
                                                                               allows firms to react more quickly to the new conditions
 (iv) The large internal market finally also creates                           of the internal market , and accelerates the exploitation of
         substantially better conditions for a greater European                its advantages . The associated structural changes can
         research and development effort since it opens up the                 create social and regional problems . In order not to call
         whole Community as an outlet for the institutes and                   into question fundamental rights in the fields of social
         enterprises involved, benefitting the technological                   security, of social protection and of working conditions ,
         competitiveness of the Community.                                     an issue raised by the Council of Ministers in its
 ---pagebreak---  No L 394 / 16                               Official Journal of the European Communities                                    31 . 12 . 87
       resolution of 22 December 1986 , appropriate regard              profitability, improve simultaneously. However, since the
       must be given to the social dimension and the process of         Community cannot for the foreseeable future count on any
       structural adjustment must be accompanied by a wide              great external boost to demand , the necessary stimulus must
       social dialogue . The strengthening of economic and              emanate from internal final demand in the Community, i.e.
       social cohesion in the Community ( see Chapters 3.3 and          from private consumption and from higher investment.
      4.3 ) would also facilitate regional adjustment . Lastly, the     Private consumption would therefore have to grow at
       social and regional problems associated with structural          roughly the same rate as GDP over the next few years ,
       adjustment can be overcome only in an environment of             requiring appropriate increases in private disposable
      stronger economic growth. Defensive behaviour of                  income .
      governments and social partners will then be easier to
      avoid .
 An important contribution of the internal market is to                 However, if investment is to grow strongly, its profitability
 increase productivity, but, for higher productivity to create          must rise further for some years ( see below); real wage
 both greater prosperity and more employment, growth has to             increases in the Community must therefore continue to
 be high enough . Admittedly, the completion of the internal            remain moderate. Moderate increases with stronger growth
 market will provide a strong boost for growth , but this can           in employment still allow an appropriate rise in private
 only become fully effective if it goes hand-in-hand with a             incomes , provided that budgetary policy also assumes an
 more dynamic macroeconomic process.                                    active role in this process, by contributing to an improvement
                                                                        of conditions on the supply side and to the adequate growth
                                                                        of demand by reducing taxation on private households and
                                                                        firms and by more public investment in worthwhile or
                                                                        profitable projects . To avoid pressure for higher real interest
                                                                        rates which would be unfavourable to private investment,
                                                                        such a budgetary policy should not call into question the
 3.2 .     The macroeconomic process                                    improvement of public finance in the medium-term .
 Macroeconomic policy must also help to free the Community
 from the trap of low growth in which present policies and
 behaviour patterns would place it, even if there are perhaps          A number of member countries have given themselves scope
 signs of a slight improvement for the end of the decade (see          for a more active budgetary policy role by means of the
 Chapter 2.5). It must aim to promote self-sustaining growth           consolidation efforts of the past ( see Chapter 5.3 ). These
which is higher and creates more jobs, without jeopardizing            countries have already cut taxes or are planning to do so . The
internal and external stability; in this way faster growth can         positive effects of these measures for the medium term can
be maintained in the medium term .
                                                                       already be perceived ( see Chapter 2.5 ), but, should economic
                                                                       growth fall short of expectations for any length of time , these
                                                                       plans may be endangered , since the slackening of growth
A dynamic equilibrium must therefore be established in the             goes hand-in-hand with revenue losses for the public budgets
Community between investment and private consumption.                  and still higher crisis-induced expenditure , which reduces
From 1960 to 1973 , private investment in the Community                the budgetary room for manoeuvre accordingly. The
increased slightly more rapidly than private consumption,              prerequisite for a credible and realistic policy of
while the proportion of private investment in GDP increased;           medium-term budgetary consolidation therefore seems to be
from 1973 to 1985 there was a complete change in the                   a flexible approach to planned tax cuts , both as regards their
situation, with investment growth actually falling more                scale and timing. The growth-promotion effect is greatest
sharply than the growth of GDP, the rate of which more than            and the danger of unsustainable external imbalances is most
halved ( see Table 25 ). If this investment gap , which has            limited if those member countries which can conduct an
grown up over more than a decade, is to be closed and today's          active budgetary policy coordinate their action . Stronger
lack of jobs alleviated , if, in the future, capacity bottlenecks      growth in the Community would improve the budgetary
are to be avoided , and if structural change and the                   situation of the other member countries . These, while
modernization of production facilities are to accelerate ,             adhering to their consolidation priorities, could then also
private investment in the Community in the next few years              contribute to the improvement of growth prospects in the
will have to grow substantially more quickly than GDP. Since           Community ( see Chapter 3.3 ).
each unit of output now on average requires more capital
than before, this means that the need for capital expenditure
to expand production and employment is today considerably
greater than in the 1960s ( see Table 25 ). It will therefore be
necessary for the share of private investment in GDP in the            Public investment has suffered severely as a result of the
Community to rise appreciably in the next few years .                  consolidation drive of the Member States . Its share in GDP
                                                                       has fallen by roughly one third since the beginning of the
                                                                       1 970s . An acceleration in profitable public investment would
This can only be achieved if two essential determinants of             not only expand the productive potential in the Community
private investment, i.e. expectations of demand and                    more quickly but at the same time would also have a direct
 ---pagebreak--- 31 . 12 . 87                               Official Journal of the European Communities                                  No L 394 / 17
effect on demand . The execution of major infrastructure              3.3 . Interdependence between the Member States
projects of Community interest (see Chapter 3.1 ) can also
contribute to the attainment of this objective .
                                                                      In 1987 almost 60 % of the visible import and export trade of
                                                                      the Member States will be conducted with the other Member
However, it is not only important to improve demand                   States (compared with less than 40 % in 1958 , see Tables 26
prospects: profitability must also improve. In this respect,          and 27). The intra-Community imports or exports of all the
considerable progress has been achieved in recent years .             Member States represent around 13 % of the Community
Higher capacity utilization, the fall in the prices of important      GDP . These trade ties have recently become even closer with
raw materials and in particular the fact that , for several           the change in the external trade flows of Spain and Portugal
years , real wage increases have not kept pace with                   as a result of their accession to the Community. Thus , in
productivity gains, have already markedly improved the                Spain, the share of the Community in total imports has risen
profitability of physical capital. Nevertheless, it is still not      from below 38 % ( 1985 ) to over 52 % ( 1987); in Portugal ,
back to the level of the 1960s , when profitability was               the corresponding rise was from under 46 % to over 69 % .
sufficient to permit self-sustaining growth with low                  For visible exports the Community share rose in Spain from
unemployment . Nor has profitability yet risen by much in             over 53 % to over 69 % and in Portugal from less than 63 %
1987 . Given the great need for private investment, and until a       to 70 % . The completion of the internal market will increase
self-sustaining process of dynamic growth has become a                this interdependence even further. In addition the increasing
reality, wage trends must therefore continue to contribute to         liberalization of capital movements combined with the
improving the preconditions for investment. In this respect           maintenance of stable exchange rates, particularly within the
the reduction of the tax burden on wage and salary earners            framework       of the     EMS ,    creates   an     even   closer
should facilitate moderation in real wage increases per               interdependence between the money and capital markets of
head .                                                                the Member States.
A wages trend which does not increase the pressure on costs           Because of the ever-closer economic ties , the flows of goods
and the continuation of a stability-oriented monetary policy          and finance react more rapidly, and this increasingly reduces
make it easier to stabilize inflation at its present low level or     the autonomy of individual Member States in the conduct of
to bring it down even further in a number of member                   their economic policy. The close economic ties, however ,
countries. This enables inflationary expectations to be               also provide new opportunities for joint action and increase
adjusted downwards, creating a sound basis for a further fall         the Community's potential for growth, provided that
in long-term interest rates. Higher profitability and an              economic policy measures are more closely coordinated. The
increased self-financing capacity of firms would , in addition,        stabilization achieved within the framework of the EMS
reduce tensions between supply and demand for long-term               shows that, if monetary policies are coordinated,
capital . This too will have a favourable effect on investment        interdependence can be used to the advantage of all Member
activity, because financing costs fall and because the                 States. Further progress along this road can, and must, be
relationship between the expected return on physical capital           made ( see Chapter 5.2).
and interest rates on the financial market is shifting more and
more clearly in favour of productive investment . Most
importantly, however, falling long-term interest rates will
also take considerable pressure off public budgets: in some            However, it is now important to make use of this
Member States the public debt already equals, if not exceeds,          interdependence to strengthen growth by also improving the
annual gross national product ( see box on interest rates ).           coordination of budgetary policies. This can ease both the
                                                                       external and the budgetary constraints on the Member
                                                                       States . In a situation in which there are no appreciable
                                                                       external stimuli , the result is a substantial increase in the
Such an increase in growth , underpinned by domestic                   Member States' scope for action . Because of the great
demand, would also help to eliminate international current             significance of intra-Community trade the Member States
 account imbalances while maintaining global growth at the             can expect faster growth to have less serious consequences on
highest possible level . This would strengthen confidence in           their current account balances if it is part of a coordinated
the stability of international economic and monetary                   approach than if they act in isolation (according to OECD
relations and would also remove impediments to additional              calculations, these consequences would be reduced by
 investment . In order to avoid disturbances it is, however,           between one half and two thirds). This is particularly
 important to preserve satisfactorily the external equilibrium         important for the member countries whose room for
 of the Community in the medium term . The Community's                 manoeuvre in economic policy is limited because of concern
 competitiveness must therefore be maintained and                      for their external equilibrium; at present this is especially true
 strengthened. A further improvement in profitability and              of Denmark and France , but also of Italy, Portugal and
 more adaptable markets will also help to satisfy more                 Spain, where continuation of the present vigorous growth is
 internal demand by means of internal production in those              endangered by the threat of external imbalance. Of course,
 circumstances; it is thus possible to maintain external               the acceleration in domestic demand which such an effort
 equilibrium in the medium term even if growth                         brings about would lead to some deterioration in the external
 accelerates .                                                         accounts of Community countries with the rest of the world.
 ---pagebreak---  No L 394 / 18                                Official Journal of the European Communities                                    31 . 12 . 87
 The Community would thus contribute to the                              Portugal were able to continue to close the gap in terms of per
 re-establishment of equilibrium in international payments .             capita GDP , but abthe price of serious external deficits .
 However, in order that this effort results in a durable
 acceleration in growth , it is necessary that it relies on a
 simultaneous improvement in supply conditions and does                  In the 1980s , Greece and Ireland in particular were unable to
 not call into question either a sustainable medium-term                 gain more ground in terms of per capita incomes because
 external position or price stability achievements . In a                their efficiency of investment was below the Community
 coordinated approach the budgetary constraints on tax cuts              average and the investment ratio had fallen . However ,
 or additional public investment are also eased as a result of           Spain's efficiency of investment recovered to approximately
 the close trade ties . Each Member State enjoying stronger              the average level of the other member countries as a result of a
 growth makes an appreciable contribution to the growth of               vigorous internal adjustment effort: not only equalling them
 the other Member States ; the increase in economic growth               in terms of growth of per capita income , but even now
 and the accompanying additional tax revenue are                         drawing slightly ahead , while still succeeding in preserving
substantially higher than if initiatives are taken in isolation. It      external equilibrium .
 is thus easier to reconcile budgetary policy measures and
 medium-term budgetary consolidation . Stronger growth in
 the partner countries also helps to improve the situation of
                                                                         To revive the catching-up process in the current changed
 the member countries which still have serious budgetary                 circumstances requires coodinated efforts by all Member
 problems ( see Table 29 ) and after a time enables them to
                                                                         States , as laid down in Article 130 B introduced into the
 contribute to the common process of accelerating growth .
                                                                         Treaty of Rome by the Single European Act. For this
                                                                         purpose , growth must accelerate in the Community as a
                                                                         whole , in order to assist the adjustment process and to
                                                                         prevent the least-favoured countries and regions being forced
In the medium-term , a coordinated and differentiated                    into restrictive policies as a result of domestic or external
 approach for budgetary policies makes it possible to improve            imbalances which are no longer sustainable . This is only
the convergence of the public finance situation in the member            possible if the economically strong member countries make a
countries of the Community. Given the increasingly close                 sufficient contribution to growth . However , it is also
monetary interdependence within the EMS , this convergence               crucially important for the least-favoured countries and
is of special importance . Without it , the member countries             regions to improve their internal growth conditions further ,
whose budgetary situation is relatively unfavourable could               i.e. as regards the profitability and efficiency of investment .
be compelled to accept higher interest rates in order to                 This increases capital formation , makes it easier to preserve
prevent outflows of capital and the resultant pressure on their          their external equilibrium despite higher growth , and creates
currency .                                                               the conditions necessary for increased capital imports . In
                                                                         addition , this policy must receive stronger support from the
                                                                         Community institutions , structural funds , the European
                                                                         Investment Bank and the other existing financing
The higher interest rates would oblige these countries to                instruments , as stated in the communication from the
make additional adjustment efforts , which would be                      Commission ( COM(87) 100 ) to the Council . If, in this way, a
detrimental to the growth process in the Community as a                  lasting and self-sustaining catching-up process can be
whole .                                                                  launched in these countries , not only will economic and
                                                                         social cohesion in the Community be strengthened , but , in
                                                                         addition , the countries and regions which start to catch up as
                                                                         a result of more dynamic growth will also make a
Close concertation of economic policies at national and                  considerable contribution to growth in the Community.
Community level also facilitates efforts to accelerate the
catching-up process in the least-favoured countries and
regions (Greece, Spain , Ireland and Portugal ). Such a process
occurred up to the 1970s, notably in Spain , Greece and
Portugal , which were able to increase their real per capita
GDP distinctly more quickly than the other member                        3.4 . The prerequisites for success
countries ( see Table 30 and Chapter 2.3 ). In Spain and
Portugal , this situation was favoured by above-average
investment ratios , with the efficiency of investment high in all        The efforts of the last few years have substantially increased
four countries . The catching-up process was made                       the profitability of investment and the adaptability of
substantially easier because it took place against a                    markets in the Community , thus favouring higher and more
background of high economic growth , which enabled those                employment-creating growth , while preserving internal and
countries to preserve their external equilibrium.                       external equilibria . However, in the last two years , growth
                                                                        has slowed down, primarily because of external factors; as a
                                                                        result , the economy of the Community has come scarcely any
                                                                        nearer attaining one of its main objectives , a substantial and
In the second half of the 1 970s , the efficiency of investment in      lasting reduction in unemployment . Since the Community
these countries fell to the average level of the other Member           cannot expect very favourable external influences in the
States ( and even far below in the case of Spain). It was only by       foreseeable future, it must rely on its own strengths even
increasing their investment substantially that Ireland and              more than in the past.
 ---pagebreak--- 31 . 12 . 87                            Official Journal of the European Communities                                  No L 394 / 19
In this new environment, application of the Community              In the coming years the Community, while preserving
strategy therefore means making better use of the advantages       achievements on the price stability front, must increase its
of the Community dimension: completing the internal                economic growth, not only in order to contribute to the
market, accelerating the macroeconomic process to achieve          process of international adjustment while maintaining the
stable, higher economic growth and to profit from the              highest possible level ofworld growth, but above all, in order
interdependence between the Member States. This requires           to attain its own objectives: reducing unemployment,
closer cooperation between Member States in the fields of          making full use of all the advantages of the large internal
monetary and budgetary policy and the development of               market, and strengthening its economic and social cohesion.
Community policies (see Chapters 4 and 5 ). The Community          Since it cannot expect strong external stimuli, it must rely
must also contribute to the strengthening of international         more on its own strengths. The completion of the internal
cooperation, in order to work in concert with the other large      market will stimulate growth considerably while making
economic areas to reduce international imbalances and              Community output more profitable and making it possible to
ensure more stable exchange rates, as well as to avert the         satisfy additional demand within the Community and on
threat of protectionism (see Chapter 2.2).                         export markets. However, in order to make full use of the
                                                                   potential ofthe internal marketforgrowth and employment,
                                                                   macroeconomic policy must also contribute to higher,
                                                                   self-sustaininggrowth, without thereby endangering internal
Strengthening social dialogue at national and Community            and external stability. In this connection it is important for
levels remains decisive for widening the consensus on the           the growth of private investment to rise well above the
changes of attitude and the economic policy measures               growth of GDP. In addition to the moderate rise in real
necessary for the success of the Community strategy (see, for      wages, tax cuts and higher profitable public investment will
example, the 1986 / 1987 Annual Economic Report, Chapter           contribute to improving both supply-side conditions and
4.6). At the Community level, important progress has been          demand expectations. However, such fiscal policy measures
made, notably two joint opinions of the social partners: one       should not call into question the improvement of public
on the fundamental options of the Community strategy (6            finance in the medium term. The continuation of a
November 1986 ), the other on training and motivation , as         stability-orientated monetary policy willfurthermore help to
well as informing and consulting the workforce when                 bring long-term interest rates down agdin, favouring
introducing new technologies in the enterprise (6 March             investment and above all easing pressure on the public
 1987 , see also Chapter 4.2). Encouraged by this success, the      budgets. In addition, closer coordination of budgetary
Commission will pursue its efforts , to develop at European         policies between the Member States reduces external and
level dialogue with and between the social partners on all the      budgetary constraints which considerably restrict the room
themes of the Community strategy . This also conforms to           for manoeuvre ofcertain Member States. Such coordination
Article 118 B of the Treaty amended in 1987 by the Single           has to be consistent with the objectives and constraints which
European Act. However, the will to cooperate shown by the           exist at national level. Lastly, coordinated effort by all the
 social partners at Community level should also be better           Member States and the Community are necessary to relaunch
 utilized at national level .
                                                                    the dynamic process of catching up by the least-favoured
                                                                    countries and regions. In the new circumstances, application
                                                                    of the cooperative strategy means making greater use of the
 The objectives which the Community has, thus, set itself in        Community dimension, which requires closer cooperation
 its cooperative strategy for growth and employment are still       between the Member States, the development of Community
 relevant and realizable, though with a certain delay, despite      policies and a wide-ranging social dialogue at national and
 the deterioration in the external environment .                    Community level.
                                  4.   COMMUNITY AND NATIONAL STRUCTURAL POLICIES
 4.1 . Improving market adaptability                                market according to the lines laid out in the Commission s
                                                                    White Paper (*) of June 1985 . The Council requested the
 4.1.1 . At the European level , the completion of the
 internal market by 1992 stands at the centre of efforts to          ( 1 ) Cf. 'Completing the internal market', White Paper of the
 improve market mechanisms. This was reconfirmed by the                    Commission at the request of the Council , document of the
 European Council of Brussels of 29 / 30 June 1987, with the               Commission of the European Communities , Luxembourg,
 observation that it was important to complete the internal                1985 .
 ---pagebreak---  No L 394 / 20                                  Official Journal of the European Communities                                     31 . 12 . 87
 responsible Councils of Ministers for this purpose to make                describing other product categories, e.g. on the basis of the
 full use of the improved decision-making process introduced               proposal on dangerous preparations , would further increase
 by the Single European Act. Under the new provisions of the               market transparency in the Community .
 Treaty (in particular Article 100 A) introduced by the Single
 European Act, it will be possible in future for some
 two-thirds of the proposals contained in the White Paper to               4.1.3 .    A series of measures to improve market
 be adopted by a qualified majority of the Council in                      adaptability, through deregulation and liberalizing market
 cooperation with the European Parliament; only fiscal                     access , concern small and medium-sized enterprises (SMEs).
 provisions , those relating to the free movement of persons,              The evidence shows that, within the enterprise sector, such
 and those relating to the rights and interests of employed                firms contribute most to new employment creation,
 persons are excluded from these new rules . The Commission                essentially in the high-technology sectors . To encourage
 described the progress made in work on the numerous                       further the development of small and medium-sized
 individual proposals in its reports on the implementation of              enterprises , two types of action have been taken . The first
 the White Paper in May 1986 and 1987 (COM(86 ) 300 ;                      aims to increase market flexibility and encourage the
 COM(87) 203 ). The Commission has also addressed another                  adaptability of firms. It includes measures to reduce the
 important area for the removal of frontier controls with its              burden on business arising from Community regulations
 proposals of early August 1987 ( COM(87) 320-328 ) for                    such as the simplification of fiscal and company law
 the approximation of rates and harmonization of structures                applicable to small firms proposed by the Commission .
 of indirect taxes .
                                                                           Several Member States are also endeavouring to facilitate the
                                                                           creation of new firms by policies in this area . The second type
                                                                           of measure aims to improve the flow of information to firms
                                                                           about European Community and national policies to
                                                                           promote trade and to foster cooperation among enterprises
 4.1.2 .       Beyond the completion of the internal market , the          across national borders . These measures are envisaged in the
general objective of improving market adaptability remains                 Action Programme for Small and Medium-sized Enterprises
 valid for economic policy in the Community. In the Annual                 approved in November 1986 by the Council .
 Economic Report 1985 / 1986 (*), the Commission pointed
 out that action with the aim of improving the adaptability of
 markets , and not only the labour market, should be
 strengthened . It also stressed that the objective behind efforts         4.1 .4 .   Adaptability ofthe labour market continues to be a
 to increase flexibility is not to destroy achievements made on            major concern in the implementation of government
the social front but to create jobs and therefore that, as far as          employment policies and collective bargaining. In its
 at all possible, economic efficiency should be reconciled with            communication on the internal and external adaptation of
the preservation and strengthening of fundamental social                   firms in relation to employment^ 1 ), the Commission has ,
progress . In the Annual Economic Report 1986 / 1987 ( 2),                 inter alia, given an overview of recent developments in
the Commission presented a number of measures to improve                   Member States both at legislative and , where possible,
market flexibility, partly from the viewpoint of internal                  collective bargaining level .
market policy.
                                                                           This survey shows that governments and social partners tend
                                                                           to focus on a qualitative adjustment of the labour force . To
                                                                           succeed in the introduction and spread of new technologies it
Also worthy of mention are the Community measures in the                   has become increasingly important for the enterprises to have
approximation of legislation on consumer protection which ,                a functional and versatile workforce capable of adjusting
in substance , aim to improve adaptability of markets in                   quickly to the new technological advances in world markets .
goods and services by increasing market transparency. In this              In this context, qualification and training programmes have
connection , it is appropriate first to cite the 1979 Directive            been agreed upon at a bi- or trilateral level .
on the indication of the price of foodstuffs and of the
indication of the unit price where quantities presented in
standardized packaging are concerned . Similar proposals for               It is also increasingly recognized that motivation and
other consumer goods have been before the Council since                    adaptability of personnel will be significantly enhanced when
 1983 . Information on the characteristics of the products has             employees are involved and associated by way of information
also been improved and harmonized in the Community. Here                   and consultation in relation to management decisions,
the provisions on the labelling of foodstuffs or on the                   especially those with employment implications. On these
presentation and marketing of dangerous substances should                  questions broad agreement has been arrived at between the
be mentioned . For these product groups , the consumer is                  social partners in the framework of the social dialogue at the
informed of the composition or the particular characteristics              Community level (Chapter 3.4 ).
of the products offered by the same means throughout the
European internal market . A harmonization of the rules
                                                                          Negotiations on adaptation of working time and flexibility in
                                                                          the duration of use of productive capacity continue . Thus,
(*) See Annual Economic Report 1985 / 86 , in European Economy,            for example, in the metal-working industries in Denmark
      No . 26 , November 1985 , Brussels , pp . 10 and 42 et seq.
( 2 ) See Annual Economic Report 1986 / 87 , in European Economy,
      No 30 , November 1986 , Brussels , pp . 63 et seq.                    1  COM 87 229 .
 ---pagebreak--- 31 . 12 . 87                                 Official Journal of the European Communities                                      No L 394 / 21
and the Federal Republic of Germany, long-term contractual              targeted at the young embarking on their professional life, in
agreements have been signed providing for a flexible                    the public service or in non-profit-making voluntary
reduction of working hours with wage compensation,                      organizations . These direct employment measures now cover
arriving at 37 hours per week by 1990 and 1989 ,                        a considerable number of wage earners ( see box on growth
respectively. In France, a new law on the adaptation of                 and employment).
working time and night work for women in industry was
adopted in June 1987 increasing the possibility of a flexible
modulation of working time arrangements. In Belgium , an                Finally, several governments are endeavouring to improve
interprofessional agreement in the National Labour Council              the climate for personal initiatives by the unemployed. Those
on new working time arrangements in enterprises, with the               without work who become self-employed or wish to start up
exception of the distributive sector, was concluded in April            their own firm can not only count on State assistance in the
1986 . It was confirmed by a law in July 1987 .                         form of advice and training, but can also receive public aid
                                                                        enabling financial risks to be reduced (often in place of, and
                                                                        sometimes in association with , unemployment insurance
A series of measures aims , in particular, at fighting high             assistance).
unemployment as well as accompanying social measures to
structural adaptation in regions or industrial sectors (coal,
steel , shipyards) where the need for adjustment is particularly
great and important for the labour market. The object of
these measures is very often to improve qualifications or for
professional retraining of the persons concerned . The                  4.2 . Competitiveness, research and development, industry
Community contributes here through its social funds and                        and services
social expenditure from the ECSC budget. Another
important aspect is aid for employment creation , more
particularly in those areas where steel , coal and shipyards are        For more than a decade , a series of indicators have shown
concentrated . In this area , too , the Community contributes           that many branches of European industry have problems in
through the regional fund and its financial instruments.                holding their own against their competitors in the major
                                                                        developed economies . For example, in the period 1979 to
                                                                        1985 , the share ofCommunity exports of industrial products
In some countries the number of so-called 'atypcial'                    (excluding intra-Community trade) in the exports of OECD
employment contracts , notably with regard to part-time                 countries declined by around 1,4 percentage points and ,
work, fixed-term employment and agency work, has                        since 1963 , by about twice as much . In the period 1979 to
increased considerably in recent years , in particular with             1985 , the United States increased its market share by 0,7 of a
regard to new recruitment. This has often happened under                point while Japan actually increased its share by over five
the impact of changed laws and administrative provisions.               points ( see Table 31 ). If it is true that the loss of market share,
                                                                        now and in the next few years , is perfectly in line with the
                                                                        essential adjustment of trade balances at world level , it is
                                                                        nevertheless worrying that the fall in Community shares is
Some progress has also been made towards a more flexible                concentrated on industrial sectors in which demand is
adaptation of labour costs to changed market situations.                particularly dynamic (e.g. electrical and electronic products ,
Measures on profit sharing are envisaged or have been                   data processing, and office machinery: a loss of 2,5 points
introduced in Belgium, Denmark and the United Kingdom;                  from 1979 to 1985 ). In these sectors, the United States
and in Germany and France the capital-sharing schemes                   increased its market share by 1,2 points and Japan by over
already in existence have been extended.                                seven points . By contrast , the Community has gained market
                                                                        shares predominantly in the sectors where the expansion of
                                                                        demand is weak (e.g. a gain of 1,9 points for iron and steel ,
Measures aimed at better adaptability at the level of firms             textiles , and building materials)".
have been complemented by specific employment policies of
Member States . The emphasis has been placed in particular
on measures facilitating the re-employment of the long-term             A more detailed breakdown at industry branch level (see
unemployed ( 1 ). Continuing their efforts in the area of               Table 32) shows that, since 1979 , the Community has
training and professional qualifications, several Member                increased market shares primarily in the areas of wood
States are trying to improve the recruitment possibilities of           processing, food production and processing, textiles,
the long-term unemployed , through supplementary                        clothing and paper. The United States has also lost market
motivation programmes and assistance in job search as well              shares in most industrial sectors, but has made gains in
as by specific financial incentives (for example the temporary          important sectors such as office machinery and the electrical
waiving of social contributions in Belgium, France and                  industry. All branches of Japanese industry except the food
Ireland , assistance for recruitment in the Netherlands,                industry gained market shares from 1979 to 1985 .
temporary contribution to wages in the United Kingdom). In
other respects , the majority of Member States have created
possibilities for temporary employment , in particular                  With regard to the evolution of market shares, it is interesting
                                                                        that losses within the Community for European industry in
{ l ) For a more detailed description see the Memorandum on the         the years 1979 to 1985 were only about half as great as the
      fight against long-term unemployment (COM(87) 231 ).              losses on third country markets (see Graph 14 ) and that,
 ---pagebreak--- No L 394 / 22                              Official Journal of the European Communities                                  31 . 12 . 87
since 1963 , these shares have remained virtually unchanged .         compensate in this way only for the deterioration in cost
Internal trade has thus clearly had a stabilizing effect for the      competitiveness .
evolution of market shares in industrial products. Through
its beneficial effects on competitivity, the completion of the
internal market should , moreover, provide appreciable                It is all the more important to make the improvement of
additional support here .                                             competitiveness in terms of production and product
                                                                      technology a priority. The losses of third-country market
                                                                      share in important industrial sectors between 1979 and
                                                                      1985 , irrespective of the exchange rate movements, should
                                                                      give food for thought (Tables 31 and 32: electrical goods
An unfavourable structural development is also evident in the          - 10,5 points ; motor vehicles - 11,4 points; office
case of investment activity (see Table 33 ). In the years 1979        machinery - 6,3 points). In comparison, Japanese export
to 1982 , investment declined markedly in the sectors in              successes in the areas of electronics and motor vehicle
which demand was growing strongly but, with the general               construction show the importance of using advanced
recovery in investment activity since 1983 , the increase in          technologies in traditional industries . In this context it is
investment in these sectors , at least up to 1985 , has been          noteworthy, however, that important branches of European
above average . This indicates some catching up in relation to        industry (textiles, machine tools and also the car industry)
third country competitors . It probably also contributed to           have improved their position thanks to a rationalization in
the virtual halting of the decline of employment from 1 982 to        output as well as by innovation in products and production
1985 in sectors of production in which demand was heavy               methods .
( see Table 34 ).
                                                                      In order to improve technological competitiveness, the
                                                                      Community has made considerable efforts to promote
                                                                      industrial innovation by concentrating and strengthening
This development in market shares, investment activity and            research and development programmes in order to close the
employment should be considered alongside the evolution in            technological gap . The fact that cooperation between
the pattern of industrialized countries' exchange rates, in           European enterprises in the field of research is still
particular the dollar's rise during the first half of the 1980s       insufficient has without doubt been a disadvantage for
and its depreciation since May 1985 . However, these                  Europe until now; as a result, research efforts in the
changes in exchange rates are unlikely to have been decisive          Community have been unnecessarily fragmented , even
by themselves for the evolution of different components of            though research capacity and financial resources for research
market shares. For example , the loss in the Community's              purposes are in total comparable with those of the United
market share for goods in the heavy and medium demand                 States . Indeed, total research and development expenditure
sectors occurred during the period of the ECU's depreciation          at the Community level (research managed by the
between 1981 and 1984 ( see Table 31 ). The only increase             Community , Eureka , ESA, etc.) represents between 5 and
was in the area of goods for which demand is weak. For the            6 % of total public funding of research in the Community.
United States , the dollar's appreciation over the period 1981        With regard to the Community budget alone , expenditure on
to 1984 had virtually no effect in the heavy demand sectors ,         cooperation in research amounts to only some 2,8 % of the
but its effects are discernible for products in the medium and        total . A new era will be opened with the 1987 to 1991
weak demand sectors . This indicates that the influence of            framework programme for research adopted in July 1987 . In
technological and organizational factors is crucial , precisely       the field of modern technologies mention should be made of
in the sectors where the growth of demand is dynamic.                 the programmes Esprit (information technology), RACE
                                                                      (communication technology) and Brite (introduction of
                                                                      advanced technologies to traditional areas of production ),
                                                                      Euram ( advanced materials), and the biotechnology
                                                                      programmes .
With regard to the order of magnitude of developments since
1985 , the ECU has appreciated by some 50 % against the               Community research programmes are only one important
dollar if the average level for 1987 is compared with that for        link in an overall industrial strategy which covers the
1985 . In the same period, the nominal effective exchange rate        domestic and international aspects of technology . Thus ,
of the currencies of the Twelve (weighted average against the         research programmes aim at creating the necessary base for
currencies of nine major trading partners) has risen by 20 % .        proposals in the field of international standards as well as to
Since, for the Community as a whole , relative unit labour            encourage industrial cooperation downstream from
costs in national currency compared with major                        research . At the same time , cooperation between various
industrialized partners have hardly changed , competitiveness         European firms on research is also giving rise to increased
bears the full brunt of the appreciation of the effective             cooperation in other fields.
exchange rate: the Community's cost competitiveness has
thus deteriorated by some 20 % as a result of the ECU's
appreciation. This is another argument in favour of a
moderate development in costs in the Community , and                  In order to ensure that research has a tangible impact on
particularly labour costs . However, given the scale of the           competitivity and that it is circulated in scientific and
changes which have occurred , it will hardly be possible to           industrial circles , the Commission has just launched a
 ---pagebreak---                                               Official Journal of the European Communities                                 No L 394 / 23
31 . 12 . 87
Community programme for education and training in new                    encourage private capital flows, in particular by developing
technologies (Comett) which provides for various procedures              new Community instruments enabling the market to offer
on collaboration at the European level between educational               new forms of financing combining Community and private
establishments and firms .                                               capital. The resources raised in this way would primarily
                                                                         serve to finance projects of special interest for the
                                                                         Community .
The more competitive that Community industry becomes in
terms of costs and technology, the more room will be created
for expansion of employment, most notably in services.                   The quantitative effects of the proposed measures could be
There are important interactions between industry and                    considerable. With the strengthening of structural fund
services, and a vigorously growing services sector in harness            action and the parallel development of loan instruments, the
with a highly productive industrial sector represents the best           proportion of these resources at the end of the 1980s, in
prospect for employment growth in the Community. The                     certain less-favoured countries such as Greece , Ireland and
Commission has recently published a Green Paper on the                   Portugal , would stand at a little over 4 % of GDP (now
future economic and regulatory framework for                              slightly over 2 % ). For the desired effect on growth to occur,
telecommunications in Europe which considers the measures                 it is crucial for the additional financial margin created to be
necessary to create a true internal market for the advanced               used to expand investment activity .
communications services .
                                                                          In its reports 'The Single Act: A new frontier for Europe
                                                                          (COM(87) 100) and The financing of the Community
                                                                          budget' (COM(84) 101 ), the Commission has set out
 4.3 . Measures for improved economic and social                          guidelines for future budgetary policy. In its view, the
        cohesion                                                          extensive tasks which fall to the Community as a result of the
                                                                          Single European Act, especially the reform of the structural
                                                                           funds, require an increase in its budgetary room for
 In accordance with Article 130 A of the Single European Act,              manoeuvre. On the expenditure side, the following
 the Community should develop and pursue its action leading                elements are especially important for the future development
 to the strengthening of economic and social cohesion in order            of structural policy in the Community: the growth of the
 to promote its overall harmonious development. The                       European Agricultural Guidance and Guarantee Fund
 Community has, in particular, fixed as an objective a                    (EAGGF) Guarantee section should remain limited in the
 reduction in the gap between the various regions and the                 framework of budgetary discipline; its share in the total
 backwardness of the least-favoured regions . Through the use             budget falling from over 60 % currently to slightly over
                                                                          50 % in 1992 . This slowdown of Guarantee section
 of its structural funds , of its financial instruments and of the
 EIB's activities, the Community also has an important role to            expenditure will permit a doubling in real terms of
 play in support of the Member States themselves in leading               committed expenditure for the structural funds by 1992 .
 and coordinating their policies with a view to attaining the             Moreover, expenditure on research on the basis of proposals
 objectives of Article 130 A (cf. Chapter 3.3 ).
                                                                          for the 1987 / 1991 framework programme should rise to
                                                                          3 % of the budget against 2,5 % at present. On the income
                                                                          side, greater budgetary security would be achieved by the
                                                                          setting of an upper limit of 1 ,4 % of the Community's GNP
 With regard to the structural funds, the Commission set out              for own resources ; the Commission has suggested a
 from February policy guidelines for their future organization            complementary financial element which would take into
 with five objectives (COM(87) 100). Two of these relate to               account the financial capacity of the Member States. At the
 regional policy: achieving growth and adaptation in regional             same time, greater financial discipline should also contribute
 economies showing structural backwardness, and                           to improved financial management .
 restructuring declining industrial regions. Three of the
 objectives are more non-regional: combating long-term
 unemployment, the integration into employment of young
 people and speeding up the adjustment of agricultural                     The completion of the internal market will enable resources
 production structures. The Commission has also proposed                   to be better allocated and thus contribute to faster growth, at
  that the budget funds committed via the structural funds to              the same time as stimulating investment. The irreversible
  the achievement of these five objectives should be doubled in            nature of the project must, however, be rapidly apparent to
  real terms by 1992, concentrating their application as a                 economic agents so that they can prepare themselves for
  priority, in conjunction with the financial instruments, on              change and intervene on the basis of an accurate picture of
  the least-favoured regions. On the basis of these guidelines, it        future developments. This necessitates respect for the
  presented a proposal for a Council Regulation on 30 July                 timetable fixed in the White Paper and that delays in its
  1987 (COM(87 ) 376 ).                                                    application should be made upfor as rapidly as possible. The
                                                                           economic restructuring necessary should be facilitated by an
                                                                           increased adaptability of markets, especially in the labour
  Alongside the expansion of the structural funds, the                     market by intensified vocational training. A series of
  Commission will place special emphasis on the development                indicators shows that the structural adjustments in the
  ofnewfinancing instruments. The object of these efforts is to            Community are too slow by comparison with other
 ---pagebreak---  No L 394 / 24                              Official Journal of the European Communities                                  31 . 12 . 87
 industrialized countries; this essentially concerns the               limited number of objectives, as well as the development of
 Community's        industrial    competitiveness       in    the      financial instruments would enable the Community in the
 high-technology sectors. This is why it is particularly                Commission 's view to contribute more efficiently to
 important that the Community's aim of increasing its                  achieving the aim of greater economic and social cohesion
 technological competitivity is also rapidly realized within the       alongside the efforts undertaken by the Member States
framework of the European research and development                     themselves. In this context, the Commission lays importance
 policy, partly by utilizing the capacities of small and               on its proposals on financing the Community budget and
 medium-sized enterprises. The reinforcing of the                      strengthening budget discipline being adopted as soon as
 Community's structural funds, their concentration on a                possible.
                                     5 . MACROECONOMIC POLICY STANCES AND PROBLEMS
 The Community is faced with a difficult international                 adopted in 1987 for the expansion of lending to the private
 environment and must rely on its own resources. It has ,              sector. This is well below the rates recorded in the early
 nevertheless , major strengths: inflation rates lower and more        1980s, which were over 13 % . Although the targets have
 convergent than for almost 25 years, a relatively comfortable         sometimes appeared too ambitious in certain countries ,
external position overall , a marked improvement in the                actual monetary growth has indeed converged to a
 financial situation and profitability of firms, and structural        considerable extent .
changes which , although painful , were necessary. These
 strengths constitute a solid basis from which to implement a
monetary and fiscal policy mix aimed at strengthening
non-inflationary growth .
                                                                       The deceleration in monetary growth is now less marked.
                                                                       Most recent recorded outturns show rates of, as appropriate,
                                                                      money or credit expansion higher than the upper target limits
                                                                       adopted for 1987 (see Table 36 ). The liquidity ratio has
                                                                      increased in most Community countries . To date, these
                                                                      developments have not endangered the downward
5.1 . Monetary developments and policy                                convergence of inflation rates .
The rate of money supply growth has declined from the early
1980s: from an average of over 14 % during the 1970s , it is
now around 10 % . This slowing in monetary expansion has              The assessment of monetary policy stances on the basis of
backed up the disinflation process . The rate of inflation as         indicators of liquidity does involve some uncertainty: rapid
measured by the GDP deflator has been reduced from more               financial innovation , structural adjustment on money and
than 13 % in 1980 to about 4 % in 1987 (EUR 12). At the               capital markets and greater freedom of capital movements
same time, the rise in per capita wage costs has slowed down          can be accompanied by major changes in the relationship
appreciably (from more than 14 % in 1980 to about 5,5 % in            between monetary expansion and other variables ,
1987), thus making a major contribution to stabilization.             particularly GDP. It does seem , however, that the stance of
Consequently, the restrictive effects of policies of monetary         monetary policies to date has been consistent with the
stability have been largely attenuated. Thus there has been a         requirements of the cooperative strategy; however, greater
gradual acceleration in the real money supply, i.e. nominal           vigilance now seems necessary to prevent excess liquidity
money supply adjusted for inflation , an indicator of the             from building up in the Community, with the potential for
liquidity available to finance real growth . The rate of              sooner or later refuelling inflation .
increase is now about 5 % ,' significantly above that of
output .
                                                                      Over the past twelve months , domestic monetary policies in
The convergence of monetary policies has continued to                 Europe have been strongly influenced by events on the
improve appreciably, in particular within the EMS ,                   foreign exchange markets . The appreciation of the European
evidenced by the convergence of targets for money and credit          currencies against the dollar obviously made it easier to bring
expansion adopted in the different member countries: the              inflation down but, at the same time , the monetary
growth target range for central bank money in Germany was             authorities had to keep their own currencies from
brought down from 4 to 7 % in 1981 to 3 to 6 % in 1987; the           appreciating too quickly, to prevent too great a loss of
target for M2 in France was brought down from 9 % in 1983             competitiveness and to limit the resulting damaging
to a range of 4 to 6 % in 1987 . In Italy a target of 7 % was         medium-term structural effects. Until the end of 1986 , the
 ---pagebreak--- 31 . 12 . 87                               Official Journal of the European Communities                                    No L 394 / 25
depreciation of the dollar was accompanied by a reduction in          their part, can contribute to a decline in long-term rates by
nominal interest rates in the United States and Europe, and           convincing economic operators, through their policy, that
by a narrowing of interest-rate differentials between the two         they are pursuing the objective of monetary stability in the
regions ( s^ee Graph 16 ).                                            medium-term,          thus   durably     stabilizing  inflationary
                                                                      expectations at a low level. This means that it is still
                                                                      important in the countries concerned to set and to pursue
                                                                      quantitative targets for monetary growth and credit
Since February 1987 , exchange rates have stabilized .                expansion. Moreover, possible tensions in the EMS as the
Following the Louvre Agreement , flexible interest-rate               liberalization of capital movements gathers momentum will
adjustments — leading in particular in 1987 to a wider                be more easily and rapidly dealt with as the monetary
differential between United States and German rates — and             authorities are firmly and durably committed to a policy
substantial intervention on foreign exchange markets have             geared towards stability. In particular, more flexible
led to credible stabilization of short-term foreign exchange          adjustments of short-term rates might become necessary, but
expectations despite persistent international balance­                they should not, in such conditions, have major
of-payments disequilibria .                                           repercussions on long-term rates and bank base rates.
In the framework of the EMS exchange rate mechanism , the
authorities in most countries have given more consideration
to economic developments in their partner countries when              5.2 . The liberalization of capital movements and the
conducting monetary policies. Short-term interest rates have                    strengthening of the EMS
been more frequently used to supplement intra-marginal
intervention to stabilize bilateral parities between currencies
participating in the EMS exchange mechanism . For example ,           The aim of free capital movement is part of a wider approach
since the end of 1986 , German short-term rates declined by           aimed at the completion of the internal market while
nearly one point up to the summer of 1987 while French                maintaining the economic and monetary cohesion of the
short-term rates declined only moderately. Central banks are          Community. Substantial progress has been made over the
now tending to take better account of external requirements           past year towards freeing capital movements in the
when pursuing their domestic monetary targets , at least as           Community.
long as the aim of domestic stabilization is not
compromised .
                                                                      On 17 November 1986 , the Council adopted a new Directive
                                                                      extending compuslory liberalization in the Community to
                                                                      three further categories of capital movements I 1 ). The
Despite the decline in short-term interest rates up to                Directive took effect on 1 March 1987 , although Spain and
mid- 1987 and in inflation rates , long-term interest rates           Portugal have a longer period in which to comply (to the end
remain relatively high and in recent months have increased in         of 1990 and to the end of 1992 , respectively).
certain countries . In September 1987 in the EMS countries
they were a little above those in October 1986 , while average
short-term rates in the same countries had on the whole               Liberalization measures taken in several Member States —
declined . Moreover, the gap between the long-term interest           Denmark, France , Italy and Spain — already go beyond the
rate and the present rate of inflation is still very wide. The         strict obligations imposed by the current Directive or the Act
rapid decline in inflation over the past few years has not yet        of Accession . Capital movements are entirely free in
been fully absorbed in all countries into expected inflation          Germany, the Netherlands and the United Kingdom , and,
rates , so that the expected gap over a longer period between          subject to the application of the tow-tier exchange market, in
the nominal interest rate and the inflation rate , a determining       Belgium and Luxembourg. Apart from the new members,
factor in investment , is probably smaller than the gap                only two Member States — Greece and Ireland — maintain
measured on the basis of current observation . Nevertheless,
                                                                      restrictions , by virtue of the safeguard clause in Article
despite a major rise in the return on fixed capital , further rises    108 ( 3 ) of the Treaty, on certain capital movements that are
in long-term interest rates could act as a disincentive to             normally free.
productive investment , as well as considerably hampering
efforts to restore healthy public finances in countries with a
high level of public debt ( see box).                                  These developments encourage the Commission to pursue to
                                                                       completion the initiative launched in May 1986 towards the
                                                                       complete liberalization of capital movements in the
A decline in long-term rates appears desirable . However, the          Community by 1992. A new proposal for a Directive to this
recent development of both long-term and short-term rates              end , also taking account of the specific situation in certain
confirms that the monetary authorities are limited in their            Member States and providing the possibility for dealing with
ability to influence long-term rates. Further declines in              grave disturbances on the money markets when necessary,
short-term rates , which would be accompanied by excessive             will shortly be presented to the Council .
expansion of liquidity, could even lead to higher long-term
rates if they again raised inflationary expectations. Alongside        ( J ) Long-term commercial credits, acquisition of securities not
domestic factors , long-term rates also reflect tensions on                  traded on a stock exchange, and the admission of securities on
international capital markets. The monetary authorities, for                 the capital markets .
 ---pagebreak--- No L 394 / 26                             Official journal of the European Communities                                      31 . 12 . 87
This Commission proposal will be accompanied by two                  special needs of managing the EMS , but complementary in
other proposals , permitting recourse to balance-of-payments         their use with those adopted at international level .
support facilities to back up a programme of capital
liberalization .
                                                                     The greater mobility of capital requires rapid reaction to
                                                                     tensions in the System. While it will still be based on a broad
                                                                     consensus as to the stance of monetary policy , cooperation
Lifting exchange controls is a necessary but not sufficient          will now focus more on the problems of the short-term
condition for the introduction of an integrated financial
                                                                     management of exchange rates , and in particular the more
system . Such a system also implies effective freedom of             flexible use of authorized fluctuation margins , the
movement for financial services within the framework of
                                                                     coordinated management of interest rate differentials and the
sufficiently harmonized rules to guarantee the protection of         improvement of practices and conditions for intervention at ,
savings, ensure fair competition between financial                   or within , the margins .
intermediaries and avoid the risk of excessively strong
distortions in the channelling of capital flows . The adoption
and implementation of the proposals in the White Paper on
completing the internal market, although not a prior                 Here , too , a reinforced monitoring procedure has been
condition for liberalizing capital movements , should make it
                                                                     established to improve the early detection of tensions which
possible , as far as careful supervision is concerned , to           may occur within the System and to agree on how to deal
establish such a framework, adjusted to the new                      with them .
international financial environment . In the Commission's
view, it is also important on the tax side to approximate
company tax arrangements and to establish closer
cooperation between the relevant authorities to combat tax           This pragmatic approach is accompanied by some
evasion .
                                                                     appropriate changes in the mechanisms of the EMS : in the
                                                                     case of very short-term financing these are an extension of its
                                                                     maximum duration from two-and-a-half to three-and-a-half
                                                                     months , the doubling of the amount eligible for automatic
The removal of all exchange controls between Community               renewal and the changing of the 'defacto ' acceptance limit on
currencies , and the further integration of money and capital        official ECU from 50 % to 100 % . Lastly , it has been agreed
markets , are major steps towards monetary unification , but         that there will be a presumption that very short-term
they do mean extra constraints on the conduct of the                 financing will be available , on certain conditions , for
monetary policies of the Member States , which must not be           intra-marginal interventions .
allowed to affect the stability of exchange rates, another
necessary condition for the completion and viability of the
internal market .
It is thus indispensable to continue along the road of               5.3 . Budgetary developments and policies
cooperation and convergence in economic and monetary
policies , and to reinforce the mechanisms involved in the
management and functioning of the EMS . On 12 January
1987 , the Community's Ministers for Finance asked, the              The general government deficit for the Community as a
Monetary Committee and the Committee of Governors to                 whole is continuing on the declining trend that began in
examine the practical means of achieving this . The two              1982 : it is expected to stand at 4,5 % of GDP in 1987
Committees ,     which    benefited   in   their   work   from
                                                                     compared with 4,8 % in 1986 and around 5,5 % in 1982 .
Commission proposals , have produced a number of                     However, the reduction for 1987 is smaller than envisaged in
proposals for improving the monitoring of economic and               the last Annual Economic Report ( 1986 / 87 ), mainly because
financial developments within the Community. The                     of the effect of the unexpected slowdown of growth in 1987
Committee of Governors has also agreed on a number of                on tax and social contributions and on certain expenditure
operational changes to the EMS . All these proposals were            items . Moreover, the ratio of public debt to GDP is
unanimously endorsed by the Ministers for Economic and               continuing to increase on average in the Community ,
Financial Affairs at an informal Council meeting held at             although rather more slowly than in the early 1980s ( see
Nyborg on 12 September 1987 .                                        Table 38 ). The total burden of taxation (direct and indirect
                                                                     taxes and' social security contributions ), after tending to rise
                                                                     in the 1960s and 1970s , has remained at practically the same
                                                                     level since the early 1980s . It has nevertheless fallen in several
In order to improve the coherence and the compatibility of           Member States . In other respects , current expenditure is
various economic policy measures implemented by the                  expected to continue increasing on average in the
Member States and the results thereof, the medium-term               Community at a moderate rate , while its share in GDP
monitoring procedure has been strengthened . This exercise is        declines significantly, and the share of public investment
based on a set of macroeconomic indicators defined for the           remains practically constant .
 ---pagebreak--- 31 . 12 . 87                                Official Journal of the European Communities                                 No L 394 / 27
In the framework of the Community cooperative strategy,                which should be reflected in an improvement in budget
budgetary choices should contribute to reinforcing                     balances excluding interest from 1985 to 1988 equivalent to
productive potential while achieving or maintaining a trend            two to four percentage points of GDP. At present, however,
of public debt that is sustainable in the medium term .                these efforts are particularly painful because of low growth
Medium-term action for this purpose should be based on a               and fairly high real interest rates .
gradual reduction in the tax burden and a special effort in the
area of profitable public investment ( see Chapter 3.2). Such
measures improve supply side conditions as well as
strengthening demand. Budgetary policy is increasingly
important at present, both because of the international mix
of economic policies required to reduce balance-of-paymeints
disequilibria and because of the limitations on the role of            In the second group of countries, Denmark , Germany,
monetary policy in actively supporting growth ( see Chapter            France, the United Kingdom and Luxembourg, the
5.1 ). It is a question of continuing to create conditions             budgetary situation is easier; the ratio of public debt to GDP
favourable to faster growth which is durable; it cannot                is increasing at a much slower rate, or even declining, from a
simply be a matter of generating higher domestic absorption            level already lower than elsewhere. In 1987 , the general
in the short-term, with a consequent rapid reduction in the            government budget balance as a percentage of GDP is
current surplus, and no lasting effects on employment.                 between - 2,8% (France) and + 1,9% (Denmark) and
                                                                        + 2,8 % (Luxembourg). Some of these countries , especially
                                                                       France and Germany, are using their scope for manoeuvre to
                                                                       support domestic growth in 1987 and 1988 .
In many countries , budgetary stances emerging for 1988 are
already in line with the cooperative strategy. For example ,
tax reductions are expected in Germany, France, the United
Kingdom, Spain as well as in Belgium and in the Netherlands.
Public investment is also beginning to recover in countries
such as Germany, France and Denmark. In other countries ,
however , tight budget policies have meant a further                   Their budgetary balances are in addition affected by the
substantial decline in the share of public investment in GDP           slowdown of growth , as in the case of Denmark, as receipts
(see Table 40 ).                                                       are depressed and 'crisis' expenditure increases . This has
                                                                       already led in 1987 to an increase in the general government
                                                                       deficit in Germany. In Denmark, despite restrictive fiscal
                                                                       measures aimed at redressing the external imbalance, the
                                                                       budgetary surplus will decline in 1987 and 1988 . In France,
At national level , there are two main macroeconomic                   on the government's plans , the general government deficit
                                                                       will decline between 1986 and 1988 (from 3,0 % to 2,3 % of
constraints on the conduct of public finance policies: the
budget constraint in the strict sense and the external                 GDP). To the extent that none of these countries can any
constraint. The importance of these constraints varies                 longer rely on a faster expansion in its partners, it only has , in
appreciably from one country to another.                               isolation , very limited extra margins of manoeuvre, where
                                                                       these exist at all . In the United Kingdom, growth is currently
                                                                       above the underlying trend of 3 % experienced since 1981
                                                                       while inflation has accelerated moderately, partly as a result
                                                                       of higher oil prices. In 1987 growth has been assisted by
Simply from the point of view of public deficits and public            stronger supply side performance and by the fall in the
debt, present positions vary widely. However, emerging                 effective exchange rate of the pound sterling. Wage growth is
stances are increasingly convergent. In outline , two groups of        strongly supporting private consumption . However, given
countries can be distinguished. In thefirst group, the general         productivity performance , the rate of profitability remains
                                                                       close to its 1986 level . In these circumstances the government
government deficit is over 5 % of GDP and in some cases
close to 1 0 % . The ratio of public debt to GDP is already very       has continued reducing the budget deficit, which looks set to
high , and still expanding rapidly at a rate of between 3 % and        undershoot the level forecast in the budget for the third year
                                                                       in succession .
8 % a year. This ratio is particularly high in Belgium, Ireland
and Italy, where it is close to or even beyond 100 % of GDP.
It is lower in Greece and Portugal ( 60 to 70 % ), but the
budget deficit is still close to 10 % of GDP , and in both
countries the need for greater recourse to non-monetary
financing of the deficit, so as to complete the disinflation
process , might further accelerate the expansion of the public
debt, which makes it all the more necessary and urgent to              The differences in budgetary trends between these two
restore a basically healthy public finance situation. In Spain         groups of countries carry serious risks. They complicate the
and the Netherlands, the level of both the public deficit and          task of the authorities to free the Community more quickly
the public debt represent significant constraints but less so          from the slow growth which seems to entrap it in the medium
than in the other countries of the group . The seven countries         term. First, in the countries where public debt is rising too
of this first group , to differing degrees , are making                quickly, even more restrictive efforts to improve public
considerable efforts to restore a healthy budgetary situation,         finances may need to be made, in order to compensate for the
 ---pagebreak--- No L 394 / 28                               Official Journal of the European Communities                                      31 . 12 . 87
effects on tax receipts of growth lacking impetus from net             budgetary imbalances rapidly arising , without lasting effects
exports . This prejudices these countries' growth and has              on growth . Account should also be taken of the inherent
negative repercussions on that of their partners, whose room           inflationary risk from such measures . These measures
for manoeuvre is affected in turn . The convergence process            should , therefore, be part of an economic policy mix oriented
and that of improving public finance is thus markedly                  strongly and consistently to price stability.
slowed , which also complicates the task of the monetary
authorities , especially in the EMS , and slows the convergent
fall in real interest rates . Consequently , some countries with
currently above Community-average growth , particularly
Spain , Italy and Portugal risk being forced (or have already
been forced) to give a more restrictive orientation to their           If one takes account of particular economic circumstances ,
policies in order to safeguard their external accounts . This          the contribution of each of these countries to a cooperative
harms intra-Community trade , which is currently an                    solution in the event of growth weakening further would be
important factor in economic development in the immediate              fairly differentiated . For example , in Denmark and France,
term . These countries would thus be unable to draw all the
                                                                       the external situation makes it necessary to varying degrees to
benefits from the internal adjustment efforts which they have          maintain a negative growth differential with their main trade
already made , and should pursue . They would thus no longer           partners while further reinforcing productive potential . In
contribute , as at present, to sustaining demand in the                Denmark, the persistence of a very high current external
Community .                                                            deficit is still a constraining factor in the conduct of economic
                                                                       policy. In France, tax reductions already planned for 1988
                                                                       should now be contributing to reinforcing domestic growth
                                                                       within limits compatible with the external constraint.
                                                                       However , these countries could remain prepared to review
There is a risk that these unfavourable trends could become            the stance of their budgetary policies in the framework of
more acute in the case of a further weakening of world trade           international cooperation to reinforce their domestic growth
or an additional decline of the dollar, which would instigate a        as soon as their efforts to improve the competitiveness of
new slowdown of growth in the Community. In such                       their economies and the policies implemented by their
circumstances , as has already been envisaged in the                   Community partners lead to favourable effects on their
conclusions of the July 1987 Economic and Financial                    external accounts . In Germany, tax reductions planned for
Council , it will be a question of being ready to use positively       1988 will indeed , as is desirable, contribute to the required
the interdependence which exists between Community                     change-over to domestic sources of growth . They involve
economies , within the framework of a joint effort (cf.                some deterioration in the budget deficit , already affected by
Chapter 3.3 ). Such an effort would contribute to the                  slower growth . For the moment , supplementary fiscal
realization of the internal objectives of the Community and            measures appear difficult if Germany acts alone . However, in
to the correction of the international payments imbalances at          view of the improvement in productive potential already
a satisfactory level of world growth .                                 achieved , this country could take full advantage of joint
                                                                       action by the Community partners , which would gradually
                                                                       widen the margin for manoeuvre and might make it possible
                                                                       to speed up the programme of tax reductions planned for the
                                                                       years after 1988 . In the United Kingdom, there is a greater
                                                                       risk of inflation . More moderate growth of nominal wages
If such an effort is to have lasting favourable effects , it must      would reduce this and also improve the economy's
respect the main macroeconomic equilibria in each of the               competitivity, thus creating more favourable conditions for
Member States , in particular the achievement or                       investment and employment . The objective of stabilizing the
maintenance of budget and external deficit positions                   sterling exchange rate announced by the authorities after the
sustainable in the medium term . The type and timing of                Louvre accord could also help to contain inflation . This
possible measures should also take account of the economic             country could , however, contribute usefully to a greater
situation of each country .                                            dynamism in the Community if it can continue to sustain its
                                                                       still relatively high real growth rate while preserving
                                                                       monetary stability .
Some of the countries whose budgetary situation is easier ,
and which together account for close to 70 % of the
Community's GDP , could currently — from the budgetary
aspect — actively support growth .                                     The other countries , whose budgetary situation remains
                                                                       fragile, should rely essentially on the benefits arising to them
                                                                       from faster growth in their partner countries , in order to
                                                                       attain their objectives of budgetary improvement at a higher
                                                                       level of growth . In this other group of countries , situations
If this support were an element of a cooperative solution , this       also differ considerably. In Belgium and the Netherlands,
would allow offsets against the budgetary or external balance          growth is still low . Both countries have an external surplus ,
effects . Action taken in isolation by one or other of these           and both economies have particularly close relations with
countries would run the risk of unsustainable external or              their Community partners . They thus benefit to the full from
 ---pagebreak--- 31 . 12 . 87                                Official Journal of the European Communities                                 No L 394 / 29
a more dynamic Community context. These two countries                  investment, constraints are tightened as a consequence of the
could use the margin made available by stronger growth in              slowdown in growth. This only confirms the necessity of
their Community partners to reinforce the domestic                     fully taking into account the Community dimension of
components of demand, while maintaining their aims for the             national economic policy choices .
gradual reduction of the budget deficit, or to accelerate the
budgetary consolidation process. In Spain, Italy and
Portugal, growth is likely to remain higher than average for
the Community, although slightly lower than in 1987, and               The deceleration in monetary growth continues but at a less
the three countries are making a major contribution to the             pronounced pace than previously. The even more
relatively sustained expansion of intra-Community trade. A             pronounced deceleration of prices and costs creates a
higher growth rate in the Community partners would help                satisfactory margin for real growth. A certain vigilance is,
these three countries to maintain or even increase their
                                                                       however, now necessary to avoid a build-up in the economy
present rate of growth while preserving a sustainable external         of excess liquidity. Following the Louvre accord the dollar's
position and reducing their budget deficits as planned, or             exchange rate has been more stable. Within the EMS, more
perhaps even slightly more rapidly. Lastly, in Greece and              flexible management of money market rates has contributed
Ireland, the process of budgetary consolidation is                     more effectively than in the past to stabilizing bilateral
accompanied by very slow growth . Greece is, in addition,              parities. The pursuit of monetary policies oriented in a
still facing an excessive external deficit. In both countries, the     credible and durable manner towards stability are
priority task is to restore a healthy public finance                   contributing tofurtherfalls in long-term interest rates, which
position .                                                              remain high despite the fall in short-term rates and in
                                                                        inflation. Within the EMS, such policies would enable an
                                                                       easier surmounting ofthe tensions which could arisefrom the
                                                                       already accelerated liberalization of capital movements. The
                                                                       progress made in September 1987 at the Economic and
Even if such a cooperative solution may appear difficult to            Financial Council's meeting at Nyborg should also
implement, its consideration may be appropriate at the                  contribute to this. With monetary policy no longer being able
present time in view particularly of the uncertainties                  to support growth actively without certain risks, and the
weighing on the world economy. If growth were to slow                   need for an improvement in the international economic
down further, action varied to suit each country's                      policy mix, the role of budgetary policy becomes more
 circumstances , and well timed , could lead to an average              prominent. On average for the Community, the budget
 budget deficit for the Community somewhat higher than in               deficit is still declining somewhat. The budget outlook for
                                                                        1988 is that this is consistent with the direction of the
 present forecasts (4,5 % of GDP in 1988 ). In a situation
where markets are considerably more adaptable , and                     cooperative strategy and will contribute to improving
 productive capital considerably more profitable, the yield of          supply-side conditions while giving some support to demand.
 such action in terms of growth , an acceleration of investment         Ifcarried out as part ofan economic policy durably aimed at
 and thus tax revenue can be expected to be much higher than            preserving price stability, faster reductions in taxes and
 it would have been in the late 1970s or early 1980s . The              additional public investment, compatible with a public debt
 returns on such a budgetary stimulus would be all the greater,         position sustainable into the medium term, would contribute
 the larger the number of countries participating, so that the           to further reinforcing the determinants of growth. The
 initial boost would be more rapidly covered in each country             implementation of budgetary policies enabling growth to be
 by extra tax revenue. The durable reinforcement of growth in            better supported, however, is often confronted at "the
 the Community that might result would contribute to the                 national level with external or budgetary equilibrium
                                                                         constraints.    These constraints could be eased in the
 main domestic objective , i . e . a reduction of unemployment,
 and at the same time would facilitate solving the problem of           framework of common and well-timed effort which would
 international balance of payments disequilibria .                       take account of the existing interdependence between the
                                                                         Member States. In the case of a new slowdown in growth,
                                                                         some of the Community countries with an easier budgetary
                                                                         situation couldjoin in such an effort to varying degrees, while
                                                                         the other countries took advantage of such faster growth in
                                                                         their partners to realize their aims of consolidating their
 The country chapters in the second part of this Report, which           public finances, if appropriate, at a higher level of growth.
 underpin its economic policy recommendations, allow the                 Such an effort would allow afaster convergence of budgetary
 constraints which each country faces in isolation to the                positions and reduce the risk of some countries being forced
 gauged. Whether these concern the level of the external                 to slow their own growth rates because of tighter budgetary
 balance or what is necessary to restore healthy public                  and/or external constraints, which would have negative
 finances , to implement tax reductions or to raise public               repercussions on their partners.
 ---pagebreak--- No L 394 / 30                                Official Journal of the European Communities                                          31 . 12 . 87
             Growth and employment
             In the years 1986 / 1983 the annual growth rate of real gross domestic product in the Community was
             only half as great as in the period 1973 / 1960 , but that of employment almost doubled . In the
              1991 / 1986 medium-term projections this — in labour market terms — favourable relationship
             between growth and employment is expected to continue ( see Table 1 ).
                                                                     TABLE 1
                                                  Growth and employment in the Community
                                                                             Average annual change ( % )
                                               1973 / 1960        1979 / 1973       1983 / 1979        1986 / 1983 1991 / 1986 (>)
             Real GDP                               4,8              2,4                 0,8              2,4           2,6
             Employment                             0,3              0,1               - 0,6              0,5           0,6
             (*) Projection.
             Source: Commission services .
             This means that in the Community, the growth threshold , above which an increase in employment is
             to be expected, is now substantially lower than it was in the 1960s. According to estimates by the
             services of the Commission , in the 1960s this threshold was reached when real GDP grew by 4,2 % , in
             the period 1979 / 1973 when it grew by 2,1% , and in the period 1987 / 1979 when it grew by
             1,7% .
                                                                     GRAPH
                                                            Employment thresholds
            (') Employment increases when this annual increase in real GDP is exceeded .
            Source: Estimates by the services of the Commission .
            The greater job content of growth in recent years is not a new phenomenon , but continues a trend
            which has been apparent since the first oil crisis in 1973 . There is , however , reason to believe that this
            trend has become somewhat stronger in the 1980s and that the factors causing it differ.
            The following factors in particular should be considered as helping to increase the job content of
            growth :
            ( a ) The reduction of average working time per person employed , which means that the input of
                  labour can be shared between more people. A fall in average working time per person employed
                  can be achieved by reducing weekly working time and lengthening annual holidays for full-time
                  workers , and for an increasing proportion of part-time workers .
 ---pagebreak--- 31 . 12 . 87                              Official Journal of the European Communities                                 No L 394 / 31
             (b) The structural shift towards the service sector. According to the three-sector theory, as the
                   prosperity of an economy increases, a growing proportion of the national income is spent on
                   services. Since the service sector is generally more labour-intensive than goods production, this
                   increases the employment-creating effect of growth as a whole.
             (c) The slowdown of the substitution by the factor capital for the factor labour. In other words, the
                   increase in the national product is produced with a relatively larger input of labour and a
                   relatively smaller input of capital. The increase in capital intensity is declining. The slower
                   substitution of capital for labour curbs the rise in the average productivity of labour in the
                   economy as a whole. Growth becomes more employment-creating .
             These three factors are not independent of one another, but they all overlap . It is therefore not possible
             to measure the influence of each of the factors accurately. Nor do the said three factors entirely explain
             the greater job content of growth .
             Taking the long-term average, working time per person employed fell by just under 1 % a year in the
             four large industrialized countries of the Community (EUR 4) (see Table 2). In the 1960s and 1970s
             reductions of working time permitted no more than slight increases in employment (0,1 % and 0,2 % a
             year, respectively); in the period 1985 / 1980 they still weakened the decline in employment. Unlike
             the 1960s and 1970s, when the shorter working week time and longer holidays were clearly to the
             fore, in recent years it is the spread of part-time working in the Community which has substantially
             contributed to the greater effect on employment of growth. Table 3 shows the extent to which the
             growth of employment in recent years is attributable to increasing part-time work. In the period
              1985 / 1983 it was based exclusively on the increase in part-time jobs; the number of full-time workers
             actually fell slightly. The figures show clearly that the effect on employment of shorter working time
             (per person employed) depends not only on the size of the average reduction, but also , and more
             importantly, on whether the reduction of average working time is due to the increase in part-time
             work or to the reduction of the working time of full-time workers .
             Even if the increase in part-time jobs is concentrated on the service sector (the proportion of part-time
             workers in total employment has risen from 16,1 % in 1983 to 17,3 % in 1985 ), a slight increase in
             this proportion can also be seen in industry (from 5,1 % in 1983 to 5,7% in 1985 ). Male part-time
             working is also increasing slightly (3,4 % of all male workers in 1985 compared with 2,8 % in 1983 ),
              although part-time work is still predominantly a female preserve (28,7% of all female workers in
              1985 compared with 24,4% in 1983 ).
              As a provisional result it must still be remembered that the spread of part-time work goes a long way
              towards explaining the higher job content of growth . To the extent that part-time work is desired by
              those concerned and does not represent a form of involuntary underemployment, there is nothing to
              be said against this trend, especially if part-time work is covered by collective agreements and does
              not carry with it greater disadvantages in terms of social security cover or promotion opportunities.
              However, the fact remains that part-time workers are frequently recruited from the 'latent reserve'
              (e.g. housewives) and therefore do not reproduce a corresponding fall in the number of the registered
              unemployed .
              The structural shift towards the service sector is continuing. Since I960 a steadily increasing
              proportion of total employment and gross domestic product has been attributable to the service sector
              (see Table 4). In recent years this trend has grown even stronger. Until 1973 the real gross value added
              to the service sector grew in proportion to the growth of the economy as a whole; since then it has been
              growing more than proportionately. The high effect of growth on employment in the service sector has
              increased in the last few years (see Table 4). An annual average increase in real gross value added in the
              service sector of just under 3% in both 1984 and 1985 was accompanied by an increase in
              employment of approximately 2 % in each of those years. In the period 1979 / 1973 , a 3,2 % annual
              average increase in real gross value added in the service sector was associated with a 1 ,7 % annual
              average increase in employment. Much of the increased effect on employment probably stems from
              the greater use of part-time workers .
 ---pagebreak--- No L 394 / 32                           Official Journal of the European Communities                                    31 . 12 . 87
             The long-term trend in the Community towards higher capital intensity and the relative substitution of
             labour has slowed down in the Community since the first oil crisis in 1973 . This can be measured by
             the contribution of the factor substitution of capitalfor labour to the increase in the productivity of
             labour per man-hour (see Table 5 ). Over the period 1973 / 1960 in the private sector (i.e. total
             economy excluding agriculture, housing and the public sector) it averaged 1,8% a year compared
             with only 1,3% for the period 1986 / 1979 (for EUR 4). The decline was particularly striking in
             Germany and Italy . Moderate real wage increases in the member countries and the plentiful supply on
             the labour market were probably contributory factors. The pressure to rationalize has eased . The
             number of profitable jobs has increased. This stimulated the increase in employment in
             labour-intensive areas (such as the service sector). A continuing tendency for factor substitution to
             slow down can probably be expected from the moves which have now started to dissociate company
             hours from individuals' working time. It is important in the future to conserve these effects , which give
             growth a greater job content, and also to extend them . At the same time, the declining growth rates for
             labour productivity per man-hour and for capital productivity ( see Table 5 ) indicate that the efficiency
             of the economic process has declined . Economic growth today requires a relatively greater input of the
             two factors , labour and capital , than it did before . For strong and employment-creating growth , a
             more than proportionate increase in investment is therefore also necessary.
             State employment measures have admittedly somewhat strengthened the trend to employment-
             creation in recent years. In 1985 and 1986 , well over one million workers were employed in such
             programmes in the Community , but this employment effect was partly offset by the significantly
             slower rise in the number of public service employees (increase averaging 1 ,0 % a year over the period
             1985 / 1979 , compared with 2,3 % for 1979 / 1973 ). In most member countries the tendency is how to
             make only slight increases in the present number of persons employed in such programmes , mainly
             because of budgetary constraints . So , although such specific measures of labour market policy can be
             expected to have a stabilizing effect on employment, they cannot be expected to increase the job
             content of growth any further.
             Summary: The threshold above which the growth of the economy as a whole leads to an increase in
             employment has fallen from real national product growth of over 4 % a year in the period before 1973
             to under 2% in the 1980s. This increased effect on employment can be explained by reductions in
             average working time per person employed , with part-time work becoming increasingly important,
             and by the slower factor substitution of capital for labour which curbs the rise in labour productivity
             per man-hour . In addition, there is the more than proportionate expansion of the service sector which
             is particularly employment intensive. These effects cannot be added together easily, since they are
             interrelated , but probably account for most of the increased job content of growth .
                                                               TABLE 2
                        Total labour input, average working time per person employed, and total employment
                                                 (annual average percentage change)
                                                   1970 / 1960   1980 / 1970   1985 / 1980  1983 / 1980     1985 / 1983
             Federal Republic of Germany :
            — Total labour input                     - 0,8         - 1,2         - 1,2         - 1,6          - 0,4
            — Working time                           - 1,0         - 1,1         - 0,5           0,3          - 0,8
             — Total employment                         0,2        - 0,1         - 0,6         - 1,3             0,4
            France :
            — Total labour input                        0          - 0,4         - 2,0         - 3,1          - 1,3
            — Working time                           - 0,6         - 0,9         - 1,6         - 2,1          - 0,7
            — Total employment                          0,6           0,5        - 0,4         - 1,0          - 0,6
            Italy :
            — Total labour input                     - 1,1         - 0,7            0          - 0,2             0,3
            — Working time                           - 0,6         - 1,2         - 0,6         - 0,5          - 0,8
            — Total employment                       - 0,5            0,5           0,6          0,3             1,1
 ---pagebreak--- 31 . 12. 87                                  Official Journal of the European Communities                                                       No L 394 / 33
                                                         1970 / 1960       1980 / 1970         1985 / 1980        1983 / 1980     1985 / 1983
            United Kingdom :
            — Total labout input                            - 0,9             - 0,7              - 1,1               - 3,1             2,2
            — Working time                                  - 1,1             - 0,9              - 0,5               - 1,0             0,4
            — Total employment                                0,2               0,2               - 0,7                2,1             1,7
            EUR 4 :                                   ||                                   \
            — Total labour input                            - 0,7             - 0,8               - 1,1              - 1,8             0,2
            — Working time                                  - 0,8             - 1,0               - 0,8              - 0,9           - 0,5
            — Total employment                                0,1               0,2               - 0,3              - 0,8             0,7
            Source: Eurostat , OECD Employment Outlook 1987 .
                                                                      TABLE 3
                                            Percentage change in employment, 1983 to 1985 ( % )
                                           B       DK        D       GR         F        IRL         I         L       NL      UK     EUR 10
            Total                         0,8      5,6      0,8      1,3      - 1,2     - 4,3      0,9        0,6      3,3     3,3        1,1
            Contribution I 1 ) to the change in total employment:
            Full-time workers             0        4,0      0,4         1,4    - 2,5     - 4,2      0,2        0         1,1     0,9      - 0,1
            Part-time workers             0,8      1,6      0,4      - 0,1       1,3     - 0,1       0,7       0,6       2,2     2,4        1,2
            (') With regards to the breakdown into full- and part-time workers, undertaken in accordance with the results of the Labour
                Market Sample Survey, it should be borne in mind that this survey is carried out in only one week of the year — in the spring —
                and therefore may not be fully representative of the annual average.
            Source: Eurostat, Labour Market Sample Survey, 1983 , 1985 .
                                                                       TABLE 4
              Employment and growth in the economy as a whole and in the service sector in the Community (EUR 12)
                                                                  1968 /     1973 /       1979 /       1985 /
                                                                                                                   1983       1984       1985
                                                                   1960       1968         1973         1979
            Total employment (% p. a. )                             0,1        0,5           0,1        - j)>3      - 0,5     - 0,1        0,6
            Real gross domestic product (% p. a. )                  4,6        4,9           2,4          t'2
                                                                                                           i
                                                                                                                      1,4       2,3       2,4
            Employment in the service sector
            (% p.a.)                                                1,7        1,9           1,7          1,5         1,2       1,9       2,2
            Real gross value added in the service sector
            (% p.a.)                                                4,5        5,0           3,2          2,1         2,0       2,8        2,9
                                                                   1960       1968         1973         1979       1983       1984       1985
            Employment in the service sector as a
            proportion of total employment (%)                    39,1        44,2        47,3           51,8       55,7       56,8      57,6
            Gross value added in the service sector as a
            proportion of gross domestic product (%)              48,1        52,7        53,5           57,2        59,2      59,4      59,5
            Source: Eurostat .
 ---pagebreak--- No L 394 / 34                                      Official Journal of the European Communities                                                      31 . 12 . 87
                                                                            TABLE 5 :
                              Contribution of factor substitution to the productivity trend in the private sector (^j
                                                                   annual growth rates ( % )
                                                                        D          F          I         UK        EUR 4       USA ( 2 )  Japan ( 2 )
             Labour productivity
             per man-hour ( 3 )
             1973 / 1960                                                4,3        5,1        6,5        3.1         4,5         i,8         9,6
              1979 / 1973                                               3.8        3,4        2,2        2,7         3,1         0,1         3,0
             1986 / 1979                                                2,5        2,4        1,4        2,7         2,3         0,3         3,8
             Capital productivity
              1973 / 1960                                            - 2,1         0,2        0,5      - 1,7       - 0,9       - 0,3       - 0,5
             1979 / 1973                                             - 1,3      - 1,2      - 0,7       - 1,8       - 1,3       - 0,8       - 1,5
              1986 / 1979                                            - 2,0       - 2,0     - 1,2       - 1,5       - 1,7       - 0,5       - 3,0
             Total factor productivity
             1973 / 1960                                                1,9        3,4       4,7         1,7         2,7         1,2         5,8
             1979 / 1973                                                1,9        1,8        1,3        1,4         1,7       - 0,1         1,4
             1986 / 1979                                                0,8        0,8        0,6        1,5         1,0         0,1         1,3
             Contribution of the substitution of capital
             for labour to the increase in labour
             productivity per man-hour
             1973 / 1960                                                2,4        1,7        1,7        1,4         1,8         0,5         3,5
             1979 / 1973                                                1,9        1,6       0,9         1,3         1,4         0,2         1,6
             1986 / 1979                                                1,6        1,5       0,8         1,2         1,3         0,2         2,5
             (') Private sector: total economy excluding agriculture, housing and the public sector.
             (2 ) Data available only up to 1985 .
             ( 3 ) Because of the definition of sectors and of working time (hours worked per week) the values given here are not fully comparable
                   with the data in Table 2 .
             Definitions:
             — Labour productivity: real gross value added per man hour.
            — Capital productivity: real gross value added per unit at constant prices.
             — Totalfactor productivity: weighted average value of labour and capital productivity . The weights correspond to the shares of
                   factor remuneration in gross value added .
             — Contribution ofthe substitution ofcapitalfor labour to the increase in labour productivity per man hour: the difference between
                   the growth rates of labour" productivity per man hour and of total factor productivity (see European Economy, No 20 , June
                   1984 ).
            Source: Estimates by services of the Commission .
            Long term interest rates
             There are two main reasons why lower long-term interest rates would make it easier to implement the
             cooperative strategy. Firstly, lower interest rates would help to boost investment. However, perhaps
            more importantly, they would take substantial pressure off public budgets, heavily burdened by debt
             servicing costs . This would create more room for manoeuvre for faster budgetary consolidation or a
             boosting of growth .
            The decision to invest depends very heavily on the differential between the expected profitability of the
             investment and the financing cost or the yield from a financial placement. This differential must be
             increased to stimulate more dynamic investment. Profitability has already risen substantially in recent
            years . However, as an indication, the average profitability of productive capital in the Community is
            not yet back to is average level in the 1 960s (see Graph 12). Further improvements must and can still be
            made, but a fall in long-term interest rates would also have a favourable influence on investment .
            According to econometric analyses of Commission services , a lasting fall of 0,8 of a percentage point
            in long-term interest rates, based on the stabilization of inflationary expectations at a low level would
            increase the annual volume of private investment by a little over 2 % in four years; the annual growth
            of private investment would accelerate by an additional 0,4 to 0,5 % .
 ---pagebreak--- 31 . 12 . 87                                Official Journal of the European Communities                                   No L 394 / 35
             The other important element in the assessment of long-term interest rates is their impact on public
             deficits and hence on the management of budgetary policy. A fall in interest rates first has an
             immediate effect on the cost of new debt . Also , as the old debt is refunded, the fall in interest rates ,
             provided that it is lasting, takes the equivalent amount of pressure off public budgets. Although the
             immediate effect may often be ignored, except for the countries with a very high budget deficit', the
             longer term effect will be appreciable in all the countries. According to Commission estimates , the
             assumed fall of 0,8 of a percentage point in long-term interest rates could have an effect on the budget
             deficit averaging between 0,5% and 0,6% of the Community's GDP, after the entire debt has
             matured and has been refunded at a lower rate . A cautious evaluation puts the reduction attainable
             over four years at 0,4 of a percentage point of GDP. As a result of this reduction in the interest burden,
             budgetary policy could gradually be given more flexibility.
             This reduction would be of particular benefit to the countries with the highest level of public debt. It
             would contribute to an above average degree to reducing the rising tendency of the public debt , which
             these countries can at present curb only by creating larger and larger surpluses on their budgets
             excluding debt interest. It would thus contribute to the desirable closer convergence of public debt,
             positions which in its turn would be bound to have favourable repercussions on the downward
             convergence of interest rates themselves.
             The assessment which can be made of the level of nominal interest rates is closely bound up with their
             differential with the inflation rate , i.e. the 'real interest rate'. Inflationary expectations are crucial in
             this respect, but since they cannot be directly observed , the 'real interest rate' measured by the
             differential between the nominal rate and the Current inflation rate is often used as an initial
             approximation . However , this measurement creates very special problems when there is sharp and
             rapid variation in the inflation rate. In this case the current inflation rate and the anticipated inflation
             rate probably differ widely, with the economic agents' expectations proving false . The choice of the
             inflation indicator is also difficult. As a general rule, the different indicators of inflation (GDP or
             private consumption deflators , nominal unit wage costs) move in parallel . However, when major
             changes occur in relatives prices , e.g. as in 1986 , following the improvement in the terms of trade
             resulting from the depreciation of the dollar and the fall in oil prices , major differences may appear in
             the movement of these various indicators . All these factors must be taken into account when assessing
             the level of real interest rates and the room which exists for them to fall in the future .
             As a historical comparison , the present differential between the nominal long-term interest rate and
             the inflation rate is wide, at around 5 % ( see Graph ). This is, of course, distinctly wider than in the
             1970s , when it was close to zero , or even negative, but then it was the expression of monetary
             instability and of high and rapidly fluctuating inflation rates rather than a reflection of the relative
             scarcity of capital . In many countries interest rates then lost the role which they ought to have in
             channelling scare resources from saving into the most profitable allocations . This has probably led to
             waste of capital and has made the productive process even more capital-intensive . However, the
             differential is also now slightly wider than in the 1960s, a period which from the point of view of
             monetary stability is more comparable with the present period . The high level of real interest rates is
             also a sign of inadequate saving relative to the financing needs of the various economic agents.
             Since the beginning of the 1980s , stability-oriented monetary policies have enabled interest rates to
             ensure balance on the capital markets more effectively. Their relatively high level can be explained by
             several factors ; if these factors move favourably one can hope for a lasting fall in real interest rates
             without the achievement of stability being called into question.
             First , at international level, the absorption of domestic and external saving represented by the United
             States' budget and external deficits and the debt situation of the developing countries places a heavy
             burden on international capital markets . To the extent that these imbalances are corrected, scope
             would be created for interest rates to fall on international markets . To the extent that these imbalance
             are corrected , scope would be created for interest rates to fall on international markets , and
             consequently on the European capital markets .
 ---pagebreak--- No L 394 / 36                               Official Journal of the European Communities                                           31 . 12 . 87
            Secondly, within the Community, the return to stability is a relatively recent phenomenon and the
            disinflation process is not yet complete in all countries. If monetary policies remain lastingly and
            credibly geared to stability and if, year for year, inflation rates remain low, inflationary expectations
             should still be able to fall, and this would have a favourable effect on interest rates. A progressive
             improvement in the balance between domestic saving and investment should also contribute to a
             relative fall in real interest rates. Such an improvement is possible if, within the framework of the
             cooperative strategy, the faster rise of investment can be based on rising profitability accompanied by
             a progressive increase in the margins for self-financing, and thus with a simultaneous increase in
             domestic saving. The pursuit of policies which permit, where necessary , a progressive consolidation of
             public finances and which improve the convergence of public debt positions should also contribute to
             reduce tension on the capital markets and would also facilitate the task of monetary policy in external
             and internal stabilization . The reduction of interest rates in the Community which would thus be
             possible would contribute to establishing at a lower level the differential between European and
             United States interest rates necessary to stabilize the dollar.
                                                     LONG-TERM INTEREST RATES
                                                               ( annual average )
                                   Differential between nominal rates and variations in the price of GDP
              1 . GDP prices have been chosen as representing underlying domestic inflation. Their evolution is on a long-term
                  average roughly identical with the evolution of the prices of private consumption (average for the years 1970 to
                  1985: prices of GDP: + 10,1 % per annum; prices ofprivate consumption: + 10,0 % per annum on average for
                  EUR 12). However , in some years, wide differentials exist when the terms of trade change substantially (e.g.
                  1974: prices of GDP, 13,0% ; prices of private consumption , 14,6% ; 1986: prices of GDP, 5,6% ; prices of
                  private consumption , 3,7% ; on averages , EUR 12).
              2. The nominal interest rate corresponds to the weighted average of representative nominal long-term interest
                  rates on the capital markets of the Community countries (weighting: GDP prices and PPA 1985 ).
 ---pagebreak--- 31 . 12 . 87                              Official Journal of the European Communities                                  No L 394 / 37
                                                               PART II
                                        THE ECONOMIES OF THE MEMBER STATES
                                                               BELGIUM
In Belgium, energetic budgetary adjustment undertaken                in 1989 . This will involve a new series of expenditure cuts ,
during 1987 marked the real growth rate of domestic                  especially on social transfers and operating expenditure, and
demand , which slowed to 1,6 % ; as the real contribution of         the creation of new budget revenue , partly from the
the external balance was again negative, the GDP growth              privatization of certain public sector activities .
rate fell to 1,3 % . Against this somewhat slack background,
fixed investment by firms nevertheless remained very
sustained , increasing by almost 8 % in volume for the second
year running, while public investment declined by 10 % .             At the same time , the Government has announced an
Private consumption increased by only 1,5 % in real terms,           ambitious programme of tax reform, spread over the period
owing to a slowdown in real disposable income. The volume            1989 to 1993 , including a reduction in the number and level
of imports increased faster than that of exports , but the terms     of personal income tax rates, the effects of which would be
of trade continued to improve and the balance of payments            partially offset by the discontinuation of a series of tax
on current account showed an appreciable surplus ( 2,3 % of          allowances in favour of enterprises and households. The
GDP). The consumer price rise was kept to 1 ,8 % on annual           programme has not yet been presented to Parliament.
average. Unemployment diminished slightly, despite the
contractionary effect of budgetary measures on
employment.
                                                                     To attenuate the effects on the labour market of public
                                                                     finance austerity and moderate economic growth , the
                                                                     Government's programme for 1988 also includes a set of
Real personal disposable incomes could grow slightly faster          direct specific measures in favour of employment, including
in 1988 ; as a result , and assuming a further reduction in the      opportunities for reduced social security costs in certain
savings ratio, private consumption will be able to expand at         sectors, and facilities for young and long-term jobseekers .
the same rate as in 1987 . Private investment will continue to       Job creation in the private sector is still being helped along by
grow, stimulated by wider profit margins and given the still         a steady decline in real unit labour costs. On the basis of wage
moderate trend of real wages . The contribution of the               agreements for 1987 and 1988 , the increase in real wages
external balance to growth should become positive , since            should be below productivity gains .
cost competitiveness is again improving. In these
circumstances , the current account surplus should be
maintained at around 2,5 % of GDP . The real GDP growth
rate could be close to 2 % , while the unemployment rate             Moreover, improvements in the operation of labour markets
should fall slightly. While remaining moderate , inflation           have made it possible to improve the flexibility of supply
could accelerate slightly , partly because of a turnround in the     conditions . New laws introducing more flexible provisions
trend of import prices .                                              on Sunday work, night work and working hours , came into
                                                                      force in July. Under these laws, new arrangements for work
                                                                      can be introduced by collective agreement negotiated at
                                                                      sectoral or firm level . This increased flexibility , along with
It is still an absolute priority objective to restore healthy         the moderation of internal costs, creates favourable
public finances. Further efforts in this direction are                conditions for the development of exports and investment.
 imperative for several reasons: the size of the gross debt,
 which reached the equivalent of 125 % of GDP in 1987 (the
 corresponding figure for the Community as a whole being
 61 % ), with external debt alone equivalent to 20 % of GDP;
 the burden of interest payments , which will approach 11 %           The policy introduced in 1982 to restore profitability and
 of GDP (the corresponding figure for the Community as a
                                                                      healthy finances in the business sector has already improved
                                                                      business investment, particularly in 1986 / 1987 .
 whole being 5 % ); and the fact that the reciprocal multiplier
 effects between the debt and interest payments have still not
 been brought under control .
                                                                      Monetary policy should continue to preserve the stability of
                                                                      the exchange rate of the Belgian franc within the European
 After an appreciable reduction (about 3 % of GDP) in the             Monetary System, while using the margin for manoeuvre
 central government borrowing requirement in 1987, mainly             available to encourage a decline in interest rates and thus
 thanks to major public expenditure cuts , the Government             lighten the burden of servicing the public debt. The
 intends to bring the budget balance down to 7,4 % in 1988            realignment of January 1987 involved revaluing the Belgian
 so as to achieve the programmed objective of 7 % of GDP              franc by 2 % against the ECU , after the 1 % revaluing of the
 ---pagebreak--- No L 394 / 38                            Official Journal of the European Communities                                    31 . 12 . 87
preceding realignment in April 1986 . This policy has been          competitiveness and maintain profitability at a satisfactory
made easier by the fact that the current balance of payments        level . If these conditions are met , growth might revive and
is showing a considerable surplus, and inflation performance        make it easier to achieve the twofold aim pursued by the
is good . Progress towards reducing the budget deficit is likely    Belgian authorities: reduction of the budget deficit and
to loosen the constraint imposed by changes in capital              reduction in the burden of compulsory levies — an objective
movements on interest rates . Along with a balance of               that fits in with the strategy recommended by the
payments surplus on current account , this development              Community, and which is expected to have favourable
should also enable the authorities to reduce the external debt      effects on employment. If it is to be a success in practice, the
that has accumulated since 1979 .                                   authorities must keep control of public expenditure and the
                                                                    Belgian economy must also be able to take advantage of
The success of the recovery plan for the Belgian economy            sufficiently dynamic intra-Community trade. The
depends on the interaction of a number of factors . A low           implementation of the tax reduction programme could then
inflation rate must help to bring down interest rates,              be confined to using the 'budgetary dividend' generated by an
stimulate investment and reduce the burden of interest on           improvement in the conditions of growth in the
public     debt.   Wage    moderation     should    safeguard       Community .
 ---pagebreak--- 31 . 12 . 87                                         Official Journal of the European Communities                                                 No L 394 / 39
                                                      Belgium: Main economic aggregates 1983 to 1988
                                                                                                                                       (Annual percentage changes)
                                                             1983             1984               1985             1986 (')          1987 ( 2 )         1988 ( 2 )
                          C value                              6,0              7,2                 6.7               6,9               3,4                4,0
Gross domestic J voiume                                     - 0,3               1,6                 1,5               2,3               1,3                1,8
product                   |L deflator                                           5,5                 5.1               4,4               2,1                2,2
                                                               6,3
Private consumption deflator                                   7,3              6,5                 4.8               1,3               1,8                2,5
r>        c- J             C rprivate                       - 3,6               4,4                 3,8               6,6               7,0                4,9
Gross fixed
capital                  -< public                           - 7,6           - 8,8              - 13,1              - 7,2           - 11,0                 0,2
formation volume 1                j                          - 4,3              2,2                 1.2               4,8               5,0                4,4
      of which : construction                               - 5,5            - 4,8               - 0,4                1,6               1,6                3,1
                  equipment                                  - 2,3             13,9                 3,5               9,1               9,2                6,0
Domestic demand at constant prices                           - 2,5              1,7                 1.3               3,4               1,6                1,7
Gap with respect to other Community
countries ( 3 )                                              - 3,8            - 0,1              - 1,0              - 0,3            - 1,0              - 0,6
                           C nominal                           6,0              5.8                 4.4               2,5               3,7                3,0
Compensation
of employees             -< real A ( 4 )                     - 0,3              0,3              - 0,7              - 1,8               1,6                0,8
per head                   ^        B (4)                    - 1,3            - 0,6              - 0,4                1,2               1,9                0,5
Productivity ( 5 )                                             0,9              1,7                 0,6               1,3               1,2                1,6
Real unit labour costs                                       - 1,2            - 1,4              - 1,2              - 3,1               0,4              - 0,8
Competitiveness ( 6 )                                        - 2,2            - 1,3                 1,1               4,5               3.8              - 0,6
Employment                                                   - 1,1              0,0                 0,8               1,0               0,1                0,2
Registered unemployed as %
of the civilian labour force ( 7 )                            14,4             14,5                13,7              12,6             12,4                12,1
Current balance as % of GDP                                  - 0,6            - 0,4                 0,4               2,4               2,3                2,3
Long-term interest rate                                       11,8             12,0                10,6               7,9               7,6                7,4
Money supply ( 8 )                                             7,0              6,1                 6,7              10,7               8,0                6,0
Net lending or borrowing requirement of
general government as % of GDP ( 9 )                       - 11,3             - 9,4               - 8,4             - 8,7             — 6,6              - 6,1
Public debt as % of GDP                                     105,1            111,0               117,9              120,3            125,3              128,4
 Public debt interest as % of GDP                              9,4              9.9                10,6              11,1              10,9               11,0
 (*) Estimates of the Commission services , September 1987 .
 ( 2 ) Forecasts of the Commission services, September 1987 , on the basis of present policies.
 ( 3 ) Differences in percentage points.
 (4 ) A: GDP deflator; B: private consumption deflator.
 ( 5 ) Gross value added per occupied person in the whole economy.
 («) Effective exchange rate {vis-it-vis 19 industrial countries) on the basis of unit labour costs for the whole economy. Positive figure = loss of
       competitiveness.
 ( 7 ) Eurostat definition.
 ( 8 ) End of year.
 (') This 'borrowing requirement' is substantially different from the concept of 'the net balance to be financed to which national budgetary policy refers and which
       includes loans , advances and equities and certain other exchequer operations.
 ---pagebreak---     No L 394 / 40                              Official Journal of the European Communities                                      31 . 12 . 87
                                                                 DENMARK
    In Denmark, after five years with growth in excess of the              Activity is expected to recover somewhat in the course of
    Community average, the gross domestic product is estimated              1988 mainly in response to a continued improvement of the
    to have shown a small decline in real terms in 1987 . While            external balance in volume terms. The growth of export
    exports of goods and services had already stagnated in 1986 ,          markets is unlikely to accelerate much and competitiveness
    the growth of activity had been sustained by an exceptionally          may deteriorate further. On the other hand , given the
    rapid expansion of domestic demand ( 5,7 % increase on                 weakness of the domestic market, producers may to some
    average over 1985 ). Towards the end of the year , however,            extent shift supply to external markets and exports may,
    key domestic demand components turned distinctly                       therefore, nevertheless rise faster than in 1987 . Real
    downwards in response both to the deterioration of export              domestic demand is forecast to continue its decline, although
    prospects and the resulting worsening of the investment                at a somewhat slower rate , and this will be reflected in a
    climate and to the sharp tightening of fiscal policy                   further drop in the volume of imports. On average for the
    undertaken in serveral steps in the course of the year, and of         year, gross domestic product may show a rise below 1 % and
    measures aimed at increasing the saving ratio of private               the rate of unemployment is likely to increase over the level of
    households. Private consumption, thus, declined by some                1987 . Domestic cost increases will slow down but a rise in
    5 % ( actual rate) from the third to the fourth quarter of 1986        import prices will push up costs and the rate of increase of
    and is, even with some rise in the course of 1987, likely to           consumer prices is , therefore , unlikely to drop . Given the
    show a small decline on average for 1987 over 1986 .                  expected deterioration of the terms of trade (reflecting both a
    Dwelling construction is estimated to have contracted by              rise in import prices and a fall in export prices of agricultural
    some 10 % and business investment is also likely to have              products) the trade balance in current prices is not improving
    dropped. Although public investment rose somewhat over                fully in line with the change in the volume balance .
   the 1986 level , total gross fixed asset formation, therefore, is      Moreover, the balance on invisibles may deteriorate as a
   estimated to have declined by some 6,5% . With,                        result of a fall in net transfers from the Community. The
   furthermore, a fall in the level of inventory formation, total         current external deficit is , nevertheless , likely to fall from
   domestic demand may have declined by almost 2 % in real                2,9 % of GDP in 1987 to some 2,2 % in 1988 .
«  terms . Imports fell even faster than domestic demand and ,
   since exports remained rather unchanged , the contribution
   to growth from net exports was positive although not enough
   to prevent a small contraction of domestic activity. The               Assuming unchanged policies , implying, notably, the
   number of persons employed nevertheless probably rose                  continued implementation of the general guidelines for the
   marginally but less than the fairly rapid increase in the labour
   force. The rate of unemployment, therefore, after having               development of central and local government expenditure
                                                                          and unchanged rules of taxation , the financial situation of
   been on a declining trend since 1983 , rose somewhat from
   1986 to 1987 .                                                         general government should change little in 1988 . The slow
                                                                          growth of private sector demand will exert a dampening
                                                                          effect on receipts from indirect taxes but direct taxes are
                                                                          expected to rise fast as a result of the widening of the tax base
                                                                          following the tax reform (notably the lowering of the scope
   Import prices are estimated to have fallen by some 3,5 % in            for deducting interest payments). Interest payments on the
   national currency terms but domestic unit labour costs have           public debt are expected to fall somewhat and the general
  risen substantially faster than in 1986 (in part as a result of a      government budget surplus may , therefore, remain broadly
   shortening of the working time) and consumer prices are               unchanged or perhaps even increase a little over the level of
  expected to have shown a rise of 4 % against some 3,5 % in              1,9 % reached in 1987 . The need to strengthen even further
   1986 .                                                                the external account remains imperative and warrants a
                                                                         considerable surplus on the general government budget as
                                                                         long as the saving of the private sector remains insufficient.
                                                                         The financial deficit of the private sector, which rose from
                                                                         2,7 % of GDP in 1985 to 8,6 % in 1986 , fell somewhat in
  Despite this acceleration of inflation , nominal incomes               1987 but is, in fact, forecast to remain as high as 3,9 % of
  showed a marked deceleration and the rate of increase of tax           GDP in 1988 . A more lasting improvement of the financial
  receipts — exceptionally high in 1986 as a result of major tax         balance of the private sector will require further measures to
  rises — slowed down considerably. Government                           enhance household savings and will also warrant a continued
  expenditure, on the other hand , accelerated as a result of            prudent stance of monetary policy.
  wage and salary improvements for civil servants and a rise in
  transfers to households. The general government budget
  surplus , therefore , may have declined from 3,3 % of GDP in
  1986 to some 1,9 % in 1987. The balance of trade in goods              The deterioration of the private sector's financial balance in
  and services, which had been slightly negative in 1986 , again         1986 (reflecting both a decline in the savings rate and a strong
  turned positive in 1987 and, as the net interest payments to           upturn in dwelling construction and business investment) in
  abroad remained practically unchanged, the current external            fact prompted a sharp rise in nominal long-term interest rates
  deficit was reduced from 5,1 % of GDP in 1986 to 2,9 % in              — from some 9 % in March 1986 to more than 12 % in
  1987 .                                                                 September 1987 . Short-term interest rates, apart from a brief
 ---pagebreak--- 31 . 12 . 87                             Official Journal of the European Communities                                  No L 394 / 41
rise in January 1987 in the period immediately preceding the        the gap between the expansion of internal demand in
EMS alignment, have not increased fully in line with                Denmark and in other Community and Scandinavian
long-term rates, implying a rise in the steepness of the yield      competitiveness, increased the current balance of payments
curve.    The difference between Danish and German                  deficit to an unsustainable level . In view of this situation , and
short-term interest rates , nevertheless, has widened very          of the high level of external debt and related interest
considerably since the beginning of 1986 . This decoupling of       payments, the relaxation of the external constraint should
Danish interest rates from the general lowering of rates            remain the primary objective of government policy. To this
within the EMS was instrumental in maintaining the                  end the contribution of fiscal and monetary policies is
relatively strong position of the Krone within the band of          essential , but wage restraint will be equally important , so as
fluctuation and , thus, in dampening the rate of increase in        to ensure a return to a dynamic growth process which was
consumer prices in the face of an acceleration of domestic          successfully achieved in the recent past. A strengthening of
cost increases . The tightening of domestic monetary                foreign demand could help to reduce the external constraint.
conditions , in fact , to a large extent took place as an           Increased growth in intra-Community trade sustained by
'endogenous' adjustment to these cost increases rather than         appropriate macroeconomic policies in the Member States
as a deliberate change in the policy stance. Any progress           would be helpful in this respect.
made by reducing the deficit in the current balance of
payments would be helpful in reducing long-term interest
rates and in stimulating private investment.                        With a view to strengthening the competitiveness of Danish
                                                                    enterprises, the Danish Government has started tripartite
                                                                    discussions with the social partners on moderation of growth
Growth was exceptionally vigorous during the years 1984 to          of costs and incomes. Important subjects for these
 1986 , notably as a result of a strong boom in private             discussions are proposals to reduce the burden to enterprises
investment fostered by improved profitability and benefiting        of employment-related contributions and proposals to
from favourable export prospects. However, the widening of          promote savings for pension purposes.
 ---pagebreak---    No L 394 / 42                                     Official Journal of the European Communities                                           31 . 12 . 87
                                                              Denmark: Main economic aggregates
                                                                                                                              (Annual percentage changes)
I                                                           1983              1984               1985        1986 (')      1987 ( 2 )        1988 ( 2 )
                            C value                          10,4               9.4                9,7          8,4            4.4              5,1
   Gross domestic           I    ,
   product                \I volume
                              deflator
                                                              2,5
                                                              7.6
                                                                                3.5
                                                                                5.7
                                                                                                   4.2
                                                                                                   5.3
                                                                                                                3,4
                                                                                                                4,9
                                                                                                                            - 0,2
                                                                                                                               4.6
                                                                                                                                                0,9
                                                                                                                                                4.1
   Private consumption deflator                               6,8               6,5                4,9          3.6            4,1              4,0
   Gross fixed              f Private                         5.0             12,0                11.5         19,9         - 7,6             - 3,8
   capital                -< public                        - 14,8               0,1               14.7        - 5,3            1,9              2,1
   formation volume 1 tota|                                   1,9             10,5                11,9         16,8         - 6,6             - 3,2
        of which : construction                               1,9               7.3                8,6         19.4         - 7,1             - 4,3
                    equipment                                 1,8             14.5                15,9         13,9         - 6,1             - 1,9
   Domestic demand at constant prices                         1,4               4,1                5,7          5.7         - 1,9             - 0,7
   Gap with respect to other Community
  countries ( 3 )                                           - 0,2              2,1                 3,2          1,9         - 4,7             - 3,1
   Compensation             C nom'na'                         8,2               5.4                4.6          5.1            7.2              5,2
   of employees           ■< real A ( 4 )                     0,5            - 0,4               - 0,6          0,2            2,5              1,1
   per head                          (4)                      1,4            - 1,1               - 0,2          1,4            3,0              1,2
  Productivity ( s )                                          1,8               1.8                0,8          1.2         - 0,8               1,2
   Real unit labour costs                                   - 1,3            - 2,1               - 1,4        - 1,0            3,3            - 0,2
   Competitiveness ( 6 )                                      0,9    .       - 3,6                 1,1          7,4            9,1              0,2
  Employment                                                  0,3               1.5                2,9          2,0            0,8            - 0,1
  Registered unemployed as %
  of the civilian labour force ( 7 )                         10,1              9,9                 8.7          7,6            7,7              8,6
  Current balance as % of GDP                               - 2,6            - 3,4               - 4,7        - 5,1         - 2,9             - 2,2
  Long-term interest rate                                    14.4             14,0                11.6         10.5          11,9              11,0
  Money supply ( 8 )                                         25.5             17,0                15.8          8,0            4,3              4,4
  Net lending or borrowing
  requirement of general government
  as % of GDP                                               - 7,2            - 4,1               - 2,1          3,3            1,9              1,7
  Public debt as % of GDP                                    62.6             67.6               65,8         61,7          59,1              53,3
  Public debt interest
  as % of GDP                                                 8.1              9,7                 9,9          8.8            8.2              7.8
  (J)   Estimates of Danmarks Statistik, April 1987.
  (2 )  Forecasts of the Commission services, September 1987, on the basis of present policies .
  (3)   Differences in percentage points.
  (4 )  A: GDP deflator; B: private consumption deflator.
  (s)   Gross value added per occupied person in the whole economy.
  (s)   Effective exchange rate ( vis-A-vis 19 industrial countries) on the basis of unit labour costs for the whole economy. Positive figure = loss of
        competitiveness .
  ( 7) Eurostat definition.
  ( 8 ) End of year.
 ---pagebreak--- 31 . 12 . 87                              Official Journal of the European Communities                                No L 394 / 43
                                                FEDERAL REPUBLIC OF GERMANY
Economic prospects for the Federal Republic of Germany are           2% in 1988 . The overall price increase in the economy,
currently viewed relatively cautiously. In the second half of        around 2% , would be broadly in line with domestic cost
1986 , the strong appreciation of the German mark,                   increases . The reduction in the current account surplus will
principally against the United States dollar, was reflected in a     be similar in scale to that of 1987 , but it might still be above
decline in exports in real terms and an increase in imports,         the 3%-of-GDP mark in 1988 .
particularly of finished goods . Although domestic demand
remained buoyant , the influence of the external sector tended
increasingly to blunt the overall economic performance.
                                                                     Employment during the year will probably rise to a similar
                                                                     extent as in 1987 , but a further contraction is expected in
                                                                     employment in manufacturing. With a probable increase in
                                                                     total employment of around 70 000 , unemployment is likely
In 1987 this dampening influence of the external side has            to edge up again .
again strongly marked the development of the economy.
Following a further rise of some 10% in the German mark's
value against the United States dollar and with economic
activity suffering exceptionally from harsh winter weather,          The high livel and rising trend of unemployment are still
aggregate production contracted in the first quarter.                extremely worrisome features. Wage bargainers and
Admittedly, the factors holding back exports weakened as             economic policymakers are together facing the challenge of
the year progressed, and exports started to recover markedly         making full use of the opportunities for scaling down
from the second quarter on ; on average for the year they may ,      unemployment. Wage settlements concluded earlier this year
nevertheless , in volume terms remain below their 1986 level .       suggest that the wage costs per capita in 1 987 will increase by
Domestic demand went on growing at a distinctly more rapid           some 3,5% . The only reason why the resulting increase in
rate than aggregate production , even though it fell far short       unit wage costs did not so far damage business profits was the
of the high 1986 growth rate — not least because of some             significant improvement in the terms of trade. A moderate
deceleration in private consumption . The unfavourable               rise in real wages therefore remains necessary if the
trend of exports also dampened investment in equipment ,             propensity to invest is to be maintained despite the loss of
although some revival appeared to take place at the end of the       competitiveness resulting from appreciation. However, the
year. However , investment was channelled primarily into             wage settlement recently reached in the metal industry
rationalization schemes . Investment in building and                 contains some positive elements: working time will be
construction showed no growth , not just due to bad weather          progressively reduced by a total of one and a half hours, with
but also since the trendwise decline in residential contruction       agreed annual wage increases translating into a rise of around
has not yet slowed down . Since demand was increasingly met          4% in hourly wage costs. This settlement in the metal
by imports , which enjoyed a competitive price edge , and            industry is the first in which wage bargainers have reached an
since exports stagnated , the growth of GDP amounted to               agreement spanning three years . This will allow firms to
around     1,5%     in  1987 .   Under those circumstances           make plans on a safer basis much in line with the
employment showed only little increase. The resulting                government's policy with respect to the macroeconomic
annual average increase of around 0,5% was not sufficient to          framework. Given the importance of this branch of industry,
bring unemployment down below the average level for 1986 .           which accounts for some 50% of employment in
As in the previous year, the real balance on goods and                manufacturing, the pattern has been set for wage costs in the
services deteriorated significantly , to only slightly over half     economy as a whole in the medium term, and this will be an
its 1985 level . Nevertheless , mainly because of a further           important factor influencing monetary and financial
major improvement in the terms of trade , the current account         policy.
 surplus fell by only around half a percentage point , to 3,7%
of GDP .
                                                                      In view of the prospective small decline in real unit-labour
                                                                      costs, the overall profit situation of enterprises in general
                                                                      remains healthy. The net rate of return (measured as the net
The expansion in domestic demand is expected to show only             operating surplus in proportion to the net capital stock) has
 a modest slowdown from 1987 to 1988 . The increase in real           increased from the trough of 1981 and should next year be
gross private wage and salary income may slow down to just            back to the level of the early 1970s . As firms can count on
 below 4% . However, the tax cuts planned for early 1988 ,            steady — although still rather moderate — growth in
will boost the rate of increase in disposable incomes . Despite       demand , investment conditions are in general not
 some acceleration of consumer prices (to just below 2% ) real        unfavourable .
 disposable income of households may , therefore, show a rise
 of around 2% . With slightly faster growth in export markets
 and assuming only a small rise in the real effective exchange
 rate of the German mark , exports are expected to grow               Although the Federal Republic of Germany is already making
 moderately, while imports might increase at much the same            a major contribution towards eliminating international
 rate as in 1987 . As a result, GDP may expand very close to          payments imbalances, with the growth in domestic demand
 ---pagebreak--- No L 394 / 44                             Official Journal of the European Communities                                    31 . 12 . 87
probably exceeding the growth of GDP by over 2,5% in real            Since the beginning of 1986 , the Central Bank money stock
terms between 1986 and 1988 , the current account surplus,           has been expanding at an average annual rate of over 7% ,
as a result of the terms of trade improvement, is being reined       while the nominal national product has been rising by no
back only gradually.                                                 more than around 5% . As a result of falling interest rates, the
                                                                     faster pace of monetary expansion was , at the outset,
                                                                     attributable principally to growth in highly liquid forms of
                                                                     money but then , from about the middle of last year, the
                                                                     money supply aggregates expanded on a broader front. Low
                                                                     interest rates, together with falling prices, significantly
                                                                     eroded the opportunity costs of holding money , while the
Budgetary policy is still directed towards reducing the              money supply was characterized by strong growth in credit
proportion of scarce resources taken up by the state by              institutions' claims on non-residents .
imposing tight restrictions on the rise in expenditure . Even
so , a pronounced change in the stance took place in 1986 . Up
to 1985 , the main purpose of the restrictions on expenditure
was to trim budget deficits and to stem the rise in public debt
as a percentage of GNP. Since 1986 , however, the headroom           However , monetary policy still shows some conflict between
available has been used to ease the burden of taxation .
                                                                     domestic and external objectives ; under such circumstances ,
Following the reduction in direct taxation in 1986                   there is a danger that the measures which are inherently
(equivalent to 0,6% of GDP), a somewhat larger step will be          necessary to curtail monetary growth will be impeded by
taken in 1988 (0,6 to 0,7% of GDP), with the tax cuts                further undesirable upward pressure on the DM.
originally planned being augmented in the wake of the                Developments since May 1987 have , however, clearly shown
Louvre accord of February 1987 by bringing forward DM 5              the limitations the Bundesbank faces in influencing long-term
billion of the tax reform scheduled for 1990 . The remaining         interest rates . Since May, the capital market has not followed
parts of the reform will result in tax cuts equivalent to            the targets established by the Bundesbank. On the contrary,
somewhat less than 1% of GDP from 1990 onwards . In
                                                                     there was a rise of more than 0,5 points in the current yield on
addition , budgetary policy served to underpin growth last           public loans, less in response to changes in investors'
year and has continued to do so this year, especially as public      inflationary expectations than to movements in exchange
investment in goods and materials has risen at a much faster         rates and international interest rates . From a monetary policy
rate than GNP. Alongside this* the automatic stabilizers have        viewpoint, a slowdown in monetary expansion would be
been able to produce their full effects this year since, by and      welcome in order to start next year with a lower rate of
large , the Government has not attempted to make up for              growth . If the external environment were to prove more
revenue shortfalls due to the degree of capacity utilization         stable than in 1986 / 1987 , there would probably be a good
with corresponding cuts in expenditure . As a result, the total      prospect of this happening.
public authority deficit in 1987 is expected to widen again
significantly for the first time since 1981 .
                                                                     The attempts to make markets more adaptable have
                                                                     continued . In recent months , the main objective in many
                                                                     cases has been to facilitate market access for new firms set up
The abovementioned tax cuts, amounting to DM 13 to 14                by the self-employed and by enterprises , to improve their
billion (0,6 to 0,7% of GDP), will be the main feature of            access to new equity capital and to remove as many as
budgetary policy in 1988 . These cuts will not only stimulate        possible of the numerous obstacles they encounter. Against
demand , but also serve to improve incentives to effort on the       this , scant progress has been made hitherto in dismantling
part of employees and firms. In view of the fairly modest            subsidies . The latter were , in fact , increased substantially ,
growth prospects, a further expansion in the deficits cannot ,       especially in 1986 , partly as a result of the German mark's
therefore , be avoided . The Central Government (combined            appreciation but also under mounting political pressure from
Federal Government and Lander) deficit will probably reach           interest groups . In the context of the financing of the tax
2,7% of GDP in 1988 , corresponding to a rise of 0,3 points          reform it has subsequently been decided to reduce the tax
over 1986 , while the total public authority cash deficit            exemptions by an amount of broadly DM 8 billion . By taking
(central and local government, and the special Federal funds)        further modest steps towards reducing weekly working time
might even rise to some 3% in 1988 . Since the growth in             and by expanding the scope for flexible working
expenditure has , in any case, already been adjusted to the          arrangements , the two sides of industry have helped improve
more unfavourable trend in revenue, a temporary widening             employment opportunities ; at the same time, the Federal
of the deficits under the impact of tax cuts provides no             Labour Office stepped up efforts to provide vocational and
justification for any weakening of confidence in the                 further training.
soundness of budgetary policy. However, through
dismantling subsidies and deciding on how the tax reform is
to be financed , care must be taken to ensure that the
expansionary forces in the economy are given full rein . An
energetic dismantling of subsidies should, in particular,            All in all , the outlook for economic development in the
prevent the preservation of production structures for which          Federal Republic in 1988 does not appear fully satisfactory
there will be no future whatsoever in the longer term.               —       notably      since    no     further    reduction      in
 ---pagebreak--- 31 . 12 . 87                             Official Journal of the European Communities                               No L 394 / 45
unemployment is to be expected. Judging from past                   significantly loose momentum, it would be desirable to
experience, a recovery in the trend of exports, as seen from        reconsider the stance of budgetary policy not only with a
mid-1987 , will with a certain lag lead to a general upturn in      view to prevent a further deterioration of the labour market
the domestic growth leading ultimately to a further reduction       but also to avoid a slowdown of the process of renewing
of the external surplus . However, should economic growth           productive capacity.
 ---pagebreak---  No L 394 / 46                                          Official Journal of the European Communities                                        31 . 12 . 87
                                            Federal Republic of Germany: Main economic aggregates, 1983 to 1988
                                                                                                                             (Annual percentage changes)
                                                               1983              1984               1985     1986         1987 (')          1988 (•)
                             C value                            4,8               4,8                4,3       5,7            3,3               3,7
 Gross domestic              I    ,
 product                   \I volume
                               deflator
                                                                 1,5
                                                                 3,3
                                                                                   2,8
                                                                                  2,0
                                                                                                     2,1
                                                                                                     2,2
                                                                                                               2,6
                                                                                                               3,1
                                                                                                                              1,4
                                                                                                                              1,9
                                                                                                                                                1,9
                                                                                                                                                1,8
 Private consumption deflator                                   3,2               2,5                2,1     - 0,5            0,6               1,8
 Gross fixed                 C private                          5,1                1,2             - 0,1       2,5            1,2               1,6
 capital                   J      ,                           - 8,6                                  0,8
                                                                                - 2,1                          7,3            2,9               0,7
 formation
 (volume)
                            |L total
                                     1C                         3,2               0,8              - 0,1       3,1            1,4               1,4
       of which : construction                                   1,7              1,6              - 5,6       2,4         - 0,4                0,8
                   equipment                                    5,6             - 0,5                9,4       4,1            3,8               2,3
 Domestic demand at constant prices                             2.3               2,0                 1,0      3,7            2.5               2,3
 Gap with respect to other
 Community countries ( 2 )                                      1,6             - 0,1              - 0,9     - 0,1         - 0,4             - 0,1
 Compensation               f nominal                           3,9               3,5                3,1       3,9            3,3               2,9
 of employees             -< real A ( 3 )                       0,6               1,4                0,9       0,8            1,4               1,1
 per head                               (3)                     0,7               1,0                1,0       4,4            2,6               1,1
 Productivity ( 4 )                                             3,0               2,8                1,8       1,8           0,8                1,6
 Real unit labour costs ( 5 )                                 - 2,4             - 1,3              - 0,9     - 1,0            0,6            - 0,5
 Profitability (6 )                                            11,5               2,1                5,2       5,0         - 3,2             - 2,2
 idem ( 1970 = 100 )                                           85,4              87,2               91,7     96,3           93,2              91,2
 Competitiveness ( 7 )                                        - 0,9             - 4,3              - 2,6     10,0            5,7             - 0,0
 Employment                                                   - 1,5               0,1                0,7       1,0           0,6               0,3
 Registered unemployed as %
 of the civilian labour force ( 8 )                             8,4               8,4                8,5       8,1           8,1               8,2
 Current balance as % of GDP                                    0,7               1,3                2,4       4,1           3,7               3,2
 Long-term interest rate                                  -     7,9               7,8                6,9       5,9           5,7               5,7
Money supply ( 9 )                                              7,0               4,6                4.5       7,8           6,9               5,9
Net lending or borrowing of general
government as % of GDP                                        - 2,5             - 1,9              - 1,1    - 1,2          - 1,6             - 2,0
Total public authority
cash deficit as % of GDP ( 10 )                               - 3,3             - 2,6              - 2,1    - 2,2       '  - 2,6             - 2,9
Public debt as % of GDP                                        40,9             41,8               42,5      42,6          43,8              45,2
Public debt interest
as % of GDP                                                     3,0               3,0                3,0       3,0           2,9               2,9
  (')   Forecasts of the Commission services, April / May 1987 , on the basis of present policies.
  (2)   Differences in percentage points.
  (3)   Deflated by: A = GDP deflator; B = private consumption deflator.
  ( 4)  Gross value added per occupied person in the whole economy.
  (5 )  Ratio of real wages per head to productivity .
  (6)   Net operating surplus relative to net capital stock at current replacement cost.
  ( 7)  Effective exchange rate (vis-d-vis 19 industrial countries) on the basis of unit labour costs for the whole economy; positive figure = loss of
        competitiveness .
  ( 8 ) Eurostat definition .
  (*) Central Bank Money Stock ,' Q4 over Q4 .
( 10) Territorial Authorities and special Federal funds; financial statistics concept.
 ---pagebreak--- 31 . 12 . 87                                    Official Journal of the European Communities                                    No L 394 / 47
                                                                    GREECE
In Greece, the year 1987 has seen further progress towards                 expectations, caused the domestic credit expansion target to
stabilization , even though it has not been possible for all the           be exceeded even though bank lending to the private sector
targets initially set to be complied with . The deficit on                 was generally within the rates envisaged. Consumer price
current account narrowed further as domestic demand and                    inflation, after fluctuating around 20 % for a number of
GDP contracted; the public sector deficit as a proportion of               years but rising to 25 % at the end of 1985 , was cut to 17 %
GDP fell again and the monetary aggregates expanded less                   in 1986 . The rate is expected to fall by approaching three
than in 1986 . Inflation showed a downward trend , while                   percentage points on a year-end basis in 1987 despite the
unemployment remained unchanged, the fall in total                         inflationary effect caused by the introduction of VAT.
employment being offset by a similar decline in the labour
force . In 1 9 8 8 , activity will tend to return to positive growth .
Both consumption in volume and the savings ratio of
households are likely to steady and investment will continue               The curtailment of domestic demand and the lower oil bill
to rise , leading to a real growth of demand and output . Prices           were very beneficial to the balance of payments on current
should rise at a slower rate after having been affected by                 account , which showed a deficit of 9,8 % of GDP in 1985 ,
exceptional factors in 1987, but the public sector deficit will            4,3 % in 1986 and 3,1 % in 1987 . The current account
only narrow if additional measures are taken , while no                    deficit in 1986 , at US $ 1 ,7 billion , is formally in line with the
appreciable improvement is likely in the current account of                target set in connection with the Community loan, but the
the balance of payments .                                                  deficit for 1987 , while lower than in 1986 , is likely to be
                                                                           somewhat higher than the target.
The end of 1987 is the official date for the completion of the
stabilization plan . Adopted at the end of 1985 , this plan was
designed to achieve a rapid improvement in the balance of                  Substantial progress has been made in reforming the financial
payments through a deliberate cutback of domestic demand,                  system. Preferential interest rates for certain categories of
in order to stabilize the level of the external debt from 1988             operator have been abolished. The general level of interest
onwards . The plan was supported by the Community                          rates, which previously had been lower than the rate of
 authorities which granted a balance of payments loan for the              inflation , has been raised and commercial banks have been
purpose. The objectives involved reducing the rate of                      granted a degree of freedom in fixing their lending rates. The
inflation to 10 % by the end of 1987 , cutting the public                  strict administrative rules and regulations governing the
sector net borrowing requirement by 8 % of GDP over two                    administration of credit have been made more flexible and
years , and limiting domestic credit expansion to 17 % in                  efforts have been made to place treasury bills and
 1986 and 11 % in 1987 .                                                   medium-term paper with private non-banks . Continuation
                                                                           of these efforts, together with the creation of an efficient
                                                                           non-bank financial market, should facilitate the
Wage policy, the key instrument for restraining domestic                   implementation of monetary policy and contribute to the
 demand , was based on a system of degressive indexation                   modernization of the financial system, which is essential for
 focused on a targeted inflation rate and excluding the effect             the development of the country .
 from import prices . In addition , very moderate growth was
 authorized for farm incomes . The strict incomes policy
produced a 10 % reduction in real wages and a 7 %
 reduction in real personal disposable income in the period                For a number of years, the public sector in Greece has been
 1986 / 1987 .                                                             expanding rapidly, with a significant increase in the public
                                                                           debt. Getting the current deficits in the central government
                                                                            budget under control is clearly a priority, but the deficit of the
 However , as a result of initial doubts by private economic                social security system raises the greatest problem. The rapid
 agents about the durability of the plan and because of                     deterioration in this field is a result of the policy, pursued
 speculative behaviour, private consumption contracted only                 since the beginning of the 1980s , of substantially increasing
 slightly, entailing a sharp drop in the personal savings ratio ,           pensions and extending social security benefits to people who
 helped especially by the very high degree of liquidity in the              had not previously paid contributions. The drive to cut back
 personal sector . The public sector net borrowing                          the public deficit, already initiated by the authorities, will
 requirement was reduced from 17,6 % of GDP in 1985 to                      need to continue for a number of years in order for the public
 13,7 % in 1986 , partly as a result of an increase in the                  debt to be stabilized as a proportion of GDP .
 taxation of oil products which offset the fall in oil prices . In
 1987 , a further reduction to 12 % of GDP is likely , but this
 level is higher than the objective set in the context of the
 programme .                                                                From a structural angle, the basic problem of the Greek
                                                                            economy is the continued decline since 1980 of productive
                                                                            investment, brought about by the unfavourable climate for
 This development, together with a volume of sales of                       industrial activity associated with a wide-ranging regulation
 treasury bills and medium-term paper that fell short of                    of markets. Since the end of 1985 , the Government has been
 ---pagebreak--- No L 394 / 48                              Official Journal of the European Communities                                    31 . 12 . 87
working on phasing out price controls; combined with the              contribute to the moderation of the public sector wage bill to
very moderate growth of wage costs and a consistent                   the same extent as in the previous two years and certain
exchange rate policy, this has helped to produce a significant        exceptional receipts will no longer accrue. Some essential
improvement in the financial position of enterprises . This is        changes in legislation should be made rapidly: in particular,
expected to lead to a significant upturn in productive                reorganizing the pensions system , widening the tax base
investment, although initially companies have given priority          through fuller taxation of certain categories of tax payer, and
to improving the structure of their balance sheets.                   containing the wage and salary bill in the public service
                                                                      through a ban on new recruitment and restriction of wage
                                                                      and salary increases below the average in the economy.
The country's productive capacity has been considerably               Alongside the dismantling of export subsidies , which began
weakened as a result, so that continued efforts need to be            in 1987, agricultural subsidies, which again rose significantly
made in 1988 to contain the pressure of domestic demand               in 1987 , will need to be cut . Rationalization of the
and thereby avoid a deterioration in the balance of payments.         management of public enterprises and agencies should help
However, in view of the scale of the adjustment of real wage          to reduce both the budget transfers to them and their own
incomes in the past two years, wage policy can no longer be           deficits .
the main instrument for managing demand. Wage
negotiations should take account of a rate of inflation that is       In view of the medium-term public finance objectives, and in
consistent with the macroeconomic objectives pursued ,                order to stabilize the external debt in 1988 , budgetary policy
while the degressive structure of wage rises will gradually           for the coming year should aim at making up the slippage
have to be abandoned, as this has produced a levelling of             from target recorded in 1987 and also at achieving
incomes that is not conducive to productivity growth .                substantial additional progress in reducing the public sector
Overall , this policy might be consistent with a slight increase      net borrowing requirement as a percentage of GDP . An
in real wages in the course of the year.                              active monetary policy seeking a further deceleration in
                                                                      domestic credit expansion should accompany this restrictive
                                                                      stance . In these circumstances , domestic demand would
In these circumstances , reducing the public sector deficit will      decline further, the inflation rate would fall below 10 % by
have to be the prime instrument of demand management . It             the end of 1988 , and the deficit on current account of the
will be difficult to apply, especially since the social security      balance of payments should narrow to about 2 % of
deficit is tending to increase, while income policy will not          GDP .
 ---pagebreak--- 31 . 12 . 87                                      Official Journal of the European Communities                                    No L 394 / 49
                                                    Greece: Main economic aggregates 1983 to 1988
                                                                                                                        (Annual percentage changes)
                                                         1983          1984             1985            1986          1987 (')         1988 (»)
                          C value                        20,3          23,0              19,6            20,6           15,8             12,2
Gross  i
         domestic        J
                        ■<
                              ,
                            volume                         0,3           2,6              2,1             1.3          - 0,8              0,5
product
                          L deflator                      19,9          19,9             17,1            19.0           16,7             11,6
Private consumption deflator                             18,6           18,0             18,4            22.1           16,0             12,0
Gross fixed               f P"vate
capital                 s public
formation volume 1              j                       - 1,9          - 4,7              3,4           - 4,8          - 2,0              3,7
     of which : construction                               3,9         - 7,7              2,6           - 3,4          - 5,5              3.7
                 equipment                              - 8,2          - 0,9              4,4           - 6,5            2,2              3,8
Domestic demand at constant prices                      - 0,7            0,8              4,9           - 0,3          - 0,6              0,3
Gap with respect to other
Community countries ( 2 )                               - 0,4          - 2,5              3.0           - 4,5          - 3,4            - 2,2
r,             .          C nominal                      21,8           22,6             20,4            13.7           12,5             12,0
Compensation
of employees            ■< real A ( 3 )                    1.5           2.3              2,8           - 4,5          - 3,6              0,4
per head                          R (3)                    2,7           3,9              1.7           - 6,9          - 3,0              0,0
Productivity ( 4 )                                       - 0,1           2,9              1,0             0,3            0,1              0,2
Real unit labour costs                                     1.6         - 0,6              1,9           - 4,7          - 3,7              0,2
Competitiveness ( 5 )                                    - 3,4           1.4            - 2,1          - 13,6          - 2,9            - 3,5
Employment                                               - 1,0         - 0,2              1.1             0,3            0,1              0,2
Registered unemployed as %
of the civilian labour force ( 6 )                         7,9           8,1              7.8             7.4            7.4              7,5
Current balance as % of GDP                              - 4,7 •       - 4,1            - 8,2           - 5,4          - 4,2            - 4,1
Long-term interest rate                                   18,2          18,5             15.6            15,8           17,3             16,0
Money supply ( 7 )                                        20,3          29,4             26.7            18,5           17.3             11,7
Net lending or borrowing
requirement of general government
as % of GDP                                              - 8,9        - 10,1           - 13,6          - 10,7         - 10,6            - 9,8
Public debt as % of GDP •                                 44,3          53,2             62,6            64,3           65.4             67,2
Public debt interest
as % of GDP                                                3,4           4,6              5,4             5,9            6.5              6.9
(')   Forecasts of the Commission services, September 1987.
(2)   Differences in percentage points.
(3)   A: GDP deflator; B: private consumption deflator.
( 4)  Gross value added per occupied person in the whole economy .
(5) Effective exchange rate (vis-A-vis 19 industrial countries) on the basis of unit labour costs for the whole economy. Positive figure = loss of
      competitiveness .
(s ) Eurostat definition .
( 7) End of year.
 ---pagebreak--- No L 394 / 50                             Official Journal of the European Communities                                    31 . 12 . 87
                                                               SPAIN
In 1 98 7 Spain will again see higher economic growth than the       structures of production, the need for which has grown as
other member countries, with domestic demand expanding a             Spain is rapidly opening up its economy to the outside world.
good deal more rapidly than in the rest of the Community.            In the medium term, this policy seeks to achieve average real
Real gross domestic product will increase by over 4% .               economic growth of 3,5 to 4% per year, underpinned mainly
Private consumption has been stimulated not only by real             by buoyant investment and exports, a reduction of the order
wage increases in the private sector but also by the sharp           of half a percentage point of GDP per year in the general
increase in non-agricultural employment. The very strong             government borrowing requirement, and convergence of the
expansion of fixed investment continued , reflecting the             rate of inflation towards the Community average. The gap
continuing favourable trend of company profits, positive             between per capita incomes in Spain and the most prosperous
sales prospects and the need for modernization of productive         countries in the Community could thus go on narrowing.
equipment in the face of increasingly strong competition
from abroad following the country's accession to the
Community. Export performance, which was poor in 1986 ,
improved gradually during the year thanks to strong demand           Major progress was already made in 1986 and 1987 in
from the other Community countries . Import growth                   implementing the growth strategy for more employment, the
remained very rapid and the exceptional buoyancy of                  most positive aspect clearly being the upturn in productive
domestic demand was therefore only partially reflected in the        investment. With profit margins being rebuilt and the
gross domestic product. Similarly, the trade deficit widened         economic environment improving, businesses have
rapidly and the fall in the current account surplus was only         demonstrated their willingness to modernize production
slowed down by the rapid growth of receipts from tourism.            equipment and take up the challenge of Community
Very good employment growth allowed the unemployment                 membership, arising not only in the form of the dismantling
rate to fall below 21% , but its decline continues to be             of barriers as provided for in the Accession Treaty but also in
hampered by the sharp growth in the labour force. The fall in        that of the completion of the internal market by 1992 . The
inflation continued, helped by the evolution of food prices,         strong growth in employment was likewise a positive result
so that the official objective will probably be achieved (5% ,       and confirmation of cyclical buoyancy and renewed business
on a twelve-month basis, for the consumer price index by the         confidence: non-agricultural employment is likely to increase
end of 1987 ).                                                       by 3,3% in 1987 and 2,4% in 1988 , although much of this
                                                                     will be in the form of part-time or temporary work contracts .
                                                                     With the activity rate and the female labour force
The main tendencies observed in 1987 should continue in              participation rate relatively low, the positive employment
 1988 , by and large; real GDP should grow by approximately          trend has prompted many 'discouraged workers' to enter the
3,75% . Domestic demand is likely to remain buoyant but              labour market. As a result, the labour force is growing a good
may slow down a little, with this movement apparent in both          deal more rapidly than the population of working age. In the
consumption and investment. In particular, following the             circumstances, employment will need to rise strongly over
surge in productive investment in 1986 / 1987, the renewed           many years if the level of unemployment is to come down
fall of enterprises' financing capacity may well exert a             significantly.
moderating influence. Exports, moreover, are likely to slow
down slightly, notwithstanding some improvement in
markets .
                                                                     Following the breakdown of the social dialogue in early
                                                                      1987 , the Government, in an effort to secure greater
                                                                     industrial peace and rule out the risk of wages getting out of
The current account surplus will probably go on shrinking            control in the years ahead , took the initiative in the summer
and show a moderate deficit (0,5% of GDP) as a result of the         of proposing the conclusion of a new social pact for the
buoyancy of imports , which is attributable mainly to the            remaining period of the current Parliament ( 1988 to 1990 ).
continuing wide difference between the growth of domestic            Although conclusion of such a pact has come up against
demand in Spain and elsewhere in the Community.                      difficulties, consulations as wide-ranging as possible should
Employment growth , while slower, will still be significant at       be held, not only on the evolution of wages and salaries and
 a rate of 1 ,7% , whereas the unemployment rate is expected         working conditions, but also on the economic and social
to decline only slightly because of the strong growth of the         strategy for the medium term .
labour force. The disinflation process is likely to continue
despite a somewhat faster increase in import prices .
                                                                     The drive to reduce the general government borrowing
The Governments' economic policy, which has been broadly              requirement should help to cut it from 5,7% of GDP in 1986
 unchanged since 1983 , remains consistent with the                  to 5,0% in 1987 and 4,9% in 1988 . On the revenue side,
guidelines of the cooperative growth strategy for more                maintenance of the main direct tax rates and scales in 1987
employment. Its main focus is the elimination of the                  and greater efficiency in collection will probably produce a
macroeconomic disequilibria — of which unemployment is                significant measure of fiscal drag. On the expenditure side,
clearly the most worrying — and the modernization of the              targets have been widely missed in 1987 despite the
 ---pagebreak--- 31 . 12 . 87                             Official Journal of the European Communities                              No L 394 / 51
moderation in subsidies to public enterprises. There will           because of the scale of the imbalances on the labour market
therefore have to be effective control of expenditure in 1988       but also in order to reduce inflation and improve the
if the general government borrowing requirement is to be            competitiveness of the economy. Excessive wage increases
reduced and any room created for lower direct taxes and             would in particular lead to an unduly sharp upsurge in
social security contributions. Monetary policy had to deal          private consumption, sucking in even more imports.
with some strains in the first half of 1987 as the growth of
monetary aggregates was in excess of previously set
objectives. This overshooting was due to various factors:
strong loan demand from the private sector, higher than             In a medium-term context, the current account balance may
expected economic growth, shifts in the portofolio mix              well become an increasingly severe constraint: even on an
towards more liquid assets and, more recently, an upsurge in        optimistic view of the modernization of the capital stock,
monetary financing by the public sector as well as an increase      domestic supply will for years to come remain insufficient to
in the external counterpart. Following a sharp increase in the      counteract the combined effects of an increase in the rate of
spring, the level of short-term interest rates declined a little    import penetration caused by the buoyancy of the economy
after the summer, but this still leaves them relatively high .      and a growth rate of intra-Community trade that is lower
What is more, long-term interest rates have been affected by        than would result from general application of the cooperative
this movement even though inflationary expectations remain          strategy for more employment. Imports must therefore be
favourable. This means that putting interest rates back on a        expected to grow more rapidly than exports and the trade
downward path requires and appropriate mix of budget                deficit to continue to widen. Even if the trend of the balance
management and monetary policy geared to disinflation.              on invisible transactions is likely to provide partial
                                                                    compensation, the authorities must take care to ensure that
                                                                    the deterioration in net borrowing of the nation does not
For employment to go on improving, there is a need for              place an excessive burden on enterprises. The general
 strong and indeed faster economic growth, with the emphasis        government deficit must therefore be reduced to a level well
 on productive investment and exports. Economic policy              below 5% of GDP in 1988 so as to free extra financial
 must give priority to the moderation of wage costs, not only       resources for strong growth in productive investments.
 ---pagebreak--- No L 394 / 52                                      Official Journal of the European Communities                                           31 . 12 . 87
                                                      Spain: Main economic aggregates 1983 to 1988
                                                                                                                            (Annual percentage changes)
                                                          1983            1984             1985            1986 (')      1987 ( 2 )        1988 (2 )
                         C value                           13.6            13.0             10,9             15.1          10,0               7,9
Gross domestic          J     ,
product                1 volume                             1,8             1,9              2,1              3,5            4.1              3,7
                         I deflator                        11,6            10,9              8,6             11.2            5,7              4,1
Private consumption deflator                               12.4            10,9              8,3              8,9            5,4              4,2
Gross
capital
         fixed           f Private
                       •< public
                                                          - 2,1
                                                          - 5,2
                                                                          - 7,2
                                                                            8,5
                                                                                             0,8
                                                                                            20,7
                                                                                                             14.1
                                                                                                              2,1
                                                                                                                           12,5
                                                                                                                           12,5
                                                                                                                                              9,4
                                                                                                                                              7,2
formation volume 1             ^                          - 2,5           - 5,1              3,9             11,9          12,5               9,0
     of which : construction                              - 2,0           - 5,4              2,0              6,9            9,4              6,9
                 equipment                                - 3,5           - 4,6              7.1             20.2          17,0              12,0
Domestic demand at constant prices                          0,3             0,0              2.3              6,5            6.2              4,8
Gap with respect to other Community
countries ( 3 )                                           - 1,2           - 2,3              0,5              3,0            3.4              2,5
compensation             f nom'na^                         16,0            10.1              9,9              8,7            6,5              5,3
of employees           ■< real A ( 4 )                      3,9           - 0,7              1.2            - 2,3            0,8              1,1
per head                                                    3.2           - 0,7              1.4            - 0,1            1,0              1,0
Productivity ( 5)                                           2,8             3,9              3.3              1,5            1,7              1,9
Real unit labour costs                                      1,0           - 4,4            - 2,1            - 3,7         - 0,9             - 0,8
Competitiveness ( s )                                   - 12,1              0,6              0,2              3,2            0,9            - 0,1
Employment                                                - 1,0           - 2,0            - 1,2              2,0            2,4              1,7
Registered unemployed as %
of the civilian labour force ( 7 )                         18.7            20,7            22,0             21,6          20,8              20,5
Current balance as % of GDP                               - 1,5             1,3              1,7              2,0            0,6            - 0,4
Long-term interest rate                                    16,9            16,5             13.4             11,4          12,7              12,3
Money supply ( 8 )                                         16,0            13,3             12,9             12,2          12,0              10,0
Net lending or borrowing
requirement of general government
as % of GDP                                               - 4,8           - 5,5            - 6,7            - 5,7         - 5,0             - 4,9
Public debt as % of GDP                                   34.5             41,2            46.5             47,3          49,2              51,6
Public debt interest
as % of GDP                                                 1.3             2,0              3.4              3,9            3,7              3,7
(*)  Estimates of the Commission services, September 1987.
(2)  Forecasts of the Commission services , September 1987.
(3)  Differences in percentage points.
( 4) A: GDP deflator; B: private consumption deflator.
( 5) Gross value added per occupied person in the whole economy.
(')  Effective exchange rate {vis-cl- vis 19 industrial countries) on the basis of unit labour costs for the whole economy. Positive figure = loss of
     competitiveness.
(7) Eurostat definition.
(') End of year.
 ---pagebreak---                                                                                                                      No L 394 / 53
31 . 12 . 87                             Official Journal of the European Communities
                                                              FRANCE
Given that the international economic environment is                special measures have been successfully applied, in particular
turning out less favourable in 1987 than was expected in the        to combat unemployment among young people and
autumn of 1986 , it has been more difficult to achieve the          long-term unemployment; they include the organization of
objectives for growth and employment set by the                     sandwich courses and exemption from costs for firms
Government that took office following the elections of              recruiting new workers. The system of benefits for long-term
March 1986 . The growth of gross domestic product,                  jobseekers has been improved through elimination of the
estimated at 1,2% in real terms for 1987 as a whole, was            hiatus between exhaustion of entitlement to unemployment
entirely based on the expansion of domestic demand, the             insurance benefits and eligibility for State benefits.
external balance making a negative contribution. Despite
some downward revision of investment intentions due to the
deterioration of the international environment, productive          The macroeconomic conditions for an appreciable increase
investment was the most dynamic component of demand,                in employment continue to be fragile, however, since the
expanding considerably in distributive trades and private           expansion of activity is still being hampered by the external
industry, although it contracted in the large national              constraint and is subject to the achievement of greater
corporations and in agriculture. As investment by                   flexibility in the French economy.
 households rose by some 2% in real terms and as general
 government investment was also up , gross fixed capital
 formation as a whole rose only slightly less than the 3%            The slowdown in domestic costs deriving from wage
 recorded last year. Private consumption, on the other hand,         restraint and, to a lesser extent, the realignment of January
 lost momentum , mainly because of the slower increase in            1987 led to gains in European market shares that partially
 wage incomes. Thus, the rate of growth of real domestic             offset losses on markets outside the Community . It is
 demand slowed down markedly , from 3,5% in 1986 to                  important to maintain the trend towards real wage
 2,2% in 1987 .                                                      moderation in 1988 , so that French exports can continue to
                                                                     benefit from an improvement in price competitiveness, and
                                                                     so that the rate of penetration on the French market, in
 The rise in comsumer prices remained fairly moderate: the           particular for consumer goods, can at least be stabilized.
 annual average rate was virtually unchanged from 1986 . The
 downward pull of import prices was almost imperceptible,            On the supply side, the authorities have continued their
 but the rise of domestic costs began to slow down .                 efforts to stimulate the adaptability of the economy. In 1986 ,
                                                                     their efforts mainly concerned the labour market, e.g. by
                                                                     adaptation of working time arrangements and conditions of
 Assuming no notable change in the real exchange rate, but           dismissal; in 1987 , the authorities concentrated on
  allowing for a slightly higher expansion of export markets         liberalizing capital movements and foreign exchange, and on
 than in 1987 , shipments abroad in 1988 should give the             improving the flexibility of the money market, as well as
  French economy a stronger boost. Domestic demand, on the           removing the last remaining price controls. All the measures
 other hand, may only strengthen slightly. The improvement           should contribute to greater adaptability to the changing
  in rates of return will underpin investment in plant and           conditions of demand , and should improve competitiveness .
  machinery, while residential buildings might continue to            They should be an incentive to more intense investment
  increase moderately. On the other hand, even though                 activity.
  disinflation is likely to progress in 1988 , private
  consumption will hardly expand by more than 1 ,7% in real
  terms since household's incomes , especially overall wage           The authorities have earmarked about three quarters of the
  incomes , are rising only modestly .                                revenue originally expected from privatization for the
                                                                      reimbursement of the public debt; the remaining quarter is to
                                                                      be used as endowment of capital to public-sector enterprises.
  In view of the fairly high rate of penetration on the French        Receipts in excess of the forecasts, some 20 billion francs,
  market, imports are likely to progress in parallel with             will be distributed on an analogous basis as between debt
  exports. The external balance is unlikely to make much              reimbursement and supply of capital to public enterprises. In
  positive contribution to the growth of GDP in real terms,           this way the financial rehabilitation and the reduction of the
  which might stand at about 1,5 to 2% , a rate that does not         level of debt of these enterprises will be brought to an
  hold out hope for a reduction in unemployment. Despite the          end .
  rising trend of prices for oil and other raw materials, the
   terms of trade may improve somewhat. The balance of
  payments on current account (national accounts definition)          Monetary policy should also contribute to the expansion of
   will probably be in equilibrium after a slight deficit in          productive investment through the reduction in nominal and
   1987 .                                                             real interest rates. Form 1 January 1987, credit controls were
                                                                      discontinued and replaced by the use of interest rates as the
                                                                      main regulatory factor. Exchange controls were relaxed in
   The problem of unemployment is still the major concern of           several stages. By harmonizing the maturities Treasury bills
   the French authorities. Since the middle of 1986 , a series of     with those of commercial paper issued by firms (billets de
 ---pagebreak--- No L 394 / 54                            Official Journal of the European Communities                                     31 . 12 . 87
trSsorerie) and negotiable deposit certificates issued by           Control of public finances is vital not only from this point of
banks, the authorities have decompartmentalized the market          view but also to contain domestic demand within limits
in these securities, thus making it more active. Henceforth ,       compatible with external equilibrium. The Government's
firms' borrowing costs will be determined by conditions on          aim is to balance, by 1989 , the central government budget
the money market rather than by commercial banks' base              net of interest payments, i.e. to achieve a deficit equivalent to
rates .                                                             about 2% of gross domestic product; budgetary policy
                                                                    intentions for 1988 are consistent with this line . As the
                                                                    Government has also committed itself to reducing the tax
This package of measures can influence the behaviour of the         burden on firms and households (including the reduction of
monetary aggregates and establish a more direct link with the       VAT on certain products) in 1988 by about 30 billion francs
interest rates applied on international markets. Thus,              (some 0,5% of GDP), the increase in public expenditure will
following increased demand for certificates of deposit, the         have to be limited to about 2% in cash terms . Savings will be
growth of M3 has tended in 1987 (figures at end July 1987)          made mainly on operating expenditure and subsidies to
to increase faster than the upper limit on the monetary             public sector firms. The net central government borrowing
authorities' target range, while Ml and M2 developed more           requirement might thus not exceed FF 115 billion.
slowly than expected . After a sudden spurt immediately prior       Moreover, the equilibrium of social security accounts might
to the realignment of 12 January 1987 , interest rates              require further efforts to complement the measures taken in
subsequently gradually declined .                                   May 1987: an increase in social security contributions and a
                                                                    plan to streamline expenditure on health . As wage
For 1988 , the monetary authorities could choose rates of           moderation and widespread unemployment place a damper
expansion for the monetary aggregates close to the rate of          on revenue while the rise in benefits continues, further
increase in nominal national income. The favourable                 pressure is put on the financial situation of the social security
development of the inflation rate, which is tending to align        funds .
itself on that of other Community countries such as Germany
and the Netherlands , and the consequent decline in
inflationary expectations, could contribute to a sharper            The stance of the public finances as a whole seems consistent
decline in both short-term and long-term interest rates. The        with the requirements of the present situation and outlook.
extent of the decline should be determined in particular by         However, if present forecasts for the world economy turned
the drain on financial markets exercised by the Treasury: if,       out to be less favourable than currently envisaged , there
 as expected, that drain is limited, conditions conducive to a      would be grounds, within the framework of international
fairly steady reduction in real interest rates would be             cooperation, for remaining prepared to reconsider the stance
created .                                                           of budgetary policy.
 ---pagebreak--- 31 . 12 . 87                                        Official Journal of the European Communities                                          No L 394 / 55
                                                      France: Main economic aggregates 1983 to 1988
                                                                                                                                (Annual percentage changes)
                                                           1983              1984          1985             1986              1987 (>)         1988 (')
                         C value                            10,5               8,9           7,5              6,9                4,5              4,6
Gross domestic J vojume                                      0,7               1,4           1,7              2,1                1,2              1,9
product                  |                                                                                                                        2,6
                         I deflator                          9,7               7,5           5,7              4,8                3,3
Private consumption deflator                                 9,7               7,5           5,7              2.5                3,1              2,6
                                                           - 3,6             - 2,4           0,2              2,1                2,3              2,8
Gross fixed              f P"vate
capital                 ■< public                          - 3,6             - 1,6           6,2              7,6                1,4              2,0
formation volume I             j                           - 3,6             - 2,3                            3,0                2,2              2,7
     of which : construction                               - 2,9             - 3,4           0,2              1,4                1,8              2,3
                 equipment                                 - 4,1             - 1,4           1.8              4,3                2,5              3,0
Domestic demand at constant prices                         - 0,4               0,6           2,2              3.5                2,2              2,0
Gap with respect to other
Community countries (2 )                                   - 1,7             - 1,6         - 0,3              0,0              - 0,7            - 0,5
^                         f nominal                         10,1               8,6           6,7              4,0                3,0              3,5
Compensation
of employees            < real A ( 3 )                       0,4               1,0           0,9            - 0,8              - 0,3              0,9
per head                  ^     B (3)                         0,4              1,0           0,9              1,5              - 0,1              0,9
Productivity (4 )                                             1,3              2,5           2,0              1,7                1,4              1,9
Real unit labour costs                                     - 0,9             - 1,5         - 1,1            - 2,5              - 1,7            - 1,0
Rates of return ( 5 )                                         3,2             16,9           5.8             13,5                1,5              1,5
     idem ( 1970 = 100 )                                    52,2              61,0          64,6             73,3               74,4             75,5
Competitiveness ( 6 )                                      - 2,9             - 2,6           1,7              4,2              - 0,5            - 1,5
Employment                                                 - 0,6             - 1,0         - 0,3              0,3              - 0,2              0,0
Registered unemployed as %
of the civilian labour force ( 7 )                            8,8              9,9          10,3             10,5               10,7             11,0
Current balance as % of GDP ( 8 )                          - 0,9             - 0,1           0,0              0,6                0,0              0,0
Long-term interest rate                                     14,4              13,4          10,9              8,4                9,0              8,5
Money supply ( ®)                                           11,2               8,3           5,6              4,4                6,3              6,0
Net lending or borrowing
requirement of general government
as % of GDP                                                - 3,2             - 2,7         - 2,9            - 2,9              - 2,8            - 2,3
Public debt as % of GDP                                     30,7              32,9          35,2             37,0               38,9             40,3
Public debt interest
as % of GDP                                                   2,6              2,8           2.8              2,8                2,8              2,7
(') Forecasts of the Commission services.
(2 ) Differences in percentage points.
(3 ) A: GDP deflator; B: private consumption deflator.
(4 ) Gross value added per occupied person in the whole economy.
( 5 ) Net operating surplus on the net capital stock of current replacement cost.
(s) Effective exchange rate (vis-à-vis 19 industrial countries) on the basis of unit labour costs for the whole economy. Positive figure = loss of
      competitiveness.
( 7) Eurostat definition.
(') On the basis of national accounts definitions. The corresponding figures on the basis of Bank of France definitions (current balance of payments) are as
      follows :
          1981         1982        1983         1984         1985       1986       1987       1988
          - 0,8        - 2,2      - 0,9        - 0,2           0         0,5        0,0        0,0
( ® ) End of year.
 ---pagebreak--- No L 394 / 56                             Official Journal of the European Communities                                   31 . 12 . 87
                                                              IRELAND
In Ireland, economic recovery is proceeding in 1987 at a slow        legislation, administrative costs of employment — which
but steady pace. Despite the appreciable tightening of an            could also be examined . Meanwhile , moderation in wages is
already restrictive budgetary stance , real GDP should rise by       essential to protect existing levels of employment. Training
over 2% this year after zero growth in 1986 . Private                and marginal employment schemes remain an important
consumption continues to expand moderately, but aggregate            short-term response to the difficulties in the labour market.
investment has developed unevenly . While reductions in              In the context of vocational training, greater emphasis needs
domestic interest rates are supporting investment in plant           to be given to the development of management and
and equipment, perfomance in the construction sector                 marketing skills in order to support the parallel efforts being
remains depressed by falling demand for private housing and          made to expand export-based industry and services .
reduced public sector activity. On the trade side , export
volumes have risen sharply this year and a substantial trade
surplus has emerged as imports have developed more slowly.           Budgetary policy in 1987 has been characterized by a
Consumer price inflation is expected to average 3% in 1987 ,         relatively large fiscal contraction . As a percentage of GDP ,
the lowest rate since the 1960's , helped by low import and          the Exchequer Borrowing Requirement is expected to fall by
wholesale prices and the lagged impact of the 1986 oil price         some 2% to under 10% . The Current Budget Deficit should
reductions . The Irish pound's exchange rate against the             fall by more than 1% of GDP. The adjustment in the public
currencies of major trading partners has remained stable             finances is being achieved through cutting or deferring
throughout most of the year, while the significant easing in         capital expenditure, miscellaneous savings in the provision of
domestic interest rates is occuring in response to the               services and a tight control on increases in the Exchequer
determined budgetary policy and developments on                      wage bill. Indeed, wage moderation throughout the public
international money markets. The unemployment rate,                  sector is a key element of the budgetary strategy as a means to
however , has continued to edge upwards in the absence of            control State expenditure and encourage more moderate
significant growth in total employment.                              wage demands in other sectors of the economy. In this, as in
                                                                     many other areas, budgetary policy has been broadly
                                                                     successful in 1987 and has facilitated a sustained decline in
                                                                     real domestic interest rates , which began the year at over
Economic growth should continue in 1988 , albeit at a                10% at the short end .
modest rate in the context of a further sharp budgetary
contraction . The slow upward trend in private consumption
may continue, while the improvement in business confidence
inspired by further progress in reducing the budget deficit          Persistent imbalances in the public finances are imposing a
                                                                     serious constraint on economic growth through high interest
should help to stimulate private investment . Continued low
price inflation and the likelihood of a sustained reduction in       rates , heavy taxation and the diversion of public funds into
domestic interest rates will help maintain the present level of      debt-servicing and away from more productive uses , and
competitiveness of the export sector and, while import               significant budgetary adjustments are required over a period
volumes should rise in phase with consumer demand ,                  of years. In October, the Government published its
another healthy trade balance is probable . Growth in GDP is         'Programme for National Recovery' following negotiations
expected to be about 1 ,25% in real terms in 1988 . This may         with the social partners . The programme extends over a
be sufficient to entail some expansion of private sector             three-year period and reaffirms the Government's
                                                                     commitment to medium-term budgetary adjustment leading
employment outside of agriculture , which could help to              to a stabilization in the national debt / GNP ratio during the
contain the upward drift in the unemployment rate .
                                                                     course of the programme . Stabilization of the public
                                                                     debt / GDP ratio , on the basis of feasible medium-term
                                                                     growth and interest rate assumptions , would require a
The public finances and unemployment are undoubtedly the             reduction of the Exchequer Borrowing Requirement to about
major structural problems facing the economy. While recent           5 to 6% of GDP. This implies further substantial real
demographic developments, including emigration trends,               reductions in non-interest expenditure over the coming
have offset the strong underlying growth in the labour               years .
supply, no significant reduction in unemployment can be
expected without sustained growth in employment. This in
turn will depend on a stronger performance by the economy            In 1988 , therefore , budgetary policy must continue to be
in general . The re-establishment of a favourable environment        restrictive ; it would be appropriate to achieve another staged
for growth through further budgetary adjustment is thus an           reduction in the Exchequer Borrowing Requirement of at
essential precondition for progress in reducing                      least one and a half percentage points of GDP from the
unemployment. In addition , to ensure that growth has a high         expected outturn for this year. This stance should be
employment content, more attention must be given to the              consistent with continued real GDP growth in 1988 . This
supply side of the economy, where greater flexibility is              financial constraint precludes any reduction in the overall
desirable . Changes in the wage formation process in the early        burden of taxation in 1988 , although the budgetary
part of this decade have promoted a more flexible and                 authorities should be considering possible options to widen
cost-sensitive evolution of wages , but there are other areas of     the tax base and rationalize the tax structure in future years.
the labour market — working patterns , protective                     In deciding on possible cuts in public expenditure , it seems
 ---pagebreak---                                                                                                                  No L 394 / 57
31 . 12 . 87                           Official Journal of the European Communities
appropriate to concentrate on those areas where savings are       sustained by the development of investment and exports. It is
also possible in the medium term. An obvious area for             essential that the moderation involved in the pay
consideration is the Exchequer wage bill. In view of the          arrangements associated with the Programme for National
difficult employment conditions, wage moderation in the           Recovery should be realized. The expansion of social
economy as a whole is a crucial factor in order to maintain       transfers should also be limited and greater emphasis placed
competitiveness and to restore a healthy growth process           on more effective matching of benefits with needs.
 ---pagebreak--- No L 394 / 58                                       Official Journal of the European Communities                                         31 . 12 . 87
                                                     Ireland: Main economic aggregates 1983 to 1988
                                                                                                                          (Annual percentage changes)
                                                           1983            1984                 1985     1986 (')       1987 (2 )        1988 (2 )
                         f value                             9,7            11,1                  6,1       5,4            5,5               4,1
Gross domestic 1 vojume                                   - 0,6              3,2                  1,1     - 0,3            2,5               1,3
product                  |
                         L deflator                        10,3              7.7                  5,0       5,7            2,9               2,7
Private consumption deflator                                 8,6             9,4                  4,5       3,6            3,0               3,2
/->       c   j          C rprivate                                                               4,7       2,0            5,3               6,8
Gross fixed
capital                     public                                                             - 5,2      - 8,0          - 8,0            - 6,5
formation volume \              j                         - 9,0            - 2,4               - 4,4      - 2,3          - 0,7               1,0
     of which: construction                              - 14,4            - 3,9               - 9,6      - 5,3          - 5,0            - 4,1
                  equipment                               - 2,3            - 0,9                  0,9       0,3            3.0               5,0
Domestic demand at constant prices                        - 2,9              0,2               - 1,3        0,8            0,0               0,2
Gap with respect to other
Community countries ( 3 )                                 - 2,9            - 1,7               - 3,6      - 2,9          - 2,8            - 2,3
Compensation             f nom^na'                         11,9             11,8                  6.5       6,1            6.1               4,9
of employees            ■< real A (4)                     - 1,4              3,8                  1,4       0,4            3,1               2,1
per head                         R^                          3.0             2,2                  1,9       2,4            3,0               1,6
Productivity (5)                                             0,0             6,2                  4.6       0,1            2,8               1,1
Real unit labour costs (s )                               - 0,2            - 0,5               - 2,3        0,3            0,3               0,9
Competitiveness ( 7)                                         2,4           - 2,2               - 0,2        7,4          - 2,1               0,8
Employment                                                - 1,9            - 1,9               - 2,2      - 0,4          - 0,3               0,2
Registered unemployed as %
of the civilian labour force (*)                           14,9             16,6                17,9       18,4           18,5             18,2
Current balance as % of GDP                               - 6,3            - 5,5               - 3,2      - 1,8          - 1,1            - 0,3
Long-term interest rate                                    13,9             14,6                12,6       11,1           11,3             10,5
Money supply (')                                             5,6            10,1                  5,3     - 1,0            9,3               6,4
Net lending or borrowing of general
government as % of GDP                                   - 11,8            - 9,7              - 11,4     - 11,2         - 10,0            - 7,5
Public debt as % of GDP                                   107,4           113,3                117,9      133,2          136,0            138,0
Public debt interest
as % of GDP                                                  9.1             9,6                10,6       10,9           10,3             10,2
  ')  Estimates of the Commission services, September 1987.
  2)  Forecasts of the Commission services, September 1987, on the basis of present policies.
  J)  Differences in percentage points.
  4)  Deflated by: A = GDP deflator; B = private consumption deflator.
  5)  Gross value added per occupied person in the whole economy.
  *)  Ratio of real wages per head to productivity.
  7) Effective exchange rate (vis-it-vis 19 industrial countries) on the basis of unit labour costs for the whole economy; positive figure = loss of
      competitiveness.
  *) Eurostat definition.
  ®) M3 ; end of year.
 ---pagebreak---                                             Official Journal of the European Communities                                    No L 394 / 59
31 . 12 . 87
                                                                  ITALY
In Italy, a rapid expansion of domestic demand and imports              accounts (*), the debt/ GDP ratio has now reached 90% .
has resulted in 1 987 from the delayed effects of the reverse oil       The medium-term plan approved in June 1986 aimed at
shock, from the wage increases agreed at the beginning of the           stabilizing this ratio by 1990, by eliminating the deficit net of
year within the framework of the three-yearly collective                interest, without changing the level of taxation, and by
negotiations and from some acceleration in the pace of public           keeping debt servicing costs at about 6% of GDP. This
expenditure. The strength of demand has exerted downward                would lead to a reduction of almost half in the Treasury
pressure on the trade balance, leading the authorities, soon            deficit as a percentage of GDP compared with the level
after the formation of the new government following the                 reached in 1986 , subject to real growth averaging about
early elections on 15 June, to tighten monetary policy and              3,5 % from now to 1990 and the inflation rate coming down
take a series of tax measures , in order to restrain household          to 3% from 1988 . However, the weaker-than-expected
consumption and avoid a rekindling of inflationary                      development of economic activity and the trend in real
expectations .                                                          interest rates since the end of 1986 required an updating of
                                                                        these projections. The new macroeconomic framework
                                                                        foresees growth slightly above 3 % per year for the period
                                                                        1988 to 1990, and a continued reduction in inflation. The
For 1987 as a whole , domestic demand will rise by over 4 % ,           objective of bringing the Treasury net borrowing
the real external balance will deteriorate three times as fast as
                                                                        requirement excluding interest payments into balance in
in 1986 — due also to the weakening of exports — and the                 1990 is reaffirmed, which would still imply a small increase
growth of GDP will be about 3 % . Despite a fairly favourable           in the public debt / GDP ratio by the end of the decade.
year for tourism, the surplus achieved last year on current
 account will to a large extent disappear. The revival in
 inflation recorded since July is likely to continue for a period
 following the increases in a range of indirect taxes. Although         This objective appears ambitious, especially in the light of
 employment increased once again in the services sector, flat            public finance developments in 1987. Whereas the Treasury
 export markets and some worsening in business output                    borrowing requirement should not have been more than Lit
 prospects held back industrial recruitment, and the                     102 000 000 million ( 10,5 % of GDP) in 1987 , the outcome
 unemployment rate continued to rise .                                   will be closer to Lit 1 1 0 000 000 million, due to the faster rate
                                                                         of expenditure caused by, among other factors, the
                                                                         implementation of the new wage agreements. In 1988 , the
 In 1988 , some slowing in household disposable income ,                 government, in its revised draft budget agreed in November,
 together with the budgetary and credit measures, should lead            intends to limit the borrowing requirement to Lit
 to a slightly less rapid growth of domestic demand. However,            103 500 000 million, which would reduce the deficit to
 an acceleration of exports, which are expected to benefit               9,9% of GDP, only a litle below the initial objective for
 from stronger growth of international markets, should allow             1987, and still leave a margin of two and a half percentage
 the negative contribution to growth from the real foreign               points compared with the deficit aimed for in 1990 (about
 balance to be reduced significantly. In total, real GDP should          7,5 % of GDP). The revised budget proposals link reductions
 grow by nearly 3 % , only slightly less than in 1987. In these          in personal income tax (IRPEF) to the achievement of the
 conditions, and assuming no change in the terms of trade, the           targeted inflation rate and postpone the VAT increase.
 balance of payments on current account should show only a               Additional revenues are foreseen , especially from increases in
 fairly small deficit. The unemployment rate is unlikely to              certain indirect taxes and through a speeding up in the
 change much compared with 1987 .                                        collection of direct taxes. Nevertheless , substantial spending         j
                                                                         cuts, mainly to be concentrated on health expenditure, will
                                                                         be necessary to limit the public deficit in 1988 . This
  Some slowing in inflation during the course of 1988 seems
                                                                         represents an essential step towards achieving the budget
                                                                         balance targeted for 1990, which is crucial not only for the
 likely because of the inclusion in the new collective                   equilibrium of the public finances but also for the return to
  agreements of a commitment that no wage increases will be              lasting monetary stability.
  granted beyond those already settled, taking into account
  also the restrictive nature of monetary policy. The extent of
  the slowdown in prices is still uncertain, however. The
  Government's target of 4,5 % inflation on average for 1988              The increasingly restrictive stance of monetary policy in
  presupposes some deceleration in prices during the year (by             1987 was made necessary by the brisk acceleration in private
  about one percentage point from January to December), but               sector credit demand and by the overshooting of the budget
  this does not appear absolutely guaranteed, given the trend in          target. The limits set for growth by the end of the year of the
  productivity and the development of the public finances,                main credit aggregates (6 to 9 % for private sector credit and
  especially in regard to expenditure.
                                                                          (>) Revised national accounts published in 1987 raised GDP by
  Indeed, budgetary policy still faces the structural problem                 17,7 % in 1986 , which automatically reduced the relative size, as
  inherent in the size of the deficit and the persistent upward               a percentage of GDP, of a series of budget indicators (public
  trend in the public debt. On the basis of the revised national              debt, borrowing requirement, burden of taxation , etc.).
 ---pagebreak--- No L 394 / 60                              Official Journal of the European Communities                                    31 . 12 . 87
11% for total domestic credit on the basis of a Treasury              favourable results recorded in recent years . With a view to
deficit of Lit 100 000 billion) were exceeded during the first        the creation of a single market by 1992 , it seems necessary to
half of the year. The financial market situation continued to         reinforce internal structures so that the opening of markets
tighten during the third quarter, obliging the authorities to         can contribute to raising the growth potential. From this
raise interest rates on several occasions. These precautionary        point of view, healthier public finances and freedom of
moves must be seen against the background of the further              capital movements are two priority objectives. The opening
measures introduced in May to liberalize capital movements,           of capital markets should enable financial institutions to
abolishing the compulsory interest-free deposit required on           diversify investment opportunities and to increase the fluidity
purchases of foreign securities. The Commission was thus              of financial circuits. The authorities have a special role to
able , early in August 1987 , to abrogate the authorization           play in reinforcing productive capacity; this presupposes an
granted to Italy under the safeguard clause of Article 108 ( 3 )      improvement in economic infrastructure, and also a
of the EEC Treaty . However, with capital outflows growing            reorganization of public services. In the same context, it
in scale during the summer, and since part of domestic credit         would seem desirable to reconsider energy policy options, in
seems to have been used for such operations , and also for            view of Italy's strong dependence on imported energy, and of
other short-term transactions , the monetary authorities have         the risk which an increase in the oil bill would bring for the
recently reintroduced measures restricting bank credit. The           balance of payments.
potential risks attaching to domestic and external
equilibrium make a moderating stance desirable for
monetary policy in 1988 . It would be advisable to retain
indicative rates of expansion for the main aggregates                 The defence of the competitive capacity of the Italian
compatible with nominal GDP growth close to 7,5% .                    economy is the key factor for continued healthy expansion
                                                                      and a reduction in unemployment. Although economic
The reform of wage indexation and the wage rises foreseen in          growth has been relatively more satisfactory in Italy over the
the next few years at branch level are liable to encourage a          past few years than in most of the other Community
gradual slowdown in prices, providing there are no wage               countries, it has been associated , except in 1986 , with a
increases other than those already planned; but rapid                 considerable positive differential in the growth of domestic
disinflation seems unlikely without a strong expansion of             demand in relation to the rest of the Community, while the
investment , the only means of durably reducing external              real exchange rate of the lira appreciated up to the beginning
dependence and speeding up productivity gains . Business              of 1987. Monetary and budgetary policies must together
investment should become the key factor in keeping the                contribute to limiting both the rise in costs and the increase in
growth of the Italian economy sufficiently rapid and                  domestic demand to an extent compatible with maintaining
healthy.                                                              external equilibrium. The authorities would obviously have
                                                                      more margin for manoeuvre if joint action taken by the
An economic policy stance based on monetary strictness and            Member States managed to increase intra-Community
flexibility of wage adjustments is certainly behind the                trade .
 ---pagebreak---                                                                                                                                     No L 394 / 61
31 . 12 . 87                                      Official Journal of the European Communities
                                                    Italy: Main economic aggregates 1983 to 1988
                                                                                                                          (Annual percentage changes)
                                                         1983             1984               1985         1986          1987 (*)         1988 (M
                          C value                        15,9              14.1                11,8        11,0            8,7              7,6
Gross domestic 1 volume                                    0,5              3,5                 2.7          2,7           3,0              2,8
product                                                                                                      8,0           5,5              4,7
                           L deflator                     15,3             10.2                 8,9
                                                          14,9             11,4                 9,3          6.3           4,8              4,9
Private consumption deflator
Gross fixed                f Private
capital                  -< public
formation volume 1 ■             j                       - 1,6               4,4                 3.3         1,2            3,5              2.8
     of which : construction                                0,8              0,6              - 0,5        - 0,7            1,0              2,1
                                                         - 4,2               8,9                 7.4         3.1            6,0              3,5
                 equipment
                                                         - 0,4               4,4                 3.1         3.2            4,5              3,3
 Domestic demand at constant prices
 Gap with respect to other                                                                                 - 0,6            2,0              1,0
 Community countries (2 )                                - 1,8               3.0                 1,1
 _                         C nominal                      16,0             11,4                10,2          7,7            8,3              6,0
 Compensation                                                                                                               2,8              I,3
 of employees             -s real A ( 3 )                   0,6              1.1                 1.2       - 0,3
 per head                   ^        ^                      1,0                                  0,8         1.4            3,5              1,1
                                                            0,1              3,4                 1.8         1,9            3,0              2,1
 Productivity ( 4 )
                                                            1,0            - 2,6               - 0,5       - 0,6            0,3            - 1,1
 Real unit labour costs
 Competitiveness ( 5 )                                    11,9               2,0                 3,1        10.5            7,2              2 ?9
                                                            0,5              0,8                 1,4         0,8            0,3              0,2
 Employment
 Registered unemployed as %                                                                                                14,2             14,3
 of the civilian labour force ( 6 )                        10,9             11,9                12,9        13,0
                                                                                               - 0,7          0,8           0,2               0
 Current balance as % of GDP                                0,4            - 0,6
                                                           18,0             14,9                14,3        11,7           10,9             II,6
 Long-term interest rate
                                                           13,2             12,1                11,1          9.4           8,9               6.6
 Money supply (7)
 Net lending or borrowing
 requirement of general government                                                                        - 11,3         - 10,4           - 10,4
 as % of GDP                                            - 11,0            - 10,8             - 12,3
 Public debt as % of GDP                                   72,1             77,7                84,6        88.6           93,6             97,9
 Public debt interest
                                                             7,5              7,6                 8,1         8.5            7,7              7,9
  as % of GDP
  (*) Forecasts for the Commission services, September 1987, on the basis of present policies.
  (2 ) Differences in percentage points.
  (3) A: GDP deflator; B: private consumption deflator.
  (4) Gross value added per occupied person in the whole economy.                                               , ,           _ ..                    ,
  (5) Effective exchange rate (vis-el-vis 19 industrial countries) on the basis of unit labour costs for the whole economy. Positive figure - loss of
       competitiveness .
  (6 ) Eurostat definition.
  (7) End of year.
 ---pagebreak--- No L 394 / 62                              Official Journal of the European Communities                                 31 . 12 . 87
                                                           LUXEMBOURG
In Luxembourg, economic growth weakened in 1987 , and                 On the other hand, wage trends are disturbing, in view of the
the rate of expansion of gross domestic product in real terms         extreme openness of the Luxembourg economy and the need
fell to 2% . Households' consumption was boosted by an                not only to improve companies' profitability but also to
appreciable increase in their disposable incomes, sustained           safeguard their competitive position. For the economy as a
among other things by tax reductions ; but gross fixed capital        whole , per capita wages increased in real terms by 3,9% in
formation in industry, which had expanded strongly in                 1987 , and forecasts for 1988 point to a probable increase of
earlier years, was somewhat hesitant as demand weakened in            about 2,0% , well in excess of the simultaneous increase in
the steel sector . Slack sales of steel products also led to a        productivity (0,4% in 1987 and 1,2% in 1988 ). The
smaller rise in total exports . Imports also slowed down . The        accumulation of wage rises and social security charges could
inflation rate remained moderate thanks to the decline in             put a break on possibilities of economic development in the
import prices ; the rate of unemployment rose marginally .            longer term .
In 1 9 8 8 , gross domestic product should grow by about 1,8%
in real term . In view of the decline in sales of steel , the         The policy of diversification and of restructuring the
increase in total exports will be slow. Although the rise in per      productive apparatus has not only made the economy less
capita wages should be comparable with that of the previous           dependent on the steel industry, but has also enabled the
year, the benefit to households of the tax reductions will be         creation of new jobs. Moreover, specific measures such as
lower, and their disposable income will rise more slowly in           early retirement schemes have helped to keep the number of
real terms than in 1987 . Private consumption is consequently         unemployed at a very low level . The authorities have
expected to expand less rapidly. Corporate investment                 developed vocational training and guidance to absorb the
should continue on the slower trend that began in 1987 , and          persistent hard core of unemployment. Furthermore the
residential constructions should stabilize. The private               authorities intend to set up the legal framework necessary to
consumption deflator could speed up markedly as a result of           allow the flexibility of the labour market to be increased
higher import prices. Although the unemployment rate will             subject to the agreement of all the parties involved .
be little affected by labour shedding in the steel industry, it is
not likely to improve .
                                                                      In 1988 , general government net lending should be slightly
Economic policy in the Grand Duchy corresponds, from                  higher than in 1987 . The increase in public expenditure will
many points of view, to the main thrust of the cooperative            not be able to offset the effects of the weakness of export
growth strategy for more employment. Having served , in the           demand , but the reduction in the direct taxation on
first instance, to reconstitute the financial resources of            businesses , granted under the 1987 and 1988 budgets, will be
central government investment funds, the budgetary margin             a further effective aid to the policy of diversifying the
is now being used to reinforce the competitive position of            economic structure , and the reduction in personal taxation
firms , in particular by reducing direct taxation on                  should stimulate consumption. Nevertheless , some caution is
companies. The cumulative effect of measures of tax-relief            still called for in the management of expenditure since social
on firms and households will reach almost 3,7% of GDP in              policy measures (early retirement, pensions , public sector
1988 without endangering budgetary equilibrium.                       wages) are sure to reduce the available budgetary margin .
 ---pagebreak--- 31 . 12. 87                                      Official Journal of the European Communities                            No L 394 / 63
                                                Luxembourg: Main economic aggregates 1983 to 1988
                                                                                                               (Annual percentage changes)
                                                        1983               1984              1985  1986 (') 1987 ( 2 )        1988 (2 )
                         C value                        11,2                12,1               5,5    6,7      4,6               4,0
Gross domestic J volume                                   3,2                5,5               2,9    2,5      2,0               1,8
product                  |                                                                                                       2,2
                         I deflator                       7,7                6,3               2,5    4,1      2,5
Private consumption deflator                              8,i                6,4               3,3    0,3      0,5               2,3
                                                       - 8,0               - 0,6               2,6    5.3      2,8               1,2
Gross fixed               f P"vate
capital                 ■< public                      - 9,0               - 3,7               0,6    3,1      2,2               3,2
formation volume 1              j                      - 8,3               - 1,3               2,1    4,8      2,7               1,7
     of which : construction                           - 8,6               - 3,1               1,2    3,2      3,0               1,8
                 equipment                             - 7,5                 2,5               4,0    7,9      2,0               1,5
Domestic demand at constant prices                        0,5                1,7               0,8    3,7      3,3               2,1
Gap with respect to other
Community countries ( 3 )
              ^           C nominal                       6,9                7,0               4,1    4,0      4,4               4,2
Compensation
of employees            -< real A (4 )                 - 0,7                 0,7               1,5  - 0,2       1,8              1,9
per head                  ^        (4)                 - 1,1                 0,5               0,7    3,6       3,9              1,9
Productivity ( 5 )                                        3,9                4,6               1,6    0,4      0,4               1,2
Real unit labour costs                                 - 4,5               - 3,7             - 0,1  - 0,5       1,5              0,7
Employment                                              - 0,4                0,6               1,4    2,4       1,0              0,4
Registered unemployed as % of the
civilian labour force ( 6 )                               1,6                1,7               1,6    1,4       1,5              1,4
Current balance as % of GDP                              38.5               38,9              41,9   40,4    38,7               37,8
Long-term interest rate                                   9,8               10,3               9,5    8,7     ( 8,2 )
Money supply ( 7 )
Net lending or borrowing
requirement of general government
as % of GDP                                               0,2                2,0               4,4    3,9       2,8              3,1
Public debt as % of GDP                                  14.6               14,6              14,4   14,7    14,7               14,8
Public debt interest
as % of GDP                                               1,0                1,2               1,3    1,3       1,3              1,1
(') Estimates of the Commission services, September 1987.
(2 ) Forecasts of the Commission services, September 1987 , on the basis of present policies
( 3 ) Differences in percentage points.
(4) A: GDP deflator; B: private consumption deflator.
(5 ) Gross value added per occupied person in the whole economy.
(*) Eurostat definition .
( 7) End of year.
 ---pagebreak--- No L 394 / 64                              Official Journal of the European Communities                                    31 . 12 . 87
                                                        THE NETHERLANDS
In the Netherlands, the growth of GDP in volume terms                 households on the whole . The authorities are aiming to cut
slowed down in 1987 to a rate of some 1,7 % notably as a              the numbers unemployed by 200 000, bringing them down to
result of weaker domestic demand . As in 1986 , private               500 000 by 1990 .
consumption, stimulated by a substantial increase in real
personal disposable incomes, expanded by nearly 3 % in
volume terms, but public consumption and investment                   On the budgetary side, the government programme provides
contracted. After rising strongly for a number of years,              for a reduction in the central government deficit from 8 % of
business investment and especially purchases of plant and             net national income in 1987 to 7 % in 1988 , 6 % in 1989 and
machinery fell off appreciably while public investment                5,25 % in 1990 . In view of the commitment to stabilize the
declined mainly because of the completion of the large water          burden of taxes and parafiscal charges, the burden of
engineering projects. While export sales of natural gas were          adjustment will fall mainly on expenditure. Substantial
again down on the level of the previous year, manufactured            savings will be achieved by freezing social transfer payments,
exports were relatively buoyant in spite of the large                 making a substantial reduction in subsidies to the private
appreciation of the guilder in 1986 and 1987. The positive            sector and cutting the numbers employed in the civil
export result was obtained by reducing profit margins.                service .
                                                                      The achievement of these aims is based on fairly favourable
The number of persons employed grew by 1,4 % in 1987                   assumptions      for the      international  environment,       a
partly as a result of the expansion of part-time work and              stabilization of the labour income share in GDP between
unemployment contracted. The trade surplus declined                    1986 and 1990 and an increase in employment, expressed in
considerably and the balance on current transactions                   man-years, of over 3 % during the same period accompanied
consequently fell from almost 3 % of GDP in 1986 to 1,9 %              by a reduction in working hours and a spread of part-time
in 1987 .                                                              work. Any economic outturn which is less favourable than
                                                                       forecast would require an additional effort in order to
                                                                       safeguard the adjustment desired by the authorities.
In 1988 , the growth rate of gross domestic product, affected
 as in 1987 by a declining energy production , is again                Since 1983 , real progress has been made in the consolidation
 expected to slow down and should barely reach 1,2 % in real           of public finances, making it possible to reduce the net
 terms. Exports of goods should increase at nearly the same
 rate as in 1987 , but the growth of domestic demand will              general government deficit; however, the international
                                                                       environment and the loss of non-tax revenue in 1986 and
 probably weaken markedly. The increase in personal                    1987 imposed a halt on the advance towards the multiannual
 disposable incomes will hardly reach 1 ,2 % in real terms, in         targets. In 1988 , the main thrust of budgetary policy is
 particular because of the slow rate of rise of wages. Even            unlikely to be very different from that applied at present,
 assuming a fall in the savings ratio by comparison with 1987,         which is mainly geared to containing expenditure.
 private consumption should rise only slowly. Unless there is
 an appreciable improvement in the external environment, the
 volume of business investment will barely increase in 1988
                                                                       Higher than forecast growth in tax revenue led the
 and public investment should stagnate. After declining in             authorities to reduce the level of taxation on personal income
 1987, consumer prices might rise slightly, as the effects of          by F1 1,35 billion for 1988 . However, the possibility that
 lower natural gas and import prices gradually fade. Despite a         expenditure will exceed budget targets has forced the
 slight deterioration in the terms of trade, the balance of            government to impose further cuts in addition to those
 payments surplus on current account should stabilize at the           already planned in the government agreement. The final
 1987 level. The number of persons employed is expected to             result is a slight easing of the budget target (the central
 increase by about 1 % , partly as a result of the                     government deficit will probably be 7,2 % of NNI in 1988
 implementation of programmes to promote employment and                whereas the original target was 7 % , and the comparable
 training, and the extension of part-time working; the                 deficit for 1987 is 7,6 % ). The overshooting remains within
 unemployment rate should consequently fall to around 11%              acceptable limits, given the weak growth which does not
 of total labour force .
                                                                       favour efforts to restore healthy public finances . It does ,
                                                                       however, imply that expenditure cuts must be somewhat
                                                                       intensified over coming years if multiannual objectives are to
 The economic policy stance adopted since the autumn of                be achieved, in view of the steady rise in interest payment on
  1982, which has made possible an appreciable reduction in            the public debt until 1991 .
 the public sector deficit, an increase in employment and a
  more flexibly operating labour market, has been confirmed
  by the new government which took office in July 1986 . The            Central bank management gives high priority to the stability
  government agreement stresses the need to reduce major                of the parity of the guilder against the German mark. The
  imbalances — the budget deficit and the high level of                 interest rate differential required to support this aim might
  unemployment — without increasing the fiscal burden, and if           gradually narrow if expectations of price rises remain low.
  possible reducing it, and to maintain the purchasing power of         The propensity to invest should thus be stimulated. On the
 ---pagebreak---                                                                                                                       No L 394 / 65
31 . 12 . 87                             Official Journal of the European Communities
home front, monetary authorities reached an agreement with          overall moderation of real wage increases. The efforts to
the banks at the end of 1986 under which the latter will limit      reduce the rigidity of the labour market operation also
creation of liquidity to 11 to 12 % for two years. The targets      include a freeze on the minimum wage, which affects the
for increasing the money supply set by the central bank seem        range of primary incomes and which is important for the
appropriate to guarantee an adequate degree of liquidity for        evolution of companies' wage costs because of its close link
the economy, while helping to keep the rate of inflation            with the average wage. Insofar as the authorities have
down .                                                              formally withdrawn from the wage determination process,
                                                                    the development of real labour costs will depend more on
                                                                    market forces and on the attitude of the two sides of industry.
Budgetary policy, although restrictive, still involves spending     By lowering the tax burden on individuals the authorities
considerable resources on suitable training of workers and          contribute to the objective of wage moderation. As
job creation for younger and older jobseekers. In addition,         productivity gains are still low, real wage rises should remain
the decentralization of wage negotiations is continuing, and        very limited so as to encourage a process of investment-led
this will make it possible to adapt wages more closely to           growth, which started in 1985 and 1986 , but which has since
 sectoral increases in productivity and hence to continue the       tended to weaken once more .
 ---pagebreak---  No L 394 / 66                                      Official Journal of the European Communities                                        31.12.87
                                                   Netherlands: Main economic aggregates 1983 to 1988
                                                                                                                          (Annual percentage changes)
\                                                          1983              1984               1985     1986 (')       1987 ( 2 )       1988 ( 2 )
                           f value                           3,3               5,0                4,1       3,1            0,7              1,7
  Gross domestic J              ,                            1,4               3,2                2,3       2,4            1,7              1,2
  product
                           L deflator                        1,9               1,8                1,8       0,7          - 1,0              0,5
  Private consumption deflator                               2,7               2,0                2,5       0,2          - 0,8              1,0
  Gross fixed              f P"vate                          3,3               5,1                7,4       9,6            3,9              0,8
  capital                 ■< public                       - 4,6                7,6              - 7,7     - 8,8          - 1,1              0,0
  formation volume 1              j                          2,1               5,5                5,1       7,2            3,3              0,7
       of which : construction                            - 2,6                3.6              - 3,1       4,9            2,6              0,5
                   equipment                                10,0               8,2               16,9       9,9            4,1              0,9
  Domestic demand at constant prices                         1,5               1,7                2,5       3,9            2,3              1,0
  Gap with respect to other Community
  countries ( 3 )                                            0,4             - 0,5                0,2       0,2          - 0,3            - 1,4
  ^              .          C nominal                        3,2               0,2                1,4       1,6            1,9              1,6
  Compensation
  of employees            ■< real A (4 )                     1,3             - 1,5              - 0,4       0,8            3,0              1,1
  per head                           (<l)                    0,4             - 1,7              - 1,1       1,4            2,7              0,6
  Productivity ( s )                                         3,4               3,2                1,0       0,6            0,8              1,0
  Real unit labour costs                                   - 2,0             - 4,6              - 1,3       0,2            2,1              0,1
  Competitiveness (6 )                                     - 2,8             - 7,0              - 2,6       5,8            2,7            - 0,7
  Employment                                               - 1,9             - 0,1                1,3       1,8            0,9              0,2
  Registered unemployed as %
  of the civilian labour force ( 7 )                        14,0              14.3               13,1      12,1           11,4             11,0
  Current balance as % of GDP                                3,1               4,2                4,3       2,8            1,9              1,8
  Long-term interest rate                                    8,8               8,6                7,3       6,4            6,3              6,4
  Money supply ( g )                                        10,5               7,7               10,5       4,4            3,5              5,5
  Net lending or borrowing
  requirement of general government
  as % of GDP                                              - 6,4             - 6,3              - 4,7     - 4,7          - 5,6            - 5,9
  Public debt as % of GDP                                   61,9              66.4               69,9      73,0           79,3             85,2
  Public debt interest
  as % of GDP                                                5,7               5,9                6,0       6,0            6,0              5,9
  (')   Estimates of the Commission services, September 1987.
  (2 )  Forecasts of the Commission services, September 1987, on the basis of present policies.
  (3)   Differences in percentage points.
  (4 )  A = GDP deflator; B = private consumption deflator.
  (5)   Gross value added per occupied person in the whole economy.
  (*) Effective exchange rate (vis-i-vis 19 industrial countries) on the basis of unit labour costs for the whole economy. Positive figure = loss of
        competitiveness .
  (7) Eurostat definition .
  (*) End of year.
 ---pagebreak--- 31 . 12 . 87                                 Official Journal of the European Communities                                 No L 394 / 67
                                                                 PORTUGAL
The upturn in economic activity that started in 1985 has                been made to serve greater nominal convergence with the
continued since, underpinned by the brisk recovery of                   other member countries . Since July 1986 a permanent
domestic demand. However, following a marked increase in                Council for social dialogue has been playing an active role in
1986 ( + 4,3 % ), real GDP ( x ) is likely to increase slightly less    this field. Adjustment measures in the fields of taxation and
in 1987 ( 3,75 % ). This slowdown is due exclusively to the             the modernization of financial markets are supporting the
increased contractionary effect exerted by the external                 investment drive. The Community for its part is continuing
balance and the slower rate of stock building. Private                  to make a significant contribution in order to promote
consumption , by contrast , maintained its vigorous rise as             greater real convergence and a reduction in the gap between
part of a catching-up process, while investment growth                  Portugal's level of development and that in the other Member
accelerated appreciably, spurred in particular by the effects           States . The relative share of the Community's structural
of the country's accession to the Community . The                       Funds and financial instruments in Portugal's gross domestic
improvement in employment strengthened and the                          products thus reached more than 2,8 % in 1986 . Overall,
unemployment rate fell significantly (from 8,6 % in 1986 to             however, the recent beginning of the process of convergence,
7,2 % in 1987). At the same time, inflation showed a clear              both real and nominal , remains insufficient and fragile. This
slowdown even though it still diverged markedly from rates              process must therefore be actively continued and indeed
in the other member countries . The external surplus went               strengthened .
down significantly following the recovery in 1985 and
1986 .
                                                                        Budgetary policy has a particularly important role to play in
                                                                        this context . The reduction in the general government
                                                                        borrowing requirement achieved in 1985 was continued by
Under the impact of an appreciable deceleration in domestic             the authorities in 1986 thanks in particular to taxes on oil
demand and despite good export performance , the growth in              products and the introduction of VAT. However, the trend
real GDP 0 ) should be close to 3% in 1988. The                         of the central government's budget for 1987 reveals the need
improvement in employment is expected to be less strong                 for an accompanying rigour in order to achieve the tax
leading to a significantly slower reduction of unemployment.            receipts projected in the budget, particularly as regards value
In line with the authorities' objectives , major progress will          added tax. The objective of a reduction in the medium term
again be made in bringing down inflation. The balance of                of the central government borrowing requirement, which
payments on current account will probably deteriorate                   was set for the first time in 1987 and involves cutting it from
further and should, for the first time since 1984 , close with a         8,8 % of GDP in 1987 to less than 5 % of GDP as from
deficit (of the order of 1 % of GDP ).                                   1990 / 1991 , will not be achieved without a continuous drive
                                                                        to contain operating expenditure, a reduction in transfer
                                                                        payments, notably to enterprises in the competitive sector,
The differential between the growth rate of Portugal's                  and a widening of the tax base. A rapid implementation of
domestic demand and that in the other member countries ,                the tax reform would play a positive role in this context . In
while smaller than in previous years, will still be substantial         the absence of tangible results in this field, the policy of
in 1988 . Admittedly, this is justified by the need to make             improvement of infrastructure and, more generally, the
further progress on reducing Portugal's structural                      required contribution from budgetary policy to increasing
deficiencies through a sustained recovery in the investment             the country's investment ratio, improving vocational training
ratio , which is still a good deal lower than the level recorded         and making appropriate use of human capital will be placed
until the beginning of the 1980s. However, in view of the                in jeopardy. This would be particularly so if, failing a
uncertainties surrounding the external environment and                   sufficient reduction in the public deficit in 1988 , the external
because of the Portuguese economy's heavy dependence on                  account deteriorated at an excessive pace , requiring a return
oil imports and its increasing openness, such a trend carries           to restrictive policies which , until the recent past, hampered
risks for current payments . Application of the programme               the country's growth process and the scope for bringing
for the structural correction of the external deficit and                down agricultural underemployment.
unemployment (PCEDED), adopted in March and
confirmed at the end of August when the new government                   Achievement of the budgetary objective is essential if the task
announced its programme to Parliament, will allow the                    of monetary policy is to be eased both domestically,
avoidance of these risks , all the more so as the envisaged              especially as regards the necessary moderation in growth of
policies are largely in line with the Community's cooperative            the monetary aggregates, and from the point of view of
strategy for growth and employment .                                     exchange-rate performance. Only on this condition will it be
                                                                         possible to continue reducing inflationary expectations and
                                                                         maintaining the downward movement of interest rates. Fresh
Marked progress has already been made towards improving                  progress on modernizing financial channels would also be
the conditions of demand and supply. The policy of planned               helpful .
depreciation of the escudo and wage policy in particular have
                                                                         By influencing inflationary expectations and the evolution of
 (*) At 1985 prices. Calculated on the basis of the previous years       production costs, continued pursuit of the active policy of
     prices , growth would be 5,2 % in 1987 and 4,2 % in 1988 .          social dialogue makes an essential contribution to the
 ---pagebreak--- No L 394 / 68                            Official Journal of the European Communities                                  31 . 12 . 87
balanced and sustained expansion that is necessary if the           The conclusion is that the various measures necessary for
Portuguese economy is to succeed in becoming progressively          achieving the authorities' macroeconomic objectives must be
integrated into the Community. In particular, there is a need       implemented energetically. Only on this condition will it be
for the consensus on the 6 % inflation rate aimed at for 1988       possible to maintain satisfactory growth , both quantitative
to be maintained and effectively taken into account in wage         and qualitative , and to bring inflation down progressively to
negotiations for next year.                                         a rate close to the Community average .
 ---pagebreak--- 31 . 12 . 87                                            Official Journal of the European Communities                                 No L 394 / 69
                                                         Portugal: Main economic aggregates 1983 to 1988
                                                                                                                          (Annual percentage changes)
                                                               1983          1984             1985        1986 (')      1987 (2 )         1988 ( 2 )
                          C value                               23,7          23.4            25,9          23,1          15,3              10,5
Gross domestic J                                               - 0,3         - 1,7              3,7          4,3           3.7               3,0
product
                          L deflator                            24.1          25.6            21,3          18,0          11,2               7.3
Private consumption deflator ( 3 )                              25.5          29,3             19.3         12,1           9,3               6,5
Gross fixed               f P"vate
capital                  ■< public
formation volume 1 totaj,                                      - 7,5        - 18,0            - 1,8          9,9          14,6              10,5
     of which : construction                                   - 3,0        - 13,5            - 4,0          4,7           9,5               9,0
                  equipment                                   - 13,1        - 23,0              1,0         16,0          20,0              12,0
Domestic demand at constant prices                             - 7,0         - 7,0              0,6          8.5           8.3               5.0
Gap with respect to other Community
countries ( 4 )                                                - 8,7         - 8,4            - 1,7          4,3           5.1               2.4
^                          f nominal                            21.6          19,8             22,0         16,7          11,9               8.5
Compensation
of employees             ■< real A ( 5 )                       - 2,0         - 4,6              0,6        - 1,1           0,6               1.1
per head                   ^     B (5)                         - 3,1         - 7,4              2,2          4.1           2.4               1,9
Productivity ( 6 )                                               1,4         - 0,4              4,2          4,0           1,3               1,9
Real unit labour costs                                         - 3,4         - 4,2            - 3,6        - 4,9         - 0,6             - 0,8
Competitiveness ( 7 )                                          - 8,3         - 4,9            - 1,2          1,2'        - 0,2             - 1,2
Employment                                                     - 1,7         - 1,3            - 0,5          0,2           2.3               1,0
Registered unemployed as %
of the civilian labour force; ( 8 )                              7,9           8,5              8,7          8,6           7.2               6,8
Current balance as % of GDP                                    - 7,2         - 3,0              1.7          3,9            1.4            - 1,0
Long-term interest rate                                         30,3          32.5             25.4         17,9          15,1              14,3
Money supply ( 9 )                                              16.3          24.7             29,1         25,7          17,0              13,0
Net lending or borrowing                f ^ mo\                                                                                              8,3
requirement of general                 "j « )10l                10.4          13,3             11,0          9.2
                                                                                                             8,2
                                                                                                                            9,4
                                                                                                                            8.8              7,8
government as % of GDP                  L                        9,1          12,0             10,0
Public .debt as % of GDP                                        56.2          61,2             64,8         67,1          71,8              78,5
Public debt interest
as % of GDP                                                      6,4           7,1              7.8          9,3            8,1              7,2
  (>)  Estimates of the Commission services, September 1987.
  (2 ) Forecasts of the Commission services , September 1987.
  (J)  Series different from the official retail price index.
  (4 ) Differences in percentage points.
  (5)  A: GDP deflator; B: private consumption deflator.
  (® ) Gross value added per occupied person in the whole economy.
  (7) Effective exchange rate {vis-<l-vis 19 industrial countries) on the basis of unit labour costs for the whole economy. Positive figure — loss of
       competitiveness.
  (') Eurostat definition .
  (') End of year.
( 10 j A: Including loans , advances and equities; B: excluding loans, advances and equities.
 ---pagebreak--- No L 394 / 70                               Official Journal of the European Communities                                     31 . 12 . 87
                                                           UNITED KINGDOM
In the United Kingdom, the expansion of economic activity,             The expansion of activity has begun to have an increasingly
which has been under way without interruption since 1981 ,             large impact on the unemployment figures . Around one and a
has gained strength since mid-1986 , and the growth of real            quarter million new jobs have been created since the trough
GDP in 1987 is expected to be about 3,5 % . Registered                 in employment in 1983 . Employment growth has
unemployment has shown a clear downward trend since the                strengthened in recent quarters particularly, with a strong
middle of 1986 , and employment has begun to rise more                 increase in male employees at the start of 1987 . Until
rapidly again . Although the sharp fall in inflation last year         recently, the composition of employment growth has been
has been partially reversed , the twelve-month rate of retail          such as to reduce the impact of rising employment on the
price inflation has risen only slightly during the course of           unemployment total , but the downward trend in
1987 , remaining close to 4% . The current account has                 unemployment has now been firmly established , and in large
weakened to a lesser extent than earlier seemed likely, despite        part appears attributable to the strong growth of the
a deterioration of over 3 % in the terms of trade during 1986          economy . The government's employment and training
and 1987 .                                                             programmes also contributed to increased employment and
                                                                       reduced unemployment. In recent months they covered
                                                                       almost 400 000 persons , slightly more than a year earlier.
In 1987 , growth has been assisted by stronger supply-side
performance and also by the fall in the effective exchange
rate , which increased the price competitiveness of the
economy . Weak export market growth has thus been felt less            The unemployment rate is still about 10 % and the continued
in the United Kingdom than in countries with appreciating              rapid rise in per capita earnings and unit labour costs is
currencies . Exports picked up sharply in the latter part of           worrying. Towards the end of 1986 there was some
1986 and have remained at a high level throughout the                  moderation in the level of wage settlements but, because of a
current year, despite the 5 % appreciation of sterling in the          rise in overtime working, this did not show up in the
months up to the June general election . In addition , subdued         underlying rate of increase in average earnings , which has
imports in the early part of 1987 suggest some import                  continued almost unchanged at close to 7,5 % since 1983 .
substitution and an improved supply response from the                  Indeed , the size of pay settlements seems to have begun to
economy .                                                              increase again recently. Apart from a recession-induced
                                                                       decline at the beginning of the 1980's , real wages have risen
                                                                       strongly in the current decade , but , at the same time , there
                                                                       has been a significant recovery in profitability achieved
Private consumption , though no longer making the                      through substantial productivity gains , particularly in
dominant contribution to growth , has continued to develop             manufacturing . The capital stock has been rising only slowly
vigorously in 1987 . Higher inflation and a steadying of the           in recent years. With more firms reporting capacity
savings ratio after its fall last year have only partly offset the     constraints and unemployment still very high , an appreciable
boost to consumption coming from rapid growth in nominal               extension of productive investment is doubly necessary. In
earnings and other personal incomes , and from the reduction           this regard, the recent clear signs of a pick-up in business
in the basic rate of income tax to 27 % in the March Budget .          investment are encouraging .
Overall , business and consumer confidence has tended to
strengthen and a pick-up has begun in business investment,
particularly in manufacturing , after a period of sluggishness
since 1985 which partly reflected changes in the corporation
tax system . The upward pressure on sterling in the first half         In 1986 , as the oil price fell and the strong expansion of
of the year enabled bank base rates to be reduced by a                 private consumption pulled in imports, there was a marked
cumulative two percentage points , giving further support to           deterioration in the visible trade balance . Improved
domestic demand , although this movement was partly                    competitiveness temporarily helped to stabilize the position
reversed in August as a result both of some temporary                  in the first half of 1987 , but some further deterioration is now
weakening of sterling and of strong credit demand .                    likely as imports pick up again on response to growth in final
                                                                       demand and as domestic production of oil gradually declines
                                                                       in the medium term . To limit the deterioration requires that
                                                                       the supply response of the economy be sustained and
In 1988 , developments should remain positive , given a                improved ; this in turn depends on maintaining
relatively encouraging world outlook. Another strong rise in           competitiveness through achieving changes in unit labour
private consumption is likely, particularly if, as expected , the      costs in line with those of the United Kingdom main
inflation rate steadies and there is a further reduction in the        competitors and keeping the exchange rate stable , and on a
basic rate of income tax . Growth in fixed investment should           steady expansion of the productive capacity of the economy.
become more marked . Export volumes may, however , rise                On the invisibles account, the income stream from the
more slowly , implying some deterioration in the current               growing stock of foreign assets has risen in value. While the
balance . In total , real GDP is forecast to rise by about 2,5 % ,     strong growth in net factor income recorded in 1986 is
somewhat slower than in 1987 .                                         unlikely to be sustained over the medium term, invisible
 ---pagebreak--- 31 . 12 . 87                                Official Journal of the European Communities                                  No L 394 / 71
earnings should be sufficient to offset much of the deficit on         The Government continues to press ahead with structural
visible trade this year and to make a substantial contribution         policies designed to promote the functioning and flexible
in subsequent years to holding the current account deficit             operation of markets. In regard to the financial markets, a
within limits which do not place a major constraint on                 wide range of legislative and other controls has been
growth .                                                               abolished since 1979 . At present, a key concern in this regard
                                                                       is how an adequate level of surveillance can be maintained
                                                                       consonant with deregulation . Other supply-side measures
                                                                       include reductions in the basic rate of income tax , tax
                                                                       incentives to promote profit-related pay, extensive
                                                                       employment and training measures, help for small firms
                                                                       which are seen as an important engine of growth , trade union
                                                                       reform , and a considerable expansion of the privatization
Considerable progress has been made in achieving the                   programme .
budgetary objectives set within the framework of the
Medium-Term Financial Strategy . The buoyancy of non-oil
revenues      and the acceleration of the privatization
programme enabled the long-term objective of bringing the
public sector borrowing requirement down to 1 % of GDP to
be achieved ahead of schedule in the financial year
 1986 / 1987 . With borrowing at a low level , the policy              In 1988 and subsequent years , a main task is to ensure that
emphasis has now switched to using the room created by                 the improvement in labour market conditions now under
 strict control of expenditure to reduce the burden of taxation        way is sustained and strengthened. Bearing in mind that the
 further when it is prudent to do so (with a cut in the basic rate     growth in employment has been stronger in some regions
 of income tax to 25 % as one specific goal ). In the current          than others and that pockets of high unemployment persist,
 financial year, 1987 / 1988 , the Government's latest forecast        the Commission's view is that a possible option might be for
 is for a PSBR of £ 1 billion ( 0,25 % of GDP ), compared to the        the authorities to consider using some of the scope available
 budget projection of £ 4 billion (1 % of GDP). This reflects           for tax cuts in the next financial year for targeted action in the
 both higher tax revenue, mainly as a result of faster than             high unemployment areas, perhaps through reductions in
 expected real economic growth , and lower spending. The                taxes affecting the cost of employment, in order to stimulate
 PSBR therefore appears to be heading for a third successive            the creation of new jobs and to attract investment to these
 year of significant undershooting of Budget plans.                     areas. A drive to improve the level and effectiveness of
                                                                        vocational training in these regions would also be a prudent
                                                                        step in view of worries about skill shortages in the economy.
                                                                        In this context, it would also be desirable to promote labour
                                                                        mobility by taking appropriate measures to make available
                                                                        sufficient reasonably priced accommodation, especially in
                                                                        the South East where activity is strongest; the shortage of
                                                                        such accommodation at present is a disincentive to mobility.
 In regard to monetary policy , only the narrow money                   The authorities have recently placed more emphasis on the
 measure MO now has target status . The information content             need to rehabilitate decayed inner city areas , through a better
 of the broader aggregates about the growth of nominal                  coordination of existing public programmes and private
 income has become blurred by the effects of deregulation and           sector initiative . This could be a suitable opportunity for
 innovation in financial markets . Even so , the authorities            some judiciously chosen increases in capital expenditure in
 have made it clear that the behaviour of liquidity is a key            these areas , particularly on infrastructural repairs .
 factor to be taken into account in assessing monetary
 conditions. The rapid growth in M3 this year, although
 partly explained by extensive Bank of England intervention
 to hold down the rise of sterling in the first half of the year ,
 may suggest too rapid an expansion of personal sector credit,
  and needs to be kept under review. For many years , the
 objective of monetary policy has been to attain a balance
  between domestic monetary conditions and the exchange
  rate which will place a steady downward pressure on                   While a better regional differentiation of real wages would be
  inflation . An increased emphasis does , however , appear to          desirable, there is a more pressing need to moderate the level
  have been given to the exchange rate as an indicator of                of wage increases generally in the economy if competitiveness
  monetary conditions. The authorities accepted a significant            is to be maintained and satisfactory employment growth
  downward adjustment in the exchange rate during 1986                   sustained . The Government does not favour the use of an
  following the fall in the oil price, and managed this relatively       incomes policy as it would be inconsistent with its goals of
  smoothly from the interest rate point of view. After the               freeing markets and encouraging greater wage
  Louvre Agreement in February 1987 the Chancellor of the                differentiation . Tight control on public sector wage
  Exchequer stated that a period of stability for sterling and           settlements is, however, an important means of influencing
  other exchange rates would be desirable, and, helped by a              wage trends in the wider economy. An extended period of
  judicious mixture of intervention and interest rate changes,           exchange rate stability, which would be reinforced by full
  the sterling / DM cross rate has remained within a relatively          entry of the United Kingdom into the European Monetary
  narrow range .                                                         System, could also in due course exercise a moderating effect
 ---pagebreak--- No L 394 / 72                           Official Journal of the European Communities                            31 . 12 . 87
on wages by influencing inflationary expectations. At the          given to the recent green paper, not only in order to
same time, renewed efforts to achieve comprehensive                strengthen incentives and to reduce poverty and
reforms in the structure of personal taxation and social           unemployment traps, but also to help in achieving wage
security are desirable, in spite of the lukewarm reception         moderation .
 ---pagebreak--- 31 . 12 . 87                                          Official Journal of the European Communities                                                   No L 394 / 73
                                                  United Kingdom: Main economic aggregates 1983 to 1988
                                                                                                                                        (Annual percentage changes)
                                                              1983              1984              1985               1986            1987 (»)            1988 (')
                          f value                               8,9                6,4              9,9                6,5               7,4                 7,6
Gross domestic            J    ,                                                                                                                             2,7
product (')              jI volume
                             deflator
                                                                3,6
                                                                5,2
                                                                                   2,0
                                                                                   4,3
                                                                                                    3,7
                                                                                                    5,9
                                                                                                                       2,9
                                                                                                                       3,5
                                                                                                                                         3,2
                                                                                                                                         4,0                 4,7
Private consumption deflator                                    5,0                4,7              5,2                3,6               3,0                 3,9
                                                                2,7                8,6              4,1              - 0,5               4,7                 3,8
Gross fixed                f P"vate
capital                  -< public                            36,6               11,9            - 3,1                 4,4             - 2,5                 3,7
formation volume 1               j                              5,2                8,2              3,1                0,3               3,8                 3,9
     of which : construction                                    7.3                7,9           - 3,2                 4,3               3,5                 4,0
                   equipment                                    4,2              10,3               8,1              - 4,0               4,2                 3,7
Domestic demand at constant prices                              4,5                2,7              2,9                3,8               3,2                 3,3
Cap with respect to other
Community countries ( 3 )                                       4,2                1,0              0,8                0,0               0,6                 1,2
                .          C nominal                            9,1                5,1              7,3                7.2               6,8                 6,6
Compensation
of employees             ■< real A (4 )                         3,7                0,8              1,3                3,6               2,7                 1,8
per head                   ^       g^                           3,9                0,4              2,0                3,5                3,7                2,6
Productivity ( s )                                              4,7                0,2              2,4                2,3                1,8                1,8
Real unit labour costs ( 6 )                                  - 1,0                0,6            - 1,1                1,3 .             0,9                 0,0
Profitability ( 7 )                                             9,9                0,7              2,2              - 1,4             - 1,5               - 1,8
      idem ( 1970 = 100 )                                      84.7              85,3              87,1               85,9              84,7                83,1
Competitiveness ( 8 )                                         - 7,6             - 2,9               1,1              - 5,3             - 0,3                 3,0
Employment                                                    - 0,8                1,7              1,5                0,6                1,4                0,9
Registered unemployed as %
of the civilian labour force ( 9 )                             11,6               11,8             12,0               12,1              11,0                10,4
Current balance as % of GDP                                     1,0                0,4              0,8              - 0,3             - 0,5               - 0,8
Long-term interest rate                                        10,8               10,7             10,6                9,8                9,3                9,5
Money supply ( 10 )                                            10,3                9,8             13,1               18,9              21,7                11,9
Net lending or borrowing
of general government as % of GDP                             - 3,6              - 3,9            - 2,9              - 2,7             - 2,0               - 2,0
Public debt as % of GDP ( n )                                  57,5               59,3             57,5               57,6              56,2                54,1
Public debt interest as % of GDP                                4,7                4,9              5,0                4,5                4,3                4,1
  (*) Forecasts of the Commission services , September 1987 , on the basis of present policies.
  (•*) Expenditure measure at market prices. On the basis of the average estimate of GDP at factor cost, the corresponding volume figures for 1986 , 1987 and 1988 are
        3,0 % , 3,8 % and 2,7% , respectively.
  ( 3 ) Differences in percentage points.
  ( 4)  Deflated by: A = GDP deflator; B = private consumption deflator.
  (5)   Gross value added per occupied person in the whole economy.
  (s)   Ratio of real wages per head to productivity.
  ( 7)  Net operating surplus relative to the net capital stock at current replacement cost.
  (® ) Effective exchange rate (vis-<l-vis 19 industrial countries) on the basis of unit labour costs for the whole economy; positive figure = loss of
        competitiveness.
  (*) Eurostat definition.
( ,0) M3 ; end of year.
( n ) General government gross debt at market values.
 ---pagebreak--- No L 394 / 74                          Official Journal of the European Communities                                      31 . 12 . 87
                                                    STATISTICAL ANNEX
                                       ANNUAL ECONOMIC REPORT 1987 / 1988
                                                              TABLES
                                                                                                                    Page
               1.  Summary of main macroeconomic aggregates by country ( 1960 to 1988 )                               76
               2.  Summary of main economic aggregates for EUR 12 ( 1960 to 1988 )                                    79
               3.  World output, trade and prices                                                                     80
               4.  Contribution to real GDP growth                                                                    81
               5.  Merchandise imports and exports                                                                    81
               6.  Real trade balances                                                                                82
               7.  Current account transactions of developing countries                                               82
               8.  External financing and indebtedness of capital importing developing countries                      83
               9.  Comparison of forecasts for 1987                                                                   83
             10 .  Bilateral nominal , nominal and real effective exchange rates                                      84
             11.   Business survey results on the revision of plans and expectations in response to exchange rate
                   changes                                                                                            85
             12 .  Deflator of private consumption and convergence of price developments                              85
             13 .  Real convergence — per capita GDP and its divergence in the Community                              86
             14 .  Nominal wages , real wages and real unit labour costs                                              86
             15 .  Sectoral developments in employment                                                                87
             16 .  Percentage of employees working part-time of total employees . . . .                               88
             17 .  Employment under fixed-term contracts                                                              88
             18 .  Structure of unemployment                                                                          88
             19 .  Long-term unemployment as percentage of total unemployment                                         89
             20 .  Evolution of unemployment rates by region                                                          89
             21 .  Evolution in labour force ( 1985 to 1995 )                                                         89
             22 .  Medium-term projections of Commission services and outturns — EUR 10                               90
             23 .  Main working hypotheses for the 1987 to 1991 reference projection of September 1987 ...            90
             24 .  1987 to 1991 reference projection of September 1987                                                91
             25 .  The balance of growth on the demand side                                                           91
             26 .  Intra-Community share of total imports of goods                                I                   92
             27 .  Intra-Community share of total exports of goods                                                    92
             28 .  Direct effects on Member States' exports of a 10% increase in their imports                        93
             29 .  Effects of raising public investment in certain Member States taking account of interdependence
                   in the Community                                                                                   94
             30 .  Real convergence, investment shares, capital productivity and current balances                 .   95
             31 .  Export market shares                                                                               96
             32 .  Gains and losses in shares of export markets over the period 1985 / 1979                           97
             33 .  Growth rate of industrial gross fixed capital formation by sector                                  98
             34 .  Growth rate in employment by sector                                                                98
             35 .  European Community general budget, 1985 to 1988 : payment appropriations, millions of
                   ECU as a percentage of total                                                                       99
             36 .  Money and credit targets and outturns                                                             100
             37 .  Nominal long-term interest rates                                                                  101
              38 . Synthetic indicators of budgetary policy in the Community                                         102
              39 . General government expenditure, receipts and lending                                              103
             40 .  Share of selected items of general government receipts and expenditure in GDP                     105
 ---pagebreak--- 31 . 12. 87                                Official Journal of the European Communities                                 No L 394 / 75
                                                               GRAPHS
                                                                                                                     Page
             1.        ECU / US $ exchange rate                                                                      106
             2.        World prices for crude oil, raw materials (excluding fuel) and manufactured goods in US $     107
             3.        Balance on current transactions with rest of the world as a percentage of GDP                 108
             4 to 11 . Comparative evolution of the Community , United States and Japanese economies                 109
            12 .       Profitability, total final demand and private investment                                      Ill
            13 .       Growth , employment and unemployment in the 1986 and 1987 reference projections —
                       EUR 12                                                                                • • • • H2
            14 .       Shares of world market for exports of Community industrial products (Indices , 1963 =
                       100)                                                                                          113
            15 .       Money supply in real terms and the deceleration o/ nominal variables ( average annual
                       percentage change) EUR 12                                                                     114
            16 .       Long-term and short-term nominal interest rates                                             . 115
 ---pagebreak--- No L 394 / 76                          Official Journal of the European Communities                                        31 . 12 . 87
                                                              TABLE 1
                               Summary of main macroeconomic aggregates by country ( 1960 to 1988 )
                                                           ( a) Real GDP
                                                                                                          (percentage change per annum)
              1973 / 1960 1980 / 1973   1981         1982         1983      1984         1985    1986 (>)       1987 (>)     1988 (')
B                 4,9         2,5      - 1,5          1,9        - 0,3        1,7         1,5       2,3            1,3          1,8
DK                4,3         1,6     - 0,9           3,0          2,5       3,5          3,9       3,4          - 0,2          0,9
EY                4,4         2,2        0,2        - 0,6          1,5       2,7          2,6       2,6            1,4          1,9
GR                7,7         3,4      - 0,3        - 0,2          0,4       2,8          2,1       M            - 0,8          0,5
E                 7,3         2,4      - 0,2          1,2          1,8        1,9         2,2       3,5            4,1          3,7
F                 5,6         2,8        0,5          1,8          0,7        1,5         1,1       2,0            1,2          1,9
IRL               4,4         4.4        3,4          1,4        - 1,9       4,2          2,0     - 0,3            2,5          1,3
I                 5,3         2,8        1,1          0,2          0,5       3,5          2,7       2,7            3,0          2,8
L                 4,1         1,5      - 1,0          1,5          3,2        5,5         2,9       2,5            2,0          1,8
NL                4,8         2,4     - 0,7         - 1,4          1,4       2,4          1,7       2,4            1,7          1,2
P                 6,9         3,3        0,5          3,2        - 0,3     - 1,6          3,3       4,3            3,7          3,0
UK                3,1         0,9      - 1,2          1,0          3,8       2,2          3,7       2,9            3,2          2,7
EUR 12            4,8         2,3        0,0          0,6          1,5        2,4         2,5       2,6            2,2          2,3
USA               3,9         2,1        2,1        - 2,5          3,4       6,6          2,9       2,9            2,3          2,7
Japan             9,6         3,7        3,9          2,8          3,2       5,0          4,5       2,4            2,9          3,5
                                          (b) Real final domestic demand including stocks
                                                                                                          (percentage change per annum)
              1973 / 1960 1980 / 1973   1981         1982         1983      1984         1985    1986 (')       1987 (')      1988 (')
B                 4,8         2,6      - 4,3          0,4        - 2,5        1,8         1,2       3,4            1,6          1,7
DK                4,6         0,7      - 4,1          3,5          1,4       4,1          5,4       5,7          - 1,9        - 0,7
D                 4,5         2,3      - 2,6        - 2,0          2,3        1,9         1,5       3,7            2,5          2,3
GR                8,2         2,1        1,8          2,9          0,8     - 0,4          5,3     - 0,3          - 0,6          0,3
E                 7,8         2,2      - 2,3          1,1        - 0,1     - 0,5          2,7       6,5            6,2          4,8
F                 5,8         2,9     - 0,3           3,7        - 0,4       0,6          1,9       3,5            2,2          2,0
IRL               5.4         3,6        3,0        - 2,9        - 4,1        1,0       - 0,4       0,8            0,0          0,2
I                 5,5         2,5      - 1,2          0,3        - 0,5       4,5          3,2       3,2            4,5          3,3
L                 3.9         2,1        0,7          0,4          0,5        1,7         0,8       3,8            3,3          2,1
NL                4,9         2,4      - 4,6        - 0,9          1,5        1,4         2,2       3,9            2,3          1,0
P                 7,5         2,8        2,5          3,4        - 7,4     - 6,6          0,5       8,5            8,3          5,0
UK                3,2         0,4      - 1,7          2,1          4,7       2.8          2,8       3,8            3,2          3,3
EUR 12            5,0         2,1      - 1,7          0,9          1,0        1,9         2,4       3,8            3,2          2,7
USA               4,0         1,8        2,8        - 1,5          5,1        8,6         3,4       3,9            1,7          2,0
Japan             9,9         2,7        2,1          2,8          1,8       3,8          3,6       4,0            3,9          4,1
 ---pagebreak--- 31 . 12. 87                              Official Journal of the European Communities                                     No L 394 / 77
                                    (c) Balance of current transactions with the rest of the world
                                                                                                                       (percentage of GDP)
            1973 / 1960 1980 / 1973      1981         1982        1983         1984         1985   1986 (')       1987 (*)       1988 (>)
B               1,0       - 1,4         - 4,6        - 3,3       - 0,5        - 0,4          0,5      2,4            2,3            2,3
DK            - 1,9       - 3,5         - 3,0        - 4,2       - 2,6        - 3,5        - 4,6    - 5,1          - 2,9          - 2,2
D               0,8         1,0         - 0,5          0,5          0,6         1,1          2,2      4,1            3,7            3,2
GR            - 2,9       - 1,8         - 0,7        - 4,4       - 5,1        - 4,1        - 8,3    - 5,4          - 4,2          - 4,1
E               0,1       - 1,9         - 2,7        - 2,5       - 1,5          1,3          1,7      2,0            0,6          -*0,4
F               0,3       - 0,8         " 1.4        - 3,0       - 1,7        - 0,8        - 0,8      0,6          - 0,0            0,0
IRL           - 2,3       - 7,7        - 14,7       - 10,6       - 7,0        - 6,1        - 3,8    - 1,8          - 1,1          - 0,3
I               1,4       - 0,5         - 2,2        - 1,6          0,3       - 0,6        - 0,9      0,8            0,2            0,0
L               7,0        20,7          23,0         35,2        38,5         38,9         42,4     40,4           38,7           37,8
NL              0,7         0,8           2,2          3,2          3,1         4,1          4,3      2,8            1,9            1,8
P               0,1       - 6,1        - 11,8       - 12,7       - 6,3        - 1,9          3,0      3,9            1,4          - 1,0
UK            - 0,1       - 0,9           2,3          1,2          0,7       - 0,3          1,0    - 0,3          - 0,5          - 0,8
EUR 12          0,4       - 0,4         - 1,0        - 1,1        - 0,2         0,1          0,6      1,5            1,1            0,8
USA             0,5         0,3           0,3        - 0,0        - 1,0       - 2,4        - 2,9    - 3,3          - 3,5          - 3,1
Japan           0,5         0,1           0,5          0,7          1,8         2,8          3,7      4,5            3,8            3,3
                                                   (d) Private consumption deflator
                                                                                                            (percentage change per annum)
            1973 / 1960 1980 / 1973      1981         1982         1983        1984         1985   1986 (>)       1987 (»)       1988 (')
B               3,7         7.8           8,0          7,3          7,5         6,2          4,8      1,3            1,8            2,5
DK              6,6        10,8          12,0         10,2          6,8         6,5          4,8      3,6            4,1            4,0
D               3,6         4.9           6,0          4,7          3,2         2.4          2,1    - 0,5            0,6            1,8
GR              3,5        16,0          23,4         20,8         17,9        18,4         18,6     22,1           16,0           12,0
E               6,7        17,8          14,3         14,5         12,3        10,7          8,3      8,9            5,4            4,2
F               4,7        10,8          12,8         11,2          9,5         7,2          5.5      2.5            3,1            2,6
IRL             6,0        16,1          19,6         15,9         10,0         7.5          4.2      3.6            3,0            3,2
I               4,8        17,6          17,9         15,9         14,8        11,4          9.3      6,3            4,8            4,9
L               3,1         7,4           8,7         10,8          8,1         6.4          3,3      0,3            0,5            2.3
NL              5,0         7,2           6,3          5,3          2,7         2.5          2.6      0,1          - 0,8            1,0
P               3,4        22,0          18,3         22,5         25,5        29,3         19,0     12,1            9,3            6,5
UK              4,8        15,7          11,4          8,7          5,0         4,8          5,2      3,6            3,0            3,9
EUR 12          4,6        12,3          12,0         10,4          8,5         7,0          5,9      3,7            3,2            3,4
USA             3,1         8,0           8,7          5,8          4,0         3,9          3,3      2,2            4,1            4,9
Japan           6,2         9,0           4,4          2,6          1,9         2,1          2,2      0,7            0,2            1,5
 ---pagebreak--- No L 394 / 78                                      Official Journal of the European Communities                                                  31 . 12 . 87
                                                                     ( e ) Total Employment
                                                                                                                               (percentage change per annum)
                   1973 / 1960    1980 / 1973      1981          1982             1983      1984        1985          1986 0 )       1987 (')       1988 (')
B                       0,6            0,1        - 2,0         - 1,3            - 1,1       0,0         0,8             1,0            0,1            0,2
DK                      1,1            0,4        - 1,3            0,4             0,3       1,5         2,8             2,0            0,8          - 0,1
D                       0,2          - 0,3        - 0,7         - 1,7            - 1,5       0,1         0,7             1,0            0,6            0,3
GR                    - 0,5            0,8          4,9         - 0,8              1,1       0,3          1,0            0,3          - 1,0            0,3
E                       0,8          - 1,3        - 3,0         - 1,0            - 0,8    - 3,0        - 1,0             2,0            2,4            1,7
F                       0,7            0,3        - 0,6             0,1          - 0,4    - 0,9        - 0,3             0,3          - 0,2          - 0,0
IRL                     0,1            1,2        - 0,9             0,1          - 2,2    - 1,6        - 2,8           - 0,4          - 0,3            0,2
I                     - 0,4            0,8        - 0,0             0,6            0,5       0,8          1,4            0,6            0,6            0,8
L                       1,1            0,6          0,3         - 0,3            - 0,3       0,6          1,4            2,4            1,0            0,4
NL                      0,9            0,3        - 1,5         - 2,5            - 1,9    - 0,4           1,1            1,8            0,9            0,2
P                     - 0,5            0,3          1,2         - 0,4              4,3    - 1,5           0,3            0,2            2.3            1,0
UK                      0,3            0,1        - 3,9         - 1,8            - 1,2       2,0          1,3            0,6            1,4            0,9
EUR 12                  0,3            0,1        - 1,3         - 0,8            - 0,5       0,1          0,6            0,8            0,8            0,6
USA                     1,9            2,0          0,9         - 0,5              1,0       4,8          2,4            2,3            2,5            1,9
Japan                   1,3            0,7          0,8             1,0            1,7       0,6          0,7            0,8            0,8            1,0
                                                                  ( f) Unemployment rate ( 2 )
                                                                                                                      (percentage of the civilian labour force)
                   1973 / 1960     1980 / 1973     1981           1982            1983      1984        1985          1986 (')       1987 (>)       1988 (')
B                       2,4            6,8         11,1          13,0             14,3      14.4        13,6            12,6           12.4           12,1
DK                      1,2            5,5          8.7             9,3           10,1       9,9          8.7            7,6            7,7            8,6
D                       0,9            3,6          4.8             6,9            8,4       8.4          8,4            8,1            8,1            8.3
GR                                                  4,2             5,8            7.8       8,1          7.8            7,4            7.4            7,5
E                                                  14,4           16,2            17,7      20,6        21,9            21,5           20,7           20,3
F                       1,1            4,7          7.7             8,7            8.9      10,0        10,5            11,1           11.3           11,7
IRL                     5,1            8,1         10,2           12,3            14,9      16,6        17,9            18,4           18.5           18,2
I                       5,7            5,9           8,1            9,7           11,0      12,0        12,9            13,0           14,2           14.3
L                       0,1            0,4           1,0            1,3             1,6       1,8         1,7            1,4            1.5             1.4
NL                      1,4            5,3           8.8          11,8            14,2      14.5        13,3            12.1           11.4           10,9
P                                                                                            8.5          8,6            8,6            7,2            6,8
 UK                     2.2            4,5           9,1          10,6            11,6      11,8        12,0            12,1           11,0           10.4
 EUR 12           .I                                                         l              11,7        12,1            11,9           11,8           11,7
 EUR 9                  2,2            5,1           7,7            9,3           10,4      10,9        11,1
                                                                                                                   \              LE
 USA                    5,3            6,8           7,6            9,7             9,6      7,5          7,2            7,0            6,3            6,0
Japan                   1,4            1,9           2,2            2,4            2,7       2,7          2,6            2,8            3,0            2,9
 (') Economic Forecasts, September 1987 .
 (2) The figures presented here are based on the number of registered unemployed on a common Eurostat definition, except for Greece, Spain and Portugal where
     national survey results are presented .
 Source: Eurostat and Commission services .
 ---pagebreak---    31 . 12. 87                                         Official Journal of the European Communities                                              No L 394 / 79
                                                                              TABLE 2
                                            Summary of main economic aggregates for EUR 12 ( 1960 to 1988)
                                                                                                                                       (Annual percentage changes)
I                                                 1973 /
                                                   1960
                                                               1981 /
                                                                1973
                                                                              1982         1983         1984        1985         1986      1987 (')     1988 (')
  Gross domestic product
  — nominal                                       10,2         14,4           11,2         10,1          9.1         8,7           8,4         6,2         5,9
  — real                                           4,8           2,0           0,6          1,5          2.4         2,5           2,6         2,2         2,3
  — deflator                                       5,1         12,2           10,6          8,5          6.5         6,1           5,6         3,9         3,5
  Gross fixed capital formation (2 )               5.5        - 0,2          - 1,8          0,2           1.6        2,3           3.4         3.6          3.3
  — construction                                              - 1,4          - 2,4          0,4           1.2      - 3,1           2.7         2,0         2.6
  — equipment                                                    1,7         - 1,0          2,1          5.8         9,2           4,2         5.3         4,0
  Share of nominal gross fixed
  capital formation in GDP
  — total                                        23,1          22,1          20,1          19,6         19.3        19,1         18,9        19.1         19,2
  — public                                         3,8 (")       3,3 ( 12 )    3,0          2,9          2,8         2.8           2.7         2.7         2,8
  Private consumption ( 2 )                        5,0           2,3           0,7          1,3           1,4        2,5           3,9         3.1         2,7
  Domestic demand
  ( incl . stocks )
  — in the Community                               5.0           1,6           0,9          1,0          1.9         2,4           3.8         3.2         2,7
  — gap with respect to
         other OECD countries                    - 0,5        - 0,6            0,9        - 1,8        - 3,4       - 1,1           0,1         0,5         0,0
  Inflation (private consumption
  deflator )                                       4.6         12,2           10.4          8,5          7,0         5,9           3.7         3,2         3.4
  Compensation per employee
  — nominal                                       10,0         14,8           11,1          9,9          7.4         6,8           6,0         5.4         4,7
  — deflated by the price of private
         consumption                               5.1          2.3            0,6          1,3          0,3         0,9           2,2         2,1         1,3
  — deflated by GDP prices                         4,6          2.4            0,4          1,3          0,8         0,7           0,4         1.5         1,2
  Productivity ( 3 )                               4,5          2,1            1,5          2,0          2,3         1,8           1.8         1,4         1,7
  Real unit labour costs ( 4 )                  100,3        104,0          102,9        102,2        100,7         99,6         98.2        98.3         97,8
  Profitability ( 5 )                           108,2         72,8           63.5          66,4         72,7        77.7         82,1        80,9         81,1
  Competitiveness ( s )                         101,3        108,9           99,2          93.6         86,6        85,8         95.3       101,6        101,8
  Employment                                       0,3        - 0,1         - 0,8         - 0,5          0,1         0,6           0,8         0,8         0,6
  Unemployment rate ( as % of the                                                                       11.7        12,1         11,9        11,8         11,7
  civilian labour force)                           2.2 H        5,1 ( 7 )      9,3 ( 7 )   10.4 (')     10,9 (?)    11,1 n
  Current balance
  ( as % of GDP )                                  0,4        - 0,6         - 1,1         - 0,2          0,1         0,6           1.5         1,1         0,8
  Net lending or borrowing
  of general government
  ( as % of GDP )                               - 1,0 (•)     - 4,1 ( g )   - 5,5         - 5,3        - 5,3       - 5,2        - 4,8       - 4,5        - 4,5
  Public debt ( as % of GDP )                    37,5 (•)     43,4 (»)       48.2         51.5          54.8        57,4         59,0        61.4         63,6
  Money supply ( 10 )                            11,4 n        13,7          11.3          11,2          9,5         8,5         10,2        10.2          8,6
  Long-term interest rate ( 13 )                   7,1         10,7          12.6          10.7         10.4         9,6          7.9         7.8          7,7
     ')  Economic Forecasts, September 1987 .
     2)  At constant prices.
     3)  Real GDP per person employed in the whole economy.
     4)  Compensation per employee deflated by GDP prices divided by real GDP per person employed , index 1970 = 100.
     5)  Estimate for EUR 4 : non-agricultural business. Index 1970 = 100 . Net rate on net capital stock.
     *)  Relative unit labour costs in the Community vis-à-vis its nine main industrial partner countries, in a common currency, index 1970 = 100.
   ( 7)  EUR 9 (EUR 12 excluding Greece, Spain and Portugal ).
   (8)   EUR 9 (EUR 12 excluding Greece , Ireland and Portugal ), 1973 and 1981 , respectively .
   ( 9 ) 1981 ( EUR 12
 ( ,0)   Annual average . Broad money supply M2 or M3 according to country.
 (n)     EUR 9 (EUR 12 excluding Greece , Ireland and Portugal ), 1970 to 1973 .
 ( ,2)   EUR 9 (EUR 12 excluding Greece , Ireland and Portugal).
 (u)     EUR 10 ( EUR 12 excluding Spain and Portugal ). Data from 1961 , levels.
 Source: Eurostat and Commission services .
 ---pagebreak--- No L 394 / 80                                   Official Journal of the European Communities                                            31 . 12 . 87
                                                                        TABLE 3
                                                            World output, trade and prices
            l                                                         1986 (')                  1987 (')             1988 (»)
                                                         Real gross national / domestic product
                                                                                                          (% change on preceding year)
             EUR 12                                                          2,6                     2,2                    2,3
             Other OECD                                                      2,8                     2,5                    2,9
             — USA                                                           2,9                     2.3                    2,7
             — Canada                                                        3,2                     3,2                    2,9
             — Japan                                                         2,4                     2,9                    3,5
             — Rest OECD                                                     2,6                     2,2                    2,3
             Total OECD                                                      2,7                      2.4                   2,7
                                                            Volume of world trade (goods)
                                                                                                          (% change on preceding year)
             EUR-definition ( 2 )
             — excluding EUR                                                 3,8                      2,1                   3,5
             — including EUR                                                 4.9                      3,5                   3,9
             OECD-definition ( 3 )
             — excluding EUR                                                 4.2                      3,1                   3,9
             — including EUR                                                 4.3                      3,4                   4,0
                                                              World export prices in US $
                                                                                                          (% change on preceding year)
             Raw materials excluding fuels                                   5,i                      4,1                   4,8
             Crude oil ( fob )                                           - 49,7                     26,2                    4,1
             Manufactured products                                          19,2                    11,4                    5,9
                                                               Balance on current account
                                                                                                                     (billions of US $)
             EUR 12                                                         52,8                    44.8                   36,3
             Other OECD                                                  - 87,8                   - 94,8                - 89,9
             — USA                                                      - 141,3                  - 154,3              - 147,3
             — Canada                                                      - 6,3                   - 4,0                  - 1,5
             — Japan                                                        85,8                    84.9                   79,0
             — other OECD                                                - 25,9                   - 21,5                - 20,0
             Total OECD                                                  - 35,0                   - 50,1                - 53,6
              OPEC countries                                             - 33,0                     - 6,9                 - 2,4
              Other developing countries ( 4 )                             - 7,2                    - 8,6               - 14,4
              Other countries ( 5 )                                        - 2,5                    - 0,6                 - 0,3
              Errors and omissions                                       - 77,7                   - 66,2                - 70,7
              (') Economic Forecasts, September 1987 .
              ( 2 ) Growth rate of world imports.
              ( 3 ) Arithmetic average of respective growth rates of world imports and exports.
              (4) Other developing countries include China, Yugoslavia and South Africa.
              ( 5 ) Other countries exclude intra-COMECON trade .
              Source: Commission services .
 ---pagebreak---                                                                                                                                                    No L 394 / 81
31 . 12 . 87                                        Official Journal of the European Communities
                                                                               TABLE 4
                                                               Contribution to real GDP growth
                                                                                                                             (in percentage points at 1980 prices (2 )
                                                        1981           1982         1983           1984         1985          1986 (')      1987 (•)        1988 (')
EUR 12
Domestic demand
                                                       - 0,5              0,3         1,1            1,4          2,3             3,5          2,9             2,7
(excluding change in stocks)
                                                       - 1,3              0,6      - 0,1             0,5          0,0             0,2          0,3             0,1
Change in stocks
                                                          1,7          - 0,3          0,5            0,5          0,1          - 1,2         - 1,0           - 0,4
Balance of trade in goods and services
                                                          0,0             0,6         1,5            2,4          2,5             2.6          2,2             2,3
GDP growth
Deviation of change in domestic demand                                                                                                                         0,0
from that in other OECD countries ( 3 )                - 3,5              0,9       - 1,8         - 3,4         - 1,1             0,1          0,5
 USA
Domestic demand
                                                          1,9             0,0         4,7            6,9          5,1             4,1          1,3             2,3
(excluding change in stocks)
                                                          0,9          - 1,5          0,5            2,0        - 1,5             0,3          0,7           - 0,1
Change in stocks (4 )
Balance of trade in goods and services                  - 0,8          - 1,0        - 1,8          - 2,4        - 0,7           - 1,2          0,3             0,5
                                                          2,1          - 2,5          3,4            6,6          2,9             3,1          2,3             2,7
GDP growth
Deviation of change in domestic demand
from that in other OECD countries ( 3 )                   2,5          - 1,2          3,2            5,4          0,3             0,3        - 1,0           - 0,7
Japan
 Domestic demand
 (excluding change in stocks)                             2,2             2,8         2,1            3.2          3.4             4,1          4,4             4,0
                                                        - 0,1           - 0,1       - 0,4            0,5          0,1             0,6           0,1            0,1
 Change in stocks
 Balance of trade in goods and services                    1,7            0,1         1,4             1.3         1,0           - 1,3        - 0,8           - 0,4
 GDP growth                                                3,9            2,8         3,2            5,0          4.5             2,4           2,9            3,5
 Deviation of change in domestic demand
 from that in other OECD countries ( 3 )                   1,4            3,6       - 1,5          - 1,6          0,6             0,2           1,6            1,7
 (*) Economic Forecasts, September 1987 .
 (2) Due to statistical discrepancies, the sum of the contributions is not always identical to total GDP growth .
 (J) Domestic demand (including stocks) growth differential from a weighted average of OECD partner countries. The weighting structure is the same as that used to
        calculate effective exchange rates.
 ( 4 ) Including statistical discrepancies.
 Source: Commission services .
                                                                                TABLE 5
                                                           Merchandise imports and exports (volume)
                                                                                                                           (percentage change on the preceding year)
                                                    Imports                        Exports                   Market growth (')             Export Performa nee ( 3 )
                                             1986   1987 ( 2 ) 1988 ( 2 )   1986   1987 ( 2 ) 1988 ( 2 )  1986    1987 ( 2 ) 1988 ( 2 )   1986     1987 ( 2 ) 1988 ( 2 )
  EUR 12 total                                 6.7      5,7        4,6         2,0     2,0        3.3       4.1       3,3         3,9     - 2,0      - 1,3      - 0,6
  — intra—EUR ( 4 )                            6,0      4,5        3,9         5.6     5.3        4,7       7.2       5.5         4,5     - 1,5      - 0,2         0,2
  — extra—EUR ( 4 )                            7,4      7,5        5,7       - 2,1   - 1,9        1,5       0,5       0,7         3,1     - 2,6      - 2,6      - 1,6
  USA                                         13,9      2,5        2,6         7,7    11,8       11,1       2.7       3,0         4,4       4,9        8,6         6,4
                                              10,1       6,2       5,2       - 2,7   - 4,9        0,6       3,8       2.6         3,4     - 6,3      - 7,3      - 2,7
  Japan
  OPEC                                      - 20,5   - 17,0      - 0,0         6,0     2,5        4.4
  Other developing countries                 - 0,9       4,3       4,9         6,0     4.6        4,4
  World                                        4,9       3,5       3,9         3,4     3.4        4,4
  World excluding EUR                          3,8       2,1       3,5         4,2     4,1        5,0
  ( 1 ) Change in imports from third countries weighted by the regional export structure of the respective country or zone.
  (2 ) Economic Forecasts, September 1987.
  (3) Index for exports divided by an index for growth of markets.
  ( 4) Estimates of the Commission services .
  Source: Commission services .
 ---pagebreak--- No L 394 / 82                                       Official Journal of the European Communities                                                           31 . 12 . 87
                                                                                TABLE 6
                                                             Real trade balances ( 1985 to 1988 ) ( 2 )
                                                                                                                                      change                change
                                                        1985                1986 (')            1987 (')         1988 (>)           1985 / 1986          1986 / 1988
                                                                ( a ) In billions US $ at 1985 prices
USA                                                  - 124,5                - 155,1             - 137,5          - 119,1               - 30,6                  36,0
Japan                                                    56.0                   39,4               23.0              16,9              - 16,6                - 22,5
EUR 12                                                    11,9                - 17,3             - 42,3            - 52,8              - 29,2                - 35,5
Germany                                                  28.1                   21,7               16.1              14,6               - 6,4                 - 7,1
Developing countries
— OPEC                                                   57,1                   86,6              104,1            111,5                 29,5                  24,9
— other developing countries                             - 4,4                  19,0               21,0              20,1                23,4                   1,1
                                                           (b ) As percentage of GDP af 1985 prices
USA                                                      - 3,1                 - 3,8              - 3,3             - 2,7
Japan                                                      4,2                   2,9                 1,6               1,2
EUR 12                                                     0,5                 - 0,7              - 1,6                1,9
Germany                                                    4,5                    3,4                2,5              2,2
(') Economic Forecasts, September 1987 .
( 2 ) Balance of payments basis, fob-fob .
Source: Commission services .
                                                                                TABLE 7
                                                   Current account transactions of developing countries
                                                                                                                                                   (in billions of US $)
                                                    All developing                                                                                Exporters of
                                                     countries ( 2 )
                                                                                      Fuel exporters           Non-fuel exporters                manufactures
                                              1981        1985         1986      1981      1985      1986   1981       1985       1986      1981       1985      1986
Current account balance                       - 48,5 - 23,8 - 46,3                34,8       3,0 - 37,1 - 83,2 - 26,8             - 9,2 - 15,2         - 4,2       13,0
— Trade balance                                  37,1      45,4          7,2    120,4       67,4      15,2 - 83,2     - 22,0      - 8,0   -  25,2    -  12,2        1,9
— Net services                               - 100,7 - 90,6 - 79,5 - 68,8 - 50,6 - 40,0 - 31,9 - 40,0 - 39,5                                  0,8      - 2,6      - 0,5
— Unrequited transfers                           15,1 * 21,3            26,0 - 16,8 - 13,8 - 12,3             31,9      35,1       38,3       9,1       10,6       11,5
Oil trade balance                              216,8      118,4         63,8    278,1      155,2      87,4 - 61,4 - 36,8 - 23,6 - 25,3 - 15,6                    - 10,0
Resource balance ( J )                        - 30,7        20,0       - 3,5       17,2      1,6 - 39,2 - 47,8          18,5       35,7     - 5,2         4,0      21,2
(') The resource balance is intended to show the availability of external resources to an economy. In the present context it has been calculated as the current account
      balance minus net investment income . A positive resource balance reflects an outflow of financial resources and vice-versa .
(2 ) Countries are grouped by predominant export. Fuel exporters and non-fuel exporters are subgroups of the total . Exporters of manufactures are those non-fuel
      exporters , whose exports of manufactures accounted in 1980 for over 50 % of their total exports.
Source: IMF World Economic Outlook 1987 and Commission services .
 ---pagebreak--- 31 . 12 . 87                                            Official Journal of the European Communities                                                  No L 394 / 83
                                                                                  TABLE 8
                                        External financing and indebtedness of capital importing developing countries
                                                                                                                                                   (in billions of US $)
                                                                                           Countries with recent          Subgroups ( 7 ):            Sub-Saharan
                                                                Capital importing              debt-servicing             Fifteen heavily                Africa
                                                                    countries (')
                                                                                                 problems               indebted countries
                                                                      1985        1986     1981    1985      1986     1981      1985      1986  1981     1985     1986
                                                             1981
                                                                          ( a ) External financing
                                                            129,5      44,2        41,5    86,3     13,7      14,4    65,2        5,7       9,1  9,2        4,0     5,7
Net external borrowing
— Long-term borrowing from official
       creditors                                             31,4      24,0        30,6     17,1    16,2      16,5      6,5       7,7       6,7  4,8        4,0     4,0
 — Reserve-related liabilities                                12,2      2,8          7,1     9,1      2,4      7,3      1,4    - 0,5        2,2  2,4        1,8     0,4
 — Other net external borrowing ( 6 )                         85,8     17,4          3,8    60,1   - 4,9     - 9,4     57,3    - 1,5        0,2  2,0     - 1,8      1,4
                                                                        (b) External indebtedness
                                                            708,0 954,1         1 036,3 462,0 585,9 621,6            332,3 416,5 433,5          48,6      65,1    74,1
 Total debt ( 2 )
 Debt ratio ( 3 )                                             30,4     39,8        41,5     37,6    48,6      50,3     32,8      46,2      60,3 44,6      65,7    67,8
 Debt service ratio ( 4 )                                     22,2     25,0        27,1     32,9    36,7      42,0     39,3      42,1      49,8 19,3      24,9    29,6
 Interest service ratio ( 5 )                                 12,3     14,2         13,3    18,6    23,8      23,2     22,8      29,6      30,0  9,1       11,1    11,3
 (*) All developing countries except Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, United Arab Emirates.
 (2) For all developing countries (capital importing and capital exporting countries) total debt amounted to around US $ 1 101 billion in 1986. The IMF forecasts
       for 1987 an increase to about US $ 1 198 billion, of which 1 128 billion represents the total debt of capital importing countries.
 ( 3 ) External debt relative to GDP .
 ( 4 ) Debt service relative to exports of goods and services.
 ( 5 ) Interest service relative to exports of goods and services .
 (6) Residually calculated. The amounts shown reflect mainly net external borrowing from private creditors and short-term flows.
 ( 7 ) According to different commonly used classifications.
 Source: IMF World Economic Outlook 1987 and Commission services.
                                                                                   TABLE 9
                                        Comparison of forecasts for 1987 (EUR 12): October 1986 — September 1987
                                                                                                             (percentage change on the preceding year)
                                                                                                         October 1986 (')         September 1987 (2 )
                      Real GDP                                                                                  2,8                         2,2
                      Private consumption                                                                       3,5                         3.1
                      Gross domestic fixed capital formation                                                    5.1                         3,6
                      — Construction                                                                            3.2                         2,0
                      — Equipment                                                                                6,9                        5,3
                      Exports of goods and services                                                              3,7                        1,9
                      Private consumption deflator                                                               3,0                        3.2
                      Employment                                                                                 0,8                        0,8
                      Current balance ( 3 )                                                                      0,9                        1,1
                      Unemployment rate (4 )                                                                   11,7                        11,8
                      (')  Economic Forecasts, October 1986 .
                      (2 ) Economic Forecasts, September 1987 .
                      (3)  Percentage of GDP .
                      (4)  Percentage of the civilian labour force.
                      Source: Commission services .
 ---pagebreak--- No L 394 / 84                                            Official Journal of the European Communities                                                           31 . 12 . 87
                                                                                   TABLE 10
                                                    Bilateral nominal , nominal and real effective exchange rates
                                                                                                             (Index 1970 = 100 and percentage change on preceding year)
                                                   Bilateral nominal                Nominal effective             Relative unit labour costs          Real effective
                                                     exchange rate                   exchange rate (')             in national currency ( 2 )       exchange rate ( 3 )
                                                  Level          Change           Index           Change            Index          Change         Index           Change
EUR 12                                               ECU / US $                                                                                               I
average 1960— 1969                               1,059                            101,9                              98,5                         100.3
average 1970— 1977                               1,137                            100,8                             103,8                         104,7
              1978                               1,274              11,7           94,7                0,6          111.5             1,9         105.7               2.4
              1979                               1,371               7,6          100,9                6.5          114,4             2,5         115.4               9,3
              1980                               1,392               1,6          102,6                1.6          119.9             4,8         122,9               6.5
              1981                               1,116            - 19,8           86,1           - 16,1            122,4             2,1         105,3           - 14,3
              1982                               0,980            - 12,2           80,0             - 7,0           123,9             1,2          99.2             - 5,9
              1983                               0,890             - 9,1           73.2             - 8,5           127,8             3,2          93,6             - 5,6
              1984                               0,789            - 11,4           66,6             - 9,1           130.1             1,8          86,6             - 7,5
              1985                               0,763             - 3,3           65.3             - 1,8           131,4             1,0          85,8             - 0,9
              1986                              0,984               29,0           72.4              10,8           131,7             0,2          95.3              11,1
              1987 ( 4 )                         1,136              15,4           77,2                6,6          131.6             0,0         101,6               6.6
              1988 ( 4 )                         1,180               3,9           78,2                1,3          130.2           - 1,1         101.8               0,2
 USA                                                 US $ / ECU                                                                \
average 1960— 1969                               0,945                             98,9                              99.6                          98,6
average 1970— 1977                               0,879                             89.7                              88,4                          79.3
              1978                              0,785            - 10,4            80,2             - 9,2            79.7             1,4          63,9             - 8,0
              1979                              0,730              - 7,0           77,9             - 2,8            82,0             2,9          63,9             - 0,0
              1980                              0,718              - 1,6           77.8             - 0,2            82.4             0,5          64,1               0,4
              1981                              0,896               24.7           87,7              12,8            82,0           - 0,4          72,0              12.3
              1982                               1,021              14,0           98,3              12,0            83.1             1,3          81,6              13.4
              1983                               1,123              10.1          103,9                5.7           82,3           - 1,0          85,5               4,7
              1984                               1,267              12.8          112,0                7.8           82.2           - 0,1          92.0               7.7
              1985                               1,310               3,4          116,5                4,0           82.8             0,7          96,5               4.8
              1986                               1,016           - 22,5            95,0           - 18,4             81.5           - 1,6          77,5           - 19,7
              1987 ( 4 )                        0,881            - 13,3            85.0           - 10,5             81,3           - 0,2          69.1           - 10,8
              1988 («)                          0,848              - 3,7           82.1             - 3,4            82,0             0,9          67.4             - 2,5
Japan                                                 Yen / ECU
average 1960— 1969                             0,00262                             98,1                             101,3                          99,3
average 1970—1977                              0,00291                            111.3                             113,5                         127,5
              1978                             0,00374              14,5          153,5              21,8           116.5           - 3,6         178.8              17.4
              1979                             0,00333           - 11,1           142.2             - 7,4           109,0           - 6,4         155.0           - 13,3
              1980                             0,00317             - 4,6          136.4             - 4,0           100.6           - 7,7         137.3           - 11,4
              1981                             0,00408              28,4          155,0              13,6            95.1           - 5,5         147,5               7,4
              1982                             0,00411               0,8          147.3             - 5,0            89,7           - 5,7         132.1           - 10,5
              1983                             0,00473              15,2          163.3              10,9            87.2           - 2,7         142.4               7,8
              1984                             0,00535              13,0          172,2                5,5           84,2           - 3,5         145,0               1,8
              1985                             0,00554               3,6          177.4                3,0           80,9           - 3,9         143.5             - 1,0
              1986                             0,00606               9,4          228.5              28,8            80.7             0,2         184,4              28.5
              1987 («)                         0,00601             - 0,9          246.6                7,9           80,0           - 0,9         197,3               7,0
              1988 ( 4 )                       0,00612               1,9          256,9                4,2           79.8           - 0,3         204.9               3,8
( 1 ) The nominal effective exchange rate is the weighted average of the exchange rate of a currency with respect to the main nine (EUR 1 2) or 1 9 competing countries.
      The weight attributed to each currency reflects the importance of the respective country as a bilateral trading partner and as a competitor on third markets (double
      export weights).
(2 ) Index of unit labour costs in the country or zone in question in relation to the weighted average of unit labour costs in the main nine ( EUR 12) or 19 competing
      countries in national currency . This indicates the relative competitiveness of the country or zone in question in the absence of any movements in exchange
      rates .
( 3 ) The index of the real effective exchange rate is derived by multiplying the index of the nominal effective exchange rate by a similarly calculated index of the relative
      change in price or cost levels in national currencies, in the present case unit labour costs in the total economy. Such an index can also be used as an indicator of the
      competitiveness of a country , where an increase in the index (index of relative unit labour costs in a common currency) reflects a deterioration in cost
      competitiveness .
( 4 ) Economic Forecasts, September 1987 .
Source: Commission services .
 ---pagebreak---   31 . 12 . 87                                          Official Journal of the European Communities                                                No L 394 / 85
                                                                             TABLE 11
                          Business survey results on the revision of plans and expectations in response to exchange rate changes
                                                                        (weighted balance) ( ! )
\                                                            B        D        GR          E           F         IRL           1          L         NL         UK
  Domestic production                                        - 23     - 10      - 15        -1         - 18       - 11          -6       - 41        - 25        +2
  Number employed                                            - 15     - 13                 - 19                                          - 42        - 25        -8
  Domestic investment ( nominal )                            - 10       -8      - 18       + 23         -8        - 11        + 10         +4         -9         -2
  Investment abroad ( in national currency)                   -8        -2                  +2          -1           0                     +3         -6         -3
  Profits                                                    - 39     - 35      - 59                   - 37       - 12                   - 51        - 49       - 32
  Domestic selling prices                                    - 14       -5      + 55           0       - 12       - 10            0        -6        - 42       + 20
  Export prices in national currency                         - 51     - 19      + 25           0       - 28       - 22          -2       - 89        - 68        +4
  Medium-term sales expectations                             - 23     - 15                                        - 19                   - 34        - 41        -5
  pro memoria:
  exchange rate changes January 1986 /
  May 1987 against :
  — US $                                                  + 34,9    + 36,8    + 11,5     + 22,3     + 25,6     + 20,2      + 29,1      + 34,9     + 36,8     + 17,1
  — weighted average of the currencies of 19
        main trading partners                               + 7,5   + 11,6    - 10,8      - 0,4       + 1,1      - 1,5       + 4,7      + 7,5       + 8,4      - 4,2
  (*) The special survey was conducted in April / May 1987. The wording of the question was: 'The appreciation of the national currency has prompted us to revise
        plans/expectations for 1987 that we announced last autumn.' The offered response categories were: no change/ no response, revised sharply upwards, revised
        somewhat upwards, revised sharply downwards, revised somewhat downwards. The balance has been calculated on the basis of responses for total industry, with
        sharp revisions being given a double weight.
        The results for Portugal are not yet available.
       .Denmark did not take part in this special survey.
  Source: European Community business survey .
                                                                             TABLE 12
                                            Deflator of private consumption and convergence of price developments
                       1969 / 1960   1977 / 1969    1981 / 1977      1982         1983           1984           1985          1986 (')       1987 (»)      1988 (>)
  B                        3,2            7.4            5.6          7,3          7,5             6,2           4,8              1,3           1,8           2,5
  DK                       5,7           10,0           10,6         10,2          6,8             6,5           4,8              3,6           4,1           4,0
  D                        2,7            5,5            4.7          4,7          3,2             2.4           2,1            - 0,5           0,6           1,8
  GR                       2,4           10.7           18,6         20,8         17,9           18,4           18,6             22,1          16,0         12,0
  E                        5,9           13.5           16,3         14,5         12,3           10,7            8,3              8,9           5,4           4,2
  F                        4.2            8,3           11,3         11,2          9,5             7,2           5.5              2,5           3,1           2,6
  IRL                      4,5           13.8           15,2         15,9         10,0             7.5           4.2              3.6           3,0           3,2
  I                        3,7           13,0           16.5         15,9         14,8           11,4            9.3              6,3           4,8           4,9
  L                        2,3            6,8            6,2         10,8          8,1             6.4 .         3,3              0,3           0,5           2,3
  NL                       4,1            8,0            5,5          5,3          2,7             2.5           2.6              0,2         - 0,8           1,0
  P                        2,7           13,4           21.6         22,5         25,5           29,3           19,0             12,1           9,3           6,5
  UK                       3,7           12.6           12,6          8,7          5,0             4,8           5,2              3,6           3,0           3,9
                                                                           Weighted average
  EUR 12                   3,7            9,9           11,3         10,4          8,5            7,0            5,9             3,7           3,2           3,4
  EMS                      3,6            8,7             9,9          9,8         8,3            6,4            5,1             2,4           2,5           2,9
                                                             Measures of dispersion related to average (2)
  EUR 12                   0,9            2,5            4,7          4,6          4.7            4,6            3,9             4,1           2,7           1,8
  EMS                      0,8            2,2            3,9          3,4          2,8            1,9            1,7             1,8           1,6           0,8
                                                              Measures of dispersion related to lowest (2 )
  EUR 12                   1,4            4,7            7,4          7,7          7,6            7,0            5,2             5,8           5,0           3,2
   EMS                     1,5            3,6            4,8          5,5          5,1            3,8            2,5             2,7           2,9            1,7
   (') Economic Forecasts, September 1987 .
   (2) The dispersion index is an unweighted sum, disregarding signs, of each country's deviation from the respective reference value (e.g. weighted average or lowest
        rate ).
  Source: Eurostat and Commission services .
 ---pagebreak--- No L 394 / 86                                  Official Journal of the European Communities                                               31 . 12 . 87
                                                                      TABLE 13
                               Real convergence — per capita GDP (2) and its divergence in the Community
            \                                1960      , 1970        1975       1980         1985      1986 (>)    1987 (')    1988 (')
              B                              96.1         99,5      103,0      104.4        101,7       101,8       101,2       101,0
              DK                            119,8        116,7      111.3      109.5        116,7       117,8       115,1       113,6
              D                             118,2        113,6      109.6      114,2        116,0       116,2       115,6       115,4
              GR                             38,7         51,7       57,1        58,4        56,1        55,3        53,7        52,6
              E                               58.3        72.3        80,1       73,8        72,3        72,7        73,9        74,6
              F                             101,4        106,1      110.4      111.6        109,0       108,2       106,8       106,2
              IRL                             61,9        61.4        63,0       64.7         63,8       62,3        62.7        62.3
              I                               91.4       100,6        97,7     102,0        103.2       103,5       104,4       105,1
              L                             141,3        125,3      122.7      120,5        127,5       127,5       127,4       127,0
              NL                            120,0        117,3      116,3      112,4        107.3       106,7       105,9       104,4
              P                               38.2        47,4        50.3       54,3         52,6       53,2        53.8        54,1
              UK                            128,3        108,0      105,7      100,7        103,9       104,2       105,3       105,8
              EUR 12                        100,0        100,0      100,0      100,0        100,0       100,0       100,0       100,0
              Weighted standard
              deviation EUR 12                26,2         17,9       15,5       16.8         17,6       17,5        17,2        17,1
              Ratio of four poorest
              to four richest
              countries                       41,0         56,3       63.4       60,0         58,6       58,9        59.9        60.4
              (') Economic Forecasts, September 1987.
              (2) GDP per capita at current prices and purchasing power standards as a percentage of the Community average.
              Source: Commission services .
                                                                      TABLE 14
                                               Nominal wages, real wages and real unit labour costs
                                                                                                          (percentage, change per annum )
                                1973 /      1980 /
                                                        1981      1982      1983      1984        1985    1986 (>)   1987 (')   1988 (')
                                 1960        1973
                                                     (a) Nominal compensation per employee
              B                   8,9        11,6         6,5      8,2       6,0        5,8        4.4       2.5         3.7       3,0
              DK                 10,7        11.7         9,2     11,9       8,2        5.3        4.8       5.1         7.2       5,2
              D                   9.2          7.4        5,2      4.2       3.8        3.4        3,0        3,9        3.3       2,9
              GR                 10,2        21,1       21.5     27,8       21,3      21,2        21,7      13,7       12,5       12,0
               E                 14.5        21.8       15,7      13,8      14.5      11,8         9.9        8,7        6,5       5,3
              F                   9,9        14,7       14,3      13,7      10,6        8,1        5,8       4.0         3.0       3,5
               IRL               11.3        19,5       18,1      14,4      11,6      11,8         7.5        6.1        6.1       4,9
               I                 11.6        20,2       22.6      16,2      16,0       11,4       10,2        7,7        8.3       6,0
               L                  7,4        11,0         8,5      6,9       6,8        7,2                   4,0        4.4       4,2
              NL                 11.4          9.5        3,5      5,8       3,2        0,4        1,3        1.6        1,9       1,6
               P                 12,0        25,2       19,9      20,1      16,6       18,7       19,9      16,7        11,9       8,5
               UK                  8.3       17,5       13,2       9.3       9,1        5,1        7,3        7.2        6.8       6,6
               EUR 12            10,0        15,1       13,0      11,1       9.9        7,4        6,8        6,0        5,4       4,7
               (') Economic Forecasts, September 1987 .
 ---pagebreak--- 31 . 12 . 87                                     Official Journal of the European Communities                                               No L 394 / 87
                                  1973 /      1980 /
                                                         1981       1982       1983      1984       1985       1986 1     1987 >)   1988 (M
                                   1960        1973
                             (b) Nominal compensation per employee deflated by the private consumption deflator
                B                   5,1        3,5       - 1,4        0,9      - 1,4     - 0,4      - 0,3          1,2       1,9      0,5
                DK                 3,8         0,8       - 2,5        1,5        1,3     - 1,1        0,0          1,5       2,9      1,2
                D                   5,4        2,4       - 0,8      - 0,5        0,6       1,0        0,9          4,4       2,6      1,1
                GR                  6,5        4,4       - 1,6        5,8        2,9       2,4        2,6        - 6,9     - 3,0      0,0
                E                   7,3         3,4        1,2      - 0,6        1,9       1,0        1,5        - 0,2        1,0     1,1
                F                   5,1        3,5         1,3        2,3        1,0       0,8        0,4          1,4     - 0,1      1,0
                IRL                 5,0        2,9       - 1,2      - 1,3        1,5       4,0        3,2          2,4       3,0      1,6
                I                   6,5        2,3         3,9        0,2        1,0       0,0        0,8          1,3       3,3      1,0
                L                   4,2         3,4      - 0,2      - 3,5      - 1,2       0,7        0,7          3,6       3,9      1,9
                NL                  6,0        2,2       - 2,7        0,5        0,4     - 2,0      - 1,3          1,4       2,7      0,6
                P                   8,3         2,7        1,3      - 2,0      - 7,1     - 8,2        0,8          4.1       2,4      1,9
                UK                  3,3         1,6        1,6        0,6        3,9       0,4        2,0          3,5       3,6      2,6
                EUR 12              5,1         2,5        0,9        0,6        1,3       0,3        0,9          2,2        2,1     1,3
                                                              (c) Real unit labour costs ( 2 )
                B                    0,3         1,4       1,0      - 2,0      - 1,1     - 1,2      - 1,3        - 3,1        0,4    - 0,8
                DK                   0,2         0,5     - 1,2      - 1,3      - 1,7     - 2,3      - 1,5        - 1,1       3,4       0,0
                D                    0,5         0,0       0,3      - 1,2      - 2,5     - 1,2      - 1,1        - 0,8       0,6     - 0,5
                GR                 - 2,5         1,9       6,5        1,7        2,5     - 1,6        2,4        - 5,4     - 3,8       0,1
                E                    0,5       - 0,2       0,4      - 2,2        0,0     - 4,0      - 2,1        - 3,7     - 0,9     - 0,8
                F                    0,0         1,0       1,2      - 0,7      - 0,1     - 1,6      - 1,4        - 2,5     - 1,6     - 1,0
                IRL                - 0,4         1,2     - 3,5      - 2,4        0,0     - 0,7      - 2,4          0,3       0,3       1,0
                I                    0,2         0,3       2,2        0,3        0,6     - 1,6      - 0,1        - 2,4        0,3    - 0,7
                L                  - 0,2         3,3       1,7      - 5,0      - 4,3     - 3,9      - 0,7        - 0,3        0,9      0,6
                NL                   1,0         0,2     - 2,7      - 1,3      - 2,0     - 4,4      - 1,6          0,2       2,1       0,1
                P                    0,3         1,4       4,0      - 5,2      - 1,5     - 5,0      - 4,8        - 5,0     - 0,7     - 0,8
                UK                   0,2         0,0     - 1,3      - 1,3      - 1,1       0,8      - 1,0          1,2        0,8    - 0,1
                EUR 12               0,1         0,3       0,5      - 1,0      - 0,7     - 1,5      - 1,1        - 1,4        0,1    - 0,5
                (') Economic Forecasts, September 1987 .
                (2) Compensation per employee deflated by the GDP deflator and divided by real GDP per person in total employment.
                Source: Eurostat and Commission services .
                                                                        TABLE 15
                                                    Sectoral developments in employment (EUR 10)
                                                                                                                                     Percentage share of
                                                              Percentage annual average rate of change                                   employment
                                       1980 / 1970    1983 / 1980    1985 / 1983     1986 0 )      1987 (') ( 2)    1988 («)(*)      1970           1985
Employment in :                                                                                                                   |           I
— Agriculture                             - 3,2          - 2,4          - 2,4                                                         11,2            7,0
— Industry                                - 0,8          - 3,3          - 1,4         - 0,2           - 0,5            - 0,3         41,7           33,2
— Services                                  1,9            0,9            2,0                                                         47,1          59,8
                            Total           0,3          - 0,6            0,5            0,8            0,8              0,6        100            100
(») EUR 12 .
(2 ) Economic Forecasts, September 1987 .
Source: Eurostat and Commission services .
 ---pagebreak---   No L 394 / 88                                      Official Journal of the European Communities                                              31 . 12 . 87
                                                                            TABLE 16
                                               Percentage of employees working part-time of total employees
\                          B             DK            D            F              IRL          1              L          NL             UK       EUR 9
  1975                    4,1          22,3           10,1          6,5            4,7         4,0           4,8          8,8           17,9       10,2
  1979                    5,5          24,6           10,8          6,9            4,1         3,7           5,4         10,8           17,9       10,8
  1983                    8,3           25,6          12,0          8,9            5,8         3,5           6,2         20,9           19,4       12,3
  1985                    9,3           25,3          12,3         10,5            5,8         4,5           7,1         22,4           21,7       13,5
  Source: Eurostat, 'Employment and Unemployment 1987' Table VI/ 2 and previous issues. Based on Community labour force sample survey.
                                                                             TABLE 17
                                                           Employment under fixed-term contracts
                                                                       United Kingdom                France                  Germany
                                  Fixed-term contracts
                                                                      1983           1985      1983          1985       1984          1985
                   Percentage share of:                                                                 \                              6,8
                   — Total salaried employment                         5,0            5,5       2,3           3,2        4,2
                   — Men                                               3,8            4,0       2,0           3,1        4,2           7,0
                   — Women                                             7,0            7,4       2,7           3,3        4,1           6,4
                   — Part-time                                        11,5           13,2       2,1           4,1        7,6           8,9
                   — Full-time                                         2,5            2,4       2,3           2,8        3,6           6,4
                   — Young persons under 25 years                     10,2            9,8       7,0          10,9        9,5          16,7
                 I                                                       1985 / 1983               1985 / 1983              1985 / 1984
                   Percentage change:
                   — Employment under fixed-term
                         contracts                                          + 11,2                   + 36,2                   + 64,0
                   — Total salaried employment                                + 1,9                    - 1,0                   + 0,8
                   Source: Wissenschaftszentrum, Berlin on the basis of Community labour force sample surveys for France and the United
                              Kingdom, and Microcensus (Statistisches Bundesamt) for Germany.
                                                                             TABLE 18
                                                           Structure of unemployment (EUR 12) (*)
                                                                                                                                         (in %
                                                                         1984                       1985                      1986
                                 Unemployment rate
                   Total                                                 10,5                       10,7                      10,8
                   Men                                                     9,3                       9,4                        9,3
                   Women                                                 12,5                       12,7                      13,2
                   Under 25 years                                        23,5                       22,9                      22,7
                   Over 25 years                                           7,3                        7,6                       7,8
                   ( i ) Data are from the harmonized Community labour force sample survey. Accordingly, rates differ from those published for
                         registered unemployment as a percentage of the civilian labour force.
                   Source: Eurostat, 'Employment and Unemployment 1987' Table IV/ 1 , based on Community labour force sample surveys.
 ---pagebreak---                                                  Official Journal of the European Communities                               No L 394 / 89
31 . 12 . 87
                                                                        TABLE 19
                                         Long-term unemployment (*) as percentage of total unemployment
                                                             1983                         1984                  1985
             B                                               64.1                         67,1                  68,2
             D                                               38.4                         43,4                  46,9
             DK                                              32.2                         30,9                  32.0
             GR                                              32.3                         37,1                  43,4
             E                                               52.5                         53.4                  56.3
             F                                               39.6                         39,1                  43,8
             I                                               54.6                         60,5                  63.6
             IRL                                             35,2                         44,5                  62,2 ( 3 )
             L                                               32.7                         29,3                  36,8
             NL                                              46,9                         n.a .                 56.4
             P                                               45.2                         43,5                  48,4
             UK                                              44.8                         45,5                  48.7
             EUR 12                                          46.3 ( 2 )                   48,3 (*)              52.1 ( 2 )
             ( ! ) Unemployment of more than one year duration.
             ( 2 ) Estimate .
             (3) The change of format of the question in 1985 appears to have affected the response.
             Source: COM(87) 231 final on the basis of Community labour force sample survey .
                        Spain : national survey.
                        Portugal : national definition of unemployment.
                                                                        TABLE 20
                                    Evolution of unemployment rates by region (as a percentage of labour force)
                                                                                 1976                   1980         1985
              EUR 11 (»)                                                          4,6                    6,2         11,7
              25 weakest regions                                                  8,0                   11,7         21,1
              25 strongest regions                                                2,4                    3,0          6,6
              (') EUR 12 excluding Greece.
              Source: COM(87 ) 230 , Annex p. 134.
                                                                         TABLE 21
                                                       Evolution in labour force ( 1985 to 1995 ) (*)
                                                                                     Increase 1985 to 1995   Annual average
                                                                                         (in thousands)       growth rate
               Total weaker countries and regions                                             3 442               1,0
               — Spain                                                                        1 380               0,9
               — Portugal                                                                       387               0,8
               — Greece                                                                         338               0,8
               — Ireland                                                                        291               1,9
               — Mezzogiorno                                                                  1 046               1,3
               Total strongest regions                                                        3 256               0,3
               EUR 12 , total                                                                 6 698               0,5
               (*) On the assumption of no net migration between regions.
               Source: COM(87) 230 , Annex p. 149 .
 ---pagebreak--- No L 394 / 90                                     Official Journal of the European Communities                                                        31 . 12 . 87
                                                                           TABLE 22
                                     Medium-term projections of Commission services and outturns — EUR 10
                                                                                                                  (percentage change per annum )
                                                                                                           Projection              Outturn
                 European Economy No 9, July 1981 — 5th Programme
                 GDP in volume 1985 / 1980                                                                      1,9                     1,2
                 Employment 1985 / 1980                                                                       - 0,2                  - 0,5
                 Unemployment rate (*) 1985 , percentage of civilian labour force                              10,2                    11,1
                 European Economy No 14, November 1982
                 GDP in volume 1987 / 1980                                                                      1,6                     1,4
                 Employment 1987 / 1980                                                                       - 0,2                  - 0,2
                 Unemployment rate (*) 1987 , percentage of civilian labour force                              11,1                    10,5
                 European Economy No 1 8, November 1 983
                 GDP in volume 1987 / 1982                                                                      1,9                     1,9
                 Employment 1987 / 1982                                                                       - 0,1                     0,2
                 Unemployment rate 0 ) 1987, percentage of civilian labour force                               10,4                    10,5
                 (') Rate obtained by aggregating the rate of Member States calculated according to their national definitions. Rates can therefore
                     differ from harmonized rates published by Eurostat.
                                                                           TABLE 23
                       Main working hypotheses for the 1987 to 1991 reference projection of September 1987 — EUR 12
                                          (percentage annual average growth rates, unless otherwise stated)
                                                      1970 /      1980 /     1985 /                                                                         1991 /
                                                                                        1986        1987        1988        1989        1990       1991
                                                       1960        1970       1980                                                                           1986
Hypotheses concerning the international
environment
Oil price (US $ / barrel) ( J )                        1.3       28.7       27,5         13,7         17,3       18,0        19,0        22,0       24,0     24,0
Exchange rate ECU / US $                               0,3       - 3,0      12,8       - 22,7      - 13,3       - 3,7       - 1,0       - 1,0      - 1,0    - 4,2
Exchange rate Yen / US $                               0,0       - 4,5        0,9      - 29,3      - 12,6       - 5,5       - 3,0       - 3,0      - 3,0    - 5,5
Imports of goods ( 1980 prices)
— USA                                                  8,4         4,5        6,5        13,9          2,5        2,6         3,5         4,0        4,5       3,4
— Japan                                              14,4          5,1        1.4        10,1          6,2        5,2         5,5     *   5,5        5,5       5.6
— Other OECD                                           7,6         4,1        4.5          6,0         2,0        3,1         3,5         4,0        4,5       3,4
— OPEC                                                 4,5        15,4     - 0,4       - 20,5     - 17,0          0,0        10,0        10,0        7,5       1,5
— Developing countries                                 6,2         4,9        2,0       - 0,9          4.3        4,9         5,0         5,0        5,0       4,8
— Other countries                                      7,8         7,5        2.6       - 2,0          4,5        3,0         4,0         4,0        4,0       3,9
World trade excluding EUR 12                           7,8         5,7        3,2          3,8         2,1        3,5         4,5         4,8        4,8       3,9
Economic policy hypotheses
Real public consumption                                3.6         3.1        1.5          2,4         1,8        2,0         1,5         1,4        1,3       1,6
Real public investment                                 4,0 ( 2 ) - 0,2     - 0,3           1,0         2,9        3,3         2,5         2,5        2,5       2,7
Annual average change in the share
of public current receipts in GDP
( in percentage points)                                0,6         0,6        0,5       - 0,2        - 0,0      - 0,2       - 0,0       - 0,2      - 0,0    - 0,1
Money supply (M2 / M3 )                              10,2 ( 2 )   14.8      10.4         10,2         10,2        8,6         8,0         8,0        8,0       8,6
Nominal long-term interest rates                       6.7 (2 )    9,9 (*)  11.5 ( 2 )     9,2         9,1        9,1         9,0         8,8        8,6       8,9
Labour costs per head                                  9,2        14,3        9.6          6,0         5.4        4,7         4,7         5,0        5,1       5,0
Real labour costs per head (deflated by GDP
prices)                                                4,6         3.2        1,0          0,4         1,4        1,2         1,4         1,7        1,8       1,5
(') Level at end of period .
(2 ) EUR 10 (EUR 12 excluding Spain and Portugal ).
Source: Eurostat and Commission services .
 ---pagebreak--- 31 . 12 . 87                                          Official Journal of the European Communities                                                No L 394 / 91
                                                                                  TABLE 24
      1987 to 1991 reference projection of September 1987 — EUR 12 (percentage annual average growth rates, unless otherwise stated)
                                                           1970 /      1980 /      1985 /                                                                1991 /
                                                                                             1986      1987       1988      1989       1990       1991
                                                            1960        1970        1980                                                                  1986
Real GDP                                                    4,8         3,0           1,2      2,6       2,2        2,3       2,3        2,6         2,8 . 2,5
Unemployment rate
(% of labour force ) ( ! )                                  2,0 (*)     6.1 ( s )   12,1      11,9      11,8       11,7      11,4       11,1        10,6   10,6
Price of private consumption                                3,8        10,6           8,7      3,7       3,2        3,4       3,3        3,4         3,4    3,3
Balance on current transactions
(% GDP ) (0                                                 0,5       - 1,3           0,5      1,5       1,1        0,8       0,7        0,4         0,2    0,2
Real domestic demand                                        4.9         2,9           0,6      3,8       3,2        2,7       2,5        2,7         2,8    2,8
Real private consumption                                    4,9         3,4           1,0      3,9       3,1        2,7       2,6        2,7         2,8    2,8
Private investment                                          6,4 ( 2 )   1,8           0,6      3,8       3,7        3.3       3,7        4,2         4,4    3,9
Real exports of goods and services                          7,9         5,8           4,3      1.6       1,9        3,2       4,2        4,5         4,8    3.7
Real imports of goods and services                          8,7         5,4           2.4      5.9       5,3        4,4       4,5        4,8         4,8    4,8
Total employment                                            0,2         0,2        - 0,5       0,8       0,8        0,6       0,6        0,6         0,7    0,7
Productivity (GDP per person employed)                      4,6         2,8           1,7      1,8       1,4        1,7       1,7        2,0         2,1    1,8
Real unit labour costs ( 3 )                                0,0         0,4        - 0,7     - 1,4       0,0      - 0,5     - 0,3      - 0,2      - 0,2  - 0,3
Real long term interest rates                               2,3       - 0,9           3,0      3,6       5,2        5,6       5,7        5,6         5,4    5,5
Index of the profitability of capital ( 4 )
( 1960 to 1969 = 100 )                                    98,9         75,0          61,9*    75,9      76,1       78,3      79,6       80,7        81,8   79,3
Public deficit (% of GDP )                                - 0,6       - 2,8        - 5,2     - 4,8     - 4,5      - 4,5     - 4,1      - 3,9      - 3,4   - 4,1
(') Level at end of period (in percentage points).
(2 ) EUR 10 (EUR 12 excluding Spain and Portugal ).
( 3) Calculated as the relationship between real labour costs per employee and GDP per person in employment.
(*) The results calculated by the model are a synthetic indicator and cannot therefore be compared directly to those for the business sector presented
      elsewhere .
( 5 ) EUR 9 ( EUR 12 excluding Greece , Spain and Portugal ).
Source: Eurostat and Commission services .
           For the forecasting period 1987 to 1991 , the years 1987 / 1988 correspond to the short-term forecasts of the Commission services (Economic Forecast
           1987 / 1988 , September 1987) extended to 1991 with the help of the Compact model .
                                                                                  TABLE 25
                   The balance of growth on the demand side: GDP, private consumption, investment by enterprises and net exports
                                                in the Community (average annual changes at constant prices)
                                                                                                                                             (in %)
                                                                                                   Private investment ( 2 )
                                                                                                                               Net exports ( 3 )
                                                           GDP               Private consumption                               (in % of GDP)
                    1961 to 1973                           4,8                        5,0                    5,9                      0,3
                    1974 to 1985                           1,8                        2,0                   0,7                     - 0,2
                    1986 to 1988 (»)                       2,4                        3,2                    3,6                      0,6
                    (') Economic Forecasts, September 1987 .
                    (2 ) EUR 10 to 1970 (excluding Spain and Portugal ).
                    ( 3 ) Balance of goods and services , current prices .
                    Source: Eurostat and Commission services .
 ---pagebreak--- No L 394 / 92                                   Official Journal of the European Communities                         31 . 12 . 87
                                                                   TABLE 26
                                      Intra-Community share of total imports of goods (at current prices)
                  EUR 12      B/L           DK        D        GR        E        F         IRL         I   NL   P         UK
1958               35,2       55,5         60,0      36,3     53,7      31,8     28,3      68,9       30,2 50,7 53,4      21,8
1965               44,9       63,6         50,0      46,9     52,1      48,6     46,4      67,7       38,1 61,7 51,9      25,6
1970               50,3       66,3         48,7      51,7     50,9      40,9     56,0      70,1       47,5 63,4 52,6      29,4
1975               49,5       68,5         47,2      51,9     45,1      35,3     51,8      70,3       44,5 58,2 43,9      34,6
1980               49,2       61,6         50,3      49,4     40,9      31,3     52,0      75,3       46,2 54,7 45,3      40,9
1985               53,4       68,6         50,7      53,1     48,1      37,9     59,4      71,7       47,1 55,8 45,9      47,3
1986               57,8       69,9         53,2      54,2     58,3      51,3     64,4      73,0       55,4 61,0 58,8      50,4
1987 (*)           58,0       69,5         54,0      55,3     58,5      52,2     63,0      70,9       56,1 62,0 64,2      51,0
1988 (^            58,4       69,7         53,7      56,6     58,4      52,6     63,0      69,4       56,3 61,7 64,0      52,0
(') Economic Forecasts, September 1987.
Source: Eurostat and Commission services .
                                                                   TABLE 27
                                      Intra-Community share of total exports of goods (at current prices)
                  EUR 12      B/L           DK        D        GR        E        F         IRL         I   NL   P         UK
1958               37,2       55,4         59,3      37,9     50,9      46,8     30,9      82,4       34,5 58,3 38,9      21,8
1965               49,6       70,8         52,1      46,9     46,6      53,6     51,8      83,8       51,1 69,2 44,0      29,6
1970               53,4       75,2         44,2      49,8     53,5      49,6     58,1      74,3       51,7 72,6 43,8      32,7
1975               52,4       72,4         46,6      46,9     51,6      48,1     53,2      80,4       49,2 73,0 53,8      35,2
1980               55,7       73,2         51,6      51,1     48,2      52,2     55,4      76,0       51,6 73,5 58,6      45,0
1985               54,9       70,1         44,8      49,7     54,2      53,4     53,7      68,9       48,2 74,6 62,5      48,8
1986               57,2       72,9         46,8      50,8     63,5      60,9     57,8      71,9       53,5 75,7 68,0      47,9
1987 (»)           58,1       74,5         47,5      52,9     63,4      63,3     56,1      74,0       53,9 76,3 70,0      49,0
1988 (*)           58,4       75,0         48,0      53,3     63,5      64,4     56,4      75,0       53,6 76,7 70,6      49,0
(') Economic Forecasts, September 1987.
Source: Eurostat and Commission services .
 ---pagebreak--- 31 . 12 . 87                                       Official Journal of the European Communities                                                 No L 394 / 93
                                                                           TABLE 28
                       Direct effects on Member States' exports of a 10 % increase in their imports (at constant prices) (')
                                                                             Following a 10 % increase in imports in:
                                      B/ L      DK         D         GR         E          F      IRL          I        NL         P          UK        EUR 12
Exports increase (%) in:
B/L                                             0,1       2,0        0,1       0,1        2,0     0,0         0,6       1,5       0,0         0,8         7.3
DK                                    0,2                 1,7        0,1       0,1        0,5     0,1         0,5      0,4        0,0         1,2         4,7
D                                     0,7       0,2                  0,1       0,2        1,1     0,1         0,9      0,9        0,1         0,9         5,1
GR                                    0,2       0,1       2,5                  0,1        0,9     0,0         1,5      0,3        0,0         0,7         6,4
E                                     0,3       0,1       1,2        0,1                  1,9     0,1         0,8       0,4       0,4         1,0         6,1
F                                     0,9       0,1       1,8        0,1       0,3                 0,1        1,2       0,5       0,1         0,9          5,8
IRL                                   0,3       0,1       1,2        0,0       0,2        1,0                 0,3       0,5       0,0         3,6         7,2
I                                     0,3       0,1       1,9        0,1       0,3        1,6      0,0                  0,3       0,1         0,7          5,4
NL                                    1,5       0,2       2,9        0,1       0,1        1,0      0,1        0,7                 0,0          1,0        7,6
P                                     0,4       0,3       1,6        0,0       0,6        1,5      0,1        0,4       0,6                   1,5         6,8
UK                                    0,4       0,2       1,4        0,1       0,3        0,8      0,5        0,5       0,6       0,1                     4,8
EUR 12                                0,6       0,2       1,3        0,1       0,2        1,1      0,1        0,7       0,6       0,1         0,8          5,7
{*) Estimates on the basis of the Quest model. The Quest model is being developed by the Commission services. For methodological details of the international trade
    sector in the model, see 'Estimation and Simulation of International Trade Linkages in the Quest model* in European Economy No 31 , March 1987.
Source: Commission services .
 ---pagebreak--- No L 394 / 94                             Official Journal of the European Communities                                                  31 . 12 . 87
                                                                   TABLE 29
             Effects of raising public investment in certain Member States taking account of interdependence in the
             Community: illustrative example assuming an increase in public investment of 1 % of GDP (annual averages
                                                            during first five years)
                                                                                                             (percentage points of GDP)
                                                                       Following an increase in public investment in:
            \                                              D                 F               I                UK            EUR 4
             Net lending or borrowing of the
             public sector changes in:
             B                                              0,2              0,2             0,1               0,1              0,6
             DK                                             0,1              0,1             0,0               0,1              0,2
             D                                            - 0,7              0,1             0,0               0,1           - 0,5
             GR                                             0,1              0,0             0,0               0,0              0,2
              E                                             0,0              0,0             0,0               0,0              0,2
             F                                              0,1            - 0,8             0,1               0,1           - 0,6
              IRL                                           0,1              0,1             0,1               0,1              0,3
              I                                             0,0              0,0           - 0,8               0,0           - 0,6
             NL                                             0,2              0,1             0,1               0,1              0,5
              P                                             0,1              0,1             0,0               0,1              0,2
              UK                                            0,0              0,0             0,0            " 0,7            - 0,6
              EUR 12                                      - 0,1            - 0,1           - 0,1            - 0,1            - 0,4
              The current balance changes in:
              B                                             0,3              0,3             0,1               0,2              0,8
              DK                                            0,1              0,1             0,0               0,1              0,3
              D                                           - 0,3              0,1              0,1              0,1           - 0,1
              GR                                            0,1              0,1             0,1               0,0              0,2
              E                                             0,1              0,1              0,0              0,1              0,2
              F                                             0,1            - 0,4              0,0              0,1            - 0,2
              IRL                                           0,2              0,1              0,1              0,3              0,6
              I                                             0,1              0,1           - 0,3               0,0            - 0,1
              NL                                            0,2               0,2             0,1              0,2              0,6
              P                                             0,1              0,1              0,0              0,1              0,4
              UK                                            0,1               0,1             0,0            - 0,4            - 0,2
              EUR 12                                        0,0     ■         0,0             0,0              0,0            - 0,1
              Source: OECD Interlink Model ( 1987) and calculations by the Commission services .
 ---pagebreak--- 31 . 12 . 87                                    Official Journal of the European Communities                                  No L 394 / 95
                                                                      TABLE 30
                                  Real convergence, investment shares, capital productivity and current balances
                                                                                                                       other
                                                                                       P
                                                                                                     GR , E , IRL , P Member    EUR 12
                                GR                  E               IRL                                   total
                                                                                                                       States
                                          GDP per head (at constant prices, annual average changes in % )
1961 to 1975                    6,2                5,7              3,6               5,4                  5.6          3.2        3,5
1976 to 1981                    2,3               0,6               3,0               3,4                  1,2          2.3        2,1
1982 to 1988 (»)                0,4                2 ,!             0,9               1,7                  1.7          1,8        1,8
                                                           Investment shares (in % of GDP )
1961 to 1975                   22,3              24,7              21,0             24,3                 24,2          22,9      23,1
1976 to 1981                   23,4              22,9              27,7             27,7                 23,8         21,2       21,6
1982 to 1988 (>)               19,2              20,4              21,2             25,3                 20,9          19,1       19,3
                                                            Marginal capital productivity (2)
1963 to 1975                    0,23               0,22             0,16              0,17                 0,21         0,13       0,14
1976 to 1981                    0,09               0,02             0,11              0,12                 0,05         0,10       0,09
1982 to 1988 (»)                0,02               0,10             0,04              0,07                 0,08         0,09       0,09
                                                            Current balances ( in % of GDP)
1961 to 1975                  - 2,9             - 0,4             - 2,7             - 0,6               - 0,9           0,4        0,2
1976 to 1981                  - 1,2             - 1,5             - 9,6             - 7,1               - 2,6         - 0,1      - 0,4
1982 to 1988 (*)              - 5,1                0,2            - 4,4             - 1,9               - 1,0           0,5        0,3
(*) For 1987 / 1988 : Economic Forecasts, September 1987.
(2) Additional GDP for one additional unit of capital = change in GDP divided by gross fixed capital formation.
Source: Commission services .
 ---pagebreak---                                                  TABLE 31
                                          Export market shares (')
                                                                                                                                 Difference       Difference    Difference
            1973          1979           1980          1981           1982          1983           1984             1985                          1979 / 1973   1985 / 1979
                                                                                                                                 1973 / 1968
                                                                                                                                                                              No L 394 / 96
                         27,04          27,25         26,65          26,61         26,03          25,21          25,60             - 1,83             + 0,24        - 1,44
           26,80
                         15,26          16,35         17,92          17,20         16,49          16,59          15,99             - 3,63             - 0,17        + 0,73
           15,43
                                        12,43         15,16          14,62         15,60          16,94          16,75             + 1,61             + 0,85        + 5,37
           10,53         11,38
                         27,40          27,00         25,79          25,75         25,23          24,01          24,86             - 3,43             - 0,56        - 2,45
           27,96
                         18,08          19,18         20,70          20,91         20,11          20,74          19,32             - 4,96             + 0,57        + 1,24
           17,51
                         13,06          14,18         17,34          16,53         18,54          20,62          20,20             + 2,21             + 0,70        + 7,14
           12,36
                          26,69         27,66         26,49          26,32         25,34          24,32          24,27             - 1,19             - 0,29        - 2,42
           26,98
                          17,66         18,26         20,42          19,12         18,21          17,95          17,87             - 4,61             - 0,99        + 0,21       Official
           18,65
                                        12,24         14,76          13,98         15,03          16,38          16,52             + 2,85             + 1,64        + 5,66
            9,22          10,86
                                                                                                                                                                              Journal
                          27,23         26,86          27,89         28,12          28,29         28,46             29,16          - 1,67             + 1,70        + 1,93
           25,53
                           8,81         10,62          10.42          9,37           8,84          8,53              7,76          - 1,55             - 0,09        - 1,05
            8,90
                          10,53         10,99          13.43         13,52          12,90         13,02             12,38          - 0,71             - 0,40        + 1,85
           10,93
    ne in total exports of all OECD countries (at current prices); including intra-Community trade.
                                                                                                    ,     . ,   . ,               . ,          ,, ,       ,     .
  d electronics, information technology, automated office equipment and precision instruments, chemicals and pharmaceuticals. World demand grew at an average
                                                                                        ,     4           f    t            1V,            ^                „ r
  food, drink and tobacco, paper pulp-, packaging and printing, rubber and plastics, industrial and agricultural machinery. World demand expanded byan ave g }
                                                                                                                j           L.       10/
etal goods, textiles, leather and clothing, construction materials and non-metallic minerals. World demand grew by some 1 /0 a year.
    the basis ofthe average for 1981 / 1982 compared with the average 1972/ 1973 (in US $ at 1975 prices and exchange rates). The class,fication is based on the growth
                                                                                                                                                                              of the European Communities
                                                                                                                                                                                      31 . 12 . 87
 ---pagebreak--- 31 . 12 . 87                                      Official Journal of the European Communities                                             No L 394 / 97
                                                                        TABLE 32
             Gains ( + ) and losses ( — ) in shares of export markets over the period 1985 / 1979 (in declining order of importance) (')
                                                                       EUR 10 (2 )
                           Branches                             Losses                                   Branches                                Gains
Electrical goods                                                - 4,39          Leather and footwear                                             + 5,45
Motor vehicles                                                  - 4,25         Wood and furniture                                                + 4,86
Rubber and plastic products                                     - 2,53          Textiles and clothing                                            + 3,87
Agricultural and industrial machinery                           - 2,49          Non-metallic minerals and products                               + 2,47
Other transport equipment                                       - 2,27          Food, beverage and tobacco products                              + 2,03
Office and data machines, precision and optical                                 Paper and printing products                                      + 1,25
instruments                                                     - 2,23          Ferrous and non-ferrous ores and
Other manufactured products                                     - 0,84          metals other than radioactive                                    + 1,23
Metal products except machinery and transport                                   Chemical products                                                + 0,51
equipment                                                       - 0,65
                                                                           USA
                           Branches                             Losses                                    Branches                               Gains
Other manufactured products                                     - 2,06          Other transport equipment                                        + 5,45
Textiles and clothing                                           - 1,41          Rubber and plastic products                                      + 3,63
Ferrous and non-ferrous ores and metals , other than                            Office and data machines; precision and optical
radioactive                                                     - 1,29          instruments                                                      + 3,30
Motor vehicles                                                  - 0,86          Paper and printing products                                      + 0,68
Food, beverage and tobacco products                             - 0,52          Electrical goods                                                 + 0,66
Wood and furniture                                              - 0,46          Leather and footwear                                             + 0,52
Non-metallic minerals and products                              - 0,36
Metal products except machinery and transport
equipment                                                       - 0,24
Chemical products                                               - 0,01
Agricultural and industrial machinery                           - 0,01
                                                                          Japan
                           Branches                              Losses                                   Branches                               Gains
Food, beverage and tobacco products                               0,00          Electrical goods                                                + 11,66
                                                                                Motor vehicles                                                   + 9,40
                                                                                Office and data machines; precision and optical
                                                                                instruments                                                      + 5,47
                                                                                Agricultural and industrial machinery                             + 5,26
                                                                                Other manufactured products                                      + 5,24
                                                                                Non-metallic minerals and products                               + 3,17
                                                                                Rubber and plastic products                                       + 3,04
                                                                                Other transport equipment                                         + 2,71
                                                                                Textiles and clothing                                             + 2,20
                                                                                Metal products except machinery and transport
                                                                                equipment                                                         + 1,75
                                                                                Ferrous and non-ferrous ores and metals , other than
                                                                                radioactive                                                       + 1,63
                                                                                Chemical products                                                 + 1,35
                                                                                Paper and printing products                                       + 0,78
                                                                                Leather and footwear                                              + 0,42
                                                                                Wood and furniture                                                + 0,18
 (») Market share is defined as the exports of USA, Japan or EUR 10 to the rest of the world in relation to exports of OECD countries to the world.
 ( 2 ) Only extra-Community trade is taken into account.
 Source: Commission services, Volimex database.
 ---pagebreak---                                                                                                                                31 . 12 . 87
No L 394 / 98                                  Official Journal of the European Communities
                                                                        TABLE 33
                                Growth rate of industrial gross fixed capital formation by sector (at 1980 prices)
                                                     1973 to 1979           1979 to 1985         1979 to 1982    1982 to 1985
             Total industry:
             EUR4 (»)                                   - 0,4                     1,1                - 3,8            6,2
             USA                                          5,5                  - 0,6                 - 3,4            2,2
             Japan                                      - 2'1                    9,7                   9,2           10,2
             Strong demand:
             EUR 4 0 )                                    1,9                     1,4                - 5,5             8,9
             USA                                          7,2                     2,1                  3,6             0,7
             Japan                                      - 0,8                   15,8                  13,0           18,6
              Moderate demand:
              EUR 4 ( x )                                 2,1                     0,8                - 2,3             3,9
              USA                                         6,4                     0,4                - 4,1             5,0
             Japan                                      - 1,4                     8,3                  7,0             9,6
              Weak demand:
              EUR 4 (')                                 - 5,0                     0,1                - 6,3             6,9
              USA                                         3,0                   - 5,5               - 10,0           - 0,7
             Japan                                      - 3,6                     5,4                   8,4            2,5
              (*) Federal Republic of Germany, France, Italy, United Kingdom.
              Source: Commission services, sectoral data bank.
                                                                         TABLE 34
                                                         Growth rate in employment by sector
                                                      1973 to 1979           1979 to 1985         1979 to 1982    1982 to 1985
               Total industry:
               EUR7 (»)                                   - 1,3                  - 2,5                - 2,6           - 2,3
               USA                                          0,9                  - 1,4                - 3,6             0,9
              Japan                                       - 1,7                    1,3                   0,9            1,7
               Strong demand:
               EUR 7 (*)                                  - 0,5                  - 1,6                - 2,4           - 0,7
               USA                                           2,1                 - 0,3                - 1,4             0,9
                                                          - 2,0                    4,9                   4,3            5,4
               Japan
               Moderate demand:
               EUR 7 ( J )                                - 0,6                  - 2,0                 - 1,8          - 2,3
               USA                                           1,3                 - 0,5                 - 2,9            2,0
                                                          - 0,9                     0,6                  0,9            0,4
               Japan
                Weak demand:
               EUR 7 t 1 )                                - 1,9                  - 3,3                 - 3,5          - 3,0
               USA                                        - 0,2                  - 3,3                 - 5,9          - 0,7
                                                          - 2,1                     0,2                - 0,6             0,9
               Japan
                ( i ) Federal Republic of Germany, France, Italy, United Kingdom, Netherlands, Belgium, Denmark.
               Source: Commission services, sectoral data bank.
 ---pagebreak--- 31 . 12 . 87                                      Official Journal of the European Communities                                                      No L 394 / 99
                                                                           TABLE 35
                                                 European Community general budget, 1985 to 1988:
                                          payment appropriations, millions of ECU as a percentage of total
                                                                          1985 (')            1986 ( 2 )           1987 ( 3 )           1988 (")
                                                                         EUR 10               EUR 12               EUR 12               EUR 12
             Expenditure:
             Agriculture — Guarantee Section                               69,9                65,7                63,5                 68,1
             Agriculture — structural Funds                                 2,6                 2,1                 2,6                  3,0
             Fisheries                                                      0,3                 0,4                 0,5                  0,6
             Social Fund                                                    5,0                 6,6                 7.0                  6,4
             Regional Fund                                                  5,8                 7,1                  6,9                 7,4
             Integrated Mediterranean projects                              0,0                 0,1                  0,5                 0,2
             Transport                                                      0,3                 0,1                 0,1                  0,2
             Energy and industry                                            0,5                 0,2                  0,4                 0,5
             Research and innovation                                        2,0                 1,7                  2.1                 2,4
             Food aid                                                        1,9                0,9                  1,6                 0,9
             Development aid                                                 1,9                1,1                  1,5                 1,2
             Other expenditure including refunds to
             Member States                                                  9,8                14,0                13,3 (*)              9,1
                                                        Total             100,0               100,0               100,0                100,0
             ( Pro memoria: Absolute amount in
             millions of ECU )                                         ( 28 223 )          (33 635 )           ( 36 168 )           ( 39 708 )
             Receipts:
             Agricultural levies                                            7.7                 6,8                  8,9                 7,6
             Customs duties                                                29,4                24,3                23,2                 22 ,6
             Value-added tax ( VAT)                                        53,8                66,1                64,8                 44,2
             Special contributions                                          6,8                 0,6                  0,6                24,9
             Miscellaneous                                                  2,3                 2,2                  2,5                 0,7
                                                        Total             100,0               100,0 ( 6 )         100,0 ( 7 )         100,0 ( 8 )
             ( Pro memoria: Absolute amount in
             millions of ECU )                                         ( 28 272 )          ( 33 635 )          ( 36 168 )           ( 39 708 )
             Maximum rate of VAT                                             1,0                1,4                  1,4                  1,0
             Effective rate of VAT                                           1,0                1,37 (»)             1,27 ( 10 )         1,0 (")
             Budget total as a percentage of GDP                            0,85                0,98                 1,00                 1,03
               (') Outturn . Management accounts 1985 .
               (2 )  Provisional outturn. Report on execution of the 1986 Budget.
               (3)   Supplementary and rectifying Budget No 1 1987 adopted on 3 August 1987 .
               (4 )  Preliminary draft Budget for 1988 proposed by the Commission on 15 June 1987.
               (5)   Includes an estimated deficit of 820 million ECU in respect of 1986 .
               (s) The correction of the budgetary imbalance for the United Kingdom which amounts to 2 685 million ECU gross is included in
                     receipts .
               (7 ) The correction of the budgetary imbalance for the United Kingdom which amounts to 2 366 million ECU gross is included in
                     receipts.
               ( 8 ) The correction of the budgetary imbalance for the United Kingdom which amounts to 2 513 million ECU gross is included in
                     receipts .
               ( 9) Except for the Federal Republic of Germany ( 1,33 ) and the United Kingdom (0,67).
             ( 10 ) Except for the Federal Republic of Germany ( 1,35 ) and the 701ted Kingdom (0,83 ).
             ( 11 ) If the proposed reforms were not carried out, the VAT ceiling agreed at Fontainebleau ( 1 ,4 % ) would leave a shortfall of about
                     six billion ECU . Even an increased VAT ceiling ( 1,6% ) would not be sufficient to cover the expenditure planned in the
                     preliminary draft budget.
 ---pagebreak--- No L 394 / 100                                       Official Journal of the European Communities                                                       31 . 12 . 87
                                                                            TABLE 36
                                                             Money and credit targets and outturns
                                   1981                              1985                                  1986                                1987
                                                                                                                                                       Outturn
                         Objective       Outturn           Objective         Outturn            Objective         Outturn          Objective        ( annual rate)
D
MZ (')                 4—7                  3,5           3—5                   4,4           3,5 — 5,5              7.8         3—6                7,3 (July)
F
M2 ( 2 )              10,0                 11,4           4—6                   6,9           3,0 — 5,0 («)          4,4         3—5                7,2 (June)
E
M3                    14,5 — 18,5          16                                                                                                       7,2 (June)
ALP ( 8 )                                               11,5 — 14,5            12,8           9,5 — 12,5           11,4          6,5 — 9,5         13,7 (June )
I
TDCE ( 3 )            16,0                 18,2         16,8                   17,9
PSCE ( 7 )                                                                                    7                    11.4          7                 14,2 (June )
M2                                                                                            7 — 11                 9,4         6—9               12,3 (June )
UK ( 4 )
£ M3 (')               6 — 10              13,8           5—9                  15,1          11 — 15               18,1                            20,9 (July)
MO                                                        3—7                   6,0           2—6                    5,2         2—6                 5.3 (July)
USA ( s )
Ml                     3,5 — 6              2,3           4—7                  11,9           3—8                   16.5                           10,5 (July)
M2                      6—9                 9,2           6—9                   8,0           6—9                    8.9         5,5 — 8,5           5,7 (July)
TDCE ( 3 )                                                9 — 12               12,7           8 — 11                12,2         8 — 11            11,3 (July)
(') Central bank money.
(2 ) For 1985 M2R (M 2 residents) and for 1986 / 1987: M3 .
( 3 ) TDCE-total domestic credit expansion.
{*) Before 1985 , objectives were annual rates for the change from February to April of the next year; from 1985 they concerned the rate ofgrowth over 12 months and
      the result is for the 12 months ending in December.
(5)   The United States also have a target for M3 .
(6 )  M3 , new definition.
( 7)  Domestic credit to the non-state sector.
(')   Liquid assets held by the public.
(*)   The aggregate £ M3 was replaced by M3 in May 1987.
Source: Commission services .
 ---pagebreak--- 31 . 12. 87                                         Official Journal of the European Communities                           No L 394 / 101
                                                                         TABLE 37
                                                               Nominal long-term interest rates
                    1961 to      1970 to
      Country                                  1978      1979       1980       1981      1982        1983     1984  1985  1986   1987 (')
                     1969          1977
B                     6,1           8,1         8,5       9,7       12,2       13,8      13.4        11,8    12,0  10,6    7,9     7,7
DK                    7,9          13,2        16,8      16,7       18,7       19.3      20.5       14,4     14,0  11,6  10,5     11,8
D                     6,6           8,3         5,7       7,4        8,5       10.4       8,9         7,9      7,8   6,9   5,9     5,6
GR                                  9,8        10,0      11,2       17,1       17,6      15.4        18,2    18,5  15.8   15.8    17.4
E                                              12,0      13,3       16,0       15,8      16,0        16,9     16,5 13,4   11,4    12,1
F                     6,2           9,6        10,6      10,9       13,1       15,8      15.6       13,6     12.5  10.9    8,4     9,0
IRL                                12,2        12,8      15,1       15,4       17,3      17,0        13,9    14.6  12,7   11,1    11.5
I                     6,5          10,2        13,7      14,1       16,1       20,6      20,9        18,0     14,9 14.3   11,7    10.6
NL                    5,3           8,3         8,1 ,     9,2       10,7       12,2      10.5         8,8      8,6   7,3   6,4     6,2
P                                                                                                                  25.4  17.9     15,2
UK                    6,7          11,8        12,6      13,0       13,9       14,8      12.7        10,8    10.7  10,6    9,8     9,3
EUR 12 ( 2 )          6,5           9,8        10,3      11,2       12,9       15,0      14,2        12,6     11,8 10,8    9,1     8,9
EUR 10 ( 2 )          6,4           9,5         9,3      10,2       11,8       13,8      12,6        10,7    10,4    9,6   7,9     7,7
EMS (2 )              6,3           9,2         8,8      10,1       11,5       13,5      12,5        10,6     10,3   9,2   7,8     7,5
USA                   4,6           6,5         7,9       8,7       10,8       12,9      12,2        10,8     12,0 10,8    8,1     8,2
Japan                               7,7         6,3       8,3        8,9        8,4       8,3         7,8      7,3   6,5   5,2     4,5
                                                   Long-term interest rates adjusted by actual inflation (3)
                    1961 to      1970 to
      Country                                  1978      1979       1980       1981      1982        1983     1984  1985  1986   1987 (')
                     1969          1977
B                     2,7           0,2         4,0       4,9        8,1        8,5       6,0         5,1      6,4   5,2   3,4     5,5
DK                    1,6           2,9         6,3       8,5        9,7        8,4       9,0         6,3      7,9   6,0   5,3     6,9
D                     3,2           2,3         1,3       3,3        3,5        6,2       4,3         4,5      5,7   4,6   2,7     3,6
GR                                - 1,5       - 2,6     - 6,2      - 0,5      - 2,0     - 7,6       - 0,8    - 1,3 - 1,5 - 2,7     0,6
E                                             - 6,8     - 2,9        1,8        3,4       1,9         4,7      5,0   4,3   0,2     6,1
F                     1,9           0,9         1,0       0,5        0,8        3,6       2,7         3,7      4,9   4,7   3,4     5,5
IRL                               - 1,4         2,1       1,2        0,6      - 0,1       1,1         2,3      7,8   7,3   5,1     8,4
I                     2,1         - 2,5       - 0,2     - 1,6      - 3,7        1,8       4,0         2,3      4,3   5,1   3,4     4,8
NL                    0,2         - 0,1         2,6       5,1        4,7        6,4       4,2         6,8      6,3   4,8   5,6     7,3
P                                                                                                                    3,1 - 0,1     3,6
UK                    2,7         - 0,8         1,2     - 1,3      - 4,8        3,0       4,6         5,5      6,3   4,5   6,1     5,1
EUR 12 (2 )           2,3         - 0,4         0,0       0,2      - 0,3        3.6       3.3         3,8      5,0   4,4   3,3     4,8
EUR 10 ( 2 )          2,3         - 0,3         0,2     - 0,1      - 1,1        2.7       2.4         2,6      4,3   3,8   3,0     4,0
EMS ( 2 )             2,2           0,3         0,4        1,0       0,4        2.8       2,1         2,1      4,2   3,8   3,9     4,3
USA                   1,7         - 0,3         0,6     - 0,2        1,7        2,9       5,5         6,6      7,9   7,3   5,8     4.7
Japan                             - 1,3         1,4       5,1        4,9        5,0       6,3         6,9      5,9   4,7   3,2     3.8
(') Average of first seven months.
(2 ) For countries available in the years in question.
( 3 ) GDP deflator.
Source: Commission services .
 ---pagebreak--- No L 394 / 102                                   Official Journal of the European Communities                                            31 . 12 . 87
                                                                         TABLE 38
                                              Synthetic indicators of budgetary policy in the Community
                                                                                                                                           (% of GDP)
                                                                                   EUR 12 (2 ): General government
                                                1970 (z )  1973 (2 )   1981     1982     1983         1984      1985     1986     1987 0 )   1988 (')
Receipts:
  1 . Indirect taxes                             13,1       12,2       12,6     12.7     12,9         13.1      12,9     13.1      13,1       13.1
  2 . Direct taxes                                 9,5        9,8      11,6     11.8      12,0        12.2      12,4     12.2      12.4       12.2
  3 . Social contributions received              10,3       11,3       14,0     14,4      14,7        14,6      14,6     14,5      14.6       14,8
  4 . Tax burden
      ( 1+2 + 3 )                                32,9       33,3       38.1     39,0     39,6         39,9      39,9     39,8      40,1       40.2
  5 . Other current receipts                       3,0        3,0         3,7     3,8      3,8          3,8        4.0      3,9      3.6        3,5
  6 . Total current receipts
      (4 + 5 )                                   35,9       36,2       41,8     42,8 .   43.4         43,6      43,9     43,7      43.7       43,5
Expenditure:
  7 . Current expenditure                        30,8       33,0       43,1     44,4     45,0         45.2      45,1     44,7      44.5       44.3
      ( - of which interest)                      ( 1,9 )    ( 1,9 )    ( 3,7 )  (4,1 )   (4,4)        (4,8 )    ( 5,0 )  ( 5,0 )   (4,8 )     (4,8 )
  8 . Public investment                             4,0        3,6        3,0     3,0      2.9          2,8        2,8      2,7      2.7        2,8
  9 . Other capital expenditure                     0,8        0,7        1,0     0,9      0,9          1,0        1.1      0,9      0,9        0,8
Budget balance:
10 . Total                                          0,3     - 1,1      - 5,3    - 5,5    - 5,3        - 5,3     - 5,2    - 4,7     - 4,4      - 4,4
11 . Total excluding interest                       2,2        0,8     - 1,6    - 1,4    - 0,9       - 0,6      - 0,2       0,4      0,4        0,4
Public debt:
12. Percentage of GDP                                        36,9      43,1      48,2     51.5         54.3      56,9     58,1      60,4       62,8
13 . % change p. a .                                                             11,8       6,8         5,4        4,8      2,1      4,0        4,0
(') Economic Forecasts, September 1987.
{2 ) EUR 12 ; without Greece , Ireland and Portugal in 1970 and 1973 .
Source: Eurostat and Commission services .
 ---pagebreak--- 31 . 12 . 87                          Official Journal of the European Communities                                 No L 394 / 103
                                                              TABLE 39
                                     General government expenditure, receipts and lending
                                                                                                                        (% of GDP)
              1970        1973         1981         1982          1983          1984        1985     1986 (») 1987 (')   1988 (»)
                                                     ( a ) Total current receipts
B            36,5        38.2         45,2         46.8           46.1         47.3         47.8       46.1    46,5       46.3
DK           46,2        47.3         52,9          52.0          54,4         56.7         57,4       58.7    58.5       59.0
D            38,9        42,9         45.6         46.1           45,8         46,1 .       46.4       45,5    45,4       45.1
GR           26,5        25,1         28,9          32.0          33.2         34,2         34.5       36,0    37.0       37.4
E            22,9        24,1          31.7         31.9          34.0         33.8         35.4       36,4    37,2       37.2
F            39,8        39.4          46,7         47,6          48,2         49,1         49,2       48.8    48,7       48,9
IRL                                    38,4         40,5          42.7         43,0         43,1       43.3    44,2       44.3
I            26.7        26,7          34,1         36.2          38.1          38,0        38.5       39.2    39,7       39,9
L            35.8        39,4          54.7         54.1          56,4          54,5        56.9       55,2    54,2       54,2
NL           41,1        46,4          53.8         54.2          55,6          54.4        55,1       53.4    53.1       52,2
P                                      33,0         33.3          37,1          34,4        33,1       35.5    33,9       33,9
UK           39,8        35,6          41,8         42,5          41.8          42,0        41,8       41,0    40.6       39,7
EUR 12       35,9 (*)    36,2 (')      41,8         42,8          43,4          43,6        43,9       43,7    43,7       43,5
                                             (b) Total expenditure including capital ( 3 )
B            38.6        41,5          58,0         57,8           57.5         56,7        56,2       54,9    53.1       52,4
DK           42,1        42,1          59.8         61,2           61.6         60.7         59,5      55.4    56,6        57,3
D            38.7        41.7          49,2         49.4          48.4          48,0        47,5       46,7    47.0       47,1
GR                                     39.9         39,7          41.5          44,3        48.1       46.7    47.6       47,3
E            22,1        22,9          35,6         37.5           38,8         39.3        42.2       42,1    42.2       42,1
F            38,9        38,5          48,6         50,3           51.4         51.8         52,1      51.8     51.5       51,3
IRL                                    51.8         54,3           54.5         52.9         54.7      54,0     53,2       52.1
 I           29,7        32,8          45,5         47.6           48,8         49,5         50.8      50.5     50.1       50,3
 L           33,1        36,1          57.9         55.7           56,2         52,5         52.5       51,4    51,4       51.2
 NL          42,3        45,4          59,2         61,3           62,0         60,7         59.9       58,0    58,8       58,2
 P                                     42,5         43,6           46,2         46.4         43,1      43,7     42.7       41,7
 UK          36,9        38,3          44,4         45,0           45,2         45,9         44.6       43.6    42.6       41,7
 EUR 12      35,6 ( 2 )  37,3 ( 2 )    47,1         48,3           48,7         49,0         49,1       48,4    48,1       47,8
                             (c) Total net lending ( + ) or borrowing ( - ) including interest payments
 B           - 2,2       - 3,3       - 12,8       - 11,0         - 11,3        - 9,4        - 8,4      - 8,7   - 6,6      - 6,1
 DK            4,1         5,2        - 6,9         - 9,1         - 7,2        - 4,1        - 2,1        3,3     1,9        1,7
 D             0,2         1,2        - 3,7        - 3,3          - 2,5        - 1,9        - 1,2      - 1,2   - 1,6      - 2,0
 GR                                  - 11,0         - 7,7         - 8,3       - 10,0       - 13,6    - 10,7   - 10,6      - 9,8
 E             0,7         1,1        - 3,9         - 5,6         - 4,8        - 5,5        - 6,7      - 5,7   - 5,0      - 4,9
 F             0,9         0,9         - 1,9        - 2,8         - 3,2         - 2,7       - 2,9      - 3,0   - 2,8      - 2,3
 IRL                                 - 13,4       - 13,7         - 11,8        - 9,9       - 11,6    - 11,2   - 10,0      - 7,5
 I           - 3,1       - 6,1       - 11,5       - 11,3         - 10,7       - 11,5       - 12,3    - 11,3   - 10,4     - 10,4
 L             2,7         3,3         - 3,2        - 1,6           0,2           2,0         4,4        3,9     2,8        3,1
 NL          - 1,2         1,0         - 5,5        - 7,1         - 6,4         - 6,3       - 4,7      - 4,6   - 5,7      - 6,0
 P                                     - 9,5      - 10,3          - 9,1       - 12,0       - 10,0      - 8,2   - 8,8      - 7,8
 UK            2,9       - 2,7         - 2,5        - 2,4         - 3,4         - 3,9       - 2,9      - 2,7   - 2,0      - 2,0
 EUR 12        0,3 ( 2 ) - 1,0 ( 2 )   - 5,3        - 5,5         - 5,3         - 5,3       - 5,2      - 4,8   - 4,5      - 4,5
 ---pagebreak--- No L 394 / 104                                    Official Journal of the European-Communities                         31 . 12 . 87
                        1970           1973       1981        1982        1983        1984      1985 1986 (») 1987 0 )   1988 (')
                                                       (d) Interest payments on the public debt
B                        3,4           3,3         7,9         9,2         9,4         9,9      10,6  11,1     10,9        11,0
DK                       1,3            1,3        5,3         6,0         8,1         9,7       9,9   8,8      8,2         7,8
D                        1,0            1,1        2,3         2,8         3,0         3,0       3,0   3,0      2,9         2,9
GR                 \               |     :         3,2         2,6         3,7         4,6       5,4   5,9      6,5         6,9
E                        0,6            0,6        0,8         1,0         J ,3        2,0       3,4   3,9      3,7         3,7
F                        1,1           0,8         2,0         2,0         2,6         2,7       2,9   2,9      2,8         2,8
IRL                |      :                        7,4         9,0         9,4         9,6      10,9  10,1     10,4        10,7
I                        1,5            2,2        6,2         7,2         7,6         8,1       8,1   8,5      7,7         7,9
L                        1,1            1,0        0,9         1,0         1,0         1,2       1,3    1,3      1,3        1,1
NL                       2,9           2,8         4,4         5,1         5,7         5,9       6,3   6,0      6,0         5,9
P                  \               I     =\        5,2         5,4         6,4         7,1       7,8   9,3      8,1         7,2
UK                       3,9            3,7        5,1         4,7         4,9         5,0       5,0   4,5      4,3         4,1
EUR 12                   1,9 ( 2 )      1,9 ( 2 )  3,7         4,1         4,4         4,8       5,0   5,0      4,8         4,8
(') Economic Forecasts, September 1987.
(2 ) Without Greece, Ireland and Portugal .
( 3 ) Net of capital transfers received.
Source: Eurostat and Commission services .
 ---pagebreak--- 31 . 12 . 87                                    Official Journal of the European Communities                               No L 394 / 105
                                                                      TABLE 40
                                  Share of selected items of general government receipts and expenditure in GDP
                 1970 to 1973 1974 to 1980       1981         1982        1983         1984      1985       1986 (») 1987 (>)   1988 (•)
                                              (a) Gross fixed capital formation of general government
B                    4,4           3,7            3,7          3,4          3,0          2,6       2,2         1,9      1,7        1,7
DK                   4,4           3,7            3,0          2,8          2,3          1,9       2,2         1,7      2,1        2,1
D                    4,3           3,6            3,2          2,8          2,5          2,4       2,3         2,4      2,4        2,4
GR                              -l                3,9          2,9          3,3          4,1       4,4         4,1      3,7        3,5
E                    2,7           2,2            2,3          3,1          2,8          3,0       3,6         3,4      3,6        3,7
F                    3,7           3,4            3,2          3,4          3,3          3,0       3,1         3,2      3,2        3,2
IRL             I                  5,3            5,7          5,1          4,4          3,8       3,8         3,5      3,2        2,9
I                    2,6           2,9            3,6          3,7          3,7          3,5       3,7         3,4      3,3        3,4
L                    4,7           6,3            6,7          6,7          5,4          4,9       4,8         4,6      4,6        4,6
NL                   4,4           3,5            3,1          2,9          2,7          2,8       2,5         2,2      2,2        2,2
P               I                                 4,3          3,4          3,1          2,6       2,5         3,0      3,5        4,1
UK                   4,7           3,6            1,8          1,6          2,0          2,0       2,0         2,0      1,9        1,9
EUR 12                3,8 ( 2 )    3,3 ( 2 )      3,0          3,0          2,9          2,8       2,8         2,7      2,7        2,8
                                                                   (b ) Direct taxes
B                   12,1          16,8           18,0         19,3         18,6        19,2      19,1        18,4     18,4       18,3
DK                  23,8          25,2          25,8          25,4        26,6         27,6      28,5        29,0     28,5       29,5
D                   11,5          12,8           12,2         12,1         12,0        12,1      12,5        12,2     12,2       11,9
GR                    3,7          4,7            4,7          5,9          5,5          5,9       5,6         6,0      6,1        6,4
E                     3,7          5,2            7,2          6,8          7,9          8,3       8,5         8,4      9,7        9,7
F                     6,9          7,8            8,6          8,8          8,9          9,1       9,0         9,2      9,3        9,3
IRL                               10,9           12,9         13,3         14,0        14,9      14,8        15,6     16,3       16,4
I                     5,0          7,4           10,9         11,8         12,4        12,7      13,0        12,9     13,7       13,7
L                   13,0          18,2           18,0         17,9         19,4        18,2      20,0        18,7     17,5       17,8
NL                  14,0          17,0           15,1         14,7         13,6        12,7      12,7        13,4     13,7       13,5
P                                                 7,7          7,6          8,5          8,3       8,3         7,1      6,4        6,3
UK                  13,3          14,2           14,3         14,6         14,4        14,6      14,7        14,0     13,8       13,3
EUR 12                9,6 (*)     10,9 (*)       11,6         11,8         12,0        12,2      12,4        12,2     12,4       12,3
                                                           (c) Social security contributions
B                   10,8          12,3           12,7         12,7         13,2        14,0      14,7 .      14,4     14,7       14,6
DK                    2,3          1,6            2,1          2,4          2,9          2,9       2,9         2,5      3,0        3,1
D                   13,5          16,4           17,4         17,8         17,3        17,3      17,5        17,4     17,6       17,6
GR                    6,6          7,8            9,1         10,2         10,9        11,1      11,5        11,8     11,7       12,3
E                     7,4         10,7           13,4         13,3         13,7        13,1      13,1        12,9     12,7        12,6
F                   14,8          17,8           19,6         20,2         20,7        21,0      21,2        21,0     21,1       21,4
IRL             I      :\          4,4            4,9          5,5          5,8          5,8       5,8         5,8      5,8        5,9
I                   10,8          12,1           12,8         13,7         14,1         13,7     13,7        14,0      13,8       13,8
L                   10,5          14,6           15,6         14,9         14,4         13,6     13,6        13,4      13,7       13,7
NL                  14,8          17,4           18,7         19,7         21,9        20,7      20,6         19,5    20,0       20,0
P               I                                 9,3          9,6         10,0          9,3       9,0         8,3      8,2        8,2
 UK                   5,2          6,2            6,3          6,5          6,9          7,0       6,9         7,0      7,0        7,0
EUR 12              10,8 (*)      13,1 ( 2 )     14,0         14,4         14,7         14,6      14,6        14,5     14,6       14,6
 (') Economic Forecasts, September 1987.
 (2) Without Greece, Ireland and Portugal .
Source: Eurostat and Commission services ,
 ---pagebreak--- No L 394 / 106                                 Official Journal of the European Communities      31 . 12 . 87
                                                                  GRAPH 1
                                                ECU /US $ exchange rate (quarterly averages) (')
    (*) For 1987 / 1988 : Economic Forecasts, September 1987.
    Source: Commission services.
 ---pagebreak--- 31 . 12 . 87                                 Official Journal of the European Communities                      No L 394 / 107
                                                                   GRAPH 2
                        World prices for crude oil, raw materials (excluding fuel) and manufactured goods US $
                                                             (Index 1980 = 100) (>)
             (') For 1987 / 1988 : Economic Forecasts, September 1987.
             Source: Commission services .
 ---pagebreak--- No L 394 / 108                                  Official Journal of the European Communities                      31 . 12 . 87
                                                                    GRAPH 3
                                Balance on current transactions with rest of the world as a percentage of GDP (')
   ( ! ) For 1987 / 1988 : Economic Forecasts, September 1987 .
   Source: Commission services .
 ---pagebreak--- 31 . 12 . 87                            Official Journal of the European Communities                                   No L 394 / 109
                                                         GRAPHS 4 to 7
                         Comparative evolution of the Community, US and Japanese economies, 1984 to 1987
4 . Gross domestic product, s.a.                                     5 . Industrial production
                                                                         three-month moving average , s.a .
1980 = 100
    6 . Unemployment rate, s.a                                   7 . Trade balance
                                                                     fob / cif, billions ECU , three-month moving average , s.a .
 ---pagebreak--- No L 394 / 110                              Official Journal of the European Communities                     31 . 12 . 87
                                                             GRAPHS 8 to 11
                             Comparative evolution of the Community, US and Japanese economies, 1984 to 1987
8 . Consumer prices                                                     9 . Exchange rates
     six-month change , s.a ., annual rates                                 Index of SDRs per currency unit
                                                                        March 1979 = 100
                                                                         11 . Short-term interest rates
 10 . Long-term interest rates
 O/
  /0
 ---pagebreak--- 31 . 12. 87                                    Official Journal of the European Communities                               No L 394/ 111
                                                                   GRAPH 12
                  Profitability, total final demand and private investment (past developments and medium-term projections)
         Source: Commission Services .
 ---pagebreak---                                       GRAPH 13
Growth , employment and unemployment in the 1986 and 1987 reference projections — EUR 12     No L 394 / 112
                                                                                           Official Journal of the European Communities
                                                                                                             31 . 12 . 87
 ---pagebreak--- 31 . 12 . 87                                      Official Journal of the European Communities                                         No L 394 / 113
                                                                       GRAPH 14
                                          Shares of world market for exports of Community industrial products
                                                                 (Indices, 1963 = 100)
     ( 1 ) Index of the market share of intra-Community (EUR 10) exports with respect to OECD countries' exports to the Community (EUR 10).
     (2) Index of Community (EUR 10) exports to third countries with respect to that of exports of OECD countries to the same destination.
     Source: Commission services, Volimex database.
 ---pagebreak---                                                                                                                     31 . 12 . 87
No L 394 / 114                              Official Journal of the European Communities
                                                                   GRAPH 15
           Money supply in real terms and the deceleration of nominal variables (EUR 12) (average annual percentage
                                                                   change) (*)
               (') Economic Forecasts September 1987 .
               ( 2 ) Broad money supply, annual average .
               (3) Broad money supply deflated by the index of unit labour costs or GDP prices.
 ---pagebreak--- 31 . 12 . 87                                        Official Journal of the European Communities                                          No L 394 / 115
                                                                        GRAPH 16
                                                     Long-term and short-term nominal interest rates (*)
                         (a) EUR 12 average (2)
     Difference between long- and short-term rates :
                         (b) EMS average (3) (Currencies participating in the exchange-rate mechanism)
     Difference between long- and short-term rates :
     (>) Representative rates in the various countries on the money market (in general three months) and for long-term government securities.
     ( 2 ) Private consumption weights .
     ( 3 ) Weighted by relative weights of currencies .