CELEX: 31976D0440
Language: en
Date: 1976-04-30 00:00:00
Title: Council Decision of 30 April 1976 concerning the adjustment of the economic policy guidelines for 1976

No L 119/ 12                      Official Journal of the European Communities                     6 . 5 . 76
                                                           II
                                     (Acts whose publication is not obligatory)
                                                   COUNCIL
                                                 COUNCIL DECISION
                                                   of 30 April 1976
                concerning the adjustment of the economic policy guidelines for 1976
                                                     (76/440/ EEC)
           THE COUNCIL OF THE EUROPEAN COMMUNITIES,
           Having regard to the Treaty establishing the European Economic Community,
           Having regard to Council Decision 74/ 120/EEC of 18 February 1974 on the attainment
           of a high degree of convergence of the economic policies of the Member States of the
           European Economic Community ('), and in particular Articles 1 and 2 thereof,
           Having regard to the proposal from the Commission,
           Whereas the Council agrees with the analysis of the economic situation contained in the
           Commission communication of 3 March 1976 concerning the adjustment of the
           economic policy guidelines for 1976,
           HAS ADOPTED THIS DECISION :
                                                       A rticle 1
           Member States shall pursue economic policies which conform to the guidelines set out in
           the Annex hereto .
                                                       Article 2
           This Decision is addressed to the Member States .
           Done at Luxembourg, 30 April 1976 .
                                                                        For the Council
                                                                         The President
                                                                           B. BERG
           (') OJ No L 63, 5 . 3 . 1974, p. 16 .
 ---pagebreak---  6. 5. 76                            Official Journal of the European Communities                        No L 119/ 13
                                                          ANNEX
                                  ECONOMIC POLICY GUIDELINES FOR 1976
                                                  1 . General guidelines
Need to consolidate the    1.1 . The trends observed in recent months and the latest business surveys substantially
revival                    confirm the outlook for 1976 set out in the 'Annual Report on the Economic Situation in
                           the Community' (1). Consequently, the general pattern of the economic policy guidelines
                          contained in that report is still valid. The main task is to consolidate the revival by :
                          — ensuring strict and prompt implementation of the measures already decided upon to
                                stimulate economic activity and, where necessary, prolonging the application of
                                certain measures so as to avoid abrupt pauses in the economic recovery ;
                          — making further progress in the fight against inflation and curbing the rise in wage
                                costs, an essential move particularly in those Member States with little room for
                                manoeuvre in their balance of payments and budgetary policies, i.e. Ireland, Italy and
                                the United Kingdom .
 . . . but without         1.2 In spite of the good prospects for a gradual economic upturn in the Community,
 generating new pressures uncertainty and concern about economic policies will continue in all Member States in
                           1976. The most important task will be to set the stage for as rapid an improvement as
                          possible in the employment situation and for sustained economic growth without
                          generating renewed bouts of inflation .
Budgetary policy to        1.3     Given the continuing uncertainty as to the strength of the economic revival, budge­
encourage economic        tary policy should continue to encourage economic activity, by ensuring that deficits are
activity                  not reduced at an unduly rapid rate and that investment in the public sector is increased .
                          In order to achieve the necessary long-term reduction in deficits, current expenditure
                          should be curbed to create more room for capital outlays. In some Member States, social
                          infrastructure investment is not only the necessary corollary of moderation in incomes
                          policy ; it is also a condition for the essential process of adjustment in the medium term .
Expansionary but           1.4 Monetary policy should also encourage sustained economic recovery. However,
cautious monetary         given that there is so far no reason to question the forecasts of continuing inflation , the
policy                    expansion of liquidity in the Member States should be kept within narrowly defined
                          limits. To achieve this, the financing of budget deficits must be severely restricted, and
                          the increase in the money supply limited in a manner compatible with macro-economic
                          objectives.
Improvement in             1.5     If there is to be steady economic growth and a high level of employment, invest­
profitability of          ment of the kind which creates more jobs must be stepped up considerably. An improve­
undertakings essential    ment in the profitability of undertakings is therefore essential . Rather than through price
                          increases, this should be achieved by productivity gains resulting from economic growth
                          and by slowing down the rise in production costs.
Need for further           1.6 The rise in consumer prices must be slowed down further in order to prevent the
progress in the fight     necessary moderation in wage increases from resulting in a reduction of consumer
against inflation         demand in real terms . This implies that the upward trend of controlled prices must be
                          rigidly contained . The planned increase in indirect taxes in a number of Member States
                          should, where possible, not be taken into account in wage settlements, so as to prevent
and for a narrowing of    chain reactions. A narrowing of the price differences between member countries would
price differences         prevent exchange rate disturbances between the 'snake' currencies and would facilitate the
                          coordination of monetary policies . Stability as far as possible in the value of Community
                          currencies would be of practical help in defending the hard-won achievements in stabi­
                          lizing prices against the increasing pressure of import prices and world commodity prices.
                          (!) OJ No C 297, 29 . 12 . 1975, p. 1 .
 ---pagebreak--- No L 119/ 14                        Official Journal of the European Communities                                6. 5 . 76
Complementary role of      1.7. Overall management of the economy must be supplemented by employment and
social and employment      social policy measures. Selective measures in the areas of vocational and further training
policy                     should in particular help to reduce the high level of unemployment, particularly among
                           young people, which is giving cause for concern ; for this purpose, increased use should
                           also be made of the Community resources available under regional, social and structural
                           policy.
Joint effort from the      1.8     In the current economic situation , to take the medium-term view, it would seem
various socio-economic
                           essential to achieve a greater measure of agreement between management and unions on
groups
                           wage targets and the economic conditions under which they can be achieved, so as to
                           overcome as quickly as possible the effects of the deep recession which has just ended,
                           resolve the resulting adjustment problems and put an end to disputes over differentials. It
                           is only by a joint effort to promote confidence that the expansionary factors leading to the
                           creation of new jobs can be strengthened and the upward movement in prices slowed
                           down further.
                           The continuation of the talks between the two sides of industry, which were launched at
                           the Tripartite Conference in 1975 between representatives of the employers' and workers'
                           organizations, Member States' Ministers of Economic and Social Affairs and the Commis­
                           sion, could be of considerable help in strengthening the economy and restoring the confi­
                           dence of consumers, investors and producers in the Community's economic future.
                                        2 . Guidelines for each Member State
 2.1    In Denmark, the economic recovery which                 with the restrictive situation resulting from an
began in the closing months of 1975, following the              increased balace of payments deficit. To achieve this,
expansionary measures taken in September, is likely             the central Government's borrowing requirement
 to become well established in 1976. It is likely that          should be met by public loan issues.
 the main elements in this recovery, the expansion in
 private consumption and residential construction, will
 result in an increase in investment in other areas and
 in exports. Unemployment could, therefore, show a              2.4 In the Federal Republic of Germany, the
 reduction during the year. Certain inflationary pres­          combined effects of the reflationary measures already
 sures could make progress in controlling prices and            taken by the Government and the Federal Bank and
 costs more difficult than has hitherto been the case .         the marked recovery in export demand produced a
 Consequently, the incomes policy which was success­            distinct change in the economic situation in the
 fully pursued in 1975, will have to be continued in            second half of last year. Judging from the information
 order to ensure a balanced recovery.                           currently available, the recovery will gather
                                                                momentum in the coming months, with the result
                                                                that real gross national product can be expected to
                                                                grow by an average of 4 to 4V2 % in 1976. In such
 2.2    With regard to the budget, the measures taken           circumstances, the authorities responsible for
 to ease direct and indirect taxation, which have               economic policy should be content to await the full
 already provided an appreciable stimulus, together             effects of the measures already taken to stimulate the
 with the increase in transfer payments, produced a             economy.
 sharp increase in the central Government's net
 borrowing requirement in 1975. In 1976, budgetary
 policy will remain expansionary, but the expected
 increase in revenue resulting from the economic                2.5 As a result of the programmes already adopted,
 upswing and the planned cuts in certain categories of          and assuming a deficit of the same order of magnitude
 current expenditure should help to reduce this deficit         as last year, budgetary policy in 1976 will again have a
 by the end of the year. This would be a welcome deve­          clearly expansionary effect which, in view of the slack
 lopment, given the current outlook for the economy,            in the economy would seem in line with short-term
 and would constitute the first stage in the attainment         economic requirements. Any extra tax revenue which
 of longer-term objectives.                                     might arise from ' the gradual acceleration in the rate
                                                                of growth should, however, be used to reduce the large
                                                                borrowing requirement. This would also help to
                                                                improve the chances of achieving the medium-term
 2.3.    In the monetary field, the expansion in                aim of reducing the budget deficit ; the first steps in
 domestic liquidity should be contained so as to make           this direction were taken with the law relating to the
 it possible to hold interest rates at a level compatible       structure of the budget, adopted at the end of 1975
 ---pagebreak--- 6 . 5 . 76                            Official Journal of the European Communities                         No L 119 / 15
2.6 As regards monetary policy, the Federal Bank                2.12 In Ireland, a revival of activity may take time
has adopted as its target for 1976 an average growth of         to materialize. Exports could grow at a slightly slower
8 % in the central bank reserves. Since the money in            rate than in 1975 as a result particularly of the drop in
circulation increases rapidly in a period of economic           the volume of sales of agricultural produce. Private
expansion, this rate of growth should be sufficient to          consumption is expected to rise only slowly. While
finance the estimated rise in production and employ­            investment should increase as a result of higher public
ment at the same time as gradually lowering the                 capital expenditure , the employment situation is
rather too high existing level of liquidity in the              unlikely to improve until the second half of the year.
economy, and continuing to reduce the scope for                 The rate of price increases should slacken but the
price increases.                                                extent of this slow-down will depend on the success
                                                                of the incomes policy. Economic policy should there­
                                                                fore centre on this aspect of the situation . In this
                                                                respect, an incomes freeze up to the end of 1976, as
2.7      In France, activity is steadily increasing in most     proposed, could ' well be the essential condition for a
sectors, mainly as a result of the end of destocking,           gradual return to internal balance which would stimu­
the continuing growth in consumer expenditure, and              late the longer term prospects for growth and employ­
the public capital expenditure programmes contained             ment .
in the 1975 plan to stimulate the economy. The pace
of the recovery is not yet such that unemployment
can be expected to fall significantly in the course of
1976. Moreover, there is reason to fear that progress in        2.13     The budget presented on 28 January 1976,
bringing down the rate of inflation will be seriously           which in general conforms with the guidelines fixed
hindered in the second half of the year. The growth in          in the annual report on the economic situation in the
imports, which will probably be more rapid than that            Community, should contribute to a large extent to the
of exports, will turn the small trade surplus recorded          realization of these objectives. Its main features are
in 1975 into a deficit of the same order.                       considerable cuts in current expenditure, an appreci­
                                                                able increase in taxation and a large increase in public
                                                                sector capital expenditure, calculated to have a posi­
                                                                tive effect on employment. Overall, the borrowing
2.8      Budgetary policy should continue to encourage          requirement of central and local government,
the recovery in activity. In particular, in order to stimu­     expressed as a percentage of gross domestic product, is
late private Sector fixed investment, the authorities           expected to stabilize although remaining high . This
should aim to improve the liquidity position of under­          would represent a break in the trend observed in the
takings. Fiscal reliefs, for example the postponement           past few years.
of tax payments, could again be used*
2.9      Private consumption has still not borne a suffi­       2.14 As for monetary policy, the authorities should
cient share of the external burden , which was imposed          endeavour to finance as much as possible of the
two years ago by the deterioration in the terms of              public sector's borrowing requirement by non-mone­
trade caused by the increase in oil prices . This imbal­        tary means, such as long-term public loans.
ance can only be corrected by a deceleration in the
rate of growth of disposable income .
                                                                2.15     In 1975, the economic situation in Italy was
                                                                characterized by a marked deceleration in the rate of
2.10      Changes in the system for monitoring prices           price inflation , a large reduction in the balance of
will play a key role in bringing about a recovery in            payments deficit and a slow-down in economic
investment. The policy of easing controls on producer           activity which persisted into the summer months. The
prices of manufactured products must be continued               recovery, which began at the end of last year, should
and should be accompanied by strict controls over               continue in 1976 . However, it should be assumed that
profit margins . The pressure of foreign competition            the recovery will develop only slowly, as several factors
and the productivity gains which will accompany the             — especially the delays in the renewal of collective
recovery should to a certain extent limit the risks of          agreements and , more important, the Government
accelerated inflation .                                         and lira crises in January — might cause industrialists
                                                                to adopt a wait-and-see attitude .
2.11      The present monetary policy seems well
suited to this current recovery phase . But the rapid           2.16     The strong pressure on the lira in January
rate at which the money supply has been expanding               forced the monetary authorities to stop intervening on
in recent months will have to be gradually reduced .            the exchange markets . As a result, between 20 January
 ---pagebreak---   No L 119/ 16                          Official Journal of the European Communities                               6 . 5 . 76
 and 2 March, the lira depreciated, allowing for                   that the 1975 reflationary programmes be maintained .
 weighting, by some 13 % . On the assumption that                  In financial terms, the net borrowing requirement will
  this downward course        is maintained, the       Italian     show a marked increase over last year's figure .
 balance of payments, which in any case would have
 worsened during the period of economic recovery,
 would have to bear the additional burden of a deterio­
                                                                   2.20 As capital outflows will probably be insuffi­
  ration in the terms of trade. Such a possibility is all         cient to offset the surplus on current account, it must
 the more likely since in Italy, which is an important            be assumed that the overall balance of payments will
  processor of raw materials, the scope for elasticity in          remain in surplus. As a result, the money market will
 imports in relation to their price is rather limited .            probably be able to operate without constraint.
 2.17 A further depreciation of the lira and its                  2.21     To reduce the risk of a resurgence of inflation
 harmful effects on the wage-price spiral can only be             at a later stage of economic recovery, it would be advis­
 avoided, as would be desirable, by an economic policy            able to finance the Treasury deficit as far as possible
 aimed at eliminating the State budget deficit and stem­          by long-term borrowing, at the same time taking steps
 ming the rise in unit wage costs . To restore balance to         to maintain capital outflows.
 the economy both internally and externally the Italian
 authorities must apply an economic policy even more
 stringent than that presented in Council Directive
                                                                  2.22 The rise in wage costs will have to slacken if
 75/784/ EEC of 18 December 1975 adapting the condi­
                                                                  investor confidence and the employment situation are
 tions laid down for the grant of medium-term finan­
                                                                  to improve . Steps in this direction have been taken
 cial assistance to the Italian Republic ('). A restrictive
                                                                  recently and these should lead in the course of the
 policy should be followed on Government expendi­
                                                                  year to a slowing down in the rate of increase of
 ture, the Treasury deficit and credit expansion .
                                                                  consumer prices. It would seem essential to obtain the
                                                                  collaboration of both sides of industry if such a policy
                                                                  is to be successful .
 This implies a comparatively high level of interest
 rates, together with appropriate fiscal policy measures.
 In any case, an important contribution from the two
 sides of industry to achieving a more moderate                   2.23     In Belgium, where activity picked up fairly
 increase in nominal incomes is essential .                       rapidly in the fourth quarter of last year, mainly as a
                                                                  result of a rise in domestic demand and in exports,
                                                                  demand should continue to grow during the first half
 In following such a policy, with the aim of fighting             of 1976. This recovery will mainly be based on several
 inflation and restoring equilibrium to the balance of            factors : restocking, increased public investment, and
 payments by a suitable rise in exports, the Italian              the expansion of residential building ; the growth in
 authorities would also be serving the interests of the           private consumption may however only be slight.
 Community as a whole . To this end , the Community
 should provide assistance, in the form of a Commu­
 nity loan , on condition that the authorities do not             2.24     For most of the year, the rate of expansion
 take any measures, either direct or indirect, which              will depend partly on the impetus provided by public
 could impede or disturb trade between Member States.             investment. There is therefore no need to change the
                                                                  general guidelines for budgetary policy set out in the
                                                                  annual report on the economic situation in the
2.18      In the Netherlands, the recovery, which began           Community, which are in any case made clear in the
 in the middle of last year and which brought about a             central Government budget for 1976 . The authorities
slight improvement in the employment situation ,                  could, in addition , encourage business investment by
should continue during the first half of 1976.                    effectively removing the burden of value added tax
 However, as the level of new orders remained low up              from such investment, and ensure that the subsidised
to the end of last year, it will be a few months before           housing programme is strictly implemented .
a firm base for balanced growth becomes established
and spontaneous recovery takes over from economic
policy measures .                                                 2.25 With business investment still sluggish it
                                                                  should be fairly easy for the Government to finance
                                                                  the budget deficit from private sector savings. Despite
2.19      Budgetary policy must therefore continue to             the difficulties arising from the close interdependence
encourage economic activity. For the time being, the              of the internal and external markets, the authorities
central Government budget for 1976 must remain in                 should seek to avoid another rise in interest rates, or
line with the original guidelines, which prescribed               at least limit the extent of any such rise . In this
                                                                  context some recourse to short-term borrowing could
(') OJ No L 330 , 24 . 12 . 1975 , p. 48 .                        be acceptable .
 ---pagebreak--- 6 . 5. 76                         Official Journal of the European Communities                         No L 119 / 17
2.26 The continued rise in prices gives cause for           2.30     Prospects for 1976 point to a small but
concern . Some reduction in prices and costs would          gradual recovery in output, mainly on account of a
seem to be a prerequisite for any lasting improvement       sharp reduction in the rate of destocking, a rise in
in the economic situation and particularly in the           consumer expenditure in the second half of the year
labour market. The measures envisaged as part of the        and an overall improvement in the balance of
recovery programme are a move in this direction, but        payments, mainly due to the contribution from North
will only be fully effective if applied without delay.      Sea oil . The rising trend in unemployment is not
The same is true for the new procedure for the prior        expected to come to an end before the second half of
notification of price increases and strict control of       the year. As a result of the policy of income restraint,
profit margins.                                             combined with continued controls on prices, there are
                                                            good prospects that the rate of inflation will continue
                                                            to drop in the months ahead. To ensure the continued
2.27 In Luxembourg, where activity seems to be              success of the counter-inflation policy, new arrange­
picking up again in a number of newly-established           ments will be needed to replace the present pay limit
exporting industries although the order situation in        from the end of July 1976. These arrangements
the iron and steel industry is only slowly improving, it    should be compatible with the over-riding objective of
will probably be several months before the economy          bringing the rate of wage inflation closer to that
shows signs of a significant recovery.                      obtaining in the United Kingdom's principal competi­
                                                            tors. This is an essential precondition for a return to
                                                            higher levels of employment in the foreseeable future.
2.28     Pending the entry into force of the new law
creating an unemployment fund, it would seem desir­
able to maintain on a temporary basis selective             2.31     Despite the very high, and still rising, level of
measures for avoiding short-time working in parti­          unemployment, three important constraints — the
cular. There is no need to change the budgetary policy      balance of payments deficit, inflation , and the scale of
guidelines laid down in the annual report on the            public sector borrowing — make it necessary for the
economic situation in the Community. The central            authorities to continue to resist the growing pressure
Government budget for 1976 will no doubt provide            to reflate the economy.
for a large net borrowing requirement. However,
although the existing budgetary reserves have already
been substantially drawn upon to finance, among             If the recovery in economic activity were in fact to
other things, the costs of implementing schemes in          gather momentum during the course of the year, it
the public interest which occupy the unemployed,            would be both necessary and feasible to start reducing
there should not be much difficulty in financing this       the borrowing requirement. To this end, it would
deficit in the immediate future .                           seem advisable to implement strictly the stated policy
                                                            of extending the system of cash limits for wage rises
                                                            in the public sector, and allowing no further increase
2.29     Despite the considerable progress made             in public expenditure between 1976/77 and the
recently in the United Kingdom, in reducing the rate        following three financial years.
of inflation and the deficit on current account, the
annual rate of price inflation remains a source of
concern . Given the unforeseen depth of the recession       2.32 The basic aim of monetary policy must be to
and a higher rate of inflation than was originally          ensure that, when private sector demand for credit
expected, public expenditure rose to a higher level         starts to rise more rapidly, the rate of growth of the
than planned, leading to a larger public sector              money supply as broadly defined (M3) remains suffi­
borrowing requirement. Although the financing of            ciently low so as not to constitute an obstacle to the
this deficit did not prevent a slowing down in the          achievement of the Government's target for inflation .
growth of the main monetary aggregates in 1975, it          Such a policy would help maintain interest rates at a
might well result in a more rapid expansion of the           level consistent with the need to finance the conti­
money supply in 1976.                                        nuing external deficit.