CELEX: 51978PC0365
Language: en
Date: 1978-07-20 00:00:00
Title: RECOMMENDATION FOR A COUNCIL DECISION AND DIRECTIVE setting the economic policy conditions in the context of the Community loans and medium-term financial assistance extented to the Republic of Italy (submitted by the Commission to the Council)

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DOCUMENTS "COM"
COM (78) 365
Vol. 1978/9026
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 ---pagebreak---     - »
                                                                   COM(78)365 final.
                                                                  Bruxelles, le 20 .july
         COMMISSION
               DES
COMMUNAUTES EUROPEENNES
         Secrétariat général
                    RECOMMENDATION      FOR A COUNCIL DECISION AND DIRECTIVE
                         setting the economic policy conditions in the
                         context of the Community loans and medium-term
                                 financial assistance extented to the
                                           Republic of Italy
                             ( submitted by the Commission to the Council )
        COMI78 ) 365 final
 ---pagebreak---          Economic policy conditions fixed for 1978
   within the framework of the Community loans granted to Italy
                         Explanatory Memorandum
1» The medium-term financial assistance and the Community loans grante^Jsb
Italy were approved subject to economic policy conditions which , in accordance
with the rules governing use of this machinery , have been regularly adapted
each year. Article 1 of Council Decision 77/359/EEC of 17 May 1^77 laid down
the economic policy conditions to "be observed by the Italian^j^yublic during
1977 with a view to attaining the basic objectives referr^j^o in the third
recital of that Decision, Last year, these objectives •^fhich consisted in
eliminating during the course of the year the current account deficit and
in bringing down the rate of increase      in consumer prices to a year-on-year
increment      of 16fo by December 1977 - were a^J^ined in full. But most of the
"instrumental" ceilings referred to in Art^^ 1 of the Decision were exceeded:
the target for the Treasury borrowing r^^lrement by Lit 3 920 000 million; the
target for the borrowing requirement 6^ the Treasury plus that of the local
authorities by Lit 3 830 000 million ; the target for the borrowing requirement
of the enlarged public sector by Lit 4 550 000 million ; and the target for
total domestic credit expang^A by Lit 5 250 000 million. However , the growth
of total central governrao^^expenditure remained some Lit 1 250 000 million
below the ceiling sct^VJsnd the financing of the Treasury corrowing requirericnv
by the central bank actually fell by Lit 4 300 000 instead of growing within
the Lit 4 000 000 million limit set , the creation of liquidity in the economy
having been accounted for mainly by the balance of payments surplus .
        Tbrf^analysis of these results must take account of the fact that the
 conjun3$ural situation - both spontaneous trends in Italy and the external
 situation - has been substantially less dynamic than had been expected at the
 beginning of 1977 *
       This circumstance has encouraged a more moderate rise in prices and costs
 and a more balanced development of the external payments position , but has posed
 simultaneously problems for a stricter manipulation of budgetary and monetary
 instruments having regard to the unfavorable development of growth and employments
 Certain automatic dis equilibrating factors have at the same time played an impor­
 tant role . The fact that the credit ceiling was exceeded in the fourth quarter -
 ---pagebreak---    of 1977 was almost entirely due to the braking of the budgetary norms , which was
   linked in part to the action of built-in factors which automatically inflated
   public expenditure# Coming towards the end of the year , however , this overshooting
   had only a slight effect on the general situation seen for' the year as a whole .
  2.      Under Article 3 of Council Decision 77/359/^(3 of 17 May 1977 1 the
  economic policy conditions for 1978 should have been adapted before the
  end of 1977 and supplementary conditions fixed at the same time. The Conif&ssion
  and the Monetary Committee held consultations for this purpose with the
  Italian authorities , in January and again in May 1978 * However , as the
  Committee stated in its report of 12 May 1978^1 political cir^^^tances
  prevented their conclusion before the end of the first half^j^ the year.
  The Commission and the Monetary Committee thus find then^Jjlves in the
  position of having to fix the economic policy conditions for 1978 at a
  time when more than half of the year has already elapsed .
           The guidelines proposed in this context by the Commission 's depart­
  ments are based on the follow^g desiderata :
  a) to reduce as far as ^esible the inflation rate differential between
        Italy and the other industrialized countries $
  b) to. cur&Jxhe spontaneous growth of the public sector deficit during the
        comiiQj . months , while at the same time adjusting the pattern of expen­
        diture so as to achieve control in the medium term over its excessive growth ;
 ^c) to slow down, accordingly,- the growth of the monetary aggregates , with the
^       particular aim of avoiding undesirable capital movements .
            Thus creating at the same time , favourable conditions for the renego­
   tiation , in a spirit of moderation , of the main collective agreements .
                                                                             ./•
   ( l ) Doc. II/370/78 ( final ), paragraph 11.
 ---pagebreak--- 3.     The Commission has noted that for 197 « the Italian Government adopted ,
 in the "budgetary and credit field , measures which were as restrictive as
the economic and political context in Italy allowed , and it proposes con­
sequently that the following objectives should he taken as conditions :          A.
1978
Basic objectives
– a surplus of at least Lit 3 000 000 million on the current ba^nce of
   payments ;                                      (
- aofgrowth   rate of less than 14$ in consumer prices bet^^the
       1977 and the fourth quarter of 1978*              ^
                                                                    fourth quarter
Inst rumental objectives
- limiting current expenditure of public adrnjasSstration to Lit . 90 500 000 million
- limiting the overall deficit of the cwlic sector ( Treasury , local autho­
   rities , sickness insurance , MEL) t^Li't#. 31 500.000 million end the Treasury
  déficit to Lit .   28 000 OOQ Million :
– limiting the growth in tota^ lending, as defined in Article 6(l) of Direc­
   tive 74/637/ESC, to Lit <4^000 000 million!
– limiting the overal^jreation of monetary base ( excluding postal deposits )
   to Lit . 7 500 000 million ;
– adjusting the sliding wage-scale system so as to reduce its impact on
   wage and s^Aary costs and on public finance.
                                                                            /•
 ---pagebreak--- 4*   A concerted, recovery "by the European economies should permit the
Italian authorities to apply , all the more easily , a policy designed to
restore to equilibrium the major economic aggregates "by the impulses
which it would give to economic activity in Italy.
5. Taking account of the above and having consulted the Monei^y Committee ,
the Commission recommends , in the attached draft Decision and^&rective , the
adjustment for 197^            of the economic policy cond^^ns provided for
in Decision 77/359/SEC and Directive 77/36 O/EEC of 17      1977 »
 ---pagebreak---                               COUNCIL DECISION
           adapting Council Decision 77/ 359/ EEC of 17 Kay 1977'
                fixing the economic policy conditions to toe
                        observed by the Italian Republic
  THE COUNCIL CP THE EUROPEAN COMMUNITIES
  having regard to the Treaty establishing the European Economic ^jommunity,
  having regard to Council Regulation 75/397 /EEC of 17 Pebr\^y 1975 concerning
  Community loans ( l ), and in particular Article 3 thereq&^
  having regard to Co\mcil Decision 77/359/ EEC of 17 Kay 1977 fixing the economic
  policy conditions to be observed by the Italia^Republic ( 2), and in particular
  Article 3 thereof ,
  having regard to the proposal submitt^*by the Commission which has for this
  purpose consulted the Monetary Committee ,
  whereas by Decision 77/359/^^'the Council fixed the economic policy conditions
  to be observed during 1973$^
  whereas it is appropriate to fix the conditions to be observed for the subsequent
  years of duration of the loans granted to the Italian Republic by Decisions
  76/322/EEC (^and 77/36l/EEC (4);
  whereas^t*le development of the economic situation in Italy must permit the
  attainment , during 1978 , .                 , of the objective of a current balance
  of payments surplus of Lit       3 000 000 million , an increase in consumer prices
  of less than 14 $ between the fourth quarter of 1977 and the fourth quarter
       - –
" of 1978;
  ( 1 ) OJ No . L 46 , 20.2.1975 , P. 1 .
  ( 2 ) OJ No . L 132 , 27.5.1977 , p. 34.
  ( 3 ) OJ No . L 77 , 24.3.1976 , p. 12 .
  ( 4 ) OJ No . L 132 , 27.5.1977 , P. 37 .
 ---pagebreak---                                    - 2 -
whereas for this purpose it is appropriate to fix the economic policy
conditions to "be observed during the remainder of 1978 ; whereas the
economic policy conditions to be observed in 1979 will be fixed in the
coming autumn ;
whereas the Italian authorities have declared that they will not , unilaterally ,
take any measure of a commercial or financial natiire to restrict imports or
subsidize exports ;                                             <>0*
HAS ADOPTED THIS DECISION :
                                 Article 1
The following economic policy conditions sh^S^be observed by the Italian
Republic during the 1978 calendar year :
a) current expenditure of public adminigC&ation in cash terms must be limited to
    Lit . 90 500 000 million ;
 b) the overall deficit of the public sector ( Treasury , local authorities ,
    social security , ENEL) taking into account the financial assistance given
    directly to entities outside the public sector , must not exceed Lii; 31 500 000
    million , "that is about    l/2$ of gross domestic product , Lit . 28 000 000
     million of which fon$$&e transactions of the Treasury and local authorities as
     a whole ;
 c) the growth in total* lending, as defined in Article 6 ( l ) of Directive
    74/637/EEC ( l ), must not exceed Lit»46 000 000  million ;
 d) total mcxjS^ary-base creation (excluding postal deposits ) must not exceed
    Lit. ;^80 000 million;
 e) the^liding salary scale system should be modified so as to reduce its
    effect on labour costs and the overall deficit of the public sector.
 ---pagebreak---                                   Article 2
a) Before the end of October 1973 ! intermediate quarterly                      J
    objectives                shall be established by agreement between the
   Italian authorities and the Commission in relation to the measures laiAV*
   down in Articles 1        , except for that set out in ( e);             ^
b) Before the end of 1978 , the Council , on the recommendation of. the Commission ,
 ' shall adapt , for 1979» the conditions contained in Articl^ii
                                  Article 3
This Decision shall adapt Decision 77/ 359/ 230,
                                  Article 4
This Decision is addressed to the Itali^^"Republic»
Done at Brussels ,                                            ^or "®'"e Council
                         .<&                                    The President
 ---pagebreak---                                     COUNCIL DIRECTIVE
                    adapting the conditions laid down for the grant of
                 medium-terra financial assistance to the Italian Republic
      THE COUNCIL CP THE EUROPEAN COMMUNITIES ,
      4
      having regard to the Treaty establishing the European Economic Community ,
      and in particular Article 108 ( 2 ) thereof ,
      having regard to Council Directive 74/637/EEC of 17 Decem"bei^<$74 granting
      medium-term financial assistance to the Italian Republic
      having regard to Council Directive 77/36o/EEC of 17 May 1977 adapting the
      conditions laid down for the grant of medium-term financial assistance to
      the Italian Republic ( 2 ),                       .<&
      having regard to the recommendation subij^pted by the Commission, after
      consulting the Monetary Committee ,
      whereas Decision 78/       /EEC ( 3) of               , laid dovm for 197^
      the economic policy conditic^^'to be observed by the Italian Republic for the
      Community   loans
      77/361/SSC (5);
                         granted^
                                  ^Sj^his  Member State by  Decisions 76/322/ESC (4) and
      whereas these conditions fulfil the requirements of Counoil Decision 7l/l43/EEC
      of 22 March J$?l setting up machinery for medium-term financial assistance (6 )
      as last amdjifefed by Decision 75/785/EEC (7 )
       (1 ) 0J No.L 341 , 20.12.1974, P. 51.
      ( 2 ) 0J No.L 132 , 27 . 5.1977 , P. 36 .
,<$5" ( 3)  See page of this Official Journal.
^ (4)       OJ No.L 77 , 24. 3.1976 , p. 12.
      (5)   OJ No.L 132 , 27 . 5.1977 , p. 37 .
      ( 6 ) OJ No.L 73 , 27 . 3.I97I , P. 15 .
      ( 7 ) OJ No.L 330, 24.12.1975 , P. 50.
 ---pagebreak---                                   - 2 -
HAS ADOFTED THIS DIRECTIVE :
                                Article 1
The economic policy conditions laid down in Directive 77 / 36o/EEC shall <.v
be replaced , for 1978 , by the conditions laid down in Decision 78/ / EECo
                                Article 2
                                                              <#
                                                             vgy
This Directive is   addressed to Member States ,        ^
                                           #
Done at Brussels ,                      x
                                                        For the Council
                                                         The President