CELEX: 51976DC0545
Language: en
Date: 1976-10-25
Title: AIDE-MEMOIRE on the fixing of the ECSC levies and on the drawing-up of the operational budget for 1977

ARCHIVES HISTORIQUES
DE LA COMMISSION
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DOCUMENTS "COM"
COM (76) 545
Vol. 1976/0167
 ---pagebreak--- Disclaimer
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 ---pagebreak--- COMMISSION OF THE EUROPEAN COMMUNITIES
                                                   COM ( 76 ) 545 final
                                                  Brussels , 25                October 1976
                            AIDE - MEMOIRE
                 on the fixing of the ECSC levies and on
                                                  V
             the drawing-up of the operational budget for 1977
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 COM ( 76 ) 545 final
 ---pagebreak---                              SUMMARY
                                                            SMÈ.
 Preface                                                        1
 I.    Gi'ÎJERA L INTRODUCTION    •                             3
 A.    ECONOMIC ASPECTS                                         3
 1.   The economic outlook for 197 6 snd 1977                   3
 2.    Prospects in ths coal Bector                             6
 3.   Prospects in the steel sector                            8
 B.   THE POLICY COETEXT                                    12
 1.   Guidelines for coal policy                             13
 2.   Guidelines for iron and steel policy                   14
 3.   Guidelines for social policy                           17
 4.    Borrowing nnd lending operations since 31 Deo , 1975  19
 5.   The ECSC operational budget                            20
                                                              /
 C.   FIMM2IAL C0KTEXT                                      21
II .  ANALYSIS OP EXPECTED EXPENDITURE AND POSSIBLE
      RESOURCES IF THE FINANCIAL YEAR 1977                  23
 A.   EXPECTED EXPENDITURE IN 1977                          24
 1.   Ordinary requirement s                                24
 2.   Requirement s not included in the budget –
      loans for financing subsidized housing                38
 3.   Exceptional requirements ~ Friull                     40
4-    Summary of requirements put forward                   40
 ---pagebreak---                                                            Page
  S.   POSSIBLE BESOHBCB3                                   41
  1.   Resources for the financial year                     41
  2.   Covering of requirements not entered in the
       budget                                               45
  3.   Summary of possible resources for 1977i              45
III .  DRAFT OFSRATIOWAL BUDGET FOR 1977                    46
  A.   RATS OP LEVY TO BE ADOPTED                           46
  B.   DRAFT BUDGET                                         47
  ANNEXES
  A.   Implementation of the EGSG  operational budget
       for 1975
  B.   Poreoast implementation of the ECSC operational
       budget for 1976
  C.   Breakdown of loans for the first six months of 1976
  B«.  Draft ECSC operational budget for 1977i
 ---pagebreak---                                 AIDE-MEMOIRE
                   on the fixing of "-.he ECSC levies and on
               the drawing-ur of       operational budget for 1977
Following the usual practice , the views of the European Parliament are
being requested before the Commission takes a decision on the levies ? r"i
the operational : ud^st of the ECSC for the financial year 1 9TT-
This aide-memoire fcrms the basis for the consultation of Parliament-
It is divided into the following sections *
I.        Introduction
II .    . Analysis of requests submitted and possible resources for the 19 7 ?
          financial year
III .     Draft operational budget of the ECSC for 1977 *
The presentation of the document has been changed as follows since last
year :                                                       ,
–    the material in Chapter I concerning the economic , political and
     financial setting has been dealt with in greater detail , part - c alar1/
     as concerns the political guidelines adop+ed by the Commissi n in
     respect of the coal and steel sector , in accordance with the request by
     the Parliament sat out in point 3 of its Resolution of 18 December 1^75
     the annexes include further information requested "by the P ii*] iament on
     trends in banking activities and the collection of the .Tarries during
     iha current financial year , or, added by the Commission      regards   .
     the final execution of the 1975 budget .
 ---pagebreak---                                   - 2 -
The detailed reasoris for the Commission proposal concerning the 1977
levies is given in Chapter III. The Commission now requests
Parliament to approve the proposal that the Q.2<$ rate already in
force should continue to "be applied in 1977 *
                                    o
                               o         0
The aide-memoire has also heen sent to the ECSC Consultative Committee
for information.
 ---pagebreak--- I.  GENERAL INTRODUCTION
ThiB chapter summarizes the factors necessary for appreciating the economic ,
political and financial "background to the draft operational "budget of the
ECSC for 1977 .
A.  Economic aspects
1.  The economic outlook for 1976 and 1977
Following the strong phase of expansion at the "beginning of the year and
the less firm progress noted during the Summer , economic growth in the
Community is likely to continue in the coming months at a moderate pace .
The overall increase in Gross Domestic Product for the year 1976 could
amount to close on 5/° in real terms .   For 1977 » "the provisional forecasts
derived in particular from the guidelines adopted up to the present in
economic policy suggest a rate of increase of the order of A c/o.    Most
member States should experience a slowing in economic growth over the year
as a whole .    Only the Federal Republic of Germany is likely to experience
a rate of advance significantly above the Community average .
The expected development in production during 1977 will probably only
lead to limited improvement in employment ; there is still surplus
capacity in most member States and additional capacity created will add
to the surplus .          In all probability, the rate of unemployment in
the Community could be in the neighbourhood of 4% of the working popul­
ation , which amounts to a less than satisfactory degree of improvement
for most member States , The number of wholly unemployed in the Community
is likely to be at least as high as in 1975 *
 ---pagebreak--- Intrar-Cc nmunity trade will continue to play its part in unifying the
markets ^ as in 1976 , there will be a considerable increase in
Community internal' trade in 1977 «   In most member States , investment
by firms will show a limited degree of expansion with marked differences
between sectors .    The level of public investment and domestic housing
construction should not be very different from the year 1976 . Private
consumption will continue to increase in volume terms , particularly in
those member States in which the improvement in consumer confidence is
reflected by a lower propensity to save .
The future course of inflation will depend essentially on the outcome
of economic policies and the attitude displayed by unions and employers .
Short of vigorous action by member States , such as has already been
undertaken in some cases , there are grounds for fearing that , for the
Community as a whole , consumer prices will continue to increase at an
over–rapid rate . Present trends could indeed be worsened as a result
of the effects of the drought on agriculture , the latest currency
depreciations and world price increases .    The underlying rate of
inflation could not be allowed to continue at this level .     It would
not only place in jeopardy the Community 's recovery from economio
depression , it would also threaten its economio cohesion and give a
lasting character to the divergent price and cost trends, as between
member States .
Continuance of the economic recovery , along with a worsening in the
terms of trade and the longer term effects of the 1976 drought (such
as imports of feeding stuffs ) will be reflected by a prolongation into
1977 of the Community 's current balance of payments defioit . This is
 ---pagebreak---  not likely to be less than the deficit for the previous year unless
  import demand in deficit countries diminishes while world–wide demand
 remains firm .   The "balance of payments surplus of the OPEC countries
 is likely to increase in 1977 » while the deficits of non-petroleum
 exporting developing countries and those of state trading countries will
 tend to reduce .    The efforts applied by most member countries to
 reducing their balance of payments deficits will only be able to meet
 with success , therefore , if the remaining countries in the Community
 reduce their surpluses and if non–member industrialised countries ,
 notably the U.S.A. and Japan , accept a worsening in their current
 balance of Payments .
  The following tables gives the trend figures for the Community 's GDP
  during the period 1974 to 1976 .
                        GROSS NATIONAL PRODUCT IN VOLUME TERMS
                   ($ variation as compared with the previous year )
                                                     I    " )
                                             1974       1975         1976
                                          ι
   Belgium                                    3.9      - 0.8          3.5
I Denraark                                j   1.6      - 1.0          5.0
J Fed.Rep. of Germany                         0.6      - 3.5          6.0
I France                                  I   3.9      - 2.0          5.0
I Ireland                                     0.4      - 0.5          3.5
   Italy                                      3.4      - 3.7          4.5
I Luxembourg                                  4.4      - 7.7          3.0
I Netherlands                                 2.9      - 0.9          3.5
I United Kingdom                              0.3      - 1.6          3.0
   Community                                  2.0      - 2.5          5.0
   Source : Commission estimates
 ---pagebreak---                                  _ 6 -
 2.   Prospects in the coal sector
As the economic recovery observed in 1976 is expected to continue , energy-
 consumption is likely to increase in 1977 compared with 1976 , hut it is
very difficult to predict what the rate of increase will he , since it is
impossible to know at present whether or not the sectors with a high energy
input will expand to the same extent as the economy as a whole .
With the increase in the general demand for energy , the demand for coal will
also he decisively influenced in 1977 by the trend in certain sectors such as
the steel industry and the electricity sector .
Community steel production will be higher in 1977 than in I976 simply because
of the general economic situation , but because it is impossible to forecast
the effect of additional economic factors peculiar to the steel industry it
is difficult to make reliable estimates about the expansion of steel
production .    Bearing in mind that the consumption of coal and coke in the
steel industry is being rationalized , the best that can be expected in 1977
is a slight increase in the demand for these products .
In the electricity industry , however , the demand for ooal is likely to pick up
slightly more .    !By virtue of the level of economic activity the rate of
increase in total electricity production will probably be close to the normal
annual rate of about 7f0 .    It can be concluded that , as a result of the
special aid measures to boost the use of coal in power stations and the great
drought of 1976 ( affecting the generation of electricity in hydro-electric
power stations ), coal will help to increase total electricity production in
 ---pagebreak---                                - 7 -
1977 t though it must not be forgotten that the potential demand for coal
is determined to a large extent "by the commissioning of new nuclear power
stations or other power stations .
The rate of extraction , pit-head stocks and imports from non-member
countries will be adequate to cover 1977 requirements , but it is difficult
to evaluate the proportion in which these three sources of supplies will
be used .   Coal imports from outside the Community will probably be much
the same in 1977 as in 1976", this would mean that increases in demand
could be satisfied by Community coal .   However , the internal arrangements
made by the firms will determine whether and to what extent it is stocks
or extraction which will be called on .   Lengthy experience leads one to
suppose that the rate of extraction will remain stable and that extra
demand will be covered by stock lifting.
All in all , it can be assumed that the Community coal market will not
differ appreciably in 1977 from 1976 .   Consequently , at best total
production in 1977 could be between 250 and 255 million extracted tonnes
compared with 257 million tonnes in 1975     250 million tonnes ( estimate )
in 1976 .
As regards the financial situation of the undertakings , the coal
industry is at present running into liquidity problems .    Large stocks
are blocking liquid assets worth 2 000 million EUA and are affecting
 ---pagebreak---                               - 8 -
the implementation of investment programmes . Even a small reduction
in stocks could improve matters .   The high cost of hank loans are
having an unfavourable effect on costs .
As regards revenue , a certain amount of fluctuation must be expected
in 1977 . Production costs will certainly continue to go up hut it is
uncertain whether these increases in costs can he offset by price rises .
The trend in oil prices and world coking coal prices will determine
whether the market can absorb price increases in 1977 without sales
being affected .   There are signs that prices might be raised , and if
the increase in production costs cannot be fully offset by price rises
more State aid will be needed for the long-term maintenance of production
capacities in the Community .
3.   Prospects in the steel sector
                                                           I
In the first five months of 1976 the general economic recovery , the
first signs of which were seen in the Member States of the Community
in autumn 1975 , has clearly consolidated and in fact in a number of
Member States a fresh injection of confidence has resulted in a
speeding-up of the increase in the level of demand and production.
However, so far the recovery in the Community has been limited to a
large extent to the sectors producing semi-finished products and
consumer goods while activity in the capital goods industries and in
the field of exports , although starting to piok up , is still sluggish
in most of the Member States .
 ---pagebreak---                               ~ 9 -
 The recovery in the Community staex industry which "began arou/id
 October 1975 continued in the first quarter of 1976 .     The new orders
 for ordinary steel received by the industry in the first quarts - show
 an increase of almost 3 1 ^> over the orders recorded when tht crisi3 was
 at its worst , i.e. ., in the third quarter of 1?75 «  Despite ihis big
 increase , the new orders received in the first quarter of 1976 are
 still markedly luvier (by <ibout 13$ ) than at the end of 1973 an-i. c'uring
the first monil.^ n ? 1974®     The main feature of the recovery i.n order
books in winter and spring 1975/1976 is that it was confined solely to
the Community market , since export orders continued to stagnate at the
low level to which they had fallen in the sumcer of 1975 .           a resxilt
the orders placed with Community producers by Community users in the
first quarter of 1976 are about 8fo lower that the average l3 "el 'f
orders recorded in the peak period of the last quarter if 1973 and the
first six months of 1974 »      Comparing export orders on the Fame basis ,
the falling-off was about 4C$ «
Monthly crude steel production in the Community broke the 11 million
tonne barrier in March 1976 , having fallen to 10 millior- te^ies during
the crisis period in 1975 *    In the first months of the surtinor it r'nched
12 millions tonnes * Production is thus still Well below the record le­
 vels ( betjween 13 and 14 million tonnes per month) of 1974 » largely be­
cause of the reduction of 1 to 2 million tonnes per month in net exports
compared with 1974 » I"t should also be noted that even with a pr eduction
level of 12 million tonnes the average utilization of oapacitj^s in the
 ---pagebreak---                                 10 -
Community will not "be much more than lOfo , compared, it is true with
the figure of less than 60fo during the last crisis .     The reduction
in the level of production compared with 1974 is more especially
marked in the BLEU and the Federal Republic of Germany , the countries
hardest hit by the fall in exports .
 The upward trend has not continued in the second half of 1976 . Since
April the orders received by the Community steel industry have stagnated
 to some extent .                                                       T .
The prices of rolled products have continued to consolidate on the
Community market since the end of last year .     The rise in listed
prices continues to be more accentuated for certain products such as
cold-rolled products , coils and - more recently – hoop and wire rod .
Prices have , risen less markedly for concrete reinforcing barB and
heavy plate .    However , the basic prices for deliveries made up to the
end of the second quarter of 1976 are still below the high levels of
1974 .
The effect of this increase in prices is to bring returns to the level
of costs which have continued to rise since 1974 .      In general the steel
industry is now beginning to show a profit , albeit an extremely , mo&'eEt
die , after more than a year of massive losses ..
There is no appreciable increase in the prices of exports to non-member
countries .    Quotations have remained at the levels of the end of last
year , the only favourable factor being the stability of the dollar for
sales made in this currency .     In April and May 1976 the only net
increase in prices obtained by the companies was for sales of hoop and
cold-rolled sections .
 ---pagebreak---  There has been a marked increase m imports in recent months.
 Because of the continued sluggishness of the world market , exports are
 still about 40$ below the peak reached in 1974 *
As regards employment , short–time working in the Community steel
industry has been considerably reduced , at least in terms of the
number of workers affected by thir type of unemployment , Forecas+s
prepared by the firmsfor May 1976 show less than 40 000 workers on
short - time compared with 107 000 in March 1976 and 223 000 in December
1975 * A further fall was registered in the third quarter of 1976 . How­
ever , some short–time working remains at the end of the quarter in cer­
tain sub-sectors , because of the low demand for certain products . Du­
ring the fourth quarter , short–time working may again increase , parti­
cularly in the long products and thick plate sectors .
In 1976 production of crude steel is expected to be about 134 million
tonnes compared with 125 million tonnes in 1975 » After the record to­
tal of 156 million tonnes in 1974 » the production estimated £or 1976
would mean that only a third of the reduction in 1975       been made
good . The initial estimates of the general economic trend point to
continued economic expansion in 1977 • If this turns out to be correct ,
steel production could also continue to increase to around 145 million
tonnes . This estimate is rather unreliable as the prospects for the
export of steel products , like those for industrial products , are still
very difficult to predict . The same applies to investment , on which
most of the steel production depends *
 ---pagebreak---  B,  The policy context
The general objectives of the ECSC are permanently established in Articles
 1 to 5 of the Treaty of Paris .
As provided for in Article 46 of the Treaty , the Commission periodically
 lays down general objectives for the future development of the ECSC coal
and steel industries after consulting the various parties concerned , includ­
ing the ECSC Consultative Committee . Although these objectives are in no
way binding, they give general guidance as a basis for decisions which
affect the future expansion of the production capacities . They also include
a section on manpower problems in these industries ; this explains the back­
ground for the various branches of social policy which come under the High
Authority/Commission ty virtue of the provisions of the Treaty . These ob­
jectives also depict the special economic environment within which the
Community pursues its task of financing ECSC investments . This information
is further supplemented by two yearly reports published by the ECSC , one on
the results of the investment survey in the Community coal and steel indus­
tries and the other a financial report on the borrowing and lending activities
of the ECSC . The Commission has also at Parliament 's request sent it a report
on the borrowing and lending policy of the Communities , in March 1976 .
?he remarks which follow, are not intended to summarize or to replace the
policy guidelines referred to above . They will be confined rather to "cer­
tain key points or recent events that the Commission feels should be high­
lighted as being of relevance to the draft operational budget of the ECSC
for 1977 . These remarks therefore deal with the industries , the social po­
licies of the ECSC and the financial activities of the current year . Some
oomments are also added on the operational budget and related procedures .
 ---pagebreak---                                   - 13 -
1.  Guidelines for coal policy
It goes without saying that the guidelines laid down by the Commission
for the coal industry come under the Community 's energy policy.
In its communication to the Council in January 1976 on the " implementation
of the energy policy ^ui-Aeline®? drawn up by the European Council at its
meeting in Rome ou i and 2 December 1975"» the Commission set out general
outlines for further proposals on Community energy policy . It hoped that
the Council would hold a discussion in principle on the matter before
approving the draft resolution.    Although this hope proved unfounded , the
Commission nevertheless considers that the proposals put forward for the
coal industry at Lhat time are still valid and are still just as pressing.
First of all , the Commission feels that the coal-mining industry should
be relieved of part of the financial burden involved by reason of the
increase in stocks held .  This stock-piling is designed to improve
elasticity of supply in the industry and to help achieve the Community
objeotive of maintaining production, thus increasing security of supply.
As a very rough estimate , the Commission feels that a maximum of
50 million u.a. should be allocated yearly from the General Budget towards
achieving this objective . Because of the uncertainties of the present
Bituation the Commission has settled for a new token entiy (Article 322)
in its draft budgut for 1977*
 ---pagebreak---  Secondly, "the Commission haa proposed extending the present Bystem of
 aid for coking coal until 19^5 » so as to include the whole of the
 period covered by the Council resolutions on objectives for Community energy
policy and by tbs       Commission's communication on "Medium-term
 guidelines for ooal 1 975-85" •     annual contribution from the ECSC
"budget to this financing operation is currently running at 6 million u.a.
Thirdly , the Commission intends to suismit to the Council a proposal to
 encourage the use of coal from all sources in thermal power stations .
This measure is designed to supplement the directives adopted by the
Council in 1975 on limiting the use of natural gas and petroleum
products in electricity power stations . The Commission feels that the
appropriations required to encourage the use of coal in electricity
power stations should also come from outside the ECSC budget . The ECSC
 id 11 also maintain its existing policy tinder Article 54 of the Treaty
for the grant of loans to assist investment for the construction of ther­
mal power stations .
 2 . Guidelines for iron and steel policy
The Commission sketched the broad outlines for Community steel policy
in years to come in its recent document entitled "General objectives
for steel 1980/85" •   This document shows that steel demand and''
Community steel production will not increase aa rapidly over the next
few years as they have done in previous years . This trend accounts for
the main problems anticipated in future steel policy.
 ---pagebreak---                               - 15 -
Whereas formerly the accent has been placed on the three following objectives
increase of production capacity , reduction of production costs and improvement
in product quality , in the future the two last of these points which directly
relate to the competitivity of the industry must he taken as priorities .
The three determinant factors for increasing productivity are :
– to secure supplies of raw materials on the test possible terms
– to make full use of any possible scope for rationalization within
  the iron and steel industry
– to strengthen research effort .
As the present supply situation for raw materials is somewhat difficult , it
falls to the Commission, under Article 54 of the ECSC Treaty , to do all it can
to facilitate the carrying out of investment in this field . As regards improv­
ing competitivity and steel quality , only a sustained technical research drive
can meet these needs . The same consideration applies with regard to the
rationalisation of the steel industry . That is why the Commission forsees a
considerable increase in lending activities .
As to the qualitative improvement of the products and reduction in cost price
a sustained development of technical research could well meet the needs .
Technical research must also look into other problems like the rational
reutilization and recycling of raw materials and energy ; the development of new
production processes lending to lower-cost production and less harmful to the
environment than the traditional methods and, lastly .
 ---pagebreak---                              - 16 -
the improves nt of measuring and analysis techniques, both for quality control
and for the automation of plants . The Commission ought to make the widest
possible use of this field of the provisions in Article 55 of the Treaty of
Paris on the promotion of research.
In July the Commission adopted the guidelines concerning short-term policy
in the iron and steel sector that it intends to follow to cope with the
problem of managing this sector which occurred in the period of economic
crisis . The aim is to set up machinery to help restore proper functioning of
the market and to allow the undertakings to overooms their difficulties in
times of crisis .
 ---pagebreak---                                  - 17 -
 3.    Guidelines for social policy
 As a general rule , social policy carried out under -the Treaty of Paris is
 not dissimilar ' to the policies later developed by the European Economio
 Community .   ECSC aid to resettlement and retraining thus has aims and
  methods • which     largely reappear in the regime of the social fund , ,
  while ECSC redevelopment . aid clearly falls under the same heading as
 the regional fund but this operates in a broader context .
However , legal differences and esoecially the fact that ECSC aid is financed
.by the industries result, in a more robust aid system . ' Payment is
mandatory    , ax least for worker retraining , because of the bilateral
agreements between the High Authority/Commission and the Member States .
The redevelopment aid system, likewise     ensures that this aid will create
 jobs whioh will be reserved primarily lor workers from the ECSC
industries .    Furthermore , since 1955 » "the ECSC has pursued    a policy
of aid for the construction of housing for workers in these industries .
In June 1976 , the High Authority/Commission informed the Consultative
Committee of its position regarding the application of instruments of
 social policy which are available to it under the Treaty of Paris to
 social aspects of the problems of structural and teohnologioal
unemployment which have arisen as a result of present trends in ECSC
industries , particularly the iron and steel industry .      It made three
points :
– The Commission recognizes the fundamental importance of making
    comprehensive studies of those regions affected by iron and steel
    problems with a view to defining clearly the specific difficulties
    which can be anticipated .   This work could be included with that
    of working out regional development programmes which the Member
    States have already began in accordance with the rules governing the
 ---pagebreak---                                   - 18 -
     regional development fund , as the areas affected by structural changes
     in the iron and steel industry are mainly covered by the areas eligible
     for aid from the regional fund'. The Commission also seeks to promote
     studies under the Treaty of Paris ( Article 46 ), inviting the cooperation
     of Member States indispensable to this end under the procedures stipulated
     in this Article ;
  -  the Comiiiission feels that Article 56 of the Treaty of Paris still remains
     a sound instrument permitting it , the Commission , to find the best res­
     ponse possible to the problems of structural employment which can be ex­
     pected in the ECSC industries }
  –  in view of the structural changes in the iron and steel industry which are
     anticipated in the coming years , the Commission intends to extend its
     activity directed to the financing of investment likely to create employ­
     ment – for which it can grant loans at reduced rates of interest within
     the limit of the interest arising from the sums not borrowed - in order to
     take account both of the consequences of rationalizing and modernizing
     these industries and of those of market changes . The first paragraph of
     Article 56 03 SG ( rationalization) would henoeforth apply wherever possible so
     far as funds permit . Hitherto , in fact , only tfie second paragraph ( changes
     in market conditions ) has been applied .
Lastly , it should be recalled that because of the 20 or so iron and steel firms
situated there , the Community solidarity action adopted by the Commission in
June 1976 following the earthquake which affected the Priuli region in Italy
includes a contribution from the ECSC .   In fact , it has decided to grant loans
at reduced rates up to a maximum amount of 6 million BtJA for rebuilding homes and 5
million EUA for rebuilding factories . Applications being considered at present
represent a total of 5 million EUA for housing and 3 million HJA for factory
investment .
 ---pagebreak---                               - 19 -
  4 . Borrowing and lending operations since 31 December 1975
  The ECSC financial report No 21 summarizes the "borrowing and lending
  activity of the Community over the 1975 financial year and presents
  analytical and cumulative statistics for the whole of such activity
  since the "beginning.
 The total amount of borrowings raised in 1975 was 731 million EUA .
 The total amount of loans on lent over the same period was
  805 million EUA .  The total amount of borrowings and lendinge since
 the very "beginning thus rose to 2 &J2 m EUA and 2 908 m EUA
 respectively ( including 152 m EUA in loans from non–'borrowed funds ).
 The total amount of "borrowings outstanding at 31 December 1975 reached
 2 391 m EUA .
 During the 1976 financial year , the financial activities of the BCSC
 have continued to develop in order to meet the demand from undertakings .
 In the first half of the year , the total amount of borrowings raised
 was 668 m EUA and the amount of loans onlent 766 m EUA . The total
 amount of "borrowings outstanding thus Blightly topped 3 000 m EUA
 at 30 June 1976 .
  The ECSC has oontinued to obtain favourable conditions on the capital
 market . The most significant borrowings , namely 75 million US dollars
  over 8 years and $100 million over 20 years were raised on the
 New York market under the most favourable conditions so far obtained
  on this market this year .
  Two loans have been granted for investments outside the Community ,
  designed to consolidate the suDoly of raw materials to the Community
  iron and steel industry *
 Given the demand to be met , ECSC financial activity over the coming
 months can be expected to continue at a fairly .intensive level .
" The table shown in Annex C to this memorandum gives a break–down of
  the loans onlent in the first half of the 1976 financial year»
 ---pagebreak---                                - 20 -
 5.   The ECf'J operational "bud/ret
 Within the ';iven economic ^nd political setting, which represents more
 an indirec : than a determining constraint in the preparation of the
"budget and the consequent deoision to "be taken on levy rates , the
budgetary procedures and the categories of action and financial
 operations to be carried out via the operational budget have , for
 some time , been quite firmly established either by the Treaties
 or by practices accepted by the bodies concerned for several years .
However , in an attempt to codify this practice and to update it to
take account of the new budgetary guidelines already applied to the
General Budget , the CommiRsion Adopted on 2 An*rust 1976 a number of
"Internal Rules for drawing-up and implementation of the ECSC
operational budget ", thereby bringing -together in a single document
provisions comparable to those applying to the General Budget .
During the year the Commission has acted on two recommendations set
out iff Points 6 and f of the AesoJhition adopted by the Parliament
on 18 December 1975 concerning the fixing of the rate of levies
and the drawing-^up of the operational budget for 1976 s        '
- by virtue of Deoision 755/76/ECSC of 31 March 1976 ( OJ No L 89 of
    2 April 1976 ), the Commission deoided to postpone by two months
    the date on which the levy on steel production for the months of
   March-December 1976 is payable ,
- by Decision No 2239/76/ECSC of 15 September 1976 ( OJ No L 252>of
   16 September 1976 ) the Commission has taken steps to restrict the
   increase in the average values used to oaloulate levies if a
    falling-off in eoonomic activity points to a ooming drop in average
   values in comparison with the values recorded over the referenoe
   period.
 ---pagebreak--- During l?76/77 f the EGSC fi.ia - ces are- having to "bear unexpected
social oasis in view of the sectoral aid already referred to
above and approved by the Conwnii;;?? on for the vital reconstruction
work following the earthquake a vfcioh bit the Friculi rsgioa. The
aid is in the form of reduced- rat® loans-
Ce   FINANCIAL CONTENT
As regards the financial back,ground to the preparation of the 1977
opei'ational "budget , it . nay be noted that :
–       rise in prices continues to lie an Important factor in assessi.ij fore­
   casts . Sparing the 1976 and 1977 financial years , it may he
   assumed that costs will increase "by 9 or 1C$ ; •              '
– iirfceresfe ratss continue to reach a fairly high average level ?
   this ?:r . rests that despite ths Commission 's decision to postpone
   the das . o£ which levies for the months of March-December 1976
   are due , the return on liquid assets for the current year will enaole
   a pig?:4    *sa.nt contribution to be made to the current resources
   of the operational budget for 1977®
 ---pagebreak---                                » 22 -
Following Commission Decision No 3289/75/ B3SC of 18 December 1975
introducing the adoption by the ECSG on the European Unit of
Account ( SUA ) j thia unit of account T which is based on a basket
of Comnrunity currencies , has been need in all cperations under the
operational budget since 1 January 1976#      The implementing
procedures for the vaxious fields have been approved by tha
Commission ai5.c". incorporated into the internal budgetary rules
which were adopted on 2 August 1976®
Whereas there have been no insurmountable problems so far over
she introduction of the EUA system – tinder which all debts and
claims   - and an increasing number of payments issued by the Community
have to be expressed ia EUA – its introduction has called ror a
 special learning effort both on the part of the Commission 's
administrative departments and " by those paying- the levy or exe­
cuting ECSO contracts . The Commission is pleased that this work
has been successfully completed#
 ---pagebreak---                                     - 23 -
*1 •  ANA LYSIS OF EXPECTED EXPENDITURE AM? " POSSIBLE RESOURCES IN THE
      FINANCIAL YEAR 1977
Article 49 of the Treaty establishing the European Coal and Steel Community
authorizes the Commission to procure ths funds it requires to carry out the
activities laid down in that Treaty by ijiposing levies on the production of
coal ana steel .     Pursuant to Aiviil ? 50 , these levies are assessed annually
on the various products according ;o thair "average value", but the "rate" may
not exceed 1$ unless previously authorized by the Council .
For the purpose of filing this rate , it is necessary first to estimate
finalising" 'requirement s;aiti then to see how far they can 'be met from resources -
otr.er than til® levies , in particular interest on investments and on loans
financed out of CP-J5. V.A      sources and also provision cancellations *    In this
way , the amount to       covered by the levies can be determined .
In addition, ~on the "basin \f a preliminary assessment of the average value of the
various products and given the likely volume of output during the year , the
probable yield f-.- om one levy "point ", i»e ., from a rate of 0.1$, is
calculated .     This calculation , therefore , hinges on an estimate of output
which is difficult to pake owing to the extreme sensitivity of the industries
concerned to any sudden change in business conditions .
It is . f^en neoir'sary to determine to- what - Extent the Community/ .-skould forego
financing the ertixety of the . requirementsreport ed- whidxeome well asove
resources pic icad by the present rate .; or to %:hai extent the rate should
be revised ttyfardss or downwards .
Since 1972 , sho rate has been fixed at 0.29%
 ---pagebreak---                                      - 24 -
 The following presentation of expected expenditure and foreseeable resources has
• ; en rearranged and is modelled on . the systematic analysis of the data on the
 different budget headings in the General Budget , aa shown in Part II of the
 General Introduction to the Preliminary Draft General Budget for the
 financial Year 1977 *     It contains a number of minor amendments to the
 nomenclature used made necessary by the internal budget rules .        As with the
 Ceneral Budget , this presentation lists separately the main features        of each
  chapter ( legal basis and description of operation ^ type and bre&Kdown of
  jxpenditure , explanation ).. To "permit a better assessment the explanations rtiven
  for non-compulsory expenditure ( research a&d interest" subsidies ) as»e more
 full than for the other chapters *-
 1, .  EXPECTED EXPENDITURE IN 1977
 1 - OHJIMBY HEQraHEKEHTS
 CHAPTER 31 - PUMHIM? COSTS i ADI-IIMSTRATIVE EXPENDITURE
  !. Legal basis and description of operation
      Legal basis :
      - Article 50 of the ECSC Treaty .
      – Article  20 of the Merger Treaty .                          /
 ECSC contribution to the Commission 's operating expenditure .
 2 . Type and breakdown of expenditure
      Annual lump-sum payment made in 12 equal monthly instalments .
 3 » Explanation
      The amount of 18 million u.a« (units of account of the General Budget )
      laid down in the Merger Treaty is still applicable .
 ---pagebreak---                basis s
     – Ar+.ioL&a 5® art ^ 5 *                     -<'reaT'y
     ..                  &^«® bv . r:~ ccuclucsd between th «3 High Authority/ C OBB:'. « A
        * :v:' tise gov^iw^nta ?? the Member States®
TUs High Au+herity/o ooraiinsion provides non-repayable aid tovards :
- tb«. payment of tideover allowances ■t.o workers ?
- t".i9 payment of resettlement allowances to workers }
- "6 ha financing of vocational training for workers having to change t-
   employment®
1-he grant o'-" th® aid is conditional upon payment by the State eonce~-
          ^ cor- '       -it ion of not less than the amount of that aid * /unless «*
e-ro-jptiOiv . : ^at.'iorized ay t-hs Council , aoting "by a two-thirds majoi-.it
2 » 'l^/pa , &, ' '- i.-3s.:>dowK of expend! ture
 iir.rK;r.I:ir        funds intended to subsidize y by means'- of a 5"^ re3.1uou.r- 9
 meiiiy c" ' -.--. ittire incurred Isy.tUe go^&mrnents within* the' «o7 • *• cf + -.'.£•■
  a^roeip-;-;.   ■; signed . '
 ---pagebreak---                                    - 26 -
 'i'he breakdown by product and by country of the expenditure estimates made
 "by the governments is as follows :.
                                                                   m EUA
         Country            Coal             Iron and steel      Total per
                                               iron ore           country
| Federal Republio
| of Germany                 5.5                    3               8.5
I Belgium                    1.5                    1               2.5
                             1                      4.5             5.5
j Prance
    United Kingdom           3-5                    2.5             6
   Other                     0.5                  , 2               2.5
   Total per industry       12                     13              25
 The social repercussions of the present situation are still diffioult to
 predict and it is to be noted that the forward figures axe highly unreliable .
 3 . Explanation
      The coal industry 's foreseeable expenditure is down on 197° , mainly as
      a re suit of the progress made in rationalizing the industry in the Federal
      Republic of Germany .    By contrast , foreseeable expenditure in the iron
      and steel industry has   risen owing to the gradual rationalization and
      restructuration of the   industry .    On balance , the level of expected
      expenditure in the two   industries is still , therefore , relatively stable
      ( 25 m EUA for 1976 and for 1 977 ) * representing a slight fall in real terms
      once prioe inflation is taken into account .
 ---pagebreak---                                  - 27 -
CHAPTER B 3 – AID TO RESEARCH
1.  Legal basis and description of the operation
Legal basis : Articles 50 and 55 of the ECSC Treaty
The High Authority/Commission grants non repayable aid to finance
technical and economic researoh relating to the production and increased use
of coal and steel and to occupational safety in the coal and steel industries .
2.  Type and "breakdown of expenditure
Earmarking of the amounts intended for part subsidies which take the
form of the repayment of a proportion of the actual costs of research
projects approved by the High Authority/Commission in accordance with
the procedures provided for in the Treaty ; these cover , in particular,
the consultation of the ECSC Consultative Committee and the receipt of
the Council 's assent . In most cases the aid granted amounts to 60$ of
the estimated and justified costs .
                                                                /
The applications can be broken down as follows :
                                                             m EUA
      Heading                  Sector              Aid requested
      Β 3.1                    Steel                   44.5
       Β 3.2                   Coal                    32
       Β 3.3              Social and medical            9.3
                                          TOTAL        85.8
 ---pagebreak---                                  - 28 -
3„  Ebcplanatior
Steel research.
The general orientation of technological progress within the Community
and the measures to "be taken to achieve these goals up to the end of
the present decade are contained in the "General Objectives for Steel
1975-80®*. In outlining the specific strategy to "be applied in
connection with the research programme to "be adopted in 1977 , it is
first neoessary to examine certain aspects of the current situation
within the Community's steel industry.
Following the serious drop in demand for steel in 1975 and the consequent
very low level of utilization of production capacity in the Community , the
industry has devoted considerable efforts - by improving efficiency and
productivity - to minimizing the impact of this recession? these
operations have demonstrated the vitally important contribution that
new technology is making and will continue to make towards achieving
improved manufacturing methods and reductions in production costs .
Indeed , such measures are essential to ensure the long-term competitivity
of the industry.
Furthermore , the prevailing economic climate within the industry'
continues to exert considerable pressure on the funds available for
research and development . Thus , the contribution being made by the
ECSC to technological progress in the steel sector is of increasing
importance for the industrial laboratories , the research institutes
and the universities participating in this collaborative research
effort .
 ---pagebreak---                                  - 29 -
In addition to the problems resulting from a low level of demand and
the weak export markets , an examination of the future pattern of
development of the steel industry indicates that international
competition - already severe - will intensify further . This
competition, which will range from differences in product quality
and sophistication to straightforward price differentials , will oome
both from the established steel-producing nations and from the
rapidly-expanding steel industry of the developing world . Further
technological progress and innovation by the Community's steel
industry will be essential if it is to continue to meet this challenge ;
this will be achieved only if the requisite long-term research and
development work is undertaken ; the implications for the ECSC
programme are obvious .
One of the most important aspects of the future developnant of the
Community's steel industry concerns the raw materials ( particularly
energy) for which the Community's steel producers are heavily dependent
on external sources of supply.   These materials not only represent the
largest single item of cost in steel production (approximately
55 to 60$ of total costs , of which energy represents one half; but
they are today international commodities subjected to world fluctuations
in price and demand . There are enormous pressures , therefore , to
utilize raw materials more efficiently and to have , the capability of
substitution, e.g. replacing ooke by oil or reducing gases in the blast
furnace or scrap by sponge iron in steelmaking, as dictated by
availability or economic factors . While the ECSC has already made a
significant contribution to technological developments in this field,
further Community research will be essential to ensure greater
flexibility and economy in the use of raw materials .
 ---pagebreak---                                   - 30 -
To meet spec, fio needs within the Community's steel industry, priority
vd.ll he give:, to the following areas of research:
- energy utilization (reduced consumption, improved effioienoy and
    flexibility) ;
- casting (conventional and continuous) and processing of steel (to
    increase productivity and to enhance the quality of semi-finished
    and finished products)}
- properties of steel (particularly weldahility, resistance to corrosion
    and wear, to achieve further improvements in service performance
    and thereby extend the "useful life" of steel structures)?
- utilization of steel (to expand markets and thus demand. This will
    include farther support for the development and application of
    steels to exploit available energy resources e.g. off-shore
    structures, steel gas and oil pipelines, etc.);
                                                                /
 - measurement and monitoring (to farther advance automation and
    mechanization of production processes in iron- and steelworks) {
 – basic research (ranging from iron– and steelmaking to physical
    metallurgy; essential to provide the necessary background for
     future technological development in ferrous metallurgy).
 ---pagebreak--- Coal research
The coal research requirements are closely based on the Community's
energy policy objectives , particularly the objective laid down by the
Commission and Counoil of maintaining the production level at 250 m tee
per year up to 1985 *  If these productivity and production targets
are to be achieved , research must be stepped up . The first effects
are already being felt *
The technical research targets adopted by the Commission and published
on 30 January 1975 ( OJ No C 22, 30 January 1975) advocated , in
particular, the grant of annual aid to coal research, totalling sane
15-20 m EUA , to promote research projeots in the extraction and
upgrading of coal *
Furthermore , in view of the inadequate coking coal reserves and their
high price , additional efforts must be made to develop alternatives ,
such as formed coke . The application of such alternative processes
will produce favourable results from two viewpoints : the upgrading of
Community coal and its use as coke for the iron and steel industry at
lower oosts .
Finally, within the framework of the energy policy, ECSC aid must be
granted to certain projects of a preliminary and fundamental nature in
the field of the conversion of solid fuels into hydrooarbons .
 ---pagebreak---                                    - 32 -
The appli nation 8 whioh have already been submitted or notified conoern
the follov ing research projects :
Undergrerjnd
                  -  preparatory work
                  -  firedamp , ventilation , atmosphere and
                     strata pressure
                  - winning and working
                  -  general facilities underground
                  - automation and economios of operations
Upgrading
                     coking
                     coal preparation
Conversion into hydrocarbons
                  -  gasification
                  -  coal liquefaction
 ---pagebreak--- Social and medical research
The social research requirements relate mainly to working conditions ,
safety at work , environmental protection and the protection of workers *
health in the ECSC countries .
The undertakings and their technical departments still urgently require
solutions to problems arising in the fields listed above . The problems
of prevention are directly linked with the functioning of the
enterprises , and require to be re-examined with each new technical
development introduced into the industrial processes .
The redefined medium-term objectives for coal and steel respectively
specify that the prevention and production must be dealt with at all
stages in the development of technical research .
The requirements stated above are always pressing and real . For example ,
it must be realized that in the coal industry the problem of measures
against pneumoconiosis is an ever-present worry to the industry in spite
of the undeniable progress made . Henoe , at the beginning of 1977 » the
Commission intends to start up a new research programme , the "Fourth
Health in Mines Programme".
The outline Mine Safety programme launched by the Commission will get
under way in 1977 * The rate at which applications Eire being received likewi
confirms the steel industry 's interest in reducing those sources of
pollution for which it is responsible and in cleaning up the atmosphere
at its sites . The medioal research activities begun under the various
programmes and covering chronic respiratory diseases , ergonomics and
rehabilitation are continuing.
 ---pagebreak---                                       - 34 -
 In a broader context , it should "be remembered that , in a very general
 way f works : s have for sera© time now tended to refuse special payment e
 for danger -us , unpleasant or arduous work and are insisting , during
negotiations , on the removal of the danger and of the causss of
unpleasant and noxious conditions . The Commission must therefore
 encourage research - such as ergonomio research on specific jobs –
which could lead to improvements in working conditions *
To meet the known requirements , the Commission plans to continue with
the outline programmes already adopted or being prepared           covering
the following fields :
- prevention and treatment of chronic respiratory diseases ,
-   ergonomics and retraining,
-   pollution control in the steel industry.
-   industrial health in mines ,
-   mine safety.
CHAPTER B 4 - AID Iff THE POM OP INTEREST RATE SUBSIDIES
1.    Legal basis and description of operation
                                                                   4
Legal basis : Articles 54 ( investments) and 56 (redevelopment of the ECSC
                  Treaty . Decisions of the High Authority and the Commission
The ECSC may use its resources in own funds to provide interest rate
subsidies on certain types of loans . The amount of the subsidy is
calculated in EUA on the terms laid down . Taj the Commission.       Currently,
the calculations are based on an interest rate subsidy of 3% over a
period of five years .
 ---pagebreak--- 2.  Type and breakdown of expenditure
Earmarking the stuns intended to cover part of the interest due on loans
made by the ECSC , in accordance with interest rate subsidy contracts drawn
up between the Commission and the beneficiaries thereof.
The details of requests received are as follows :
                                                          in EUA
                                                         Aids
            Title                 Sector
                                                     requested
            Β 4·1           Investments                  8.5
            Β 4° 2          Redevelopment               15
                                           TOTAL        23.5
3.  Explanation
Investments
In the investment field , the chief aim of subsidized interest leans is
to improve and reorganize the structure of the industries forming part
of the ECSC . The conditions for receiving interest rate subsidies relate
to the following categories :
   environment :   expenditure on environmental protection represents
   approximately 15% of the expenditure of the ECSC industries      When
   dealing with this expenditure , the Commission has had to be selective
   in spending the reduced amount available for interest subsidies .    The
   selection criteria are set out in the Official Journal of
   25 November 1974 ?   in short , the subsidy is restricted to exceptionsilly
   high investments on existing installations aad to innovates-y investant a
 ---pagebreak---                                    - 36 -
 -  the elimina ion of bottlenecks s   to date the subsidies in this sector
    have been lxmited to investments likely to remedy the shortage of
     coking coal The investment survey sets out the investments in coking
    plants , a 1 urge proportion of which could satisfy the interest subsidy
    criteria. Other shortages of capacity may be considered for Bubsidy :
 -  research and vocational training centres ?   the Commission attaches a
    high priority to investment of this type , whioh has a determining
    influence on the future of the EC3C industries .
R edeve 1 opm ent
Subsidized loans are granted for any redevelopment which will help to maintain
 jobs in those regions affected by the running down or closing down of any
industrial activity coming under the ECSC Treaty. The Commission grants
these loans to undertakings which absorb coal or steel workers who have become
redundant or which – by means of economically sound activities – maintain
the level ,of employment previously provided within in those      sectors in the regions
 in question . The undertaking* concerned benefit iront g, reduced interest rate
to the extent that they undertake to create new jobs in these regions and
give former workers of the ECSC industries first refusal of azgr Vacancies.
The requests for aid in this sector are on the increase , particularly as a
result of structural changes in the steel industry. Work on this
restructuring can only continue on socially acceptable "terms' if the necessary
measures are taken with regard to maintaining jobs for the . workers directly
affected .                      !
The Commission is also asking national Governments to envisage requesting
that the ERDF should contribute by way of reduced rates of interest on loans
granted according to Article 5 6 ICSC and by applying Article 4 ( 2)-(a),
third paragraph , of Regulation Ho 724/75 in cases where the promoter
undertakes to accelerate his investment programme or locate hiB project
 in a region with especially difficult employment problems and provided
that this conforms with Community rules on regional aids *
                                            s
 ---pagebreak---                        - 37 -
CHAPTER B5 - SUBSIDIES BASED ON ARTICLE 95 OF THE BCSO TREATY
( COKING COAL AMD COKE FOR THE STEEL INDUSTRY)
 1.    Legal basis and description of operation
Legal basis :
–   Artiole 95 of the ECSC Treaty;
– Commission Decision No 287/73/ ECSC of 25 July 1973
    ( OJ No L 259 of 15 September 1973 ).
The ECSC transfers a contribution to the special fund managed
by the Commission and set aside for subsidizing the intra–
Community marketing of coking and coal originating in the
Community and intended for the iron and steel industry.
 In accordance with Deoision No 287/73/ECSC of 15 July 1973 »
the financing of the fund is shared between the Community,
the Member States and the steel industry.                '
2.     Type and breakdown of expenditure
  Earmarking of a lump sum contribution of 6 m HJA IP the
fund, whose total has been fixed at a maximum of 25.6 m EUA
for 1977 .    The subsidies due are determined on the basis of
the supplied tonnage eligible for aid up to a maximum of
 15 million tonnes per year .
3.     Explanation
The aim of the special system of aid to coking coal and
coke, dealt with in Decision 287/73/EfiSG of 15 July 1973 . is
 to help maintain production of coal intended rbo be sup­
 plied to the Community steel industry 's blast furnaces
  and to subsidize the marketing of the coal and the
  coke Banufactured from it at J>rices reflecting those
  on the world market * '
In this field the Commission felt the need to maintain a
certain production capaoity as? wsil as the requisite
 ---pagebreak---                              - 38 ~
labour forts to man that capacity in the best possible conditions and
that it would therefore be desirable to have at its disposal a suit­
able systeir of aid as the problem of the Community 's production of
coking coa". is of interest to all the Member States , particularly since
there is a considerable trade in coking coal within the Community .
Proposals to modify both the level of the subsidies and the ECSC con­
tribution are being examined , this might lead to a change in require­
ments , either to make up for the effect of applying the EUA to this
system of subsidies , or in order to review arid continue the subsidy
system which would otherwise end at the end of 1978 .
2.   REQUIREMENTS NOT INCLUDED IN THE BUDGET - LOANS FOR FINANCING
     SUBSIDIZED HOUSING
     To the requirements for non-repayable finance to be found from the
year 's resources , should be added a reference to the ECSC 's " be low-t he-
line" intervention which it has been providing since 1956 to finance social
housing . Forecasts for this programme are included in this aide-memoire
in order to complete the picture of overall ECSC interventions provided
for Parliament and the Consultative Committee .   For the sake of     convenience
they have been provided in the same analytical format as for the require­
ments already described .
1.   Legal basis and descriptions of operation
Legal basis:Art.54 and Decisions by the High Authority/Commission assigning f>r use
on housing programmes the w special reserve" funded by interest on invest­
ments and loans from non–borrowed funds .
The ECSC intervention takes the form of reduced interest loans , and helps
to ease the cost of financing housing by combining the funds made available
by the Community with other nationally provided resources .
2.   Type and breakdown of expenditure
Grant of long-term 1 $ interest rate loans to the responsible' national
bodies .
                                                                 «
 ---pagebreak---                         - 39 -
The second phase of the eighth subsidised housing building
 programme ( 1975-78) waaoh is pi&xmed for 1977 and 1978
 will require a sum of 30 n.mk spread over the finanoiel
years 1977 and 1$78f depending on f\mds available,
 Allocations to the various interested parties in the
 nine countries td.ll be decided by the Coraasission >ihen the
 round of prior consultations h&a been comply feed.
 3.      Explanation
 The main reason for proposing to set aside 30 m EUA
 the second phase ( 1977–79 ) as compared with the 25 m HJA
for phase one        ( 1975–7 ^) is the increase in construction
 cost So Also, the requirements put forward far exceed
 the limits of the aid available .
 This project is inidnddd "to subsidize the following projects?
 ■» housing for labour employed in the new coastal steelworks f
      steelworks ;
 – housing linked with industrial restructuration
      in the traditional steel centres and in those ooal
      fields v&ere production is to be increased}
      specific solutions for immigrant workers;
 – h u.rdng to be modernized as part of the nsove to renovate
      eteel and mining urban centres .
  T-j, a project is therefore in the interests of th% *«ojt-acors,
  &,.rwe it all aviates the effects of price increase3 and
  high interest rates , and of benefit to the industry fcisoe
  it indirectly facilitates restructuration®
 ---pagebreak---                                 - 40 -
3.   EXCEPTIONAL REQUI HEMEWTS - FRIULI
     The reduced interest loans of 11 m EUA which the Commission decided to
grant as the EC3C 4 s share in Community aid to the Friuli earthquake victims
could well be classified as " below the line" expenditure , which would not
figure in the Operational Budget , since these are not non-repayable grants .
     Nevertheless , the Commission in its concern for clarity ard budgetary
transparency , has decided to add a special chapter " Aid to Friuli victims
( allocation to the reserves)"to the ECSC 's budgetary nomenclature and to
enter against it the amounts concerned , i.e. 6 m EUA in 1976 and 5 a EUA in
1977 .
       The financing of the 6 m EUA in 1976 will be covered by reoourse to
the budget contingency reserve of 3 m EUA created last year and by
allocating to the reserves the Burplus over a levy yield of 90 m EUA as
provided in the Commission 's original budget ( see the amending ECSC
Operational Budget for 1976 t      Annex B , below). A similar allocation of
5 m EUA is needed in the 1977 Operational Budget .
4.   SUMMARY OF REQUIREMENTS PUT FORWARD
       Total requirements put forward therefore amount to 163.3 m EUA to
be financed under the operational budget , plus 15 » EUA in the form of
below-t he–line loans at low interest rates for the building of subsidized
housing . The figures for requirements put forward are summarized in
Annex D , in the " requests" column .
 ---pagebreak---                                 41 -
 B.  POSSIBLE RESOURCES
 1.  RESOURCES FOR THE FINANCIAL TEAR
 CHAPTER R 1 - CURRENT RESOURCES
 1.  Legal basiB and description
 Legal basis :
– Articles 49 and 50 of the ECSC Treaty
– Decisions No 2/52 and 3/52 of 23 December 1952
The levies are calculated on the basis of a fixed scale per tonne
which is decided each financial year "by the High Authority/Commission
and published in the Official Journal .
Resources from interest on investments and loans from non–borrowed
funds will be finally determined when the Commission oloses the
aocounts on 31 Deoember 1973 *   Pursuant to the decision it adopted
on 30 April 1975 » "the Commission will enter the - interest available
 from the previous financial year in the budget of the current year .
2*   Type and breakdown
Levy resources are claims identified in respect of levies due on
production in the 1977 financial year and quantified on the basis
of the production declarations made by undertakings .
     Interest will be credited In accordance with the ^llooations deoided
by the Commission when it closes "the aocounts op 31, December 1976 .
A breakdown of foreoast resources – according to the latest
estimates – is given below*
 ---pagebreak---                                               - 42
   Title R 1»1 ?
   MW-lMH-TO–
                        Levy
                    III wr !■ II I >1 H
Tonnage sttbjeqt ,to the levy, and yield of one "point " of levy (<*• yield
   at a rate of 0.1^)
                                                                            r
                                                 *
                                                       Production serving      One levy
                                                       as a basis for cal–     " point "
                Product
                                                       culation of the levy
                                                       in million tonnes       in mU.A.
    Brown-coal briquettes and
     serai-coke                                                  4.4             0.08
    Ali types of hard coal                                     216.0        | 7.56
                Total for coal                                                   7.64
    Pig iron other than that
    required for the manufacture
    of ingots                                                    5.8             0.51
    Steel in ingots                                            143-0            16.77
    Finished products                                          102.9             5.77
                Total for steel                                                23.05
                GRAND TOTAL                                                     30.69
   Other Titles
           Titles                                  Heading                     m EUA
     R 1.2                          Interest on investments and
                                    loans from non-borrowed funds                 16
     H ,1.3                         Fines and inoreasad interest
                                    for delay in payment                      token entry
     R 1.4                          Miscellaneous revenue                     token entry
 ---pagebreak---                               - 43 -
3,   Explanation
The latest estimates of the average values which serve as a 'basis
for calculation of the levies reveal that the figures for the
1977 financial year which concern the reference period from
1 July 1975 to 30 June 1976 will "be 15$ higher in the case of
coal and 10-12% lower for steel compared to those for the previous
financial year .
It should be noted that there is an appreciable margin of uncertainty
in these figures , because the departments concerned axe not yet in
possession of all the necessary data and forecasting production in
the present short-term economic conditions is very uncertain*
The amount of revenue from interest is based on an advance esti­
mate of the resources which the Commission will be in a position
to allocate when it cloces the accounts on 31 December 1§76»
CHAPTER R 2 - CANCELLATIONS OF COMMITMENTS WHICH WILL PROBABLY NOT
BE USED
la   Legal basis and description
                                                               /
The allocation' of funds earmarked on the strength of Commission and
decisions must be confirmed within a reasonable time limit by the
contracting of legal commitments .
The Commission 's internal rules on the drawing-up and implementation
of the ECSC operational budget therefore provide that in the event
{ exceptional as it may be ) of undue delay at this stage the earmarked
funds will be cancelled .
They also provide that onoe all parties have discharged their obliga­
tions under a legal contract f any unused allocation earmarked for
that item will likewise be cancelled .
 ---pagebreak---                                - 44 -
The amounts thus released become available again as resources for
the current financial year*
2.  Nature and breakdown
Save in the crceptional cases where decisions on the earmarking of
funds are now followed up within a reasonable period of time by
legal commitments , any cancellation of earmarked funds normally
indicates complete discharge of the contract , agreed with - the
contracting party concerned .
The estimate of 6 ID EUA Bhown in this chapter relates , in essence , to
cancellations of allocations for resettlement aid. Only a token entry
would be needed for the other items which could be involved ( cancellat­
ions of balances remaining in respect of contracts which have been
performed in. full , delayed legal commitments , etc .).
3.  Explanation
It is difficult to estimate the rate of cancellation arising from
resettlement      programmes as it depends on the negotiations to be
held with the governments concerned. The estimated figurs of
6 m EUA takes into account the fact that some major closures will
be completed in 1977 *
CHAPTER H 3 - REVALUATION    OP ASSETS AND LIABILITIES
This ohapter , under which a " token entry" has been entered , will
bring to account the net effect of the changes in rates of conversion
during the financial year.
CHAPTER R 4 - UNUSED RESOURCES FROM THE FINANCIAL TSAR 1976 -■
This chapter , -under which a "token entry" has been entered ,
will enable any balance remaining from tjae funds of the
previous financial year to Be en-£er-©d as re?sources for ths current
financial year.
 ---pagebreak---                              - 4} -
2»   COVERING OF REQUIREMENTS WOT ENTERED IN THE BUDGET
Provision has been made for "the following resourcep to cover
requirements for the construction of subsidised, housing;
– repayments on earlier loans \7 m EUA ) j
– a part of the special reserve and of the former ECSC pension
   fund (3 m EUA ).
3 . SUMMART 'OF POSSIBLE RESOURCES FOR 1977
The estimates of resources other than levies amount to 22 m EUA ( inte­
rest available – 16 m EUA { cancellations – 6m EUA ). As the yield
from levies has been estimated at 30.69 m EUA , the resources
obtained from levies can "be estimated at 89 m EUA on the basis
of the rates currently applied. Any variation of 0.01$ in the
rate would alter the amount by sane 3 m EUA»   The estimated
resources are summarized in Annex D in the section on "resources'1 *
 ---pagebreak---                                 - 46 -
III .   BRAF P OPERATI ONAL BUDGET FOR 1977
A.    RATE OF LEVY TO BE ADOPTED
The information set out above and summarized in Annex D reveals that
the total requirements to "be oovered from the resources of the
financial year amount to 163*3 m EUA , whilst the amount of resources
available on the 'basis of the currently-applicable rate of levy of
0.29$ would be only 111 m EUA. To meet all requirements in full , the
rate of levy would have to "be fixed at 0,46
However , the Commission considers it inadvisable to impose suoh a
high rate of levy on the ECSC countries .
The Commission would , however , draw attention to the faot that ,
funding requests for 1977: exceed the 137 m EUA sought for 1976
by substantially more that . the 1Q$> which might be the foreseeable
price increase between the two years . By contrast , rearnests are up
by 19 °/o » Even to. maintain the real value of the initial operatidnal
budget for 1976 would call for a rate cT G", 3 1" $ •>
Nevertheless , the Commission would point out that it has tried in
its levy policy to maintain stability , to save those subject to the
payment of levies from the disadvantages of a rate of levy whioh
varies every year. Furthermore , in its capacity as High Authority
of the ECSC , the Commission is obliged to take fully into consi­
deration      of the financial position of the industries who pay
the levy. Being aware of the difficulties mentioned above , whica
were inherited from the economic crisis , and oonscious of the
psychological effect which an increase in the rate could have at
a time when aotivity, especially in the Community 's iron and steel
industry , should "be reviving, the Commission has decided not to
increase the rate and is proposes * that the rate of 0.29% whioh
has already been in force since 1972 should be maintained in 1977 *
 ---pagebreak---                              - 47 -
The result of this decision is that the operational budget for 1277
will be subject to exceptionally stringent financial restrictions ,
since the estimated resources are lower in real terms than those
available in the budget for the previous financial year , whilst
the requirements sure far higher*
The consequences of the application of a rate of 0.29$ in respect
of satisfying requirements for the financial year 1977 are set out
below*
B.  DRAFT BUDGET
The draft budget drawn by the Commission for the financial
year 1977 is set out in Annex D*
Since resources are limited' to 111 m EU& , it is necessary to
review priorities#
Among the requirements to be satisfied , three are unavoidable i.e. s
– the contribution to the "administrative expehditure" 't 18 m EUA
                                                              /
– the amounts to be allooated for "aid to resettlement "
                                             estimated ati  25 m EUA
– "aid to ooking ooal M î                                    6 m EUA
                                                     i.e .  49 m EUA
Furthermore , priority must be given to the provision of the
5 m EUA earmarked for intervention to help victims of
the Friuli disaster.
Consequently the sum of 57 n> EUA. remains for distribution amongst
non–compulsory expenditure. Taking into account the considerations
set out above , the Commission proposes to allocate 42 n EUA for
research and 15 m EQA for interest rate subsidies *
 ---pagebreak---                                 - 46 -
Consequently , despite inflation and the big increase in applications ,
the amounts assigned to these ohapters remain as shown in the budget
for the ourrent financial year .     '
The Commission proposes the following allocation within these chapters t
                                    «
Research   ( 42 m EUA):
The sum of 9 n EUA assigned in 1976 has been maintained for sooial and
medical research , leaving 33 m EUA for technioal researoh , shared equally
between steel and coal .
Interest subsidies    ( 15 m EUA):
The Commission proposes to allot 9 o EUA to redevelopment operations in view
•f their growing importance . The remaining 6 m EUA will be allocated to
 interest subsidies for investment *
The breakdown of these funds is shown in Annex C.       •'
The Commission therefore asks Parliament to agree that the levy for
1977 should be set at 0.2956.
 ---pagebreak---                                                              ΑΝΝΕΧ Α
MPLEME2TTATI0TT OP THE ECSC OPERATIONAL BUDGET FOR 1975
This year , for the first time , the Commission is including the final
figures for the implementation of the budget for the year ended as an
Annex to the annual aide-memoire on the ECSC operational budget .
Until 1968 the figures for the implementation of the budget for each
year used to be published in an ECSC communication , the "General Statement
on the Community 's financial position" •    As this was discontinued on
the merger of the executives , the Commission thought it appropriate to
include the final figures for the implementation of last year 's budget
in this year 's aide-memoire to provide more budgetary information for
the bodies concerned , i.e. , the European Parliament and the ECSC
Consultative Committee .
T^e amending operational budget for 1 975 * totalling 98 m u.a ., was
presented as Annex I to last year 's aide-memoire ( SEC(75)3239 final
of 29 October 1975 ) and published in OJ L 295 of 14 November 1975 .
The figures for the implementation of this budget as at 3' December 1975
are shown in the table below .     The final budget total was 99«5 ® u.a .
Consequently , requirements exceed the estimates of the amending budget
by 1 .5 m u.a . because of the commitments for aid to resettlement which is
mandatory expenditure pursuant to Article 56 of the ECSC Treaty .
This rise would have been offset by miscellaneous resources of 0.6 m u.a .
and an increase from 11 to 13*5 ® u.a . in the cancellation of commitments ,
had levy income not fallen short 2.8 m tua. ( 70 m u.a * instead of
73 m u.a .) because steel production was even lower than forecast in the
amending budget .    The resulting deficit is 1 »5 - 0.6 - 2.5 + 2J3- 1 .2 m u.a .
This deficit is to be charged to the budget for the following year when
this is amended ( see Annex B).
 ---pagebreak---                                                                        - 2 -
                                        IMPLEMENTATION OF THE ECSG OPERATIONAL BUDGET FOR
                                                                                 – ––– ' "       –I– »ww^–
                                                                                                                              (in m u.a .)
                                                                                                                                         ' /
                                                BUDGET^ 1 ^    FINAL
                                                                                             RESOURCES
                                                                                                                           BUDGET^           ?IML
                 ΛώΦϋΙΗΕΜΕΝΤ 5                                 FIGURES
                                              FIGURES
                                                                                                                          FlGurCo      j     j.' •. „    %
OPERATIONS TO BE FINANCED FROM CURRENT
                                                                           CURRENT RESOURCES
RESOURCES (NON- REPAYABLE )
1 . Administrative expenditure             |  18              18            1 . Levy yield                                  73                  70*2
                                                                            2 . Interest on investments and on      I
2 . Aid to resettlement
                                              26              27.5               loans from noi>-borrowed funds             14
     ( Art . 56 )                                                                                                    I
                                                                                                                                                 14
3« Aid to research (Art. 55)               J  35              35            3 * Miscellaneous                          ! toktsn entry I             0,6
                                                    ( 16.3          ( 16.3
     (a) steel                                      ( 13.4          ( 13.4
     (b ) coal                                                      ( 5.3
     (c ) social                                    ( 5.3
                                                                            4 . Cancellation of commitments which
 4 . Aid to coking coal                                         6
      ( Art . 95 )                              6                                will not now "be implemented                11                  13.5
                                                                             5 . Unused resources carried over from
 5 . Interest subsidies                                     I
                                               13              13                the financial year 1974                 token entry
                                                                     ( 6.4                 ( 2)
      fa) Article 54 - Investment                                    ( 6.6
                                                                             6 . Déficit                                                             1.2
      (b ) Article 56 - Bedevelopment
                                               98              99.5                                                          98                  99.5
  OPERATIONS FINANCED WITH LOANS FROM        Γ                               ORIGIN OF NON-BORROWED FUNDS
J NON-BORROWED FUNDS
  6 . Social housing                                                         7 . Repayments on loans for social
                                               12.5            12.5               housing                                      6*4                     5.3
                                                                             8 . Part of the former ECSC Pension
                                                                                  Fund or of the special reserve               6.1                     7.2
  'QJ L 295 of 14 November 1975 » page 43 (amending budgat ).
             covered in the amending budget for the finai.sial year 1976 .
 ---pagebreak---                                                                 ΑίϊΕΕΧ Β
FORECAST IMPLEMENTATION OF THE EGSC OPERATIONAL BUfrlET ?QR 19?6
The forecast given in the table "below shows an increase in leviss of
3 m EUA , partly because of a rise in the average value figures* for steel
finally adopted compared with the provisional figures used xn the initial
calculation and partly because the difference between the old u.a. and
the new EUA , this difference being somewhat bigger than was allowed for .
The forecast for the cancellation of commitments also shows a rise of
1.6 m EUA ( 3.6 m EUA instead of 2 m EUA) due mainly to the cancellation
of conditional commitments for steel research because of delays in the
negotiation of a oontract .
In addition , following the Friuli earthquake disaster , the Commission has
decided to use the 3 m EUA allocation set aside last year for budgetary
contingencies .
This brings the budget total from 106 m EUA to 113.6 m EUA
( 106 + 3 + 1.6 + 3 - 113.6 ).
In its amending budget the Commission upheld its decision , as contained
in the footnote to the initial budget , to assign any surplus from the
levies to reserves .
This along with the contingency allocation will facilitate in particular
the financing of aids in the form of loans ( 11 m EUA) decided 'on by the
Commission in June to help Friuli disaster victims . To bring this speoial
aid into the budget it therefore added an extra item for "Aid to Friuli
viotims ( allocation to reserves) n to the foreoast requirements .
 ---pagebreak---  This V'LXI at - ( la -the              to satisfy the wish of the European Farlis>B»at
 which st.&lei ..a po.'.ri; 5 of its Resolution of IS December 1975 that it
 " considers" i 1 imot® e&v.-.aabl * to use a»y srrrplus from the levy yield in the
 •- on»1ng year i f pcapi"ble for fur-llicr expenditure in the social field".
 .- 'he detailed estia'atsa of req airem au.i s hove been amended as follows l
        ad to si - il refcearoh                17=4 m 1UA instead of 16 m EUA
                                                ( the additional 1.4 ® EUA will
                                               eaab.l® the delayed contract of
                                               tb.a previous year to be financed)
- Interest subsidies ?
      investments                              6 m SUA instead of 7 a EUA ( this
                                               reduction will finance the defioit
                                               from the previous year)
– Aid to Friuli victims
      ( allocation to reserves )               new ohapter to which 6 m EUA allocated
                                               ( see remarks above )
– Deficit from the previous                    new chapter to which 1.2 a EUA allocated
      financial year                           ( see Annex A above )
All the figures in the amending operational budget are shows, in the table
below ( page 4 )«                                                         '  ,
 ---pagebreak---                                      " 3 –
 Information. relating to levies
 In its Resolution of 18 December '^75 on the operational budget for 1976 ., the
 European Parliament aBked the Commission to supplement this aida–mluoira by
 an up-to-date account of production *:nd of the lavy yield for the current
 financial year. The latest availabx--. information is given below s
  Levy yield     +he period from January to o>xne 1976
                                        Production     . | Levy yield
                                        serving as a     !
                                        basis for the
              Products                  calculation of
                                        the levy
                                        in million tonnes    in m EUA
 Brown-coal briquettes and semi-coke           1.9              0.1
 All types of hard coal                       97.7              8.6
                        Total for coal
                                                                8.7
 Pig iron other than that required
 for the manufacture of ingots                 2.4              0.8
 Steel ingots                                 66*0             27.5
 Finished products                           49.1               9-1
                       Total for steel                        37.4
                           GRAND TOTAL                        46.1
                                                                     u
(l ) information available 15 October 1976
                                                 /
 ---pagebreak---                                                                                                                                 \
                                            AMENDING ECSC OPERATIONAL BUDGET FOR 1976
                                                                                                                   ( in m EUA) "
                                                   ESTIMATES                                                  ESTIMATES
           REQUIREMENTS                    initial        'amended
                                                                                RESOURCES
                                                                                                       initial          ameinded
OPERATIONS TO BE FINANCED. FROM      . .
                                                                       CURRENT RESOURCES
 CUREENI RESOURCES (HON-RjJ?iiIiBLE )
                                          18             18
                                                                                                                            (1)
 1•   Administrative expenditure                                       1.  Levy yield                     90             93
 2 . Aid to resettlement (Article 56 )    25             25            2*  Interest on investments
                                                                           and on loans from nor>-
 3 . Aid    to research (Article 55 )     42             43.4              borrowed funds                 14             14
      ( a)  steel                               ( 16            ( 17.4 3 * Miscellaneous             token entry     token entry
      (b)   eoal                                ( 17            ( 17
      (c)   social                              ( 9             ( 9
 4« Aid to coking coal (Artiole 95 )       6              6                Cancellation of commit­
                                                                           ments which will not now
 5.   Interest subsidies                  15             14                be implemented                                 3.6
                                                                           Unused resources carried
      ( a) Investment (Article 54)              ( 7             ( 6        over from the financial
      (b) Redevelopment(Artiole 56)             ( 8             ( 8        year 1975                 token entry
 6.   Aid to Friuli victims        \                                   6.  Drawing of allocation for
      (allocation to reserves)^ '                         6                budgetary contingencies
 1%   Defioit from 1975 financial year                    1.2
                                         106            113.6                                           106            113.6
 OPERATIONS FINANCED WITH LOANS FROM                                   ORIGIN OF NON-BORROWED FUNDS
 NON–BORROWED FUNDS
                                                                       7.  Repayments on loans for
                                                                            social housing                6.4             6*4
 8 . Social housing                       12.5                  12.5   8 . Special reserve and part
                                                                           of the former ECSC
                                                                           Pension Fund                   6.1             6.1
   The surplus levy yield over 90 m EUA is allocated to the reserves as envisaged in the initial budget .
 ---pagebreak---                                                                                                                  Α1ΓΝΕΧ Ο
                                       BREAKDOWN OP LOANS FOR THE FIRST SIX MONTHS OF 1976
                                                                                                                  ( in m EUA)
                                    Fédéral
                                                                                      Nether­              United
               Seotor               Republio  Belgium    Denmark   Prance    Italy              Luxembourg             Ireland Community
                                                                                       lands               Kingdom
                                    Germany
  I Coal industry                                                   27.95                                   58.83                86.78
    Iron and steel industry          86.95      1.92                42.26   117.42     35.49               348.36               632.40
 II  Industrial redevelopment                                       17.24    13.86                            7*19       0.55    38 .84 I
III  Social housing                   4.85      0.92                 1.25     0.29       0U7      0.07       0.05        0.16     7.7' I
                                                                                                                                         J
                                                                                              !
     GRAND TOTAL                     91.80      2.84                88.70   131.57     35.66      0.07     414.43       0.71   765 -7 l' !
                                                                                              1
This table has been added at the request of the European Parliament for an up-to-«iate account of asset and loan activities '^ee
point 3 of its Resolution of 18 December 1975 on the fixing of the ECSC levies arid on the drawin#~up of the operational budget
for 1976 ).  It supplements the information given in this connection on page 19 of the Aide-memoire .
 ---pagebreak---                                                      DRAFT ECSC OPERATIONAL BUDGET FOR 1977                        AWFX D
                                                                                                                        ( la m EUA)
                                               APPLICATIONS         FRCPOSALS                    RESOURCES                 PROPOSA LS
              hzquireí*:I:T3
                                           I
                                           I
OPERATIC!'! 3 TO BE FINANCED FRCW          I                                     RESOURCES FOR THE FINANCIAL YEAR
CUTUiiLKT icioUU-tu^s (fc'ON-fi&PA YABLE )
1.   Administrative expenditure                18                 18             1.    Current resources
2 . Aid to resettlement (Article 56 )          25                 25             1.1    Levy yield at 0.29$                 89
3.   Aid to research (Artiole 55 )             85.8               42             1.2    Interest on investments and
                                                                                        on leans from non-borrowed
3.1    steel                                           (44.5             (16.5 i        funds                               16
3*2    coal                                            (32               ( 16.5  1.3    Fines and interest levied f .
                                                                                          delayed payment              token ; entry
3*3    social                                          ( 9.3             ( 9
                                                                                 1.4    Miscellaneous                  token entry
4*    Interest subsidies                       23.5               15
                                                                                 2.    Cancellation of commitments
4.1 Investment (Article 54)                            ( 8.5             ( 6           which will probably not "be
                                                                                       implemented                            6
4.2 Redevelopmeni( Article 56)                         (15               C 9
                                                                                 3.    Re 'valuation of assets and
5.    Aid to coking coal and metall­                                                   liabilities                     token entry
       urgical coke (Article 95 )                6                 6
                                                                                 4.    Unused resources carried
                                                                                       over from the 1 976 financial
 6.   Aid to Friuli victims
                                                                                      year                             token entry
      ( allocation io reserves )                 5                 5
 OPERATIONS FENCED WITH LOANS FROM           163.3               111                                                       1Î1
NON-BORROWED FUNDS
                                                                                 ORIGIN OF 1T0N-B0RR0VED FUNDS
                                                                                  5 . Repayments on loans for
                                                        )                              soaial' housing                       I -
 Social housing                               15                  15              6 . -Special reserve and part
                                                                                       of the former XCSC pension
                                                                                      Fund                                    S
                                 j'