CELEX: 51993DC0629
Language: en
Date: 1993-11-24 00:00:00
Title: Commission Recommendation for the Broad Guidelines of the Economic Policies of the Member States and of the Community "Restoring growth and employment - strengthening convergence"

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                            COVMISSION OF THE EUROPEAN COMMUNITIES
                                                                         C0M(93) 629 final
                                                                         Brussels, 24 November 1993
                                    Commission Recommendation
                                                                 for the
                              Broad Guidelines of the Economic Policies
                                    of the Member States and of the Community
                                             drawn up in conformity with
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                                   Article 103(2) of the Treaty on European Union
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                                   "Restoring growth and employment
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 ---pagebreak---          Commission Recommendation
 Article 103 of the Treaty on European Union provides theframeworkfor economic
 policy coordination from the start of Stage II of the process towards Economic and
Monetary Union. The economic policy guidelines adopted under this article will
 constitute the reference for the conduct of the economic policies in the Community
and in the Member States.
Main Objectives
The Community should aim to substantially increase employment creation so as to cut
 significantly the present high unemployment levels. A decrease in unemployment is
imperative to reduce the negative economic and social consequences arisingfromthis
wastage of human resources. Higher employment creation is also necessary to achieve
a more active society where all those wishing to join in the production process are
given a chance to do so and where the weight of the factors leading to social exclusion
is substantially reduced. Reducing unemployment, for instance cutting it by half by
the year 2000, would imply the creation of at least 15 million new jobs.
This employment objective should be obtained by a non-inflationary, strong and
employment-creating growth, lasting over many years and respecting the environment.
Higher growth is essential not only in relation to employment creation but also to
enable the Community to reap the benefits of the internal market, to improve its
economic and social cohesion and to meet its growing commitments in relation to the
rest of the world. But growth cannot be artificially generated, it must be brought
about mainly by market forces and by the dynamism of the European internal market,
open to the outside world.
Achieving higher sustainable growth also requires a strengthening of economic
convergence among Member States. Convergence will set in place the conditions for
stronger job creation and will allow the Community to reap the full benefits of the
internal market. It will also make possible a successful transition to EMU.
In this respect the task of policy-makers is to allow market forces to display their full
potential by:
i) providing a stable and coherent macroeconomic framework;
ii) removing the macro and microeconomic obstacles to growth.
In the present situation the challenge is a dual one. Firstly, to act decisively to
support growth in the short-term without putting at risk the commitment to high
                                                                                 24-11-83
 ---pagebreak---                                               -2-
  employment creation in the medium-term. Secondly, to create the conditions which
 will permit a stronger, durable and more employment intensive growth in the medium
 to longer term.
 Igniting the recovery process will require a restoration of confidence through a
 rebalancing of the current macroeconomic policy mix combined with credible
 structural measures. Lower interest rates, achieved on a sound basis, represent the
 most potent instrument presently available to boost short-term prospects in the
 Community. The sooner current and expected pay and budgetary trends incorporate
 the stability objective, the sooner interest rates can be further reduced substantially on
 a sound basis. Given the severity of the present situation, however, and the size of the
 budgetary adjustment to be undertaken in many countries, the recovery process may
 well be modest and hesitant. In these circumstances it may be necessary to envisage
 an intensification of the Community initiatives agreed at the European Council
 meetings in Edinburgh and Copenhagen,
 In the medium-term policies and behaviour must remain consistent with stability.
 They must help to overcome rigidities and to put an end to the damaging reduction of
 national saving inflicted by high budget deficits, thereby strengthening the investment
 conditions and the growth potential of the Community so that many years of stronger,
 and more employment-creating, growth becomes possible.
 Policy Guidelines
In order to create the conditions to realise the Community's employment /
unemployment objectives, the Commission recommends to the Council to adopt the
following broad economic policy guidelines.
Price and Exchange Rate Stability
The Community will aim to keep a stable macro-economic framework. A rate of
inflation of no more than two to three per cent should be reached for the Community
average by 1996.
Achieving this target implies that all policies and behaviours should be consistent with
this stability objective. Those Member States who have already reached this target
range should ensure that policy measures are consistent with the maintenance of this
performance. For the other Member States, more courageous initiatives are needed
involving determined action in relation to budgetary consolidation and to the wage
evolution in order to allow a loosening of monetary policy on a sound basis.
                                                                                    24-11-83
 ---pagebreak---  If these measures are implemented with sufficient speed, short term interest rates could
 come down rapidly and long term rates would follow as inflationary expectations are
 stabilised.
 The high degree of integration and the reaping of the benefits of the single market
 demand that the Community continues to aim for exchange rate stability built on sound
 economic fundamentals embracing both nominal and real variables.
 The Community reaffirms its commitment to the EMU process and timetable as agreed
 in the Treaty on European Union. To this end it will intensify its efforts at achieving
 economic convergence.
Sound public finances
 The restoration of confidence requires that in 1994 Member States prevent any further
 deterioration in their budgetary situations and aim to start the process of deficit
 reduction. In those Member States facing more worrying fiscal positions, confidence
will benefit from an immediate strong pursuit of the consolidation process. This holds
 especially for Member States with very high and rising public debt ratios.           The
consolidation process should also start in those Member States expected to face a
relatively favourable economic situation in 1994. In other Member States tight
control of budgets will be necessary in 1994 but the emphasis should mainly be on
credible medium-term consolidation strategies with measures to be already announced
now which will take effect in future years as the recovery strengthens.
From 1995, the Community will aim at making its public debt position sustainable
again. Under the expected growth path for the years ahead, this means reducing
budget deficits to the reference value indicated in the Treaty on European Union (three
percent of GDP). The Community could achieve this goal by 1996/97. Most
Member States have the potential to reach this goal by 1996, with the others needing
more time.
The measures used to consolidate public budgets will give priority to reductions in
current expenditure and to improving the efficiency of the tax system. All Member
States need to re-orient public expenditure to more productive uses and to increased
investment in particular. In addition, it is necessary to adapt the tax system in a way
which will contribute more to employment creation. Reductions in employers' social
security contributions in a number of Member States, especially for the lowest paid
and for younger workers, are particularly important in this regard although any action
taken will clearly need to be revenue neutral given the scale of the budgetary
adjustment to be achieved in many countries.
                                                                                  24-11-83
 ---pagebreak---                                             -4
 In the long term, Member States budgetary policies will be directed towards
 contributing to higher national savings and investment. This will entail much lower
 budget deficits (perhaps close to balance by the year 2000).
 Creating more employment
 Member States and the Community will take determined action to improve the
 functioning of their economies, aiming specifically at improving competitiveness and
 the Community's underlying capacity to create jobs. Such structural measures will be
 highlighted in the forthcoming White Paper on "Growth, Competitiveness and
 Employment"
 In addition to the micro-economic measures to be presented in the White Paper the
 overall evolution of wages and salaries will play a crucial role in creating jobs. To this
 end, governments and the two sides of industry will use all the instruments that
 national arrangements put at their disposal to ensure that wage developments in the
 Community adapt rapidly to the agreed inflation objective.
 In the short term, the need to create new jobs will not allow for real wage increases in
 most countries. Once the recovery sets in and real wages will be able to increase
 again, wage developments will allow an increase in investment profitability by keeping
real wage increases below productivity growth. For example, between 1982 and
 1989 real wages per head increased by about one percentage point less per year than
productivity growth. Furthermore, the wage evolution will provide for an appropriate
differentiation according to member countries, regions, vocational qualifications and
work experience.
                                          *     *
The policy guidelines laid out above will form the central core of all future multilateral
surveillance exercises. The broad framework for, and assessment of, Member States
convergence programmes will be established by the guidelines. By laying out a
credible and coherent implementation programme for the broad policy orientations,
individual convergence programmes will act as symbols of the degree of political
commitment which individual Member States attach to the Community's overall policy
objectives for the year 2000.
                                                                                    24-11-93
 ---pagebreak---                                                                      ISSN 0254-1475
                                                              COM(93) 629 final
                                                      DOCUMENTS
EN                                                                         04 IO
                                 Catalogue number : CB-CO-93-664-EN-C
                                                             ISBN 92-77-62148-6
Office for Official Publications of the European Communities
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