CELEX: 31975D0361
Language: en
Date: 1975-06-16 00:00:00
Title: Council Decision of 16 June 1975 adjusting the economic policy guidelines for 1975

25 . 6 . 75                            Official Journal of the European Communities                         No L 162/ 13
                                                   COUNCIL DECISION
                                                       of 16 June 1975
                                  adjusting the economic policy guidelines for 1975
                                                         (75/361 / EEC)
THE COUNCIL OF THE EUROPEAN                                         HAS ADOPTED THIS DECISION :
COMMUNITIES,
                                                                                          Article 1
Having regard to the Treaty establishing the European               The Council adopts the guidelines which are specified
Economic Community ;                                                in the Annex for the Member States in the elaboration
Having      regard       to     Council      Decision     No        of their economic policy.
74/ 120/ EEC (') of 18 February 1974 on the attain­                                       Article 2
ment of a high degree of convergence of the
                                                                    This Decision is addressed to the Member States .
economic policies of the Member States of the Euro­
pean Economic Community, and in particular Articles
 1 and 2 thereof ;                                                  Done at Luxembourg, 16 June 1975 .
                                                                                               For the Council
Whereas the Council agrees with the analysis of the
economic    situation    set out in     the communication
                                                                                                The President
from the Commission concerning the adjustment of
the economic policy guidelines for 1975,                                                          R. RYAN
(') OJ No L 63 , 5 . 3 . 1974, p. 16 .
 ---pagebreak---  No L 162/ 14                     Official Journal of the European Communities                               25 . 6 . 75
                                                       ANNEX
                                         ECONOMIC POLICY GUIDELINES
                                                 A. General guidelines
Economic policy priori­   1 . In 1975, the Community will have to resolve some major economic policy
ties                      problems :
                          — how to reduce unemployment, fight inflation and correct the balance of payments ;
                          — how to bring about the progressive reduction of divergent trends which threaten its
                              cohesion .
Complementarity        of As regards the latter problem, the deficit and surplus member countries bear a joint
short-term     economic   responsibility for following complementary policies. Albeit not negligible, the Commu­
policies                  nity's room for manoeuvre in this area will nevertheless be limited .
Three groups of coun­     2. The present situation precludes the member countries being classified according to
tries
                          general criteria. Nevertheless, they can be divided into three groups on the basis of their
                          external positions and the intensity of the inflationary pressures to which they are subject.
Restrictive policies in   3 . As far as the countries with heavy deficits (United Kingdom and Italy) are
the countries with heavy  concerned, it is important that, while maintaining generally restrictive policies, they
deficits
                          should actively encourage the transfer of resources which is essential if they are to bring
                          about a lasting improvement in their external accounts ; such a transfer of resources
                          should be into the export sector, and, internally, into those investments which will yield
                          the highest return in the long-term and which are most urgent from the point of view of
                          regional policy and the support of employment. This process requires a slower rise in the
                          standard of living, since otherwise inflation will continue to have a harmful effect on
                          economic activity and employment. Moreover, the prospect of bringing about a lasting
                          improvement in their balance of payments would become extremely uncertain and those
                          countries would experience increasing difficulty in borrowing abroad to finance their
                          excessive expenditure on consumption .
                          Disequilibria are also very pronounced in Ireland but that country is, at the present time,
                          subject to external factors and, moreover, has such a high level of unemployment and
                          underemployment that its position must be considered as a case apart.
 Reflationary measures in 4. The Member States with large balance of payments surpluses (the Federal Republic
the countries with large  of Germany and the Netherlands) have already introduced budgetary and monetary
surpluses                 measures to stimulate economic activity. These measures will have the desired effect only
                          if they are given the support of all economic groups, with undertakings availing them­
                          selves of investment incentives and trade unions forgoing excessive wage claims . If it
                          becomes evident in the months ahead that these groups are not responding sufficiently to
                          the reflationary programmes, appropriate means will have to be found and applied
                          promptly in order to increase the effectiveness of the programmes while not giving a
                          further impetus to inflation at a later stage in the upswing in activity.
 Intermediate position of 5 . Other Member States are in a situation between these two groups on both the
other Member States
                          external and internal fronts, especially as far as prices are concerned . In particular, their
                          balance of payments on current account is moving towards the elimination of surpluses
                          ( Belgium) or is improving, at a varying rate, ( Denmark and France). Owing to uncer­
                          tainties in the world economic situation and to the danger of an insufficient slowdown in
                          the rise of prices, the overall tenor of economic policy must remain cautious for these
                          countries .
 ---pagebreak--- 25 . 6 . 75                        Official Journal of the European Communities                         No L 162/ 15
Support for investment     6. Short-term economic recovery and the reduction of unemployment will only last if
                           progress is also made in slowing down rises in costs and prices and modifying the
                           economic structure . Thus, an appropriate investment support policy, where necessary with
                           the help of Community funds is needed in all Member States. However, the nature and
                           extent of such action should be differentiated according to the adjustment of income and
                           demand needed in the different groups of countries and regions thereof. In general,
                           greater selectivity of economic policy is required especially to prevent the waste of
                           resources which unconditional support for declining sectors would bring about. In parti­
                           cular, encouragement should be given to the spontaneous restructuring made necessary by
                           the energy crisis, by developing those forms of investments most closely geared to new
                           demands (public transport, energy production , oil-saving technology, scientific research ,
                           etc.). To this end, particular encouragement should be given to entrepreneurial spirit,
                           mainly by giving clear guidance as to the type of development to be undertaken .
 Active     policies   on  7. Specific and concerted policies are also needed to improve the employment situa­
employment        and   to tion by increasing the mobility of labour to the benefit of expanding sectors, and esta­
 protect incomes           blishing effective arrangements for vocational training and retraining, where necessary
                           with the help of Community means . In addition , changes should be made in some
                           Member States in the social security systems, particularly as regards unemployment insur­
                           ance, so as to provide the unemployed with adequate benefits. In general, effective protec­
                           tion of the incomes of the least affluent social groups would permit further concentration
                           of effort on the adjustments made necessary by the energy crisis .
 Financial solidarity      8 . The process of eliminating the main balance of payments disequilibria cannot be
                           other than gradual . The orderly financing of deficits should therefore be arranged until
                           such time as the adjustments in real terms can take place . This would avoid the danger of
                           deficit Member States being impelled to take protectionist measures likely to retard the
                           recovery of world trade . The Community instruments of financial solidarity have an
                           important role to play in this context, in conjunction with international instruments and
                           the capital markets . In addition , the Community must itself adopt the measures needed to
                           avoid any set-back to the orderly development of world trade, and also press for the adop­
                           tion of such measures at international level .
 ---pagebreak--- No L 162/ 16                       Official Journal of the European Communities                            25. 6. 75
                                      B. Guidelines for the individual States
DENMARK                                                      the tax and family allowance reforms : the deficit in
                                                              1975 should be some DM 50 000 million, as against
                                                              DM 25 000 million in 1974 (5 and 2-5% of gross
                                                             domestic product respectively). At the same time as
 1 . In Denmark, the current phase of near-stagna­           the Federal Government took these measures, the
tion of the economy is likely to persist throughout           Bundesbank appreciably relaxed its monetary policy.
most of the year. Unemployment might rise further
for some months before stabilizing at a high level .
The principal problem for economic policy makers
will be to mitigate the effects of the slowdown in            5 . These measures together should bring about a
                                                             gradual upturn in the economy. Indeed there are
economic activity on the employment level without
                                                             already some signs of a recovery in business confi­
endangering the improvement already under way in
                                                             dence. Although it is very difficult to evaluate the
foreign trade and domestic equilibrium . The authori­
ties should therefore continue to help reduce the pres­      strength of this improvement, the annual gross
                                                             domestic product growth rate could reach 3 to 4 % by
sure of costs, which is still heavy, while not ruling out    the end of the year. The employment situation should
recourse to selective and gradual action to revitalize       improve. The increase in prices should further slow
the economy. The policy measures to be implemented
                                                             down, although the foreign balance will remain high .
should be adjusted in the light of the degree of moder­
ation shown by the two sides of industry.
                                                             6. If the economic upturn is delayed, the economic
                                                             impact of the budgetary measures adopted should be
2.    In the budgetary field, the easing of personal         reviewed . In the monetary field, the goal adopted by
taxation has already provided an appreciable stimulus,       the Bundesbank will stimulate expansion while
as have the measures taken in the construction sector ;      continuing to act as a brake on prices. The Bundes­
this may have set the stage for a more moderate rise         bank should maintain this approach during the
in wages and salaries. If this prospect is fulfilled and     months ahead and encourage the continued fall in
if, at the same time, the balance of payments on             interest rates in the banking sector, especially if the
current account continues to improve, some of the            upward movement of prices goes on slackening.
proposed cuts in expenditure could be cancelled in
order to sustain the level of economic activity.
                                                             FRANCE
3.    In the monetary field, domestic liquidity has
increased at a slightly faster pace during recent
months. A further relaxation of monetary policy, and
particularly of credit policy in order to improve the        7.     In France, the current period of economic stagna­
financial situation of undertakings, will depend on the      tion is likely to be followed by a gradual upswing
success of any incomes policy and on developments            during 1975. The labour market situation will prob­
in public finance.                                           ably improve. Fresh progress will no doubt be made
                                                             in reducing disequilibria. The rise in consumer prices
                                                             will continue to slow down during the year ; it will
                                                             probably be less than the annual rate of 10 %
                                                             recorded in recent months . Also the trade balance
                                                             could reach equilibrium before the end of 1975, but
FEDERAL REPUBLIC OF GERMANY                                  some caution is still needed in assessing the opening
                                                             for exports provided by France's main trading part­
                                                             ners .
4. Since the middle of the past year economic
growth in Germany has steadily weakened and has              8 . The cautious economic policy stance recom­
increasingly diverged from the guidelines laid down          mended in the annual report on the economic situa­
by the Council . The Federal Government decided, last        tion in the Community (') remains essential if achieve­
December, to launch a programme to encourage                 ments in the fields of prices and external equilibrium
private and public investment and to get the unem­           are not to be endangered . Accordingly, the upswing of
ployed back to work . Powerful stimuli should be             economic activity depends as much on the growth of
provided by the sharp increase in the public authori­
ties' borrowing requirement, which is partly due to          (') OJ No C 149, 28 . 11 . 1974, p. 1 .
 ---pagebreak--- 25 . 6 , 75                           Official Journal of the European Communities                          No L 162/ 17
investment — and particularly on having a further               chance that total demand will pick up somewhat
run-down of stocks — as on export growth .                      towards the end of 1975. The upward trend in prices
                                                                during the year, though still very strong, will be slower
9.    The 1975 Finance Act forecasts a slight surplus           than 1974. The balance of payments deficit on current
of the order of FF 500 million . It is desirable that the       account will be significantly lower than last year's
                                                                level .
outturn of the budget should not depart too far from
this neutral line . Should the revival in economic
growth be slow in materializing it would be appro­
priate to consider fiscal measures, for example the              16. Short-term economic policy faces a difficult
deferment of the collection of company taxes.                   problem : the fight against inflation and the improve­
                                                                ment in the external position must remain the prime
                                                                objectives ; but it is also equally important to stop, and
 10 . The present course of monetary policy, without            gradually reverse, the process of recession . The solu­
being especially restrictive, seems well suited to the          tion to this problem requires close cooperation with
current economic situation .
                                                                the two sides of industry, especially in view of the
                                                                negotiations which will begin towards the end of the
                                                                year for the renewal of numerous collective agree­
                                                                ments .
IRELAND
 11 .    In Ireland the level of economic activity may           17.    In the field of budgetary policy, the Council
remain depressed until the end of the year. The labour          Directive of 17 December 1974 on the granting of
market situation will probably improve very little in           medium-term financial assistance requires the 1975
the coming months. The rate of increase in prices will          treasury deficit to be held to Lit 8 000 000 million
remain among the most rapid in the Community. In                and the increase in total Government expenditure to
this period of slow growth , the balance of payments             16% . Within these limits, expenditure linked with
on current account is likely to go on improving.                investment must be raised . It will be easier to observe
Economic policy should therefore sustain employ­                the ceiling fixed for the treasury deficit if the fight
ment through specific measures which do not accen­              against tax evasion is stepped up.
tuate the internal pressure of rising costs.
 12. On the incomes front, the wage and salary                   18 .   As regards monetary policy, a ceiling of Lit
increases for 1975 written into agreements concluded            24 700 000 million was laid down in the abovemen­
last year are already very high . It is therefore impor­        tioned Council Directive for the growth of total
tant that the new national pay agreement does not               lending during the period from 1 April 1975 to 31
result in excessive increases, especially in the indus­         March 1976. Within this ceiling, which must certainly
tries already suffering from special difficulties.              not be exceeded but which it seems desirable should
                                                                be used to its full extent, there appears to be a strong
 13 . The 1975 budget presented on 15 January 1975              case for giving priority to financing productive invest­
provides for a very high net borrowing requirement              ment, particularly in agriculture, residential construc­
(equivalent to some 13 % of gross domestic product)             tion, and the energy and public transport sectors.
although the increase in capital expenditure repre­             Furthermore, the monetary authorities should support
sents little growth in real terms and appears to be too         the current tendency for interest rates to fall , while
small in the light of foreseeable employment trends .           ensuring that these rates remain well above those
The objective of budgetary policy should therefore be           ruling abroad .
to restrict public consumption .
14.      Monetary policy, although largely dependent on
external factors, should remain cautious in view of the         NETHERLANDS
growth in liquidity which will be brought about by
the monetary financing of the budget deficit.
                                                                 19 .   In the Netherlands, the implementation of the
                                                                important package of reflationary measures decided
ITALY
                                                                on last November and strengthened in February
                                                                (protection of real personal incomes, support for busi­
                                                                ness investment, easing of wage costs, stimulation of
1 5.     In Italy, the fall-off in economic activity, which     activity in the building sector and in the regions)
began towards the middle of last year, will no doubt            should allow some increase in production in the
continue until the summer, owing to the persistently            second half of the year and curb the growth of unem­
low level of private consumers' expenditure and the             ployment. The rise in consumer prices during the year
even lower level of investment. However, there is a             should not exceed 8 to 9 % , the rate at which it has
 ---pagebreak--- No L 162/ 18                        Official Journal of the European Communities                               25 . 6 . 75
been running for several months. The improvement              25. The budgetary measures to combat unemploy­
in the terms of trade, due in particular to the higher         ment should go hand in hand with the maintenance
export prices of natural gas, could lead to an increase       of the recent tendency to ease monetary policy. In
in the already considerable balance of payments               this respect, the money supply should be allowed to
surplus on current account.                                    increase sufficiently and the conditions should be
                                                               created for a further lowering of interest rates .
                                                               However, a slower rate of increase in wage cost is an
20 . In recent months the upward movement of                   important condition for achieving the desired improve­
wage costs has slackened distinctly. It is now essential       ment in the labour market situation .
that this trend should continue and become more
pronounced if the relative success in combating infla­
tion is to be consolidated and if there is to be an
upturn in employment and in business investment.               LUXEMBOURG
21 . In the budgetary field, the measures already              26 .    In Luxembourg where the recent fall-off in new
taken must first be given time to have their full effect       orders is likely to continue , especially in the iron and
on economic activity and employment. For the time              steel industry, activity may slow down during, the first
being, therefore, these measures, which are reflected          half of 1975 . The rate of growth of consumer prices
in an appreciable increase in the net borrowing requir­        should fall . The surplus on external account will prob­
ement, likely to rise from about 1 % of gross                  ably give way to an appreciable deficit.
domestic product in 1974 to about 3-5 % in 1975,
should be rigorously implemented . However, in order
to combat unemployment, the implementation of                  27. As taxable incomes will not grow on the scale
investment expenditure provided for in the budget              expected earlier, there will be a deterioration in the
should be speeded up .                                         net budgetary position .
                                                               28 .    In order to maintain activity in building and
22.     In the monetary field, a substantial increase in       construction , credit restrictions should be eased , but
the central government deficit and a continuing                care should be taken to avoid the resurgence of infla­
balance of payments surplus would suggest that the             tionary strains .
 money supply will grow sufficiently to support the
recovery .
                                                               UNITED KINGDOM
 BELGIUM
                                                               29 . The prospects for the British economy seem to
                                                               be virtual stagnation between now and the end of the
 23 .   In Belgium , where the economic climate has            year, continued unemployment, further rapid rises in
 deteriorated noticeably since the autumn and                  prices and wages and a slight reduction in the substan­
                                                               tial balance of payments deficit on current account.
 economic policy was relaxed at the end of last year,
 the growth of activity could be very small in the
 second half of 1975 and unemployment may become               30 . The reduction of the balance of payments
 even more widespread . The upward movement of                 deficit should continue to be one of the principal
consumer prices, which remained very rapid up to               aims of economic policy in 1975 . To achieve this, it is
 February, may slacken appreciably ; the external              essential to contain the growth of private consump­
 balance could also deteriorate somewhat .                     tion . This means that care should be taken to avoid
                                                               any large increases in real incomes and in particular,
                                                               increases designed to offset anticipated price rises .
 24.    In the budgetary field, the reflationary measures
 taken in late 1974 and early 1975, and also the apprec­
 iable rise in unemployment, will mean that the fall in         31 . Given the impact of the upsurge in prices and
 the net borrowing requirement will be distinctly              wages on public authority spending and assuming that
 smaller than initially forecast. The budget must be           policies remain unchanged, the public sector net
 implemented in such a way as to help promote the              borrowing requirement must be expected to grow in
 recovery of investment. To this end, clear priority            the 1975/ 76 financial year. Vigorous efforts should
 should be given to the major job-creating investment          therefore be made to reduce the share of the public
 programmes already planned under the budget . In              sector deficit in the gross domestic product, put at
 addition , the authorities should, if necessary, promote      some 8 % for 1974/75 . To this end, it is particularly
 business investment in priority sectors .                      important to follow the budgetary policy guidelines
 ---pagebreak--- 25. 6. 75                         Official Journal of the European Communities                          No L 162/ 19
announced last November with a view to making               32. The present course of monetary policy should
substantial cuts in subsidies to nationalized industries .  be maintained. In order to help finance the external
If necessary adjustment of certain indirect taxes to        deficit, interest rate policy should preserve the relative
price movements could be considered.                        attractiveness of the London money market.