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  On 21 May the Commission adopted a Communication to the Council
  setting out a programme for the liberalization of capital
  movements in the Community.
  In the programme, the Commission has assigned top priority to the
  liberalization of capital movements, for two main reasons :
        - in line with the objective laid down in the Single
          Act a uniform financial area needs to be established
          as part of the moves towards the creation of a large
          internal market by 1992 ;
        - experience has shown that the free movement of capital
          in the Community is a necessary condition for the
          strengthening of monetary cooperation ; the further
          development of the EMS and the ECU must be able to
          count on the existence of a Community-wide financial
          area.
  As regards the creation of the large internal market, a major
  drive is already under way to remove technical, administrative
  and legal obstacles to trade : harmonization of standards ;
  opening up of public contracts ; abolition of unwarranted
  frontier checks ; alignment of indirect tax rates.  It would be
  difficult to imagine capital movements not being involved in this
  exercise.
  To be specific, the liberalization of capital movements will
  reinforce the attractiveness of a Community-wide financial area
  for the world at large.  It will prompt the financial centres in
  the Community to introduce a full range of instruments that
  incorporate the latest techniques.
  ------------
  (1) COM (86) 292
                                - 2 -
  It should, therefore, make it possible to mobilize savings in
  Europe on a broader scale and with a view to their use for
  investment purposes and to create jobs at a lower cost.  It will
  be one aspect of the Community's economic strength.
                               * * * *
  Liberalization cannot, though, be carried through in disregard of
  the diversity of economic circumstances in the Member States,
  which are unequally placed when it comes to tackling
  liberalization, irrespective of whether it is a matter of
  accepting the risks it represents for external payments or
  seizing the opportunities it affords for internal development.
  It was for this reason that the Treaty of Rome here envisaged a
  cautious, progressive approach based on the moves towards
  economic integration in the Community.  With the progress that
  has been made since 1962, when the most recent general directive
  on capital movements was adopted, it is now possible to take
  further steps forwards, and these are described in the
  Communication as part of a medium-term approach.
  The progressive nature of the general approach envisaged will not
  though be sufficient to allow full account to be taken of the
  differences between Member States, which are rooted in history or
  which stem from their particular economic situations.  A further
  way in which to tackle these difficulties is to apply protective
  clauses in a balanced fashion, although the difficulties must be
  looked at in a broader and more dynamic context.
  This context is provided by the Single Act, which creates a
  parallel link between achievement of the internal market and the
  development of cohesion between Member States, in particular via
  implementation of all the structural instruments and by way of
  increased efforts to foster economic, financial and monetary
  cooperation.
                             o o o o o o
                                - 3 -
  To this end, the proposed programme envisages two sensible
  stages :
  .  In an initial stage, the aim would be to achieve effective
     liberalization throughout the Community of the capital
     transactions most directly necessary for the proper
     functioning of the common market and for the linkage of
     financial markets.
     This implies first the progressive dismantling of the
     existing derogations from the requirements applicable at
     Community level.
     The liberalization requirements would then need to be
     extended to all transactions involving the acquisition and
     issue of financial securities shares or bonds, whether or
     not quoted on a stock exchange.
     The first stage will be of benefit to investors in the
     Community, who will be able to diversify their long-term
     investments and take a direct part in the development of
     the Community.  It will also open up corresponding
     opportunities for firms.  For example, financial institutions
     specializing in the placing of venture capital will be able
     to do business throughout the Community, and this will act as
     a spur to firms to become more competitive.  Similarly,
     promoters of major European projects in the field of
     infrastructures or industrial cooperation will be able to
     take advantage immediately of the opportunity open to any
     firm in a particular Member State to issue new securities on
     the different financial markets ;
  .  In a second stage, the principle of full liberalization of
     capital movements would be recognized and would thus extend
     to all monetary and financial flows, including the entire
     range of banking and financial transactions and not simply
     transactions of a commercial nature.
     Transactions with resident or non-resident banks, such as
     the holding by private individuals of cash balances in the
     different Community currencies, would be authorized
     automatically.  For example, certain means of payment now
     in wide use (credit or payment cards, Eurocheques) would
     offer everyone the same possibilities throughout the
     Community.  Likewise, savings and instruments for lending
     to individuals, e.g. mortgage credit, would no longer be
     restricted to the relevant national market.  In view of the
     frequency of such transactions and because of their role
     in everyday life, this would constitute an important step
     in the direction of a People's Europe, as envisaged at a
     number of European Council meetings.
                                - 4 -
  Like individuals, firms in the Community would, by the end of
  this second stage, be able to compete for the financial services
  (credit, insurance and guarantee transactions) on offer in
  different Member States.  This would widen beyond national
  frontiers their scope for raising finance, something that has
  hitherto been the exclusive preserve of very large firms.
  However, this second stage, which calls for a high degree of
  financial integration in the Community, should be the subject of
  a detailed forward-looking study.  What degree of harmonization
  does it entail between the financial regulations in force in
  individual Member States ?  How does it tie in with other
  approximation or harmonization measures, notably in the tax
  field ?  To what extent should monetary policy cooperation
  between Member States be strengthened in the interests of an
  effective economic policy and of cohesion within the Community ?
  These questions will be examined in a study on which the
  Commission is now embarking in close association with the
  Community's specialized agencies.
                              o o o o o
  The first step in implementing the programme will be to
  discontinue or adjust the protective clauses from which France
  and Italy at present benefit.  Before the summer, a proposal will
  be tabled for a first directive covering the transactions to be
  liberalized during the first stage.  A proposal for a second
  directive covering the second stage will be forthcoming by the
middle of next year.

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