PROGRAMME FOR THE LIBERALIZATION OF CAPITAL MOVEMENTS IN THE COMMUNITY
European Commission - P/86/41 01/05/1986
Other available languages: FR
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 themiddle of next year.