The Liberalization of Capital Movements in Europe: The Monetary Committee and Financial Integration 1958–1994

349 Pages·1996·18.399 MB·English

by  Age F. P. Bakker (auth.)

THE LIBERALIZATION OF CAPITAL MOVEMENTS IN EUROPE
FINANCIAL AND MONETARY POLICY STUDIES
Volume 29
The titles published in this series are listed at the end of this volume.
THE LIBERALIZATION OF
CAPITAL MOVEMENTS IN EUROPE
THE MONETARY COMMITTEE AND
FINANCIAL INTEGRATION
1958-1994
by
AGE F. P. BAKKER
Free University, Amsterdam
Deputy Director of De Nederlandsche Bank
SPRINGER-SCIENCE+BUSINESS, MEDIA, B.V.
Ubrary of Congress Catalogiog in Publication Data
Bakker. Age.
The 11berallzatlon of capital movements In Europe: the Monetary
Commlttee and flnanclal lntegratlon. 1958-1994 I by Age F.P. Bakker.
p. cm. -- (Flnanclal and monetary pollcy studles ; 29)
Inc 1u des 1n dex.
ISBN 978-94-010-4059-4 ISBN 978-94-011-0123-3 (eBook)
DOI 10.1007/978-94-011-0123-3
1 .. Capltal movements--Europe. 2. Monetary pOllcy--Europe.
3. Commlss1on of the European Communltles. Monetary Commlttee.
4. European Economic Communlty. Monetary Commlttee. I. Tltle.
II. Serles.
HG3942.B35 1995
332' .042--dc20 95-20404
ISBN 978-94-010-4059-4
Printed on acid-free paper
AlI Rights Reserved
© 1996 Springer Science+Business Media Dord.recht
Originally published by Kluwer Academic Publishers in 1996
No part of the material protecteci by this copyright notice may be reproduced or
utilized in any form or by any means, electronic or mechanical,
including photocopying, recording or by any information storage and
retrieval system, without written permission from the copyright owner.
C' est alors que je me suis demaTUie comment ttablir une r~gle,
puisque je n' acceptais pas de vivre sans r~gle, et que cette r~gle je
ne l'a cceptais pas d' autrui.
Andre Gide, Les faux-monnayeurs
In the longing that starts one on the path is a kind ofh omesickness,
and some way, on this journey, I have started home.
Peter Matthiessen, The snow leopard
For my parents
Contents
Acknowledgements xvii
1. Introduction 1
1.1 Capital liberalization and monetary unification 1
1.2 Capital liberalization and monetary policy 3
1.3 The tidal movement of exchange control 5
1.4 The role of the Monetary Committee 7
1.5 The purpose of this book 8
2. Capital Restrictions: Classification and General Observations 10
2.1 Introduction 10
2.2 Types of capital controls 11
2.3 The impact on capital flows 15
2.4 Types of transactions affected by capital controls 16
2.4.1 Long-term and short-term capital flows 16
2.4.2 Inflows and outflows of capital 18
2.5 The motives for capital restrictions 19
2.5.1 Exchange rate considerations 20
2.5.2 Monetary policy considerations 21
2.5.3 Saving and investment considerations 21
2.5.4 Tax considerations 21
2.6 Drawbacks of capital controls 22
2.6.1 Low degree of effectiveness 22
2.6.2 Undermining economic discipline 23
2.6.3 Hampering the domestic financial centre 24
2.6.4 Costs of controls 24
2.7 The sequencing of liberalization 24
2.8 Conclusion 26
3. The Treaty ofR ome and Capital Movements 30
3.1 Introduction 30
3.2 The Spaak report 32
3.3 The attitudes among the founding member states 33
3.4 The Dutch attitude towards capital liberalization 36
3.5 The Treaty provisions 39
3.6 Subordination to the freedom of trade 42
vii
viii
3.7 Public reactions 44
3.8 Interpretations by the Court of Justice 46
3.9 The involvement of the IMP and the OECD in capital
liberalization 47
3.10 Conclusion 53
4. The Role of the Monetary Commiu(!e 58
4.1 Introduction 58
4.2 The Treaty status of the Monetary Committee 58
4.3 The tasks of the Monetary Committee 61
4.3.1 Liberalization of capital movements 62
4.3.2 Exchange rate policies 62
4.3.3 Balance-of-payments assistance 64
4.3.4 Further tasks 64
4.4 The composition of the Monetary Committee 65
4.5 The chairman of the Monetary Committee 66
4.6 The Alternates of the Monetary Committee 68
4.7 The proceedings of the Monetary Committee 69
4.8 Relationship with the Commission 70
4.9 Relationship with the Committee of Governors 71
4.10 Conclusion 73
5. The 1960s: Lost Momentum 79
5.1 Introduction 79
5.2 The initial attitude of member states 80
5.2.1 Germany in favour of full liberalization 81
5.2.2 France in favour of monetary policy coordination 81
5.2.3 Italy fears speculation 82
5.2.4 Dutch misgivings 83
5.2.5 The special case of Belgium and Luxembourg 84
5.2.6 Assessment 84
5.3 Preparation of the first directive 85
5.4 The First Directive of 1960 87
5.5 Maintaining the momentum 89
5.6 The Second Directive of 1962 92
5.7 The Third Directive: a failed attempt 94
5.8 Further efforts of the Commission 97
5.9 'Les evenements' of May 1968 in France 102
5.10 Conclusion 103
6. The 1970s: Lost Control 109
6.1 Introduction 109
6.2 The Werner report, a doomed attempt 110
6.3 The establishment of the snake 113
ix
6.4 Capital controls codified in the 1972 Directive 116
6.5 The collapse of the Bretton Woods system and the oil crisis 118
6.6 The German experiment with capital controls 120
6.7 The French response to the currency turmoil 124
6.8 Italy: an economy under siege 128
6.9 The Netherlands: liberalization gaining pace 130
6.10 Comparison of the Dutch and French attitudes 133
6.11 The Belgian-Luxembourg dual market 134
6.12 European integration at a standstill 136
6.13 The liberalization in the United Kingdom 138
6.14 Conclusion 140
7. The 19808: Liberalization and Deregulation 147
7.1 Introduction 147
7.2 Capital liberalization reintroduced on stage 149
7.3 A strategic reorientation in'France 153
7.4 The change of attitude of the Commission 154
7.5 Active gradualism 156
7.5.1 Promotion of the ECU 156
7.5.2 Formulation of a package deal 158
7.5.3 Examination of derogations 160
7.6 Presentation of the White Book 161
7.7 Discussions on the Single European Act 162
7.7.1 Freedom of capital movement 162
7.7.2 A monetary dimension 163
7.7.3 Assessment 165
7.8 Commission proposals for a new directive 166
7.9 A new ambitious initiative of the European Commission 167
7.10 The reception of the Commission's programme 169
7.10.1 The French position 170
7.10.2 The German position 171
7.10.3 The Dutch position 173
7.10.4 The Belgian postition 174
7.10.5 The Danish position 174
7.10.6 The Italian position 175
7.11 The 1986 Directive 177
7.12 Conclusion 179
8. Towards the Full Liberalization of Capital Movements 187
8.1 Introduction 187
8.2 The changing financial environment 188
8.2.1 The role of innovations 188
8.2.2 The administration of controls 188
8.2.3 The effectiveness of controls 188
x
8.2.4 Financial integration 189
8.3 Commission initiatives for full liberalization 189
8.3.1 Reactions of member states 191
8.3.2 1\vo rival schools of thought 194
8.4 The monetary safeguard clause and the erga omnes principle 196
8.4.1 The monetary safeguard clause 196
8.4.2 The 1972 Directive and the erga omnes principle 198
8.4.3 The European credit mechanisms 199
8.5 Transitional arrangements 199
8.6 Questions of competence 201
8.7 The Basle/Nyborg agreement 202
8.8 A European financial area 204
8.8.1 Discussion in the Monetary Committee 204
8.8.2 The Belgian dual market 205
8.8.3 Draft directives 206
8.9 Fiscal questions 207
8.10 Enhanced supervision 209
8.11 Completion under German chairmanship 210
8.12 Conclusion 212
9. Towards Economic and Monetary Union 218
9.1 Introduction 218
9.2 The follow-up to the 1988 Directive 219
9.2.1 Full liberalization in the leading group 219
9.2.2 Gradual progress in derogation countries 221
9.2.3 Effects on capital flows 223
9.2.4 Indirect barriers 225
9.3 The follow-up in taxation and supervision legislation 226
9.4 The Delors report 227
9.5 Preparations under the Luxembourg presidency 229
9.5.1 The erga omnes principle 230
9.5.2 Sanctions 231
9.5.3 Transitional arrangements and safeguard provisions 231
9.6 Finalization under the Dutch presidency 232
9.7 The future of the Monetary Committee 235
9.8 Crises in the European Monetary System 236
9.8.1 The September 1992 crisis 237
9.8.2 The August 1993 crisis 238
9.9 Restrictions revisited 240
9.9.1 Taxation of foreign exchange turnover 240
9.9.2 Reserve requirements on foreign exchange positions 241
9.9.3 Liberalization in Greece 243
9.10 Conclusion 244
xi
10. Conclusion 249
10.1 General overview 249
10.2 An economic appraisal of the attitudes of member states 252
10.3 A political appraisal 254
10.4 The effectiveness of controls 257
10.5 The opportunity costs of capital controls 258
10.6 Linkages with other policy domains 260
10.7 Will capital controls be reintroduced? 261
10.8 Concluding observations 262
Chronology of major measures with respect to the regime of capital
movements in the member states of the European Community 264
Chronology of general events in Europe 276
Annexes
1. Extracts from the Treaty establishing the European
Communities concerning capital movements and the balance
of payments 279
2. Members of the Monetary Committee 285
3. Statutes of the Monetary Committee 290
4. First Council Directive of 11 May 1960 for the
implementation of Article 67 of the Treaty 294
5. Council Directive of 21 March 1972 on regulating
international capital flows and neutralizing their undesirable
effects on domestic liquidity (721156/EEC) 301
6. Council Directive of 24 June 1988 for the implementation of
Article 67 of the Treaty (88/361/EEC) 303
7. Extracts from the Treaty on European Union concerning
capital movements 308
Literature 314
Index A: subjects 319
Index B: persons 330