ARCHIVES HISTORIQUES 
DE LA COMMISSION 
 
 
 
COLLECTION RELIEE DES 
DOCUMENTS "COM" 
 
 
 
 
COM (83) 207 
 
 
 
Vol. 1983/0 086 
  
 
Disclaimer  
Conformém ent au règlement (CEE, Euratom) n° 354/83 du Conseil du 1er février 1983 
concernant l'ouverture au public des archives historiques de la Communauté économique 
européenne et de la Communauté européenne de l'énergie atomique (JO L 43 du 15.2.1983, 
p. 1), tel que modifié par le règlement (CE, Euratom) n° 1700/2003 du 22 septembre 2003 
(JO L 243 du 27.9.2003, p. 1), ce dossier est ouvert au public. Le cas échéant, les documents 
classifiés présents dans ce dossier ont été déclassifiés conformément à l'article 5 dudit 
règlem ent. 
In accordance with Council Regulation (EEC, Euratom) No 354/83 of 1 February 1983 
concerning the openi ng to the public of the historical archives of the European Econom ic 
Community and the European Atomic Energy Communit y (OJ L 43, 15.2.1983, p. 1), as 
amended by Regulation (EC, Euratom) No 1700/2003 of 22 September 2003 (OJ L 243, 
27.9.2003, p. 1), this f ile is open to the public. Where necessary, classified documents in this 
file have been declassified in conformity with Article 5 of the aforementioned regulation.  
In Übereinstimmung mit der Verordnung (EWG, Euratom) Nr. 354/83 des Rates vom  1. 
Februar 198 3 über die Freigabe der historischen Archive der Europäischen  
Wirtschaftsgemeinschaft und der Europäischen Atomgem einschaft (ABI. L 43 vom  15.2.1983,  
S. 1), geändert durch die Verordnung (EG, Euratom) Nr. 1700/2003 vom 22. Septem ber 2003  
(ABI. L 243 vom 27 .9.2003, S. 1), ist diese Datei der Öffentlichkeit zugänglich. Soweit  
erforderlich, wurden die Verschlusssachen in dieser Datei in Übereinstimmung mit Artikel 5  
der genannten Verordnung freigegeben.  
COMMISSION  OF THE EUROPEAN  COMMUNITIES 
COM(83)  207 final 
Brussels,  20th April 1983 
FINANCIAL INTEGRATION 
(Communication from the Commission to the Council) 
COM(83)  207 final 

SUMMARY 
Page 
INTRODUCTION  1 
I. DEADLOCK  IN THE  PROCESS  OF FINANCIAL INTEGRATION 3 
1. The facts 3 
2. The explanation 5 
II. THE  NEED  TO  RELAUNCH  EFFORTS  TOWARDS  FINANCIAL INTEGRATION 7 
1. Macro-economic incompatibility has been attenuated 7 
2. The reinforcement of the internal market also involves 
the question of financial services 8 
3. Direct tapping of European savings would make for more 
effective restructuring of the Community economy ^ 
4. Excessive intermediary activity for European savings on 
international markets and for non-member currencies 
probably undermines the stability of the international 
financial system 10 
III. PRACTICAL  PROPOSALS  FOR A REALISTIC  PROCESS  OF FINANCIAL 11 
INTEGRATION 
1. A financial system of more direct service to the 
Community's economic development 11 
2. Contributing to better balanced international financial ^ 
relations 
3. Promoting the use of the ECU 18 
Conclusions 20 

- 1 -
INTRODUCTION 
The considerable development of international financial 
relations over the past  twenty  years - the spectacular growth of  Euro­
markets being the most striking example - contrasts sharply  with  the 
sluggishness  of European progress in the area of finance. 
Indeed, it is amazing  that  free trade in goods is so much 
easier  to achieve than freedom to provide insurance services, or  that  the 
mechanisms  of cooperation among European currencies apparently do not 
facilitate portfolio arbitrage among the investment instruments available 
on the various Community markets. 
This  day-to-day reality can be expressed analytically by 
observing  that  the degree of financial integration in the Community is 
far from an optimal situation which would have two features: 
the existence of a single, homogeneous market open to 
the outside world on an orderly  basis.  Market operators 
seeking  to optimize the  return  on their investments would 
be in a position freely to buy, sell and trade in financial 
assets,  which would ensure maximum mobility of capital 
within  the Community's financial sector; 
" mechanisms and instruments tailored to 
providing the financial basis for efficient mobilization 
of Community savings and their allocation to productive 
investments. 
This  means  that  the process of financial integration involves 
the mobilization, circulation and allocation of financial resources  within 
the Community. Consequently, the barriers set up by exchange regulations 
and taxation techniques must be removed, and, beyond the field of Community 
financial instruments, the coordination of policies for regulating financial 
markets must be encouraged. This  effort  must be backed up by a common, 
or at least coordinated, approach to organizing international monetary and 
financial relations and by greater solidarity  with  the Member States  with 
balance  of payments problems. It goes  without  saying  that  the scope and 

- 2 -
rate of integration,  both  financial and monetary, depend on the degree 
of convergence of economic policies; this convergence is essential to 
stabilize the expectations of investors and  savers. 
Taking  into  account the vast domain over which it applies, 
the movement of financial integration can and must be undertaken through 
intermediate stages involving greater freedom for capital movements, more 
stable exchange rates, closer convergence of economic and monetary policies 
and fuller institutional harmonization. In fact this process has not develo­
ped over so wide a  front,  so  that  the specifically financial dimension of 
European  construction is at present undeveloped and fragmentary. 
The failure to progress towards financial integration contrasts  with  hard-
earned achievements in other fields of Community integration. 
There are probably historical and economic reasons for this 
situation. And yet the conditions for financial integration now appear in 
quite a new  light.  A European financial market is as necessary as ever: 
its failure to appear is hampering the reinforcement of the common market 
and preventing the Community economy  from  efficiently tapping available 
savi  ngs. 
This  communication describes the present situation,  assesses 
possibilities for progress and points to practical initiatives  that  could, 
if adopted lead the way to renewed progress towards financial integration. 

- 3 -
I. DEADLOCK  IN THE  PROCESS  OF  FINANCIAL  INTEGRATION 
1. The facts 
a) Unlike the Treaty's provisions concerning the  right  of 
establishment and the free movement of goods, services and persons, 
the provisions on freedom of capital movement are not directly applicable, 
as a recent Court of Justice judgement has confirmed. The Member States' 
obligations are thus at present defined in the Council Directives of 1960 
and 1962 for the implementation of Article 67 of the Treaty. 
Certain  transactions are unrestricted, and freedom 
can be suspended only by applying the safeguard clauses provided for in 
Articles 73, 108 and 109 of the Treaty. These transactions are: direct 
investments, operations in securities dealt in on a stock exchange,  com­
mercial credits and capital movements of a personal character or connected 
with  the supply of services. A second group of transactions may be 
restricted on certain conditions: a Member State may maintain or reintroduce 
restrictions operative on the date of  entry  into  force of the Directive, 
or on the date of  accession,  where free movement of capital  might  form  an 
obstacle to the achievement of its economic policy objectives. These 
transactions are:  flotation  of foreign securities on domestic markets 
and introduction of foreign securities on a domestic stock exchange, trans­
actions in unquoted securities, acquisition of units in  unit  trusts and 
the granting and repayment of financial credits. For the remaining trans­
actions,  concerning mainly short-term capital movements, the Member States 
are free to impose restrictions as they see fit. 
The adoption of these two Directives was the last occasion on 
which any progress was made towards freedom of capital movements. None of 
the subsequent attempts to advance one step  further  towards the goal came 
to anything. Indeed, financial markets are probably even  less  integrated 

- 4 -
now than in the 1960s since capital movements  within  the Community are  less  free 
now, and the differences between the Member States are more marked. 
Exchange  restrictions for all capital transactions have been discontinued 
in Germany, the United Kingdom, Belgium and Luxembourg (although there is 
a two-tier  exchange market in those two countries). In the Netherlands, 
obligations to the Community are respected and capital transactions not 
covered  by the requirement for free movement are treated liberally. In 
France,  Italy,  Ireland and Denmark, controls have been maintained for most 
capital movements, and these countries have been authorized by the Commission 
under the safeguard clauses to introduce restrictions on some of the capital 
transactions freed by the provision of the Directives of 1960 and 1962. 
b) The possibility of restrictions when movements of capital 
lead  to disturbances in the functioning of the capital market in a Member 
State  (Article 73 EEC) or when a Member State is in difficulties or is 
seriously  threatened  with  difficulties as regards its balance of payments 
(Article 108 EEC) is one of the aspects of solidarity between the Member 
States.  But the sprit and scope of the safeguard clauses implies  that  such 
measures  should be exceptional : they should not be kept in force - although 
they have in fact been - for long periods. Otherwise, direct exchange controls 
become  a permanent economic policy instrument, which is incompatible  with  the 
intentions of the Treaty. 
There  is a tendency to prefer recourse to the safeguard clauses 
rather than another, better but also more difficult^expression of solidarity: 
mutual assistance. Apart  from  credit mechanisms between central banks th>; 
Community has added two instruments to its arsenal since the beginning of 
the 1970s : medium-term financial assistance and the Community loans mechanism. 
Under  both  these instruments, the support is conditional upon observance by the 
recipient country of certain  jointly  agreed economic policy conditions. The instru­
ments of mutual support ought not to be regarded as a last resort : on the contrary they 

-5 -
should  be brought  into  play early enough to prevent balance of payments 
crises  and facilitate the required adjustments in conformity  with  the 
obligations under the Treaty. In fact, in spite of a considerable 
increase  in the amounts available, the mutual support instruments have 
not been used since 1977. 
c) At institutional  level,  a series of Directives has been adopted 
to cover the activity of financial intermediaries and stock markets. The 
arrangements  that  have gradually been introduced are intended to translate 
into  reality the  right  to freedom of establishment  within  the Community 
for banks and insurance companies, and to safeguard their freedom to supply 
services.  The aim in connection  with  stock markets was to increase trans­
parency  and make it easier for issuers to enter the stock markets of the 
various Member States. 
But the incidence of past and  future  progress towards institutional 
harmonization of the activities of financial intermediaries and markets  will 
inevitably be limited if it is not backed up by parallel progress towards 
free capital movements. Free establishment alone does not lead to the 
integration of markets, even though it permits some interpenetration of 
the markets through the opening of agencies and branches. Similarly, the 
freedom to provide financial services or to choose the desired investments 
on behalf of the savers is sharply constricted if the corresponding move­
ments of funds are subject to restrictions. 
2. The explanation 
The approach laid down in the Treaty and the economic analysis 
on which it was based were coherent. In a situation of fixed exchange 
rates,  implicitly assumed in the Treaty, the  two-fold  objective of free trade 
in goods and services and free capital movement implies  that  national 
monetary policies must take account of the requirements of the balance of 
payments situation.  Since  most Member States wished to keep control of 

- 6 -
monetary policy for purposes of domestic regulation, they have had to 
ignore one or more of the other constraints, or come to terms  with  them in 
various ways. They obviously preferred to loosen  what  looked like the 
weakest constraint : free capital movements. There are two attitudes  that 
seem  to make this constraint  less  than urgent. First, fluctuations in capital 
movements are sometimes due as much to speculation as to the  trend  of 
basic  economic variables. Secondly, a net  outflow  of long-term capital is 
often  regarded as a loss of real resources for the national economy, the 
resulting accumulation of claims on the rest of the world being ignored. 
This  explains why the Bretton Woods system  justified  restrictions on capital 
movements when such restrictions were essential to ensure the freedom of 
current transactions and the stability of exchange rates (see Article VI 
of the Articles of Agreement). The EEC Treaty, while it lays down the prin­
ciple of "the abolition, as between Member States, of obstacles to freedom 
of movement for capital", (Article 3(c) ), permits the abolition of 
restrictions to be "progressive" to the extent necessary to ensure the proper 
functioning of the common market (Article 67). 

- 7 -
II. THE  NEED  TO  RELAUNCH EFFORTS  TOWARDS  FINANCIAL  INTEGRATION 
It is an evident disadvantage,from the  point  of view of 
Community Law,  that  Europe is not an integrated financial  area. 
It is  also,  increasingly, a serious obstacle to reinforcing the common 
market, to restructuring the Community economy and even to stabilizing 
the international financial system. The economic policy considerations 
that  long  justified  this situation have now become much  less  relevant. 
1. Macro-economic incompatibility has been attenuated 
Experience  has constantly shown  that  direct controls contribute 
little  to restoring  basic  economic equilibrium, and in particular  that  the 
impact of direct controls of capital movements on the balance of payments 
fades  away quickly. 
More  generally, the Member State Governments are finding  that 
controlling financial flows is  less  and  less  certain to ensure a degree of 
autonomy in the pursuit of economic policy. The extent of convertibility 
of currencies and persistent external deficits in most of the Member States 
singularly restrict monetary policy independence. But most of all, major 
progress  towards coordinating economic and monetary policies in the 
Community, helped by the interplay of the European Monetary  System,  has 
widened the margin available to the authorities in defining arrangements 
for capital movements. It is therefore possible to reconsider traditional controls 
introduced or reinforced under the Bretton Woods system, when the coordination 
of economic policies was embryonic and the economic cycles in the national 
economies  were not synchronized. 
Experience  has also shown  that  control mechanisms have most 
effect on long-term capital movements, easier to  identify  but usually 
corresponding to the investment or re-allocation of savings; short-term 
capital movements, which are more likely to involve speculation^ are more 
difficult  to regulate, since operators are very clever at finding ways 
through the tangled web of national rules. 

- 8 -
2. The reinforcement of the internal market also involves the question  
of financial services 
If firms are to exploit to the  full  the possibilities provided 
by the large single market of the Community, they must be in a position 
not only to move products around but also to choose the location of their 
production establishments  without  sacrificing the economies of  scale 
obtainable through centralized management of a number of departments, 
especially  those dealing  with  financial and banking matters. Freedom to 
carry out direct investment, which is now almost complete in the Community, 
is not enough to ensure actual mobility of the factors of production. 
Firms  develop through the accumulation of financial assets as well as 
through productive investment. In recent years, net purchases of financial 
assets  have represented some 20% to 30% of capital formation by  German, 
French  and UK companies, and even more in  Italy. 
Financial  costs are absorbing a growing proportion of firms' 
gross  operating surpluses. These costs could usefully be minimized through 
increased  competition and economies of  scale  if the common market in 
banking were reinforced. Freedom to provide insurance services would 
also  help : premiums on insurance-against damage now  often  account for over 
3% of gross operating surplus. If industrial groups are to operate efficiently 
on the single market, they must not be artificially forced  into  fragmented 
and piecemeal financial relations. 
3. Direct tapping of European savings would make for more effective re­
structuring of the Community economy 
Considerable  capital is required for the ordered restructuring 
of industrial sectors in  difficulty  and the development of new activities. 

- 9 -
Gross  savings in the Community amounted in 1980 to 
430 000 million ECU, compared  with  a figure of only 340 000 million ECU 
for the United  States.  Very  Little  of this  total  is tapped by national 
financial markets. Total transferable securities issued on the five 
major markets (Germany,  France,  Italy,  the Netherlands and the United Kingdom) 
amounted to 142 000 million ECU, much lower than the corresponding figure 
of 212 000 million for the US market. The disproportion is even more 
striking in the specific area of venture capital: the market capitalization 
of national shares quoted on Community stock exchanges amounts to only 
about 40% of  that  of shares quoted on Wall Street alone. 
In general, financial flows between Community countries are 
extremely underdeveloped in comparison  with  trade in goods and  services. 
It is striking  that  long-term capital movements between Member States 
involve  less  than one  twentieth  of the value of commercial flows (average 
sums  between 1976 and 1980 were 10 000 million ECU and 230 000 million 
ECU respectively). 
This  partitioning of Community financial markets is even more 
paradoxical  in the  light  of the fact  that  foreign borrowing on those markets 
by non-member countries is much greater than  that  of non-member countries, 
and covers almost the same proportion of their borrowing requirements. In 
1981,  Community borrowers issued loans  totalling  Z 2 200 million on the 
markets of their partners, accounting for 8% of their foreign borrowing, while 
non-member borrowers issued a  total  of 2 10 000 million, covering 6% of foreign 
borrowing. The only significant contribution to capital movements in the 
Community is  that  of the Community institutions, more than half of whose loans 
were floated on Member  States'  markets in 198' 
The activity of financial intermediaries is never neutral in its 
effects on the allocation of available  savings.  The partitioning of financial 
circuits at national level leads to waste; but the free application of the 
criterion of maximum financial yield does not always ensure maximum economic 
efficiency. Similarly, at the level of the Community, it may be  that  a financial 
system  with  too many internal partitions and not enough homogeneous regulation 
of external relations, which encourages too far the diversion of savings to 
outside destinations, does not serve the best interests of productive 
investment in the Community. 
(1) Direct investment, portfoLio investment, other Long-term capital including 
banking capital 
(2) Including international loans denominated in Community currencies. 

- 10 -
4. Excessive  intermediary activity for European savings on international  
markets and for non-member currencies probably undermines the stability  
of the international financial system 
The considerable development of the international financial 
system  originated to a large extent in the Community. Community financial 
centres  deal  with  about two thirds of Euro-loans. This demonstrates 
remarkable technical capacity, which it is in the Community's interests 
to preserve. 
However,  the Euromarkets' contribution to connecting up 
national markets is indirect and imperfect, because of the wide variety 
of national exchange rules governing the conditions in which residents have 
access  to Euromarkets . In particular, communication via the Euromarkets 
usually  involves non-member currencies and conditions beyond the control 
of the authorities of the member countries. 
An unnecessarily large share of Community savings actually 
moves  through international markets, for ill-defined economic purposes 
and subject to somewhat uncertain arrangements, as recent events have shown. 
Only  half the Member States' trade involves non-Community trade 
partners, but it is estimated  that  two thirds of their external long-term 
financial transactions take place outside Community financial circuits. 
Similarly,  the BIS has established  that  the assets of non-bank Community 
residents  with  reporting banks amounted to the equivalent of about t  70 000 
million at the end of  1981;  it is estimated  that  at least  80%  of this amount 
is in the  form  of deposits in non-Community currencies. 

- 11 -
III. PRACTICAL  PROPOSALS  FOR A  REALISTIC  PROCESS  OF  FINANCIAL  INTEGRATION 
To get the gradual process of financial integration under 
way, a set of specific initiatives is required; no single one on its 
own is determinant, but their simultaneous application would represent 
considerable  progress towards  affirming  the financial  identity  of the 
Community and reinforcing its financial network.  Such  progress would 
supplement and support the Community's existing  identity  as a trading 
area  and its emerging  identity  as a monetary union. 
1. A financial system of more direct service to the Community's economic  
development 
a) Gjaduj_l_dismantUng of partiti_ons be_tween_ capi tal markets_ 
The Commission recognises  that  the present balance-of-payments 
situation in several Member States prevents substantial immediate 
liberalization of capital movements, but restrictions retained under 
Articles  73  and  108  of the EEC Treaty should be kept to a minimum. 
- It intends to consider the situation as a whole during the coming 
year, so as to explore,  jointly  with  the Member States concerned, 
the possibility of gradually removing restrictions applied pursuant to 
the safeguard  clauses. 
- At the same time, action should be taken concerning the Commission's pro­
posal  for a list of exchange control measures and monetary policy measures 
with  equivalent effect  that  can hamper current transactions,  with  a view 
to prohibiting such measures where they affect relations  with  other 
Member  States unless they have been agreed at Community level and apply 
for a limited period. 
- Apart  from  the above-mentioned consideration of restrictions under the 
safeguard  clauses,  the Commission feels  that  the gradual removal of barriers 
to capital movements in the Community should concentrate on the establishment 
of a European venture capital market. 

- 12 -
In the initial  stages, the restrictions on transactions in 
transferable  securities applied pursuant to the safeguard clauses could 
be gradually  lifted  for purchases  of shares traded on a  Community  stock 
exchange  and issued by  Community  companies.  Foreign  exchange  should be 
available  at official  market  rates for  such transactions. 
Where institutional investors are authorized to invest in 
venture capital, there should be no discrimination  between  the securities 
of national  companies  and those of the  companies  of other  Member  States. 
The principle of non-discrimination should be  extended  to cover tax incentives 
for venture capital investment in the  framework  of the coordination of  such 
incentives. 
It is worth noting that the  full effects of freeing venture capital 
movements  would be felt if, at the  same time, corporation tax  systems  in the 
Community  were harmonized.  The Commission  would  recall  that it has 
presented a relevant proposal, at present  under  discussion in Parliament, 
to avoid a situation  where decisions  about investment in shares at  Community 
level are taken, all other things being equal, on the basis of tax  con­
siderations. 
b) A more unified  network of financial services 
1) The  initial  aim for  banking  was to  encourage  integration through the esta­
blishment of agencies and  branches.  The Directive of 12  December  1977 laid down 
rules for the coordination of national  laws in this respect. The  Commission 
intends to continue and step up its  work in this  field,  concentrating in  parti­
cular on adjusting  systems  of control so as to  facilitate  the development  of 
banking  transactions within the  Community. 
2) In the  field of insurance, the right of establishment has  been a practical 
reality  since the  First Directive of 24 July 1973 was  adopted.  The same is not 
true of freedom  to provide services, in spite of the direct effect of the 
relevant provisions, Articles 59, 60 and 106 of the Treaty. A proposal for a 
directive  on insurance other than  life assurance sent to the Council in late 1975, 

- 13 -
with  the purpose of ensuring freedom to provide services; it was followed 
by a proposal for amendments in early  1978.  Since  then, participations 
have  been at a standstill for technical reasons. 
The development of services in this branch will help to strengthen 
the internal Community market. As to its financial impact on balances of 
payments, the transfer of premiums abroad will not be a one-way process, and 
will probably not affect more than a small percentage of  total  premiums paid 
in any one Member State, and there would probably be some correspondence 
between the descriptions of premiums collected and placements made. Management 
would be easier for those firms whose activity at Community level had  deve­
loped most. Competition between insurers would encourage new insurance 
techniques, to the advantage both of customers and of the insurers themselves 
who are desirous of expanding their international activities. 
3) In the field of stock exchanges, the Commission thinks  that  links 
between national stock market should be strengthened so  that  orders from 
clients may be carried out on the market offering the best terms at any 
given moment. 
The idea is not to set up a new stock market, but to link existing 
exchanges  so that  Europe can pool its resources and end the present 
compartment al izat i on. In the  first  stages the link-up could be confined 
to European shares quoted on several exchanges, eventually spreading to 
other securities and other markets. The Commission, in close collaboration 
with  the European Stock Exchange Committee, is at present considering ways 
of achieving this aim. It is prepared to consider granting financial 
assistance  if necessary to get the link-up system currently under study 
of the ground, and in particular to help  with  investment in data-processing 
and information technology infrastructures. 
If stock exchanges in all the Member States are to be in a position 
to participate fully in the system from the outset, the restrictions on 
listing foreign shares which some of them apply should be lifted. 
Moreover, to avoid distortions of competition between the exchanges 
of the different Member States, the Council must rapidly adopt the proposal 
for a Directive on indirect taxation of transactions in securities,  with  a 

- 14 -
view to eliminating  double  taxation  and reducing  the burden of taxes on such 
transactions  as a  first step to abolishing  them. 
The Commission  also feels that  the development  or establishment 
of markets  for unlisted securities, particularly  geared to the  financing 
needs of small and medium-sized  firms, could help  to reinforce  European 
markets and boost venture  capital  markets  in Europe. 
Encouragement  should also  be given to collective  investment 
undertakings  for transferable securities  CCIUTS)  established  in the 
Community to  play a role in the  interpenetration  of Community  markets. 
Consequently  the two  proposals  for Directives concerning, respectively, 
the corodination  of national provisions relating  to CIUTS and  freedom  for 
transactions  in their units should  be adopted  as soon as possible  by the 
Council to enable CIUTS to  provide services. 
c) New instruments  for tapping savings  in the Community 
The Community  institutions, including  the EIB, have a  useful 
contribution  to make here. At the  same time, it is  necessary  to develop 
financial  instruments that  can result  in the  effective interpenetration  of 
financial  circuits  and ensure  efficient  tapping  and circulation  of capital 
within a geographically  wider  financial sector. 
The Commission  intends  to take action  on three fronts  : 
1 ) II  will encourage  closer collaboration  between medium-term and  long-
term credit institutions  on programmes or  projects  of common  interest, 
and in particular  develop  co-financing operations  like those 
already carried  out by the Community's  club of specialized  long-term 
credit institutions.  Such collaboration  might be based for example on 
a programme  of unified loans issued simultaneously  on the  Member  States' 
Markets. 

- 15 -
2) It may consider the establishment of collective investment undertaking for 
industrial  purposes; their units  would be placed freely on the  markets  in 
the Member  States and their portfolio  made up of shares issued by  Com­
munity firms. The adoption of the two Directives on  CIUTS mentioned  above 
would make it easier to set up such undertakings and distribute their units. 
3) The  third type of action concerns  mortgage  loans.  Housing  credit 
establishments financed by the issuing of  mortgage  bonds should be 
allowed to place their  bonds,  up to a certain  ceiling,  in other 
Member States, using the proceeds for  mortgage  loans in the country 
of issue. The establishments financed by deposits,  whose freedom  of 
establishment is  hampered  at the moment  by administrative barriers, 
should be authorized to  move into the  markets  of other  Member  States. 
2. Contributing to better balanced international  financial  relations 
The Community  should set  itself  for international  financial 
relations  a goal similar to that adopted on the  monetary  front: an area 
of stability,  to help create  more balanced relations  between  the world's 
major financial  centres. To take this approach, the  Community  must 
assume a financial  personality vis-a-vis the rest of the world. 
a) Greater_control_of_capi_tal  flows_between  the Community  and the rest of 
the_world 
The steps taken  towards  freeing capital flows early in the 
Community's  existence  were the product rather of a  movement  towards  global 
financial  exchanges.  At the same time, within the  Community  national  measures 
governing  financial  flows to the outside world  were in force in several 
Member States. To date.  Article  70 of the Treaty,  which provides for the 
progressive coordination of the  exchange  policies of the  Member  States in 
respect of the  movement  of capital  between  those States and  thrid countries, 
has only  once been applied : in the 1972 Directive on regulating international 
capital  flows and neutralizing their undesirable effects on domestic  liquidity. 

- 16 -
The instruments created by the Member States in this respect are of general 
application,  with  no differentiation between capital movements  within  the 
Community and those between the Community and non-Member States. Some of 
them were or are solely intended to improve control over speculative inflows 
of capital (e.g. the Bardepot system). (1) 
The Community's aim should be to maintain a high degree of freedom 
in relation to the rest of the world and to safeguard the international 
activity of its financial centres. At the same time, the relevant Community 
authorities should consider whether instruments should be set up at Community 
and international level to be used if necessary to improve control over flows 
of capital between Member States and the rest of the world, and if so, how. 
b) Joint_consideration of International_banHn^_su^erv2SJon 
Once  the Community has well-defined instruments of integration at its 
disposal,  it can, through the coordination of banking laws, create an area of 
stability  that  would not only achieve a homogenous internal structure control 
at international level in a way better adapted to banks' growing international 
exposure. 
For example, the Commission has drawn up a proposal for a Directive 
on banking supervision on a consolidated basis in close collaboration  with 
the EEC's  Banking Advisory Committee on the basis of  work  done at the Bank 
for International  Settlements; the proposal is intended to enable the supervi­
sory authorities of the country where the parent company of a banking group 
has its headquarters to  assess  the financial situation of the entire group, 
including subsidiaries in other Member States. 
The Commission has also taken steps concerning annual accounts of 
banks  and the content of regular returns to be supplied to the supervisory 
authorities, the supervision of large exposures, in particular large loans 
granted by banks and cooperation between credit information exchanges; the 
calculation of banking solvency and  liquidity  ratios; procedures for the 
reorganization, or if necessary winding up of international banks in a 
critical situation. 
(1) 
In 1972 and 1973 the German authorities introduced the requirement 
for a frozen deposit, called the Bardepot, corresponding to a certain 
percentage (it has varied  from  20% to 50%) of foreign borrowing by 
residents. 
It does not operate in the same way as the compulsory non-interest 
bearing deposit  that  Italian  rules have required on several occasions 
(under measures taken in 1974, 1976 and 1981) on purchases of foreign 
currency by residents. 

- 17 -
Among these measures,  the calculation  of coefficients  (which 
the Banking  Advisory  Committee  considers  very important)  is especially 
likely to lead to international cooperation  in the  field of capital 
requirements  and day-to-day  supervision  of banks operating  at international 
level, particularly since  the methods of calculation  are also being con­
sidered outside  the Community,  by a Committee  of the Group of Ten in  Basle. 
In the Commission's  opinion, action  on these fronts,  and in 
particular  the adoption  of the Directive  on supervision  on a  consolidated 
basis, is a necessary  first step to proper assessment  of the international 
activity of European  banks.  These  measures  could also  help to improve the 
management  of international risks.  The basic techniques  developed  should 
be used for a Community  approach  to official  discussion  of the risks to 
the international financial  system,  and the  rescheduling  of the external 
debt of countries  in difficulty.  A common  position  is especially  necessary 
when these matters  involve geographical regions  or countries  with which 
the Community's  relations  are intense or privileged. 
c) Coordinating  the foreian borrowing  policies  of the Member  States 
A joint attempt at Community  level to find the proper balance 
between the constraint  of international  adjustment  and the  advantages  of 
external financing  is one of  the basic factors  in the  convergence  of the 
Member States'  economic  policies. 
As announced  in the  programme  put forward  in 1980 in its 
report on recycling,  the Monetary  Committee  has just set up a mutual 
information  and monitoring  procedure  on the balance-of-payments  and external 
indebtedness  position  of the member  countries. This  work  should lead to 
the definition  of general guidelines  for foreign  borrowing  policy. This 
opportunity  should be taken to assess whether  Community  instruments  are 
suitable  in view of the new technical features  of financial  markets,  and 
whether  they are adequate  to meet the needs of the Member  States. 

- 18 -
3. Promoting  the use of the ECU 
Financial  integration  in the Community  cannot make genuine 
progress unless  it is  based on a higher degree  of monetary  identity. 
At this stage,  the development  of the  role of the ECU is an  essential 
factor here, both  as the most  important vehicle  for increased trans­
ferability  of financial assets within  the Community and as the  expression 
of an emerging  monetary  union that aspires  to be one of the  three pillars 
of an ordered international  monetary  system. 
a) Recognition  of foreign currency status 
It would be a decisive step forward  if the ECU were  recognised 
as a foreign currency  so that transactions  denominated  in ECUs  could be 
treated as transactions  in a convertible currency.  Official  rates for the 
ECU quoted  on all the Community's exchange  markets,  even if the  rates are 
based on those for the component  currencies,  would sanction  the ECU's  status 
in the eyes of operators. 
b) Privileged treatment  for financial transactions  in ECUs 
Community  residents should  be able to carry out transactions 
in securities  denominated  in ECUs, at  least within certain  limits,  under 
normal conditions;  in several  Member  States this  would mean waiving rules 
now in force. 
First, all residents  of Member  States should  be allowed 
to subscribe freely,  at official  exchange  rates, to ECU 
issues floated  by Community  borrowers,  and in  particular 
to issues  of this type floated  by Community  institutions. 
Under the rules governing  the composition  of the  portfolios 
of institutional investors, securities  denominated  in ECUs 
should be assimilated  to national securities  of the same 
type, subject  to possible provisions  to limit the exchange 
risk. 
Any new  instrument  for tapping savings introduced  at 
Community  level should preferably  be based on the ECU. 

- 19 -
c) Enlarging  the official  role of the ECU 
At present,  official  use of the ECU between  central  banks 
participating  in the EMS  takes place  in a closed  circuit.  If the EMS 
is opened to the  outside,  as recommended by the Commission in its  com­
munication  of 15 March 1982 on  strengthening  the EMS,  this would extend 
the area  of stability  of the system by  associating  in exchange and  inter­
vention mechanisms the  currencies  of non-member  countries having special 
economic and  financial links with  the Community and its  Member  States. 
It wouLd  also increase opportunities  for using and mobilizing  the official 
ECU, and, by  setting  an example,  contribute  to developing private  use of 
the ECU by  operators outside  the Community. 

- 20 -
CONCLUSIONS 
With a view to  ensuring  the development of  productive 
activity  and to  tapping savings  to obtain required financing,  the 
Commission would ask the  Council. 
1. To  recognise  the need for the  financial  integration process 
to get under way once  more, with the removal of  partitions  and the 
establishment  of interconnections  between  capital  markets, the  actual provi­
sion of financial  services  and the  gradual establishment  of genuine 
financial  unity in Europe,  vis-a-vis  non-member  countries. 
2. To note the Commission's  intention  to present  the Monetary 
Committee  with a request  for an  opinion  based on  this communication, to 
help it assume its responsibilities  of management  and proposal, concerning 
in particular: 
- consideration  by the Commission of  justification  for partial 
or complete  retention  of national  measures  authorized  under 
Articles  73 and 108 of the  Treaty; 
- the proposed  list of exchange  control  measures or monetary 
policy measures of  equivalent effect  liable  to hamper  current 
transactions  in the  Community,  which Member  States should  not 
introduce unless there  has been a  joint decision  under the 
procedures  of the  safeguard clauses; 
- the definition  of instruments,  and the  conditions  of their 
use, which the  Member  States could  set up to  control  exchange 
and regulate capital  movements  involving  non-member  countries; 
3. To  request  the Member  States, irrespective  of the  consideration 
of safeguard clauses  to be undertaken by the Commission, to  take the required 
steps : 
- to remove  barriers  to the  free movement  of shares issued 
by Community  undertakings  and traded  on a Community 
stock exchange, and to  bring arrangements for  investment 
in equity,  in particular rules governing  institutional 

- 21 -
investors  and tax  incentive  measures,  closer into line with  a Community 
approach; 
- to recognise  the ECU as a  convertible currency with  the same  status 
as all major currencies,  and to  treat transactions  denominated  in ECUs, 
especially  loans floated  by Community  institutions,  as privileged 
transactions  for the  purposes  of exchange  control regulations  and 
provisions applying  to institutional investors; 
4. To set  itself the following  aims: 
- the adoption  of the  Directive coordinating national provisions concerning 
insurance services other  than life assurance,  to facilitate  freedom  to provide 
services,  as a priority  measure  for strengthening  the internal  market; 
- the adoption  by the end of  1983 of the  Directive  on banking  supervision 
on a consolidated basis; 
- the adoption  as soon as possible 
of the two  Directives  on collective  investment  undertakings  for 
transferable securities,  in particular  to make it  easier to set 
up CIUTS  with an industrial  purpose  and to  place their units  on 
the markets  of the Member  States; 
of the Directive concerning indirect taxation  of transactions  in 
securities; 
- the intensification  of efforts  to smooth the way for the  gradual 
emergence  of a common  market  in banking,  both from the point of view 
of conditions  of entry to the  market and from that of the  coordination 
of measures  on prudential control  and the  establishment  of harmonized 
accounting  procedures; 
- further coordination  of foreign  indebtedness  policies, with consideration 
of the respective roles  of the  various  forms of official  borrowing; 
- the association  of non-member  central  banks in the  mechanisms  of the 
European  Monetary  System;  in the  present international  economic  and 
monetary  situation this  would be particularly useful  in strengthening 
the EMS.