2912.86 COfficial]ournal of the European Communities l^oC^^9 
Opinion on financial integration in the Community 
(86^C^^11^ 
C^n 19 December 1985,the Economic and SocialCommittee decided, in accordance with 
Article 20 (paragraph^of the Rules of Procedure, to draw up an own-initiative opinion on 
financial integration in the Community. 
The Section for Economic and Financial Questions,which was responsible for preparing the 
Committee'sworloon the subject, adopted its opinion on!5]uly 1986, in the light of the 
report by ^virlOrago. 
At its 241st plenary session (meeting of 25 November 1986^, the Economic and Social 
Committee adopted the following opinion by an overwhelming majority, with no votes 
against and with four abstentions. 
1. General comments ^ Legal and institutional reference framework 
1BL The Committee thought it advisable to draw 
up an opinion on financial integration to spur the 
Commission and the Council into continuing the meas­
ures to liberalise capital movements in the Community 
by adopting the directives needed for implementing 
Article6BoftheEECTreaty. 
In this connection, the Committee points out with regret 
that, since it was not consulted on this question, it 
reserves the right to give its views in an own-initiative 
opinion. 
1.2. The Committee feels that financial integration 
in the Community should allow the financial sector 
to offer direct assistance to industry, by furthering 
homogeneous financial instruments which make it easi-
er to fund investments which stimulate demand. 
In this connection, measures to promote integration 
should be phased in gradually, build up momentum 
withtimeandkeeppace withthegeneralprocessof 
harmonization. 
1.^. As an area open to world trade, the EEC must 
view financial integration as necessary to this role, and 
anintegralpartof themonetary integrationprocess. 
fOeclaration of freedom of establishment will not in 
itself provide sufficient headway towards practical 
achievements. 
The network of monetary and financial relations 
betweenthe world's majoreconomicblocksmust be 
improved inorder to makefor moreeffectivedistri 
bution and social and economic growth. In this content, 
the Aiember States should encourage, as part of the 
coordination of monetary policies,agrowing role for 
the Commission in the dialogue between the major 
international monetary authorities. 2.1. The Committee would point out that ifaEuro-
pean financial ^one is not brought into existence by 
means of directly applicable regulations, use will have 
to be made of implementing instruments which are 
likely to remove the obstacles to genuine liberalization. 
2.2. obstacles to the freedom to supply services and 
to the free movement ofcapital act inturnasacon 
straint on the free movement of goods and persons. 
Liberalizing measures,which have been announced but 
are only part-way tobecomingreality,areheldback 
by the political aims and measures which are hampering 
the completion of the Community integration process. 
2.^. TheaimssetoutinArticle2oftheEECTreaty 
(to be achieved by the means specified in Article ^(c^ 
and the objectives set out in Article 6^should be pur-
sued by Council action on the lines of that taken under 
Article 69 in 1960 and 1962 to liberalise capital trans 
fers. 
2.4. This type of liberalization — ultimately based 
onTreatyArticles^,108 and 109 (which are general 
in scopes andthestandstillclause of Articled! — is 
not absolute. But this should no longer be used to 
justify theindefiniteuseofsafeguardclauses which, 
originally introduced asaprecaution for specific contin-
gencies,have becomeincompatible with institutional 
developments in the Community. 
2.5. The Community bodies should ensure that 
monitoring and harmonization of economic policies do 
more to bring about macroeconomic convergence and 
promote growth. This means restricting the use of 
safeguard clauses to exceptional and temporary circum-
stances, and allowing the Community financing 
No G 333/40 Official Journal of the European Communities 29. 12. 86 
machinery to contribute to adjusting the imbalances in 
national conditions and the disparities between regions. 
2.6. Creation of a financially integrated area in Euro­
pe must be accompanied by progressive coordination 
of the Member States' policies on the exchange rates 
applicable to capital flows between the Community and 
third countries. 
2.7. 'Integration' here should not be taken to mean 
that certain national responsibilities will have to be 
ceded to supranational authorities, but rather that 
Member States will be able to proceed more efficiently 
by using common instruments, instead of acting in 
isolation. Unresolved institutional problems which per­
sist in the monetary sector should not be allowed to 
delay the introduction of joint — not necessarily insti­
tutional — solutions, however imperfect they may be 
at the present stage. 
2.8. The continuing legal obstacles provide a further 
problem area. Taking as their basis the principles on 
freedom of establishment and services contained in the 
Treaty, the Community bodies will have to ensure that 
any remaining restrictions are lifted. 
Furthermore, on the basis of Article 57(2) — the scope 
of which was extended by the European Council 
decisions of December 1985 — coordinated action 
should be taken by these bodies to make it easier to 
exercise these freedoms. 
3. Macroeconomic compatibility and completion of 
the internal market 
3.1. The Committee believes that the factors which, 
in the second half of the Sixties, led to the reversal in 
the trend towards liberalization and gave rise to the 
partitioning of markets (with some markets open to all 
products and others only to selected products), have 
been transcended by the subsequent changes in the 
world economy and by certain positive results achieved 
by the Community economy. 
3.2. In the Eighties, the common area of relative 
monetary stability, and the more effective coordination 
between Member States' economic and monetary poli­
cies (despite institutional problems),have contributed 
to a significant rapprochement of the Community's 
economies. 
3.3. The experience of the Seventies has exposed the 
limitations of currency restrictions imposed in some Member States and shown that it is futile to attempt 
to find a lasting solution to external constraints if 
individual Member States are not prepared to forego 
their domestic economic policy objectives. 
3.4. In the past three years, greater economic conver­
gence has improved coherence in work on economic 
integration through the free movement of goods and 
services. As a result, the time is now ripe for financial 
integration to go hand-in-hand with the process of 
monetary, economic and commercial integration in the 
Community. 
3.5. The Committee points out that uneven financial 
flows amongst the interdependent member economies 
will, if allowed to persist, hamper the whole European 
economy and justify the search for higher returns in 
areas where economic and financial resistance is weak­
est. This was apparent in the early 1980s when there 
was a massive flow of European capital to the United 
States; while earning a higher financial return, this 
capital helped the United States in its industrial restruc­
turing. 
3.6. Moreover, the factors which are at present help­
ing to reduce external pressures on the Member States 
(weaker commodity and dollar prices) should, as well 
as improving the balance of payments, encourage those 
countries facing the greatest constraints to make the 
changes needed in order to set about the (swift or 
phased) dismantling of safeguard clauses. 
3.7. The Committee would draw attention here to 
the importance of measures designed to gradually sta­
bilize the internal market in the period up to 
31 December 1992. The Luxemburg Agreement states 
that their purpose is to create an area without internal 
frontiers, in which the free movement of goods, persons, 
services and capital is guaranteed. 
The Commission White Paper provides a useful blue­
print here, and as the Committee noted in its opinion 
CES 1019/85, qualified-majority decision-taking should 
be seen as a political choice which should also be 
applied to fiscal decisions. 
4. Financial innovation, monetary policy and market 
stability 
4.1. The Council has adopted a series of directives 
which have a bearing on financial integration within 
the Community (e.g. easing freedom of establishment 
29. 12. 86 Official Journal of the European Communities No C 333/41 
and freedom to provide services, coordinating access to 
and activities of credit institutes, conditions for stock-
exchange listing), but no measures have been taken in 
response to the widespread financial innovation which, 
on the basis of the Euromarkets, has given birth to 
a transnational capital market which is unregulated, 
mobile and global. 
4.2. These structural changes, arising from an under­
standing of the effects of inflation on financial flows, 
were the fruit of interaction of market forces and official 
policies. 
This period was characterized by a combination of 
unstable exchange rates, volatile interest rates and soar­
ing public deficits, together with inflexible regulations 
governing national monetary and financial markets, 
which have led to a search for more profitable and 
more diversified investments. 
4.3. The concurrent internationalization of inter­
bank markets and creation of increasingly sophisticated 
financial instruments may well have a direct impact 
on Member States monetary policies, on job-creating 
investments and on international economic and trade 
developments. 
4.4. The Committee notes that it is becoming 
increasingly difficult to draw a clear dividing line 
between money and other financial assets, and between 
banks' functions as intermediaries and direct loans. It 
recognizes that other factors can affect control of the 
monetary aggregates in the Member States. The Com­
mittee therefore invites the Community institutions to 
press ahead with financial integration but draws atten­
tion to the possible effects of innovation on the national 
authorities' management of the money markets and on 
market stability. 
4.5. The risk of losing in terms of stability what is 
gained in terms of efficiency in the financial sector 
should be kept at bay by coordinated monitoring of 
management standards and of the conduct of monetary 
policy, both adapted to the new context in their objec­
tives and the means employed. 
5. Liberalization of capital movements in the Com­
munity 
5.1. The lack of progress in integrating national capi­
tal markets contrasts with the large-scale development 
of international financial relations, due in particular to 
the expansion of Euromarkets. This lack of progress is due in particular to national 
authorities' desire to keep control of national monetary 
policies. These policies, which are often dictated by 
balance-of-payment considerations, are based in some 
countries on the control of international capital move­
ments. 
5.2. This has meant that the liberalization of capital 
transactions has been blocked in certain countries — 
and has sometimes even regressed when countries have 
invoked safeguard clauses of the Treaty of Rome in 
order to take restrictive measures waiving provisions 
of Directives laying down obligations to liberalize. The 
Committee considers that this development, even if 
taken in agreement with the Commission, goes beyond 
the real needs of protecting the balance of payments of 
countries which have experienced difficulties in balanc­
ing their external accounts. 
5.3. In order to promote greater understanding and 
improve links between the main monetary areas as 
regards the course to be taken by exchange rate and 
interest rate policy, and to enable economic and finan­
cial integration to strengthen each other, the Com­
munity has rightly resumed efforts to achieve gradual 
but complete liberalization of capital movements. 
5.4. In order to achieve this objective, the Committee 
would recommend that the Community law-making 
process be rapidly completed and the necessary direc­
tives adopted on a time-scale compatible with the stages 
in which the internal market will be completed. 
The first signs of liberalization, in the form of the 
Directive adopted by the Council (*) on long-term com­
mercial credits, the acquisition of shares whether quot­
ed on the stock market or not, and the admission of 
shares to the capital market, should go hand in hand 
with: 
— steps to ensure equal investment and savings free­
dom for nationals of those Member States where 
restrictions exist, and for public and private oper­
ators; 
— the Commission ensuring abolition of currency 
restrictions for current transactions, e.g. those appli­
cable to tourist, research and study journeys, medi­
cal treatment and trade; 
— enabling companies to operate their foreign cur­
rency accounts so as to reduce open currency pos­
itions and costs of forward cover; 
0) Draft Council Directive on the third amendment ot the first 
Directive implementing Article 67 of the EEC Treaty (liberal­
ization of capital movements), adopted by the Council on 
17 November 1986. 
No C 333/42 Official Journal of the European Communities 29. 12. 86 
— expanding the asset portfolios of resident operators 
and reviewing the investment restrictions imposed 
on institutional investors; 
— greater circulation of financial assets at the Euro­
pean level. 
5.5. At a time when they are aided by an economic 
upturn, solutions such as these would enable the Com­
munity as a whole to: 
— remove internal monetary and financial—and 
consequently commercial—barriers within the EEC; 
— encourage the formation of risk capital and (where 
possible) the channelling of savings into business 
investments which are more likely to prove profit­
able; 
— remove artificial barriers in the Member States' 
markets and their sub-sections; 
— increase competitiveness between financial inter­
mediaries, thus offering more freedom of choice to 
savers and investors; 
— revive small and medium-sized firms by giving them 
easier access to risk capital, thereby removing some 
of their difficulties in competing with large com­
panies which are better placed to control their finan­
cial, regulatory and fiscal environment. 
5.6. The Committee also feels that in order to soften 
the impact on monetary aggregates and exchange rates, 
the Community should allow wider use to be made of 
all the available financing instruments to offset out­
flows of speculative funds and portfolio adjustments. 
In conclusion, the liberalization of capital flows should 
help the entire Community's economy, by helping to 
remedy its internal structural and regional imbalances, 
and by assisting countries to acquire capital or partici­
pate in international financial intervention operations. 
6. Measures in the financial services sector 
6.1. If satisfactory financial integration is to be 
achieved, it is essential to create the right conditions 
for effective competition in the field of financial ser­
vices: i.e. banks, stock exchanges, insurance companies 
and collective investment funds. If we are to reach an 
appropriate level of harmonization it is vital to take 
priority measures in these sectors, giving special atten­
tion to the administrative and fiscal context. 
6.2. In the Committee's view, closer alignment of the 
various legislative provisions will be required if links between the banking markets are to be improved. In 
this respect, the principle of mutual recognition may 
certainly make it easier to achieve the Treaty of Rome's 
objectives under certain circumstances and if certain 
conditions are fulfilled. Take, for example, the free 
movement of goods. The same principle may also be 
applied to the supervision of economic operators as 
regards the right of establishment and the freedom to 
provide services. If need be, there should be sufficient 
harmonization in order to prevent the distortion of 
competition between economic operators. 
"With respect to banking regulations, the Committee 
would stress the importance of the 1977 and 1983 
Directives on coordination of banking legislation and 
of initiatives on the structure of banks' annual reports 
on accounts, own assets, the control of major risks, etc. 
6.3. The Committee also feels that it would be 
appropriate to promote the integrated use of electronic 
systems for the transfer of funds. Here a distinction 
must be made between the technical infrastructure 
where standardization is both feasible and desirable, 
and the service itself, which must remain open to free 
competition. 
6.4. In the securities sector, the process of harmoniz­
ing legislation still has a long way to go before shares 
can be moved freely and are subject to the same tax 
treatment throughout the Community. 
Alongside measures to liberalize capital flows, the pro­
cess of financial integration requires such initiatives as: 
— the progressive reduction of the compartmentaliza-
tion of stock exchanges in the Community; 
— easier access for securities which meet the conditions 
for listing on a Member State's stock exchange. 
6.5. While noting that the IDIS system should 
guarantee the interconnection of data, the Committee 
stresses that the main goal should be the interconnection 
of transactions in securities. 
Lastly, turning to the primary market, the Committee 
urges that the shares issued by Member-State-based 
companies also be made eligible for issue on the capital 
markets of the other States. 
6.6. In the field of insurance, the right to supply 
services freely, primarily in non-life sectors, should be 
established. The Committee therefore considers that 
the proposals already formulated by the Commission 
should be acted upon. 
29. 12. 86 Official Journal of the European Communities No C 333/43 
6.7. The Committee supports adoption of the two 
draft Directives on unit trusts and on the liberalization 
of share operations. 
The Committee believes that these Directives could 
make an important contribution towards a Com­
munity-wide market, as they would establish common 
rules on the authorization, policing, structure and 
investment policy of unit trusts (1). 
6.8. In wiew of the tendency towards the internation­
alization of financial markets, entailing innovatory fea­
tures (both internal and external to the process) which 
link up banking systems and financial services, the 
persistence of inflexibility, privileges and compartmen-
talization in the Community is just as damaging for the 
services sector as it is for industry. 
7. European Monetary System and the role of the ECU 
7.1. The European monetary area will be able to 
discharge its full role if the necessary financial arrange­
ments are made to secure equal access to capital mar­
kets. 
7.2. The European Monetary System has, in over 
seven years of existence, created a zone of relative 
monetary stability which has reduced the uncertainty 
caused by fluctuating exchange rates. 
Moves towards financial integration should seek to 
consolidate and improve the EMS, thereby making for 
a better equilibrium in international trade in goods and 
financial and other services. 
7.3. Increased convergence of Member States' econ­
omies and well-coordinated monetary policies will not, 
however, avert the danger of the EMS being transfor­
med into a system of sliding parities, in the absence 
of a sufficient degree of liberalization of European 
productive capital to have an impact on development 
potential. 
7.4. The Committee would therefore urge the Com­
mission and the Council to make a more determined 
effort to carry out the tasks assigned to them by the 
Decision of 18 February 1974 on the convergence of 
Member States' macroeconomic objectives and, at the 
same time, to tighten coordination of credit mechan­
isms. 
7.5. The Committee would refer to the information 
report discussed at the plenary session of 28 February 
1985 as regards suggestions for strengthening the EMS and to the ESC opinion on the use of ECU by 'other 
holders' (2). It will limit itself to the following sugges­
tions here. 
7.6. Greater use of the ECU would be more in tune 
with monetary and financial integration and, at the 
same time, would act as a stimulus to diversification of 
the dominant poles in the international monetary sys­
tem. With this in mind, the Committee would re­
commend the following course of action to institutions 
and private operators: 
— allow the private use of the ECU in commercial 
transactions and transfrontier company manage­
ment in the Community; 
— encourage invoicing in ECUs for trade between 
industrialized countries and commodity payments; 
— facilitate the use of the ECU in the internal accounts 
and invoicing of European multinationals; 
— increase the use of the ECU in invoicing for services, 
especially in the tourism sector; 
— encourage the use of ECUs for financing, commer­
cial loans and on loan markets. 
In line with arrangements for issues of loan stock by 
Community institutions, some Member States should 
amend their provisions so that transactions in ECUs 
can benefit from the possible uses mentioned above. 
8. Financial integration and tax harmonization 
8.1. The Committee feels that the process of monet­
ary and financial integration must be accompanied by 
a parallel process of fiscal harmonization with a view 
to the gradual alignment of conditions within a single 
European market. On this subject, the Committee 
draws attention to the relevant part of the opinion on 
the White Paper on the internal market. 
8.2. This harmonization must be structured to 
include generous transitional phases, and where necess­
ary compensatory measures; its aim must be a gradual 
alignment of those aspects of taxes connected with 
financial integration. 
8.3. Tax structures and even concepts of taxation 
vary enormously; nonetheless, action must aim to achie­
ve the maximum fiscal neutrality, to allow capital 
movements to be guided by economic decisions rather 
than by tax considerations. 
(J) Directive of 20 November 1985. (2) OJ No C 218, 29. 8. 1985, p. 14. 
No C 333/44 Official Journal of the European Communities 29. 12. 86 
To encourage productive investment, support should 
thus be given to all measures which will (a) even out 
competition conditions between companies, and (b) 
eliminate certain cases of double taxation, differing tax 
treatment for mergers of companies based in two or 
more Member States and differing systems for deduc­
tion at source on dividends of companies or on interest. 
8.4. Turning to direct taxation, the Committee 
stresses the advisability of aligning the incidence of tax 
burdens so that production costs, siting of investment 
Done at Brussels, 27 November 1986. and capital return are not significantly influenced by 
the tax systems of the Member States. 
8.5. In the area of tax problems, the Committee 
would draw the attention of the Commission and the 
Council to the problems of international tax fraud and 
tax havens. 
Analysis is needed of the legal and political problems, 
and of the difficulties involved in the practical 
implementation of provisions designed to weaken exist­
ing agreements with certain tax haven countries; this 
should be based on a Commission document updating 
and expanding the communication of 28 November 
1984. 
The Chairman 
of the Economic and Social Committee 
Alfons MARGOT