6. Free movement of capital

Treaty on European Union introduced the principle of full freedom of capital. In line with the second stage of the monetary union it introduced the principle of full freedom of capital movements and payments, both between Member States and between Member States and third countries. The Treaty contains the possibility of maintaining certain existing restrictions as of December 31, 1993 under national or Community law vis-à-vis third countries. According to the Treaties, under certain circumtances Member States can introduce safeguard measures if movements of capital to or from third countries cause serious difficulties or threaten with it for the operation of economic and monetary union.

Capital movements are understood to be all the operations necessary for the purposes of capital movements carried out by a natural or legal person. This includes direct investments, investments in real estate, operations in securities and in current and deposit accounts, and financial loans and credits.

At present, all the Member States enjoy full freedom of capital movements and payments. Parallel measures have also been introduced to ensure the greatest possible consistency between Community policies:

• economic actors and consumers : The measures apply to economic actors such as banks or other firms and to consumers and are designed to ensure a level playing field and a high degree of consumer protection;
• tax matters : Taxation is largely the responsibility of the Member States. Some tax provisions must, however, be observed at Community level both by economic actors and consumers;
• fraud : To maintain an area of security, it is necessary to combat fraud effectively so as to ensure in particular that the financial system is not used for money-laundering purposes;
• fight against terrorism : Following the terrorist attacks against the United States on September 11, 2001, the Union must face up to the challenges posed by terrorism. Among other things, the Community plans to introduce restrictions on the free movement of capital and the possibility of freezing assets to prevent the funding of terrorist acts.

Council Directive 88/361/EEC of June 24, 1988 for the implementation of Article 67 of the Treaty contains the secondary legal norms of the capital movement.

Exercise: Free Movement of Capital