Conclusion

Abstract

European countries have taken diverging attitudes vis-à-vis capital controls as an instrument of economic policy. In the first post-World War II years all countries had an extensive array of controls out of sheer necessity. Full exchange convertibility for trade-related payments was not restored until late 1958. Some countries, in particular Germany, soon liberalized most capital transactions as well, but the large majority retained exchange controls. In the Treaty of Rome a limited obligation to liberalize capital movements was agreed upon, confined by an escape clause providing that such liberalization should only take place to the extent necessary to ensure the proper functioning of the Common Market. In the first years of the Community of the Six common obligations were agreed upon requiring member states to refrain from restrictions on those transactions which were deemed to have the closest link to trade and direct investment and thus would contribute most to fostering economic growth in the Common Market. The improved economic performance in Europe and the building-up of a comfortable level of international reserves were conducive to this relaxation of controls. But soon the momentum was lost and after the adoption of the first two directives on capital liberalization all subsequent attempts on the part of the Commission to advance came to nothing. Member states were not willing to dismantle restrictions on short-term capital flows and some of them kept in place a number of controls on long-term capital flows as well, such as issues on domestic capital markets and cross-border transactions in shares of unit trusts. Also domestic regulations were maintained which de facto protected the domestic capital market by discriminating against non-residents. Ways parted as to what member states were prepared to do on an individual basis. Germany was close to full liberalization in the 1960s and France experienced a brief spell of near-freedom of capital movements. The latter was abruptly interrupted by the domestic unrest following ‘les événements’ in May 1968. Other member states kept control systems in place throughout the decade. Thus the attitude among the original six founding members of the European Community varied along the whole spectrum from a liberal to a dirigistic attitude.