Financial Integration of the European Community in Project 1992, The
Financial Integration of the European Community in Project 1992, The
Asim Erdilek 0
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The Financial Integration of the European Community
in Project 1992
The European Economic Community ("EEC" or "Community") was
founded in 1957 following the signing of the Treaty of Rome.' The
goal of the Treaty was to create a common market through the free
movement of not only goods and services, but also factors of production,
namely labor and capital. During its first twenty-five years of existence,
however, the EEC did not advance beyond a customs union, which was
realized in 1968. Various administrative, financial, fiscal, physical, and
technical barriers prevented the emergence of a single European market.2
The EEC fell behind the United States and Japan in both economic
growth and technological progress. The major reason for this
disappointing performance, called "Euroselerosis," was the failure of the
EEC's then ten Member States to unite their economies and to
harmonize their national regulations.'
At the end of 1982, the Council of the European Community
decided to create by 1992 a fully unified internal market, embracing 325
million people, and instructed the Commission4 to work toward that
objective. Following its preparatory work, the Commission, in June 1985,
issued the White Paper titled "Completing the Internal Market,"5 which
contained 300 measures. Among them were twenty-five measures aimed
at the free movement of capital and the unification of the financial
services markets in the Community. In response to the Council's
instructions, the Commission also issued a timetable for the realization of its
proposals by 1992.6 The White Paper, which was adopted by the
Council at the Milan summit in June 1985, emphasized the importance of both
a common market for financial services and free capital mobility: "The
liberalization of financial services, linked to that of capital movements,
will represent a major step towards [sic] Community financial integration
and the widening of the Internal Market."7
The White Paper listed three aims to be served by freer capital
mobility. First, provision of efficient financial services throughout the
Community in order to help realize the free movement of goods, services, and
persons in the internal market. Second, promotion of monetary stability
within the European Monetary System as an essential condition for the
completion of the internal market. Third, optimum allocation of
European savings and hence promotion of economic growth in the
Community through unified financial markets.8
After reviewing the Commission's White Paper, the twelve Member
in February 1986
the Single European Act,9 which
amended the Treaty of Rome to facilate the creation of the Single
European Market. According to article 8(a) of the amended Treaty:
The Community shall adopt measures with the aim of progressively
establishing the internal market over a period expiring on 31
December 1992 .... The internal market shall comprise an area without
internal frontiers in which the free movement of goods, persons,
services and capital is ensured in accordance with the provisions of this
The Single European Act, which went into effect on July 1, 1987, also
changed the administrative structure of the EEC, extending qualified
majority voting10 and strengthening the role of the Community institutions
in order to improve decision-making procedures.
"Project 1992" for the completion of the internal market, sanctioned
by the Single European Act, has been called "an adventure in
deregulation."1 1 "Financial integration," in turn, has been referred to as "the
WHITE PAPER FROM THE COMMISSION TO THE EUROPEAN COUNCIL (1985) [hereinafter WHITE
6 The initial timetable was revised later by the Commission.
7 WHITE PAPER, supra note 5, 101.
8 WHITE PAPER, supra note 5, 124-27.
9 The Single European Act, June 29, 1987, 30 O.J. EUR. COMM. (No. L 169) 1 (1987).
10 This is defined as fifty-four of seventy-six weighted votes.
11 Europe's Internal Market, After the Fireworks, ECONOMIST, July 9-15, 1988, at 5, 8
(Europe's Internal Market is a separately paginated section in this issue between pages 50 and 51).
common market's first frontier."'1 2
This article is about the "financial integration" part of Project 1992.
Following Section I, which introduces Project 1992 and its objective of
financial integration, Section II examines the pre-Project 1992 efforts of
the Community to liberalize capital movements on a selective basis.
Section III looks at the role of financial integration in Project 1992 and the
efforts to liberalize both capital movements and financial services.
Section IV focuses on the liberalization of financial services, namely
banking, investment services, and insurance services. Section V shows how
liberalization has stimulated the integration of the financial services
sector. Sections VI and VII discuss the potential effects of integration in
financial services on Member States and non-Member States,
respectively. Section VIII contains the conclusions.
PRE-PROJECT 1992 EFFORTS TO LIBERALIZE
Although initially the Treaty of Rome contained explicit references
to the free movement of capital in the Community,"3 not much progress
was made in this area until the 1980s. In addition to not providing a
timetable for the liberalization of capital movements, the Treaty
originally viewed that liberalization merely as an instrument for establishing
the common market. Whenever needed, the Commission, in response to
the Council's instructions, would issue Directives to liberalize capital
movements.' 4 In other words, the Treaty of Rome applied the principle
of free trade in goods and services (including financial services) directly
but applied the principle of free capital mobility indirectly. 15
It should also be noted that in the late 1950s, international financial
relations and markets had not yet developed. The individual Member
States, which had to mobilize their savings for their own post-World War
II reconstruction, had begun only recently to move toward currency
convertibility, an essential requirement for international financial
transactions. The Treaty of Rome also contained certain exceptions and
safeguard or protective clauses concerning the free movement of capital.
These exceptions and safeguards enabled certain Member States such as
Denmark, France, and Italy to impose, until recently, foreign exchange
restrictions on capital movements.' 6 On the other hand, certain other
Member States, such as Germany and the United Kingdom, liberalized
their financial transactions with Member as well as non-Member States
beyond the levels mandated by the Community legislation.
Despite the 1960 and 1962 Directives,' 7 little progress was made in
liberalizing capital movements among Member States. 8 The First
Directive, adopted in May 1960, was patterned after the OECD
(Organization for Economic Cooperation and Development) Code of
Liberalization of Capital Movements. 9 Aimed at implementing article
67 of the Treaty, it ranked and specified four different categories or lists
ened and refinTehde tSheecFonirdstDDirierecctitvivee,2.1adopted in December 1962,
These two Directives liberalized direct foreign investments,
commercial credits and guarantees, personal capital movements, and
transactions in securities listed on exchanges. Also in the 1960s, the
Commission tried to harmonize the financial regulations of Member
States. Toward that objective, it proposed Directives that would
gradually and selectively unify the activities of financial intermediaries and
securities exchanges in the Community.
The Commission's method of gradual and selective liberalization of
capital movements was unsuccessful. Since the Member States failed to
coordinate their macroeconomic policies among themselves, they could
not simultaneously achieve the four important objectives of free trade,
exchange rate stability, free capital mobility, and autonomous monetary
policy. Consequently, in the 1970s, when the global economy
experienced major shocks, some Member States reinstated several restrictions,
which they had previously lifted, on capital transactions.
Hence, at the beginning of 1983, only two Member States, Germany
and the United Kingdom, had freed all capital transactions from foreign
exchange restrictions. However, the United Kingdom had given up the
objective of exchange rate stability by staying out of the Exchange Rate
Mechanism of the European Monetary System. Only one Member State,
Germany, was able to achieve simultaneously all four of the important
economic objectives mentioned earlier.
The failure of the Community to realize free capital mobility among
its Member States appeared particularly conspicuous and serious in the
1970s, during which the international financial markets developed
rapidly. Instead of a Community-wide integrated capital market, an
unregulated off-shore capital market, the "Euromarket," which had emerged
in the 1960s, led to the globalization of financial markets during the last
three decades.22 Of course, the major reason for the emergence and
development of the Euromarket was the overregulation of the national
financial markets of not only the Member States, but also the United
States and Japan.2"
III. FINANCIAL LIBERALIZATION AND INTEGRATION IN PROJECT 1992
Therefore, in the early 1980s, the Community's financial
liberalization and integration became essential for two reasons. First, The
Community could no longer remain isolated from the rapid modernization
and globalization of the financial system. Second, the establishment of a
free and integrated European financial area was the essential
precondition for the realization of the Single Market in goods and services. In
this financial area, both capital and financial services would have to
circulate freely. As Servais has argued, "there can be no question of a
Europe without frontiers by 1992 in the absence of free circulation of capital
and financial services." 24
Only a fine distinction exists between "movements of capital" and
"financial services," neither of which is actually defined in the Treaty of
Rome.25 However, as previously noted, although the freedom to provide
financial services is addressed directly by the Treaty and has been
recognized by the Court of Justice of the European Communities as a basic
right, the unrestricted movement of capital is addressed only indirectly
by the Treaty and has not been recognized as a basic right.2 6
22 GlobalFinancialChange,WORLD F
IN. MKTs., Dec. 1986
, at 1 [hereinafter GlobalFinancial
23 Euromarkets, Nowfor the Lean Years, ECONOMIST, May 16-23, 1987, at 3-8 (Euromarkets is
a separately paginated section in this issue between pages 56 and 57).
24 D. SERVAIS, supra note 3, at 17.
25 D. SERVAIS, supra note 3, at 23.
26 It is true, however, that the Single European Act has elevated the liberalization of capital
Nevertheless, in terms of their economic significance, these two
concepts are closely interrelated, although there may be cases in which the
provision of financial services does not necessarily require the movement
of capital and vice versa. Moreover, the conditions required for the free
movement of capital and the freedom in financial services are clearly
complementary. It is impossible to establish a single financial market
without lifting all restrictions on the movement of the "good" that is
traded in that market, namely capital. Also, the free mobility of capital
must be secured in order to create a truly integrated financial market that
goes beyond the mere right of establishment in the provision of financial
services that do not require movement of capital. Conversely, the free
movement of capital requires that financial intermediaries and the users
of their services be allowed to spread their activities throughout the
Community and to use all available financial instruments freely.2 7
In 1983, the Commission renewed its efforts to liberalize capital
movements in the Community. Initially, it moved to prevent Member
States from imposing further restrictions under the exceptions and
safeguard clauses provided by the Treaty of Rome. Then,
in May 1986
months after the adoption of the Single European Act, it presented to the
Council a two-stage program for liberalizing capital movements.2 "
During the first stage, liberalization would focus on those capital
movements deemed essential for the effective functioning of the common
market in goods and services and the integration of the financial markets.
Toward this objective, the existing restrictions arising from the
exceptions and safeguards under the Treaty of Rome would be reduced, and
the 1960 and 1962 Directives would be more effectively implemented.
This stage has already been completed.
During the second stage, all capital transactions would be
completely liberalized. As the first step toward this stage, the Commission
prepared a new Directive that covered all shares and bonds, including
those not listed on an exchange. This Directive was adopted by the
in November 1986
and became effective at the end of February
Under this Directive, which amended and broadened the scope of
the 1960 and 1962 Directives, Member States accepted new
responsibilimovements from its ranking as a secondary goal of European integration. Article 16(4) states that:
"For this purpose the Council shall issue Directives, acting by a qualified majority. It shall
endeavour to attain the highest possible degree of liberalization. Unanimity shall be required for measures
which constitute a step back as regards the liberalization of capital movements."
27 D. SERVAIS, supra note 3, at 18.
28 European FinancialArea, supra note 18, at 9, 15-21.
29 Council Directive No. 86/566/EEC, Nov. 17, 1986, 29 O.J. EUR. COMM. (No. L 332) 22
(Amending the First Directive of May 11, 1960 for the Implementation of Article 67 of the
ties, to become effective between 1987 and 1992, in the authorization and
control of the following transactions: long-term commercial credits,
acquisition of unlisted securities (shares, bonds, and collective investment
funds), and admission (introduction, issue, and placing) of the securities
issued by a company based in one Member State to the capital market of
another Member State.
In November 1987, the Commission presented to the Council its
legislative proposals for Directives and Regulations toward the creation
of a European financial area. In this European financial area all capital
movements would become completely free, a homogeneous network of
institutions and financial services would be established, and a high degree
of stability of in exchange-rate relations would be secured.30 The
financial area has been depicted as an integral part of the Single European
Market to be completed by the end of 1992. In that sense, it is more
ambitious than the creation of a mere financial free-trade area. It is a
blueprint for financial integration.
Toward this objective and to implement article 67 of the Treaty of
Rome, the Council, in June 1988, adopted a new Directive on capital
movements.3 1 The provisions of this Directive, are aimed at initiating,
on July 1, 1990, the completion of the second and last stage of European
First, Member States will remove restrictions on capital transactions
between persons resident in the Community. Second, capital transfers
will be made at those foreign exchange rates applied to current account
transactions. In other words, multiple exchange rates will not be used.
Third, Member States will be able to restrict short-term capital
movements only when their monetary and foreign exchange policies are
affected adversely and only for a maximum period of six months.
Fourth, Member States will endeavour to provide to non-Member
States (but without any legal obligation) the same degree of liberalization
in capital transactions affected among the Member States. However, if
short-term capital movements between a Member State and a
non-Member State affect the Member State's monetary and financial situation
adversely, then that Member State, after consulting with other Member
States, can take restrictive measures.3 2
In conjunction with the Directive, the Council Regulation of June
30 COMMISSION OF THE EUROPEAN COMMUNITIES, 1988-89 ANNUAL REPORT 133-
[hereinafter 1988-89 ANNUAL REPORT].
31 Council Directive No. 88/361/EEC, June 24, 1988, 31 O.J. EUR. COMM. (No. L 178) 5
(1988) (For the Implementation of Article 67 of the Treaty).
32 Member States would also be allowed to continue to apply two types of restrictions which
the Commission does not regard as limiting capital mobility: (i) registration requirements for
compiling statistics on external capital movements, and (ii) the right of Member States to take measures
necessary to deal with the violation of their laws and regulations.
CASE W. RES. J. INTL Lo
1988 created a single medium-term credit facility to provide financial
support for Member States in balance of payments difficulties.3 3 Greece,
Ireland, Portugal, and Spain will apply this Directive with certain delays.
Belgium and Luxembourg will be able to continue their dual exchange
rate (commercial and financial franc) system until the end of 1992.
IV. LIBERALIZATION OF FINANCIAL SERVICES
The liberalization of the financial services sector, which consists of
banking, security investment services, and insurance, is one of the most
important objectives of the Single Market project. The medium-term
benefits from the liberalization of this sector, which accounts for seven
percent of the Community's gross domestic product,3 4 has been
estimated at one-third of the total benefits expected from the completion of
the internal market. Liberalization could reduce the prices of financial
services in the Community on the average by ten percent.35
Even now, the institutions based in one Member State have the right
to open an establishment in another Member State to provide financial
services under the rules of the host Member State. The goal of the Single
Market, however, is to enable the marketing of financial services from
one Member State to other Member States without the necessity of
opening establishments in the other Member States. Three principles have
been adopted in order to realize that goal: harmonization of the
individual Member States' national regulations, home country rule or control, 36
and mutual recognition of home country rule.
As it is difficult to harmonize the national laws and regulations by
the 1993 deadline for financial liberalization, the Community has
stressed the last two principles.
The First Banking Directive,
37 adopted in 1977
, contained the
FINANCLIL INTEGRP4TION OF EC
mum legal provisions in the regulation of the credit institutions in the
Community." It called for their regulation on the basis of similar ratios
to examine financial soundness.3 9 Under the Second Banking
Directive," adopted in December 1989 and whose provisions are to be
implemented by Member States by 1993, banks from one Member State will be
able to provide banking services freely in other Member States.4 1 This
will be possible after obtaining a single banking license from the home
country, under the principle of the mutual recognition of home country
Furthermore, the Second Banking Directive enables authorized
credit institutions to provide investment services in the Community.
However, although this Directive adopts the universal banking model,
which does not separate commercial and investment banking, it restricts
bank shareholdings in non-financial companies to sixty percent of bank
capital overall and fifteen percent for each holding.
Competition in the Community's cross-border banking has been
confined mainly to the wholesale market, centered in London. In the last
few years, however, the Commission has declared war against price
cartels in the Community's retail banking sector. Moreover, according to
an agreement reached in 1987, all payment instruments (such as credit
cards, debit cards, and ATM cards) are to become mutually acceptable in
the Community. But non-bank institutions in the Community and banks
from outside the Community will have to pay a commission to the
Community banks in order to utilize the pan-European payments system.
Another important development in the banking sector concerns the
capital adequacy requirements formulated by the Bank for International
Settlements ("BIS").4 3 These requirements were accepted under the
1988 Basle Agreement" for strengthening the balance sheets of major
(1977) (On the Coordination of Laws, Regulations and Administrative Provisions Relating to the
Taking-up and Pursuit of the Business of Credit Institutions).
38 The Community legislation differentiates between a "credit institution," that receives
deposits from the public and grants credit on its own account, such as a bank, and a "financial institution"
that is not a bank but whose principal activity is to grant credit or to make investments.
39 Dangeard, The FinancialDimensionof Europe:Liberalizationof FinancialServices, in 1993:
TOMoRitow's EUROPE 48-49 (1989).
40 COM(87) 715 final, Feb. 2
, 31 OJ. EUR. COMM. (No. C 84) 1 (1988) (Proposal For a
Second Council Directive on the Coordination of Laws, Regulations and Administrative Provisions
Relating to the Taking-up and Pursuit of the Business of Credit Institutions and Amending
Directive 77/780/EEC) [hereinafter Second Banking Directive].
41 Kellaway, Community Agrees Single Marketfor Banking, Fin. Times (London), Dec.
, at 1,col. 3.
42 COMMON MARKET FOR SERVICES, supra note 34, at 5.
43 BANK FOR INTERNATIONAL SETrLEMENTS, 59TH ANNUAL REPORT 90-94 (June 1989).
international banks. All Community banks, however, are required to
satisfy the BIS capital adequacy requirements by 1993.
Under the Basle Agreement, for the first time a sector is being
subjected to global regulation. The aim of this agreement is to strengthen
the capitalization of banks according to common criteria in order to
enable them to compete under equal and healthy conditions. The capital
adequacy of banks is to be determined according to a formula that takes
account of the different credit risks of balance-sheet as well as
off-balance-sheet assets. According to this formula, banks will have to increase
their capital, as defined by the Basle Agreement, to a minimum of eight
percent of their risk-weighted assets. As a result, it is expected that in
the future banks will put greater emphasis on their profitability instead of
the total amount of their loans. They will also try to increase capital
market activities, such as underwriting and trading of securities, that do
not affect their balance sheets.4 5
B. Investment Services
The main objective in the liberalization of this sector is to provide a
standardized disclosure system for all investors and to secure the
common acceptability of the documents required for issuing securities in the
The Directive that regulates the Undertakings for Collective
Investments in Transferable Securities ("UCITS")" was adopted in December
1985 and went into effect on October 1, 1989. 4"
UCITS have to abide by three conditions. First, they must be
openended. Second, they must invest in only transferable securities. They
can not invest in real estate, commodities, and money market
instruments. Third, they have to satisfy the requirements for diversification
and the restrictions on investments in unlisted securities.
This Directive extends the liberalization of capital movements to
collective investment instruments such as securities mutual funds. It
aims to unify the $500 billion market in collective investment funds.
Under this Directive, an investment fund authorized by a UCITS
certificate obtained from one Member State will be freely marketable in all
other Member States. However, the fund will have to meet all the
45 Together We Stand, supra note 12, at 6.
46 Council Directive No. 85/583/EEC, Dec. 20, 1985, 28 O.J. EUR. COMM. (No. L 372) 39
(Amending the Directive of May 11, 1960 on the Implementation of Article 67 of the Treaty)
47 COMMON MARKET FOR SERVICES, supra note 34, at 57. The Commission defines "UCITS"
as "undertakings whose sole object is the collective investment in transferable securities of capital
raised from the public and the units of which are, at the request of the holders, repurchased or
redeemed out of the undertakings' assets." Id.
As has been the case in most tax-related matters, Member States
have failed to agree on the minimum withholding tax rate to be applied
at the source to UCITS dividend distributions. As a result of the
expected Community-wide competition in UCITS, each Member State is
likely to exempt at least non-resident persons from withholding taxes on
The purpose of the draft European Investment Services Directive,
which complements the Second Banking Directive, is to establish the
adequacy of a single license, obtained by an investment services company
from one Member State to provide investment services (such as
professional investment advice, brokerage, dealing as principal, market making,
underwriting services, and portfolio management), in all other Member
States.4" This license will be issued by the home-country, but the
hostcountry will be able to regulate all the companies providing investment
services within its borders. This Directive, like the Second Banking
Directive, would apply the principle of reciprocity in the treatment of new
subsidiaries of non-Member State investment services firms in the
Another Directive, considered as a complement to the Investment
Services Directive and aimed at regulating the capital adequacy of
investment services companies, is still in the discussion stage.5" This Directive
might require that the total capital of an investment services company
should be no less than eight percent of its outstanding exposure, in
parallel to the BIS capital adequacy requirements for banks. 1 It might also
impose a minimum absolute limit for the total initial capital of an
investment services company. 2
It should be noted that the capital adequacy requirements for
investment services companies from an international perspective was discussed
at the September 1989 annual meeting of the International Organization
of Securities Commissions ("IOSCO"). However, the efforts of IOSCO
to formulate standards for investment services companies, similar to
those formulated by BIS for banks, have not been successful.5 3
After two years of negotiations, Member States agreed in November
1989 on the rules to govern insider trading. These rules, expected to
48 Lambert, InvestmentFirms atMercy of Single-PassportTalks, Fin.Times (London), Oct. 9,
1989, at 6, col. 6.
49 COMMON MARKET FOR SERVICES, supra note 34, at 62.
50 Lambert, World Leadership in FinancialServices "Within Grasp of EEC," Fin. Times
CASE W. RES. J. INTL LV
become effective in June 1992, prohibit both primary insiders5 4 and
secondary insiders"5 from trading the securities of the firm on the basis of
secret information. 6 The primary insiders, beside not being permitted to
trade on the basis of secret information, will not be allowed to disclose
secret information to others. Currently, insider trading on the basis of
secret information is illegal in the United Kingdom but legal in
Germany. Other Member States such as Ireland, Italy, and Luxembourg are
in the process of formulating their own insider-trading rules.
Another expected development in the securities area is the
emergence of a Community-wide securities exchange. The initial step in this
direction would be an association among the securities exchanges of
Member States. Such an association would permit the quotation of
security prices on national exchanges in terms of both domestic currencies
and the European Currency Unit ("ECU"). Already, the shares of close
to 300 European Community-based companies are cross-listed and
traded on several of the Member State exchanges, which are linked by
the Interbourse Data Information Systems ("IDIS").5 7 Under the
Council Directive of June 1987,58 the goal is to expand this practice. In
September 1989, the stock exchanges of the Member States agreed to
promote the creation of a single European stock market for Europe's
largest companies.5 9 There are, however, still serious obstacles, such as
the absence of a single trading system, to the emergence of a European
The association and cooperation of national securities exchanges is
observed not only in the European Community but also on the global
level. For some time, the shares of many European and Japanese
companies have been listed and traded in the form of American Depository
Receipts ("ADRs") on the New York Stock Exchange ("NYSE") and
the American Exchange ("AMEX") in the United States. In a parallel
development, the over-the-counter National Association of Securities
Dealers Automated Quotation System ("NASDAQ") of the United
States plans to initiate trading in London of the shares of several hundred
U.S. companies listed on the NYSE. 6 It appears that, following the
example of the foreign-exchange markets, the securities markets are
becoming increasingly globalized and moving closer to twenty-four hour
The first major step in the liberalization of investment services in the
Community was taken by the United K
ingdom in October 1986
"Big Bang," in reforming London Stock Exchange's membership rules
and market making practices.62 The objective of the Big Bang was to
reduce brokerage commissions through greater competition, to check the
growth of off-exchange trading, and to strengthen further the position of
London as the preeminent international financial center. The Big Bang
challenged the continent to deregulate as it increased the probability of
London becoming the center of the European financial area. However,
the opening of the Japanese off-shore market at the end of 1986 and the
continuing liberalization of the Japanese domestic financial system have
reduced the importance of London's off-shore market.63
Several other Member States besides the United Kingdom have also
taken significant steps in the liberalization of investment services.
Especially France has since 1984 made great strides in the liberalization and
modernization of its heavily state-dominated and archaic financial
system. 64 These developments are part of the global liberalization of
financial services, especially in the securities markets, that was started by the
United States in the mid-1970s. 65
Currently, under the Community Directives adopted
in 1979,67 insurers based in one Member State can do business in another
Member State through either a branch or a subsidiary, in accordance
with the host-country regulation. The Second Council (non-life)
Insurance Directive,6" which was adopted by the Council in June 1988 and
became effective in January 1990, distinguishes, from a regulatory
perspective, between "mass risk" private policy-holders and "large risk"
business policy-holders, facing commercial risk.6 9
According to this distinction, liberalization is to occur initially,
regardless of in which Member State insurers are based and under the
principle of "home country rule," in the provision of insurance to "large
risk" commercial policy-holders. It is expected that in the foreseeable
future "mass risk" insurance services such as life and retirement
insurance will continue to be regulated nationally by Member States to ensure
consumer protection.7 °
INTEGRATION OF THE FINANCIAL SERVICES SECTOR
The results of the recent legislative and regulatory changes, aimed at
liberalizing the financial services sector, in the closer ties among banks,
securities firms, and insurance companies are observed both inside and
outside the Community. Although some of these ties are in the form
either strategic alliances or mergers, most of them appear to take the
form of mutual share holdings between two separate financial
institutions. Within the network of these evolving ties, banking, investment,
and insurance services are becoming increasingly integrated.7 1 In
France, the combination of banking and insurance is referred to as
"bancassurance." In Germany, the marketing of all financial services under
one roof, as if in one super market, is called "allfinanz. 7 2
Not only in the European Community but also in the United States
and Japan banks are facing increasingly tough competition from
nonbank institutions such as securities firms, insurance companies, and large
department stores and other retail chains in the provision of both
wholesale and retail financial services.7 3 Successful competition in financial
services requires modem but expensive information systems based on
state-of-the-art computer and telecommunication networks. Due to the
(On the Coordination of Laws, Regulations and Administrative Provision Relating to the Taking up
and Pursuit of the Business of Direct Life Assurance).
68 Council Directive No. 88/357/EEC, June 22, 1988, 31 O.J. EUR. COMM. (No. L 172) 1
(1988) (On the Coordination ofLaws, Regulations and Administrative Provisions Relating to Direct
Insurance Other Than Life Assurance and Laying Down Provisions to Facilitate the Effective
Exercise of Freedom to Provide Services and Amending Directive 73/239/EEC).
69 COMMON MARKET FOR SERVICES, supra note 34, at 35. MARKETING CHALLENGE, supra
note 3, at 106-08.
70 Dangeard, supra note 39, at 58-62.
71 Lambert,Investment Firmsat Mercy ofSingle-PassportTalks, Fin. Times (London), Oct. 9,
1989, at 6, col. 1.
72 Simonian, Allfinaz Takes Root in Germany, Fin. Times (London), Jan. 11, 1990, at 32.
73 MARKETING CHALLENGE, supra note 3, at 219-21.
phenomena of "disintermediation" and "securitization," in their
domestic as well as international markets, banks have to produce and market
customized packages of financial services instead of merely buying and
selling money. 74
EFFEcTs OF FINANCIAL INTEGRATION ON MEMBER STATES
Benefits from FinancialIntegration to Member States
The expected benefits for the Member States from the financial
integration of the European Community may be summarized as follows:
First, the financial systems of the Member States will be opened to
greater competition and hence forced to adapt. In adapting, they will
have to modernize, specialize, and reach optimum scales in their
operations. As a result, they will strengthen their efficiencies and innovative
capabilities. Brokerage commissions in financial intermediation will
decrease. This will stimulate both saving and investment. Furthermore,
due to better allocation of resources, investments will become more
productive. This will, in turn, accelerate the macroeconomic growth of the
Community. As the Community integrates financially, European
financial institutions will be become larger and stronger, especially through
cross-border diversification and economies of scale. This will enable
them to compete much more effectively with the large and strong U.S.
and Japanese financial institutions in both the inside and outside of the
Second, an integrated European financial market will affect both the
private sector, i.e., the firms that make real investments and the savers
that make financial investments, and the public sector. This integration
will have three consequences. First, the share of financing costs in the
total production costs of real investors will decrease. This reduction will
be relatively insignificant for the large industrial firms that already rely
heavily on international wholesale financial markets for their financial
needs. But these large firms will shift some of their financing from
nonCommunity sources and currencies to Community sources and
The small and medium-size European industrial firms, which have
been unable to use much international financing, will derive the relatively
greater benefits from financial integration. As these firms will face much
more competition in the single internal market from the large industrial
74 International Banking, A Game of Skill as Well, ECONOMIST, Mar. 21-27, 1987, at 3, 4
(International Banking is a separately paginated section in this issue between pages 60 and 61);
International Banking; Survival of the Fittest,ECONOMIST, Mar. 26-April 1, 1988, at 5-10
(International Banking is a separately paginated section in this issue between pages 56 and 57; International
Banking,Away with the Past,ECONOMIST, Mar. 25-31, 1989, at 5 (international Banking is a
separately paginated section in this issue between pages 58 and 59).
CASE W. RES. J. INT'L L
firms, their relatively greater benefits from financial integration will
strengthen their competitiveness.
Second, the integrated financial market will create a larger variety of
financial investment vehicles and opportunities for European savers.
Hence, they will be able to achieve greater diversification in their
investments with more attractive risk/return combinations. The growth and
spread of secondary markets in financial assets will enable savers to
manage their portfolios more quickly and easily than before.
Moreover, the enhanced ability of real persons to circulate their
capital throughout the Community will help them to strengthen their
Community-wide economic and private ties. Consequently, they will have
greater desire to work, to do business, and to reside in other Member
States. This will, in turn, promote the European Community's social and
political integration along with its economic integration.
Third, in some Member States, as in several non-Member States, the
public sector has created certain legal or regulatory advantages for itself
vis a vis the private sector in attracting the economy's financial resources.
In an integrated European financial market, this preferential status of the
public sector will weaken even if it does not disappear altogether. The
real economic costs of financing government budget deficits will become
more obvious. Hence, Member-State governments will find it more
difficult to implement short-sighted and fiscally irresponsible macroeconomic
policies. Moreover, the lifting of foreign exchange restrictions on
intraCommunity transactions will prevent Member-State governments from
postponing the essential fiscal and monetary adjustments.
B. Risks of FinancialIntegrationfor Member States
Beside the several significant benefits from financial integration
summarized above, there may be certain risks for Member States. Of course,
the most serious of these risks is the possibility that instead of
strengthening the drive toward European unity, financial integration may actually
weaken it. There are several specific risks which could bring that about.
First, the benefits of financial integration could go largely to the
economically and financially more developed Member States. This could
then create tensions in the Community by increasing the gap between the
more developed and the less developed Member States.
Second, at the time the Directive liberalizing capital movements was
adopted in June 1988, Member States realized that during the four-year
period marked for its implementation they should also take "measures
intended to abolish or reduce the risks of distortion, evasion and tax
fraud related to the diversity of national systems concerning the taxation
of savings and the control of their application."7 5 Therefore, if the
effective national tax rates are not harmonized adequately, free capital
mobility in the Community could complicate the taxation efforts of Member
State governments. There could be an increase in tax evasion, especially
if some Member States refuse to abolish bank secrecy and impose a
withholding tax at the source on investment income. Tax arbitrage could
prevent the most productive allocation of capital in the Community.
This potential problem appears particularly serious in light of the
conspicuous failure of Member States to agree heretofore among themselves
on tax matters. "Tax has always promised to be the Achilles heel of the
1992 project."'76 It should be noted that unanimous voting as opposed to
qualified majority voting is required for the harmonization of direct and
indirect taxation in the Community.
Third, as a result of stiff competition among the Community's
financial intermediaries, the integrated financial market could be dominated
by a few very large institutions with excessive market power.
Furthermore, in competing aggressively with each other for greater market
share, the Community's financial institutions could erode, if not evade,
the generally accepted standards for prudent operation. This could, in
turn, create greater risks for the users of financial services in the
Fourth, the total liberalization of especially short-term capital
movements in the Community could give rise to speculative fund
transfers based on foreign exchange rate and other economic expectations. If
these expectations change too rapidly, then short-term capital
movements could put excessive pressure on exchange rates. This could, in
turn, weaken and even possibly destroy the European Monetary System.
It should be noted that such speculative short-term capital transfers
would be in addition to the existing ones that arise from the liquidity in
the Euromarkets and the funds managed by large multinational
Fifth, in an integrated financial area, Member State governments
would no longer be able to implement their own monetary and credit
policies as they wished. For example, since the residents of a Member
State would be able to borrow freely in other Member States, the credit
restrictions of that Member State on its residents would become
In some Member States, financial institutions, especially banks have
been officially obliged to maintain certain percentages of their assets in
government bonds. In an integrated financial area, a Member State
would find it impossible to enforce such an obligation among its banks.
Since such an obligation would weaken the competitiveness of that
Member State's banks in the Community, they would shift their deposit
collection and loan disbursement activities to other Member States that do
not have such an obligation. In other words, even the fiscal policies of
Member States would be constrained by the financial integration of the
Moreover, Member States would no longer be able to control
directly their national money supplies. This would be partly due to the
difficulty of measuring a Member State's money supply. As deposits
denominated in one Member State's currency unit are placed in banks
based in other Member States, deposits denominated in the currency
units of other Member States would be placed in the banks based in that
Member State. Currency substitution among Member States would
increase. The currency of one of the Member States, very likely the
German mark, could possibly displace the currencies of other Member States
if free competition among the Community currencies is allowed.
As a result, Member States would be forced to rely on indirect
policies for monetary management. These would take the form of
manipulating short-term interest rates and conducting open-market operations.
The effectiveness of even these indirect policies would be weakened
relative to their current effectiveness. In short, the monetary autonomy of
each Member State would be seriously restricted by financial integration.
This would, in turn, constrain the ability of each Member State to reach
its own macroeconomic targets.
At the same time, the disappearance of quantitative foreign
exchange restrictions would increase the importance of monetary and
foreign exchange rate policies in the outward adjustments of Member State
economies. In particular, monetary policy would have to adapt to free
capital mobility in trying to keep exchange rate parities within the
margins determined according to the European Currency Unit by the
Exchange Rate Mechanism of the European Monetary System.
C. Economic and Monetary Union
On the basis of this analysis, the financial integration of the
European Community would make close cooperation among Member States
in conducting monetary policy indispensable. The question is whether
such cooperation, in light of the difficulties posed by that cooperation,
would lead to the monetary union foreseen in the Delors Report."
According to the Delors Report, which was approved at the Madrid
summit in June 1989, the first stage of the Economic and Monetary
Union would begin in July 1990. During this first stage, the currencies of
77 COMMITTEE FOR THE STUDY OF ECONOMIC AND MONETARY UNION, REPORT ON
EcoNOMIC AND MONETARY UNION (1989) [hereinafter Delors Report].
the United Kingdom, Greece, and Portugal, namely, the sterling, the
drachma, and the escudo, would enter the European Exchange Rate
Mechanism of the European Monetary System. Hence, the currencies of
all twelve Member States would then be fixed with each other within
uniform margins.7 8
During this stage, the Single Market would be completed and all
capital movements would be liberalized. At the same time, according to
the Delors Report, Member States would have to harmonize their fiscal
policies in order to prevent any Member State from borrowing
excessively to finance its budget deficits. The Delors Report argues that such
fiscal harmonization would be necessary in order to preclude any
Member State from obtaining too large a share of other Member States's
savings in an integrated European financial market.7 9 It could be argued,
however, that this extensively debated provision of the Delors Report for
fiscal harmonization is not a necessary condition for closer monetary
In the second stage of the Delors Report, which would require yet
another revision of the Treaty of Rome, a European System of Central
Banks, similar to the U.S. Federal Reserve System, would be established.
The third and final stage of the Delors Report foresees the
elimination of the margins in the European Exchange Rate Mechanism so that
all twelve currencies would become permanently and completely fixed
with respect to each other. Then the transition to a single European
currency, whether it is the European Currency Unit or some other currency,
would be presumably a mere formality8. 0
The Thatcher government in the United Kingdom, which accepted
in June 1989 the first stage of the Delors Report reluctantly and subject
to certain reservations, is openly and categorically opposed to the second
and third stages, which contain the fundamental objectives of economic
and monetary unification. The current U.K. government, which has
refused to bring the sterling into the Exchange Rate Mechanism of the
EMS, is unwilling to surrender its monetary autonomy to a
supranational central bank in the Community. Germany, too, is at least
skeptical about, if not opposed to a European System of Central Banks, fearing
that it might suffer from an inflationary bias. Germany is also reluctant
78 Currently, the Italian lira and the Spanish peseta have wider margins than the other seven
currencies in the Exchange Rate Mechanism.
79 Delors Report, supra note 77, at 4-39.
80 One skeptical view about this prospect has been expressed by Friedman:
The hope that a system of national central banks linked by pegged and managed exchange
rates can prove a way-station to a truly unified currency seems to me an utter mirage. It
will be no easier to abolish the central banks when such a system is in operation than before
it starts. Similarly, the prospect of a consortium of central banks operating as a unit,
mimicking a single central bank, strikes me as equally far-fetched.
to accept fiscal harmonization. In short, economic and monetary
unification of the European Community, as mapped out by the Commission in
the Delors Report, is already facing serious obstacles from its two
powerful Member States. Although in their December 1989 Strasbourg
summit, the Member States did agree to open in December 1990 an
intergovernmental conference on the EMU, it is far from certain that
such a conference will succeed.
EFFECTS OF FINANCIAL INTEGRATION
ON NON-MEMBER STATES
As in the liberalization of capital movements, the European
Community has promised to be as open as possible toward non-Member
States in financial services. The Community's policies in financial
services toward a non-Member State will depend, however, on how closely
the non-Member State's financial system resembles that of the
Community and how open the non-Member State's financial system is to the
Member States. In other words, the Community's policies toward
nonMember States will be based on the reciprocity principle. Non-Member
States will have to negotiate the degree of their access to European
financial services with the Community.
Neither the First nor the Second Banking Directive, grants
automatically the branches- whether old or new - of non-Member State banks in
the Community the same rights of establishment and operation granted
to Member State banks. In fact, the branches would remain under the
jurisdiction of the individual Member States in which they operate.
Under the Second Banking Directive, the rights of the new
subsidiaries of non-Member State banks in the Community, will be determined
by negotiations based on reciprocity.8 1 The old subsidiaries, however,
will be grandfathered under the Second Directive to possess the same
rights of establishment and operation granted to Member State banks. 2
The Community's differential treatment of non-Member State bank
branches and subsidiaries, favoring the latter, could be argued to work
against non-EEC banks. Establishing subsidiaries could increase
substantially the borrowing costs of non-EEC banks since, although
branches can utilize fully the resources of their parents, subsidiaries, as
separate legal entities, must hold their own capital.83
81 Second Banking Directive, supra note 40.
82 Id. Because of this grandfather clause, the Japanese banks in particular, have been rapidly
increasing the number of their subsidiaries in the Community. The subsidiaries ofU.S. banks, on the
other hand, have already been active in the Community on a large scale for several decades.
83 FinancialMarkets, supra note 3, at 7. Europe's Capital Markets, A Single Europe,
ECONOMIST, Dee 16-2
, at 29-30 (Europe's Capital Markets is a separately paginated section in this
issue between pages 52 and 53).
The question as to how the Community would apply the
"reciprocity principle" in financial services led to a tense debate with several
nonMember States, especially the United States, during 1989.84 This debate
started in July 1988, when the EEC Commissioner for External
Relations stated publicly that the Single Market would "give us the
negotiating leverage to obtain... overall reciprocity" and that the EEC would
also seek sectoral reciprocity in those sectors not covered by the General
Agreement on Tariffs and Trade ("GATT"), especially the services
sector, with non-Member States.8" This debate opened a Pandora's box,
contributing heavily to the perception, among non-Member States, of
Project 1992 as the creation of an increasingly protectionist "Fortress
Europe." The United States, since it limits interstate banking and
restricts equity holdings of banks in non-financial firms, argued that its
banks would be disadvantaged in the Community by the strict
application of reciprocity.
Following this debate, the Community seemed to drop its insistence
on "mirror image" reciprocity, meaning "equal access on equal terms" in
favor the looser principle of "national treatment." This principle
requires that the host-country government's treatment of the
foreignowned subsidiaries should be no less favorable than its treatment of the
national firms. The application of the "national treatment" principle
does not require identical regulations in the financial services sectors of
the Member and non-Member States. In the U.S.-Canada Free Trade
Agreement, this principle governs financial services.8 6
It should also be noted that the treatment of non-Member State
financial institutions in the Community will be affected by the outcome of
the GATT Uruguay Round multilateral trade negotiations. In these
negotiations, in which the liberalization of world trade in services is being
discussed for the first time since the founding of GATT in 1946, the
European Community is represented as a bloc. In terms of its total volume
of services exports, the Community would have the most to gain from
GATT liberalization, although the United States is still the single largest
exporter of services.8 7 Whether the Uruguay Round will result in the
formation of a General Agreement on Trade in Services ("GATS")
remains to be seen."'
It should be noted that if GATT's most-favored-nation ("MFN")
principle that has been aimed at ensuring non-discrimination in
merchandise trade prevails in the global liberalization of financial services,
too, then the application of the reciprocity principle in the treatment of
foreign-based banks would be precluded. The Community's services
negotiator in GATT's Uruguay Round has recently expressed strong
reservations, however, about the strict application of the MEN principle to
trade in financial services.8 9 Hence, it was not surprising that the U.S.
Government still saw "dangers in the EEC concept of reciprocity" in
Finally, it is important to remember that in parallel with the
financial liberalization of the European Community, both the United States
and Japan have been liberalizing their financial systems, especially as
they move closer to universal banking. It should be noted, however, that
especially the U.S. banks are still facing, in their home market,
restrictions on their interstate banking and investment services business under
the McFadden Act9" and Glass-Steagall Act,92 respectively. Many of
their European counterparts do not face similar restrictions in their own
Both the globalization of financial markets and the growth of
intraEuropean trade have made capital controls undesirable as well as
ineffectual. This has, in turn, led to financial liberalization and integration as
part of Project 1992 to create the Single European Market. Capital
controls have been largely eliminated. Liberalization of trade and
investment in financial services is being realized faster than expected.
Financial liberalization and integration seems to be the fastest
progressing part of Project 1992. Its impressive momentum is derived not
only from the dynamics of intra-Community developments but also from
the globalization of finance. It is also the part that is likely to yield the
most impressive returns to the Community. In fact, arguably, it is
indispensable for the success of the rest of Project 1992 to create the Single
The European Community's financial integration, if successful,
91 12 U.S.C.S. § 36 (Law. Co-op 1989).
92 12 U.S.C.S. §§ 347a-347b (Law. Co-op 1989).
could result in the largest, the most open and the most liquid financial
market in the world, surpassing those of the United States and Japan. It
could attract large sums of capital as well as large numbers of financial
services providers and users from the rest of the world. This could, in
turn, stimulate further financial liberalization and integration in the rest
of the world, especially in the United States and Japan.
Despite the acrimonious debate surrounding "reciprocity" in
banking, non-Member States, especially the United States and Japan might
have less reason to fear the emergence of "Fortress Europe" in financial
services than in merchandise trade. A European financial area promises
attractive opportunities to financial services providers and users from
outside the Community.
However, the success of European financial liberalization and
integration is not certain. Even without the possible further enlargement of
the Community, the unconditional freedom of capital mobility could
destroy the European Monetary System. Moreover, the continued failure
to harmonize taxes, causing tax arbitrage and evasion, could reverse the
trend of rapid financial liberalization and integration. The creation of a
single European market with maximum liquidity and minimum risk
would also require the emergence of a common currency. As the Delors
plan for the Economic and Monetary Union remains highly controversial
in both its aims and methods, a common European currency lies very far
in the horizon.
* Professor of Economics, Case Western Reserve University, Cleveland, Ohio; M.A. , Accountancy , Case Western Reserve University, 1989 ; Ph. D. , Economics , Harvard University, 1972 ; M.A. , Economics , Harvard University, 1969 ; B.A. , Economics , Brandeis University, 1967 .
1 Treaty Establishing the European Economic Community , Mar. 25 , 1957 , 298 U.N.T.S. 11 [hereinafter Treaty of Rome].
2 Mougenot, European Integration,in 1993 : TOMoRROW'S EuROPE 15- 17 ( 1989 ).
3 QUELCH, BUZZELL & SALAMA, THE MARKETING CHALLENGE OF 1992 3- 25 , ( 1990 ) [hereinafter MARKETING CHALLENGE]; D. SERVAis , THE SINGLE FINANCIAL MARKET 13 ( 1988 ) (published by the Commission of the European Communities ); FinancialMarkets in Europe: Toward 1992 , WORLD FIN. MKTs., Sept. 9 , 1988 , at 1 (published by Morgan Guaranty Trust Company) [hereinafter FinancialMarkets].
In 1973, Denmark, the United Kingdom and Ireland joined the EEC . Greece joined in 1981 . By 1986, Portugal and Spain had also joined the original six member states .
4 The Commission of the European Communities is the body responsible for Community administration . It consists of fourteen Commissioners appointed by the Member States .
5 COMMISSION OF THE EUROPEAN COMMUNITIES, COMPLETING THE INTERNAL MARKET:
12 Europe's Capital Markets , Together We Stand, ECONOMIST , Dec. 16 - 22 , 1989 , at 5 (Europe's Capital Markets is a separately paginated section in this issue between pages 52 and 53) [hereinafter Together We Stand] .
13 These explicit references are contained in articles 3(c), 8(a ), 61 , and 67- 73 .
14 Buchan, The Good, The Bad, The Indifferent; 1992 , The European Market, Fin. Times (London), Sept. 25 , 1989 , at 20. Directives are Community laws, proposed by the Commission, aimed at harmonizing the national laws of Member States. Directives, which are adopted by the Council, are binding on Member States as to the result to be achieved. Hence, Member States can choose their own methods of implementation in incorporating the provisions of the Directives into their individual national laws. Thus far, the record of the Member States in complying with the Project 1992 Directives by enacting the necessary implementing legislation has been mixed .
15 D. SERVAIS , supra note 3, at 23; Gonne & Faes, The FinancialDimension ofEurope:Liberalization of CapitalMovements , in 1993 : TOMORROW'S EUROPE 41 ( 1989 ).
16 During 1983 - 87 , these three countries complied with the obligations under the 1960 and 1962 Directives to liberalize their foreign exchange regimes .
17 Council Directive No. 921 /60, May 11, 1960 , 43 O.J. EUR. COMM. ( 1960 ) 921 (First Directive for the Implementation of Article 67 of the Treaty); Council Directive No . 62 /63, Dec. 18 , 1962 , 9 O.J. EUR. COMM. ( 1963 ) 62 (Adding to and Amending the First Directive for the Implementation of Article 67 of the Treaty) .
18 Creation of a EuropeanFinancialArea , 36 EUR. ECON . 7 ( 1988 ) [hereinafter European FinancialArea] .
19 Jonne & Faes, The FinancialDimension ofEurope: Liberalizationof CapitalMovements , in 1993 : TOMORROW'S EUROPE 41 ( 1989 ).
20 D. SERVAIS , supra note 3, at 29- 30 . The First Directive will expire in July 1990, when the June 1988 Directive liberalizing completely all capital movements goes into effect .
21 A draft of the Third Directive, aimed against discrimination among Member States in the issuance and placement of securities, was proposed by the Commission to the Council in 1964. Another draft was proposed in 1977. Neither was adopted after prolonged negotiations .
33 Regulations are Community laws that are directly binding on Member States, without any further action by them. Regulations, which can be adopted by either the Council or the Commission, can not be amended or repealed by Member States .
34 ERNST & WHINNEY, A COMMON MARKET FOR SERVICES 2 ( 1989 ) [hereinafter COMMON MARKET FOR SERVICES] .
35 The Economics of 1992 , 35 EUR. ECON. 90 ( 1988 ) [hereinafter Economics of 1992 ].
36 According to the Commission's 1985 White Paper: This means attributing the primary task of supervising the financial institution to the competent authorities of its Member State of origin, to which would have to be communicated all information necessary for supervision. The authorities of the Member State which is the destination of service, whilst not deprived of all power, would have a complementary role . WHrrE PAPER supra note 5 , $ 103 .
37 Council Directive No. 77 /780/EEC, Dec. 12 , 1977 , 20 O.J. EUR. COMM. (No. L 322) 30 (London), Oct. 17 , 1989 , at 2, col. 6.
51 Waters,ECAmends ProposalsForCapitalAdequacy,Fin. Times (London), Nov. 16 , 1989 , at
52 Fin. Times (London), Jan. 12 , 1990 , at 19.
53 Waters, GermanAction Threatens CapitalAdequacyAccord, Fin. Times (London), Sept. 21 , 1989 , at 28.
54 Primary insiders are defined as those persons who acquire inside information in the course of their employment, profession, or duties .
55 Secondary insiders are defined as those persons who acquire inside information from a primary insider .
56 COMMON MARKET FOR SERVICES , supra note 34 , at 55. The Commission defines inside information "as information inaccessible or not available to the public, of a specific nature and relating to one or more issuers of transferable securities or to one or more transferable securities which, if published, would be likely to have a material effect on prices." Id.
57 Dangeard, supra note 39, at 54-55.
58 Council Directive No. 87 /345/EEC, June 22, 1987 , 30 O.J. EUR. COMM. (No. L 185) 81 ( 1987 ) (Amending Directive 80/390/EEC Coordinating the Requirements for the Drawing-up, Scrutiny and Distribution of the Listing Particulars to be Published for the Admission of Securities to Official Stock Exchange Listing) .
59 Waters, EC Nations in Accord on Single Stock Exchange, Fin . Times (London), Sept. 16 , 1989 , at 4, col. 4.
60 Europe's Capital Markets , One Market or Many? , ECONOMIST, Dec. 16 - 22 , 1989 , at 24- 29 ( Europe's Capital Markets is a separately paginated section in this issue between pages 52 and 53 ).
61 Bush, Nasdaq Shows the Way to Go, Fin . Times (London), Sept. 18 , 1989 , at 20, col. 1.
62 The City of London, What Went Wrong? ECONOMIST, June25-July 1 , 1988 , at 4-5 (The City of London is a separately paginated section in this issue between pages 54 and 55 ).
63 Japanese Finance , The End of an Era , ECONOMIST , Dec. 10 - 16 , 1988 , at 3 , 4 (Japanese Finance is a separately paginated section in this issue between pages 58 and 59 ).
64 Europe's Capital Markets , FastOffthe Blocks, ECONOMIST , Dec. 16 - 22 , 1989 , at 15- 19 ( Europe's Capital Markets is a separately paginated section in this issue between pages 52 and 53 ).
65 Collyns & Horiguchi, FinancialSupermarketsin the UnitedStates ,FIN. & DEy., Mar . 1984 , at 18. America's Capital Markets , Sinister Coincidence, ECONOMIST June 11-17 , 1988 , at 5-6 (America's Capital Markets is a separately paginated section in this issue between pages 54 and 55 ).
66 Council Directive No. 73 /239/EEC, July 24 , 1973 , 16 O.J. EUR. COMM. (No. L 228) 3 (1973) (On the Coordination of Laws, Regulations and Administrative Provisions Relating to the Taking-up and Pursuit of the Business of Direct Insurance Other Than Life Assurance) .
67 Council Directive No. 79 /267/EEC, Mar. 5 , 1979 , 22 O.J. EUR. COMM. (No. L 63) 1 ( 1979 )
84 Europe's Internal Market , Reciglossary, ECONOMIST , July 8- 14 , 1989 , at 35 ( Europe's Internal Market is a separately paginated section in this issue between pages 48 and 49 ). This reference lists seven different meanings of the highly controversial "reciprocity principle" in international transactions . Id.
85 Fieleke, Europe in 1992 , NEw ENG . ECON. REv., May/June 1989, at 13 , 20 .
86 The national treatment principle has been endorsed by all twenty-four members of the Organization for Economic Cooperation and Development, which includes all the EEC Member States .
87 Dullforce, World Markets Setfor ContinuedRapidExpansion; The GAlTAnnual Reivew of InternationalTrade, Fin . Times (London), Sept. 15 , 1989 , at 10.
88 Duiforce, Talks on Trade in Services Leave Many Loose Ends, Fin. Times (London), Dec. 19 , 1989 , at 5, col. 1.
89 Dullforce, Brussels Stands Firm on BankingAccess, Fin. Times (London), Sept. 21 , 1989 , at 6, col. 1.
90 Peters, Fearsof 'FortressEurope' Resurface in U.S., Fin . Times (London), Oct. 18 , 1989 , at 7.