Tag Archives: Liberalisation

A concerted effort to establish a European financial area

A concerted effort to establish a European financial area

Outline of the Community (European Union) legislation about A concerted effort to establish a European financial area

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Single market for capital

A concerted effort to establish a European financial area

Document or Iniciative

Communication from the Commission to the Council of 23 May 1986 on the programme for the liberalisation of capital movements in the Community [COM(1986) 292 final – not published in the Official Journal].

Summary

The purpose of this Communication is to present the major phases in the Commission’s proposed approach, so as to arrive at as liberal as possible a Community system of capital movements. It looks at the implications for the effective integration of financial markets and for the coordination of Member States’ monetary and financial policies since in 1986 the euro did not yet exist.

Liberalisation of capital movements

In the Commission’s view, there are three categories of operation concerned by the progressive liberalisation of capital movements:

  • capital operations: operations such as commercial credits or direct investments are linked to the exercise of the other fundamental freedoms of the common market (free movement of goods and services, free movement of persons and freedom of establishment);
  • operations in financial market securities: the liberalisation of financial securities such as bonds or shares requires a single financial market at European level;
  • operations involving financial credits: the liberalisation of operations involving financial credits and operations relating to money market instruments is necessary for the establishment of a unified financial system.

The Commission notes that, as each threshold is crossed, growing constraints are imposed on the Member States, whose situation changes in terms of their policy choices. The room for manoeuvre which Member States have in settling potential conflicts between the internal and external objectives of their monetary policy actually depends on a number of factors, such as the level of development of their domestic financial system, the structural characteristics of their balance of payments, the importance of the national currency as a reserve or exchange instrument, etc.

Main phases in the liberalisation process

The Commission proposes two main phases for achieving the liberalisation of capital movements:

  • liberalisation of capital operations;
  • total freedom of capital movements.

The liberalisation of capital operations, which is needed for the common market to function smoothly, involves both ending exceptional arrangements and extending Community obligations as regards liberalization. Ending exceptional arrangements includes, for example, the safeguard clauses that certain Member States (France, Ireland, Italy and Greece) have secured with a view to maintaining certain restrictions on capital movements. The Commission wants to extend the Union’s competences concerning the free movement of capital and highlights the need for the total freedom of capital movements. This should apply to operations that are still excluded under Community law, such as financial loans, money market operations, deposits and balances on current accounts, etc. so that competition can function normally.

The Commission poses the question whether all the Member States are capable of moving towards this objective at the same speed. Any differentiation to be made between the Member States in the liberalization process should not be introduced below a uniform level of Community obligations. However, through its instruments for supporting balances of payments, the Community must be able to offer Member States which are faced with special constraints the means of overcoming them. In the long term, the Commission is working on a system of unconditional liberalisation under which recourse to safeguard clauses such as those provided for in the Treaty (Articles 108, 109 and 73) will still be possible. It considers that it is important for liberalisation to be paralleled by provisions designed to ensure the cohesion and identity of the financial area, e.g. regarding the conduct of monetary policy:

  • cohesion of the European financial area: A Community-wide integrated financial system is instrumental in commercial integration and in the convergence of economic and monetary policies. The parallel progress made by these two forms of integration requires cohesion between policies and Community provisions, such as protection for users of financial services.
  • conduct of monetary policies: The full convertibility of the European currencies, while respecting the exchange criteria of the European Monetary System (EMS), will create new conditions for the management of the financial system. Similarly, the reinforcement of internal coordination will raise questions with regard to the Community’s external monetary relations.

Lastly, the Commission sets out a timetable for the forthcoming initiatives which it plans to take, including presenting legislative proposals on the European financial area and initiating a forward study on the implications of financial integration for monetary cooperation and the liberalisation of financial services, etc.

Achieving the free circulation of capital

Achieving the free circulation of capital

Outline of the Community (European Union) legislation about Achieving the free circulation of capital

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Single market for capital

Achieving the free circulation of capital

Document or Iniciative

Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty.

Summary

The directive enshrines the principle of full liberalisation of capital movements between Member States with effect from 1 July 1990. Up until 31 December 1992, transitional arrangements were offered for Spain, Greece, Ireland and Portugal. Portugal and Greece were given the possibility of an extension which was granted for a maximum of three years.

The Commission seeks to abolish the general arrangements for restrictions on movements of capital between persons resident in Member States. “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.

The directive does nonetheless make provision for a “safeguard clause”. Capital movements can impose a very severe strain on foreign-exchange markets, which leads to serious disturbances in the conduct of a Member State’s monetary and exchange rate policies. In this case, the Commission, after consulting the Monetary Committee and the Committee of Governors of the Central Banks, may authorise that Member State to take protective measures. The protective measures relate to the capital movements listed in Annex II of the directive, and shall not exceed six months.

With effect as of 1 July 1990, the Directive repeals:

  • the first Directive for the implementation of Article 67 of the Treaty
  • Council Directive 72/156/EEC of 21 March 1972 on regulating international capital flows and neutralising their undesirable effects on domestic liquidity.

References

Act Entry into force Deadline for transposition in the Member States Official Journal
Directive 88/361/EEC 07.07.1988 01.07.1990 OJ L 178 of 08.07.1988

Prospects for the internal gas and electricity market

Prospects for the internal gas and electricity market

Outline of the Community (European Union) legislation about Prospects for the internal gas and electricity market

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Energy > Internal energy market

Prospects for the internal gas and electricity market

New measures must be added to the existing rules of the internal gas and electricity market in order to guarantee its integral operation. An inventory of the market in fact reveals that there is still malfunctioning and that the current rules do not allow it to be corrected effectively.

Document or Iniciative

Communication from the Commission to the Council and the European Parliament of 10 January 2007 entitled “Prospects for the internal gas and electricity market” [COM(2006) 841 final – Not published in the Official Journal].

Summary

The aim of the European Union (EU) is to set up a truly competitive internal market for gas and electricity to offer consumers a real freedom of choice at fair, competitive prices, to stimulate clean energy production and to improve security of supply.

Although the internal energy market is well established, malfunctioning (identified by the sector inquiry into the gas and electricity markets) persists, preventing both consumers and the economy from getting the full benefit of the advantages of opening up the national gas and electricity markets.

As current rules do not allow effective correction of this malfunctioning, new measures must be taken as the final step in achieving integrated operation of the internal energy market in Europe.

Advantages of creating the internal energy market

The opening of national markets in gas and electricity to competition visibly gives consumers the freedom to choose their energy supplier and, therefore, the opportunity to make savings. It also improves the security of supply by encouraging, on the one hand, investment in facilities, so that interruptions to supply can be prevented, and, on the other hand, diversification of transport routes and energy sources. The existence of a truly competitive energy market also contributes to sustainable development, notably by enabling suppliers of electricity from renewable energy sources to enter the market.

Continued malfunctioning

In practice, the EU is still a long way from achieving its objective of a real internal market in which each consumer has the legal right to choose his supplier and exercise this right simply and effectively armed with the facts, and the current rules do not effectively prevent market malfunctioning.

The legal and functional unbundling of system operators vertically connected to suppliers and producers has proven insufficient to guarantee equal access to the networks. The traditional operators thus maintain their dominant position and new companies wishing to enter the market encounter many problems caused by discriminatory access conditions, lack of available network capacity, a lack of transparent data on the network situation and poor investment.

National regulators do not have the powers or independence necessary for succeeding in their mission. Their powers vary considerably from one Member State to the next, hindering cross-border trade and access to consumers in other Member States.

New set of rules for completion of the internal energy market

  • Provision of non-discriminatory access to the networks through unbundling

Current legal and functional unbundling has proven insufficient in removing the conflict of interests arising from vertical integration. Clearer separation between operation of transmission systems and production or supply activities must be introduced to ensure that operators maintain, operate and develop the networks in the general interest of the network users.

The separation may be based either on complete ownership unbundling, due to transmission system operators being both operators and owners of the system, or on introduction of an independent transmission system operator for maintenance, development and operation of the systems, which remain the property of the vertically integrated companies.

Complete ownership unbundling appears to be the most economically effective way to ensure development of a real internal energy market. Not only does it eliminate the different interests of system operators but also avoids the need for excessively detailed and complex regulations ensuring independence of vertically integrated system operators.

  • Strengthening of the role of regulators at national and Community level

The regulatory framework and therefore the powers of the regulators must be strengthened to ensure the conditions of transparency, stability and non-discrimination necessary for development of competition and for investment.

Better coordination of national regulators at European level is, in addition, needed to mitigate the market segmentation resulting from the regulatory differences between Member States. In this sense, it is possible either to improve the present approach, with the disadvantage of continuing to rely on voluntary agreements between 27 national regulators often with different interests, or to formalise the role of the European Regulators Group for Electricity and Gas (ERGEG) into a European Network of Independent Regulators (ERGEG +), or lastly to set up a new single body at Community level.

  • Cooperation of transmission system operators (TSOs)

To enable free circulation of gas and electricity within the EU, it is essential to establish compatible technical rules and regular exchange of information, increase investment in the network and, in particular, in cross-border interconnections, and move towards regional system operators.

  • Reduction in possibilities for unfair competition

Due to the monopolies held by the traditional operators before liberalisation, the lack of integration and their natural characteristics, in particular low elasticity of demand, the gas and electricity markets are particularly exposed to the risk of dominant positions.

Greater transparency, recourse to the ‘use-it-or-lose-it’ principle, genuine access to gas storage facilities and maintenance of incentives in favour of new storage capacities would facilitate the transition to a more competitive gas and electricity market.

  • Encouragement of investment in electricity power plants and gas infrastructures

Creating a stable environment for investment is a priority. Other factors may also influence investment, such as the award of emission certificates or specific incentive measures, for example for production of electricity from renewable energy sources.

  • Consumer protection

Consumer protection and public service obligations must be an integral part of the process of opening up the gas and electricity markets. An energy consumers’ charter must therefore protect their essential rights: the right to relevant information on the different suppliers and supply possibilities, the right to a straightforward procedure for changing supplier, protection against energy poverty for the most vulnerable consumers, protection against unfair commercial practices, etc.

Background

The internal energy market has been put in place gradually, starting with Directive 96/92/EC laying down rules for the internal market in electricity and Directive 98/30/EC laying down rules for the internal market in natural gas, which were replaced respectively by Directives 2003/54/EC and 2003/55/EC.

The Commission draws conclusions from the review of the internal gas and electricity market drawn up by its sector inquiry, and announces that a third legislative package will be added to the current rules.

Related Acts

Report from the Commission to the Council and the European Parliament – Progress in creating the internal gas and electricity market [COM(2008) 192 final – Not published in the Official Journal].

The report presents the progress made on the internal gas and electricity market since the opening of national markets to competition on the 1st July 2007. Among the main advances it highlights regional initiatives which have stimulated cross-border cooperation.

Three years after the deadline of July 2004 for implementation passed, it nevertheless appears that the requirements of the directives on electricity and gas have not been appropriately implemented in certain Member States.
A notable finding of this report is that regulatory oversight, unbundling and regulated supply tarifs, as well as the communication of Public Service Obligations, are not satisfactory.

Communication from the Commission to the European Council and the European Parliament of 10 January 2007 entitled “An energy policy for Europe” [COM(2007) 1 final – Not published in the Official Journal].

Communication from the Commission of 10 January 2003 entitled “Inquiry pursuant to Article 17 of Regulation (EC) No 1/2003 into the European gas and electricity sectors (Final Report)” [COM(2006) 851 final – Not published in the Official Journal]

Directive 2003/55/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in natural gas and repealing Directive 98/30/EC [Official Journal L 176, 15.7.2003].

Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC [Official Journal L 176, 15.7.2003].