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Capital Markets and the Unification of Europe

Published online by Cambridge University Press:  18 July 2011

Hans O. Schmitt
Hans O. Schmitt
Affiliation:
University of Wisconsin
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Extract

The expectation that a customs union in Europe will ultimately lead to political unification is based on the so-called spillover effect. This effect operates whenever any step toward integration creates new needs and fresh demands to proceed further in the same direction. Thus a customs union may create pressures to integrate not only commodity markets but capital markets as well. An integration of capital markets in turn may necessitate currency unification for its effective functioning, and a unified currency finally may imply a pooling of sovereignties sufficiently complete to destroy the separate identities of the participating nation-states. The process could also work in the opposite direction: from an insistence on the integrity of the nation-state to an ultimate rejection of the customs union itself.

Type
Research Article
Information
World Politics , Volume 20 , Issue 2 , January 1968 , pp. 228 - 244
Copyright
Copyright © Trustees of Princeton University 1968

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References

1 See Haas, Ernst B., “International Integration: The European and the Universal Process,” International Organization, xv (Summer 1961), 366–92CrossRefGoogle Scholar; and Lindberg, Leon N., The Political Dynamics of European Economic Integration (Stanford 1963), 10–13Google Scholar.

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9 The transitional period is expected to take twelve years, from 1958 to 1970, divided into three stages of four years each (Ibid., Article 8[1]).

10 Ibid., Article 67(1).

11 Ibid., Article 71.

12 Ibid., Article 68(1).

13 Ibid., Article 52.

14 Ibid., Article 107(2).

15 Ibid., Article 107(1).

16 Ibid., Article 105(2).

17 “The power of decision in monetary matters is one of the traditional attributes of sovereignty” (Robert Marjolin, “Monetary and Financial Cooperation in the E.E.C.,” Bulletin of the European Economic Community [November 1963], 8).

18 See Mundell, Robert A., “A Theory of Optimum Currency Areas,” American Economic Review, L (September 1961), 657–65Google Scholar.

19 This is denied in Commission Européenne, Le Développement d'un marché européen des capitaux (Brussels 1966), 17Google Scholar.

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27 See also Jean O. M. van der Mensbrugghe, “Foreign Issues in Europe,” International Monetary Fund Staff Papers (July 1964), 329.

28 Communauté Économique Européenne, Proposition de troisième directive pour la mise en aeuvre de l'article 67 du traité (Brussels, April 9, 1964)Google Scholar, mimeographed; and Weil, Roberta M., “International Capital Movements,” The Banker, cxvi (October 1966), 671Google Scholar.

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30 American and British investors on the European continent tended to favor Germany as the “industrial heartland” of the Common Market. See Val Schur, “Investment in the Continent of Western Europe: Some Long-Term Considerations,” Moorgate and Wall Street (Spring 1964) 56.

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32 See Einzig, Paul, The Euro-Dollar System (New York 1964)Google Scholar; and Bank for International Settlements, Thirty-fourth Annual Report (Basel 1964), 128–42Google Scholar.

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34 See Cohen, Benjamin J., “The Euro-Dollar, the Common Market, and Currency Unification,” Journal of Finance, xviii (December 1963), 605–21Google Scholar; and Claudio Segre, “Financial Markets in the E.E.C.: Prospects for Integration,” Moorgate and Wall Street (Autumn 1963), 38–62.

35 U.S. Congress, Joint Economic Committee, A Description and Analysis of Certain European Capital Markets, Economic Policies and Practices, Paper No. 3, 88th Cong., 2nd Sess. (Washington 1964), 32, 34Google Scholar.

36 Kindleberger, 203. See also Peter B. Kenen, “Towards an Atlantic Capital Market,” Lloyd's Bank Review, No. 69 (July 1963), 15–30.

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39 With exceptions mainly for Canadian issues, this measure taxed American purchases of foreign shares at 15 percent and of bonds from 2¾ to 15 percent. It was passed in August 1964.

40 U.S. Department of Commerce, Survey of Current Business (October 1964), 10; and The Economist (February 13, 1965), 669.

41 Common Market (March 1963), 51.

42 Kindleberger's counterargument—that in fact a European demand for liquidity was financed by American direct investment—holds only if no inflationary pressures existed in Europe, but they did. See his Balance of Payments Deficits and the International Market for Liquidity (Princeton 1965), 12Google Scholar.

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44 Ibid. (January 9, 1965), 133.

45 See Bundesbank, Deutsche, Geschäftsbericht fär das Jahr 1964 (Frankfurt 1965), 100–101Google Scholar; and The Economist (March 6, 1965), 1045.

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47 Ibid. (March 20, 1965), 1296.

48 Ibid. (March 27, 1965), 1419.

49 The data in the table are roughly comparable with those given for Germany, France, and Italy in Bank for International Settlements, Capital Markets (Basel, January 1964)Google Scholar, mimeographed.

50 Cohen, 614.

51 Units of account have been used by the Bank for International Settlements, the European Payments Union, the European Monetary Agreement, the European Economic Community, and the European Investment Bank. Th e idea of using them for private as well as public transactions was first proposed in Triffin, Robert, Europe and the Money Muddle (New Haven 1957), 291Google Scholar.

52 The precise manner in which the value of the unit changes is newly defined for each issue. Th e specification given here is the standard one of Collin, Fernand, The Formation of a European Capital Market and Other Lectures (Brussels 1963)Google Scholar.

53 The reference currencies are those of the former European Payments Union: Austria, Belgium, Denmark, France, Germany, Great Britain, Greece, Iceland, Italy, Luxembourg, Netherlands, Norway, Portugal, Sweden, Switzerland, Ireland, an d Turkey.

54 See Jean O. M. van der Mensbrugghe, “Bond Issues in European Units of Account,” International Monetary Fund Staff Papers (November 1964), 453; James C. Ingram, “Unit of Account Bonds: Their Meaning and Function,” Moorgate and Wall Street (Autumn 1964), 79; and Weil, 672.

55 See Abs, 18; and David Williams, “The Development of Capital Markets in Europe,” International Monetary Fund Staff Papers (March 1965), 59.

56 The tranches were these: Italy ($160 million), France ($25.4 million), Germany ($25 million), Netherlands ($6.9 million), Belgium ($2 million), and Luxembourg ($0.6 million), according to The Economist (June 26, 1965), 1547–48, and (July 3, 1965), 68.

57 Deutsche Bundesbank, “Foreign Loan Issues in the Federal Republic of Germany,” Monthly Report (December 1964), 3–6.

58 On the otherwise unsettling, if perhaps temporary, effects of the withholding tax, see Hermann J. Abs, “The German Capital Market: Problems and Prospects,” The Banker (October 1966), 682.

59 For the full text, see Bulletin of the European Economic Community (Supplement, July 1963), 3–4.

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61 Ibid., 67.

62 Murray Forsyth, “Towards a Common Economic Policy for the E.E.C.,” Planning (July 27, 1964), 7.

63 This thesis is argued in Bank for International Settlements, Thirty-fourth Annual Report, 7. Hourly wages in manufacturing in 1962 in dollar cents were 83 (Germany), 74 (Belgium), 62 (France), 66 (Netherlands), and 46 (Italy), as computed from Statistisches Jahrbuch für die Bundesrepublik Deutschland 1964 (Wiesbaden 1964), 129 ffGoogle Scholar.

64 Bank for International Settlements, Thirty-fourth Annual Report, 10–14; and European Economic Community, Sixth Report on the Activities of the Monetary Committee (Brussels, April 15, 1964), 15–20Google Scholar

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66 With particular urgency in the annual report of the Commission presented by Robert Marjolin to the European Parliament on January 21, 1964. See Bulletin of the European Economic Community (March 1964) for the full text.

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68 The Economist (February 6, 1965), 590. The companies involved included Montecatini and Olivetti.

69 Growth rates of real gross national product ranged in 1962 from 4.1 (Germany), 4.3 (Belgium), 6.6 (France), and 2.6 (Netherlands) to 6.3 (Italy). In 1965 they ranged from 4.4 (Germany), 3.0 (Belgium), 3.4 (France), and 5.0 (Netherlands) to 3.4 (Italy). See Bank for International Settlements, Thirty-fifth Annual Report; and European Investment Bank, Annual Report 1965 (Brussels 1966)Google Scholar.

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71 Forsyth, 220; and Bulletin of the European Economic Community (November 1964), 13.

72 European Community (April 1965), 6.

73 The sum involved might have come to $4 billion a year. See Lindberg, Leon N., “Integration as a Source of Stress on the European Community System,” International Organization, xx (Spring 1966), 248Google Scholar.