The free movement of capital is a fundamental principle of the European Union (EU) that allows for the unrestricted movement of money, investments, and financial assets within the EU member states. It aims to create an integrated and efficient single market for capital, promote economic growth, and facilitate cross-border investments.
Legal framework: The free movement of capital is enshrined in the Treaty on the Functioning of the European Union (TFEU), specifically in Articles 63 to 66. These provisions prohibit restrictions on the movement of capital between EU member states and between member states and third countries.
Scope: The principle of the free movement of capital applies to various types of capital movements, including investments in businesses, acquisitions of shares and securities, real estate transactions, bank transfers, and cross-border loans. It covers both direct investments (such as establishing a subsidiary in another member state) and portfolio investments (such as buying stocks or bonds).
Capital controls: While the free movement of capital generally prohibits restrictions, there are limited exceptions. Member states may impose capital controls in exceptional circumstances, such as during times of financial crisis, to safeguard the stability of their financial systems. However, such measures must be temporary, proportionate, and non-discriminatory.
Restrictions and exceptions: Certain restrictions on the free movement of capital may still exist, particularly for non-EU countries. Member states can impose controls on capital movements to and from non-EU countries to protect their essential security interests, public order, or public health. However, these restrictions must be justified and comply with EU law.
Capital market integration: The free movement of capital aims to foster an integrated and efficient capital market within the EU. It encourages the development of cross-border investment opportunities, facilitates access to financing for businesses, and enhances competition in financial services. It also promotes the harmonisation of rules and regulations in areas such as banking, securities, and investment services.
Investor protection: The principle of the free movement of capital is closely linked to the protection of investors' rights. EU law provides safeguards to protect investors from unfair treatment, discriminatory practices, and obstacles to cross-border investments. It ensures that investors have access to transparent information, fair dispute resolution mechanisms, and adequate safeguards against fraudulent activities.
Relationship with other freedoms: The free movement of capital intersects with other fundamental freedoms within the EU, such as the free movement of goods, services, and persons. These freedoms are interrelated and mutually reinforce each other, creating an integrated and cohesive internal market.
The free movement of capital plays a crucial role in promoting economic integration, investment opportunities, and financial stability within the EU. It allows individuals, businesses, and financial institutions to operate and invest across national borders, contributing to the development of a single market and the overall economic prosperity of the EU.
You can learn more about this topic and relevant case law with our EU Law notes.
