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This chapter first develops this book's understanding of the notions of ‘capital’ and ‘movement of capital’, two legal concepts that are heavily infused with economic content. Characterizing free movement of capital as an ‘object-related production factor freedom’ — hence it is the cross border movement of capital itself, not that of its holder, which is liberalized by virtue of Article 56 (1) EC — the chapter attends to the issue of how to localize capital and the related problem of construction of the cross border element in the ambit of the freedom of capital movement. Second, arriving at the ‘object of investigation’ of this study, this chapter builds up and forms a definition of the concepts of ‘direct investment’ and ‘foreign direct investment’; the latter referring to such ‘direct investment’ originating from or directed towards non EC countries.

The interpretation of any provision of the EC Treaty must be guided by its aims referred to in Article 2 EC. In order to prepare the foundation for a doctrinal analysis, this chapter starts off by setting out in which sense free, i.e., unrestricted, movement of capital within the Community helps in attaining the Treaty aims. In a second step, it assesses whether the findings just gained apply equally in a third-country context. It is argued that the aims pursued with the freedom of capital movement do not suggest a narrower interpretation of Article 56 (1) EC, but they favour free, i.e., liberalized, capital movement, including cross border direct investment, between the Member States and non EC countries. Moreover, the genesis of the rules on free movement of capital indicates a drive to (almost) complete liberalization of capital movement. It can hardly be doubted that the current provisions bear the hallmarks of the ‘economist camp’ and embrace a liberal undercurrent both in an intra-Community and a third-country context. The respective results reached guides the construction of the freedom throughout this book.

This chapter demonstrates that direct investment constitutes a classic cross-sectional activity falling, prima facie, within the ambit of free movement of capital and the freedom of establishment. The configuration of the relationship of those two competing freedoms can have a severe impact on the scope of Article 56 (1) EC in a third-country context and is therefore brought into focus. It is argued that free movement of capital and the freedom of establishment are inextricably linked to each other with respect to the cross sectional activity of direct investment. The different aspects of the economic activity cannot be separated in a comprehensible and clear cut fashion. Only the densification of the freedoms can prevent an economic aspect of the activity being exposed to potentially unjustified discrimination or hindrance. Only in this way it is guaranteed that the freedoms are not deprived of their effectiveness in a situation in which an economic activity falls potentially into the ambit of more than one freedom.

Early Warning Signals of a default or debt crisis are derived by drawing upon the stochastic optimal control model of an optimal and excessive short-term debt developed in chapter 2. Operational benchmarks for optimal foreign debt and a quantitative measure of the maximum debt which will not be defaulted in the event of adverse shocks are established. Insofar as the actual debt exceeds the benchmark, there is an excess debt, the risk of default is increased. Two sets of emerging market countries are considered: one set renegotiated/defaulted and the other set did not. The countries that defaulted/renegotiated had significant excess debt, whereas the countries that did not default/renegotiate did not have significant excess debt. An Early Warning Signal of a debt crisis is the excess debt, and not the level of the debt/GDP ratio per se.

This chapter deals with one aspect of short-term capital movements over the period 1885-1913. It studies the role of the French haute banque in the operation of the international monetary system. It adopts a monographic approach, examining the international balances of the Banque de Paris et des Pays-Bas (Paribas), in an attempt to reinterpret what is known of the pre-1914 international money market's structure. The novelty of this methodology is that it uses microeconomics as a financial probe to reveal a number of more general problems. This is in contrast with macroeconomic studies of statistical interrelations among national interest rates which treat markets as black boxes.

This introductory chapter inducts into the book's subject matter by sketching the current political and regulatory environment for foreign direct investment. Presently, neo-protectionist ideas are on the rise within the Member States of the EC. The Member States face considerable problems in acclimating themselves to increasing inward direct investment originating from developing and emerging market countries. Scepticism increases if an investment is placed by a so called sovereign wealth fund headquartered in an emerging market. Some Member States have started tightening their regulatory framework on foreign direct investment. However, such protectionist regulatory measures restricting the admission and treatment of foreign direct investment cannot be imposed ad libitum. They must be measured against the freedom of capital movement. This book answers the following question: What rights does a private market participant, engaged in cross border direct investment originating from or directed to a non EC Member State, enjoy by virtue of the EC Treaty provisions on free movement of capital?

Chapter 2 explores the scope of EU competence in the field of foreign investment. It strives to put an end to the ambiguity concerning the delimitation of powers between the EU and its Member States in the field of foreign investment. Following the thematic categorization of foreign investment regulation, the scope and nature of EU competence is examined separately for each category of foreign investment and each aspect of foreign investment regulation. In that regard, the coverage of foreign investment by explicit power-conferring provisions in the TFEU is identified and the general rules on EU implied competence are applied, determining the scope of EU competence over foreign investment.

This chapter concludes the analysis of the effect of the quality of corporate law on separation. High-quality protective corporate law is a good institution for a society to have. It lowers the cost of building strong, large business enterprises. It can prevent controlling stockholder diversions, a necessary condition for separation. But among the world's wealthier nations, it does not primarily determine whether it is worthwhile to build those enterprises. It is a tool, not the foundation. American-style populism and European-style social democracy are different sides of the same political coin. The polity pays up to affect corporate governance institutions. The differences have deeply affected corporate governance, militating toward differing ownership and government structures.

This chapter surveys the Court of Justice's approach to defining what constitutes an obstacle to intra-EU capital movement. As is true across the Treaty provisions on intra-EU movement, the scope attributed to this term has a direct impact on the distribution of competence between the Member States and Union for the regulation of the internal market. This chapter argues that the case law on obstacles to intra-EU capital movement is remarkable largely only for its similarity with the other Treaty freedoms. However, this does not mean that the jurisprudence is problem-free. On the contrary, this chapter argues that aspects of the case law on capital movements can be located within a broader, more controversial trend that is emerging across the Treaty freedoms. This refers to the Court's use of the Treaty freedoms as tools to scrutinize non-discriminatory national legislation that simply characterizes the conditions for economic activity within Member States.

The most important development in the global macroeconomic system over the past few decades has been the liberalisation of international capital markets that got underway in the 1970s. This sea of change from the Bretton Woods system has had enormous consequences for both developed and developing economies. This chapter begins by recalling the history of world capital markets — especially changes that have occurred since World War II. One important outcome has been a marked increase in the volatility of capital movements and asset prices, amplified by international contagion. In forward markets, conventions about the future determine these expectations. International payments flows have been profoundly affected by liberalisation, and the peculiar role the American economy plays in regulating them. How shifting conventions led to crises in developing economies is discussed. A stylised model of cycles of capital movements and macroeconomic performance is sketched. The chapter closes with a review of international financial regulation and governance.

Chapter 5 assesses the OECD's role in global finance. Most studies of the governance of global finance have considered the OECD as irrelevant. A great deal of attention has been devoted to other international organizations, whereas the OECD has generally been treated either as a passive research body or as a relatively unremarkable part of a much larger set of mechanisms through which transnationally powerful actors reinforce their dominance. This chapter argues in contrast that the OECD plays a distinctive and important role at three frontiers: addressing emerging financial policy issues; the extension of OECD practices to non‐OECD countries; and the frontier between financial practices and non‐financial ones. It is also distinctive in its use of knowledge to constitute new practices or modify established ones and in its ability to integrate across multidimensional policy fields and jurisdictions. Accordingly, it can offset or complement a wider tendency towards differentiation and specialization in global governance.

This chapter shows that, while obstacles to international capital movements were removed in many countries, the obstacles in the way of international labor movements remained in place. At the same time, legal and technological changes weakened the labor unions and more generally the bargaining capacity of labor in many countries. As a result, the benefits of economic growth in the new era were distributed unequally between capital and labor. In addition, the Asian crisis at the end of the 1990s created difficulties for many developing countries and demonstrated the risks associated with financial globalization. Furthermore, the global economic crisis that began in 2008 led to a sharp decline in output followed by slow recovery in the developed countries.

This chapter discusses legal aspects of the Economic and Monetary Union (EMU). Topics covered include EMU and capital movements, EMU and differentiated integration, monetary policy, and economic union. The EMU shows that there can be exclusive Community competence in relation to a group of Member States rather than the Community as a whole, and it also shows that rules relating to the group have been extended to the Community as a whole through the use of Article 308. It has created a new institutional structure, with an apparently enormous degree of independence, which has been tempered by a judgment of the ECJ. In the context of economic policy, it has created new enforcement machinery, based on what some would regard as a rather arbitrary choice of figures for government debt and deficits.

The European Union (EU) started out as the European Coal and Steel Community (ECSC), an organization that was set up to control the levels of production in the coal and steel industries of Western Europe. In 1957, Belgium, France, Germany, Italy, Luxembourg, and the Netherlands took a quantum leap forward in integrating their economic policies by agreeing to the Treaty of Rome. The Treaty contained a set of blueprints for ongoing cooperation on issues of trade, labor, capital movements, and monetary policy. It created the European Economic Community (EEC), a permanent organization in Brussels to promote this cooperation. There have also been newer Treaties which have changed several important features of the EU and its decision-making processes. One of the most remarkable things is that almost all European governments of all political persuasions have found the benefits of membership to be positive for their economies.

This chapter seeks to determine the extent to which obligations stemming from the EU legal order conflict with the norms of intra-EU BITs as well as to analyse possible solutions that could eventually be adopted to reconcile such conflicts. The chapter is divided into three different parts. Section B seeks to determine the causes as well as the principal areas where the norms stemming from the EU legal orders could eventually conflict with BIT clauses. Section C examines the relations between EU law and intra-EU BITs in the light of recent arbitration awards (mainly Eastern Sugar BV v Czech Republic). Section D offers a possible resolution, concluding that, taking into account the matter as it stands at present, the idea of a new institution that would help to stabilize the jurisprudence and to establish amicable and constructive relations with the European Court of Justice (ECJ) (working title: ‘the European Investment Court’) should be carefully examined.

The global financial crisis, which began in 2007 and was temporarily contained in 2009 by national-level government interventions, still holds deep and worrying implications for the future. This chapter examines the economic, political, and ideological processes that have led to the rise of globalisation driven by ‘market fundamentalism’. It considers how states have been compromised and offers options that may still remain for them to intervene so as to prevent systemic failure. The starting point for this analysis is the Bretton Woods conference of 1944, when the wartime Allies, led by the United States and Britain, met to establish a financially regulated order of nation-states that would contain the excesses of free capital movements. The discussion pays particular attention to the regulation and deregulation of finance since the Second World War.

This chapter examines the impact of capital movements on the international capital markets. It argues that controls over bank liabilities, such as regulation-Q ceilings on deposit interest rates in the United States, were effective prudential controls when the United States was an emerging market. This chapter suggests that there is an interesting relationship between domestic liberalization and the liberalization of international capital flows which include advantages in terms of resource allocation.