by Carrie
Thu Jul 24th, 2014 at 01:52:29 AM EST
In the discussion of Britain's EU exit initiated by Frank, Cyrille challenges me repeatedly on free movement of capital:
I think the "four freedoms" should apply as widely as possible so, on that basis, it would be a bad thing if the UK were to leave the EU.
That is a consistent view, ...
[b]ut I had been under the impression that you were no fan of the free movement of capital -certainly an unrestricted one.
Well,
toucheUnfettered cross-border capital flows are a bad idea. Just look at the financial crises of the last 30 years, worldwide.
So, do we want free movement of capital? More below the fold.
front-paged by afew
...if you have free movement of workers, goods and services and freedom of establishment and service, plus a monetary union, I don't know how you can restrict the free movement of capital.
I'm not clear why free movement of capital could not be restricted at all even with perfect freedom in the other 3 and monetary union (for instance, since there are state subsidies to some companies, the state should be allowed to prevent the company moving its capital as soon as they end). But assuming that it is the case, then why should the 4 freedoms be considered an unqualified good thing to be spread as widely as possible?
Of course I said "restrict" when I was thinking of "eliminate". At the height of the Euro crisis I myself proposed on occasion the imposition of a levy on cross-border money flows,
proportional to sovereign CDS spreads or bond risk premia so it would go away on its own if the crisis abated.
A monetary union with free trade and free movement of workers plus capital controls is basically a return to the European Communities under the pre-1971 Bretton Woods system of gold-standard fixed exchange rates, but without the possibility of devaluation. So the same tensions that led to serial devaluations in Europe prior to the Euro would still exist, just without an outlet other than "internal devaluation" which is a recipe for economic depression and widespread misery. But we're almost there as it is - we already have a monetary union behaving as an Ersatz gold standard due to hard-money ideology, with internal devaluations, and capital controls in Cyprus.
Now, how does the European Commission frame free movement of capital?
Free movement of capital is at the heart of the Single Market and is one of its 'four freedoms'. It enables integrated, open, competitive and efficient European financial markets and services - which bring many advantages to us all.
For citizens it means the ability to do many operations abroad, such as opening bank accounts, buying shares in non-domestic companies, investing where the best return is, and purchasing real estate. For companies it principally means being able to invest in and own other European companies and take an active part in their management.
That's what it comes down to, but capital controls also entail taxing people for carrying large amounts of cash across borders... as they are wont to do:
Customs find smuggled cash in every third car (the Local, 17 Apr 2014)
The number of Germans smuggling large amounts of cash across the Swiss border into Germany rose dramatically last year. Customs officers said on Thursday they made a find in almost every third car they checked.
