Inside Europe’s Future Capital Market

Abstract

M A EMBERS of the Marshall Plan league may recall Washington's early paternal interest in the redevelopment of Europe's capital markets by channelling the so-called local currency counterpart of our dollar aid to such new public lenders as the post-war reconstruction banks in Holland and Germany. More searching official looks, taken a decade later1, were somewhat less benevolently motivated: the superior efficiency of our own capital market had tempted too many foreign seekers of funds, thus contributing to our balance-of-payments deficits. That this deficit persists to this day, despite drastic efforts to deny foreigners access to this market, reflects in essence our inability to generate private sector surpluses from foreign trade and investment sufficient to offset public sector deficits from military and economic aid, U. S. troop expenditure abroad, etc. At the same time, American corporations must finance a rising volume of direct investment abroad, especially in the Common Market which, while lucrative, was becoming less open to American exports. This lent further charm to the prospect of making European capital markets capable of meeting some of this demand. Treasury report' had viewed the expansion of these markets as one possible solution of our payments impasse; and, more recently, some observers have suggested helping to close Europe's widening technology gap in return for fuller local credit privileges for continued U. S. investment. More critical voices had meanwhile warned against relying on European action for timely relief for our balance -of -payments problems, be it by inflation or by developing their capital markets overnight not that European officialdom seems any too prone to accord special priority to such transatlantic needs. Nevertheless, the Treasury views reflected the philosophy of tolerating public sector deficits while curbing private foreign investment. While the world's leading financial power continues to restrict private international capital flows, responsible European public servants, economists, and businessmen have been studying methods to strengthen and integrate the existing capital markets. They were motivated by the inexorable drive toward larger economic units-often crossing national boundaries-which, in turn, meant expanding and mobilizing reservoirs of local resources of manpower and capital, despite lower earnings. While, OECD had done useful work on this complex problem, it has dealt mainly with individual member countries rather than with the unified Atlantic market that has yet to materialize. But what must long remain the definitive study of Europe's capital markets has recently come from the Directorate General for Economic and Financial Affairs of the European Economic Commission in Brussels in the form of its long-awaited report The Development of a European Capital Market, released last January.2