Europe and the free movement of capital

Richard Cachia Caruana, Chairman of the Core Negotiating Group, recently addressed the Tenth Meeting of the Accession Conference in Brussels. Mr Cachia Caruana highlights the provisional closure of chapter four – that related to the free movement of capital. Following are extracts from his address.

I would like to start by noting that today’s meeting is clear evidence of the strong commitment towards enlargement demonstrated by the member states in general and the Belgian Presidency in particular. This is worth pointing out not only because of the intensive efforts of the past days to close the chapter under review, but also because of the convening of this meeting at the eleventh hour.

The provisional closure of Chapter 4, on the Free Movement of Capital, is a cause for satisfaction for all those involved in the negotiations leading to this successful conclusion. The persistence and resourcefulness which have been demonstrated by all concerned during the past weeks, and in particular during the last few days, have been well rewarded.
The free movement of capital constitutes a key element of the Union's internal market. It is understandable that the issues which arise under this part of the acquis had to be scrutinised in great detail. The positive outcome of this scrutiny is all the more valuable in that it represents the clear understanding by both sides of the full implications of what has been agreed.

The agreement comes in the wake of the conclusions reached at Laeken just a few days ago. These conclusions have given the accession negotiations yet another important thrust forward. In further sharpening the objectives and times frames of the negotiations agreed to previously, and in reaffirming the established road map leading to these objectives, the Union has again underlined and also strengthened its commitment towards the enlargement process.

The first encouraging results of what can be called the spirit of Laeken are reflected in today's sessions of the accession conferences. This augurs well for the work in the coming months when the final and, in many ways, most complex aspects of the negotiations will need to be dealt with.

Throughout the negotiations Malta has made it clear that it does not wish to stand aside from any of the responsibilities of EU membership but rather to equip itself fully to live up to these responsibilities. Under the Free Movement of Capital chapter we have had the opportunity to explain the geophysical, social and environmental factors constraining the manner in which we can fulfil those aspects of free capital movement which arise in connection with the acquisition of real estate.

During the negotiations on this chapter we explained how the implications of EU membership, in particular those arising from capital liberalisation as well as from the free movement of labour and freedom of establishment, could exacerbate an already difficult situation concerning land use in Malta. We stressed that a transitional period could not address our particular situation in an adequate manner, since the problems were not transient in nature. We therefore requested the retention, on a permanent basis, of remedial measures to address the situation.

The validity of our case eventually permitted an understanding on the principle underlying our request, though it took some further detailed, and occasionally difficult, negotiations to translate this principle into a specific agreement. Through this agreement the Union recognises that the very limited number of residences in Malta and the very limited land available for construction purposes can only cover the basic needs created by the demographic development of the present residents. It has therefore been agreed that a Protocol will be annexed to the Accession Treaty providing for Malta to maintain restrictions, on a non-discriminatory basis, on the right of EU citizens, who have not legally resided in Malta for at least five years, to acquire and hold secondary residences.

The restrictions our legislation will impose on all EU citizens will apply to the acquisition of all property which cannot be considered as serving the purposes of a primary residence. Nor will restrictions apply which could impede an EU citizen from acquiring property which is connected to his business activities.

The very specific and clearly defined nature of these restrictions will not have any significant bearing on the freedom of movement of persons or the freedom of establishment. On the other hand, they are clearly sufficient to address the real and genuine concern of our country on the issue of property.

It is in this spirit that the Union has agreed that such restrictions would fulfil the conditions under the acquis, in so far as they will be applied in a non-discriminatory manner, are justified by imperative requirements in the general interest, are suitable for attaining the objective that they pursue and do not go beyond what is necessary in order to attain this objective.

Of course, the achievement of this agreement is significant not just because of its tangible meaning in substance, but equally because it is symbolic of the way that the Union is conducting negotiations, looking at each country, in this case Malta, according to its own specific, sometimes unique, circumstances. This point, I can assure you, will not be missed in our country, where the process of negotiations is very closely followed by the public at large.

The other main issues arising under this chapter, relating to capital movements and payments were also the subject of detailed discussions over the past months.

The liberalisation of capital movements together with the strengthening of the financial sector and its supervision are in themselves important aspects of Malta's own development process. Convergence with the acquis in these areas is therefore a matter of course which will reach its completion in the near future.

I would like to note here the progress which has already been achieved in this regard. Over the last few months we have fine-tuned our banking legislation to harmonise it with the acquis relating to the payment systems. Only last week, the legislation on Data Protection was enacted. This week the Maltese Parliament also completed the enactment of legislation providing the basis for the setting-up of the Financial Intelligence Unit. This is in advance of the commitment undertaken in the negotiations on Chapter 4.

At the same time I wish to underline the fact that for many years Malta has already had in place the administrative capacity to deal with financial crimes, including money laundering, in an effective and timely manner. As in other aspects of capital movements and payments, the institution of the FIU therefore represents the completion of a process which is already well entrenched in our system, rather than a new beginning.