The Development of Capital Markets in Europe
Author: David Williams
Publication Date:
01 Jan 1965
eISBN:
9781451956122
Language:
English
Keywords:
SP; CFA country; Euro-dollar market; dollar; loan; term loan; security market; balance of payments; government bond; U.S. dollar; business sector; Capital markets; Securities markets; Securities; Gross fixed investment; Loans; Europe
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The main industrial countries of Western Europe have traditionally been generators of capital for economic development in the rest of the world. During World War II and throughout most of the postwar period, the European capital markets, with few exceptions, have been effectively closed to foreign borrowers. Between 1945 and 1952, only Switzerland, Belgium (mainly for the Congo), and—for sterling area countries—the United Kingdom allowed a number of foreign issues. By 1955, the total of foreign issues in the countries which now comprise the European Economic Community (EEC) and the European Free Trade Association (EFTA) amounted to $392 million; by 1962, the total had increased to only $444 million.1 Since about 1960, however, attention has again been focused on Western Europe, in the belief that it might not only satisfy its own capital needs but also become an important net exporter of private capital for economic development in the rest of the world. The basis for this expectation is, of course, the impressive rate of growth of real income and savings in Western Europe since 1945 and, perhaps one of its most obvious outward manifestations, the large rise in international reserves held, particularly by the six members of the EEC. When Western Europe is considered as a whole, there seems little doubt that, on balance of payments grounds, the European economies might well accommodate a larger transfer of resources abroad in the form of capital exports than they have so far attempted. The need for Western Europe to become a more important net exporter of capital is also based in part on the effects on the U.S. balance of payments and net international reserve position of the continual outflow of capital from that country. Pressure on the U.S. balance of payments would be eased if Western Europe as a whole became more self-sufficient in meeting its own capital needs (rather than raising funds in New York) and if, by increasing long-term capital exports (private and other) to the rest of the world, it could, in effect, offset some of the effects of the large and increasing volume of direct investment from the United States.

Abstract

The main industrial countries of Western Europe have traditionally been generators of capital for economic development in the rest of the world. During World War II and throughout most of the postwar period, the European capital markets, with few exceptions, have been effectively closed to foreign borrowers. Between 1945 and 1952, only Switzerland, Belgium (mainly for the Congo), and—for sterling area countries—the United Kingdom allowed a number of foreign issues. By 1955, the total of foreign issues in the countries which now comprise the European Economic Community (EEC) and the European Free Trade Association (EFTA) amounted to $392 million; by 1962, the total had increased to only $444 million.1 Since about 1960, however, attention has again been focused on Western Europe, in the belief that it might not only satisfy its own capital needs but also become an important net exporter of private capital for economic development in the rest of the world. The basis for this expectation is, of course, the impressive rate of growth of real income and savings in Western Europe since 1945 and, perhaps one of its most obvious outward manifestations, the large rise in international reserves held, particularly by the six members of the EEC. When Western Europe is considered as a whole, there seems little doubt that, on balance of payments grounds, the European economies might well accommodate a larger transfer of resources abroad in the form of capital exports than they have so far attempted. The need for Western Europe to become a more important net exporter of capital is also based in part on the effects on the U.S. balance of payments and net international reserve position of the continual outflow of capital from that country. Pressure on the U.S. balance of payments would be eased if Western Europe as a whole became more self-sufficient in meeting its own capital needs (rather than raising funds in New York) and if, by increasing long-term capital exports (private and other) to the rest of the world, it could, in effect, offset some of the effects of the large and increasing volume of direct investment from the United States.

The main industrial countries of Western Europe have traditionally been generators of capital for economic development in the rest of the world. During World War II and throughout most of the postwar period, the European capital markets, with few exceptions, have been effectively closed to foreign borrowers. Between 1945 and 1952, only Switzerland, Belgium (mainly for the Congo), and—for sterling area countries—the United Kingdom allowed a number of foreign issues. By 1955, the total of foreign issues in the countries which now comprise the European Economic Community (EEC) and the European Free Trade Association (EFTA) amounted to $392 million; by 1962, the total had increased to only $444 million.1 Since about 1960, however, attention has again been focused on Western Europe, in the belief that it might not only satisfy its own capital needs but also become an important net exporter of private capital for economic development in the rest of the world. The basis for this expectation is, of course, the impressive rate of growth of real income and savings in Western Europe since 1945 and, perhaps one of its most obvious outward manifestations, the large rise in international reserves held, particularly by the six members of the EEC. When Western Europe is considered as a whole, there seems little doubt that, on balance of payments grounds, the European economies might well accommodate a larger transfer of resources abroad in the form of capital exports than they have so far attempted. The need for Western Europe to become a more important net exporter of capital is also based in part on the effects on the U.S. balance of payments and net international reserve position of the continual outflow of capital from that country. Pressure on the U.S. balance of payments would be eased if Western Europe as a whole became more self-sufficient in meeting its own capital needs (rather than raising funds in New York) and if, by increasing long-term capital exports (private and other) to the rest of the world, it could, in effect, offset some of the effects of the large and increasing volume of direct investment from the United States.

Western Europe has not itself met all its private capital needs in the post-1945 period. In part, this was due to the extensiveness of the reconstruction program in the early postwar years and, since the mid-1950’s, the prolonged investment boom and the high demand for, and high return on, capital investment. It has also been due in part to the fact that Europe has not mobilized its savings on an intra-European basis. The domestic security and capital markets in some European countries have not been able to meet all local demands for funds, especially those which take the form of issues of securities. Issues and direct loans have, consequently, been placed abroad, particularly in New York, as a result of the availability of funds as well as the relative cheapness of raising capital there. As there are few links between the domestic capital markets within Europe, there has not been a free flow of funds from surplus to deficit areas. Some relatively large-scale public issues of securities made on European account and substantially subscribed by Europeans, were, until the summer of 1963, frequently placed in New York rather than in European centers; since then, they have increasingly been placed in London.

It has been recognized that the potentialities of Europe as a source of capital—to meet both its own and extra-European needs—cannot be fully exploited until, in the first instance, the institutional machinery for organizing the supply of capital is improved. Important legal, governmental, and institutional barriers in many European countries have tended to make the domestic security markets less adaptable to changes in the rest of the economy than is, perhaps, warranted on purely economic grounds. The functioning of some of the European capital markets in Europe has changed little, despite the substantial shifts which have occurred in the financial position of industrial corporations—especially the need for greater amounts of funds over and above retained profits—and despite the impressive rise of household savings in Europe since about 1957–58. A change of role for the domestic security markets in the whole savings-investment process in many Western European countries would necessitate an overhaul of the machinery—institutional and other—of the individual capital markets. But this is only one part of the problem of organizing more efficiently the supply of loanable funds. An integrated European capital market, which does not exist at the present time, is needed, and for its creation it might well be necessary to mesh more closely the fabric of intra-European finance, especially by equalizing interest rates for comparable assets in the various security markets, expediting the flow of funds between the markets, and permitting the flotation of securities by nonresidents in domestic new issue markets. An integrated European financial system, however, has profound implications for general economic and political developments within Europe.

At the same time, greater latitude in the investment policies of institutional investors, and integration of the markets on a regional basis, will be of little avail, unless the supply of funds passing through and between the markets is increased and, indeed, until the capital markets of Europe become a more significant part of the normal mechanism of raising funds for expansion and an increasingly important outlet for the deployment of surplus funds generated within the European economies. The relatively small volume of funds handled by the European security markets is, perhaps, their greatest weakness. Restrictions on institutional investment policies, to some extent, inhibit the placing of funds in the capital markets, but the shortage of funds flowing through the market and the consequential smallness of the volume of securities traded exacerbate the institutional cumbersomeness of the European markets.

Financing Investment

The European economy since 1945 has been characterized, broadly, by a prolonged investment boom. The ratio of gross fixed capital formation to gross national product (GNP) has risen steadily. In 1952, about 18 per cent of GNP in 17 member countries of the Organization for European Economic Cooperation was accounted for by gross fixed capital formation; in 1962, the average had risen to 23 per cent. The demand for savings to finance the boom has remained consistently high throughout the postwar period. The amount of investment financed by the issue of nongovernment securities on the capital markets has, however, tended to be rather small. The statistics presented in Table 1 are, to some extent, residuals and, more important, do not lend themselves to precise comparisons. It seems, however, that in no country in Europe during the post-1945 period has the proportion of funds raised through the securities market exceeded the equivalent of one third of gross private fixed domestic capital formation by business; in most countries it has averaged less than one sixth, with the exceptions of Switzerland, Denmark, Italy, and the United Kingdom, where the proportion in 1962 had risen to about 25 per cent. By far the most important source of savings for investment has been funds earned by and retained within the business enterprise sector. Self-financing by business in most of the postwar period usually exceeded 70 per cent of the investment undertaken in that sector. The importance of self-finance in the business sector has, however, declined relatively since about 1955; self-finance is still above 70 per cent of total business enterprise investment in, for example, Sweden, the Federal Republic of Germany, and Austria, but has fallen sharply in France, Italy, and the Netherlands, to about 60 per cent.

Table 1.

Western Europe and United States: Investment Funds in the Private Business Sector, 1962

(In per cent of total)

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Based on data from Oesterreichische Nationalbank, Mitteilungen.

Based on data from Economic Policies and Practices: Part 3, A Description and Analysis of Certain European Capital Markets (materials prepared for the Joint Economic Committee, 88th Congress, 2nd Session, Washington, 1964), p. 56, and Bank for International Settlements (BIS), “The Belgian Capital Market,” in Capital Markets (Basle, 1964), pp. 4 and 5.

Based on data from Det Statistiske Departement, Statistiske Efterretninger. “Other” borrowing is the volume of funds that Danish industry raised abroad.

The figures for France, Germany, the United Kingdom, and the United States add to more than 100 because of accumulations of financial assets by some sections of the private business sectors.

Based on data from Joint Economic Committee, op. cit., p. 77, and BIS, op. cit., “The French Capital Market,” Annex 2. The private enterprise sector accumulated financial assets equal to about 15 per cent of gross fixed capital formation in 1962. The statistics in this table are partly unconsolidated, because of the relative importance of individual entrepreneurs in the private sector, for whose financial position it is difficult to obtain exact information, and partly because some elements of government funds are incorporated in the “self-finance” figure. Both these elements tend to inflate the figure for self-finance. On a national accounts basis for total investment, about 24 per cent of the finance for total gross domestic investment (including the large public sector programs) derives from public funds, about 8 per cent from the specialized institutions’ and insurance companies’ own funds, about 16 per cent from the issue of securities (including the issues of the nationalized industries), about 12 per cent from medium-term credits, and about 40 per cent from other resources.

Based on data from Joint Economic Committee, op. cit., p. 133. About 62 per cent of total investment in the corporate sector was financed from internal sources, about 6 per cent by the issue of shares, just over 6 per cent by borrowing from the Government, about 20 per cent by direct borrowing from financial institutions, and about 4 per cent from other sources, mainly private borrowing from the noncorporate personal sector. The German private enterprise sector acquired financial assets in 1962 equal to almost 12 per cent of gross physical investment by that sector.

Based on data from Joint Economic Committee, op. cit., p. 165, and Bank of Italy, Annual Report, 1962. If funds raised in the capital market by the special credit institutions are included, total new security issues amounted to 28 per cent of gross fixed investment in 1962 and “direct borrowing and other” amounted to less than 20 per cent. See BIS, op. cit., “The Italian Capital Market,” p. 2 and Table 1. “Other” includes funds which are technically self-generated, some direct loans (subsidized) from the special credit institutions, other direct loans, and some bank loans.

Based on data from the Netherlands Bank, Report for the Year 1962.

Based on data from Statistisk Sentralbyrà, Kredittmarkedstatistikk. “Other” borrowing is the volume of funds that Norwegian industry raised abroad.

Based on data from Joint Economic Committee, op. cit., p. 198, and BIS, op. cit., “The Swedish Capital Market,” pp. 17–18. Private enterprises accounted for 55 per cent of gross domestic fixed capital formation, but they had very restricted access to the capital market; about 27 per cent of total domestic fixed capital formation was financed by the issue of securities. As banks are unable to grant unsecured loans and bonds and long-term loans are always secured by mortgages, the level of effective “self-finance” is very high.

Based on data from BIS, op. cit., “The Swiss Capital Market,” pp. 2 and 6.

Based on data from Board of Trade Journal. The statistics cover only those companies whose shares are quoted on the London Stock Exchange; quoted companies account for about 50 per cent of company income. Self-finance includes changes in holdings of cash and marketable securities. Expenditure on fixed assets accounted for about 70 per cent of total investment in 1962. About 60 per cent of total investment was self-financed, about one fourth was financed by the issue of securities, and about 15 per cent was in the form of direct borrowing.

Based on data from Federal Reserve Bulletin, October 1964. Based on flow of funds accounts. Direct borrowing includes mortgages, which amounted to 57 per cent of direct borrowing in 1962. Net acquisition of financial assets by the nonfinancial corporate business sector amounted to 21 per cent of total capital expenditures in 1962.

The high volume of self-finance in the private business sector up to about 1956 was basically the consequence of a high rate of profit accumulation and low propensity to distribute profits to shareholders. The high rate of profit accumulation was partly due to the fact that wage increases were not granted at the expense of profits at a time of rapidly rising general demand. In those countries where labor was scarce (e.g., United Kingdom and the Scandinavian countries) increased wage costs were passed on to the consumer largely in the form of higher prices; in other countries (e.g., Italy and Germany), there was little strain on the labor market despite the rising demand for labor. There was, to some extent, a relative profit inflation, and profits were retained largely within the business enterprise sector, partly to finance rising investment. Businesses in most countries needed the funds for expansion, and there was no assurance that external sources would have been sufficient to compensate for funds disbursed in the form of higher dividends. Further, tax systems and company law in most countries tended to favor the retention rather than distribution of profits; indeed, in some there were strong fiscal disadvantages in distributing profits at a time when many governments in Europe were pursuing a policy of dividend restraint.

The high level of self-financing by private industry has, however, declined considerably since the late 1950’s; consequently, reliance on external sources—particularly direct borrowing—has increased substantially. The recent decline in importance of internally generated funds for expansion reflects, in part, a squeeze on profits which has become noticeable in most Western European countries since about 1960. This squeeze reflects in part the difficulties of industrialists in passing on to consumers, in the form of higher prices, the cost of wage increases which have been granted at a time of rapidly increasing competition in the world economy; other cost increases also have tended to be absorbed at the expense of profits. Since about 1958–59, industrialists seem to have pursued a policy (in part encouraged by changes in tax laws favoring a greater distribution of profits) of a more liberal distribution of dividends to shareholders and this, too, has drained off resources which might have been used for internal financing. In some countries, companies had accumulated relatively large amounts of cash or cash assets which were not always reflected in the prices of shares of these companies quoted on the stock exchanges; share prices reflected mainly expected earnings, not asset values. The relative market undervaluation of the total assets of these companies, or for nonquoted companies the attraction of a large volume of cash assets, made them vulnerable to “take over” bids. As a means of warding off such approaches, which might have meant complete loss of control, companies have been under unique pressure to distribute “surplus” cash holdings, utilize more effectively their accumulated balances, or capitalize the assets in the form of increased share distribution. The substantial rise in the total cost of new investment goods has been a further source of pressure on corporate finances, and has led to a greater demand for external funds to supplement internal resources.

Though self-finance has been the most important source of funds for investment, the private business sector in many Western European countries relies heavily on nonmarketable forms of credit granted by banks and nonbank financial institutions, both public and private, to finance investment in general. The relatively small importance of the new issues markets is partly a reflection of the inadequacy of those markets, but also partly a consequence of the close direct links between financial institutions and industry in many European countries. The purchase of nonmarketable securities of private industry by financial intermediaries, together with direct credits advanced to industry by such institutions, seems to finance more than a fifth of private gross fixed domestic capital formation in many countries in Western Europe. In countries like Belgium, the great importance of holding companies further enhances the close link between industry and direct sources of finance. Gross fixed domestic capital formation is to a large extent financed directly by financial intermediaries; but important segments of private industry also raise funds from such institutions or from the Government. This is particularly true, for example, in France (where about one fifth of total domestic investment seems to have been financed by the issue of nonmarketable debt to financial institutions), in Austria (where 36 per cent of bank credits in 1962 had a maturity of more than five years), in Norway, and in Sweden (where over 20 per cent of domestic investment is financed in the form of private loans, mortgages, and long-term credits). Germany follows much the same pattern, except that a large amount of industrial credit is granted in the form of “loans against borrowers’ notes” (Schuldscheindarlehen). These loans are usually made by insurance companies. They are also made, to some extent, by banks, but the banks more often act as brokers. Bank credits (not all of a long-term character) accounted for over 50 per cent of total funds externally raised to finance net investment in 1963; alternatively expressed, about 24 per cent of funds for total business investment was raised in this form. In the Netherlands, privately placed long-term and short-term loans amount to about 45 per cent of total outstanding securities held by the institutions. The total amount of private—i.e., nonquoted—investments has risen tenfold since about 1948 and now accounts for the largest part—between 40 and 50 per cent—of the annual growth of total investment by the institutional investors; nonmarketable mortgages are also increasing rapidly in the portfolios of institutional investors. In Austria, too, institutional investors, especially insurance companies, seem to prefer to make direct loans to industry rather than to purchase securities in the open market.

Housing construction, which in most European countries is a high percentage (up to 30 per cent in some cases) of gross fixed domestic capital formation, is also financed, to a large extent, through financial intermediaries directly, or through the central government budget. It is true, however, that in some countries, e.g., Germany, Switzerland, and Denmark, institutions specializing in the granting of mortgages supplement their resources by issuing their obligations on the domestic security markets.

The central government in most Western European countries is a further important source of funds for investment. The public sector is, in any case, a generally large element in Western European economies; it not only accounts for a relatively substantial proportion of total investment and expenditure but it also acts as an important financial intermediary. Only in a few countries, e.g., Belgium and the United Kingdom, does the central government borrow from the private sector to finance, in effect, the government’s investment programs. In Italy, however, the public credit institutions absorb a large proportion of funds coming to the capital market to finance investment which can be regarded as part of the public sector and also part of the private sector; the situation there is complicated in the sense that the leading banks, which are large purchasers of bonds, are also part of the public sector. In other countries, however—especially Germany, and until very recently, France and also some of the Scandinavian countries—the public sector has been a net accumulator of savings. In Germany, for example, the public sector accounted for one fifth of the total resources available for investment in 1962; in Sweden, the growth of the public insurance fund is likely to turn the public sector into an important accumulator of funds. Though the flow of funds originating in the public sector which finances investment (private and other) is believed to be relatively large in, for example, Italy and Germany, it is difficult to estimate the exact proportion. In France, it has been estimated that the public sector finances 24 per cent of total investment.

A further source which has helped to finance the European investment boom in the postwar period has been an import of capital from abroad. Only the United Kingdom and Switzerland have been consistent exporters of long-term capital in this period; France and Italy have been consistent net importers of long-term capital, and, on balance, the Netherlands, Austria, and most of the Scandinavian countries also have been net importers. Between 1960 and 1963, Germany also was a net importer of long-term capital—especially through nonresidents purchasing German securities (e.g., 20 per cent of new issues of fixed-interest securities totaling DM 15 billion were bought by nonresidents in 1963). In some countries, e.g., Norway, foreign investment seems to have financed as much as 20 per cent of net fixed capital formation.

The New Issues Market

The new issues market as a mobilizer of savings has played only a small role in relation to the total of the flow of savings for investment, but, until recently, there seems to have been little domestic demand for greater capital market activity. The new issues market has been used, to a large extent, as a residual, though increasing, source of borrowing. The flow of savings through most European economic systems is somewhat strongly canalized: each investment sector has been able to draw upon the savings resources which, broadly, it has needed to execute its capital investment plans. In no continental European country has there existed since 1945 a central pool of funds which could be readily drawn from to meet the general and diverse investment needs of the business enterprise sector; in contrast, funds for specific needs have been available from particular types of institutions and on a direct basis. These funds have been provided mainly by the mortgage banks and the private placement markets (which are dominated by the insurance companies or the banks) but not by the general public or special investment institutions, like unit or investment trusts.

Because of the ready availability of funds elsewhere, the business enterprise sector in Europe since the war has not felt pressed to raise capital on the security markets. On the other hand, it is likely that the ability of the European security markets to absorb large offerings of securities was low, and that this was a consideration against attempting to issue large quantities of securities. The relatively few offerings of securities—especially the small volume of equity shares—that have been made by European industry are perhaps the main symptom of defective security markets in Europe. The chief consequence of the reluctance to issue shares has been either a general undercapitalization of industry in Western Europe or extremely highly geared corporate financial structures, both of which can lead to corporate instability in times of falling profit margins and/or credit restriction (e.g., as in Germany in 1962–63). It is also pertinent that the average size of industrial enterprises in Europe has, until recently, been relatively small and this has made use of the new issues market somewhat difficult.

Since most European companies had ample credit, they had little incentive to use the sometimes expensive machinery of the new issues market. Indeed, there were distinct advantages in not tapping that market for funds. An issue of equity capital on the securities market may involve some loss of control—actual or potential—over company matters. European entrepreneurs have seemed reluctant to face the problems of operative control or ownership which arise when a company has a public quotation for its shares. The fear of losing control over the company partly explains the preference for issuing bonds rather than equities on the market, and this accounts for the relatively high gearing of much of European industry.

Further, a public issue involves publishing information that industrialists often prefer to withhold from the public. There is no tradition of supplying the investing public in Europe with detailed information regarding company activities; this is reflected in the minimum information provided in the prospectuses of new issues. The raising of funds—for instance, by a private placement or on a long-term credit basis—by companies without the publicity associated with a public issue is often regarded as preferable. A certain amount of information has to be given to those institutions granting direct long-term credit or taking up the private placement; but such information is provided on a private basis to institutions which often have had a long and close relationship with the industrial enterprises.

The cost of making a public issue of securities is usually much higher than that of raising funds on a private basis, from the mortgage markets or from the banks. It is difficult to assess exactly the costs of raising money by the various means available on the market but, as a broad generalization, the cost of making an industrial bond issue on the European capital markets seems to exceed by about 20 per cent the cost of raising funds directly, despite the higher interest charged on direct or privately placed loans. The difference is due largely to the costs of promoting, handling, and underwriting the issue, in addition to taxes, sometimes heavy, which are payable on new issues. The initial cost as a percentage of capital raised in the market can be as much as 7–8 per cent of the total; the smaller the issue, of course, the higher—usually disproportionately higher—are the initial costs. Table 2 contains details of an alternative measure of the cost of public issues, reached by taking the difference between the total cost to the issuer of industrial bonds and and the pretax yield to the subscriber; the difference between costs and yields can be as much as 46 per cent. It is even more difficult to estimate the “cost” of issuing equities, but it is possible that, when allowance is made for the fact that interest charges are a pretax liability, the “cost”—in terms of maintaining the prospective earnings yield—of issuing equities is even higher than bond issues. To maintain, for example, an 8 per cent return on equities (the average which shareholders earned in dividends and realized capital gains between 1919 and 1962 in the United Kingdom) would, in the average European capital market, necessitate ensuring pretax earnings on the new capital of about 20 per cent per annum. In addition, there are the usual initial costs of issues which again can be quite high—on average over 5 per cent of the total raised. The effective costs of issuing equities are, in fact, rather high.

Table 2.

Western Europe and United States: Costs of Public Issues of Securities

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From Bank of England, Quarterly Bulletin, Vol. III, No. 2 (June 1963), p. 115.

Initial tax only.

Data include turnover tax.

From Bank for International Settlements, Capital Markets (Basle, 1964), and The Times (London), April 16, 1963.

Data pertain to special credit institutions.

The costs involved in raising funds by the issue of securities vary widely between the leading capital markets of Europe and the United States. The low cost centers in which to raise money are generally the low interest rate centers—the United States, Switzerland, and the Netherlands; the Federal Republic of Germany, France, and Italy are generally the highest cost countries in which to borrow. Until the beginning of 1963, it was almost twice as expensive to raise funds in the latter group of countries as in the former. Since then, there has been a substantial equalization of interest rates within Europe, particularly as a result of increases in rates in Switzerland and the Netherlands. When only cost considerations are taken into account, it can be concluded that, in continental European centers, direct loans or private placements are the cheapest forms of raising money for expansion, and the issue of equity securities the most expensive. The cost differential between issuing bonds and equities is, however, less in Europe than in the United States, though the absolute level of costs is, of course, considerably higher in Europe. It could be argued that the structure of post-1945 corporate finance in Europe has, broadly, followed the pattern of costs incurred in raising money. It is unlikely, however, that the cost of raising funds has been a decisive factor in determining the pattern of corporate finance.

The limited extent to which funds have been available in the capital market on a continuous basis has also influenced the private business sector in not seeking resources for expansion through the issue of shares. The security markets in Western Europe have not, on the whole, been a reliable source of funds for the private sector in the post-1945 period. The largest borrowers on the European and U.K. capital markets have been the respective national governments. They have, of course, had priority in issuing securities, and in some countries the market has been restricted largely to their needs. Further, the issue of nongovernment securities is, in most countries of Western Europe with the exception of Germany, more or less closely supervised by the various monetary authorities. Governmental control over the new issues market has been directed in part toward facilitating the issue of government bonds but also in part toward a means of implementing monetary policy. The control over the timing of issues of local authorities and the incidence of central government issues in London, for example, is part of internal debt management policy; direct control over new foreign issues is, among other considerations, a means of regulating the outflow of capital in the light of the balance of payments position. Influence is also exerted on the timing of issues as a means of maintaining an orderly market for securities. In the Netherlands, the issue of securities—both by the authorities and by the private sector (domestic and foreign)—is closely regulated so as to accord with the availability of funds in the capital market and the state of the balance of payments. One consequence of allowing issues of securities when liquidity conditions permit, as in the Netherlands and Switzerland, has been to stabilize the structure of long-term interest rates at a relatively low level. As a result of this policy in the Netherlands, there has been no ready access to the capital market and, for the private sector, no assurance that long-term funds would be available when needed. In Switzerland, the tight control over the issue of securities and the imposition of a ceiling on the size of individual issues are parts of a policy of keeping down the level of interest rates (largely for domestic reasons) and of regulating the flow of foreign issues on the market in accordance with changes in the capital account of the balance of payments. In France and some of the Scandinavian countries, control has been a means of influencing the direction of investment, as well as of rationing the new issue of bonds to prevent overburdening the capital market, with consequent pressure on interest rates. Indeed, changes in domestic monetary policy have sometimes induced exaggerated repercussions in the relatively thin domestic securities markets. The tightening of monetary policy often results in a complete drying up of the supply of funds in the market.

The security markets in Europe are dominated by government or quasi-government issues, and the markets have usually been carefully groomed in preparation for the flotation of such bonds. Indeed, the capital markets are often better equipped to handle government loans than private issues; for example, the issue of government or government-guaranteed loans does not need the complicated underwriting procedure usually used for private issues which is not, in any case, widely developed in continental markets.

Government fiscal policy often affects the demand for private securities by imposing restraints on dividends, changing the level of taxation on distributed dividends, levying taxes on capital gains, imposing taxes on share transfers and other duties, or granting fiscal exemptions on income from government securities. Taxes on new issues tend to increase the, in some cases, already high costs of issues and may dissuade the flotation of securities, or deflect borrowers to raising funds directly through banks or mortgage institutions. Relatively high taxation (discriminatory or otherwise) on dividends and capital gains may well lower the demand for securities. The consequence of differential taxation as between government and nongovernment securities distorts the demand for securities in the market in favor of government issues. In short, differential taxation on publicly issued securities, or as between one type of monetary asset (equity, debenture, or government bonds) and another (deposits with a building society or savings bank), is of great importance in determining both the demand and/or supply of such assets, especially in countries which are tax “allergic.” Many of the domestic securities markets within Europe—especially those of the EEC countries—are particularly restricted as a result of fiscal discrimination.2

The relatively small volume of securities floated on the European capital markets can also be explained by the relatively low level of demand by investors for long-term securities, which is apparent over much of continental Western Europe. The reluctance of investors to purchase long-term securities is mainly the converse of a high demand for liquid assets, but it is also partly due to restrictions imposed on certain sectors of the investing public.

The high demand for liquid assets—outstandingly in the form of bank deposits—is, to some extent, the heritage of the great inflations and losses from overseas investment which followed the two world wars in Europe and which virtually wiped out the value of savings, especially those denominated in money terms. For some years after 1945, there was a particularly urgent need to build up liquid reserves in those countries which suffered greatly from inflation and then experienced a monetary purge as a means of controlling inflation by removing a large proportion of the money stock, e.g., the Netherlands, Belgium, and Germany. The process of accumulating liquid assets rather than monetary claims has, however, continued virtually throughout the postwar period in most Western European countries, with the possible exception of the Netherlands. In part, this may have been due to the incidence and impact of wars and the succeeding political uncertainty, which increased the desire to hold savings in the form of liquid, easily realizable, balances rather than in claims on physical assets, especially when—as in the past—those physical assets might be destroyed or confiscated. The preference for investment in balances held in financial institutions is also, perhaps, heightened by the fact that investment in private industrial securities is more risky than it need be because of lack of relevant information regarding the performance and economic position of private business enterprises. The predilection to hold liquid assets (in the form of a deposit with a financial institution) is further encouraged by the lack of readily attractive alternative outlets. Life insurance is not particularly well developed in Western European countries other than the Netherlands and the United Kingdom. Similarly, investment and unit trusts have not, until very recently, been an important source for tapping capital in most Western European countries (except the United Kingdom and Switzerland), partly because there has been only a limited range of domestic securities in which to invest. The only obvious and readily accessible outlet for surplus funds has been a deposit with the deposit receiving institutions, e.g., commercial, savings, and mortgage banks.

This high propensity by households to invest in liquid balances, has, in turn, had important consequences for the institutional structure of some of the European capital markets. First, the high level of savings deposits with some financial institutions has meant that the decision to invest in long-term assets has been taken by institutions, not households. For reasons outlined above, this has resulted more in direct investment than in the purchase of industrial bonds, and more in purchases of bonds than of equities, and it has importantly influenced the willingness of companies to issue securities on the market. It has also reduced the pressure on companies to issue more equities in the market. Second, the preference for deposit balances rather than long-term claims has militated against the formation, or has stunted the growth, in many countries in Europe of unit and investment trusts, which, where they exist, tend to spread the risks of investment and give some stability to security prices. These types of institutions, with insurance companies, are the most important group of investors in the London and New York capital markets, and their virtually constant need to invest funds to match their future obligations, which take the form of funds that accrue to them on a regular and continuous basis, is a great support for a flexible and growing securities market. Their lack of influence in European capital markets is a critical weakness in the structure of those markets.

The relatively high liquidity preference in Western Europe is itself perhaps a consequence of the relatively low household savings which were characteristic of most European economies before 1959. Household savings rarely exceeded 5 per cent of disposable income until about 1959, but the proportion has risen substantially since then. A greater volume of savings out of higher real incomes might, however, encourage greater venturesomeness in the disposition of those savings in the future. The structure of gross national savings in various countries is shown in Table 3.

Table 3.

Gross National Saving as Percentage of GNP, 1960 and 1962

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Sources: Bank for International Settlements, Thirty-Third Annual Report (Basle, 1963), p. 36, and United Nations, Yearbooks of National Accounts Statistics.

The demand for nongovernment securities is also affected by the restrictions imposed on institutional investors, such as insurance companies and pension funds. In most continental markets, not only do these institutions tend to be small but their investment policies are closely controlled. In some countries, they are not allowed to invest in equities or they are permitted to invest in them only a small proportion of their available funds; there are often restrictions on the amount of industrial bonds which they can hold, and the holding of foreign securities is sometimes prohibited. The importance of these institutions in Europe is lessened and their significance in the development of the securities market is reduced because the government in some countries, e.g., France, Germany, and Sweden, is an important collector of social security funds which might otherwise accrue to private institutions. The proceeds of the government-collected funds are not necessarily directly used in the capital market.

The private, as well as the institutional, investor in many Western European markets is faced with a surprisingly small variety of domestic securities from which to choose to invest. The security markets are predominantly bond markets—with the exceptions of those in the Netherlands and the United Kingdom—and some are exclusively bond markets. Further, in some countries, e.g., Germany, Denmark, Italy, and Belgium, a relatively large proportion of bond issues is floated by financial intermediaries—especially the mortgage banks in Germany, the special credit institutions in Italy, and holding companies in Belgium—with the consequence that a large proportion of risk assets are removed from the market. A normally operating new issues market, however, has as its main diet risk assets, not mortgage loans or claims on important publicly controlled credit agencies. Given the reluctance of investors to invest generally in fixed asset securities, it is surprising that the bulk of the issues on the European markets has been bond issues. There have, of course, been distinct advantages to the borrower in issuing bonds rather than shares; these advantages have been particularly large when the bonds have been privately placed. First, there is, on fiscal grounds, a clear advantage in issuing bonds rather than equities, because payment of interest on bonds is usually deducted before profits are assessed for taxation, and this tends to reduce the tax liability of the company. Second, because, as has just been stated, institutional investors in most European countries are either forbidden to hold equities or are closely regulated in the amount of equities they can buy as a proportion of total assets, their demand for bonds is relatively greater than that for equities; consequently, companies, when they need to issue securities at all, are predisposed to meet the particular investment needs of this part of the market by issuing bonds. Third, as a result of past inflations, either corporate fixed interest debt has been wiped out or the burden of the debt has been greatly reduced. To the extent that the value of money is expected to depreciate in the future, the private business sector can be expected to be aware of the advantages of issuing debt. These considerations partly explain the wide discrepancies in the distribution of outstanding obligations in various stock markets of Europe and the United States between fixed interest securities and other obligations, as shown in Table 4.

Table 4.

Outstanding Long-Term Obligations at End of 1962

(In millions of U.S. dollars)

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Source: Economic Policies and Practices: Part 3, A Description and Analysis of Certain European Capital Markets (materials prepared for the Joint Economic Committee, 88th Congress, 2nd Session, Washington, 1964).

$290 million represents bond issues of electricity companies which are quasi-publicly owned.

At least 25 per cent of total shares outstanding are in the electricity sector, and most of them are in the hands of the Government.

About $50 million of mortgages are held by the Housing Reconstruction Fund and about $180 million by Provincial Mortgage Institutions (both in the public sector).

Estimates.

This total is believed to include most of the state and local government issues, which are included in the business total and cannot be shown separately.

Including public utilities owned by state and local government authorities.

$270 million of formal mortgage liabilities and $920 million of assets of the state banks, the overwhelming proportion of which are believed to be in the form of mortgages.

It is unlikely that investors’ preferences are the only reasons for the great differences between the ratio of industrial bonds to equities in various countries of Europe and in the United States. In the United Kingdom, the ratio of bonds to equities is about 1:15; in the Netherlands 1:10; in the United States 1:4.5; and in Germany 1:0.9.3 Basic economic conditions have not differed to such a great extent as to explain these differences readily; it is, perhaps more reasonable to suggest that the capital markets of Europe have not functioned in a manner that has satisfied the interests of both borrower and lender.

Despite the obvious limitations of the capital markets in Europe and the factors which have tended to stunt their development, new issue activity has increased encouragingly since about 1958–59. New issues in the EEC countries rose from about $3 billion in 1957 to nearly $7 billion in 1962; total issues in Switzerland increased from about Sw F 1.7 billion in 1957 to Sw F 3.3 billion in 1963; issues on the Swedish market have shown a similar upward trend. In comparison with London and, more especially, with New York, the continental markets handle a very small volume of securities, but in 1962 and 1963 new issues on the European markets rapidly approached the volume of those on the New York market. Total net new issues for EEC countries, Switzerland, and the United Kingdom amounted to $8.7 billion in 1962 and $10.3 billion in 1963; in the United States, net new issues in 1963 totaled $14.6 billion.

Further rapid growth is likely to depend on important institutional changes within and, possibly, between the various European markets, as well as on changes of investment patterns, particularly within the private household sector. It is possible that the underlying pattern of financial relationships between the business enterprise sector and the private institutional and household savings sectors is changing in a manner which will increase, relatively, the importance of the securities markets within the European economies. Business enterprises are likely to become more dependent on external finance to support expansion than they have been in the past, and possibly they will need to take an increasing proportion of their external finance in the form of issues of long-term securities and increased capitalization of their assets. The rise in household savings, and the impact of a relatively long period of monetary stability in Europe, might well result in a change of investors’ preferences, especially with regard to the accumulation of less liquid monetary assets. The bases for an increase in demand for capital market facilities—by both borrower and lender—seem to be in process of being laid.

Integration of the Capital Markets

The increased need to stimulate greater activity in the European security markets has been emphasized by the effects of the Interest Equalization Tax in the United States, which is retroactive to August 1963. European concerns had been borrowing relatively heavily and increasingly in New York, partly because of lower interest rates and a plentiful supply of funds, partly because costs of issue were much lower than in most European markets, and partly because New York provided the facilities and advantages of a broad international capital market where it was possible to deal readily and cheaply in a broad range of U.S. domestic and foreign issues. The last factor explains in part the paradox that a considerable proportion of European public issues in New York were subscribed by Europeans, although European interest rates were considerably higher than those in New York.4 The Interest Equalization Tax has not only stimulated activity within the European securities markets (especially in London); it has also reduced the attractiveness of New York as a new issues market, as far as interest rates are concerned. Also, there has been increasing realization within Europe that the proportion of funds which could be raised in New York is likely to be of no more than marginal importance, relative to Europe’s total domestic needs for capital.

In the light of the rise of incomes and savings within Europe, it is reasonable to believe that Western Europe, as a whole, ought to be able to meet its own investment capital needs and also to become a net exporter of privately subscribed capital to the rest of the world. It follows that, to the extent that Europe has raised, or will continue to raise, funds in New York because of institutional obstacles within the domestic securities markets, then those obstacles should be removed. The answer to a greater European demand for improved security market facilities is to stimulate the growth of the European domestic markets. That such demand has been growing is illustrated by the fact that continental European investors subscribed more than 80 per cent of the $340 million raised in London through foreign currency issues between May 1963 and July 1964. In order that security markets in Europe may develop successfully, they will need to become more coordinated or integrated than they have been hitherto. Neither capital resources nor capital needs are evenly spread between the different countries within Europe. The most efficient mobilization of capital on a continental scale will need a mechanism to bring borrowers and lenders together which is more effective than the present system of separate and relatively thin domestic security markets subject to individual and distinct control by the national governments. The integration of the European financial markets means, essentially, standardization of practices within and between, and removal of controls over, those markets. New York has, in the past, provided a form of link between the European markets. Since the effective closure of New York to foreign borrowers and, hence, to foreign lenders in the summer of 1963, London has been increasingly relied upon to provide—through the flotation of securities denominated mainly in U.S. dollars for European and Japanese borrowers—the coordinating mechanism between the various units which comprise the international capital markets.

The development of a broad European-based international capital market is likely to depend primarily on a general development of European domestic security markets. As mentioned above, the possibility of increased demand for financial accommodation from the securities markets is, perhaps, the most important development which might lead to a general growth in activity in the markets. Increased activity in the new issues market will tend to build upon itself—especially by making the markets more attractive to both institutional and private investors. But borrowers will need to extend the range and variety of paper traded within the market (especially by issuing greater quantities of equities) and also to meet the demands of investors for more information regarding company operations. More active participation in the capital market would tend to reduce, in some countries, the high cost of marketing and distributing securities. Also, a general broadening of the markets is likely to result in greater competition between financial intermediaries in dealing in securities; in addition, this should reduce the “handling charges” of dealing in securities. Institutional reforms—especially fiscal amendments which would make the issue and transfer of securities an easier and cheaper matter, and which would allow greater participation of institutional investors—would tend further to broaden security markets.5

The needed changes call for considerable legal and institutional reforms as well as a shift in the investment pattern of households and in the financial practices of the private business sector. National governments, too, would need to reassess their attitude toward the development of domestic markets. Such a reassessment has been foreshadowed to some extent by the considerable number of official inquiries, undertaken in various European countries, into the working of the monetary system and by the steps taken to stimulate the institutionalization of the saving-investment process. However, the internationalization of the domestic markets, or any policy leading to the integration of the various European markets, presents problems of a different order. A policy of capital market integration within Europe means inevitably a policy of relaxing controls—the essence of which has been discriminatory and protectionist—over the issue of foreign securities in domestic security markets, and of allowing the free flow of both long-term and short-term funds between capital markets, with some consequential loss of control by monetary authorities over the structure of interest rates in their domestic money markets. Liberalization has gone farthest within the EEC countries; but even here, foreign issues are treated on a different and discriminatory basis, compared with domestic issues. Exchange controls on long-term capital movements within Europe are, to some extent, an impediment to the development of an intra-European market for securities; but other barriers are, perhaps, of greater significance. The different fiscal and taxation systems of the European countries are reflected in differing yield structures on securities; and funds flow to the countries in response to changes in taxation (or in order to avoid some taxes) rather than in response to economic criteria. The collection of dividends from foreign sources is complicated by the different fiscal systems; and lack of information on foreign concerns is another impediment to the international movement of funds. The issue of securities—especially foreign securities issued in domestic markets—needs to be more standardized if the needs of a large number of subscribers from different countries are to be met. Furthermore, international investment is always subject to the risk of changes in exchange rates. Such reforms can be implemented only over a considerable period of time and on a coordinated basis, since they have profound implications for both the domestic and the international monetary policies of the European countries. Few steps have, as yet, been taken which will lead clearly to an integrated European securities market. This is, perhaps, inevitable in the light of the need to increase the importance of such markets within the context of the domestic economies.

However, attempts have been made recently to develop a market in international securities which might appeal to a wide range of subscribers but which is not dependent upon a particular security market or national currency for the issuance of, or subsequent trading in, securities. In this way, an attempt has been made to tap a wide range of sources of funds and also to eliminate the effects of exchange rate changes on international investments. An issue denominated in a Unit of Account is one form of the development of an international security designed to remove the “exchange rate” problem from international investment.6 This type of security is, to some extent, a substitute for a single international center able to issue and deal in securities, and is an attempt to overcome the institutional and other barriers militating against the emergence of such a center in Europe. The issues of international securities have tended to be of two main types: a security denominated in a number of currencies—the most extreme form being the standard accounting unit used by the former European Payments Union (EPU) and thereby covering 17 currencies—and securities denominated in a single currency—U.S. dollars and, in one case, Swiss francs—but issued and traded outside the country of the denominated currency. A variant of the EPU unit of account securities has been a security quoted in one currency but including an option of conversion into one or more currencies (e.g., a U.S. dollar security might be converted into a DM-denominated security) thereby permitting domestic investors to participate in international loans.

These recent ad hoc attempts to develop a “European” or “international” security are probably of limited usefulness. Some countries have objected to their currencies being used as the basis for international loans, partly on the grounds that their monetary authorities do not want to make the currency an international currency. However, the currencies that are likely to be internationally acceptable are precisely the ones that would tend to be used the most. Where multicurrency issues—like the EPU unit of account loans—are concerned, the securities have to appeal to an international investing public (itself relatively small), and the terms of the issues inevitably have to meet conditions relatively more adverse, in terms of costs of issue and yield offered, than if the issue had been placed on a single market and specifically tailored to meet the investment needs of that market. Indeed, if only because of the complexity of the operation, it is unlikely that an international capital market can be built upon an international security that is dependent for its acceptance on the conditions within each domestic security market. The success of the seven unit of account loans already issued should not be overestimated. The five European borrowers in unit of account loans had close government backing, and the loans were made at highly favorable rates of return for the lenders. There is little reason to think that their special form of issue—with their effective exchange rate guarantee—was the main reason for their success.

Mr. H. J. Abs of the Deutsche Bank has outlined a further potential development of the European securities market, which he has called the European Parallel Loan.7 This attempts to take account of conditions in the domestic capital markets of Europe by issuing tranches of a single international loan in a number of markets simultaneously. Each participating country would subscribe to its tranche of the loan in its own currency and, though the terms and conditions of the tranches would be made as uniform as possible, account would be taken of local capital market peculiarities and conditions. The aim is, of course, to mobilize and effectively combine the available resources of the European capital markets. Relatively large-scale borrowers would thus be able to issue loans, and the variety of securities on individual capital markets would be increased. The European Parallel Loan is undoubtedly one method of broadening the European capital markets, and it might be an effective means of tapping funds for international and intra-European borrowers. The whole technique is, however, fraught with complications, not the least of which is that the issues are dependent on conditions in a number of different capital markets and the terms of issue would, presumably, need to be tailored to meet conditions in the least favorable market. Complications are also likely to arise while restrictions on the movement of funds within Europe continue to be imposed and while issues of foreign—though European—securities are treated differently from domestic issues. A further complicating factor is that European Parallel Loan issues can take place successfully only if there is coordination between the financial centers which are prepared to float tranches of the loan; successful coordination between the centers implies a similarity in the scale of priorities for security issues between the various markets. It is doubtful in practice whether these conditions exist in the European security markets of today.

Conclusion

The development of a securities market is basically dependent on, first, a substantial and continuous flow of savings to be invested in securities and, second, a sufficient quantity of securities to match the flow of savings. A well-developed securities market is broadly the result of a high degree of institutionalization of savings and the capitalization of a wide range of physical and governmental assets in the economy. The effectiveness of the market depends on the range, variety, and size of financial institutions which deal in paper claims and titles. The continental European markets are not, on the whole, well developed, in that savings are not strongly institutionalized and there is not a ready acceptance by the private business sector of the need to capitalize their physical assets by issuing securities to the public. Those markets have been characterized above as being “thin,” and this, to some extent, discourages their development. The London market suffers from the drawback of a relative shortage of domestic savings in relation to its superb institutional facilities for handling security issues. As an international capital market only New York has, in the postwar period, proved to be adequate for both lenders and borrowers. That borrowers find it more convenient to appeal to investors through issuing securities on the broadest possible market is illustrated by the number of foreign currency—outstandingly U.S. dollar—issues on the London market since the temporary closure of the New York market. The continental markets need a considerable amount of time, as well as positive encouragement from the authorities, before they are sufficiently well developed to play an important role as providers of capital in both the domestic and international economies.

Le développement des marchés de capitaux en Europe

Résumé

Cet article cherche à expliquer le rôle des marchés des valeurs mobilières dans le financement des investissements des diverses économies de l’Europe continentale. L’auteur soutient qu’un marché des valeurs mobilières convenablement développé résulte, dans une large mesure, d’une institutionalisation très poussée de l’épargne et de la capitalisation d’une grande variété d’actifs. A cet égard, les marchés de l’Europe continentale ne sont pas, dans l’ensemble, très développés.

La mobilisation de l’épargne privée s’est effectuée pour la plus grande partie sous forme d’augmentation des fonds détenus par les organismes qui acceptent les dépôts. Les compagnies d’assurances, les caisses de retraite et les sociétés d’investissement fermées et ouvertes, qui sont le soutien principal des marchés des valeurs mobilières de Londres et de New York, ne sont pas très répandues dans certaines parties de l’Europe occidentale.

Par contre, le secteur privé ne procède pas volontiers à la capitalisation de ses avoirs par des émissions publiques de valeurs mobilières, trouvant plus facile d’obtenir un financement extérieur par des emprunts directs. Jusque vers 1961, les investissements étaient financés dans une large mesure par des fonds d’origine interne. Il convient également de rappeler qu’en Europe les marchés de valeurs sont dominés par les valeurs d’Etat ou d’organismes semi-publics.

Les émissions de valeurs mobilières nouvelles ont considérablement augmenté en Europe depuis 1961. Les sociétés ont eu de plus en plus recours à des sources extérieures de financement, et ces demandes accrues ont coïncidé avec une augmentation de l’épargne des ménages, dont une fraction croissante tend, semble-t-il, à être placée en valeurs mobilières. Une expansion des marchés nationaux des valeurs mobilières est en cours, mais il faudra de nombreuses années et des mesures énergiques de la part des gouvernements avant que les marchés de valeurs mobilières encore insignifiants ne soient intégrés.

Une forme de marché international est en train de se créer en Europe par suite des répercussions sur le marché de New York de l’impôt de péréquation sur les taux d’intérêt. Londres, qui est le centre de ce marché, émet surtout des valeurs mobilières pour les emprunteurs européens et japonais; ces valeurs, principalement libellées en dollars E.U., sont souscrites, pour une large part, par des Européens.

La evolución de los mercados de capital en Europa

Resumen

Este artículo procura exponer el papel de los mercados de valores en el financiamiento de las inversiones dentro de la economía de los países de la Europa continental. Aduce que un mercado de valores bien logrado es, en general, el resultado de la institucionalización del ahorro y de la capitalización de una gran variedad de activos. En general, los mercados de la Europa continental no se encuentran bien desarrollados en tal sentido.

La mayor parte de la corriente del ahorro privado ha sido en forma de aumento de los fondos confiados a instituciones de depósito; en algunos lugares de la Europa Occidental las compañías aseguradoras, las cajas de pensiones, y las sociedades de inversión cerradas y las abiertas, que entre sí constituyen el sostén principal de los mercados de valores londinense y neoyorquino, no han alcanzado gran desarrollo.

Por otro lado, el sector de los negocios privados no es muy dado a capitalizar sus activos mediante la emisión de títulos para venta al público, sino que prefiere obtener financiamiento de fuera por vía de préstamos directos. Hasta aproximadamente el año 1961, las inversiones eran financiadas en su mayor parte con fondos de fuentes internas. En los mercados de valores de Europa también predominan los títulos del estado o los cuasipúblicos.

A partir de 1961, la actividad en Europa en materia de nuevas emisiones ha aumentado notablemente. La creciente demanda de fuentes externas de financiamiento por parte de las sociedades ha coincidido con un aumento del ahorro familiar, del cual una proporción cada vez mayor parece destinarse a inversiones en títulos. Se están sentando las bases para un crecimiento de los mercados internos de valores, pero se requerirá bastante tiempo y vigorosas políticas gubernamentales para que se produzca la integración de los mercados de valores, cuyo tamaño aún es reducido.

Está surgiendo una especie de mercado internacional dentro de Europa, como consecuencia de los efectos producidos en el mercado neoyorquino por el Impuesto para la Igualación de Intereses. La base del mercado es Londres, donde los valores son emitidos principalmente para los prestatarios europeos y japoneses; el valor de los títulos suele expresarse en dólares de EE.UU., y la mayoría de las subscripciones son efectuadas por inversionistas europeos.

*

Mr. Williams, economist in the European Department, was formerly lecturer in economics at the University of Leeds and the University of Hull, England. He has contributed articles to a number of economic journals.

1

J. van der Mensbrugghe, “Foreign Issues in Europe,” Staff Papers, Vol. XI (1964), pp. 327–35.

2

See C. Segre, in Banca Nazionale del Lavoro, Quarterly Review, March 1964, pp. 49–50.

3

The statistics in Table 4 are, of course, particularly influenced by the movement of security and share prices: the market value of business stocks outstanding for Germany, for example, is unusually low, partly because of the fall in stock market prices after 1960 but also because, from about 1959 onward, issues of shares were made at substantial premiums over their par value and the amounts of capital raised through issues of securities were larger than is, perhaps, indicated in Table 4. Total bond issues between the end of 1959 and the end of 1962 amounted to just over DM 34 billion, and the nominal value of shares issued totaled DM 9.6 billion; however, between 1958 and 1962, more than 90 per cent of the bond issues were accounted for by issues of mortgage and communal banks plus loans by specialized credit institutions and by government authorities; the ratio of equities to bonds is, however, rising.

4

During 1962 and the first half of 1963, the proportion of loans issued in New York by Europeans and Japanese was greater for private placements (which were subscribed almost entirely by U.S. investors) than for public issues (about half of which were absorbed by European investors).

5

See International Monetary Fund, Annual Report, 1964, pp. 114–16, upon which this and the following paragraphs have been based.

6

See J. van der Mensbrugghe, “Bond Issues in European Units of Account,” Staff Papers, Vol. XI (1964), pp. 446–56.

7

H. J. Abs, “Parallel Loans to Mobilise Continental Funds,” The Times (Lon-don), March 11, 1964.

Same Series

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Cover IMF Staff Papers
IMF Staff papers: Volume 12 No. 1
Author: International Monetary Fund. Research Dept.
Volume/Issue:
Volume 1965: Issue 001
Publisher:
International Monetary Fund
ISBN:
9781451956122
ISSN:
1020-7635
Pages:
174
DOI:
https://doi.org/10.5089/9781451956122.024