Part III
Substantive Law

16. Free Movement of Services and Capital  


In the first half of the twenty-first century, services (and capital) have moved to the heart of the European economy. Yet the Treaty freedoms dealing with the liberalisation of services and capital long suffered from a ‘shadow existence’. The nocturnal status of the third and the fourth freedoms thereby stemmed from different constitutional causes. For services, it lay in the ambivalent status of the services provisions. The Treaties appeared to treat them as a ‘subordinate’ freedom – the services chapter only applies ‘in so far as [services] are not governed by the provisions relating to the freedom of movement for goods, capital and persons’. The nocturnal existence of the capital chapter originated from a different  constitutional cause. Its ‘backwardness’ stemmed from the fact that the original capital provisions had left the liberalisation effort entirely in the hands of the Union legislator. This predominance of positive integration only changed with the 1992 Treaty on European Union. The latter radically redrafted the capital chapter; and its provisions would henceforth be directly effective – belatedly giving rise to the forces of negative integration.

This fourth and final chapter on the Union’s internal market explores the third and the fourth freedom of movement: the freedom of services and the freedom of capital (Table 16.1). Section 1 analyses the general aspects of the free movement of services. We shall see there that the Court has significantly pushed negative integration through a restriction rationale; yet the Union has also followed a positive integration path in the form of the ‘Services Directive’. Section 2 moves to two special – and very controversial – services regimes, namely that for posted workers and that for public services. By contrast, sections 3 and 4 deal with the free movement of capital – with the former section analysing the scope of the (negative) freedom, whereas the latter surveys the various grounds on which restrictions to the free movement of capital may be justified.

Services I: General Regime

  1. Negative Integration: The Prohibition in Article 56
    1. Personal Scope I: Beneficiaries and Addresses
    2. Personal Scope II: The Concept of ‘Services’
    3. Material Scope: Discrimination and Beyond
  2. Positive Integration: The Services Directive

Services II: Special Regimes

  1. Service Providers and Posted Workers
  2. Service Recipients and ‘Public’ Services

Capital I: Scope and Nature

  1. The Direct Effect of Article 63
  2. The (Elusive) Concept of ‘Capital’
  3. Capital Restrictions: Discrimination and Beyond
    1. Non-discriminatory Capital Restrictions
    2. Fiscal Measures: A Discrimination Test
  4. External Limits: Capital and the Other Freedoms
    1. Relationship to the Freedom of Establishment
    2. Relationship to the Free Movement of Services

Capital II: Justifications (and Derogations)

  1. Express Justifications I: Tax Discriminations under Article 65(1)(a)
  2. Express Justifications II: Article 65(1)(b)
  3. Implied Justifications: Imperative Requirements
  4. Special Derogations for Third-country Restrictions
    1. Special Grounds of Justification
    2. Special Standard(s) of Justification


  1. V. Hatzopoulos, Regulating Services in the European Union (Oxford University Press, 2012), vii: ‘Over 70 per cent of Member States’ GDP comes from the provision of services. About the same percentage accounts to the actual level of employment in services, while the numbers climb to over 95 per cent when it comes to the creation of new employment.’ 
  2. For services, see W.-H. Roth, ‘The European Economic Community’s Law on Services: Harmonisation’ (1988) 25 CML Rev. 35. 
  3. Art. 57[1] TFEU.