Article 56 of the Treaty on the functioning of the EU (ex Article 49 TEC) states that restrictions on "freedom to provide services" within the Union are prohibited in respect of nationals of Member States who are established in a State other than that of the person for whom the services are intended. Any discrimination concerning the provision of services on the basis of nationality is prohibited directly by this Article (without the need of specific European legislation). Under Article 57 of the TFEU (ex Article 50 TEC), services shall be considered as such where they are normally provided for remuneration, in so far as they are not governed by the provisions relating to freedom of movement for goods, capital and persons. This Article specifies, however, that the provisions on the free movement of services cover all activities of an industrial or commercial character or of craftsmen and the activities of the professions.
The activity must be limited in time, must normally be pursued against payment and must involve some form of foreign aspect, unless the border is physically crossed. The person providing a service may, in order to do so, temporarily pursue his activity in the State where the service is provided, under the same conditions as are imposed by that State on its own nationals (third paragraph of Article 57 TFEU). Services provided under a contract outside the country of establishment may be of a long duration. There is nothing, moreover, to preclude an activity for the provision of services from being of a magnitude such as to necessitate the acquisition of real estate in the country of provision of services. However, to constitute a provision of services rather than a permanent establishment, the person providing the service must remain established in his own country and his services must cross borders [see section 6.5]. It appears that the freedom of establishment and the freedom to provide services cannot be clearly distinguished in all situations and that they often go together, since a person or company seeks establishment in another Member State in order to provide services in that state. This is why the two freedoms are usually considered as one: the freedom of establishment and provision of services.
A judgment of the Court of Justice of 3 December 1974 in the Van Binsbergen case established the direct applicability of the prohibition on discrimination in respect of the provision of services [Case 33/74, see section 3.3], just as the Reyners case had done for freedom of establishment [see section 6.5.1]. Indeed, according to Court case-law, Article 59 EEC (Article 56 TFEU) in itself grants operators properly established in their country of origin the right to supply services in another Member State without the latter being able to prevent the exercise of that right on the grounds that the conditions of supply are different there [Case C-288/89]. Only overriding reasons relating to the public interest may justify an exception to that principle, provided that it is proportionate to the aim in view.
Services constitute the engine of economic growth of the EU, since they account for 70% of GDP and employment in most Member States. They therefore are a linchpin for smooth operation of the EU's internal market. Their liberalisation was originally based on the principle of mutual recognition, according to which, if a service is lawfully authorised in one Member State it must be open to users in the other Member States without having to comply with every detail of the legislation of the host country, except those concerning consumer protection. However, numerous barriers in the Member States prevented providers, particularly small and medium-sized enterprises (SMEs), from extending their operations beyond their national borders and from taking full advantage of the internal market. Since the barriers in the internal market for services affected operators who wished to become established in other Member States as well as those who provided a service in another Member State without being established there, it was necessary to remove barriers both to the freedom of establishment for providers in Member States and to the free movement of services between Member States and to guarantee recipients and providers the legal certainty necessary for the exercise in practice of those two fundamental freedoms of the Treaty on the functioning of the EU.
This is the aim of the ''services directive'', which establishes a general legal framework facilitating the exercise of the freedom of establishment for service providers and the free movement of services, while maintaining a high quality of services [Directive 2006/123]. That framework is based on a dynamic and selective approach consisting in the removal, as a matter of priority, of barriers which may be dismantled quickly and, for the others, the launching of a process of evaluation, consultation and complementary harmonisation of specific issues, which will make possible the progressive and coordinated modernisation of national regulatory systems for service activities, in order to achieve a genuine internal market for services by 2010. Directive 2006/123 does not affect terms and conditions of employment, including maximum work periods and minimum rest periods, minimum paid annual holidays, minimum rates of pay as well as health, safety and hygiene at work, which Member States apply in compliance with European law. This Directive does not deal with services of non-economic general interest (education and health), social services provided for by the State, audiovisual services, including cinematographic services, gambling, activities connected with the exercise of official authority, private security services, services provided by notaries and bailiffs and services of temporary work agencies.
Harmonisation of legislation is henceforth necessary only in very specific instances, to facilitate the exchange of services, notably electronic pay services. Thus, a Directive seeks to harmonise the legislation of Member States concerning measures to combat illicit devices which allow unauthorised access to protected services, such as pay television, video or sound recordings on demand, whose remuneration -and often viability - relies on "conditional access" techniques such as encryption or electronic locking [Directive 98/84].
Financial services - banks, insurance companies and stock exchanges - which are closely monitored by the official authorities, are particularly important, as they constitute a vast market and are indispensable for the proper functioning of the other economic sectors. The freedoms of establishment and provision of services in the common market required that those services be liberalised from the protectionist measures applied by most Member States. This liberalisation, however, should reconcile two contradictory requirements, viz. the need to maintain very stringent criteria for control and financial security and the need to leave the branch concerned enough flexibility for it to be able to meet the new and ever-more complex requirements of its customers throughout the European market, particularly since the introduction of the euro. The Financial Services Committee helps define the medium- and long-term European strategy for financial services issues examined below [Decision 2003/165, see sections 6.6.1, 6.6.2 and 6.6.3].
The crisis in the financial markets, in 2007 and 2008, exposed shortcomings in financial supervision, which has failed to anticipate adverse macro-prudential developments and to prevent the accumulation of excessive risks within the financial system. Therefore, a programme was established, for the period from 1 January 2010 to 31 December 2013, to support the activities of bodies which contribute to the achievement of the policy objectives of the EU in relation to supervisory convergence and cooperation in the field of financial services and in relation to financial reporting and auditing [Decision 716/2009]. Subsequently, a European System of Financial Supervision (ESFS) was established, bringing together the actors of financial supervision at national level and at the level of the Union, to act as a network. Its main task is to ensure that the rules applicable to the financial sector are adequately implemented to preserve financial stability and to ensure confidence in the financial system as a whole and sufficient protection for the customers of financial services. The ESFS comprises:
a) the European Systemic Risk Board (ESRB), responsible for the macro-prudential oversight of the financial system within the Union n order to contribute to the prevention or mitigation of systemic risks to financial stability in the Union [Regulation 1092/2010];
b) the European Banking Authority, having as a main objective the protection of depositors and investors in the Union [Regulation 1093/2010];
c) the European Insurance and Occupational Pensions Authority, which should ensure, in particular: the protection of policyholders, pension scheme members and beneficiaries; prevent regulatory arbitrage; guarantee a level playing field; and strengthen international supervisory coordination [Regulation 1094/2010]; and
d) the European Securities and Markets Authority (ESMA), which should pay particular attention to any systemic risk posed by financial market participants, the failure of which may impair the operation of the financial system or the real economy [Regulation 1095/2010].
A Financial Services User Group advises the Commission in the context of the preparation of legislative acts or other policy initiatives affecting users of financial services, including consumers, retail investors and micro-enterprises [Decision 2010/C 199/02].