Eleven European states back financial transaction tax
ReutersLUXEMBOURG/ATHENS--Eleven eurozone countries agreed on Tuesday to press ahead with a disputed tax on financial transactions designed to help pay for the cost of fixing a crisis that has rocked the single currency area.
October 10, 2012, 12:30 am TWN
The initiative, pushed hard by Germany and France but strongly opposed by Britain, Sweden and other free-marketeers, gained critical mass at a European Union finance ministers' meeting in Luxembourg, when more than the required nine states agreed to use a treaty provision to launch the tax.
The “Tobin tax,” first proposed by Nobel-prize winning U.S. economist James Tobin in 1972 as a way of reducing financial market volatility, has become a political symbol of a widespread desire to make banks, hedge funds and high-frequency traders pay a price for the crisis.
“This is a small step for 11 countries but a giant leap for Europe,” Austria Deputy Finance Minister Andreas Schieder said. “The way is now clear for a just contribution from the banking and financial sector for financing the burdens of the crisis.”
The agreement raised the prospect of a pioneer group of European states for the first time launching a joint tax without the unanimous backing of the 27-nation bloc, a move that may fragment the single market for financial services.
EU Tax Commissioner Algirdas Semeta told the meeting the number of states backing the initiative had passed the quorum for so-called “enhanced cooperation”, provided some countries turn their oral backing into written commitment.
“I proposed this tax as a source of new revenue from an under-taxed sector, and a means of encouraging more responsible trading,” Semeta said. “It would also prevent a patchwork of national bank taxes from creating difficulties for businesses in the Single Market.”
However, critics say it could distort that market by giving banks and other traders incentives to shift their trading activities to European financial centres where the tax is not levied, or away from Europe altogether.
“People will arbitrage it. People will find a way around it,” said David Stewart, CEO of London-based hedge fund firm Odey Asset Management, which runs around $6.5 billion.
“If someone really wants to buy a company that's good, I'm sure they'll keep on buying it. But if it's a synthetic derivative then they may go somewhere else ... More volume will go through London.”
Britain, home to the region's biggest trading centre, will not join the scheme.
Austrian Finance Minister Maria Fekter said the 11 countries would present a model for how the tax would work by the end of the year, and it was realistic to expect the tax to be implemented by 2014.
Semeta said the countries aiming to launch the tax did not yet agree on where the proceeds should go or on what they should be spent.
“Some of them would like to spend it individually. Some of them prefer to use part of the proceeds to finance the EU budget. It is premature to say what will be the final outcome,” he said.
The breakthrough was a surprise to many EU diplomats who had thought Germany might fail to convince sufficient countries to join the plan, which has been in the works for two years.
After heavy diplomatic pressure from Berlin overnight, Spain and Italy agreed to support the measure. Slovakia and Estonia said they would throw their weight behind it too.
The European Commission has said a tax on stocks, bonds and derivatives trades from 2014 could raise up to 57 billion euros a year if applied across all countries.