Bank levies for bank problems, not hard-up governments: EU

(BRUSSELS) - Levies on banks across Europe should be designed to avoid costly bills for ordinary taxpayers if debts go bad again in future, and not to prop up short-changed governments, the EU said on Monday.

The drive to force banks to pay a percentage of their income into sector-specific rainy-day funds puts Brussels policymakers on a direct collision course with the British government.

London has already announced that it will levy banks from January next year, but with the proceeds going into general government revenue which can be used to help offset massive cuts in health, education and other services provision amid the fallout from recession.

Plans produced by European Union financial services commissioner Michel Barnier's department, which will be examined by finance ministers from the 27 member states in Brussels on Tuesday, maintain it is "urgent" and "critical" that the bloc adopts "a coordinated approach" to such taxes.

Without that, the ability of member states to act in a way that "ensures prompt action in the event of major banking failures, protects the broader financial system and minimises costs to public finances, might be compromised," it concludes.

"Directing the proceeds of levies to the general budget, on the other hand, carries a risk that... could potentially handicap authorities' ability to coordinate intervention in a cross-border case," it underlined, warning that "the risk of significant distortions will increase."

A British government official earlier maintained that the proceeds of its bank levy would be used entirely at its own discretion, reiterating a fiercely independent line on all fiscal disputes and concerns that taxes raised in London or Edinburgh financial centres could be redirected towards eurozone partners.

Hopes of a deal that would see all 27 EU nations apply similar levies are further advanced than those for a tax on financial transactions, which diplomats say is already facing an avalanche of difficulties.

Sweden introduced a new 0.036 percent levy on banks' final balance sheets in October last year, while Britain, France and Germany each announced plans for such levies in June with Hungary soon following suit.

However, Brussels is increasingly concerned that "only Germany and Sweden envisage that the money raised should be used to constitute dedicated funds," according to the report seen by AFP.

Barnier's preferences, first trailed in May, were to have seen the proceeds of the tax used to make bridging loans to financial institutions deemed to be viable, help banks get rid of bad assets and offer legal and administrative help to those that have to close down.

The commission calculates that public financial support given to the EU banking sector during and since the financial crisis amounts to some 16.5 percent of EU economic output.