EU moves on bank taxes skid into trouble

(BRUSSELS) - Much-vaunted EU plans to tax banks skidded into trouble after moves to clamp down on big-spending governments also hit buffers despite broad agreement on Tuesday to regulate the financial sector.

Three separate ideas to make banks pay more heavily into public coffers, after trillions were pumped into debt-ridden lenders, prompting a massive recession hangover for governments, were shot through with problems when finance ministers met in Brussels.

The difficulties arose despite a mountain of research prepared by European Union experts on plans to tax either turnovers or profits and to tax banks in order to set up a bloc-wide network of funds that could be used to offset debts that go bad.

French President Nicolas Sarkozy in addition has vowed to make a "Robin Hood"-style campaign against the villains of the global financial crisis a priority of his chairmanship of the G20 from November this year.

British finance minister George Osborne will introduce a national levy on banks operating in Britain next year -- but with the proceeds going toward lessening massive cuts on public services, a move that would be contrary to recommendations from the European Commission.

On the broader plans, and in light of the fact that about four-fifths of Europe's finance sector is located in the City of London, Osborne warned of fundamental obstacles "in a world in which capital markets and financial activity can move very quickly to jurisdictions outside of the European Union."

He said that such taxes have "been discussed for many decades past, and I suspect they're going to be discussed for many decades to come," and suggested that efforts would be "more fruitfully directed at ... other pressing issues in the world economy."

"Ministers will further discuss the issue at an informal meeting in Brussels on September 30 and October 1," read a statement after the talks, recalling a loose commitment expressed by national leaders at an EU summit in June.

Diplomats blame simple fear of an exodus at a time when dark clouds are returning to Europe's economic horizon.

"Everybody is scared that if we do it, the banks will vanish," one senior figure said.

Damagingly, Sweden came out against the plans even before the talks began, warning from experience that companies will simply move to friendlier regimes elsewhere.

"We don't want a new transaction tax," finance minister Anders Borg said, warning that flight to Switzerland or other more generous territories was "obviously something that would be bad" for general corporate taxation income.

The EU's Belgian presidency admitted there was "no unanimity," while taxation commissioner Algirdas Semeta said there is "a big diversity of opinions among the mnisters."

France's Christine Lagarde acknowledged deep divisions and summed up by saying these taxes were "technically feasible, practically difficult, politically desirable and financially unpredictable."

The other main backer over recent months, Germany's Wolfgang Schaeuble, said it was "not certain that they would see the light of day, but there is a chance."

In a 'state of the union' speech to the European parliament, commission chief Jose Manuel Barroso, who floated the creation of a European bond to finance big infrastructure projects, said more detailed proposals would be brought forward.

The bloc's day-to-day executive has invested substantial political capital in the notion, notably as banks in the euro currency area have been hard hit by speculation linked to a debt abyss uncovered in Greece.

Activists are also pushing hard in the wings, accusing mainly centre-right governments of dodging the issue for ideological reasons.

The loss of momentum on taxes followed a retreat on moves to automatically punish governments that breach deficit and debt ceilings, partly for legal reasons.

However, ministers did finally sign off on an agreement on the grand outlines of three new bodies to create a landmark cross-border supervisory regime for regulating banks, insurers and markets.

07/09/2010 : Press release 3030th ECONOMIC and FINANCIAL AFFAIRS Council meeting (provisional version) - Brussels, 7 September 2010