Dutch central bank against financial transaction tax

(THE HAGUE) - The Dutch central bank said Monday it opposed plans for a financial transaction tax in the EU as it will cost banks, pension funds and insurers in the Netherlands billions of euros and discourage growth.

"The introduction of a European financial transaction tax is undesirable," the DNB said in a statement from Amsterdam, adding it estimated costs to run to four billion euros ($5.2 billion) a year.

The European Commission proposed in September introducing a financial transaction tax (FTT) in the 27-nation European Union, to among others things discourage market speculation.

The DNB said "it is doubtful whether the proposal will in fact realise" the goal of discouraging risky trading behaviour, "whereas the negative impact on the economy is a certainty."

It said an FTT may discourage practices such as high frequency trading, where computers automatically make trades to exploit subtle price differences but which critics say has increased market volatility.

It may also, however, encourage trading houses to relocate or take even more risks to maintain their earnings, the DNB said.

"Pursuing a riskier trading strategy to protect ones margins would run exactly counter to what the Commissions proposal aims to achieve," it said.

An EU-wide FTT is unlikely to see the light a day as Britain, home to three quarters of the financial services in the EU, is opposed.

However, France is keen on pursuing a tax within the eurozone and President Nicolas Sarkozy on January 29 announced that France will if necessary go it alone and impose 0.1 percent levy on financial transactions.