Disputed financial transactions tax crosses first EU hurdle
(BRUSSELS) - EU finance ministers gave a downbeat reaction Tuesday to plans for a cross-border tax on the finance industry, but agreed to discuss further a proposal stiffly resisted by Britain.
Four decades after US economist James Tobin came up with the idea, the French-led financial transactions tax (FTT) drive is aimed at raising revenues from financial firms after banks especially benefited heavily from taxpayer bailouts when the US mortgage meltdown triggered the 2008 global financial crisis.
The City of London is home to 80 percent of Europe's finance industry, and Britain expressed its view during the talks that the initiative as drawn up by the European Commission last year had "raised more questions than answers" to-date.
But chief cheerleader France had already secured backing from Austria, Belgium, Finland, Germany, Greece, Italy, Portugal and Spain beforehand, and afterwards EU taxation commissioner Algiridas Semeta said that most European Union states appeared "keen to go for a European solution."
Talks will again be held in Copenhagen, where finance ministers meet at the end of the month, in a bid to "prevent a piecemeal solution" within the single European market, Semeta added.
Tax questions require unanimity across the 27-state EU, and with further opposition from Sweden, which cited a failed experiment of its own, and the Czech Republic, there is no chance of the tax as it stands being taken up across the board.
However, a special provision of the EU's Lisbon Treaty does allow for at least one third of the EU's member states to trailblaze new laws among a smaller group of nations, using so-called "enhanced cooperation."
It was therefore significant that a group of nine has assembled to promote the tax, although to pursue enhanced cooperation they have to try for full backing first.
"You have to think about alternatives and compromises," said German Finance Minister Wolfgang Schaeuble beforehand.
However, after the talks, Schaeuble suggested that the minimum workable range would be for a tax introduced right across the 17-member euro currency area.
Anything else, he suggested, "would be a patchwork solution which does not make sense."
Sweden's Anders Borg had maintained the sort of tax proposed would only "increase lending costs, the cost of capital for companies and the cost for governments," saying it would ultimately hit growth.
French President Nicolas Sarkozy announced in January that a unilateral financial transactions tax in France would take effect in August, saying it would add one billion euros annually to state revenues.
British Prime Minister David Cameron retorted that French banks would simply move to the City of London to escape the tax.
Experts say the tax would in practice hit any financial institution that has any foothold in the nine countries -- thereby affecting the City as well.
The nine said in a letter demanding that the EU examine the plans that the tax is necessary "to ensure a fair contribution from the financial sector to the costs of the financial crisis, but also to improve the regulation of markets."
The provision for "enhanced cooperation" has already been used to overcome difficulties in harmonising some aspects of cross-border divorce law, and is also currently the vehicle for a single EU patent.
But Denmark, currently in the EU chair, has stressed that this mechanism may be used only as a "last resort."
Diplomats recalled that the patents push is making progress only now after decades in legal limbo following challenges from Italy and Spain.
Text and Picture Copyright 2012 AFP. All other Copyright 2012 EUbusiness Ltd. All rights reserved. This material is intended solely for personal use. Any other reproduction, publication or redistribution of this material without the written agreement of the copyright owner is strictly forbidden and any breach of copyright will be considered actionable.