Taxing questions occupy EU leaders at summit

(BRUSSELS) - European leaders tackled the thorny question of how to tax the financial sector on Thursday, distilling ideas to put to next weekend's G20 summit in Canada.

However, a Franco-German push to have a broad-based tax on financial transactions agreed across the European Union was left off the menu during Brussels summit talks, with Britain also insisting that the fruits of a planned bank levy be left in national hands.

"Germany and France indeed favour the notion that those responsible for the crisis are made to pay more," said German Chancellor Angela Merkel on arrival at the summit venue.

They wanted a coherent EU position to take to Toronto on June 26 and 27, after the Group of 20 failed to find a consensus even on less controversial bank levy proposals at a ministerial meeting in South Korea earlier this month amid opposition notably from Canada, Brazil, Australia and India.

Canadian Finance Minister Jim Flaherty said that the debate on the bank levy had been "a distraction from core issues" in Busan. Most G20 ministers "do not support the concept of a universal levy."

In amended draft conclusions prepared for the EU leaders, they were expected to agree that "member states should introduce a levy on financial institutions to ensure that they contribute to the cost of crises."

However, they concede that the purpose of such taxes remains the subject of some disagreement, adding that "further urgent work is urgently required on its main features."

Czech Prime Minister Jan Fischer said on his arrival that Prague had demanded that an earlier text, "too rigid," already be relaxed.

France and Germany did receive support on Thursday from Italy, whose Foreign Minister Franco Frattini backed a bank tax "within a European framework" to avoid "everyone drawing up their own levels."

According to diplomatic sources, though, Britain was to push for "levies" plural that could be coordinated to avoid competitive disputes, but would stress that tax remains solely the reserve of national sovereignty.

Its government is expected to unveil a national bank levy in an emergency budget on June 22.

The French and German plan for a wider tax on financial transactions, the contours of which still vary widely depending on means of collection or interpretations of its potential uses, remains close to a non-starter.

According to a senior EU official, it is "in the pipeline, but I wouldn't be able to answer where exactly it is in the pipeline."

European Commission chief Jose Manuel Barroso has offered his backing for a tax on transactions or on profits, but has also admitted such ideas face "enormous resistance" and would be "extremely difficult" to impose at a global level.

The commission published projections in April that said a tax on financial transactions in Europe could be worth 20 billion euros on an annual basis at current trading levels, but warned of a "substantial" threat of firms fleeing and of "asymmetric" revenues in different countries, namely in Britain where up to 80 percent of Europe's financial services sector is based.

Put bluntly by one diplomat, London simply "doesn't want it," for fear of banishing its lucrative finance industry to Switzerland or other non-EU offshore centres.

June European Council