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Eurozone looks at bank tax to help Greece, fight debt crisis

20 July 2011, 12:53 CET
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(PARIS) - Eurozone leaders are looking closely at a tax on banks as part of a new plan to help Greece out of its debt crisis, despite protests from French and German banks in particular.

French European Affairs Minister Jean Leonetti said on Monday that they were seriously considering the idea -- and he made clear it would involve all banks, not just those holding Greek debt.

Ratings agencies -- and the European Central Bank -- have already objected to German calls for private creditor banks to contribute to the bailout, saying it would amount to a default.

Nor were they convinced by French suggestions that it would be on a "voluntary basis", warning that despite this description, such a solution would trigger a default rating.

Backers of the new tax approach see it as a way of getting around this problem, which will be one of the central obstacles which eurozone leaders will try to overcome when they meet in Brussels on Thursday on a rescue for Greece.

For as warnings rise that the crisis in the eurozone is dragging down other economies perceived as vulnerable, such as Italy and Spain, there is a sense of growing urgency about agreeing a new aid package for Greece.

Several media reports citing sources close to the talks suggest that this tax could raise up to 30 billion euros ($43 billion) over two or three years.

But Nicolas Veron, an economist with the Brussels-based Bruegel Institute, sees potential problems.

"It's fairly logical that given the difficulties of the talks on private sector participation, governments opt for financing through a specific tax...," he said.

"But it's anything but a voluntary contribution."

The banks too, have their reservations.

For Francois Perol, president of the French Banking Federation (FBF), the idea follows a "strange logic".

For the tax would apply only to banks -- not the insurance companies, pension and investment funds, hedge funds and other financial institutions with substantial exposure through their bond holdings to the Greek debt crisis.

According to a recent estimate by AXA IM (Investment Managers), their stake runs to about 100 billion euros.

"It does not seem to us be a political and economic response," said Perol. "It's something else.

Across the border, general manager of the Association of German Banks (BdB) Michael Kemmer, is equally sceptical.

But governments seem more enthusiastic.

Last Friday, the German parliament began moves to introduce a tax on bank profits to be fed into an emergency fund for use in the event of a major institution failing.

Michel Barnier, the European commissioner on tax issues, wants to create a similar tax at the European level.

And back in autumn of 2010, France introduced its own tax on banks.

The equivalent tax in Britain brings in a hefty 2.84 billion euros, against less than a billion euros in German and a little over 500 million euros in France.

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