April 7, 2010
On 25th March, the European Parliament’s Financial, Economic and Social Crisis (ECON) Committee met to discuss the feasibility of an EU-wide financial transaction tax (FTT), two weeks after MEPs voted 536-80 in favour of such a measure.
Today, in the aftermath of the banking crisis and the anger it has caused, such a levy has become a byword for retribution. But the concept has existed for decades; John Maynard Keynes first conceived of a transaction tax in 1936 to abate the damaging effect of speculation in currency markets. His self confessed disciple James Tobin developed the idea in 1972, at the inception of computer-driven financial activity. A levy of 0.5% on each exchange would, he believed, “throw some sand in the wheels of international money markets”.
Prominent EU leaders, including UK Prime Minister Gordon Brown, President Sarkozy of France and German Chancellor Angele Merkel, have frequently championed the revenue-raising potential of a FTT. In fact, the so-called Tobin’s tax, from which the idea is derived even if the proposed FTT differs slightly, was originally intended only to curb volatility – so the idea which was mooted at November’s G20 summit might be better described as a hybrid of the high-profile ‘Robin Hood’ tax, with which it is often conflated. Austrian economist Stephan Schulmeister told the ECON Committee that just a levy of just 0.05% – a tenth of what Tobin originally suggested – would raise 300bn euros, which could be used to pay off national debts, ensure Europe’s food security, tackle climate change, and perhaps increase development aid.
Yet while they appeared poised with fistfuls of metaphorical sand last year, enthusiasm seems to have waned among EU leaders, as opposition from the US increasingly shifts the debate towards a levy on bank profits. International Monetary Fund Managing Director, Dominique Strauss-Kahn, has warned that because financial instruments are far more complex now than in 1972, a transaction tax would be complex to devise – and easy to avoid. He is nevertheless expected to propose a levy on the banking sector when he meets G20 finance ministers in Washington this month. However, since taxation remains a nationally reserved power, moves towards pan-European coordination could be met with fierce resistance.
Council President-in-turn José Luis Rodríguez Zapatero has said Europe should take the initiative on transaction taxes at future global forums, but is reluctant to pursue any path alone. ACCA (the Association of Chartered Certified Accountants) shares the agreed view that global coordination would be essential for a successful implementation of a financial transaction levy, should decision makers decide to reach agreement on such a proposal. A report recently published by the EU Commission assessing the main sources of “innovative financing” seems to suggest however that actions at EU level alone should not be discarded. Now, as the future of a European FTT hangs in the balance, the pressure is on for MEPs to win round their leaders before the June’s G20 summit in Toronto.Author : cecilebonino