Wednesday, 28 September 2011

EU banker tax? UK says no

"In the last three years member states - I should say taxpayers - have granted aid and provided guarantees of €4.6 trillion to the financial sector. It is time for the financial sector to make a contribution back to society. That is why I am very proud to say that today, the Commission adopted a proposal for the Financial Transaction Tax."

With these words European Commission President Jose Manuel Barroso put forward what is bound to be an enormously controversial piece of EU legislation, a transaction tax on bankers and investors who invest in stocks, bonds and derivatives. Speaking to the European Parliament in Strasbourg today for his annual 'state of the union' address, Barroso said the tax would bring in €55 billion per year, starting from 2014.

The language used by the president was clearly populist in nature, emphasising a sense of fairness and responding to a public feeling that the bankers who caused the economic crisis of 2008 have never been called to account and have not been asked to contribute to the recovery from the pain they caused. Stock markets and investment firms have made remarkable recoveries over the past few years, and executive pay has steadily risen. But at the same time the economy as a whole has suffered enormously and continues to suffer.

The UK immediately said it will resist the EU financial transaction tax, and Barroso anticipated this resistance in his speech. Such a financial transaction tax would require the approval of all EU member states, and the UK has vowed to veto it. David Cameron's government says they have no objection to a financial transaction tax in principle, but such a tax would have to be global. They have also said that the UK would be disproportionately affected by such a tax. Some have estimated that 80% of the revenues from a Europe-wide financial transaction tax would come from London.

Noting that his proposal will likely encounter the "constraints of unanimity" in trying to get passage, Barroso suggested that perhaps only the Eurozone – the countries that use the euro – would adopt it. It was yet another sign that Europe may split into two entities – a core Eurozone and a wider, increasingly irrelevant EU.

If such a transaction tax is passed it will have big implications for the United States, and indeed for the whole world. A tax of 0.1% would be levied on all transactions where at least one party is based in the EU. With the global nature of today's market, that is likely to encompass a large share of the typical Wall Street trader's transactions. It would be yet another instance of the EU being the world's regulator.

But given the inevitability of a UK veto and the fact that the EU has bigger things to worry about at the moment, this proposal is probably going nowhere, at least for the moment. There will be plenty who see this as a populist move by the commission ahead of a difficult year during which the EU and member state governments will have to convince the people to go along with plans for stronger fiscal union.

UKIP rebuke

Perhaps because he had the veto in mind, Barroso appeared to be particularly fed up with the Brits today. During the section for statements by the party leaders, UK Independence Party leader Nigel Farage gave his usual EU-bashing rant, asserting that the UK is a powerful, prosperous nation that doesn't need the EU. Normally European leaders ignore this sort of thing. But this time Barroso bit back. And his response seemed to be directed not only to Farage but to Britain as a whole. In fact he devoted most of his allotted time for closing remarks to a response to Farage's accusations.
"If you do not respect the institution to which you belong yourself this is not my problem. And regarding Britain I would like to make this point to you: as far as I know there have been several times tries for you to be elected for your own British Parliament. How wise are the British people that have never elected you and sent you exactly here. Precisely because if you want your country to leave the European Union, say it in London. Because so far as we know your institutions, your country wants to remain in the European Union.

And if your country does not want to be in the European Union do not speak on behalf of the others, do not speak on behalf of Poland that just today said their commitment to the community approach and to stronger and ever close European Union.

If Britain believes that it can, because of the past empire or because of its dimension, defend its interest in the world alone - try to get that point across in your country. But I think that the majority here believes as was said - that to protect our interest, to defend our values in the world of globalisation, to speak with one voice with our American friends or with China and Russia, we need a stronger European Union. And this stronger European Union is the way to reinforce also our countries, the countries we represent around this house."
As we seem to be heading toward a two-speed Europe and an integrated Eurozone bloc of which the UK will not be a part, this is indeed an important question the British need to be asking themselves right now. If financial union does go ahead, binding the Eurozone states together in an unprecedented way, is the UK really content to be outside that process? It is a debate which has not yet started in the UK, but will likely need to be dealt with in the coming months as negotiations toward financial union get underway.


Arnaud said...

‎(for once) Thank you Mr. Barroso. Brilliant article as usual ;-)

Chris said...

Well, if 80% of revenues will come from, literally, a square mile, then surely that location should have a BIG say in it..... If the Eurozone wish to go be it.... they will earn about a Euro....and the rest will come to London.

Arnaud said...

Well if 80% of the Greece (and other PIIGS) problems regarding speculation on their public debt come from this square mile, it would be normal to try to limitate this and take back a bit of what it has cost to European tax payers. Wouldn't it?

Chris said...

Actually it is French, German, Italian and Spanish banks that are exposed to the Greek debt situation....UK banks did not go into Greece to this level. Although if you want to talk about Spain...we have issues there, but this is a different type of crisis from the Greek one where it is pure bankruptcy.

Arnaud said...

I am not talking about banks. I am talking about speculative funds.

Chris said...

You've just proved the UK govt point.... speculation can come from anywhere....and still has the same unsettling effect. If you are going to tax one country but globally there is no agreement, the money will not move from London to Europe, it will move from London to Tokyo/New York/ Chicago and we will remain uncompetitive for a long time.

Petri said...

Well, when you look at the statistics of BIS (Bank for International Settlements) and take into account all the interlinked loans/risks (risks arising both from the direct loans to 'crisis countries' as well as from the loans to the countries that have loaned to the crisis countries), the overall risk of the British banks is biggest in Europe, nearly EUR 1000 billion, i.e. 959 bn. In the German case the figure is 'just' EUR 563 bn. Only the US banks have bigger overall risk in Europe than the British, around EUR 1000-1500 bn. No wonder that Cameron and Geithner are putting pressure on the Eurozone countries to solve the crisis. What makes this 'interesting' is that when applying the same method to calculate the overall risk, for example the share of the Finnish banks is EUR 9 bn, i.e. around 1% of the risk of the British banks. On the other hand, the Finnish share of the 'crisis funding' is already about EUR 20 bn (and raising), much more than the equivalent of the British. If and when the crisis would be solved, the UK (banks) would therefore benefit 100 times more than the Finnish ones... (for data, see: