A top Europe official proposes tax on financial transactions
It was the banks that landed the global economy in trouble three years ago, forcing governments and taxpayers to reach deep into their pockets to bail them out. Now, European officials say, it’s time for the banks to accept some of the pain, as well.
A top European Union official proposed a tax Wednesday on all financial transactions in the EU. A levy of just 0.1%, officials say, would raise about $75 billion a year for the EU as it tries to stare down the continent’s debt crisis.
The proposal packs a populist punch in these lean economic times. In the United States, the idea would probably be dead on arrival given th the current anti-tax mood. Officials in Britain, where many of Europe’s financial transactions take place, are also against it. But such is the depth of the euro debt crisis that the idea is being aired at the highest levels.
“It’s a question of fairness. If our farmers, if our workers, if all the sectors of the economy ... pay a contribution to the society, the banking sector should also give a contribution to society,” European Commission President Jose Manuel Barroso declared in a speech before the European Parliament, whose members applauded warmly.
Their reaction reflected the anger that many of their compatriots feel over how much Europe’s big banking houses — and the wealthy executives who run them — have benefited from taxpayer largesse, without being asked to give much in return.
Financial institutions weren’t bailed out only during the 2008 global financial meltdown, supporters of a levy say. In the current crisis, taxpayers have also served as human shields for the banks by lending billions of dollars to Greece to save the country from bankruptcy, thereby sparing European banks a major hit from their hefty exposure to Greek debt.
“We’ve given them enough. We can take some back,” said Gitte Witt, an employee in a wine shop in the trendy Prenzlauer Berg district of Berlin.
In Athens, where residents have been asked to digest a new set of austerity measures seemingly every other week, the banks also received a cold shoulder from Sophia Theologou, 52.
“My family is struggling to survive,” said Theologou, who works at the public power corporation. “My most pressing concern is to find the extra money to pay for the extra taxes due at the end of the month. I can’t spare any sympathy for banks.”
The financial sector has been the target of off-and-on street protests in Europe for three years. Demonstrators regularly occupy bank branches across Britain. In Spain this summer, a huge grass-roots movement of young people angry about the state of the economy directed some of its ire at the banks.
Translating popular anger into a European levy on financial transactions, including the buying and selling of bonds and derivatives, will be a tall order, despite the positive reception Barroso got during his annual EU “state of the union” address in Strasbourg, France.
His proposal is strongly supported by France and Germany, Europe’s heavyweights, whose banks also happen to be the biggest holders of Greek debt outside Greece.
But it is difficult to get all 27 EU members to agree to any major policy shift. And Britain’s opposition could well make the proposal a non-starter. Britain has promised to veto the proposed levy unless it is applied worldwide. (No chance of that, given American resistance.)
Otherwise, says the British government, the economy here would be disproportionately affected because of London’s status as the Wall Street of Europe. The lion’s share of European financial transactions takes place in the gleaming skyscrapers of the City, the historic square mile in the heart of the British capital.
“It really is a red line for the Treasury and financial services in London,” said Raoul Ruparel, an analyst with Open Europe, a London-based think tank. “They’re reluctant to do this without the U.S. or [without it being] on a global scale.”
Ruparel criticized the tax as inefficient, one that could have ripple effects throughout the financial system. And the banks themselves could wind up passing on the cost to consumers.
But amid fear that the crisis over the future of the euro currency is finally coming to a head, with the possibility of a default by Greece or a market takedown of a much bigger debt-ridden country such as Italy or Spain, officials are floating proposals that would have been unimaginable just two years ago.
One alternative is to charge a transactions tax solely within the 17 countries that use the euro, and not the wider European Union, which would exempt Britain. But lack of British participation would mean a much smaller haul than the $75 billion envisioned.
Germany is also looking at ways for banks to help ease the debt crisis in general and Greece’s budget woes in particular. Although many banks have signed up to voluntarily take a loss of about 20% on their bonds to help forestall a Greek default, some news reports say that Germany and other like-minded countries are pushing for mandatory writedowns as high as 50%.
European officials are also trying to ensure that all 17 Eurozone nations ratify an expanded emergency bailout fund, which is considered a crucial first step.
Lawmakers in Finland, where skepticism toward bailouts is strong, Wednesday approved the beefed-up fund by a surprisingly comfortable 103-66 vote. Germany’s Bundestag takes up the matter Thursday and is expected to give it the go-ahead; a defeat there would send shock waves through the government of Chancellor Angela Merkel and the global financial markets.
International finance inspectors are expected back in Greece on Thursday to continue talks on disbursing Athens’ next installment of rescue loans, which the government needs to keep paying its bills past mid-October. The inspectors broke off discussions and abruptly quit the country this month in dissatisfaction with Greece’s progress on enforcing austerity cuts.
In his speech, Barroso dismissed calls for Greece to be kicked out of the Eurozone.
“Greece is and will remain a member of the euro area,” Barroso said. But he urged Athens to “implement its commitments in full and on time.”
He said the ultimate solution to the euro’s problems was full economic union to accompany monetary union, with common institutions, such as a single finance minister for the entire Eurozone.
But much of the media attention was concentrated on Barroso’s proposal for a tax on financial transactions.
Thomas Coutrot, one of the leaders of a French organization that has campaigned for such a levy for more than a decade, said he was glad officials had come around to the idea. But imposing the tax now would have only a limited effect, he said.
“If this tax had been introduced 15 years ago, maybe we’d have avoided the situation we are in now,” Coutrot said. “Today, such a tax will not necessarily resolve the problem. We have let the financial market proliferate and created a monster and a financial system that is madness.”
Special correspondents Anthee Carassava in Athens, Aaron Wiener in Berlin and Kim Willsher in Paris contributed to this report
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