One country still needed to launch FTT
As EU finance ministers meet in Luxembourg today (9 October), Germany and France will step up a diplomatic drive to convince more EU countries, even outside the eurozone, to join them in setting up a financial transactions tax (FTT).
Greece, Portugal, Austria, Slovenia and Belgium have all agreed to join Berlin and Paris, and Estonia is expected to sign up today, Reuters reported from the meeting of finance ministers taking place in Luxembourg.
But one more country is needed to reach the nine-country threshold to launch an enhanced cooperation procedure, which allows a smaller group of nations to break ranks and move forward on an issue that fails to gather the required majority.
Italy and Spain have toyed with the idea, but appear unlikely to throw their hats into the ring, leaving Germany bidding to attract a country outside the eurozone, which could complicate the process of establishing the contested tax.
Poland is one potential candidate, but officials indicated it was trying to get too much in return for its support and Germany might not accept the terms, despite its long-held determination to introduce a tax on market activity.
"Poland would consider supporting the FTT if it would find understanding on issues important for Warsaw such as the EU's long-term budget and a voice in the new banking supervision framework," an EU diplomat said.
But even supporters are apprehensive. The Greek finance ministry said it wanted "an evaluation which will look into the possible economic consequences” from the introduction of FTT.
The European Commission said it would do "everything it can to facilitate quick progress" on the tax once the threshold is reached, but there is little it can do before then.
"An EU Financial Transactions Tax would not just be a good source of revenue," said Algirdas Šemeta, the commissioner in charge of taxation policy. "It would also ensure that the financial sector pays its fair share."
But there are many naysayers in the EU who believe that while a tax on financial transactions might be good in principle and could help pay for the errors of the financial community, it is unworkable unless it is universal, or at least pan-European.
Sweden, which tried its own levy in the mid 1980s, has warned against the move, saying it will do little more than drive trading elsewhere. It lost a large portion of its trading to London and still smarts at the experience.
Imposing the charge on financial deals is symbolically important, however, as Germany prepares for national elections.
Pierre Moscovici, France's finance minister, told reporters on Monday ahead of a meeting of eurozone ministers that he and German counterpart Wolfgang Schäuble had written to other finance ministers about the tax. "I think that it is possible," he said.
Much of the momentum for the debate comes from public distrust of banks and similar groups after the financial crisis.
So far, the debate has focused on a blueprint written by the European Commission for a tax on stocks, bonds and derivatives trades from 2014 that the EU's executive arm said could raise up to €57 billion per year. The yearly budget of the EU is approximately €130 billion.
The Commission's proposal is to tax stock and bond trades at the rate of 0.1% and derivatives trades at 0.01% (see background).
In September 2011 the Commission published a detailed proposal for a levy on financial transactions.
Under the proposal, the FTT would apply to any transaction in financial instruments, excluding primary market issuance, and bank loans. Share and bond transactions would be taxed at 0.1% of the higher of consideration and market value and derivatives at 0.01% of their notional amount. The FTT would be due if at least one party to a transaction is based in the EU.
Germany and France, the main proponents of tax convergence, first pushed for EU-wide implementation starting in 2014, but then agreed to resort to the enhanced cooperation mechanism. In this case, France wants to introduce the FTT this year.