Political support is building for a levy on financiers but a heavy tax, which would be shouldered in Europe largely by 15 big listed banks, spells trouble for those that have clawed their way back to profit thanks to a state bailout of their industry.
“The financial sector needs to contribute to the costs of financial stability. This should be one of the building blocks in our effort to set up a crisis management framework in Europe," said Michel Barnier, EU Commissioner for Internal Market and Services.
Last month, the head of the European Union's executive, José Manuel Barroso, pledged to ask world leaders to impose a special tax on banks to cover their wind-up costs in an emergency.
On Tuesday (6 April), Commission officials outlined how such a tax could raise more than 50 billion euros. In a report outlining Brussels' thinking, they said that should other world powers drag their heels, Brussels could introduce the tax alone.
"Actions by the EU alone would be less effective but could be considered, particularly if there are good reasons to expect that an EU role of global leadership would be followed by other key countries," officials wrote.
The report goes on to explain how a charge on bank leverage or borrowing as well as risk-taking could raise between 13 and 50 billion euros depending on the rate of tax imposed.
"A levy on [...] the banking sector could raise an estimated annual 13 billion euros of revenues [...] when applying the rate of Sweden's Stability Fee to the entire banking sector, and more than 50 billion euros when applying the US rate."
Berlin and London have indicated support for such a levy. They want it to reflect the risk a bank poses to the financial system.
Washington is also keen on such a tax but would like to use the money to pay for the current clean-up rather than holding onto it for future economic slumps.
The head of the International Monetary Fund, Dominique Strauss-Kahn, is expected to propose a similar levy when he meets G20 finance ministers in Washington this month (EurActiv1/04/10).
European Commission President Barroso is pursuing an idea originally floated in Europe by Sweden this year.
Sweden has embarked on a mission to recoup roughly 75 billion Swedish crowns from its banks that will then be set aside in a fund to cope with financial crises.
It opted for a direct levy on bank loans rather than a tax on transactions - such as buying investments - because a similar move after the country's 1990s banking crisis backfired.
Auctioning allowances and carbon tax
Countries can can also obtain revenues from auctioning allowances within a cap-and-trade scheme or from carbon taxes, thus putting a price on CO2 emissions, outlines the report.
But while revenues can be sizeable they should not be overestimated as they are conditional on changing behaviour of both companies and consumers.
According to the report, the optimum solution of avoiding climate change would be a single carbon price globally which would further increase the efficiency gains. There are two ways of doing this, the Commission reports outlines: introduce carbon taxes or implement an emission trading scheme (ETS).
But since a global ETS seems politically unachievable, a more realistic alternative in the short term would be to link the existing or forthcoming local or regional carbon trading schemes.
Indeed, as long as carbon prices are not introduced globally, there is a risk of carbon-intensive industries relocating to countries which have a lower price for carbon emissions (see EurActiv LinksDossier on 'carbon leakage').
Cap-and-trade schemes and carbon taxes are not necessarily mutually exclusive as they cover different parts of the economy, points out the report, stressing that auctioning is difficult to apply to sectors such as transport, aviation or shipping.
(EurActiv with Reuters.)