Despite several announcements that it favours a wider version of a global Tobin Tax (see 'Background'), the European Union seems unlikely to agree a common position to take to an upcoming meeting of G20 finance ministers set to take place in Washington at the end of April.
The event will precede a June meeting of G20 leaders in Toronto, Canada, which will be the fourth since the global financial and economic crises erupted in 2008.
"We are in principle in favour of a financial transactions tax, but we have to wait for a global agreement on the matter," said the Commission's internal market spokesperson, Chantal Hughes.
Indeed, the European Commission does not plan to table any proposals for a tax at an informal meeting of economy and finance ministers to be held in Madrid at the end of the week.
Michel Barnier, the EU's internal market commissioner, will instead present a policy paper on a new bank levy to fund possible future bailouts of the financial sector (EurActiv 22/03/10).
Some observers fear that this represents a change of tack by the Commission as Europe loses interest in leading the global debate on a financial transactions tax.
"The Commission would like to present a false choice – either taking a bank levy or a financial transactions tax. This is like saying that if you have a cold, you can either wrap up warm or take some medicine, but not both," said Andreas Schieder, in charge of financial issues at the Party of European Socialists.
The EU executive's coldness towards a financial transactions tax is expressed in a recent internal document circulated by the Commission on 1 April.
Regarding the likely positive effect of a financial transactions tax on reducing global speculation, the paper reads, "this efficiency gain is by no means certain as such a tax may in fact increase price volatility in specific markets by reducing the number of transactions and liquidity".
"The tax also poses a risk of increasing the cost of capital for business and the cost of financial risk distribution by seriously affecting the role played by derivatives as insurance devises," reads the paper, entitled 'Innovative financing at global level'.
Moreover, "the tax could also increase financial costs for governments which might have to pay higher interest if the tax falls on the investor. The tax can thus generate adverse effects on investment and the level of economic activity and this may impact on the collection of other taxes," the document adds.
