In spite of global scepticism, the German and French leaders pushed for the issue to be put back on the agenda of a G20 summit on 26-27 June in Toronto.
"The EU should lead efforts to set a global approach for introducing systems for levies and taxes on financial institutions," read the summit conclusions, which were adopted by unanimity among EU heads of state and government.
"The introduction of a global financial transaction tax should be explored and developed further in [the G20] context," it adds.
The global financial transactions tax (FTT) "is back on the agenda because we wanted it to be on the agenda," German Chancellor Merkel told journalists after the summit.
"We will prepare for the G20 and G8 meetings so that we can go with as united a European position as possible that also covers a bank levy and taxation of financial markets," she added.
On top of British and American resistance, the idea of a financial transactions tax appeared to have been abandoned following a negative review from the International Monetary Fund and the publication of an internal EU paper in April (EurActiv 14/04/10).
Responding to a question from EurActiv on why Germany was pushing an idea discouraged by the IMF, the chancellor admitted that a financial transactions tax operated on a wider scale of activity than a bank levy.
Clear majority in favour of taxing banks
A clear majority of countries are supporting both a levy and a transactions tax operating simultaneously, the only difference of opinion being where the money would end up.
Herman Van Rompuy, president of the European Council, stressed that if there is no consensus at the G20 in Toronto, the EU will maintain its position and proceed by applying a levy on all banks.
Advocates of an FTT argue that a levy does little to prevent moral hazard in banking as it would not target risk-taking in the sector. It would slice profits slightly but do little to the daily banking cycle.
Financial transactions tax still divisive
French President Sarkozy admitted that some EU countries were "not absolutely enthusiastic" about the idea of an FTT amid fears that it would push financial institutions to relocate outside the European Union.
The final decision will be taken after the G20 discussions, he said, adding that France and Germany would press ahead with the idea even if it failed to gain traction at global level.
"Regarding France and Germany, we are seeking this tax on financial transactions and we are even ready […] to envisage its implementation [outside the G20]," Sarkozy told reporters after the EU summit.
The French and German leaders may well face an uphill battle in Europe though.
Sweden, the Czech Republic and Britain yesterday reinforced their persistent opposition to an FTT.
In addition, sources reveal that the EU summit talks were mired with confusion about which tax EU leaders were discussing.
Hungarian Prime Minister Gordon Bajnai reportedly appeared frustrated during the talks and asked his counterparts to clarify which tax they were talking about, a levy or an FTT.
Britain's previous Labour government, led by Gordon Brown, toyed with the idea of a levy and castigated an FTT, while the country's new Conservative-Liberal Democrat coalition has gone full steam ahead on a levy and is still sceptical about an FTT.
Mark Hoban, the UK's new financial secretary to the Treasury, told journalists in Brussels that a bank levy would happen in Britain with or without the US, signalling an about-turn from his predecessor's position.
Sweden, for example, has already established a "bank stability fund," financed by a small percentage fee levied on certain liabilities held by banks and other credit institutions.
In France, Sarkozy said the levy had already brought revenues worth 2.4 billion euros to state coffers.
Row on levy on the horizon
The confusion is likely to continue as EU leaders seem to have very different ideas about where the proceeds from a levy would end up.
This discrepancy emerged after the European Commission drew up plans for a European Resolution Fund, which would comprise an EU-wide network of national funds, financed by fees on liabilities, assets or profits and operating according to harmonised rules (EurActiv 26/05/10).
The UK and France have come out against the idea of putting money aside for bank wind-ups, as envisaged in the EU proposal, and want the money to return to government coffers instead.
UK Treasury officials have argued that resolution funds do not prevent moral hazard as banks can fail in the knowledge that they have a fund to fall back on.
Sarkozy said the proceedings of the bank levy will either feed into "a fund" to prevent future banking crises "or to refund a country" where taxpayers have contributed to a plan aimed at bailing out financial institutions. "These are the two cases for a bank levy."
Germany sits on the opposite side of the fence as it intends to use the money to prop up troubled banks.