Banks operating in the European Union have dismissed Franco-German proposals for a tax on financial transactions, saying it would not stabilise markets and could serve to distort them.
The Association for Financial Markets in Europe (AFME), which represents top banks, also said yesterday (17 August) that a tax would simply bump up costs for a large section of European industry and hit growth.
Shares in stock exchange operators took a hit after French President Nicolas Sarkozy and German Chancellor Angela Merkel unveiled a plan on Tuesday to tax financial transactions.
The pair, under heavy pressure to restore confidence in the euro zone after a dramatic market slump, did not detail how such a tax would work. That did not stop Austria, Italy and Spain from signalling that they too would support the idea.
But Ireland's finance minister, Michael Noonan, said any new tax must apply to all 27 members of the EU and not just the 17 members of the euro zone.
That would need agreement from Britain, the region's biggest financial centre, which is opposed to the EU going it alone.
The British Bankers' Association, a lobby group, said: "The UK has taken the position that such a tax would only be viable if implemented on a global scale. Otherwise the consequences would be a distortion in the global markets."
The London-based Adam Smith Institute said Germany and France should abandon "economically illiterate" proposals for a tax as numerous academic studies suggest that such a tax would lead to more erratic movements in equity and foreign exchange markets, falling share prices and poor liquidity.
Germany's cooperative banking association said any tax would fail to bring stability to markets if it only operated in the euro zone. "For all the legitimate efforts at stabilising financial markets, we feel a financial transaction tax which is limited to the euro zone is not effective," the BVR said.
European Central Bank President Jean-Claude Trichet has said in the past that unless such a tax was introduced globally, it would not work.
Supporters of such a tax say it would make markets more stable by deterring short-term speculation and would give countries a degree of protection against exchange rate pressures. Others say it would provide governments with much-needed money for areas such as health and education.
German exchange operator Deutsche Börse, whose shares were down 6% at 1250 GMT, said: "The tax provides yet another incentive for transactions to move to jurisdictions where it is not applicable," adding that it would be a gift for unregulated marketplaces.
Rival bourse the London Stock Exchange lost 4.7%, following an 8% slide in NYSE Euronext shares on Tuesday.
The LSE and NYSE Euronext declined to comment.
A 40-year pipe dream
A transaction or Tobin tax – named after economist James Tobin who first proposed one in the 1970s – has been a near 40-year pipe dream for some policymakers. Calls for such a levy have become more frequent since the financial crisis began unfolding four years ago, forcing taxpayers to bail out banks.
But the G20 failed to agree amid opposition from the United States, and several countries like Britain have opted to slap levies on bank balance sheets instead.
European Commission President José Manuel Barroso said in June that a legislative proposal for a financial transaction tax would be presented after the summer to contribute to the EU's annual expenditure.
EU officials said in June that a tax would be set at a low level to deter avoidance, for example at 0.01% on derivatives transactions and 0.1% for bond trades.
Merkel's party has in the past suggested a transaction tax for some or all of the 17 eurozone countries could be a starting point.
"We doubt that a financial transaction tax, especially on derivatives, will be introduced in the euro zone as it will damage the local financial industry and tax base without doing any good," said Christian Muschick, an analyst covering stock exchanges at Silvia Quandt Research.
EURACTIV with Reuters
At an emergency summit on 21 July, eurozone leaders agreed to a second bailout package for Greece in an attempt to draw a line under the zone's debt crisis.
The package included a €37 billion contribution from private banks in a fresh rescue totalling €109 billion until 2014.
But the moves provided only a brief respite in the debt crisis as investors' worries grew that Italy and Spain, the euro area's third- and fourth-biggest economies, could be next to get into trouble.
At a bilateral summit in Paris this week (16 August), France and Germany unveiled far-reaching plans for closer eurozone integration and tighter debt rules, as well as reviving the idea of a financial transaction tax.
But they disappointed investors by declaring that any thoughts of common euro bond issuance would have to wait.
- 17-18 Oct.: EU summit in Brussels.
- Le Figaro:Les milieux financiers opposés à la taxe Tobin
- Le Nouvel Obs:Merkel et Sarkozy : faire du neuf avec du vieux pour sortir de la crise
- Irish Times:Cool response to Franco-German proposals for eurozone
- Financial Times:Transaction tax proposal knocks shares
- Wall Street Journal:Latest European Tax Plan Is an Emotional Irrelevance
- France Soir:Londres dit non à une taxe Tobin européenne
- Welt Online:Harsche Reaktionen auf die Transaktionssteuer
- N-tv:Warum Transaktionen besteuern?
- Tagesschau.deFinanztransaktionssteuer hat kaum Chancen