EXCLUSIVE / Four European banking federations are launching a counter-offensive on the financial transaction tax, after France and Austria tried to table a compromise for rolling out the tax in 2016.
In a letter sent to all 28 EU finance ministers on Friday (23 January), the groups, including the European Association of Cooperative Banks (EACB), the European Association of Public Banks (EAPB), the European Banking Federation (EBF) and the European Savings and Retail Banking Group, slammed the FTT, which they say will harm the internal market, and disrupt EU recovery.
Introducing an FTT in a limited number of EU countries will put extremely strong pressure on the participating member states’ financial services operators and will significantly increase their governments’ dependence on financial markets outside the FTT zone and outside Europe, reads the letter, obtained by EURACTIV.
The four associations and federations, comprising almost 100% of the banking sector, stressed that the proposed FTT will impact the entire economy, inappropriately increasing the costs of funding for all businesses.
The banking sector’s letter followed the move by France and Austria, which sought on Thursday (22 January) to break deadlocked talks with nine other European countries for a financial transaction tax, by proposing that it be applied to cover a wide range of transactions, at low rates, starting next year.
In a joint letter to counterparts from the other countries, the French and Austrian finance ministers also suggested that one of the 11 ministers involved take charge of steering forward negotiations, leading a new approach to avoid diluting the tax.
Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain missed a year-end deadline to hammer out an outline for the tax. Talks have floundered over what transactions to cover and at what rate, with countries seeking to win exemptions for assets that would hit their financial sectors particularly hard.
The banking sector deplores the lack of a comprehensive impact assessment taking into account all the far-reaching implications of the proposed FTT.
“The governments of the 11 participating Member States are dangerously underestimating its significant economic impact, which will seriously damage financial stability in Europe and in the Eurozone,” the letter reads.
The scope of the proposed FTT, they say, will touch a wide range of products and transactions, which will reduce volumes and thus impact the liquidity of secondary markets.
“The cascading effect makes the effective tax rate of the FTT on securities much higher than the headline rate of 10 bp – in some cases this may be as much as ten times higher – because of the chain of trading and clearing that lies behind most securities transactions,” the letter reads.
Risk of fragmentation
The banking sector is particularly worried about the contradiction in the proposed method to tax financial transactions across the EU, which will create a fragmentation between the countries using and those not using the tax. Such a fragmentation will jeopardise monetary policy-making.
“The proposed FTT would not only lower overall tax revenues, but also unfairly marginalise financial institutions in the FTT jurisdictions, with a consequent detrimental effect on the non -financial economy within these jurisdictions,” the letter reads.
Ultimately, the costs of reduced economic activity in the FTT jurisdictions may far outweigh the perceived benefits of the tax revenues that will be collected under the FTT regime, the banking groups insisted.
On Friday (23 January), BUSINESSEUROPE reiterated its concern on the FTT, saying it will increase the cost of raising finance for investment in the EU. "EU member states have rightly recognised the impact on liquidity and the cost of borrowing that an FTT would have if imposed on sovereign bonds and plan to exempt sovereign bond transactions from an FTT. Europe cannot afford to allow the corporate bond market to become a guinea-pig for such an experiment, particularly given the dangers of a disproportionate impact on SMEs," said the business organisation.
In September 2011, the European Commission published a detailed proposal for a tax on financial transactions. For four years, member states have been unable to reach an agreement on how this new tax should be implemented.
Under this proposal, the FTT would apply to all financial transactions, except the primary market and bank loans. Transactions on shares and bonds would be taxed at 0.1%, and derivative products at 0.01%. The FTT would have to be paid if at least one of the parties is based in the EU.
As the member states have failed to come to a global consensus, 11 countries have launched an "enhanced cooperation" mechanism, which will allow at least 9 member states to progress on issues of common interest, without being held up by the other countries.
The 11 countries working on the Financial Transaction Tax project are: France, Germany, Austria, Belgium, Spain, Estonia, Greece, Italy, Portugal, Slovakia and Slovenia.