European countries believe a planned US bank levy to cover the costs of the American financial bailout is flawed and discriminates against foreign banks, according to a report prepared in advance of an EU finance ministers' meeting tomorrow (16 April).
The internal document, written by senior finance ministry officials from the European Union's 27 countries, threatens to open a rift between Brussels and Washington, which have already clashed over EU plans to tighten control of hedge funds.
It also underlines divisions that exist over taxing lenders and highlights the obstacles the G20 group of the world's prosperous nations face in finding a way to make banks foot the bill for bailouts or future crises.
In the document, which sets the agenda for a meeting of European Union finance ministers this week, senior officials say the bank levy backed by US President Barack Obama "would penalise non-US firms".
They believe banks outside the United States would be hurt by Obama's proposed tax, which is based on a bank's risk profile, because foreign banks typically have fewer deposits which are guaranteed by the state. Under the American scheme, these low-risk deposits are deducted from a lender's liabilities, cutting the levy the bank has to pay.
In the report, EU officials write that the US levy would be unlikely to work in Europe.
"The fee proposed by the US administration may prove difficult to justify and apply in a uniform way in the EU," officials write.
"If the same approach to a fee were taken in Europe as in the US, then accounting differences between the US and EU would result in potentially significant differences in the calculation of the tax basis and therefore also in the fee."
EU finance ministers will be discussing their own version of a bank levy during a two-day meeting in Madrid due to start tomorrow (16 April). Michel Barnier, the EU's internal market commissioner, will present policy options for a new bank levy to fund possible future bailouts in the financial sector (EURACTIV 07/04/10).
Barnier will however shy away from proposing a global financial transactions tax to combat speculation as advocated by the socialists. "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 (EURACTIV 14/04/10).
Pressure building, differences remain
Although pressure is building globally to charge an industry for an economic crisis that many blame it for triggering, there is disagreement over how the money taken from banks should be spent.
While America wants a bank levy to pay for the current clean-up of the financial crash, many European countries would use the money for establishing emergency funds to cope with future crises.
But there is also disagreement within Europe. Some countries want it to repair public finances while others would channel it into funds to wind down struggling banks.
Britain's opposition Conservative party, which has a narrow lead in opinion polls ahead of a parliamentary election in May, would use a levy to pay for a tax break for married couples.
European finance ministers are preparing for a meeting this week at which they will attempt to settle differences over how best to impose extra taxes on banks.
At the meeting on Friday, EU financial services chief Michel Barnier will present his plan for how such rescue funds could work in Europe.
The European Commission said last week the bloc could pioneer an extra tax on banks that could raise up to 50 billion euros annually.
The International Monetary Fund will present its ideas for a global bank tax to G20 finance ministers next week.
(EURACTIV with Reuters.)