Europe “will regret” financial transaction tax warns expert
The financial transaction tax will be applied in 11 EU member states
The European Parliament has voted to approve the introduction of a financial transaction tax across 11 EU member states including France, Germany and Italy – but market participants and observers warn that it may have unintended consequences.
During the vote on Wednesday 12 December 2012, the European Parliament approved the resolution allowing the 11 members to proceed by 533 votes to 91, with 32 abstentions.
Under the resolution, the core group of 11 will introduce a financial transaction tax of 0.1% on shares and bonds and 0.01% on derivatives.
Some MEPs have praised the move, including Emilie Turunen, MEP for Denmark, and expressed enthusiasm about the prospects for a quick implementation of the tax.
“Today’s vote clears the way for Europe’s FTT vanguard to push ahead and ensure the planned financial transaction tax is implemented as soon as possible,” she said. “The 11 member states will become the first area to have a transaction tax crossing national borders, making it an important step as part of the push for a global FTT. Hopefully, more EU members will join as soon as possible.”
However, other market observers have condemned the move, arguing that it may have an adverse affect on the security of Europe’s hard-pressed securities markets.
“The European Parliament’s decision today was not surprising,” said Rod Roman, head of global banking tax at Ernst & Young. “The majority view is that it will raise taxes from the financial sector and help to reduce speculation. Unfortunately anyone close to the detail would fear that the economies concerned will end up regretting this decision, it is hard to see how it will not end up hitting savings and pensions; it might actually add to financial market risks not reduce them.”
An EU-wide financial transaction tax was originally proposed back in September 2011, though the idea has been put forward before. At that time, it was estimated the tax could raise an estimated €57 billion to help contribute to the EU budget. It was also advocated by some MEPs who felt that it would ensure a fairer contribution by the financial sector towards the cost of the financial crisis, “which it helped to cause”. They also hoped it would discourage excessive risk-taking.
However, by June 2012 it became clear that unanimous agreement on the proposed tax was unlikely to be reached, following intense debate among member states. Instead, a core group of 11 member states, including France, Germany, Austria, Belgium, Greece, Italy, Portugal, Slovakia, Slovenia and Spain decided to press ahead with a common financial transaction tax, based on the original European Commission proposals.
The introduction of the financial transaction tax had been strongly opposed by Sweden and also by the UK, which had worried that such as measure would dampen liquidity at a time when equity trading volumes are already struggling. European equity trading volumes have fallen from €1.253 trillion in October 2008 to €651.636 billion in October 2012 and just €603.699 billion by November, according to figures provided by Thomson Reuters.
“The European Parliament has been calling for and supporting the financial transaction tax for more than two years,” said Martin Schulz, president of the European Parliament. “Although we would have preferred an EU-wide financial transaction tax, enhanced cooperation with up to 11 member states is a good beginning.”
