Time to stop recklessness and start taxing banks

AS EUROPEAN Union finance ministers discuss ways of controlling reckless banks, a very simple logic applies. Reckless banking wrecks lives. Ireland has suffered proportionally more damage from reckless banking than any other society. Therefore Ireland is at the forefront of pressing for EU-wide measures to rein in reckless banking.

Right? Wrong.

Ireland is lining up with the City of London and its political allies to protect the interests of the most rapacious kind of banking. Michael Noonan is out there batting for the wide boys in their opposition to a financial transactions tax.

There is an overwhelming financial, economic and political case for a tax to be imposed on financial transactions such as the trading by banks of securities (shares and bonds) and derivatives such as options and credit default swaps. Financially, the banks have been bailed out by ordinary citizens at appalling costs. But instead of repaying these costs, banks, under the current regime, will actually pay less tax in coming years because they will be able to write off their losses.

A new form of taxation on banks is thus not at all a radical idea. It is merely a gesture towards financial recompense. The EU Commission estimates that a 0.1 per cent tax on securities transactions and a 1 per cent tax on derivatives would raise €57 billion annually – significantly less than the cost of the Irish bailout alone.

Economically, the case is equally obvious: taxation systems should discourage dangerous and unproductive activities. Anyone who doesn’t know how dangerous and counterproductive the untrammelled growth of derivatives trading has been should go back to reading Thomas the Tank Engine.

From a political point of view, a financial transactions tax (FTT) is also crucial. Citizens have been abused, defrauded and robbed by banking systems that have ceased to fulfil their basic functions. (Literally so in the case of Ulster Bank, whose inability to give people access to their own money is emblematic of the wider shift of banking from service industry to get-rich-quick machine.) From the Dirt scandal here to the rigging of the interbank interest rates in London, citizens have had their noses rubbed in corruption and impunity. And they have been left with nothing but a seething awareness of their own powerlessness.

This aspect of the FTT is arguably more important even than the money itself. We’re living through a crisis of democracy. On the one hand, we’ve never had more obvious need for functioning, powerful transnational democratic institutions that can act coherently in pursuit of a common interest. On the other, the institutions we do have – in this context those of the EU and euro zone – are patently lacking in democratic legitimacy.