Countries agree on transaction tax
Eleven euro zone countries agreed today to press ahead with a disputed tax on financial transactions aimed at making traders share the cost of fixing a crisis that has rocked the single currency area.
The initiative, pushed hard by Germany and France but strongly opposed by Britain, Sweden and other proponents of free markets, gained critical mass at a European Union finance ministers' meeting in Luxembourg, when more than the required nine states agreed to use a treaty provision to launch the tax.
Commonly known as a 'Tobin tax' after Nobel-prize winning US economist James Tobin proposed one in 1972 as a way of reducing financial market volatility, it has become a political symbol of a widespread desire to make banks, hedge funds and high-frequency traders pay towards a wrenching debt clean-up.
"This is a small step for 11 countries but a giant leap for Europe," Austrian deputy finance minister Andreas Schieder said.
"The way is now clear for a just contribution from the banking and financial sector for financing the burdens of the crisis."
The deal raised the prospect of a pioneer group of European states for the first time launching a joint tax without the unanimous backing of the 27-nation union, a move that may fragment its single market for financial services.
It comes as EU leaders are contemplating creating a separate budget for the 17-nation euro zone alongside the common EU budget, according to leaked conclusions drafted for a summit next week - another step towards a "two-speed Europe".
EU Tax Commissioner Algirdas Semeta called the transaction tax a source of new revenue from an under-taxed business sector, and a means of encouraging more responsible trading.
However, critics say it could distort the EU's single market by giving financial companies incentives to shift their trading activities to European financial centres where the tax is not levied - or away from Europe altogether.
"People will arbitrage it. People will find a way around it," said David Stewart, chief executive of London-based hedge fund firm Odey Asset Management, which manages around $6.5 billion.
"If someone really wants to buy a company that's good, I'm sure they'll keep on buying it. But if it's a synthetic derivative then they may go somewhere else ... More volume will go through London." Britain, home to the region's biggest trading centre, will not join the scheme.
Austrian finance minister Maria Fekter said the 11 countries would present a model for how the tax would work by the end of the year, and it was realistic to expect the tax to be implemented by 2014.
Semeta said countries aiming to launch the tax did not yet agree where the proceeds should go or how they should be spent.
"Some of them would like to spend it individually. Some prefer to use part of the proceeds to finance the EU budget. It is premature to say what will be the final outcome," he said.
The breakthrough was a surprise to many EU diplomats who had thought Germany might fail to convince sufficient countries to join the plan, which has been in the works for two years.
After heavy diplomatic pressure from Berlin, Spain and Italy agreed to support the measure, as well as Slovakia and Estonia.
The European Commission has said a tax on stocks, bonds and derivatives trades from 2014 could raise up to €57 billion a year if applied across all EU countries.