Election payback drives Sarkozy's conversion to transaction tax
It makes electoral sense for Nicolas Sarkozy to tax unpopular financial institutions, writes RUADHAN Mac CORMAICin Paris
DURING A televised debate in 1999, Nicolas Sarkozy – then mayor of the Paris suburb of Neuilly-sur-Seine – got involved in a row over the idea of a financial transaction tax with Robert Hue, who led the French Communist Party at the time. Sarkozy was dismissive of the notion, calling it “nonsense” and branding Hue “the last communist live from Jurassic Park”.
Jurassic Park has just been repopulated. Back then the loudest calls in France for the Tobin tax – a proposal developed by the American Nobel laureate James Tobin in the early 1970s to discourage short-term speculation – came from the anti-globalisation movement. Today, the two largest parties are fully behind the idea, and Sarkozy himself has become its most vocal champion.
He made it one of the key themes of his G20 presidency last year, though resistance from Washington, London and Beijing killed any possibility of global action.
Undeterred, the French president has kept up his campaign – pressing first for an EU-wide tax and then, given Britain’s objections, for action among euro zone members. In recent days he has defied the French banking industry and wrong-footed the opposition by suggesting that France is even willing to go it alone if no euro zone deal can be struck.
“Angela Merkel and I have always said that we believe in the principle of this tax,” Sarkozy said alongside the German chancellor in Berlin yesterday.
“If we don’t show by example, it won’t happen.”
Sarkozy’s conversion has two explanations. First, the crisis has shifted his attitude towards financial institutions, which he regularly chastises in speeches as a major cause of the crisis. He wants to make them pay.
“The idea of the all-powerful market which didn’t need to be constrained by any regulation, by any political intervention, was a crazy idea,” he said in December.
Second, financial institutions are more unpopular than ever in France, and with Sarkozy facing a difficult election campaign in four months, it makes electoral sense to annex a space the left had all to itself.
Jacques Chirac did the same thing towards the end of his second term when, at the World Economic Forum in Davos in 2005, he joined calls for a Tobin tax (his plan later evolved into a tax on airplane tickets to fund the global efforts against Aids).
France initially said it wanted to introduce a tax by the end of 2013. Last week, ministers were mentioning the end of this year as a target. And yesterday, minister for state Benoist Apparu said the government could table a Tobin tax for parliamentary approval as soon as next month.
“Just because bankers tell us ‘no, we don’t want to be taxed’ doesn’t mean we are going to listen to them,” he said.
The opposition Socialist Party accuses Sarkozy of bluffing about acting unilaterally.
“We will wait to see if Sarkozy can convince his European partners because everyone knows that obviously this tax has to be put in place at the European level,” said Manuel Valls, spokesman for the socialists’ presidential candidate, François Hollande.
Predictably, the idea of a solo move has drawn a furious response from the country’s financial sector, with the French Banking Federation warning that banks may be forced to move a large part of their operations abroad if Sarkozy acts alone on the tax.
The broad shape of the proposal is contained in a scheme published by the European Commission last year. That plan suggested that taxing stock, bond and derivatives trades from 2014 would potentially raise €57 billion – with much of it from Britain, the region’s biggest trading centre. But without Britain’s support, an EU-wide tax is impossible.
Euro zone members could choose to forge ahead themselves, but Ireland is concerned that the International Financial Services Centre could be disadvantaged if such a levy was applied in Dublin but not in London.
Of course, Sarkozy could simply follow the example of the socialist-led government that introduced its own symbolic Tobin tax in 2001 – and set it at 0 per cent.