Nine countries back transaction tax plans
European Union finance ministers have cleared the way for a financial transaction tax to move forward in at least nine member states after Austria said deadlock among all 27 could threaten the euro zone's rescue fund.
(Scroll down for video of Christine Lagarde's comments on the broader euro zone situation and Michael Noonan's remarks on Ireland's example yesterday)
At a meeting of EU finance ministers in Luxembourg, the nine EU countries decided to go ahead with the tax as a way of raising extra money to fund future bailouts.
The call for an EU financial transactions tax (FTT) was suggested by Brussels as the euro zone crisis deepened, partly to show that banks were sharing the bailout burden alongside taxpayers. Supporters of the proposal say it would ensure the financial sector contributes to covering the costs of the debt crisis while going a long way towards stamping out banks’ risky behaviour and raising much-needed funds.
But Britain has been leading opposition, insisting such a tax would have to apply globally to function fairly.
At talks between EU finance ministers in Luxembourg, an inner core of nine governments, including Germany, France, Italy, Greece and Poland, decided to press ahead alone.
Brtish chancellor George Osborne refused to budge, insisting the tax would hurt the European economy, as financial transactions were routed to countries outside the EU. “I would have thought we want to be attracting business rather than the other way around,” he said.
German finance minister Wolfgang Schaeuble said he would prefer that all 27 EU member countries adopted the tax together, but he hoped it would be possible to go ahead with fewer. “We emphatically want to move ahead,” he insisted.
The German government hopes to placate demands by the main opposition in its parliament to move towards such a tax in return for their support in approving the euro zone's rescue fund, the European Stability Mechanism. Germany's lower and upper houses of parliament will vote on June 29th on whether or not to approve the creation of the ESM.
Chancellor Angela Merkel is counting on the backing of the Social Democrats to get the required two-thirds majority.
Spain's economy minister said Madrid was in favour. "We are determined to start the enhanced co-operation," Luis de Guindos told reporters.
Some ministers were critical of the idea, with some signalling that they could even challenge a smaller group of countries introducing such a tax if it negatively impacted on those not participating.
"We are not convinced of the case," Minister for Finance Michael Noonan told the meeting. "The proposals being made are not acceptable to us in particular if applied to fewer than 27." Ireland has previously stated it would not block any FTT under enhanced co-operation once the treaty conditions for such a mechanism were fulfilled.
Last night, the Ecofin ministers agreed in principle to provide up to €100 billion but, led by Germany, they rejected Spain’s demand for direct aid. The ministers were today examining ways to strengthen the banking sector and break the link between troubled banks and indebted countries, with concerns about Spain's stricken banking system forefront in their minds.
The discussion is part of a broader debate about how the European Union can move towards a 'banking union', including a pan-EU deposit guarantee scheme and a fund to resolve bad banks, to try to get on top of the sovereign debt crisis.
Last night, the International Monetary Fund warned the viability of the euro is under threat and called on governments and the European Central Bank to take radical new action to assert control over the crisis.
In an abrupt intervention after six hours of talks with euro zone finance ministers, IMF managing director Christine Lagarde said the emergency was at a critical stage and urged immediate steps to stabilise the situation.
Ms Lagarde said euro zone governments should allow the direct recapitalisation of banks by Europe’s bailout funds, a measure Germany rejected only two weeks ago when Spain sought emergency aid for its banks.
She also said the ECB had room to cut interest cuts and should, if necessary, restart its sovereign bond buying campaign or initiate a new scheme to flood the banking system with ultra-cheap loans.
Previous initiatives of this kind by the ECB have proved highly contentious in its top echelon. The bank is reluctant to go down this road again and it has insisted in recent weeks that it now falls to governments to take new steps to tackle the crisis.
However, Ms Lagarde said the ECB should contemplate going further than before and introduce some form of quantitative easing – printing money – if that was necessary to calm the turmoil in restive markets.
Such moves are anathema to the ECB, which holds the view that European law forbids the printing of money to stimulate the economy.
Mr Noonan said last night the experience of Ireland should have been learned by the European authorities. "To recapitalise banks and to transfer the accounting of it onto the sovereign seems to be an additional burden," Mr Noonan told reporters at the meeting.
Economics commissioner Olli Rehn said that he agreed “by and large” with the IMF assessment and euro group chief Jean-Claude Juncker said he was “broadly in agreement”.