We may rue the day we refused a transaction tax

 

ANALYSIS:FOR DECADES folk have wondered how the worst excesses of globalised finance could be curbed. One of the most popular ideas has been to impose a small tax on every financial transaction so that well-thought-out cross-border capital movements could go ahead largely unhindered, but rapid flows of hot money that contribute to the problem of herding by financial market participants would be made less profitable.

But putting sand in the wheels of finance to slow it down and make it less likely to go out of control has always faced the most severe collective-action problem – if only one country opts out, that country could lure banks from tax-levying jurisdictions.

Finance is never shy about playing on this fear. Money men always remind governments it will be on their heads if jobs migrate. And just as politicians like nothing better than taking credit for new jobs when they are announced, there is little they fear more than being accused of destroying people’s livelihoods. All too easy for the financiers.

And it is easier still because they can plausibly claim the financial system might not be made any safer if one or a small number of jurisdictions opted out of imposing the tax – the volume of transactions could, in theory, be unaffected if the tax was not uniformly levied.

The near insurmountable difficulties of agreeing such a tax were in evidence yesterday when European Union states came nowhere near reaching unanimous agreement over the long-mooted financial transactions tax, known in EU jargon as the FTT.

Member states who believed their footloose financiers would take flight to non-FTT jurisdictions said no thanks to the German proposal. Michael Noonan was among the nein-sayers.

At the forefront of his thoughts was the International Financial Services Centre in Dublin’s docklands. If he had slapped the FTT on Ireland-based institutions, the jobs of thousands of well-paid people on the banks of the Liffey could have washed up on the banks of the Thames.

During last year’s general election campaign, Noonan claimed – with tongue only a little in cheek – that when Anglo Irish bank was mentioned on doorsteps, normally placid family hounds would start barking.

If the dogs in the street know about Anglo, an even bigger disaster is much less well known. Its name is Depfa. Depfa Bank was originally a German institution. But it relocated to the IFSC to take advantage of the less onerous regulation there. Thankfully, from an Irish perspective, it was bought by a larger German bank on the very eve of the outbreak of the global financial crisis. It promptly went wallop. The German government had to fork out €100 billion to prop it up. Had it remained under Irish regulatory control, the bill would have landed on Irish taxpayers. The sovereign would have been squashed long before that eventually came to pass at the end of 2010.

If there is another Depfa in Dublin’s docklands today or in the future, taxpayers might rue the day Michael Noonan didn’t sign up to the FTT.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.