EU Divisions Entrenched On European Tobin Tax

by Ulrika Lomas, Tax-News.com, Brussels

20 September 2011

During a recent meeting of European Union (EU) finance ministers and central bank leaders in Breslau, deep divisions crystallized on the highly controversial idea of Europe proceeding unilaterally with the introduction of a tax levied on all financial market transactions.

Indeed, following the meeting, the EU commissioner responsible for the internal market and services Michel Barnier confirmed that there is currently no unified position on a financial market tax.

Given that the US has repeatedly made clear its staunch and unwavering opposition to the tax, a position emphasized by US Treasury Secretary Timothy Geithner during the meeting in Breslau, the idea of introducing a tax at global level is clearly out of the question.

Germany, France, Belgium, Luxembourg and Austria are therefore eager to introduce the tax at least at European level. Yet even here the UK, Italy and Sweden remain opposed to the idea of introducing an EU financial transactions tax, fearing a damaging exodus of financial trade out of Europe.

Alluding to considerable divisions within EU member states on the idea, Poland’s Finance Minister Jacek Rostowski also revealed his doubts regarding the value of such a tax, questioning whether indeed there would be less volatility in the European markets as a result, if financial activities were merely outsourced to, for example, Switzerland as a result.

Although the European Commission remains steadfastly determined to present a legislative proposal for a tax at EU level at the beginning of October, given the requirement for unanimous agreement from all 27 member states, the project seems doomed to failure from the outset.

Determined to up the tempo, however, Germany’s Finance Minister Wolfgang Schäuble recently insisted that plans for a financial transactions tax will be presented this autumn, and he emphasized that if necessary this could be just for implementation in the eurozone.

Schäuble reiterated that the aim of the tax is not just to ensure that the financial sector contributes to the cost of the crisis, but also that the levy serves as an instrument to curb “irrational” excesses on the financial markets. The minister underlined his optimism regarding the tax, noting that the arguments are “shifting”.

At home, however, the minister will face vehement opposition from coalition partner the Free Democratic Party, which has rejected the idea of a eurozone tax.

Questions and divisions also remain surrounding the precise plans for allocation of the tax. While France and Germany are eager for additional revenues derived from the levy to flow into national funds, European Commission President José Manuel Barroso is anticipating that the revenues will directly flow into the EU state budget.

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