French Prime Minister Lionel Jospin's Tobinesque fox finally ran into the buffers on Wednesday when German Deputy Finance Minister Caio Koch-Weser (Deputy Minister, mind you, not even the Minister) said that better regulation of derivatives and hedge funds would be more promising than taxes as a way of curbing volatile capital flows. Koch-Weser, speaking to newspaper Financial Times Deutschland, said the idea of a so-called 'Tobin tax' on foreign exchange transactions 'has charm but will never fly'.
On Tuesday, Jospin on Tuesday had reiterated his support for the Tobin tax, named after American Nobel prize winning economist James Tobin, who suggested the idea in the 1970s, and called for a European Union initiative on the tax at international level, saying it would be discussed at the next Ecofin Council meeting.
Koch-Weser said it would be more promising to try and limit currency speculation in other ways, though he noted it was questionable whether all short-term transactions were damaging. But Lionel Jospin wasn't thinking about currency speculation when he mentioned the tax, he was making electoral calculations with his eye on the Elysee, that and indulging in every French politician's predilection for increasing taxation whenever possible.
Koch-Weser on the other hand is coming from the current preoccupation of finance officials with stability. Since the 'Asian crisis' and the near melt-down of LTCM, financial regulators in the EU and the G7 have concentrated on finding ways to reduce systemic risk in the financial markets. 'I am thinking for example of certain derivatives, about which one could ask if they should require a higher use of own capital,' Koch-Weser was quoted as saying.
He also mentioned regulation of hedge funds, a subject being addressed by the G7-sponsored 'Financial Stability Forum', a group of regulators headed by Bank for International Settlements chief Andrew Crockett.
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