Germany Backs Financial Markets Tax

by Ulrika Lomas, Tax-News.com, Brussels

20 May 2010

Germany’s ruling black-yellow coalition has united on plans to introduce a Europe-wide financial markets tax. Chancellor Merkel has, however, made known Germany’s determination to vigorously back an international financial markets tax.

Announcing the decision, parliamentary leader of the Christian Democratic Union party (CDU), Volker Kauder confirmed that, following lengthy negotiations, the government had agreed, in addition to a bank levy, to lend its support to a European financial markets contribution to the costs of the crisis, either in the form of a financial transactions tax or a financial activities tax.

Despite the latest announcement, Germany’s Finance Minister Wolfgang Schäuble (CDU) remains sceptical, expressing his “considerable doubt” that an international agreement on the issue could be reached. In stark contrast to Euro Group leader Jean-Claude Juncker, Schäuble is opposed to the idea of Europe going it alone on a financial transactions tax, adamant that such a tax must be introduced globally.

Up until now, the idea of introducing a financial transactions tax, long-since championed by German opposition parties, had also been fiercely opposed by the Free Democratic Party (FDP). Echoing the views of the International Monetary Fund (IMF), the FDP’s leader Guido Westerwelle recently warned that such a tax could adversely affect savers as well as speculators. The Social Democrats (SPD) have insisted, however, that their approval of the euro aid package is conditional on the government’s support for a tax levied on the trade of financial products.

France’s Finance Minister Christine Lagarde has also recently expressed her concerns regarding the introduction of a financial transactions tax. Lagarde warned that a tax levied on financial transactions is possibly not the most effective way, advocating instead a tax levied on the balance, and tailored to the individual risk profile of banks and financial institutions.

According to Lagarde, France is eager to wait until the IMF has presented its proposal at the forthcoming G20 meeting, emphasizing the need not to act in an ad-hoc manner. Such a tax must be introduced at global level in order to ensure that there are not competitive advantages for those banks that are not subject to the tax, she added.

Determined to curb speculation, Germany has also announced the introduction of a ban on high-risk financial market transactions from midnight on May 18, including a ban on the naked short selling of shares, euro zone government bonds, and credit default swaps.

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