European Finance Ministers are meeting in Copenhagen today and tomorrow to discuss the possibility of introducing a tax on financial transactions. Some journalists appear to be insisting that the prospects for such a tax are fading or even doomed, but this is not the case. Hopes for a financial transaction tax (FTT) are not dead.
For starters, Germany has not given up on the tax. The misconception running through the media that Finance Minister Schäuble has abandoned this project stands to be corrected. Yesterday, in an interview with radio station dradio, Schäuble said that Germany is ‘‘fighting with determination for a financial transaction tax’’. The day before, in the German edition of the Financial Times, he also asserted his willingness to move at a Eurozone level or involve fewer countries. He suggested that the nine countries that asked the Danish EU presidency to speed up the FTT process, back in February, should go ahead and implement the tax.
Germany is certainly not throwing in the towel and neither is Austria for that matter. Austrian Deputy Minister Andreas Scheider said on Tuesday that he refuses ‘to declare prematurely that such a central project is dead’ and insists that as many countries as possible should get on board for a tax on financial deals. In France, all the main candidates (Sarkozy, Hollande, Bayrou) to the Presidential election are in favour of the FTT.
Now it is important for Finance Ministers to stick to the option of a broad based FTT and not open the Pandora’s box of alternatives – this will not convince opponents such as the UK and will only delay discussions.
The nine countries that signed the letter to the Danish EU Presidency represent 90% of Eurozone GDP and 67% of EU GDP and include four of the five biggest economies in the EU. A tax on transactions by these countries alone, even if just implemented on equities and derivatives, would be a very significant step and has the potential to raise €38 billion every year
Arguments that such action will lead to capital flight are a weak and insufficient to block progress. Forty countries around the world already have a unilateral FTT and have suffered no such loss, and in any case the principle of residence would prevent capital flight from occurring.
Although the pros and cons of a European FTT will indeed be reviewed in Copenhagen, European Finance Ministers have certainly not sounded the death knell for a tax on financial transactions.