Germany, France and nine other euro zone countries will get the go-ahead on Tuesday to push on with a financial transactions tax, a measure likely to unsettle banks but which will please voters and raise much-needed revenue.
European Union finance ministers will give their approval at a meeting in Brussels, allowing 11 states – Germany, France, Italy, Spain, Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia – to prepare for a tax on trading.
The levy, based on an idea proposed by U.S. economist James Tobin more than 40 years ago, is symbolically important in showing that politicians, who have fumbled their way through five years of financial crisis, are getting to grips with the banks blamed for causing it.
“I expect that we will receive this authorization today,” Austrian Finance Minister Maria Fekter said before the meeting. “This is the precondition for setting such a cooperation into motion.”
Once the 11 countries agree, and the European Commission has put forward a new proposal, the tax could be introduced within months.
Although critics say such a tax cannot work properly unless applied world-wide or at least Europe-wide, some countries are already banking on the extra income from next year, which one EU official said could be as much as €35 billion [$46 billion] annually.
Under EU rules, a minimum of nine countries can cooperate on legislation using a process called enhanced cooperation as long as a majority of the EU’s 27 countries give their permission.
Germany and France decided to push ahead with a smaller group after efforts to impose a tax across the whole EU and later among just the 17 euro zone states foundered. Sweden, which tried and abandoned its own such tax, has repeatedly cautioned that the levy would push trading elsewhere.
“COURSE OF LEECHES”
Critics say the levy could open another rift in Europe, where the 17 states using the euro are deepening ties in order to underpin the currency, and there is the growing risk that Britain could even leave the European Union.
Britain, which has its own duty on the trading of shares, has criticized the tax, and will not adopt it.
In Tuesday’s vote, Britain will abstain and other countries have expressed concern about the impact on states that do not join the scheme, according to documents distributed to finance ministers at the meeting and seen by Reuters.
Nonetheless, trading in the region’s biggest financial center, London, will be affected. If either the buyer or seller is based in one of the countries imposing the tax, the levy can be imposed regardless of where the transaction takes place.
While the levy will hit banks and trading firms, the likelihood is that the cost will be passed on to clients and consumers.
But proponents of the scheme, including German Finance Minister Wolfgang Schaeuble, believe it can tackle activity some deem speculative, such as high-frequency trading, by imposing a charge on every split-second, computer-driven deal.
But Nicolas Veron, a financial market expert at Brussels think-tank Bruegel, said the tax is misguided.
“There are so many things that we don’t understand about the financial system, in much the same way that 17th-century doctors could understand a couple of things about the human body but not the whole picture,” he said. “Using a tax on financial transactions to tackle the ills of finance such as high-frequency trading could turn out to the equivalent to a 17th-century course of leeches.”
Some countries are already counting on the new income, a welcome windfall for countries where shrinking economies and rising unemployment are sapping other tax income.
As soon as ministers give the 11-nation plan the go-ahead, the next step is for the European Commission to draft its plans for the tax.
It is likely to suggest taxing stock and bond trades at the rate of 0.1 percent and derivatives trades at 0.01 percent.