The European Union increased pressure on the International Monetary Fund on Friday to consider a global tax on financial transactions to limit the risk of another economic crisis.
In a draft statement expected to be approved on the second day of an EU summit, the bloc’s leaders also underlined the need for “sound and effective” financial sector pay but did not specifically back British calls to tax bankers’ bonuses heavily.
The leaders were also discussing on the final day of the summit how much money to give developing countries in the next three years to help them fight the effects of global warming.
“The European Council (of EU leaders) emphasizes the importance of renewing the economic and social contract between financial institutions and the society they serve and of ensuring that the public benefits in good times and is protected from risk,” they said in a draft statement obtained by Reuters.
“The European Council encourages the IMF to consider the full range of options including insurance fees, resolution funds, contingent capital arrangements and a global financial transaction levy in its review.” The IMF is considering how to limit risk in the financial system following the economic crisis.
British Prime Minister Gordon Brown called for consideration of a tax on financial transactions at a summit of the Group of 20 developed and emerging nations last month but faced opposition from U.S. Treasury Secretary Timothy Geithner.
Then, Brown said the proceeds could be used to fund future financial bailouts but Geithner said Washington opposed such a tax as a way to dampen risky bank behavior A so-called Tobin tax would discourage short-term speculation with the aim of limiting the risk of instability on financial markets.
Without worldwide support, experts say it would surely be doomed to failure.
French Economy Minister Christine Lagarde said the need for close cooperation was highlighted by difficulties in the group of 16 countries that use the euro. “We’re at a decisive turning point for Europe and the euro zone,” Lagarde told reporters in Paris, responding to a question about debt problems in Greece. “That is the point of the discussions we are having today on the necessity or otherwise, the depth or otherwise, of even better coordinated economic policies,” she said.
NO SIGN OF BACKING ON BONUSES
The draft statement did not refer to calls by Britain and France to tax banker’s bonuses heavily after public anger that bankers are again making large sums even though some of their banks have recently been bailed out with taxpayers’ money.
But it said: “Remuneration policies within the financial sector must promote sound and effective risk management and should contribute to preventing future crises in the economy.”
The British government said on Wednesday banks operating in Britain would be charged a 50 percent tax rate on employees’ bonuses of above 25,000 pounds ($40,610).
Lagarde said French President Nicolas Sarkozy plans to announce a windfall tax on banking bonuses on Friday “equivalent” to the 50 percent levy proposed by Britain.
Brown and Sarkozy called in a newspaper article on Thursday for an exceptional tax on global bank bonuses, and German Chancellor Angela Merkel described a one-off tax on such bonuses as an attractive idea.
There was no indication from other EU governments would that they would rush to back such moves.
The leaders were hoping, however, to agree on financing for developing countries to tackle global warming in the three years before any deal agreed at international talks in Copenhagen takes effect.
Swedish Prime Minister Fredrik Reinfeldt said late on Thursday that the leaders would return to the climate change discussions on Friday. “We think we’ll have a better figure tomorrow than we have tonight,” he told a news conference.
One EU source said member states had pledged a total of €1.8 billion ($2.65 billion) annually to help the developing countries during the three-year period, and another said that total was likely to reach up to 2.1 billion annually.
(Additional reporting by Justyna Pawlak, Jan Strupczewski, Pete Harrison, Julien Toyer, Luke Baker and Ilona Wiessenbach, editing by Mike Peacock)
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