EU Finance Ministers Seek to End Bank Tax Row
By Reuters Friday, October 01, 2010
http://www.hedgeworld.com/news/read_newsletter_aa.cgi?section=dail&story=dail17539.html
EDITOR'S NOTE: This story has been updated throughout.
BRUSSELS (Reuters)âBritain and Italy have told their European neighbors not to dictate how they should impose banking levies, dealing a blow to efforts to find a single EU approach to taxing banks to meet the cost of future crises.
This warning and a series of disagreements wrecked efforts by European finance ministers to find common ground at a meeting that left them as far apart as ever on central issues of financial reform.
The gathering saw Paris and London clash when French Economy Minister Christine Lagarde blocked new EU hedge fund rules, and a rare intervention by the European Central Bank's president, who poured scorn on Berlin-backed plans for a financial transaction tax.
"Many ministers have said that this bank levy is in reality a tax and this must remain a matter of national sovereignty," said Italian Economy Minister Giulio Tremonti, firing a warning shot at Brussels' attempts to write rules for EU bank levies.
An official said these concerns were echoed in the meeting by British financial services chief Mark Hoban, who also said such levies were a matter of national sovereignty â diplomatic code telling the EU to back off.
Though most European countries agree they would like to tax banks more, after the crisis that many accuse them of causing, they disagree over how this should be done and what should be done with the money raised. Countries like Ireland, which has struggled to keep its banks afloat, would oppose any levy.
The failure to find agreement on bank levies is a setback to Brussels' roll-out of an ambitious program of financial regulation, one that has notched up some successes including curbs on banker bonuses and the establishment of new watchdogs.
But the European Unions' 27 members are still battling to speak with one voice on key areas, and this will undermine the bloc's influence when France shortly begins to host meetings of the Group of 20 top global powers.
Separately, Jean-Claude Trichet criticized plans for a tax on financial transactions, such as trading in company shares. This idea has been championed by Germany and is also viewed favorably by France.
"Financial transaction taxation presents a number of disadvantages, economically, financially, in terms of technical implementation," said the French head of the European Central Bank.
"There is, of course, an element which is extremely important," Mr. Trichet said. "It has to be implemented, if decided, absolutely everywhere in the world. Otherwise it only translates into displacing transactions out of those (countries) who would introduce this ... So I would insist on that."
The G20 has already agreed there will be no mandatory global transaction tax, effectively killing it off for now and making it far harder for Europe to go it alone. German deputy Finance Minister Georg Asmussen, commenting on the prospects for such a tax, said: "The path to achieving this is more difficult than we imagined but we are working on it."
Mr. Asmussen also said that Germany was working on finding a compromise on new EU hedge fund rules after Ms. Lagarde earlier dashed hopes of a deal. On Thursday [Sept. 30], Ms. Lagarde laid down her opposition to part of the law that would make it easy for foreign funds to work in the EU, ending chances of an imminent deal.
Diplomats and one senior official said Ms. Lagarde's "bombshell" had been dropped with Germany's blessing and put two of Europe's biggest countries on track for a clash with Washington.
The finance ministers had also summoned the credit rating agencies to Brussels, where the Greek finance minister attacked them for letting market mood swings influence their ratings. Here too, the ministers disagreed over how to tackle the problem.
Polish Finance Minister Jacek Rostowski threw cold water on what he labeled the "abstract" idea of fining credit ratings agencies if their decisions were inappropriately harsh, something suggested by Belgian Finance Minister Didier Reynders.
By John O'Donnell and Marcin Grajewski; additional reporting by Francesca Landini, Ilona Wissenbach, Brian Rohan, Krista Hughes and Jan Strupczewski
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Green comment: When push comes to shove - which it will in the EU, especially during hard times - it will be very hard to achieve EU-wide consensus over bank levies, taxes, and financial reform rules.
The major countries have different situations, and a one-size-fits-all solution does not work well. Some countries will say, lay off our banks, while others want to rein with a heavy hand. Plus, many will fight back against some trying to grab for centralized-EU power in Brussels. The EU is trying to take advantage of the financial crisis to advance federalism. It reminds me of Rahm Emmanuel saying a crisis should be taken advantage off for advancing a political agenda.
FTT seems very far fetched at this point.
Notice Brazil just raised it's 2% FTT on currency and bonds (exempting stocks) to 4% to slow hot money; to combat competitive devaluations (keep the real from rising too much). That's an unusual situation and not a reason to have FTT world-wide - which is the only way finance ministers and central bank officials would approve it.
