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The EU Commission has suggested a tax on banks in response to requests to come up with novel ways of raising revenue. Novel it’s not, but who cares, as long as it generates 50 billion euros annually, as calculated.
On April 1, 2010, the Commission issued a 60-page staff working document called “Innovative financing at a global level”. This was prepared in response to the European Council’s invitation to examine global innovative financing, as well as the European Parliament’s request to assess the impact of a global financial transactions tax. The G-20 Leaders had also expressed interest in a report on how the financial sector could make a fair contribution towards the cost of government bailouts of the banking system.
The analysis set out in the report shows that the non-traditional instruments proposed could reap a “double dividend”, that is, they would not only raise revenues, but also improve market efficiency and stability. This would be achieved by putting a hefty price tag on financial risk-taking.
The report also noted that the worldwide economic and financial crisis has created the need for fiscal consolidation, not only in the EU, but around the world. Therefore, global coordination, especially with key players, many of whom are G-20 members, is crucial for successful implementation of the innovative financing. Otherwise, there is a risk that funds will migrate out of the EU.
One proponent of taxing banks is Sweden, which already imposes a levy on banks. The Commission proposal, which mirrors a new US plan, also has strong backing from France and Germany. However, the UK is likely to oppose this scheme; because about 80 percent of the EU’s financial services industry is situated in London, it would result in an asymmetric pattern of collections and be unduly burdensome on this one member state.
Is this proposal going to garner the worldwide support it needs? I wouldn’t bank on it.