Robin Hood Tax to clean up the mess

"Clean up after yourself!" We've all heard it before. It is a value drummed into us by our parents: if you make a mess it is your responsibility to deal with it.

European finance ministers coming to Brussels on Tuesday (7 September) for an extraordinary meeting have the chance to remind banks and other financial services of that most basic lesson.

The size of the mess created by the economic crisis triggered by the collapse of the financial sector is staggering. The International Monetary Fund (IMF) estimates the crisis will increase the debts of the developed G20 economies by 40 per cent – those, such as Germany and the UK which suffered a "systemic crisis" saw economic output fall by 27%. That amounts to more than €980bn for Germany and €600 for the UK (£497bn).

Ordinary people across Europe have been hit hard. Millions of people have been thrown out of work and salaries have stagnated. As tax revenues have fallen, governments have come under pressure to cut public services to balance their books; services such as transport, welfare and care services that are particularly important for the poor.

And it is not just poor people in rich countries who are victims of this mess. Research carried out for Oxfam by Development Finance International found that the 56 poorest countries face a $65bn hole in their finances as a result of the crisis.

Faced with a potential debt crisis, two-thirds of those where data on social spending is available have chosen to cut spending on at least one of health, agriculture, education or social safety nets. Already without the Europe-style welfare systems that we rely on during difficult times, the world's poorest people face cuts in life-saving medicines, losing the school place for their child or cuts in their crops because they can no longer afford fertiliser.

This blow comes at a time when many poor countries are already struggling to cope with food shortages and the devastating effects of climate change. Our research suggests that by 2015 the average number of people affected each year by climate-related disasters could increase by over 50 per cent to 375 million. This summers' flooding of large parts of Pakistan show the potential for human suffering that lurks behind these statistics.

Merkel, Sarkozy and Clegg

A ‘Robin Hood' tax on banks, hedge funds and other financial services would raise hundreds of billions of Euros to protect public services and poor people in Europe and developing countries and tackle climate change.

A tiny tax (with an average of just 0.05%) on financial transactions would hit socially useless short-term speculation without significantly hurting the wider economy. Contrary to the protestations of critics' the IMF, not known for its progressive policies, believes the tax is eminently feasible and would prove easy to collect.

Campaigns in the UK, Germany and Spain have caught the public imagination. The UK campaign backed by more than 100 aid agencies, green groups, unions and faith organisations has attracted more than 200,000 facebook supporters since its launch in February.

Unfortunately finance ministers meeting on Tuesday are unlikely to agree financial transaction taxes (FTTs) immediately. But they have a real opportunity to show their willingness to make finance pay a fairer contribution to society by agreeing a smaller, EU-wide bank levy and signal that a further additional tax should be agreed quickly.

A Robin Hood Tax could raise the hundreds of billions needed at home and abroad. The EU should not wait for the rest of the world, but should move first to implement such a tax within the next year.

Angela Merkel, Nicolas Sarkozy and Nick Clegg, the UK's deputy PM, are already on the record as supporting the idea. France have promised to push for a further tax on the financial sector when they take over the presidency of the G20 next year.

But global agreement in the short-term is unlikely, so Europe should not hide behind the rest of the world's inaction. It can press ahead with FTTs (or the aptly named FAT tax on financial activities, proposed by the IMF) without waiting for the agreement of others. Many countries, including the UK and Switzerland, have imposed their own FTTs (on shares) without noticeable damage to their financial sectors. A Europe-wide agreement would offer member states additional protection.

Implementation of a Robin Hood Tax will ultimately depend upon whether our leaders have the courage to lead and the determination to discipline the unruly child the financial sector has become. Otherwise the rest of us will continue to struggle to clean up its mess.

Elise Ford is heading Oxfam's EU office.