EU finance ministers to discuss bank-levy co-ordination

BRUSSELS - A levy on banks across the bloc to produce funds to cover the costs of any future banking sector bail-out is set to be the lead topic when EU finance ministers meet in Brussels on Tuesday, aiming to ensure that never again should such economic disasters weigh so heavily on the public sector and taxpayers.

As a result of the 2008-2009 credit crunch, governments chose to bail-out teetering banks to the tune of 16.5 percent of EU GDP, effectively transferring private sector debt onto the back of governments. The current ongoing concerns markets have over the viability of European governments to pay their debts is largely a result of this transfer.

In June this year, member states agreed that the imposition of a bank levy or tax on financial firms should be developed. But the detail of how such a levy would work has yet to be worked out, even as the three biggest EU states, France, Germany and the UK, are set to already move ahead with their own such taxes from the start of 2011. Sweden was the first EU state to introduce such a tax, in 2009.

The European Commission for its part is worried that levies are being introduced haphazardly and will attempt to shepherd the bloc toward a co-ordinated solution.

"In our view, there is a need for a common framework, with some already introducing advanced plans for banking levies," said one commission official on Monday ahead of the meeting. "There needs to be a properly co-ordinated framework."

The official added: "We have no desire to play referee [between the different approaches]."

At the heart of the issue is whether the funds raised would be gathered together in a common pot - in Brussels jargon, a ‘resolution fund' - or return to national coffers to be spent by governments to balance their accounts. The UK in particular favours the latter approach.

There are also concerns that the current approach will result in "double charging", with banks situated in two or more member states being hit twice or more by different national levies.

Additionally, wide variations in the level of taxation could see financial institutions shopping around for the best deal amongst EU states.

The discussion will be a first exchange of views on the subject and the commission is still some way from any legislative proposal, expected to be put on the table in spring next year. The level or percentage of such a levy will only much later be discussed, according to officials.

The second major item topping the ministers' agenda on Tuesday and still more controversial is the mutual oversight of each others' spending plans, the so-called European Semester, a six-month period where Brussels and EU finance ministers consider the budget outlines for the upcoming three years.

Ministers on Tuesday are hoping to reach agreement on a revised Code of Conduct to make the semester fully operational by 2011.

The semester's cycle would start early in the year, with the ministers, the Eurogroup - those states employing the euro currency, and premiers and presidents identifying the common economic challenges for the coming period and then "guide" each other into making the right spending decisions.

The Council of Ministers and the commission will each provide an assessment and guidance to member states in June and July, aiming to complete the process in a window ahead of when most countries make their important budget decisions.