EU suggests €50 billion bank tax idea
The European Commission has published a study which suggests a new tax on banks could generate as much as €50 billion a year for EU governments, whose public finances have been left in tatters following the recent financial crisis.
The EU tax on bank leverage and risk-taking is just one of several "innovative financing options" in the commission document, published on Tuesday (6 April), with the region's finance ministers set to mull over the list at an informal meeting in Madrid this month.
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As well as helping governments improve their balance sheets, the fresh revenue could be used to fund future bank bail-outs, climate change and development goals, say the report's authors, with Germany and France broadly in support of the plans.
"The financial sector needs to contribute to the costs of financial stability. This should be one of the building blocks in our effort to set up a crisis management framework in Europe," Michel Barnier, EU commissioner for internal market and services, said in a statement.
The EU is keen to come up with a common position on innovative financing ahead of a meeting of G20 leaders in Toronto this June, with the US administration announcing plans in January to tax risky assets held by the country's large financial firms in a bid to pay for recent multi-billion dollar bail-outs.
Sweden already operates a bank levy system. The commission report calculates that "if the Swedish tax rate of 0.036 percent is applied, the revenue would be around €13 billion in 2009." However, if the US tax rate of 0.15 percent were used, this "would lead to revenue of more than €50 billion."
The new study, called for by EU leaders at a summit in October 2009, also looks at the possibility of a tax on global financial transactions, suggesting this could yield up to €20 billion.
Together with the considerable fundraising potential, the EU executive body stressed that the measures could provide a "double dividend," also helping to improve market stability by putting a price on risk-taking in the financial sector.
"Schemes aimed at pricing leverage and risk-taking in the financial sector could raise substantial revenues while limiting undesirable behavior by financial institutions and could be administered at a reasonable cost," says the report.
Financial taxes are nothing new, with US economist James Tobin first putting forward the idea of a tax on global currency transactions as early as 1972 as a means of combating market volatility.
But since then economists and politicians have underlined the need for a worldwide agreement if such schemes are to work effectively and not simply send financial activity to non-cooperating jurisdictions.
The commission report repeats the need for global agreement but adds that "even in the absence of proper international coordination, an EU initiative on the matter could be explored."
The difficulties in co-ordinating European and American initiatives were once again brought to the world's attention this week, with US treasury secretary Tim Geithner repeating his concerns that EU plans to regulate hedge funds could "discriminate" against US fund managers.