Tobin tax

The debate about the financial transactions tax has been dragging on for least seven year now. In 2005, French President Jaques Chirac and then German President Gerhard Schröder put the idea on the table – on the condition though that it would be implemented internationally. This effectively prevented its implementation; the US, the UK and several other big players have persistently rejected a tax on financial transactions.

Yet the global credit crunch of 2008 added more oil to the fire. Many people across Europe are now in favor of the tax as they see it as a good instrument to control the excesses of the financial markets. It's also touted as a way to make the alleged culprits of the global crisis foot at least part of the bill.

Gaining popular support

So far it's mostly been left leaning parties calling for the tax, but now even the conservatives are taking that route. French President Nicolas Sarkozy for instance is now a staunch supporter of the tax and has even threatened going it alone should nobody join France. German Finance Minister Wolfgang Schäuble – also a conservative – is also backing the tax, but only if it's introduced across the entire European Union or at least in the 17 member states sharing the single currency.

An internal working paper of the German Finance Ministry described the tax as a good measure to make banks, hedgefunds and investors pay a "fair" share of the costs of the crisis. Currently, 9 of the 27 EU member states are backing the tax which would target financial market transactions, including highly speculative products.

Unsurprisingly, British Chancellor of the Exchequer George Osborne is among the sternest opponents of the tax because it would put a serious gag on London's financial hub. Luxembourg, the Netherlands and Sweden are also among the opponents of the tax. The UK already has a so called "stamp duty" on publicly traded shares and London has proposed a similar instrument for Europe. Highly speculative trading would however not be affected by this. According to the German Finance Ministry, Berlin could imagine a similar tax as an intermediate step on the way to a proper transactions tax.

An EU tax?

The EU commission is firmly pushing for the new tax. At the EU finance ministers meeting in Copenhagen, Commissioner Algirdas Semeta wanted to fight for the tax that he hopes will bring in as much as 57 billion euros ($76 dollars) annually if raised across the entire EU. Semeta wants to use that money for the EU budget – so far the bloc doesn't raise any taxes itself but is dependent on the contribution from the member states. According to the commissioner, the tax could save the member states half of those contributions.

But despite this tempting calculation, the finance ministers are hesitant. A separate tax raised directly at European level would be breaking a taboo. Tax issues are traditional questions of national sovereignty. Any decision in Copenhagen could therefore only be taken unanimously. Swedish Finance Minister Anders Borg rejects the EU proposal. "That's out of the question for Sweden. There can not be a tax raised and collected by an EU institution. Brussels can only coordinate nationally raised taxes," Borg told DW.

A long history

The idea of a financial transactions tax was first raised by US economist James Tobin in 1972 to curb speculations on currency fluctuations long before financial markets came up with structured debt products that caused the 2008 crisis. Over the last years anti-globalization activists, including the Attac network, spearheaded the calls for the so-called Tobin tax. However, Tobin himself later distanced himself from the anti-globalization activists.

Experts are divided over the potential consequences of the tax. German financial expert Max Otte describes the tax as useful against speculation without affecting the real economy. German economist and public finance specialist Clemens Fuest however warns the tax would fail to address the actual causes of the financial crisis. Rather, he argues, banks need to improve their own equity ratio. He also warns that the costs of the tax would simply be passed on to the customer, the investors.

Author: Bernd Riegert / ai
Editor: Neil King