Eleven euro states back financial transaction tax

Tue Oct 9, 2012 6:36pm EDT
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By John O'Donnell and Harry Papachristou

LUXEMBOURG/ATHENS (Reuters) - Eleven euro zone countries agreed on Tuesday to press ahead with a disputed tax on financial transactions aimed at making traders share the cost of fixing a crisis that has rocked the single currency area.

The initiative, pushed hard by Germany and France but strongly opposed by Britain, Sweden and other proponents of free markets, gained critical mass at a European Union finance ministers' meeting in Luxembourg, when more than the required nine states agreed to use a treaty provision to launch the tax.

Commonly known as a "Tobin tax" after Nobel-prize winning U.S. economist James Tobin proposed one in 1972 as a way of reducing financial market volatility, it has become a political symbol of a widespread desire to make banks, hedge funds and high-frequency traders pay towards a wrenching debt clean-up.

"This is a small step for 11 countries but a giant leap for Europe," Austrian Deputy Finance Minister Andreas Schieder said. "The way is now clear for a just contribution from the banking and financial sector for financing the burdens of the crisis."

The deal raised the prospect of a pioneer group of European states for the first time launching a joint tax without the unanimous backing of the 27-nation bloc, a move that may fragment the Union's single market for financial services.

It comes as EU leaders are contemplating creating a separate budget for the 17-nation euro zone alongside the common EU budget, according to leaked conclusions drafted for a summit next week -- another step towards a "two-speed Europe".

EU Tax Commissioner Algirdas Semeta called the transaction tax a source of new revenue from an under-taxed business sector, and a means of encouraging more responsible trading.

However, critics say it could distort the EU's single market by giving financial companies incentives to shift their trading activities to European financial centers where the tax is not levied - or away from Europe altogether.   Continued...

France's Finance Minister Pierre Moscovici (L), Britain's Chancellor of the Exchequer George Osborne (C) and Germany's Finance Minister Wolfgang Schaeuble (R) attend a European Union finance ministers meeting in Luxembourg October 9, 2012. REUTERS/Yves Herman