Bankers count on watered down EU trading tax
By Swaha Pattanaik and Simon Jessop
LONDON (Reuters) - Bankers are confident they can persuade the European Union that its proposed financial trading tax poses enough risks to struggling economies and banks to warrant being watered down.
Their campaign against the tax, which will be imposed by 11 of the EU's 27 countries, focuses on how much it would boost the cost of funding for governments and companies, erode returns earned even by long-term investors, and hurt funding markets which are crucial to the health of the financial system.
Advocates of the financial transaction tax say it is small enough and covers enough assets not to distort markets while ensuring banks, which received taxpayers' cash during the financial and euro zone crises, make a contribution to the public coffers as governments try to rein in budget deficits.
Their arguments have struck a chord with public opinion, particularly in those European countries where unemployment has been rising, social welfare has been cut and wages have stagnated or fallen due to government austerity measures.
But bankers say the impact of the levy will be felt far beyond the financial sector if the EU sticks to its plan to tax buyers and sellers at each stage of every trade that is either transacted by someone in one of the countries imposing the tax or involves an asset issued by an institution based there.
"I think that the impact is so dramatic, I would be astounded if it passes in its current form," Remco Lenterman, chairman of the FIA European Principal Traders Association said.
"I would almost theorize that if they pass and implement it in its current form, they would have to cancel it after a three- to six-month period as markets would become so dysfunctional that you would have to revert back."
The European Commission declined to comment. Financial regulation is often changed in the process of negotiations. Continued...