European Central Bank’s Trichet says Europe can’t go it alone on financial transaction tax

By Pan Pylas, AP
Friday, October 1, 2010

ECB’s Trichet wary of financial transaction tax

BRUSSELS — European Central Bank president Jean-Claude Trichet said Friday it would be a big mistake if the European Union decided to go it alone on taxing financial transactions, arguing that its introduction would cause banks to flee elsewhere.

In a press briefing following a meeting with EU finance ministers, Trichet said any financial tax should be imposed worldwide or it won’t work.

“The financial transaction taxation presents a number of disadvantages economically, financially, in terms of technical implementation and there is of course an element, which is extremely important, it has to be implemented, if decided, absolutely everywhere in the world,” Trichet said.

“Otherwise it only translates in displacing transactions out of those who introduce this, so I insist on that,” Trichet said.

His comments effectively rule out the introduction of any unilateral tax on European bank trades because Europe’s governments would be extremely wary of going against the advice of one of Europe’s most important economic policymakers — the ECB sets interest rates for the 16 countries that use the euro.

The tax has been backed by non-governmental organizations, trade unions and some European politicians as a means of raising billions of dollars from a banking system that effectively plunged into its deepest economic recession since World War 2.

EU Taxation Commissioner Algirdas Semeta, who is assessing the viability of the tax, said the financial sector is undertaxed in comparison with other sectors in the EU, as it is largely exempt from sales taxes.

“The financial transactions tax is not the only possible way to address financial sector taxation…..we have to come to an agreement whether we want to fill in this gap and how we want to fill in this gap,” said Semeta.

A financial activities tax is a potential alternative, said Semeta, whereby bank profits and remuneration packages are taxed.

The main reason behind those calling for a financial transactions tax is the scale of the revenues that could be reaped from daily trading, which runs into trillions of dollars.

Even a tiny levy on all trades could reap billions, which proponents argue could go a long way to helping the world combat climate change, eradicating poverty or eliminating massive government debts.

French president Nicolas Sarkozy has said he will bring the issue up at the Group of 20 meeting of leaders in Seoul, South Korea in early November, but the attitude of the U.S. — the most important financial center in the world — appears lukewarm at best.

Didier Reynders, Belgium’s finance minister and the current head of the EU’s forum for finance ministers — known as Ecofin — said he was a supporter of the financial transactions tax and he will continue to try to convince his peers in the G-20. Further discussions, he said, will take place at the next Ecofin meeting in October.

“It’s a priority of the Belgian presidency to put the discussion on the table,” said Reynders.

The financial transactions tax was first proposed way back in the early 1970s by Nobel laureate economist James Tobin, and is often called the Tobin Tax.

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