Having declined to meet him when he was the mere challenger for President of France, UK Prime Minister David Cameron reportedly used his first official meeting with Francois Hollande to tell him not to pursue the Financial Transactions Tax (FTT) that both Hollande and his predecessor Nicholas Sarkozy support.
It is another example of Britain being out of step with the major economies of Europe. In Germany, both Angela Merkel’s CDU and the opposition SPD back the tax. In Spain, the current Partido Popular has not varied from the position of the previous PSOE government’s support for the tax, and in Italy both the Democratic Party and the current technocratic independent Prime Minister Mario Monti are in favour.
There are, it is true, Governments in Europe willing to follow Cameron’s lead in opposing the tax known in Britain as the Robin Hood Tax: the anti-everything Czech Government, for instance, or Cameron’s allies in the Swedish Government who are scared by the example of a flawed transactions tax implemented a generation ago on Stockholm’s stock market. But since the European Commission switched sides on the issue in 2011, most of Europe has swung behind the proposal.
There are various reasons why both centre left and centre right politicians support the tax. Clearly, a major incentive is the revenue generation potential (estimated very conservatively by the European Commission as €57bn a year). Campaigners for the tax in civil society would like to see that spent partly on combating poverty in Europe, but also on combating poverty abroad and tackling climate change.
But as the campaign for the tax has grown, people have discovered other reasons to back it. The behavioural impact it will have on investors, making the risky gambling of high frequency trading and speculation less profitable is a key objective now, and many see it as a useful tool in rebalancing European markets away from casino-style gambling into investing in manufacturing.
If the Robin Hood Tax is used to prevent deeper cuts in public services, or if it has the effect of making finance serve the real economy rather than vice versa, then it will help boost growth in Europe.
Last Wednesday, the informal summit of EU leaders discussed the FTT at the express request of President Hollande, as part of the new growth agenda that David Cameron would like to be seen as endorsing (although, true to form for someone with a career in corporate PR, it seems that he is keener on the rebranding opportunities that a growth agenda offers than he is on actually changing course). And on the same day, the European Parliament debated (and vote in favour on Thursday) on the Economic and Monetary Affairs Committee’s opinion on the Commission’s Draft FTT Directive, drafted by Greek Socialist MEP Anni Podimata.
It is still very unlikely that the UK coalition government will back the tax as an EU-wide initiative. Indeed, quite bizarrely, they have refused even to countenance rolling out their own Stamp Duty on share transactions across the EU. But if, as seems likely, the UK votes to veto the Robin Hood Tax, that just makes it more likely that a tax will be implemented because it will clear the way for an FTT to be introduced in 9 or more countries through the Enhanced Co-operation Procedure, devised precisely to prevent blockers from stopping coalitions of the willing from moving ahead with European integration measures.
And given the small print of the EU draft directive, designed to prevent avoidance of the tax, it is quite likely that such a tax will raise significant sums from transactions carried out in the City of London, where such transactions involve a financial institution based or operating in one of the countries implementing the tax. The only way for the UK Government to prevent billions of pounds of tax revenue (well over £10bn a year) from leaving the City for various treasuries around Europe is to get involved and make sure that the taxes levied in London stay in the UK and benefit UK tax payers.
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The alleged ‘Robin Hood’ Tax is nothing of the sort viewed from the British perspective: The UK Government regard an FTT If enacted as a direct threat to the pre-eminent position of the City of London as the 2nd most important Financial Services centre in the world. London’s Financial ‘market’ dwarfs all the other 26 EU mebers put together – - neither singularly nor collectively does any Financial Services centre stand to lose anything like the amount the City of London would face paying for an FTT. Indeed it could be argued the FTT would NOT be worth collecting without London being involved such is the amount EU-Brussels could lose were it to be outside the system. Thus from London’s point of view it is the EU that is ‘out-of-step’ with the fiscal-economic impact of an FTT. There is also this glib branding as a “Robin Hood” Tax when it is clearly nothing of the sort: FTT is very largely intended to assist in filling the gap in the EU coffers suffered from the relentless ‘market’ assault on the EUro-currency over the last 3 years. Finally, there is the ‘political’ intent that lays at the back of almost every Fiscal move made by Brussels – - to reinforce Frankfurt’s Central Bank role – - and to reduce the importance of the City of London: An EU policy based on envy of the UK’s impressive expertise and considerable profits in Financial services; a policy which for all EU-Brussels’ efforts over 2 decades at the gradual diminution of London’s fiscal role has time and again foundered – - the last being PM Cameron’s staunch defence of the City’s interests, 1 against 26, that would appear post-Pact to have proven the UK Leader correct in his assessment of the Fiscal deal – - so, no chance he will bend to the will of Brussels on an FTT anytime soon. This is of great concern to EU-Brussels whose centralising in this vital area are seen as key to EU prosperity and progression. The City and UK Government on the other hand know only too well FTT is the ultimate attempt to undermine the UK as an indpendent-minded force within the EU. Not to coin a phrase, ‘No FTT, no EU supremacy!’