Members of the European Parliament’s Committee on Economic and Monetary Affairs (ECON) have voted for the introduction of a Europe-wide financial transaction tax, despite strong opposition from national governments. While Parliament has no co-decision powers on the dossier, rapporteur Anni Podimata (S&D, Greece) said the vote - secured by 30 votes to 11 - would send a “strong political signal” to reluctant countries that the EU needs to raise new revenues to beat the crisis. “Fiscal discipline is not sufficient on its own to overcome the current crisis,” she told reporters after the vote. “A financial transaction tax with the significant resources it can produce [is] an integral part of our strategy to exit the current crisis.”

The European Commission published its proposal for a financial transaction tax in September 2011, estimating that it could raise €57 billion for cash-strapped budgets by introducing a minimum rate of between 0.01% (for derivatives) and 0.1% (for shares and bonds). It said the tax would be levied on EU-resident banks, even if the transaction takes place outside the bloc, a move Taxation Commissioner Algirdas Semeta said was to reduce the risk of companies relocating to avoid paying it. The Commission also wants to hive off two-thirds of any potential FTT revenues for the EU budget, lowering governments’ own GNI-based contributions by an estimated 50%, a proposal that has been rubbished by several countries and is a red line for Sweden.

The tax itself has been shot down by the UK and Sweden, with some support from the Netherlands, Luxembourg, Ireland and Malta, which say it will force banks to relocate outside the EU. The European Central Bank has said it will only work if it is applied globally. Speaking to ECON deputies, on 25 April, ECB President Mario Draghi said, “An FTT, to be practical, would have to be undertaken by all countries otherwise you would have a displacement of industry towards countries that don’t have a tax,” he said. “We are at a time when most of the foreign investors and sources of funding have left the much greater part of the euro area - we want them to come back,” he said. “One wonders whether the FTT is the best way to attract these foreign investors.”

Nine countries - Germany, France, Italy, Spain, Belgium, Austria, Portugal, Finland and Greece - are keen to move on the proposal, but German Finance Minister Wolfgang Schäuble announced at an informal ministers’ meeting in Copenhagen last month that it was impossible in the current climate. Instead, he suggested a UK-style stamp duty - a 0.5% tax on shares - as an interim measure on the road to a full FTT. French President Nicolas Sarkozy has already pledged to introduce a tax of 0.1% on shares in large corporations, due to come into force this August, while his Socialist challenger in the current presidential elections, Francois Hollande, favours a full FTT.

While not ruling out the introduction of a watered-down FTT as an interim measure, Podimata said Parliament would stick to its guns and follow the discussions in Council “very closely”. “We have been consistent in our position and we will stick to this position,” said Podimata of the ECON compromise. “I hope that the Council can demonstrate the same consistency and coherence.” The Council working group on the tax is due to meet on 26 April to hold further talks on a way forward, though it has not totally ditched talks on the Commission proposal.

COMPROMISES

MEPs voted on a series of compromises on the Commission’s proposal, the most significant being to tax banks outside the EU if they trade in shares or bonds originally issued inside the bloc. The report also exempts pension funds and links payment of the tax to the ownership of securities, a signal to tax avoiders that they may be denied legal ownership of shares and bonds. Meanwhile, MEPs say that if it is impossible to get EU-wide agreement on the tax it should be taken forward by enhanced cooperation, which requires at least nine member states to agree to introduce it.