Global Policy Forum

EU divided on German "Tobin" Tax Proposal


September 17, 2009

European leaders were divided on Thursday over proposals by Germany to levy a global tax on financial transactions that could act as a cushion against future economic setbacks.

German Chancellor Angela Merkel sought but failed to secure agreement from her fellow European Union leaders for such a proposal to be taken to a summit of the Group of 20 countries in Pittsburgh next week.

British Prime Minister Gordon Brown and others fear such a scheme would be rendered useless by some countries not taking it up and therefore becoming de facto tax havens.

However, Luxembourg Prime Minister and the head of the eurozone finance minister's Eurogroup, said the issue will be revisited at a later date.

"We weren't in a position to reach agreement today," said Jean-Claude Juncker, adding that similar notions such as a levy on stock markets could also be explored with Germany demonstrating "real will" and other support emerging.

"An international tax like that would be a good idea and we are going to see today if we can find a common position on it," Merkel said ahead of the EU leaders' working dinner in Brussels.

Debate over a new version of the so-called "Tobin Tax" on capital flows has accelerated since Adair Turner, the chairman of Britain's Financial Services Authority, resurrected the idea earlier this year.

Originally proposed in 1971 by Nobel Prize laureate James Tobin as a means of reducing speculation in global markets, supporters of the levy see it as a way of providing buffers against future economic downturn.

Others also envisage such a tax as helping to resolve global problems, including the fight against climate change or the supply of aid to countries that have suffered natural disasters.

Brown sees it as unworkable. "It's an issue of practicality," he told reporters in Brussels.

"Until we can be assured that we have global action that is commonplace and we don't have authorities or havens or territories that can easily opt out of that action then it is very difficult."

Tobin himself later began to doubt his own idea was workable, added the British Prime Minister who presides over the biggest financial centre in Europe.

Prime Minister Fredrik Reinfeldt of Sweden, the current holder of the European Union's presidency, came out firmly against the idea.

"I don't think that is the answer," he said. "It has been proposed in historical times but I think it would be better to see coordinated measures of the kind we are talking about on the (bankers') bonus issue."

Speaking to European parliamentarians after being handed a fresh five-year mandate as European Commission president on Wednesday, Jose Manuel Barroso said the tax could work as long as it was applied globally and "does not threaten Europe's competitiveness."



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