France and Germany to float a financial transactions tax

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France and Germany say they will propose a tax on banks and financial transactions at the next G20 summit, but many countries oppose as yet undefined projects aimed more at public opinion.

President Nicolas Sarkozy and Chancellor Angela Merkel said Monday in Berlin they would make such a proposal to the current head of the G20 group of industrialised and emerging economies, Canadian Prime Minister Stephen Harper.

The next summit of the G20 group of advanced and emerging economies is to take place on June 26 and 27 in Toronto.

But while the European Union and United States agree on the need for a bank tax to help pay for the financial crisis, a tax on financial transactions has not met with unanimous approval.

What such a tax would look like is also not clear, even in Germany where it was an initiative of Merkel's government.

In late May, Merkel muddied the waters by referring to either a levy on each financial transaction, sometimes called a "Tobin tax," or a financial activities tax levied on profits and pay as suggested by the International Monetary Fund (IMF) in April.

A tax on transactions or financial activities could earn two billion euros (2.44 billion dollars) per year for Germany from 2012, Merkel said recently, while France has not floated any comparable figures.

In April, the European Commission estimated that around 20 billion euros could be raised across the continent by some form of tax.

But such forecasts are "complete nonsense" according to Luise Hoelscher, a tax specialist at the Frankfurt School of Finance.

If the levy is too stiff, financial activities migrate to more accomodating countries and governments that enacted the legislation earn nothing, she told AFP.

Sweden tried such a scheme in the 1990s but abolished a tax on transactions after the Stockholm stock exchange collapsed, Hoelscher explained.

The IMF has warned meanwhile that a financial transactions tax would simply be passed on to consumers.

European Commission president Jose Manuel Barroso nonetheless expressed support for such a tax in early June, even though he acknowledged it could be "extremely difficult" to impose it worldwide owing to "enormous resistance."

Opposition exists already within the 27-member European Union.

Britain's new ruling coalition has said it is drafting a banking tax but appears to have buried the idea of a levy on financial transactions.

London is the main hub of European financial transactions.

People close to French Finance Minister Christine Lagarde say a tax on banks is "a more mature subject" than one on transactions, an issue on which there are "many more differences" of opinion, in particular with the United States.

A tax on financial transactions is a "still-born" project that responds more to questions of political activism, Hoelscher said.

"It is an easy tax to call for because we know it will never come about," she noted.

"You can always say later: 'I wanted to do something but the others did not'."

© 2010 AFP

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