Germany, France seek to revive transaction tax plan

Germany and France will lead a face-saving bid this week to revive a flagging project to tax financial transactions in euro zone countries and allay fears it could hamper economic recovery.

The tax is expected to be scaled back from an original plan to introduce it from January to raise €35 billion annually to make banks pay back some of the money received in the 2007-09 financial crisis.

The idea of a transaction tax failed to win backing globally due to US opposition, and a pan-European Union tax or even one covering all 18 euro zone countries also found no support. Ireland,Britain, the Netherlands and Sweden are among the countries that have opposed it on grounds that it would encourage banks and finance firms to relocate trading activities.

Although the levy is likely to end up being a shadow of the original proposal, its introduction in some form would allow Germany and France to claim a victory.

The latest plan for the tax is expected to be on the agenda when Germany and France meet in Paris on Wednesday.

Soundings among all the 11 countries will first be taken on the sidelines of the regular monthly meeting of the EU finance ministers in Brussels today.

"I hope that we take a step forward on that," Wolfgang Schaeuble, Germany's finance minister said when arriving in Brussels ahead of the planned talks.

“We may possibly have to move ahead step by step,” he told journalists, in an apparent reference to a phased introduction of the tax.

An EU diplomat said finance ministers from the 11 countries taking part will meet tomorrow morning, adding that no definitive decisions are expected this week.

A phase-in starting with stocks and then later adding bonds, and perhaps derivatives in a reduced way, now looks likely rather than the “big bang” introduction originally foreseen, officials and financial lobbyists in Brussels said.

The basis of the tax could also be changed to avoid trying to force countries outside the 11 taking part from having to collect the levy.

What is now seen as an inevitable scaling back has raised concerns among the socialists in the European Parliament, which goes to the polls in May, who urged the French and German finance ministers to be more ambitious.

Britain, the EU’s biggest financial centre, is not among the 11 countries, but is nevertheless challenging the plan in the region’s top court, saying it impinges on its firms.

The original proposal to tax stocks, bonds and derivatives hit the rocks after it was deemed illegal in parts by lawyers for the member states collectively.

Exemptions to the tax are already under discussion, including some categories of derivatives.

France is keen to scale back the tax's impact on derivatives as French banks such as Societe Generale and BNP Paribas are big players in the market.

Securitised debt and repurchase agreements or repos may also need exemptions to avoid harming what is hoped will be an important source of funding for companies, documents seen by Reuters have said.

Government and corporate bonds may also be exempt and some countries are also keen to avoid hitting end investors and pension funds.

Reuters