EU SUMMIT:EU LEADERS raised pressure on financial institutions and the G20 group of advanced and developing countries with new plans to widen the reach of a proposed bank tax to include a tax on bank transactions.
While reiterating their determination to proceed with new measures to toughen sanctions on governments which breach EU deficit and debt limits, the leaders postponed until their next summit in October key decisions on the scale of any financial penalties and whether they should be imposed automatically.
Such questions are highly sensitive politically as the financial penalties allowed under the existing regime were never imposed even though many EU countries routinely broke the rules.
A key concern, say talks participants, is that fiscal penalties would worsen the fiscal position of governments who are self-evidently struggling to meet EU targets.
In defiance of German sensitivities over the publication of stress-test results on certain regional banks, they also agreed to make public the results on banks throughout Europe next month. Their objective is to reassure markets by lifting unfounded suspicion over institutions’ exposure to risk.
As the leaders agreed to move ahead quickly with European Commission reviews of draft budget plans, the summit was presented as a decisive step forward in the drive to prevent any repeat of the Greek debt debacle by enhancing the EU’s system of economic governance.
“Today the European Council has rolled up its sleeves and shown we can act together . . . We are on the case and delivering,” said Commission chief José Manuel Barroso.
The commission will flesh out its thinking on new governance measures later this month and make definitive legislative proposals in September, he added.
Although there is resistance in the G20 group to the notion of new bank taxes as a means of insuring against the cost of any future bank failures, EU leaders will renew their efforts to persuade the global community to go down this road at a G20 summit in Toronto next weekend.
Even if the G20 refuses to adopt a global tax plan, many EU members want Europe to go it alone.
Austrian chancellor Werner Faymann proposed expanding the bank tax with an additional tax on transactions that financial institutions make.
This met with resistance from British prime minister David Cameron and Czech prime minister Jan Fischer, but the final summit conclusions said the leaders agreed EU member states should “introduce systems of levies and taxes” on institutions. “The introduction of a global financial transaction tax should be explored and developed further” in the G20 context, the conclusions added.
The leaders have tried in recent weeks to present a united front in the face of pressure on the euro and fears about the precarious position of Spain’s public finances.
As part of their effort to develop a coherent medium-term economic plan for the EU, the leaders made firm pledges to raise the union’s employment rate to 75 per cent by 2020 and to lift some 20 million people from the risk of poverty and exclusion by that date.
Even though French demands for the creation of a special secretariat to oversee the economies of the euro zone have been perceived as an effort to weaken the European Central Bank (ECB), the bank said yesterday that euro finance ministers should be the guardians of fiscal sustainability in the single currency area.
In its formal proposal to the governance debate, the ECB said: “The euro group . . . should review in detail national budgetary plans, consider the risk of adverse spill-over effects and agree on a number of precise ex ante fiscal policy guidelines.”