AS EUROPEAN Union finance ministers discuss ways of controlling reckless banks, a very simple logic applies. Reckless banking wrecks lives. Ireland has suffered proportionally more damage from reckless banking than any other society. Therefore Ireland is at the forefront of pressing for EU-wide measures to rein in reckless banking.
Right? Wrong.
Ireland is lining up with the City of London and its political allies to protect the interests of the most rapacious kind of banking. Michael Noonan is out there batting for the wide boys in their opposition to a financial transactions tax.
There is an overwhelming financial, economic and political case for a tax to be imposed on financial transactions such as the trading by banks of securities (shares and bonds) and derivatives such as options and credit default swaps. Financially, the banks have been bailed out by ordinary citizens at appalling costs. But instead of repaying these costs, banks, under the current regime, will actually pay less tax in coming years because they will be able to write off their losses.
A new form of taxation on banks is thus not at all a radical idea. It is merely a gesture towards financial recompense. The EU Commission estimates that a 0.1 per cent tax on securities transactions and a 1 per cent tax on derivatives would raise €57 billion annually – significantly less than the cost of the Irish bailout alone.
Economically, the case is equally obvious: taxation systems should discourage dangerous and unproductive activities. Anyone who doesn’t know how dangerous and counterproductive the untrammelled growth of derivatives trading has been should go back to reading Thomas the Tank Engine.
From a political point of view, a financial transactions tax (FTT) is also crucial. Citizens have been abused, defrauded and robbed by banking systems that have ceased to fulfil their basic functions. (Literally so in the case of Ulster Bank, whose inability to give people access to their own money is emblematic of the wider shift of banking from service industry to get-rich-quick machine.) From the Dirt scandal here to the rigging of the interbank interest rates in London, citizens have had their noses rubbed in corruption and impunity. And they have been left with nothing but a seething awareness of their own powerlessness.
This aspect of the FTT is arguably more important even than the money itself. We’re living through a crisis of democracy. On the one hand, we’ve never had more obvious need for functioning, powerful transnational democratic institutions that can act coherently in pursuit of a common interest. On the other, the institutions we do have – in this context those of the EU and euro zone – are patently lacking in democratic legitimacy.
The EU Commission, the European Parliament and many of the major EU governments (including France and Germany) are strongly in favour of an FTT. So are European citizens: the Eurobarometer survey shows 65 per cent support for an FTT. The financial sector is, of course, opposed. We have, therefore, a crucial test of wills between citizens and democratic institutions on the one side and the finance industry on the other.
If the EU institutions lose this fight on what is, after all, a very modest proposal, their remaining democratic legitimacy will be holed below the waterline. Conversely, if the banks can face down the EU on this one, their sense of impunity will be absolute and their recklessness will be redoubled.
Ireland, which has suffered so outrageously from the effects of reckless banking, has an overwhelming interest in seeing an FTT put in place. We also know from concrete experience exactly how disastrous the effects of pandering to finance industry lobbyists can be. To take just one currently resonant example, Seán Quinn’s catastrophic accumulation of contracts for difference (CFDs) for Anglo Irish Bank shares, which helped to cost the Irish taxpayer €3 billion, would not have been possible if, as the Revenue proposed, CFDs had been taxed and therefore disclosed.
Why were they not taxed? Because the financial industry lobby kicked in and persuaded the then minister for finance, Brian Cowen, that doing so would harm the competitiveness of the Irish financial services industry.
Now, here we are again, with Michael Noonan taking the same industry line in opposing an FTT. He has lined up with George Osborne and the City of London against this very basic measure to impose some degree of social responsibility on a disastrously rapacious system. Why? Because, allegedly, the imposition of a transactions tax would cause banks to flee from the International Financial Services Centre.
In fact, the EU Commission’s proposals specifically deal with the threat by banks that they would relocate: any bank dealing with any European clients, regardless of its physical location, would be subject to the FTT. In any event, however, Ireland has surely learned in the hardest way that the short-term benefits of catering to the most reckless sides of the finance industry are massively outweighed by the long-term costs. Ireland has learned – but the Government, it appears, has not. When a choice has to be made, it still speaks, not for citizens, but for the banks.