Banks blast "Tobin tax" proposal

City A.M. Reporter
Banks blasted Franco-German plans to push again for a Europe-wide tax on financial transactions, saying the tax would be destabilising, ineffective and costly to industry.

Financial markets players have said that even if France and Germany could persuade all 27 European Union member states to adopt the tax - overcoming long-standing UK opposition - it would simply drive many transactions offshore to less-regulated financial centres.

The Association for Financial Markets in Europe, which represents top banks, also worried the tax would hurt companies and crimp economic growth.

"Many financial transactions are carried out on behalf of businesses that would bear the cost of the additional tax," AFME said.

Shares in stock exchange operators took a hit after French president Nicolas Sarkozy and German chancellor Angela Merkel unveiled the plan to tax financial trades.

The pair, under pressure to restore confidence in the eurozone after a dramatic market slump, did not detail how such a tax would work. That did not stop Austria, Italy, Spain and the European Commission signalling they would support the idea.

France and Germany were entering a period where they must win over other governments to their ideas, the German government said, adding the tax would have to apply to all EU countries and not just those of the 17-member eurozone.

France said its finance minister Francois Baroin would meet his German counterpart soon to discuss the plans.

But a pan-European move would need agreement from Britain, the region's biggest financial centre and which is opposed to the EU going it alone. Some market players said they expected the UK would put an end to the effort, as it had in the past.

"A pan-European transaction tax is not going to happen; this is just noise," said a trader at an investment bank in London.