Strong language has been used on both sides of this debate, but understandably so, given the high stakes.
Volker Kauder, of the Christian Democratic Union, made the provocative claim that “suddenly Europe is speaking German” in reference to the country’s influence on the ongoing crisis. Meanwhile, George Osborne described a proposed European financial transaction tax (FTT) backed by Germany as “a bullet aimed at the heart of London.”
The Eurozone debt crisis presents a defining opportunity for the current model to be reassessed.
Markets are calling for closer fiscal integration among member states to prevent further contagion and ensure the currency union’s survival. It is vital, however, that any solution to the current crisis does not fragment the single market or undermine the UK’s position within the European Union.
We must remove the obstacles that stand in the way of jobs and growth. Strengthening the single market by promoting open markets and free trade is vital to drive the European economy forward.
The real danger is that closer integration within the Eurozone following the crisis could leave us on the outside looking in. If this came to pass the FTT would simply be the tip of the iceberg of damaging regulation.
The European Commission’s own impact assessment of this proposal highlights that of the €57bn it would raise across the European Union, €40bn would come from the UK. This is in essence a political tax on London and the UK.
And furthermore, between 70 and 90 per cent of all derivatives trading could move outside of the EU, together with hundreds of thousands of jobs. Driving that volume of internationally mobile business outside of Europe defeats the whole purpose of the FTT by losing more money than it raises in revenues. New York and other financial centres would be delighted if Europe shot itself in the foot through the lack of equivalence at the heart of this proposal.
That is why, if European policymakers truly feel that a transaction tax is vital to shoring up our financial system, they must – as the UK government has already made clear – seek to create a global consensus through the Group of 20 (G20).
Even then, the additional risk is that the costs of an FTT would be passed, in whole or part, directly to consumers, whether in the retail or wholesale area. Not only would this be an additional cost burden in recessionary times, but it might deter consumers from undertaking financial transactions which are economically or socially desirable, including insurance and retirement saving.
The government’s support for the UK financial services industry on this is welcome. As Kauder’s statement implied, now more than ever we need to have the UK’s voice heard across Europe.
Stuart Fraser is policy chairman at the City of London Corporation.