PLANS FOR EUROPE-WIDE LEVY WOULD HIT SQUARE MILE
GERMAN chancellor Angela Merkel rocked investors last night with a shock commitment to push for a EU-wide financial transactions tax, often known as a Tobin tax.
The plans for a Europe-wide levy would knock the Square Mile, threatening to push even more jobs to lower-tax corners of the global market.
The City could expect a hit to the tune of £20bn a year, according to the Robin Hood Tax campaign, which lobbies in favour of the charge.
Speaking alongside French President Nicolas Sarkozy in Paris last night, Merkel said: “French and German finance ministers will table a joint proposal at the EU level in September for a tax on financial transactions. This is a priority for us.”
The move – intended to raise government funds and mitigate market instability – has been pushed hard in Brussels by anti-capitalist groups and trade unions, yet faced criticism following Merkel’s surprise statement.
“Tobin taxes don’t reduce market volatility, they simply act as a blindfold,” said Sam Bowman of the Adam Smith Institute, arguing that the tax could increase asset bubbles. “Free exchange allows the market to incorporate new information into asset prices, and Tobin taxes just distort the real world information that the price system conveys.”
In a joint statement that endorsed further integration of Eurozone states, Sarkozy also said work was beginning on “a common tax on companies in terms of the tax base as well as in its rate for German companies and French companies”.
“We need a stronger interplay of financial and economic policy in the Eurozone,” concurred German leader Merkel.
Unimpressed markets slumped during the Franco-German conference as the two leaders failed to reassure investors over the Eurozone debt crisis. After three days of gains, equities across the pond sank as Merkel and Sarkozy ploughed their way through the public conference.
The Dow Jones industrial average shed 164 points, or 1.43 per cent, while the Nasdaq lost more than two per cent, before recovering slightly.
The euro also lost ground against the dollar, falling by 0.3 per cent at one point, as the core Eurozone leaders called for more political and fiscal integration, yet failed to outline solid solutions to the escalating debt crisis.
Earlier in the day the Eurozone was hit by weak estimates for GDP growth in the second quarter of the year. The French economy is thought to have stagnated, while Germany expanded by just 0.1 per cent.
EURO CRISIS | THE MERKEL-SARKOZY PLANS THAT FAILED TO LIFT THE MARKETS
● A NEW EUROZONE PRESIDENT
“A real economic government for the Eurozone” made up of heads of state. It will elect a president every 2.5 years. Current EU chief Herman Van Rompuy was proposed to be the first president.
● FINANCIAL TRANSACTIONS TAX
“A priority” for the leaders, it will be formally tabled in September at the EU.
● A GOLDEN RULE ON PUBLIC DEBT
All members’ constitutions to oblige their governments to set targets for budgets to be balanced over time.
● MORE POWER GIVEN TO THE EC
When the European Commission criticises a profligate member state, the country must not be able to “put aside” the warning, but must restrain spending.