IMF: EU must harmonise its taxes for euro

EUROPE must consider further integration including a region-wide bank resolution regime and harmonised taxes to avoid disastrous economic fallout from the euro crisis, the IMF has said.

The advice was released in an IMF policy report as it emerged, days before a crisis summit on Thursday, that Eurozone leaders are considering a harmonised bank levy across the region as a backdoor way of getting banks to share in the cost of a new Greek bailout.

It is not clear how the tax would be targeted towards banks most exposed to Athens’ debt, but it would aim to raise €10bn a year for three years as part of a €110bn new rescue package. Alternatively, it could be used to threaten banks into offering a more generous burden-sharing deal.

If imposed, it could be a precursor to a much more intense fiscal integration that markets and international bodies now see as the only alternative to a disorderly default and new financial crisis.

The IMF said: “The links between sovereigns and firms located in their jurisdiction will need to be loosened.” It suggests creating “European instead of national support schemes for bank restructuring” and that “working towards the introduction of a common corporate tax for large firms would help”.

Analysts have said that data published by the EU’s bank stress tests have shown that “massive” cross-border exposures are now integral to the Eurozone economy.

However, any push for further integration risks a popular backlash, with the EU’s paymaster nations already enraged at having to pay for the debts of others.

UKIP’s Nigel Farage said: “The IMF has become little more than the overseas arm of the ECB… It is simple – the attempts by the political elite have failed. Let economic sense do its job.”