What the EU could learn from Brazil's finance minister

Brazilian finance minister Guido Mantenga declared the end of an era in economic experimentation, as the notorious IOF tax, a tax on inflows of investment capital, is to be scrapped.

Designed to reduce flows into Brazil during a period of rapid growth, the tax appears to have worked a little too well. Choking off liquidity, Brazil has suffered as a result.

The six per cent tax will go entirely, having been hiked just over two years ago. The move saw the Brazilian Bovespa Index all but plateau following a period of consistent growth.

This is of course, what many warn could now be replicated by the European Union in the form of a financial transaction tax. While plans for the tax have been watered down (from a rate of 0.1 per cent to 0.01 per cent) it still poses a threat to liquidity.

Cutting off the European Union from finance is just one possible side effect of a policy with few remaining supporters.

Sir Mervyn King, outgoing governor of the Bank of England recently commented that he could not think of a central bank in favour. He added that even among those who do support the policy publicly, many remain critical in private.