German Chancellor Angela Merkel’s ailing junior coalition partners baulked yesterday at her openness to a tax on financial transactions applied only to the eurozone and not the EU as a whole.

Any legislation in Germany to approve such a tax would require parliamentary support

Philipp Roesler, leader of the pro-business Free Democrats, said such a levy must cover the 27-member European Union, otherwise European states that adopted it would be put at a disadvantage.

“I stand by my point that such a tax must apply to all EU states,” he told the daily Frankfurter Rundschau.

“Otherwise the financial transaction tax would lead to distortion of competition and unilaterally harm Germany as a market for financial transactions.”

Ms Merkel said on Monday after talks with French President Nicolas Sarkozy that she personally could agree to such a levy covering just the 17-nation eurozone but noted that her government was divided on the issue.

Any EU tax would require unanimous support from member states and Britain, given the importance of the City of London to its economy, has said it would block any attempt to introduce it in the bloc. Sweden is also opposed.

Mr Sarkozy, facing an uphill battle for re-election, has said that France should not wait for other European countries to get on board with what has been dubbed a “Robin Hood tax” or “Tobin tax,” after Nobel Prize-winning economist James Tobin, and would forge ahead on its own.

Germany’s FDP, however, is under pressure after sinking to a record low two per cent in the polls amid bitter infighting and has drawn a line in the sand for Merkel, with whom it has governed in a fractious centre-right government since 2009.

Any legislation in Germany to approve such a tax would require parliamentary support and a failure by Merkel to win a majority of deputies from her own coalition would be a humiliating setback.

Advocates of the tax see it as a potentially significant revenue generator as well as a penalty against speculation.