Socialist Group pushes for EU financial transaction tax

The Socialist Group in the European Parliament is garnering support for the controversial Commission proposal to introduce an EU-wide financial transaction tax, even though this is a dividing issue among member states.

Publishing a new study commissioned by the Socialists and Democrats Group, Anna Podimata a prominent Socialist MEP and the European Parliament’s rapporteur on this dossier made it clear that she is in favour of such a tax and claimed that the economic impact of introducing it in the Union will be far less negative – at worst, a loss of 0.1 per cent of GDP – than estimated by the European Commission.

“The European Commission’s proposals for the introduction of an EU-wide FTT go in the right direction,” Ms Podimata declared at a press conference in Brussels.

“The uniform application of the tax would generate a fairer contribution of banks towards the cost of bailing out the financial system and would reduce internal market segmentation, encouraging investment in the real economy and growth and jobs,” she said.

“Another benefit is that it would discourage damaging high-frequency deals that suck money out of productive investment, generating risks and instability in the financial sector,” Ms Podimata argued.

Malta, together with a growing number of EU member states opposes the introduction of this tax if it is not introduced on a global playing field. Malta is arguing that if introduced only in the EU, financial service companies based in Europe will just migrate to other jurisdictions to avoid the tax.

According to the Socialists’ study, conducted by Prof. Avinash Persuad from Gresham College and Stephany Griffith-Jones, financial markets director at The Initiative for Policy Dialogue at Columbia University, it is estimated that the negative impact of the tax should be no greater than 0.1 per cent of GDP.

They argued that this tax could even have a positive impact – at least of +0.25 per cent of GDP – since the Commission failed to quantify its expected positive benefits in its impact study. These include the reduction of systemic risks and the possibility to invest the tax proceeds (€57 billion a year, according to the Commission) in growth and job-enhancing projects in renewable energy and research.

However, despite the Socialist push for this tax, more and more EU member states are opposing it. The Central Bank of the Netherlands yesterday went on the offensive saying the introduction of such a tax at European level was “undesirable”.

According to the Dutch central bank, the FTT is “not certain” to achieve its objectives. What is certain, it said, is that its application will cost Dutch banks, pension funds and insurers €4 billion a year.

The European Parliament has no remit on the introduction of this tax which remains the responsibility of member states. In order to be introduced, the Commission proposal has to be backed by all the 27 EU member states – something which at the moment looks impossible.