The news that the main legal advisors to EU finance ministers have concluded that the Commission's plan for a financial transaction tax infringes EU treaties is a blow for those who feel that it offered a relatively painless means to balance state budgets, whilst providing a disincentive against short-termism in the financial markets.
And it's been a good week for those who doubt the wisdom of EU intervention in the financial sector (I'm pretty certain that George Osborne is delighted).
The Advocate-General to the European Court of Justice has indicated agreement with the United Kingdom's position that the European Securities and Markets Authority (ESMA) should be stripped of its power to ban short selling in emergencies, and it is apparent, according to the Financial Times, that Brussels will abandon any thoughts of handing direct oversight of Libor to ESMA.
I think, on the whole, that this is for the best, as it demonstrates that building alliances and using the existing framework and treaties can be effective, something that the British public need to know. It also strengthens the hand of pro-European Conservatives in arguing that an exit is not in Britain's interests.
However, it does mean that it is the task of the Coalition Government to develop a regulatory framework for our financial sector which protects the state, supports innovation and rewards sustainable practices. I have a funny feeling that, politically at least, George may yet wish that he'd left it to Europe...
The Financial Transaction Tax for the uninitiated slapped the banks with a tax bill for their part in the financial crisis. For the initiated it was a very poorly thought out plan from the start. The tax would have eventually been passed down the chain to individual investors like pension funds. The scope of the tax gave no or few exemptions and you would be liable to pay even if you were in a country (like the UK) that did not vote for it and was considered outside the FTT zone. It was argued from the start that it would be highly damaging to our economies if it were to be implemented. If anyone doubts this, just look at both France and Italy both of whome have recently introduced a tax on financial transactions only to find trading and liquidity in their stock markets has plummeted and no doubt some trading will move to a place where they can avoid the tax.
ReplyDeleteAs always the devil is in the detail and for all of you who think the tax is a good idea, look carefully at some of the studies on the impact as it will not slap the banks it will be the public and pensioners that pay.