Another thrilling episode in the drama on the Financial Transaction Tax
The tension around the Financial Transaction Tax (FTT) was already increasing before the 13 March 2012 Council meeting of European Ministers of Finance (ECOFIN). Finance ministers from nine EU countries (Austria, Belgium, Finland, France, Germany, Greece, Italy, Portugal, Spain) had written a letter that was applying substantial pressure on the Danish presidency. In EU diplomacy such a letter is quite a strong instrument. The letter asked to speed up the Council’s decision making process regarding the Commission’s legislative proposal on an FTT before June 2012. As it was known already since December 2011 that the UK would under no circumstances accept a European FTT, the proponents of the tax did not want the process to be delayed. In addition, the next two incoming presidencies, Cyprus (second half of 2012) and Ireland (first half of 2013) are opposing the FTT, which will make it more difficult for the proponents to get a decision. On 13 March 2012, the EU-27 Ministers of Finance failed to reach consensus at the ECOFIN meeting, and this did not come as a surprise. When UK Prime Minister Cameron had visited Berlin in December 2011, he already expressed the British opposition to the FTT in no uncertain terms. At the ECOFIN meeting the UK was joined by the Czech Republic, Ireland, Sweden, the Netherlands, Malta, Luxemburg and Cyprus. Since EU rules require unanimity on issues of tax, a common EU initiative of all member states is failing. The communiqué of the March ECOFIN meeting “to further analyse the Commission's proposal, whilst also exploring possible compromise solutions and alternative routes,” is therefore more the preparation of an exit option without the EC publicly losing face, than a serious attempt to find a common way to a European tax. Between the Millstones of European Conflicts
The main reason for opposing the FTT is of course the wish to protect the profits of the finance industry in the respective countries. But more than that, and particularly in the UK, there is a strong and growing opposition to any regulation coming from the EU, because this is seen as threat to British sovereignty. The Euro crisis has intensified the already existing anti-EU positions, not only among elites but also among a majority of the population. According to sources close to the German finance ministry, the British finance minister Osborne said they would not even accept the British Stamp duty if it would come as a European legislation. No progress in the process is to be expected before June 2012. France will be absorbed by the presidential elections in the next two months. Germany is – as a result of its strategy in the Euro crisis – suspected of seeking general dominance over the others. This is why Berlin tries to avoid anything that could further nourish this impression and will strictly follow the formal procedures in Brussels. The June ECOFIN will first have to officially state that no consensus over the EC’s proposal or even a compromise version can be reached, before the proponents of the FTT move forward. In the meantime the proponents might rhetorically move closer to the UK. For instance, Schäuble has used the word Stamp Duty but if one looks closer to what he says, he includes derivatives and bonds in his version of a Stamp Duty. The usual euro-diplomatic blame game is to put the responsibility for failure on the shoulders of the others – in this case, and with good reason, on the UK. Enhanced Cooperation: A Coalition of the Willing
Once the EU-27 approach has been officially declared a failure, the way would be free for a coalition of the willing. The EU rules allow for such a procedure. It is called Enhanced Cooperation. If a minimum of nine member states agree on a common initiative it can be implemented within the legal framework of the EU. A well known example is the Schengen Agreement, which regulates migration at the outside borders of the member countries that have signed the agreement. Such an agreement on the FTT would take over the core elements of the Commission’s draft directive. The nine countries that have signed the letter to the Danish presidency (see above) would be the appropriate starting point. Probably some others would join in the near future, such as Denmark and Slovakia, where the social democrats recently won the elections. The chances for ‘Enhanced Cooperation’ are good: The European Parliament – although without legislative powers – several times expressed its support for the FTT and continues to do so in its current debates about the FTT. The Committee of the Regions – a kind of second chamber representing regional and local authorities, explicitly supports Enhanced Cooperation if the EU-27 solution should fail. There are strong majorities among the populations of most EU countries. There is a strong need for fresh money to cover the costs of the crisis, in particular as the EU is entering a recession. Germany and France have officially been fighting so hard for the FTT in the last two years, that it would be very difficult for them to give up without losing prestige. governance and the definition of ‘liquid assets’. The quick pace of discussions at the Council might weaken the slow position-taking at the EP that extended the deadline to submit amendments to the [draft report by MEP Karas see previous Newsletter) to 5 March 2012. A first discussion about the amendments is happening on 27 March 2012 at the Committee on Economic and Monetary Affairs (ECON). The vote by ECON on the amendments is provisionally scheduled for 25 April 2012 but might change (check the official calendar). After that, the EP and the Council hope to arrive at a compromise in June 2012. The reform of the Capital Requirements Directive has raised many discussions, articles, debates and lobby activities from different sides with very different views and fundamental criticisms, as referred to in previous Newsletter. The complexity of the whole legislation and its review is itself inherently constituting a systemic risk. Recently, Finance Watch has published a position paper “To end all crises ?” arguing for higher capital requirements and addressing many of the problems, some of which were hardly being discussed, such as more capital against securitisations, the disclosure of risk weight methodologies, and the importance of return on assets. The EC terminated its advisory committee, the Group of Experts on Banking Issues (GEBI), after criticism from the EP, civil society and the media that GEBI was dominated by representatives of the financial sector. Commissioner Barnier promised in November 2011 to rebalance the expert groups that advise the EC and to grant 1.25 million Euros for building the capacity of consumers, trade unions and non-industry people to be involved in the financial reform process. Beyond the ongoing banking reforms, many structural problems still remain in the banking sector. In February 2012, the Commission created the High-level Expert Group on Reforming the Structure of the EU Banking Sector. The mandate of this Expert Group is to propose structural reforms beyond the current proposals such as CRD IV/CRR that regulate individual banks. The Group is expected to focus particularly on: All in all, it might still take some time, but there is a good chance that the FTT will be realised with the support of a sufficient number of European countries.
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