EU unveils financial tax, approves tougher budget rules

By Alvise Armellini Sep 28, 2011, 11:50 GMT

Strasbourg, France - The European Union should adopt a financial transaction tax and consider changing its treaties to solve the eurozone debt crisis, the chief of the bloc's executive said Wednesday.

Meanwhile, the European Parliament approved the so-called 'six pack' of laws designed to improve economic coordination and budget discipline within the eurozone.

European Commission President Jose Manuel Barroso delivered his annual State of the Union address in Strasbourg, France, against the backdrop of a stalling economy and a deepening eurozone crisis.

'It is time for the financial sector to make a contribution back,' he said.

Since the global financial meltdown of 2008, banks have received 4.5 trillion euros (6.1 trillion dollars) in state aid and public guarantees, Barroso noted.

The proposed financial transaction tax would reap 55 billion euros a year in revenues by slapping a 0.1-per-cent levy on bonds and shares and a 0.01-per-cent levy on derivatives, beginning in 2014.

Derivatives are financial instrument traders use to bet or hedge against the price of goods.

Targeting them is seen as a way to curb speculation, which has been blamed for exacerbating the eurozone's debt crisis. In contrast, the EU tax would not apply to everyday financial products like mortgages, credit card payments and life insurance.

France and Germany are strong supporters, while Britain and Sweden are sceptical out of concern that it would drive capital out of the EU towards non-taxed havens.

EU Taxation Commissioner Algirdas Semeta, referring to Britain's stamp duty, said the country 'already has a financial transaction tax,' so EU proposals 'are nothing new.'

Sony Kapoor, from the London-based Re-Define think tank, said an 'appropriately designed' tax 'can not only raise substantial revenue but also enhance stability by discouraging destabilizing trading that serves little economic purpose.'

But, highlighting data likely to be seized upon by critics, the Financial Times published a report late Tuesday indicating that 'the levy will cost significantly more than it raises for governments.'

In a statement, the British government said it was not opposed 'in principle,' but insisted the tax was workable only if adopted 'globally,' an unlikely prospect.

Oxfam, a non-governmental organization that has long campaigned in favour of such a tax, said the rates proposed by the EU commission were too low, and called for the money to be used to fight climate change and world poverty.

EU tax decisions require unanimity, so any member could veto the proposal.

Barroso also said eurobonds 'will be seen as a natural and advantageous step for all,' but only after the eurozone 'is fully equipped with the instruments necessary to ensure both integration and discipline.'

Germany, which is opposed to eurobonds, is insisting that tougher eurozone discipline should be guaranteed by EU treaty changes, to make it more difficult to evade the new rules.

While most other EU nations have reservations because of the cumbersome procedure to change EU rules, Barroso backed Germany's position.

He said EU countries 'can do a lot' within the existing rulebook, the Treaty of Lisbon, 'but it may be necessary to consider further changes to the treaty.'

Barroso suggested dropping the unanimity requirement for EU decisions, which has slowed the response to the eurozone crisis.

'Today we have a union where the slowest member dictates the speed of all the other member states. This is not credible, also from the markets' point of view,' he said.

He acknowledged that the EU was facing 'the biggest challenge (it) has faced in all its history,' but insisted that its most troubled member, Greece, 'is, and will remain, a member of the euro area.'

After the speech, EU lawmakers approved the 'six pack' despite opposition from centre-left groups, which consider the focus on austerity to be at the expense of growth-promoting policies.