Economy summit in Cannes: US sceptical of EU-backed transaction tax

By Frank Brandmaier Oct 31, 2011, 23:23 GMT

Washington - Germany is pushing with all its might to get support from the Group of 20 leading economies for a financial transaction tax when leaders meet Thursday in France.

But others are less enthusiastic about the idea, including the United States, setting the stage for conflict in Cannes, where Washington will also be pushing to hear details of Europe's plans to resolve the eurozone's debt crisis.

Before the summit opens, US President Barack Obama will meet separately with French President Nicolas Sarkozy and German Chancellor Angela Merkel, White House officials said Monday.

In a briefing for reporters ahead of the summit, the United States made clear its scepticism about putting a tax on every financial transaction at the 'retail' level.

Instead, the US wants the financial industry as a whole to contribute during current crisis times through a financial responsibility fee.

'We're very much in sync with Europe on their goal of ensuring ... that the financial sector, large financial institutions, bear their fair share of the burden,' Lael Brainard, treasury department under secretary for international affairs, said during the briefing.

But she insisted that the US-proposed responsibility fee would better deter the 'kind of risky behaviour' that led to the crisis as well as ensure that large financial institutions 'and not retail investors' bear the burden.

Such a fee would also be more difficult to evade, she said.

German Finance Minister Wolfgang Schaeuble has demanded a leadership role for the European Union in introducing a transaction tax. If no resolution is found at the G20 summit, then the EU would have to go it alone, he said in an interview with Britain's Financial Times.

The transaction tax has strong backing from EU Commission President Jose Manuel Barroso and European Union President Herman Van Rompuy, who expressed their support for its global introduction in a letter to G20 leaders. Economists say the tax only has value if introduced worldwide.

Britain and important emerging economies like China and India reject the concept and would limit it only to certain situations.

Brainard said the United States was looking forward to hearing more about the details and implementation of the eurozone debt crisis resolution plan, unveiled by European leaders last week to contain the two-year financial upheaval.

The plan calls for banks to accept a 50-per-cent loss on loans to Greece and beef up the eurozone's bailout fund to 1 trillion euros (1.4 trillion dollars).

'We are looking forward to hearing more at Cannes about the further elaboration and implementation of these elements,' Brainard said. She was however convinced that Europe has the 'resources and the capacity' to overcome the risks.

The United States also repeated its call for China and other emerging economies with surpluses to allow exchange rates to appreciate to reflect market forces. This would be 'the most powerful near-term tool to accelerate the shift to domestic consumption while countering inflationary pressures,' Brainard said.

Read more about G20

Read more about US