The State of the Union
natalie hamill, 29 September 2011
Long anticipated plans to introduce a financial transaction tax (FTT) have come a step closer to fruition with the European Commission President announcing the proposal in his state of the union address. Speaking to the European Parliament in Strasbourg yesterday (Wednesday 28 September), José Manuel Barroso announced that the college of commissioners has already adopted the controversial proposal, which could generate revenue of more than €55 billion a year.
Whilst Barroso’s speech was met with applause from a number of MEPs, the EU Commission’s decision to introduce an FTT will not be so warmly welcomed elsewhere. The measure has been roundly condemned by UK financial services and businesses who believe such a tax will do serious damage to the City. The UK Government has promised to use its veto to block an FTT, unless it is levied globally.
The rumour of an FTT tax has been circulating in the background for some time now, emerging as a serious possibility early last year. In January 2010, the European Parliament released a report ‘Financial Transaction Tax: Small is Beautiful’ which sang the merits of a low-level FTT being used to limit socially undesirable transactions. The report argued that, while the crisis had only slightly dented the number of financial transactions taking place, public support for such a measure in the wake of the banking crisis was growing sharply.
Elaborating further on the proposal yesterday, Barroso described the FTT as a method to make the financial sector contribute to the Eurozone crisis. So far, Barroso rationalised, the burden has fallen on the taxpayer – with €4.6 trillion granted in aid and guarantees to the financial sector. With the introduction of an FTT financial services would have to ‘pay something back to society’.
However, it is unlikely that such a proposal will succeed without an almighty battle; previous Commission research has found that such a tax could reduce Europe’s GDP by up to 1.76%. And, right now, whatever one’s views on the FTT there is a bigger fight on the horizon: Greece and the crisis spiralling out of control.
Few will have been surprised to hear the Eurozone crisis dominate Barroso’s address; a crisis which has escalated to new heights in recent days with the now very real possibility of Greece defaulting. Yesterday Barroso referred to the sovereign debt crisis as ‘first and foremost a crisis in confidence, in politics’, his wrath falling on the failure of member states to show pride in ‘being European’ and lacking a sense of solidarity with the states in trouble. Perhaps he had today’s German Bundestag vote in mind and the prospect of the ‘anchor of the stability in the Eurozone’ finally mustering the strength to say enough is enough and voting against expanding the Eurozone bailout capability.
Today, auditors are once again in Greece assessing the measure of austerity plans as the country finds itself once again disabled by protests and strikes. Whilst Barroso’s state of the union address acknowledged the seriousness of the crisis, he still insists that EU leaders do have solutions to the problems and that ‘Greece is, and Greece will remain, a member of the Euro area’. At least Germany’s vote this morning in favour of extending the EFSF capability means he can breathe a sigh of relief for another day, but whether such naïve optimism can continue in the face of bigger tests to come remains to be seen.