European Commission financial tax opposed by UK

The UK has said it will “resist” a financial transaction tax on EU members proposed by the European Commission.

The tax would raise about 57bn euros ($78bn; £50bn) a year and would come into effect at the start of 2014.

Commission president Jose Manuel Barroso said banks must “make a contribution” as Europe faced its “greatest challenge”.

The UK said it had no objection to a financial tax in principle, but it would have to be introduced globally.

A transaction tax would need the approval of the UK in order to be implemented across the EU.

The commission said that if the UK vetoed the tax, it would look to implement it in the eurozone.

Referring to “the constraints of unanimity”, Mr Barroso said “further changes to the Treaty of Lisbon” may be required in order to push through measures to stabilise Europe’s economy.
‘Fair contribution’

Under the proposals, the financial tax would be levied at a rate of 0.1% on all transactions between institutions when at least one party is based in the EU. Derivative contracts would be taxed at a rate of 0.01%.

The commission said the tax was “to ensure that the financial sector makes a fair contribution at a time of fiscal consolidation in the member states”.

It said financial firms had played a role in the current “economic crisis” and was “under-taxed” compared with other sectors.

The “significant additional revenue” raised would contribute to public finances, it added.

A spokesperson for the UK Treasury said it would “absolutely resist” any tax that was not introduced globally.

“We would not do anything that is not in the UK’s interests,” he told the BBC.

City of London officials have said that about 80% of the revenues of any Europe-wide financial tax would come from London.
‘Ensure discipline’

Earlier, in his annual State of the Union address in Strasbourg, Mr Barroso called not only for the transaction tax but for eurozone members to issue debt collectively, through so-called eurobonds.

“Once the euro area is fully equipped with the instruments necessary to ensure both integration and discipline, the issuance of joint debt will be seen as a natural and advantageous step for all,” he said.

Mr Barroso also dismissed speculation that Greece may be forced to leave the euro if it defaulted on its debts.

“Greece is, and Greece will remain, a member of the euro area,” he said.
Further austerity

Officials from the commission, along with those from the European Central Bank and International Monetary Fund, are due to begin reviewing Greece’s attempts to reduce its debt levels on Thursday.

They will then decide whether to release about 8bn euros from a 110bn bailout package agreed last summer, money the Greek government badly needs in order to pay its bills.

A key obstacle to the payment was removed on Tuesday when the Greek parliament passed a controversial new property tax bill that aims to boost revenues.

The tax is one of a number of austerity measures Athens is introducing, measures that saw Greece’s budget deficit fall by more than 5 percentage points in 2010, Mr Papandreou said in a speech to German business leaders on Tuesday.

The debt review comes amid reports of a split among eurozone members about further support for Greece.

Citing “senior European officials”, the Financial Times said a number of the bloc’s 17 members want private investors to take a bigger hit in the proposed restructuring of Greece’s debts.

Eurozone members are in the process of ratifying proposals put forward in July, one of which would see private lenders writing off about 20% of their loans to Greece.

The proposals also included expanding the powers of the eurozone bailout fund. Finland approved the plan on Wednesday, while Germany will vote on it on Thursday.
Greek write-off

There has been renewed optimism this week that eurozone leaders may finally be ready to take decisive action to tackle the debt crisis.

G20 leaders met over the weekend to discuss the best way forward, but EU officials stressed that no grand plan of action had been agreed.

A number of ideas were reportedly discussed, including a 50% write-down of Greece’s government debts.

Other proposals included strengthening big European banks that could be hit by any defaults by highly indebted governments, and boosting the size of the eurozone bailout fund.

These helped to boost investor sentiment with stock markets rising sharply on Tuesday, although Asian and European markets were largely flat on Wednesday.

However, markets remain highly volatile, with investors remaining sceptical of policymakers’ ability to solve the crisis quickly.

“Every time the market gets its hopes up that a solution to the eurozone crisis is near, the rug gets pulled from under it,” said Ben Potter at IG Markets.

“Only when we see firm action being taken, rather than hollow promises, will confidence and sentiment begin to improve.”