1. ©AFP
ECB offers to help rethink EU plans on ‘Robin Hood tax’
The European Central Bank has offered to help
the EU redesign its financial transactions tax to
avoid any ‘negative impact’ on market stability,
highlighting official fears about the implementa-
tion of the levy.
Proposals by 11 eurozone countries for a “Robin
Hood tax” on trading in bonds, shares and deriv-
atives have run into strong opposition from the financial industry, which has warned
they could dry up markets, increase costs substantially for investors and erode bank
profits.
Publicly, the ECB has refused to take sides, pointing out it has no mandate in the
field. But its offer to “engage constructively” in the design of the tax suggests that,
privately, it has deep reservations about its impact on financial markets and the real
economy.
Benoît Cœuré, ECB executive board member, told the Financial Times: “We’re willing
to engage constructively with governments and the European Commission to ensure
that the tax has no negative impact on financial stability.”
It is hoped that the FTT will raise €30bn-€35bn a year in revenues and encourage
more responsible behaviour by bankers. But disputes in Brussels look certain to delay
implementation past its January 1 2014 start date, and the ECB intervention will fuel
expectations that the plan will be watered down significantly.
The ECB is looking especially carefully at the FTT’s impact on bond trading and the
market for “repos”, or repurchase agreements, by which assets such as government
bonds are sold temporarily for cash and are an essential source of daily liquidity in
the financial system.
Last month, Jens Weidmann, president of Germany’s Bundesbank, warned that in its
current form the FTT “would cause considerable harm to the repo market”. If it was
not able to function correctly, central banks would “remain heavily involved in the
redistribution of liquidity among banks long after the crisis is over”.
The ECB believes markets should efficiently “transmit” changes in interest rates to
the real economy. It would almost certainly back exempting the repo market from the

2. tax, as well as steps to ensure costs did not increase for businesses using derivatives
when hedging conventional trades. Mr Cœuré’s comments will add to suspicions the
ECB would prefer to have a limited UK-style stamp duty on equities.
The planned FTT ran into strong opposition last week at the annual meeting of the In-
ternational Capital Market Association in Copenhagen. Hakan Wohlin, global head of
debt origination at Deutsche Bank, told the FT that bond markets were a “phenome-
nally attractive” way of channelling savings into investment. The FTT would be like
throwing sand into a Mercedes-Benz engine, he said. “The effect of that is not going
to be very good.”
Richard Comotto, senior visiting fellow at the ICMA centre at Reading university, ar-
gued proponents of the FTT misunderstood the repo market. “The idea that every-
thing short term is speculative is nonsense. People have to keep liquid assets in order
to react to the uncertain situation.”
Godfried de Vidts, chairman of ICMA’s European repo council, said the market was
“about a safer way of doing business” and “makes the market function in the way
they have been designed to function by regulators”.