Bce y ttf ¿del lado de quien?Presentation Transcript
Published on Corporate Europe Observatory (http://corporateeurope.org)
Home > Robbing the "Robin Hood" tax: the European Central Bank weighs in
Robbing the "Robin Hood" tax: the European Central Bank weighs
July 17th 2013
The financial lobby
The European Central Bank is "helping" the Commission and the Council design a future
Financial Transaction Tax for Europe. This should be of major concern to its proponents, as
the ECB can only be expected to side with the financial lobby.
The most heated financial regulation debate of the moment is over the creation of a European Financial
Transaction Tax (FTT). Beginning with 11 EU member states the FTT would tax financial shares, bonds and
derivatives, intended to create financial stability against further crises and raise considerable revenue. But
the European Central Bank is now taking a key role in the development of the tax. The heavy influence of
the financial lobby opposed to the FTT in the ECB could mean that the bank's participation may fatally
undermine the new tax.
At first sight, the ECB's involvement might appear constructive. Speaking at a European
Parliament hearing on the 8th of July, President of the European Central Bank Mario Draghi claimed his
institution shares the objectives of the Financial Transaction Tax "in principle". However, his stress that it
has "many undesirable implications for our monetary policy" and the ECB is working with the Commission
to "repair these aspects of the FTT" sounds a warning alarm.
Bringing in the leadership of the Bank as "repair" men is hardly a dream scenario for those who have
campaigned for years to have the tax adopted in Europe. First, because Draghi's vague commitment to
the tax obscures the fact that what he and his institution wants is to reduce the scope and possibly the
size of the tax considerably. Secondly, because ECB involvement in the design of the tax may be or may
become a Trojan horse manoeuvre by the financial lobby which has a forceful presence in ECB advisory
groups. The financial lobby is using all means available to defeat the tax; having the ECB act on their
behalf could turn out to be their most effective weapon at this point.
The financial lobby already has the upper hand, it seems. Since the Commission launched its proposal in
early February, big banks, investment funds, law firms, consultancies, and financial lobby associations
have intensified their scaremongering campaign (see box 1) and seem to be pulling all strings available to
Indeed, the EU Tax Commissioner Algirdas Semeta calls them "probably the most powerful lobby in the
world"  for good reason. There are clear signs of a worrying retreat from within the governments of the
11 EU member states who adopted the tax in the hope that others would join at a later stage. (The 11 are
Germany, France, Italy, Spain, Greece, Austria, Belgium, Slovenia, Slovakia, Portugal and Estonia.) In late
May, there were many reports that inside the group of these 11 member states, negotiators
are displaying increasingly cold feet. Most prominently, the French government is rallying other
governments to its cause – to cut the size of the tax and reduce its scope. While the proposal of the
Commission is to tax sales of bonds and shares at 0,1 percent, and the more speculative and more
complex financial instruments (called derivatives) at 0,01 percent, it is now seriously considering going for
just a tenth of those percentages .
Missing the target
A French attempt – with the support of the Italian and Spanish governments  – to free most derivatives
from taxation is no less worrying. The whole point of the FTT in its original form is to reduce the number of
transactions, considered a source of instability and predatory speculation, and this would be unlikely to
succeed if the bulk of them, the derivatives, were exempt. At the same time, the Belgian and Austrian
governments are trying to exempt  pension funds from the tax altogether.
In fact, at the moment it seems the European FTT pioneering project could be reduced to a mere
repetition of the "stamp duty" on shares and bonds sales now at work in the UK and France. The name
may be the same, but it will have little to do with the FTT as it was originally intended. It will be a small
tax on selected transactions, and as such it will not have the effect the FTT is supposed to: to discourage a
large number of trades in order to bring the total number of transactions down considerably. Rather than
an FTT, it would be a TTFFT – a Tiny Tax on a Few Financial Transactions (see box 1 on the FTT).
But the battle is far from over. While struggling to downsize the FTT on other accounts, the French would
like to see currency transactions included – which were not included in the Commission's proposal. Also,
the German Government has been somewhat silent and will probably continue to be until after the
German elections in September. And according to a deal struck with the Social Democrats in that country,
that party and the Green party would support the so-called Fiscal Compact imposing strict budgetary
discipline on most EU member states, provided the German government works towards the FTT. Should
the FTT not become a reality it will presumably be a major embarrassment to the two parties, and a blow
to their strategy on EU crisis policy.
BOX: What is the FTT?
The “Robin Hood Tax” is about the money, but it’s not just about the money
The Financial Transaction Tax (or FTT) is a small tax imposed on every trade with a financial product. A
tax of 0,1 percent on all trades is a standard proposal. It doesn’t sound much, but bear in mind that
millions of trades take place every day, and that many traders on financial markets sell and buy
in milliseconds. So, even a small tax can lead to substantial revenues.
Campaigners in favour of an FTT demand that revenues should be spent on fighting climate change, on
development aid and welfare. Since the money comes from the wealthy financial corporations, the tax is
often called “the Robin Hood Tax”. The FTT discussed in the EU at the moment, however, has
not marked revenues for these purposes. The German government, though, has signalled it is prepared to
increase its development aid when the FTT is instated.
The Commission repeatedly states the FTT is about making the financial sector pay “its fair share” of the
costs of the financial crisis. That may be contested, though. The bailouts of banks alone have cost
member states the equivalent of 50 years income from an FTT such as the one proposed.
But actually, the key objective with the FTT is not the revenue, but the effect it is bound to have on
financial markets. Even with a tiny tax, many of the millions or billions of trades will be discouraged,
because they are about speculation in tiny margins of profit. Removing many of these trades, which do
not make sense to the real economy or may even be detrimental, will increase stability.
"No central banker supports the FTT"
At this delicate moment, central bankers are placing themselves into the centre of the debate, and their
agenda is certainly not to strengthen the proposal. Central bankers (and members of the ECB governing
council) spearheaded by Governor of the Bank of France Christian Noyer and Jens Weidman of the
Bundesbank, and members of the ECB Executive Board Peter Praet, Yves Mersch and Benoît Cœuré, have
all voiced criticism of the FTT in public.
Their weighing in on the debate confirms what Sir Mervyn King, until recently Governor of the Bank of
England, stated at a press conference in May : "Within Europe, I can't find anyone in the central
banking community who thinks it's a good idea."
In that light, Draghi's stated support for the "principles of the transaction tax" begins to sound unlikely.
Could it be that Sir Mervyn King is not aware of Draghi's position? Hardly. Both of them have been
members for many years of the Group of Thirty, an exclusive club of central bankers and CEOs from Wall
Street banks – a group that includes King's replacement, Mark Carney. Carney in turn shares a
past at Goldman Sachs with the President of the ECB. As with both King and Carney, Draghi belongs to a
family of central bankers for whom the line between a central bank and a big private bank is a rather fine
one. And as President he takes utter care to maintain a close dialogue with the big players of the financial
world. They know what each other stand for, and their views on financial regulation are of the same strain.
So rather than taking Draghi's statement at face value, it would be a more plausible explanation that his
alleged support is a siren song by the ECB to lure people into a false sense of security, as all the
while his staff make their way into the real negotiations on the tax in order to scuttle or sink it.
A false friend to the FTT
In his words to the European Parliament, Draghi was careful to stress the ECB would approach the FTT on
issues strictly within the Bank's mandate: monetary policy. This could mean the ECB will focus on
exempting bond purchases and 'repos' (repurchasing agreements which enables a trader to sell e.g. a
bond with an agreement to buy it back shortly after) from the scope of the tax. This in itself would be a
substantial change as repos make up a considerable part of financial transactions – with a total value of
contracts at 5,6 trillion euro in December 2012, for instance. These are all topics in the remit of financial
regulation, and as such are not necessarily within the ECB’s mandate. But the question is whether the ECB
will stop there, or if it will continue to go for more exemptions.
For the criticism of the tax from within the ECB seems to be broader, for example Board Member Benoît
Cœuré, who 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.”
The statement is ironic because the proponents of the FTT have intended financial stability to be its heart
from the very beginning. It's also telling that it touches on financial regulation in general, which is not in
the mandate of the ECB, supposedly restricted to monetary matters. Ralph Atkins of
the Financial Times who reports on the financial lobby, not least on their opposition to the FTT, reveals the
real agenda when he writes that  the ECB's "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
The ECB contact groups
The involvement of the ECB in the design of the FTT is good news for the financial lobby in another
way, and a move they've been working on for months. This can be seen in the minutes of several of the
advisory groups – or "contact groups" as they're called – to the ECB, made up entirely of representatives
of financial corporations, most of whom are vocal in their opposition to the FTT.
Formally, these groups are set up to "facilitate dialogue" and provide a "discussion forum" between the
ECB and the financial sector, but statements made by private bankers, as well as ECB staff, make it clear
that there is a close working relationship between them. In February this year, ECB executive
board member Peter Praet in a speech to an audience of financial lobbyists said that  the ECB “strives
to ensure that regulatory reform do not impose restrictions which may hinder the efficient functioning of
markets or impair their liquidity”, and underlined the bank’s intention to consult with the financial sector,
not least via its own contact groups. Also, reports from interest groups and associations such as the
International Capital Market Association, reveal that  the contact groups are involved in very specific
debates over the design of EU financial regulation. They have such a high standing that even the financial
press sometimes see the members as "officials".
FTT widely discussed in the groups
A look at the minutes from the meetings for the past months, reveals that there has been intensive
discussion between ECB officials and financial corporations about the FTT in the contact groups:
• At a meeting on the 18th of March this year representatives of some of the biggest banks in
Europe, members of the "Monetary Market Contact Group", voiced comprehensive criticism of the
FTT far beyond the remit of the advisory body.
• At its meeting on the 9th of April, the Bond Market Contact Group (this toodominated by the biggest
banks ) also suggested far-reaching changes to the FTT proposal, including major exemptions and a
removal of the principle that would enable taxation of transactions formally traded outside the FTT zone,
but related to traders or assets in the area.
• Later, the Operations Managers Contact Group  discussed the FTT at a meeting on the 12th of June.
• Finally, the Foreign Exchange Contact Group (FXCG) , had a similar discussion two days later. Here
too, members used the opportunity to fire all guns against the FTT, attacked its core principles and
ended up "listing proposals" to improve definitions. In the framework of an ECB advisory group, it is hard
to understand such proposals as anything else than getting the ECB on board in changing the remit of the
Interestingly, the members of these groups are the biggest banks and the fiercest opponents of the
FTT. An ECB role in the design of the FTT can only be welcomed by these group members as a further
inroad to influence, and a further tool to undermine the tax.
Why is the ECB involved?
Only two months ago, representatives of the ECB stated the Bank had no position on the FTT, and that it
would not be part of the debate due to limits to its mandate. In late May, however, the ECB openly offered
its "help". And today, President Draghi reveals the Bank is indeed working with the Commission to refine
How should campaigners on the FTT respond to this challenge? A first step would be to warn the
public about the antagonistic position the ECB is bound to take. As British tax expert Richard Murphy
stated: “The ECB is for these purposes just another bank with all a bank’s prejudices about the free flow of
capital – which they see FTTs impeding.”16
There are at least three more key points that need to be raised in this respect:
1. What is the ECB even doing in the process? Does the ECB have a mandate to work with the
Commission on a proposal such as the one on the FTT?
2. Is the ECB really the right choice of advisor, given that it isn't accountable to anybody by treaty, and
given its natural born hostility to any obstacle to the further strengthening of the financial sector?
3. Is there a risk that ECB involvement will provide the financial lobby with another tool to water down
the FTT? And if so, will the public be able to learn about it, given the very poor record of
transparency that the ECB has been able to uphold?
The involvement of the European Central Bank is a clear and present danger that the purpose of the tax
once named after Robin Hood is in danger of being stolen away.
BOX: Opportunistic scaremongering
Whether the financial lobby reports the revenues will be enormous or tiny, depends on they want to
achieve with their PR campaigns.
Over the past year, any big bank and any financial lobby association which could be affected by the FTT
has issued a report that warns legislators against supposedly dire consequences of imposing a tax on
financial transactions. Deutsche Bank, Morgan Stanley, JPMorgan, ISDA, ICMA, AFME, IIF, FOA, AIMA
etc. The list is a "who's who" of financial markets and the financial lobby. The reports foresee different
kinds of market collapses, and most try to convince legislators that a tax will have a damaging effect on
the real economy – an argument used ad nauseam for years and refuted by considerable evidence, but
which the financial lobby is now trying to revive.
Though the financial lobby prefers to stand united, its dire predictions vary widely. . A good example is
the research from Goldman Sachs and Deutsche Börse Group respectively, into the actual revenue a tax
would yield. In an attempt to alarm the financial sector about the frightful tax burden ahead Goldman
Sachs says it will amount to 170 billion euro, according to an article in its research newsletter titled "
Financial Transaction Tax: how severe? ", –a figure far higher than the Commission's estimate of 34
billion euro annually.
Deutsche Börse Group, on the other hand, tries a different tactic. In its pamphlet "Will the Financial
Transaction Tax reach its objectives" – clearly intended to show legislators their dream of considerable
income is in vain – the group claims the revenue will hardly amount to more than 12 billion euro. "It is
unlikely that the financial transaction tax will be able to meet the financial expectations that have been
placed on it. Empirical studies have concluded that by moving financial transactions beyond the scope of
the tax’s applicability its potential revenue will be lower by up to two thirds than expected,"Deutsche
Börse Group states .
Photo by Robin Hood  (CC BY 2.0) via Flickr
Source URL: http://corporateeurope.org/financial-lobby/2013/07/robbing-robin-hood-tax-european-central-
1. From the minutes of the meeting in the Monetary Markets Contact Group (MMCG), 18/3 2013: "MMCG members pointed out
some drawbacks of the current FTT proposal, stressing (i) a possible adverse impact on short-term funding markets as the
level of tax is not adjusted to maturity of the instrument, (ii) a larger incentive to rely on the central bank funding as it was
exempt from the tax, (iii) uncertainty about the treatment of tri-party repo (collateral substitutions) and sell/buy backs; (iv) an
adverse impact on the bond market liquidity due to a reduction of market making activities; (v) a possible increase in the level
of risk by making hedging activities more expensive as well as a number of other implications. The MMCG deemed also
important to consider similar cases of taxes, e.g. Sweden, and their impact on the market."
2. From the minutes of the meeting on the 13th of June, ECB Foreign Exchange Contact Group: "On the FTT, some members
questioned the Commission’s tax receipts estimates. Others expressed concerns as regards the introduction of a competitive
disadvantage for banks located in participating Member States, the potential detrimental impact on market liquidity and saw
some risks of reduced hedging activity by corporates or investors, thus increasing the overall level of risk among end-users.
Some members raised the risk of relocation for financial instruments without issuance principle, which is the case for FX
instruments. Members listed proposals to improve the tax definition: among others, the exemption for some products like FX
swaps, of market making and of hedging activity."