Germany wants the robin hood tax – and europe's voters do too | stephany griffith jonesDocument Transcript
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Germany wants the Robin Hood tax – and Europe's
voters do too
No argument against a ﬁnancial transaction tax has stood up to scrutiny, so politicians
must resist lobbying and see sense
Wednesday 30 October 2013 14.10 GMT
Angela Merkel at an EU summit in Brussels Photograph: Isopix/Rex Features
The path to implementing a tax on financial transactions (known as the
FTT) was never going to be smooth. This week's announcement that
the expected coalition between Christian Democrats and the Social
Democrats in Germany will prioritise the tax's implementation, is a
sign that the proposal remains on track. But any measure that taxes or
regulates financial markets and banks will always meet concerted
In recent weeks, this has been growing from some quarters. The
latest criticism, from France's central bank governor Christian Noyer,
was splashed on the front page of Monday's Financial Times: "France
central bank chief says Robin Hood tax is 'enormous risk'" ran the
headline. As this extremely small tax is to be implemented by 11
European countries, it is appropriate to ask: an enormous risk for
Certainly it will impact on trades with short time horizons – highfrequency traders, whose computer algorithms fire off thousands of
trades in microseconds, will undoubtedly have their business
dramatically curtailed. Yet this will significantly reduce rather than
create risk. Many regulators are concerned about the risk of this highfrequency trading, which now accounts for over half of trades on the
London Stock Exchange. As demonstrated by the infamous flash crash
of May 2010, when liquidity drained from the market and the Dow
Jones index dropped 9% in a matter of minutes, it poses a threat to
wider economic stability.
By contrast, the impact on a typical long-term investor is likely to be
negligible. There are already many transaction costs such as trading
commissions, spreads, clearing, settlement, exchange fees and
administration costs. Prof Avinash Persaud, a former JP Morgan
executive, has estimated that the FTT of 0.1% on stocks and bonds,
and 0.01% for derivatives will comprise of only 5% of annual
transaction costs for long-term equity holders, taking levels back to
those experienced 10 years ago. Compared to management fees –
typically about 1% charged by many financial institutions which are
now lining up to oppose the FTT – it is hard to conclude the tax will
have more than a marginal impact on costs for long-term investors, like
corporates and pension funds.
The net result is that an FTT would slow short-term trades, which
are mainly unproductive, helping to reduce the risk of crises that are so
detrimental to growth. Furthermore, the potential €30bn in revenue
the European FTT could raise, could be invested productively, for
example in infrastructure and innovation, encouraging much needed
future growth and employment and making European countries more
Noyer and others worry unnecessarily that the tax will lead to an
exodus of bankers from participating countries. But the issuer principle
embedded in the EU proposal means that attempts by banks and their
subsidiaries to duck the tax by migrating to other jurisdictions will not
work, since the FTT would be paid by all those transacting the eleven
countries' bonds and shares, wherever they are based. Thus the tax,
from a transaction in say a French bond taking place between parties in
New York and Singapore, will still be collected by French authorities.
But this need not be a debate about hypotheticals. Major financial
sectors such as the United States, Hong Kong and South Korea already
have FTTs which together raise tens of billions in revenue annually
without causing economic damage. In the UK we have the very
successful stamp duty, an FTT on share transactions that raises more
than £3bn a year, of which 40% is paid by foreign-based investors and
banks. It too rightly taxes all those trading UK shares, wherever they
are based. This is the same principle on which the European FTT will
Fortunately, the European commission is clearly supportive of the
proposal, as is the European parliament. Eleven European countries,
representing 66% of European GDP, remain committed to
implementing the tax.
It is encouraging that in coalition talks between the German SPD
and CDU, they achieved clear consensus on the FTT. This is not
surprising, as in Germany 82% of citizens, according to Eurobarometer, support a European FTT. In France this figure reaches 72%,
and the EU average is 64%. Let's hope politicians elsewhere will listen
to their voters and fully implement the tax soon.
Tags: Tobin tax, Economics, Banking, Germany, Europe
All Comments (191)
This discussion is closed for comments.
9 people in 56 threads.
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2 Nov 2013
it's pretty clear this author is more focused on stopping HFT, not raising revenue.
2 Nov 2013
She's quite right.
HFT (High Frequency Trading), trading by computer algoriths, is a way for investment
banks to make even more money. If they make collosal sums of money this way (and
they certainly can do), you and I lose out as our pension funds make less trading proﬁts
than they otherwise would, unless they use HFT also.
This HFT is a socially useless activity. It also sometimes plays a part in the periodic
complete collapse of the trading exchanges for a period of maybe an hour or more. This
happended to the NASDAQ trading platform in the USA again a few days ago.
The Tax would not affect normal proﬁts signiiﬁcantly, as we already pay 0.5 % on each
purchase in the UK or 1% on shares registered in Ireland. [For shares registered in
Guersey however, for some reason we do not pay a transaction tax at all!]
2 Nov 2013
The FTT doesn't go far enough.
Nor is criminalizing banking negligence a sufﬁcient remedy.
There needs to be a measure of collective responsibility felt at the personal level but distinct
from personal legal guilt.
For example, all board members and senior shareholders should bear a measure of personal
liability in the event of corporate failure or poor performance.
Limiting the privilege of limited liability for board members and senior shareholders would
encourage the senior ofﬁcials and rent-seeking nomenklatura to take a more lively interest in
the performance of companies at all levels, or to resign. (Surely no one is abducted and forced
to become a senior banker.)
Furthermore, liability should be retained for a period of years following departure from the
concern, to discourage the crashing of enterprise at high social cost.
Show more comments
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