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Stephany Griffith-Jones

The path to implementing a tax on financial transactions (known as the
FTT) was never going to be ...
detrimental to growth. Furthermore, the potential €30bn in revenue
the European FTT could raise, could be invested product...
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MacRandall
2 Nov 2013

it's pretty clear this author is more focused on st...
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Germany wants the robin hood tax – and europe's voters do too | stephany griffith jones

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Germany wants the robin hood tax – and europe's voters do too | stephany griffith jones

  1. 1. You’re viewing an alpha release of the Guardian’s responsive website. Find out more We’d love to hear your feedback Opt-out and return to standard desktop site comment is free 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 191
  2. 2. Stephany Griffith-Jones 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 opposition. 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 whom? 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
  3. 3. 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 competitive. 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 be based. 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.
  4. 4. 9 people in 56 threads. Sorted by newest first. MacRandall 2 Nov 2013 it's pretty clear this author is more focused on stopping HFT, not raising revenue. Report ecoecon 2 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!] Report AngloSkeptic 1 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. Report
  5. 5. Show more comments More on this story Wednesday 20 Nov 2013 879 Orthodox economists have failed their own market test Seumas Milne: Students are demanding alternatives to a freemarket dogma with a disastrous record. That's something we all need 10 Jun 2013 14 Reports of the death of the Financial Transaction Tax look exaggerated The City is lobbying like crazy against the FTT and its campaign is succeeding, on the face of it … Thursday 21 Nov 2013 384 Post-crash economics: some common fallacies about austerity Robert Skidelsky: Propositions in economics are rarely absolutely true or false – the truth depends on people's expectations 29 Jul 2013 Banks sense an end to worst of austerity, but it is too early to rejoice Could it be that after several false starts, the government's funding for lending scheme is influencing bank behaviour? Wednesday 20 Nov 2013 242 The rise of money trading has made our economy all mud and no brick Alex Andreou: Trillions of dollars change hands every day in the foreign exchange
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