THE EUROPEAN authorities are trying to revive plans for a global bank tax, defying G20 finance ministers who scrapped proposals for a common levy only days ago.
As global leaders prepare to travel to Toronto for the G20 summit next weekend, European Commission officials say they have a mandate from the EU summit last Thursday to pursue a worldwide tax on banks to insure against the cost of any future bankruptcies.
Meanwhile, European Central Bank chief Jean-Claude Trichet joined the debate on the reform of the euro system by calling for “quasi-automatic” sanctions on countries that break EU fiscal rules.
With EU taxpayers propping up European banks to the tune of €4.13 trillion since the outbreak of the financial crisis in 2008, political leaders are struggling to reach agreement on moving the rescue burden to financial institutions.
G20 finance ministers capitulated to pressure from Canada and Australia when they scrapped plans for a global levy at a meeting this month in Busan, South Korea.
While EU governments have said they will forge ahead with a European tax if global agreement is not possible, commission officials say they will seek to renew the plan in Toronto.
The push comes in spite of deep divisions between EU leaders over the ultimate destination of the funds collected from such a tax.
While the EU executive wants to establish a common European fund, Taoiseach Brian Cowen has indicated he supports calls from France and Britain to direct the money into national exchequers.
Opinion also differs as to whether such taxes should be levied on profits or balance sheets.
While acknowledging divergent opinion within the EU, commission officials say all member states bar the Czech Republic back the principle of a global tax.
They note that the Obama administration in Washington supports this position, adding that it was not strictly the case that the proposed tax would be calculated according to “multiple basis points”.
Australia, Canada and the emerging countries that support them will be asked how they propose to pay for any future bankruptcies if there is no levy, they say.
“We’ll be asking the countries who don’t think this is necessary who is going to pay whenever you have a crisis,” said a well-versed official.
He said the discussion raised questions around moral hazard, rewarding institutions for risky behaviour. Paying rescue costs ex-post could have the “pro-cyclical” effect of making a financial crisis worse.
Separately, Mr Trichet indicated to a committee of MEPs that he supports German chancellor Angela Merkel in her demand to suspend the EU voting rights of countries that break the euro rulebook
Most EU countries oppose Dr Merkel because non-financial sanctions require treaty-change. While Mr Trichet said the regime should operate first within the current treaty rules, he was open to stronger interventions as part of a “quantum leap” in policymaking.
“A more stringent implementation of rules and procedures is essential, among other things by increasing the automaticity and speed of procedural steps. The initiation of sanctions also needs to be quasi-automatic,” he said.
“Sanctions need to be applied much earlier and to be broader in scope . . . A wider spectrum of financial sanctions needs to be considered, along with non-financial and procedural sanctions, such as more stringent reporting requirements or even a limitation or suspension of voting rights.”
He questioned Moody’s downgrading of Greece to junk status, saying Athens has taken decisive steps to improve its fiscal position since agreeing a reform plan with the European and International Monetary Fund authorities.
“The rating was better . . . at a time when the position was objectively worse.”
