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Eurozone Power Struggle Over Financial Transaction Tax

Eurozone Power Struggle, David Cameron and France

The French government fervently support the proposed Financial Transaction Tax across the European Union. The FTT is frequently referred to as the ‘Robin Hood Tax,’ because it aims to fund the poorer European nations with money from the largest financial institutions and their dealings.

On December 8th David Cameron vetoed the implementation of the Financial Transaction Tax in an effort to protect the City of London’s financial district; he was castigated by the European press and his actions infuriated French Prime Minister Nicolas Sarkozy who told Cameron: “You can’t have an offshore centre taking Europe’s capital.”

In a strange turn of events, French Finance Minister Francois Baroin announced this morning that the French government should be excluded from the proposed tax to avoid scaring off investors, he said: “The tax would apply to shares and derivatives but would naturally exclude government bonds since we are in a period where we need investors.” The notion is understandable; France has €178 billion of government debt maturing this year and the country is still in the wake of S&P’s credit downgrade, but it really undermines the whole concept if the tax is not to be a uniform requirement.

EU Commissioner Michel Barnier has stated that Britain will not be forced into accepting the FTT because Brussels is not hell-bent on destroying the City, but that the sector should be held accountable for the economic situation it has arguably caused:

“It is right the financial sector – massively bailed out by taxpayers – pays a fair contribution to help us face up to global challenges… I don’t think it is right that such high bonuses are paid out in the financial sector when it has just been bailed out by the taxpayer, and so many in society are suffering… But at the end of the day, the FTT won’t be imposed on the UK against its will.”

Barnier will come away from this looking far more reasonable than Baroin; the ball is now firmly in Cameron’s court, but he has been placed under intense pressure from the City to remain strong and ‘bulldog-like’ in his stance against EU intervention.

By Josh Ferry Woodard

Photograph Courtesy of Stock Images