By: Dr. Mike Campbell

The President of the European Commission, Jose Manuel Barroso, has floated the idea that all financial transactions which involve an EU partner should incur a tax of 0.1% as a means of helping to fund financial contingency plans in light of the global financial and the sovereign debt crises. The proposed tax would come into force in 2014, if approved, and is estimated that it would raise €57 billion for EU coffers.

London has arguably established itself as the world’s financial capital and, understandably, the UK government is none to enamoured of Barroso’s plan. UK analysts calculate that something like 80% of the tax receipts that the new plan would generate would be raised in the UK. The Brits are concerned that penny-pinching (!) financial institutes would pack up their bags and set up shop outside of the EU to avoid this whopping 0.1% tax hike which clearly would be make-or-break for many a financial institution (insert sarcastic smiley here). However unlikely this scenario is, the UK government has made it clear that it would not support this initiative, so since the UK could (and apparently would) veto this idea, it is dead in the water. I suppose the feeling is that raising 80% of an EU-wide tax within the UK is disproportionate, and they have a point.

However, the interesting thing is that if a 0.1% tax on financial transactions would raise €57 billion per annum, it suggests that the total value of these transactions within the Eurozone comes to €57 trillion per annum.  This figure sets the sovereign debt crisis into its proper perspective – will the EU allow the Euro to fail over a Greek debt of €310 billion? That represents just 0.005% of the value of financial transactions taking place within the EU every single year.