By: DailyForex.com
The financial sector in Europe is very substantial, most notably in the UK, Germany and France. The global financial crisis was firmly rooted within the financial sector and the support that it needed from the public purse in many countries was deeply unpopular with the electorate; many people felt that as the public don’t benefit from vast banking profits and only see a tiny fraction of the enormous salaries that (a minority of) bankers earn, they should not have been responsible for bailing it out.
Given that the debts that many nations are now struggling with have been exacerbated by the financial crisis, it is both politically expedient and publicly popular to claw back money from the financial sector. The French have strongly supported the implementation of a so-called Tobin tax to do just this, with a levy of 0.1% of the value of any transaction involving an EU-based financial institution. However, the idea has been vetoed by the UK since they fear that unless such a tax were to be globally based, it might drive financial institutions to move away from the City. Frankly, if the only factor keeping major financial houses in London is a margin of 0.1% on gross activity, the UK is doomed as a financial hub. Be that as it may, the UK government has blocked the implementation of such an EU-wide tax.
Yesterday, a bloc of ten Eurozone countries, led by France and Germany has declared that it will impose a financial transaction tax (FTT). If the tax were to have been agreed across the EU, it would have been expected to raise €57 billion per annum, but something like 4/5ths of this would have come from the UK. Whilst the UK Treasury has said it will not block the tax, it remains critical of it and has raised concerns that this modest provision will cost jobs, reduce growth, push up pension costs and could have a damaging impact on financial activity in the EU. Of course, if UK logic was correct in the first place, the City ought to be set to benefit from the exodus of financial institutions from the ten signatory states – don’t hold your breath.