Boundless arrogance

Just to remind you, formally the European Community is made up of 27 countries each equal under the Treaties.


Then you have reality.

A European financial transaction tax will be in place by the end of year, French minister for European affairs Jean Leonetti said on Wednesday, apparently speeding up the timetable."This is on the programme for the next European summit (on January 30). (French President) Nicolas Sarkozy and (German Chancellor) Angela Merkel have decided on this and it will be put in place before the end of 2012,"

Because the Merkozy says so, it is the case.
Interestingly only the UK and Sweden oppose this plan,

Leonetti said Germany and France were already in agreement on the tax and that Italy was not opposed to it. He said that of the 27 members of the European Union, only Britain and Sweden were opposed to the idea.

Interesting because of course this tax will hit the UK disproportionately, to provide the EU with what it laughably calls  it's 'own resources', and Sweden the only country to have self harmed in this fashion. This is what their Finance Minster Anders Borg said back in September,

When Sweden began taxing financial transactions in the 1980s, "between 90%-99% of traders in bonds, equities and derivatives moved out of Stockholm to London," Borg said.
"The impact was basically that we did not get any tax revenue. It brought in very little tax money while moving most of the businesses outside of Sweden

This is the chap who in November was named  the FT's European Finance Minister of the Year (not a competitive title this year I suspect)

Pearson probes, HMG wriggles over the FTT

Lord Sassoon has given what looks like a pretty robust answer to UKIP peer, Lord Pearson's, question on the Financial Transaction Tax,

The Commission has put forward a proposal to introduce a financial transaction tax under Article 113 of the Treaty on the Functioning of the European Union. Proposals put forward under Article 113 require unanimity in the Council of Ministers, giving the UK Government a veto over any such proposal. The Government oppose a European financial transaction tax.

In addition, the Commission has put forward a proposal under Article 311 to use revenues from its proposed financial transaction tax to part-fund the EU budget. Article 311 also requires unanimity in the Council of Ministers, giving the UK Government a veto over any such proposal. The Government oppose any new taxes to fund the EU budget.

But hold on a moment. What has the Government committed itself to. At first reading it looks like they will veto the FTT proposal, and if so there would be much breathing out in relief in the City.

But have they? I don't think so. Take a look again at what they say, and you can see that it is no such guarantee.

Essentially Lord Sasoon has said,

"We oppose the tax, we have a veto".

or in other words,

"I want to go to Brighton, I have a car". 

That the Minister would like to go to Brighton, and that he has a car is of no importance, what we want to know is if he will use his car to go to Brighton.

By not specifying his use of a car to take him to Brighton, when it would be very easy to do given he is possesion of a fine pair of wheels, one must suspect that the Government has no intention of using it. What is more, from the way that they have behaved in the past, one must come to the conclusion that they might well to go to Littlehampton instead if their continental friemnds persuade them to.

Un Grande Ecole dit non au Financial Transaction Tax

I think that the proposed Tobin/Finacial Transaction Tax is a daft idea. My reasons are those of my gut, not pretending to be an economist. I think that it is anti-democratic in its construction, as it will allow the European Elite to set tax rates without any effective democratic oversight. It is also another tax that will hit consumers as the costs will be inevitably passed onto them in increased bank charges. And it isn't as if we are not Taxed Enough Already.

So it was gratifying to read this morning that others with bigger and pointier heads than I have come against the whole idea.

The École De Hautes Études Commerciales du Nord, or EDHEC as it is known, or more precisely the Risk Institute based there is one of the great Grande Ecoles of France. And it is pretty clear in what it thinks about the FTT. In a letter to the Commission they have put it thusly,

The findings of theoretical models are mixed about the effectiveness of the Tobin tax to reduce volatility and improve welfare. The Tobin tax will obviously lead to a reduction in the trading of securities on which the tax is imposed. But, a reduction in the trading of financial securities also means that it is now more difficult to smooth consumption over time and across states of nature. The Tobin tax reduces speculative activity in financial markets; but, this tax also drives away investors who provide liquidity, stabilise prices, and help in the price discovery process.

So according to EDHEC it fails even under its own light.

The market works by increasing information, the FTT would reduce information, leading to worse and more ill-informed decisions.