European leadership met on Saturday (13 September) to discuss options of how to stimulate growth in the eurozone without increasing debt. Proposed solutions ranged from a huge investment fund via a pan-European capital market to increasing wages. One of the options that European finance ministers had difficulty in agreeing on was a long promised tax on financial transactions whose milder version Germany vigorously promoted despite France’s reluctance to give up on its moneymaking derivatives trading sector.
According to Germany’s Finance Minister, Wolfgang Schaeuble, the first step towards the tax will be “unfortunately small”. He added that given the different situation throughout the EU, it would only be possible to agree on a small first step, which is, in his opinion, better than none. The idea of a tax on financial institutions is based on the “Tobin Tax” which was originally defined as a tax on all conversions of one currency into another and it intended to penalize short-term financial round-trip excursions into a different currency. It was proposed by Nobel Laureate James Tobin as a means to reduce speculations in global markets. A similar tax on financial transactions harnessed a lot of public support after the crisis had begun as bank traders were believed to have triggered off a global stagnation.
The proceedings of the European version of “Tobin Tax” should go towards financing future bailouts and thus protecting taxpayers from paying to save big banks in the future. However, Germany and France have only managed to gather support of nine EU countries as Britain-led opposition is trying to protect Europe’s financial hubs that would suffer from the tax. As a result, the EU thinks of adopting a watered-down version of the tax that would not be so burdensome for certain types of transactions.