A simmering row between members of the G20 and EU member states over plans to introduce a tax on financial transactions looks set to break out into the open at this week’s meeting of G20 leaders.
France, which currently chairs the G20, is pushing the group to give the green light to a financial transaction tax (FTT) to raise as much as €55 billion a year to help reduce budget deficits and curb excessive speculation. Governments that signed up would impose a levy of 0.02% on bond transactions and 0.1% on share trades.
The proposal has won the support of Germany and has been strongly endorsed by José Manuel Barroso, the president of the European Commission. He argues that the public sector has contributed more than €4 trillion in guarantees to the banking sector to support it through the crisis, and that it was now time for the industry to repay its debt.
The proposal will get a separate boost when Microsoft chairman Bill Gates delivers a report to the G20, calling for an FTT to raise resources to fund the fight against global poverty and disease.
However, a number of G20 nations, including the US, Japan, Canada and Russia, oppose the plan.
Stephen Lewis, chief economist at London-based brokerage Monument Securities, said this meant France would have to press ahead with a European tax to raise $9 billion in the face of resistance from the UK.
“They must also know that if a tax were introduced to cover a restricted area, financial business would gravitate from that area to centres elsewhere in the world,” he says.
“It is hard to avoid the conclusion that the FTT is designed primarily to destroy London as a financial centre in retaliation for what is seen as the role of London’s financial power in undermining the euro arrangements.”
He warned that “at the very least” the proposal would set up a major rift between the eurozone core, aided by the Commission, and the UK.
A UK Treasury spokesman said: “Any FTT would have to apply globally and there are a number of practical issues that need to be worked through. These issues are underlined by the Commission’s own analysis.”
Richard Reid, director of research at the International Centre for Financial Regulation, said he doubted that the G20 would come to a consensus on the issue.
“France is still clinging onto this but the potential for this actually to be put in place has diminished somewhat,” he said.
“My guess is that they kick it down the alley a little bit by saying that there’s a lot of worthy proposals on the table, but we need more impact assessment and we need to take account of where we are in the economic cycle.”
Global banks are also hostile to the proposal. Peter Sands, CEO of Standard Chartered, said it was important that the G20 did not go “too far”, as it might undermine global growth.
“[The FTT] would be a new source of instability,” he said at the B20 Summit in Cannes on Wednesday. “It would not be helpful at this point to foster global growth and job creation.”