Magazine article Modern Trader

EU Looking at Transaction Tax

Magazine article Modern Trader

EU Looking at Transaction Tax

Article excerpt

As the European sovereign debt crisis comes to a head, some members of the European Union are pushing to implement a financial transaction tax on an EU-wide, if not global, scale. The tax, which was proposed by German Chancellor Angela Merkel and French President Nicolas Sarkozy, has become a dividing issue with some countries, such as Germany and France, for it and others, such as the UK and Sweden, against it.

Anthony Belchambers, CEO of the London-based Futures and Options Association (FOA), says there are two reasons France and Germany are calling for the tax. "As a politically driven initiative, the idea behind the financial transaction tax is that it will deliver on a number of largely politically oriented objectives," he says. "The first of which is to build up a cash bank, for obvious reasons. The second is to try and reduce speculation or any form of inappropriate trading in the marketplace by making it much more expensive."

Although the tax revenue has not been earmarked yet, Belchambers says it likely would go toward either a "rainy day pot in case of major defaults," or it could be used to plug entitlement gaps that could come as part of austerity measures.

In addition to worries about regulatory arbitrage where customers could just trade on exchanges in other parts of the world without the tax, Belchambers says the FOA has two objections to the tax. "First, it will be a pass-on cost to end-users. By that, we're talking about pension funds, corporate users of commodities and risk management transactions, so it sort of will be a tax on savings, investment and growth," he says. …

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