Last week, the finance ministers of France and Germany wrote to the European Commission to voice their continued support for an EU Financial Transaction Tax (FTT), an instrument similar to the so-called “Robin Hood tax” being proposed by NGOs and activists as a way to tackle financial speculation. Commission President José Manuel Barroso is in favour of such a tax – particularly as the money raised could potentially go toward the EU’s budget (PDF) – and the Commission is due to publish its proposal for introducing such a tax within the next few weeks.
Debating Europe had a comment sent in from Luca from Italy supporting the proposed tax. Luca argues that an FTT could be used to help combat speculators by making short-term financial transfers marginally more expensive. We took this suggestion to Professor Stephany Griffith-Jones, currently the Financial Markets Program Director at the Initiative for Policy Dialogue at Columbia University, for her reaction. We asked her if an EU Financial Transactions Tax was really viable, given staunch resistance from countries such as the UK:
Well, I think it’s more possible now than ever, because we now have the official support of the heads of state of France and Germany, President Barroso supporting it plus, of course, civil society and so on. We know that it’s technically feasible. I was part of a commission working for France, Germany, Brazil, UK and many others, and we came out with a report that showed these taxes were very feasible.
Feasible for reducing speculation? Would an FTT really be an effective instrument or is it just an excuse for the European Commission to raise its own resources?
The extent that it could curb speculation depends on the level of the tax. Whether it is a main tool for curbing speculation, I’m not sure. I would prefer it combined with other measures. But I think it’s a good idea and it’s part of a kind of rebalancing of the global financial system.
One of the most often-heard arguments against an FTT is that investors would simply take their business elsewhere. It could be incredibly damaging for the City of London, for example, if the EU instituted an FTT and many London-based financial services relocated to Hong Kong or Singapore.
You don’t have to tax all financial transactions, you could limit it to currency transactions, particularly if its an important currency, like the Euro or the Yen… The kind of tax we are talking about – as little as 0.005% – would not cause so much movement out of Europe. In addition, you have to remember that there are also costs associated with moving a company, and people need to be in Europe.
Earlier, we spoke to Andrew Watt, senior researcher at the European Trade Union Institute, and also asked his opinion on an FTT. He argued that similar taxes have been implemented in the past, even in the UK, without damaging competitiveness:
There was a significant tax on finacial share trading, and that hasn’t prevented London being one of the most important financial centres of the world. Also, some of the riskier trading we could happily do without, so if some of it did go offshore we would have a healthier financial sector anyway… But of course, those people who are saying unless we can introduce it at the global level we shouldn’t do it should be more honest. What they mean is we shouldn’t do it at all.
Others are less than convinced. Jim O’Neill, Chairman of Goldman Sachs Asset Management, told us he thinks the idea is misguided:
I’m afraid to say, I think that’s quite naive. Speculation is not necessarily a bad thing. Speculators can be right as well as wrong, and I think in this instance we could do with a few more speculators. The policy-makers are scaring market participants with this sort of talk and contributing to the sense of uncertainty.
It’s a complicated issue with much at stake. The last thing Europe needs right now is to scare investors further. However, the ripples from the 2008 financial crisis are still being felt today, and perhaps a new financial “rulebook” might be what’s needed – including instruments to discourage more damaging forms of speculation.
What do YOU think about the issue? Would a “Robin Hood tax” help control financial speculation? Or would it encourage investors to abandon Europe and take their business to other markets? Are speculators really to blame for the current crisis, or is it rather governments that got us into this mess? And should the money raised by such a tax go to the EU or, as Oxfam argues, should it rather go to help tackle global poverty? Let us know in the form below.