17 Aug 2011

Sarkozy and Merkel push for a Financial Transaction Tax

The news that Sarkozy and Merkel are pushing to get a Europe wide Transaction Tax implemented is the best news I've heard in ages. As I pointed out in a comment yesterday, financial transactions in just 5 of the the 17 Eurozone countries already total a minium of 1310 trillion euros per year. This is based on the numbers provided by the Bank for International Settlements for 2009. By adding up the various figures of each country, I obtained numbers for visible financial transactions of 250 trillion euros per year for Belgium, 249 trillion for France, 561 trillion for Germany, 173 trillion for Italy and 77 trillion for the Netherlands. These figures are certainly just the tip of the iceberg, because BIS doesn't list everything by any means. It would appear that no-one has the foggiest clue what the transactions are in the other Eurozone countries. Indeed, one of the other big advantages of the Sarkozy/Merkel proposition is that with a Eurozone someone might get round to compiling some real numbers.

But even this very conservative figure of 1310 trillion euros, is about 170 times the total Eurozone debt (currently standing at 7.8 trillion euros - figures from the IMF), meaning that a roughly a financial transaction tax of little more than 0.1% could pay off the entire Eurozone public debt in around 5 years. No more eurobonds, no more Greek, Spanish, Portuguese and Irish debt crises.

And if you think this looks impressive in the Eurozone countries, try the same thing in the UK, where financial transactions are at least 900 trillion pounds per year. The entire UK debt could be repaid in a few years with an FTT of less than 0.05%. 

Will Sarkozy and Merkel be able to get such a system adopted? It almost all depends on the UK government. The European Parliament has already voted strongly in favour, but I fear that the City will do everything in its power to block what seems to me to be a simple and fair solution to a great many problems.

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