David Cameron vetoed any hope of getting a Europe-wide reform of the banking system yesterday. It's not clear to me to what extent his decision to block reform was to appease the 40-50 europhobic Tory MPs who wanted him to show some "Bulldog" spirit, or whether it was more to appease the City insistance that they want to continue with business as usual. It's certainly a combination of the two.
I've been doing my best to promote the idea that introducing a Financial Transaction Tax would be a fantastic deal for UK taxpayers - and there have been some people who have noticed my posts on the Guardian website (55 recommendations for this one, for example). But it now looks as though the City has now enough lobbying power to prevent any movement on this. Very depressing.
The one point of consolation is that with the UK government now effectively out of the picture, the other 26 EU countries may be able to get together and come up with something more intelligent. Both Sarkozy and Merkel are strong supporters of Financial Transaction Taxes. They are also very keen on imposing a golden rule in which countries will be required to propose balanced budgets. Under these conditions, it may be that there really is a way forward.
As I have repeatedly argued, one of the really attractive features of Financial Transaction Taxes is that they can be continuously varied - from day to day if necessary. And they can be imposed at different rates in different countries within the EU. The European Commission's proposal is that when a transaction involves two different countries, each should pay half. One half would go to the government of the country that was the origin of the transaction, and the other half would go to the country receiving the payment.
But there is nothing in that to stop the rates being different in the two countries. Suppose that in order to repay it's debt level, the basic Greek FTT rate was 0.3% whereas in Germany the rate was only 0.1%. And suppose that a Germany tour operator wanted to make a payment to a Greek hotel of 100 000 euros. In that case, the German government would receive half of 0.1% of 100 000 euros, namely 50 euros, and the Greek government would receive half of 0.3% of 100 000 euros, namely 150 euros. The total FTT associated with the transaction would be 200 euros, namely 0.2%. It would obviously be the same rate for a Greek Car Dealer who wanted to buy 100 000 euros worth of BMWs and Mercedes.
And of course if the rates for Greece and Germany varied, this would be no problem. Germany could keep its rates very low (because it has the resources), whereas countries like Greece, Italy, Spain, Portugal and Ireland might need to have a higher rate to pay back their debts. That's fine. Even at 0.3% the FTT would still be 10 times lower than the 2.99% FTT charged by the majority of UK credit card companies for any UK holiday maker paying for hotels, restaurants and travel in continental Europe.
I keep hearing that the Euro is doomed because it is impossible to have a common currency for an area with such significant regional differences as the Eurozone. This is clearly rubbish. There is no problem whatsoever with having a basic FTT in Greece that is three times than in Germany (or more, if needed). Sure, anyone wanting to speculate on the foreign exchange markets would not choose to do it in Greece. But that sort of financial activity is totally pointless anyway. I doubt that many Greeks would care.
Allowing each country to set its own rate would also be great for democracy. Consider the French elections in 2012. If the FTT mechanism was in place, different political parties could make specific proposals that could be paid for by setting the FTT at the appropriate level. The UMP might campaign to keep the FTT at the 0.1% by cutting back on the public sector, pensions, etc. But the socialists could propose to double the rate to 0.2% to allow it to increase spending on education, research, health, public transport, energy or whatever. The French public would get to choose. Now that's democracy.
Currently, it's very difficult to predict how much revenue would be generated by a 0.1% FTT across the 26 EU countries. The fact is that the BIS only collects data for 6 of them (France, Germany, Belgium, Italy, Netherlands and Sweden). Noone has the foggiest clue what the level of transactions is for countries like Spain, Portugal, Ireland. The first thing that the 26 countries should do is impose very strict financial reporting for all countries. At least with the UK out of the picture, they will not be able to block the adoption of strict reporting.
But my guess is that as soon as FTTs are introduced across the 17 Eurozone countries, it will become clear that this really is a very efficient and fair way to gain tax revenue. And if the Eurozone was really to adopt my 0-0-0-0.1% proposal, then the results could be spectacular. Actually, I think I will rename the proposal the 0-0-0-0.X% plan, given that the actually rate of the FTT can be varied from country to country and from day to day, if necessary.
With such a plan in place, why would multinationals choose to hide their trillions of profits in British controlled tax havens in Bermuda, the Caymans and elsewere? They would do much better to move their funds into European financial centres where they would have 0.0% corporation tax to pay. It would just cost them around 0.1% in FTT. That's nothing, when the opportunities for making profits for providing the goods and services that people actually want would be unlimited.
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