Slovakia rescues EU financial transactions tax

By bne IntelliNews October 10, 2012

bne -

In October 2011, Slovakia's Smer party held the whole of Europe to ransom; on October 9 it rode to the rescue of the core Eurozone when it agreed to sign up for the proposed financial transaction tax.

Exploiting a split in the precarious governing coalition, Smer downed a vote in the Slovak parliament on approval of expanding the European Financial Stability Facility - the EU's temporary bailout fund - to allow Greece to be rescued in October 2011. It then struck a deal to allow the vote through on the condition of snap elections. The following March, Smer was elected by a landslide.

Fast forward 12 months, and Prime Minister Robert Fico appears as good as his word that Smer will support EU efforts to rein in the excesses that have caused so much pain. As Eurozone finance ministers met in Luxembourg on October 9, the German and French delegations led efforts to gain the one extra commitment needed to allow them to force the issue through. Reports suggested Poland was the main hope, but Slovak minister Vazil Hudak quickly put their minds at rest by saying Bratislava is ready to sign up.

The two main drivers of the plan to tax stock and bond trades at the rate of 0.1%, and derivatives trades at 0.01%, already secured agreement from Greece, Portugal, Austria, Slovenia and Belgium. As expected, Estonian Prime Minister Andrus Ansip told his country's parliament on the morning of the meeting that his country would also join.

That left Paris and Berlin needing the support of one more willing partner to reach the nine-country threshold to launch an enhanced cooperation procedure, which allows a smaller group of nations to break ranks and move forward on an issue that fails to gather the required majority. The Europhile Polish government had been mentioned as the strongest potential candidate, but EU officials indicated that Germany was annoyed at Warsaw's demands in return for its support, reports Euractiv.

"Poland would consider supporting the FTT if it would find understanding on issues important for Warsaw such as the EU's long-term budget and a voice in the new banking supervision framework," an EU diplomat said. It remains to be seen if the country, which has proved one of the most enthusiastic supporters of German proposals for responses to the Eurozone crisis, will sign up anyway. Spain and Italy, who had earlier indicated they would not support the plan, said they would throw their weight behind it too once the threshold had been crossed.

"I already have seven letters - from Germany, France, Belgium, Austria, Slovenia, Portugal and Greece," said EU Tax Commissioner Algirdas Semeta in a statement. "And today we got clear assurances that Italy, Spain, Estonia and Slovakia will send theirs very soon. I am ready to do everything possible to deliver a draft decision to the November ECOFIN, in order to facilitate very quick progress on this file."

While Slovakia's support will allow the European Commission to push the issue forward - it has said it is ready to move ahead with developing the proposal as soon as nine countries have formally applied to adopt it - an FTT is anything but a done deal. The countries that have signed up will now need to approve the move at the national level, and, as the Slovak example a year ago illustrates, there are many domestic issues that could yet derail it. Ansip offered just such a warning. The main motivation for Tallinn to join is "be able to affect the decisions. The decision on whether Estonia will actually introduce such a tax still lies ahead," the PM said, according to Bloomberg.

Critics claim that without a wider agreement, the levy will simply push banks to move their operations to other territories, and that the initiative is being blindly pushed by the backlash against the banks prevalent around Europe right now. Even supporters - albeit ones with little apparent choice - appear concerned. The Greek finance ministry said it wanted "an evaluation which will look into the possible economic consequences".

However, speaking at a press conference, Semeta insisted: "An EU Financial Transactions Tax would not just be a good source of revenue, it would also ensure that the financial sector pays its fair share."

"I proposed this tax as a source of new revenue from an under-taxed sector, and a means of encouraging more responsible trading, he added, according to Reuters. "It would also prevent a patchwork of national bank taxes from creating difficulties for businesses in the Single Market."

The debate has focused on a blueprint written by the European Commission for a tax on stocks, bonds and derivatives trades from 2014 that the EU's executive arm said could raise up to €57bn per year. The yearly budget of the EU is approximately €130bn. However, the official noted that there is no agreement yet among the signees on where any revenue raised would end up. "Some of them would like to spend it individually. Some of them prefer to use part of the proceeds to finance the EU budget. It is premature to say what will be the final outcome," he said

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