Tobin Tax breaches G20 agreements, say markets associations

FIVE GLOBAL MARKETS ASSOCIATIONS have called on the G20 to intervene in Europe’s introduction of a financial transaction tax (FTT), which they allege will have “unprecedented extra-territorial impacts”.

The levy will see a 0.1% tax imposed on the value of stocks or bonds and 0.01% on derivative contracts and will be introduced across 11 EU countries. Crucially, the tax will apply to transactions based on where the financial product was issued, and while it won’t even be Europe-wide, it could regularly affect trades made not only in Paris and Berlin, but London – despite the UK’s opposition – and even further afield.

In an attempt to induce the G20 to overrule Brussels, the London-based Global Financial Markets Association, Japan Securities Dealers Association, the Australian Financial Markets Association, the Investment Industry Association of Canada and the Korea Financial Investment Association have written to ministers meeting in Washington requesting that they oppose the tax, the Telegraph reports.

In their letter, the groups claim the FTT will have “harmful spillover effects on the global economy”, adding it is “contrary to G20 principles”.

However, European leaders including France’s François Hollande have placed the Tobin Tax at the top of their agenda in order to make banks “pay” for the financial crisis, and act as a key source of revenue.

That policy appears to be at odds with the G20’s pledge just two weeks ago to “monitor and minimise the negative spillover on other countries of policies implemented for domestic purposes”.

While 11 countries – France, Germany, Italy and Spain along with Austria, Belgium, Estonia, Greece, Portugal, Slovakia and Slovenia – have signed up to adopt the levy, EU officials want union-wide adoption, although the UK and Sweden are staunchly opposed to the measure.

The groups warn in the letter that the FTT will “create a further headwind to global economic recovery” because it will “increase the cost of equity and debt financing for both governments and corporates [and] the cost of hedging transactions undertaken in the real economy to manage risk”.