The European Commission yesterday backed plans by 11 European Union economies to impose a “Robin Hood” financial transaction tax, better known as a Tobin tax, to help raise funds to tackle the region’s growing debt crisis.
The European commission gave the greenlight for a eurozone "coalition of the willing" to go ahead with a financial transaction tax (FTT), likely to be levied at 0.1 percent on shares and bonds, and at 0.01 percent on derivatives.
The introduction of the FTT by the “coalition” was made possible via the rarely-used EU powers of "enhanced cooperation", enabling a minimum of nine nations, equivalent to a third of the 27 member states, to draw up a new legislation.
The Commission said in a statement that all the legal conditions to impose an FTT had been met, and that it believed the tax would not undermine the workings of the European single market which seeks to ensure a level playing field for all.
The European Union’s Taxation Commission Chief, Algirdas Semeta said:
Governments across Europe have been implementing drastic austerity measures to cut debt levels, and taxing banks is seen by some as a viable alternative to raise revenues, particularly while the economic recovery remains so fragile.
While the financial charge is small, the sheer volume of transactions means the total revenues raised could be significant. The Commission has estimated that the “Robin Hood” tax could raise 57 billion euros ($74 billion) a year, if applied across the entire European Union.
With the group of 11 accounting for two-thirds of Europe's economy, revenue from the tax is likely to be substantial. It, however, remains unclear what the group will agree to do with the proceeds: Channel funds into the EU budget as the Commission has proposed, or not.
The 11 countries include Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain.
The UK, however, has been particularly vocal in its opposition to the FTT, fearing that the tax would shift businesses away from London to competing markets such as New York, Hong Kong or Singapore. The UK's position is that the FTT has to be universally levied if it is to work.
Financial activity in Britain accounts for about three-quarters of the entire European financial sector.
Opponents of the tax also say that it will add to the problems of the financial sector that is already struggling to recover from the Great Recession.