EU ministers wrangle over financial tax

November 8, 2011 - 5:05 AM

BRUSSELS (AP) — Turning away from immediate crisis management, European Union finance chiefs clashed Tuesday over whether a tax on financial transactions will rein in dangerous market speculation or further dent economic growth.

France and Germany, together with several other eurozone countries, are calling for a small levy on trades in stocks, bonds and derivatives that they say will raise money for governments at a time when they are spending billions of euros helping countries and banks in financial distress.

The debate on the tax allows Europe's finance chiefs to discuss something other than Europe's debt crisis, which has dominated their attention for nearly two years.

"The markets are creating problems for us, so they should themselves also contribute to a stabilization," Austrian Finance Minister Maria Fekter said as she arrived for a meeting with her EU counterparts in Brussels.

However, the tax, which the European Commission, the EU's executive, says could raise as much as euro57 billion ($78 billion), is vehemently opposed by several non-eurozone countries including the U.K. and Sweden.

They argue that a financial transaction tax, or FTT, in Europe only could reduce economic growth at a time when the continent is trying to prevent another recession and could force financial institutions to move to other hubs like New York or Singapore. The U.S., the world's biggest financial center, has ruled out bringing in the tax.

"Europe is running low on credibility and the solutions that are going to be discussed here today, the FTT for example, I think is a nonstarter," said Swedish Finance Minister Anders Borg. "It is a very efficient way of reducing growth and it will increase the ... borrowing costs for indebted countries."

While the Commission is still pushing for the tax to be introduced in the whole EU, several eurozone countries have said that they would be content with introducing it just in the eurozone initially. The hope is that other jurisdictions would eventually follow suit.

Another sparring point is what the money raised by the tax should be used for. The Commission wants to bolster the EU's own budget, while Germany and France hope to use it to plug their own funding gaps, with some small proportion going to fund development aid.