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Ministers reject EU bank rescue plan
EU economy ministers and the European Commission differ on how to rescue defaulting banks in the future, as ministers in favour of a bank levy last Tuesday (7 September) rejected the idea of putting the fiscal proceeds into a special fund to wind down insolvent banks.While most countries are signing up to the need for a bank levy, a proposal from the European Commission to use the proceeds to create private sector funds to rescue insolvent banks curried little favour at yesterday's ministerial talks.
Though ministers disagreed on the fundamentals of a bank levy – its size and which banks would be hit – many agreed they did not want to be told by the European Commission what they should do with the proceeds of the levy .So far, Germany, the UK, France and Hungary have hatched plans for a levy, while Austria and Spain have said they plan to follow suit.A May Commission proposal supported the establishment of levy-backed funds "to facilitate the resolution of failing banks in ways which avoid contagion, allow the bank to be wound down in an orderly manner and in a timeframe which avoids the 'fire sale' of assets".
'Body of allies' against plan
The UK has long been the most vociferous opponent of the bank resolution fund, written by French Internal Market Commissioner Michel Barnier. UK Chancellor of the Exchequer George Osborne reiterated that he would use the levy to plug gaps in the country's national budget.Osborne appeared confident that the UK would not be asked to implement the EU plan to use the revenue from its planned bank levy to rescue or wind down banks. "At the moment it is unlikely the UK will find itself in a position where resolution funds will be imposed upon it," Osborne told the press.The chancellor also spoke of a body of allies to the UK's staunch position on the levy. Hungary is one known ally as it plans to use its 0.6% levy to plug a growing budget deficit.
"France, like Great Britain and the Netherlands, doesn't want to put this taxation - which is planned for the 2011 budget - into a special resolution fund," affirmed Christine Lagarde, the French economy minister at a briefing .''Rather, we want it to contribute to the state budget, which was the safety net for the whole system during the financial crisis that we have just experienced,'' Lagarde added.
Germany is the only country so far to support the Commission's plan to put the money into an EU rescue fund to pay for future banking bailouts.The European Commission remains adamant that putting the levies' proceeds into a bank resolution fund is the most sensible option to prevent risk-taking and moral hazard in the banking sector."Prevention costs less than the cure," Chantal Hughes, a spokesperson for Michel Barnier, told EurActiv"If [the revenue from a levy] goes to the budget, it will no doubt be used for something else," Hughes added, arguing that the temptation for governments to redirect the money to other areas would be too great.
End of the road for Tobin Tax?
Supporters of reviving a Tobin Tax - or a Financial Transactions Tax (FTT) - will be disappointed by the dissipating enthusiasm for backing the idea. At Tuesday's talks, the FTT's former proponents – Germany, Austria and France - made less noise about the tax, and some even deemed it redundant since the bank levy had garnered more international backing.An EU source had indicated yesterday that he was not sure the FTT would survive the ministers' discussion."Our efforts would be more fruitfully directed to other pressing issues," Osborne said, asked if Britain would be supporting a campaign for the tax.
NGOs, think-tanks, trade unions and a large majority of Brussels MEPs have come out in favour of the tax, saying it would discourage bankers from taking risks on unstable assets and liabilities.
''We talked a lot about the bank levy, but the financial transactions tax wasn't discussed very much - to me it seems somewhat redundant if we have the bank levy," Lagarde added, negating previous French support for the measure.
Sweden warned other ministers against an FTT because its own attempt to tax financial deals backfired when trading moved abroad."We don't want to see a new transaction tax," Finance Minister Anders Borg told reporters. "The banking levy is more suitable as it would bring us revenue to deal with future crises."A diplomat from a large EU member state said that without an international consensus on the FTT, banks would "start doing all their transactions from London or New York, or the Galapagos".
"People are reluctant to agree something in principle without knowing how it will be implemented in practice," the diplomat added.(Source:EurActiv)