A welcome win for sanity and fairness in Europe: on Tuesday, 11 countries – led by Germany and France – agreed to levy a small tax on financial transactions like the sale of shares, bonds and derivatives. The tax could raise billions for debt-ridden governments and help to curb the kind of reckless trading that caused the global financial crisis.
A financial transaction tax (FTT), alternatively known as the Robin Hood Tax or Tobin tax, works by levying a small fee on each financial transaction a person or firm makes – kind of like a sales tax on financial trades. No specific percentage has been set by this new agreement but, earlier this year, the European commission proposed a rate of 0.1% for stocks and bonds and 0.01% for derivatives.
Although the campaign for the tax was led by Germany and France, Europe's two biggest economies, the bid almost failed to pass at Tuesday's meeting of EU finance ministers. At the last moment Italy, Spain and Slovakia signaled their support, giving the pro-FTT bloc 11 votes – enough to allow those countries to move ahead on the issue without the consent of the full 27-member EU. This means that the tax can go ahead, despite other governments (particularly the British) loudly opposing it and refusing to adopt it in their own countries.
It will mean that trading capitals like Frankfurt, Paris and Madrid will have to abide by the tax – even though other financial hubs in countries that have not signed on, like London, Warsaw and Amsterdam, will not.
Despite these limitations, this is a major victory for fairness. It will normalise an idea that just a few years ago seemed impossible and pile pressure on other countries to follow suit. It will also help curb reckless mass trading and raise government revenues in EU countries badly in need of funds to protect vital social programmes under threat.
And in the future, those revenues could be used to fund all kinds of important things, like environmental protection and green energy initiatives. The challenge now is to make sure the money's spent on the right things.
Here's a breakdown of how much revenue an FTT could raise for national governments:
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Sources: Reuters, Robin Hood Tax, Wikipedia, Financial Times, Europa
