Towards a European Tobin tax?

23 Jan

Reports in the press this week suggested that German Chancellor, Angela Merkel, had been won over to the idea of introducing a tax on financial transactions at the European level.  This has been primarily a French idea so far, with Nicolas Sarkozy a convert to a policy he had previously dismissed as ridiculous. The Tobin tax idea had been taken up by the French anti-globalization movement at the end of the 1990s and early 2000s and was virulently opposed by most of France’s political class. Today, in a very different political climate, the idea has been given a new lease of life.

Whether or not a financial transaction tax is finally introduced remains uncertain. This week’s press also reported that Sarkozy – who faces an election in the coming months and has committed himself to this tax as a demonstration of his activism in regulating financial markets – might settle for a tax on share trading as a first step. This already exists in the UK in the form of stamp duty on stock exchange transactions. Keeping the UK on board with any new European regulations would be welcomed by other European leaders as lasting rifts and real isolation are anathema to the EU. Bringing Cameron back in from the cold would be attractive to all involved in last year’s falling-out between the UK and the EU. Such a tax would, however, leave unregulated all other kinds of financial trading like derivatives and high-frequency trades. These have been identified as the real targets but an initial tax on share trading might solve Sarkozy’s problem of having committed to introducing a financial transaction tax before the election.

Is a financial transaction tax really the solution to the current crisis? The main rationale for it today is that it would serve as an alternative source of revenue for bail-outs and other expensive public actions that have up until now been funded by the taxpayer. That such a tax could improve government balance sheets to the point of reducing the need for austerity seems rather fanciful. What it would challenge, however, is the idea that governments defer unconditionally to their financial sectors. Whilst governments routinely stand by and watch as industries relocate to the Far East and shed thousands of jobs, they seem unable to accept that any such “creative destruction” should operate in finance. To many, this smacks of double standards and a tax on financial transactions would demonstrate – at the very least – the exercise of some political muscle vis-a-vis banks and financial services.

This argument about the symbolic nature of such a tax is not a bad one. But it tends to miss the bigger picture. The reason why a Tobin-style tax has become a popular idea amongst European governments is that it is like the famous phrase of Tomasi di Lampudesa’s The Leopard: things must change so that they remain the same. There is nothing in a financial transaction tax that really challenges the relationships and interests that together have given us this debt-finance growth model of the last 40 years. Nor would the tax really reverse the striking rise in inequality that has come to characterise our societies. The theory of the present crisis of capitalism contained within the Tobin Tax idea is that responsibility lies in the financial sector and that whilst the economy is generally sound, a few bad financial apples are bringing us all down. By taxing them and redistributing the revenue according to priorities set by elected representatives, we can return to the status quo ante.

One argument we’ve been pushing at The Current Moment is that financialisation is as much about a change in the real economy as it is about the financial sector itself. Isolating finance from its place in the wider economy, as the idea of a financial transaction tax does, misses the nature of the problem. This idea is also naive in that it imagines that relationships between real people can be transformed via a state-levied tax. Societies, today as in the past, are based around relationships that can only be changed by real political struggle. There is no short-cut or easy way around the problem of either redistribution or of making European societies more productive. The financial transaction tax is a coward’s way out of tackling today’s economic and social crisis and will only entrench, rather than transform, existing inequalities.

About these ads

3 Responses to “Towards a European Tobin tax?”

  1. Arthur Goldhammer January 23, 2012 at 2:46 pm #

    The symbolism of the Tobin tax is all well and good, but if at the same time France and Germany are pushing for a dilution of the already inadequate Basel III regulations, as reported by the Financial Times, then we are witnessing a bait-and-switch: http://www.ft.com/intl/cms/s/0/7f8485a8-4500-11e1-a719-00144feabdc0.html?ftcamp=rss#axzz1kID6f4A5

    Forcing banks to disclose their leverage ratios is a more important safety measure than taxing their transactions.

  2. The Current Moment January 23, 2012 at 4:14 pm #

    We agree that the symbolic nature of the Tobin tax is limited. It is also the case, as we suggest, that both Sarkozy and Merkel are looking for a compromise solution: Sarkozy in order to show he has done something without the breaking of eggs likely to accompany a transaction tax on banks; Merkel because she was never really convinced by the idea anyway and a softer solution would also help keep her coalition together. That forcing greater disclosure onto banks would be a more radical and powerful move is a good point. But there is a good chance it would lead to a drying up of bank lending to business as banks improve their ratios by limiting their liabilities as much as possible.

Trackbacks/Pingbacks

  1. Towards a European Tobin Tax? | Cesran International - March 30, 2014

    […] This article first published at The Current Moment. […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 1,488 other followers

%d bloggers like this: