3. In the eFInancial News article, Podimatastates, “We have to do whatever it takes to tackle wrong, harmful behaviors and attitudes in financial services.” Many in the industry already endeavor to do this. A financial transaction tax is not the method to achieve this goal. Regulation must focus on the abusers, not discourage healthy activity. Fine the guilty participants, and the capital markets industry, the economy and society at large could benefit from the revenues generated.
4. The European Commission expects to raise between EU30 billion and EU35 billion from the financial transaction tax annually, on the basis that “the costs for public finances plus costs of economic losses triggered by the subsequent recession are estimated to be in the order of magnitude of at least about 15% to 20% of the GDP of the EU. … The annual revenues raised should be in the order of magnitude of at least 0.3% to 0.5% of the GDP of the EU (FTT jurisdiction).” Asthe tax will drive down trading volume, and thus any tax revenue, however, it is hard to envisage how this will be achieved.
One example: French equity turnover has declined by 2% year on year, and by January 2013, as the effects of the French FTT took hold, this had fallen to its lowest level since 2008. According to the EU Commission report, the tax introduced by France in August 2012 is expected to generate about EUR 1.1 billion, or 0.06% of GDP annually. We will need to wait to hear from the French Treasury as to whether this is in fact the case.
5. The level of complexity that exists with European regulation before the introduction of an FTT already is in direct contrast to the proposed MiFID II efforts to harmonize financial markets. It’s going to be very hard for the regulator, ESMA, to control the market effectively at precisely the same juncture we are supposedly endeavoring to make financial markets safer.
6. The continuing grim macroeconomic dialogue illustrates that social crisis still remains the main threat to Eurozone stability. We have an urgent need to resolve the Eurozone crisis for the benefit of the growing unemployed youth population. Adding a tax to a sector that already is likely to put 130,000 people out of workin the UK alone does not help this situation – it only makes matters worse.
Every time Europe would appear to be clambering out of the hole, up pops a politician to demand more regulatory red tape. Draconian capital requirements continue to squeeze lending; Basel III will ensure brokers are hamstrung and unable to facilitate client trades sufficiently; and the push to on-exchange trading will alter a valuable hedging device into a more vanilla product and drain essential euros in central clearing requirements in the process.
Whichever way you turn, the cumulative effects of FTT regulation are likely to be disastrous for the Eurozone. Politicians appear to be focused on curtailing financial services activity at the very time that it could be put to positive, constructive use. Politicians wish to “discourage transactions that do not enhance the efficiency and stability of financial markets,” in the EC’s words – and this is the rub. Until the basics of trading are understood, trading per se will be perceived as unnecessary intermediary transactions between the original investor and the underlying company – rather than providing a valuable service to the asset management industry.
[Related: “FTT Migraines in Milan Could Cripple European Equities”]
For the record, I am not opposed to taxation or even regulation – I am, however, opposed to pointless taxation that is used as a political tool. A Europe-wide FTT will not deliver what it claims. We would be better advised to focus on growth policies and regulating those who abuse the market. If the European economy is over-reliant on financial services and we need to diversify, then this should be addressed through constructive initiatives. You don’t put out a fire in your home by destroying the building.