EU Still Considering Bank Tax


Despite the G20 meeting of finance ministers having shelved any commitment to a global banking tax a few days earlier, the European Union (EU) finance ministers indicated that they would go ahead with considering such a tax, during their Ecofin meeting on June 8.

The G20 had been unable to agree to a multilateral banking levy due to opposition by those countries, particularly Japan, Canada and Brazil, whose banks had not caused the kind of problems seen in the US and in Europe. Nevertheless, the indication from the EU finance ministers was that the EU would proceed with a tax, unilaterally if necessary.

There is, however, still no EU consensus on the type of tax which should be introduced, or the use to which it should be put. The communiqué published after the Ecofin meeting therefore remained vague on the subject, referring only to “the possible establishment of funds to enable orderly resolution in the event of the failure of financial institutions.”

Following the meeting, Elena Salgado, Spain’s Minister for Economic Affairs, who was chairing the meeting, was reported to have said that the EU should show pro-activity and determination in pursuing a bank tax, while the Austrian Finance Minister, Josef Proll, continued to look for a tax on financial institutions, calling the G20 decision only a setback.

Despite these calls, there is still much discussion to be had on whether a tax on financial transactions should be introduced or whether, given the possible effect this could have on shifting business away from Europe to other regions of the world, another form of levy, for example on a bank’s loan book, would be more applicable.

In addition, while the United Kingdom and France would like to use additional funds from a bank tax to shore up their budgets in the face of increasing public deficits, Germany and the European Commission (EC) would prefer the revenue was used to provide insurance against any future financial crises.

The Ecofin meeting also adopted conclusions on the implementation of the EU’s code of conduct on harmful tax competition in third countries, calling on the EC to start a dialogue with Liechtenstein and Switzerland on the application of the principles and criteria set out in the code, and to report back before the end of 2010.