Business Briefs


The Politics of an EU Financial Transactions Tax

Policymakers across the European Union (EU) agree that some re-regulation of the European financial system is required; however, member states remain far apart on exactly what sort of regulations are called for. Most concur on the idea that capital requirements should be raised – and that member states should be allowed to demand that banks set aside more capital than required by the new Basel III international guidelines. However, other European Commission proposals for a financial transactions tax (FTT) or the recently announced effort to centralize bailout rules in a way that ensures creditors absorb the cost of bank failures have proven far more controversial.

This brief provides an in-depth examination of one of these initiatives: the popular yet contentious idea of levying an EU-wide FTT. The European Commission and European Parliament have pressed ahead with plans for such a measure despite strident opposition from certain member states, particularly the United Kingdom. Proponents of such a tax argue that it would enhance financial market stability, create a new source of government revenue, and potentially lead to increased growth. Critics maintain that it will only serve to raise the cost of capital for European businesses, depress growth, and route financial transactions away from EU financial centers.

  • Origins and Experiences
  • The EU Proposal
  • Costs and Benefits
  • The Politics
  • Looking Ahead

 


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