Market Overview

The Financial Transaction Tax Is Bad Business For Europe

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By Robert A. Green, CPA and founder and CEO of Green & Company Inc. (GreenTraderTax.com and GreenTraderFunds.com)

A proposal for a financial-transactions tax (FTT) is now entrenched in the European Union, with proponents facing off against opponents. Debating points have been made over and over and the respective parties agree to disagree. It's now up to power politics and a tug of war.

In one corner, the continentals and EU-federalists, who are in control of the agenda in Brussels, are pushing through their FTT proposal, despite efforts to block it from wayward Brits, Swedes and the Netherlands.

The Brits may not be able to stop FTT in the EU In the EU, while it takes a unanimous vote to pass a new tax regime like a FTT, Brits, Swedes and the Netherlands may not be able to block this FTT proposal. Why not?

A British member of the European Parliament warned the Brits that EU officials were considering ways to negate their veto by finding a clever path to passage. Value-added taxes (VAT), which are pervasive in the EU, don't require unanimous ratification by EU members, all that is needed is a simple majority vote. EU officials may re-name FTT as a VAT on financial-transactions. In fact, some proponents compared FTT to VAT when they made their arguments for passage in the first place.

FTT is meat for the angry lions French President Nicolas Sarkozy and German Chancellor Angela Merkel, both center-right continental leaders, each face strong political pressure from their left, who demand even more onerous actions against the financial services industries. Sarkozy and Merkel appear to be feeding FTT meat to the angry lion, as they and their parties are both behind in the polls.

Will Wall Street protestors carry the FTT flag? Back on the U.S. side of the pond, FTT proponents are handing protesters marching on Wall Street a new FTT flag to carry. Celebrities on the left, including Michael Moore and Susan Sarandon are being joined by FTT-advocate groups including nurses, unions and Robin Hood Tax campaigners. Protests are gathering force, and media coverage.

FTT is being dusted off again in Congress FTT-advocates in Congress are quickly dusting off their failed FTT bills from 2009 and 2010. Congressman Peter DeFazio (D-OR) and Senator Tom Harkin (D-Iowa) are readying new EU-inspired FTT bills for the House and Senate, respectively, just in time for the upcoming November G-20 meeting in Cannes France.

Finance industry groups have all weighed-in vigorously against FTT over the past few months, as FTT clouds grew darker in Europe.

U.S. Treasury Secretary Geithner and the Canadian finance minister have repeatedly reminded EU finance ministers the U.S. and Canada will not pass a FTT, and they will block it in the G-20 too. FTT pushers know their biggest weakness is not passing it in the entire G-20 and worldwide too, because people will find a way to avoid this onerous tax.

Even with these objections, the EU is crafting their FTT to be as far reaching as possible. They will try to block people from finding loopholes to avoid the tax.

Power politics and the tug of tax war The FTT tax battle in the EU reminds me of tax wars in the U.S. now. There is no more tax debate. In the U.S., Democrats want tax hikes, and Republicans want to block tax hikes. Tax reform that generates growth is one item where there is common ground. FTT is certainly not tax reform and it kills growth and jobs for sure, so FTT is not on common ground.

We are left with a tug of war and power politics over FTT. In fact, it may be more about EU power politics – France-Germany-Brussels federalists versus the independents – than the idea of FTT in the first place. Conservative Brits are convinced that the French and Germans want to rein in their power base in financial services, as the Brits say almost 80% of EU financial transactions are currently executed in London.

The tax would be harmful for all of Europe's big banks like the U.K.'s Barclays, Germany's Deutsche Bank, and the French trio of BNP Paribas, Societe Generale and Credit Agricole. FTT is clearly harmful, so power politics may be a better explanation of why they would consider such a damaging proposal, especially during a period of great distress in EU financial markets.

Republicans will certainly block FTT in the U.S., even though they don't want to be perceived as being defenders of Wall Street. Secretary Geithner keeps reminding all that FTT hurts retail investors, pension funds, farmers and hedgers, more than banks.

Traders should start expressing themselves in the financial markets rather than just media comment boards, and petitions sent to elected officials. The time for debate is over and it's time for some power politics of our own. Boycott French and German financial markets, trading instruments, the euro and debt instruments. Don't speculate on PIIGS debt or provide liquidity in Europe when they need it most. Teach them a trading business lesson 101, the value of market-makers, liquidity providers and speculators. They won't value your role until you leave the negotiating trading-table.

By Robert A. Green, CPA and founder and CEO of Green & Company Inc. (GreenTraderTax.com and GreenTraderFunds.com)

 

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Posted-In: Congress Europe European Union FTT traders Wall StreetPolitics General