TAX NEWS - JUNE 2010

Schaeuble Says U.K., 'Many Others' Back Financial Tax

by Rainer Buergin, 04 June 2010 -- German Finance Minister Wolfgang Schaeuble said he's confident the U.K. and "many others" will join Germany in pushing for a European levy on all financial transactions if the Group of 20 fails to adopt the measure.

Schaeuble, in an interview on his plane to Busan, South Korea, where he's meeting G-20 counterparts today, said that Germany's main goal in the talks is identifying how to make the finance industry share in the cost of the current crisis, specifically through a global financial-transactions tax.

In the absence of such an agreement at G-20 level, "we will throw our weight behind European regulation and we won't be alone in that," Schaeuble said. "I hope that the U.K. and Germany together will push for a global transaction tax. In talks with my British colleague I understood him to suggest that he's open for a global solution."

Chancellor Angela Merkel's government is demanding tougher regulation in response to the European debt crisis that has sapped voter confidence and forced Germany to approve 148 billion euros ($180 billion) in loans to help stabilize the euro. A unilateral ban on some types of naked short-selling imposed overnight on May 19 fanned investor concerns over the 16-nation currency and left Germany isolated internationally.

"We always prefer globally agreed regulation and we prefer European regulation over national regulation," Schaeuble, 67, said. While "quite a bit of skepticism is warranted" on the likelihood of achieving a G-20 agreement on a transaction tax, either in Busan or at the full G-20 summit in Canada this month, "we cannot give the impression that we're not acting at all."


U.K. Bank Levy

Prime Minister David Cameron struck a similar tone on a proposed levy on U.K. banks, saying yesterday that Britain will impose a unilateral tax on lenders if there's no G-20 agreement.

"We would prefer to have international agreement on a bank tax in all its details, but falling short, there is the opportunity to try and agree the principles that these sorts of things should follow for the countries that are introducing them,'" Cameron said at a news conference in London after talks with Canadian Prime Minister Stephen Harper.

A financial-transactions tax is a broader measure, paid "every time a share, bond, or other financial instrument is bought or sold, and/or whenever foreign currency is bought or sold," according to the International Monetary Fund website. A "moderate" levy of this kind would generate as much as 36 billion euros each year in Germany alone, the union-affiliated IMK economic institute said in evidence to the German parliament's Finance Committee on May 17.


'Traces of Doubt'

Schaeuble urged fellow euro-area nations to hold firm to their savings programs, warning that financial markets remain to be convinced of Europe's commitment to reduce sovereign debt levels.

While the measures adopted at European and national level "are steps in the right direction," it's important that "what's been decided, especially the savings measures and structural reforms in the euro zone, must be implemented so that we convince markets," Schaeuble said. "There are still traces of doubt in the market about whether what's been agreed will actually get implemented."

Spain, which lost its top grade from Fitch Ratings last week, saw government borrowing costs soar to a euro-era record on June 2, as investors shrugged off Prime Minister Jose Luis Rodriguez Zapatero's pledge last month to pursue the deepest budget cuts in at least three decades.


Euro's Slide

The euro has meanwhile continued its slide since the European Union's May 9 announcement of a 750 billion-euro plan to backstop the currency. The euro has fallen 15 percent against the U.S. dollar this year.

"The current fluctuations shouldn't be dramatized," Schaeuble said. "I think we're well on track to solving our problems, even if persuading all market participants of this is taking some time. I'm convinced that the euro will continue to play its role among global currencies."

Schaeuble said the euro-area crisis underscores the need for G-20 nations to commit to more stringent market regulation to better prepare for any recurrence.

"I am concerned that we're running the danger of losing momentum, and I think that would be completely wrong," he said. "The experience of what happened in the euro zone in the past weeks shows us that there is no reason whatsoever to lose momentum."

The G-20 consists of the European Union, U.S., Japan, China, India, the U.K., Australia, South Korea, Argentina, Brazil, Canada, France, Germany, Indonesia, Italy, Mexico, Russia, Saudi Arabia, South Africa, and Turkey.