UPDATE 1-German CDU mulls transaction tax in three countries

Fri Feb 4, 2011 8:08am EST

* Merkel's party mulls fin'l tax in 3 countries -sources

* Global proposal failed before, efforts had been for Europe

(Adds details, reactions)

BERLIN, Feb 4 (Reuters) - Chancellor Angela Merkel's German conservative party may push for a financial transactions tax initially covering just Germany, France and Austria rather than all euro-zone states, parliamentary sources said on Friday.

Sources within Merkel's Christian Democratic Union (CDU) said the aim would still be to achieve wider adoption of the tax proposal -- which has failed to gain global support -- with other countries able to join later.

But a spokeswoman for Germany's Finance Ministry said the country had no plans for a so-called Tobin tax in an area smaller than the 17-country euro zone.

"I can say that an introduction below the size of the euro zone does not make sense," she told a news conference, adding that talks to get the tax implemented across the European Union were continuing.

The idea of a transaction tax, often referred to as a Tobin Tax after the U.S. economist who floated it in the 1970s, has gained support since the financial crisis, although proposals for its introduction internationally have so far failed.

German Finance Minister Wolfgang Schaeuble is a staunch supporter of the tax and has said he would push for it on a level as small as the bloc of countries using the euro currency. A newspaper reported on Friday that he was now no longer opposed to an even smaller area.

In his medium-term financial plan, the tax is earmarked to raise 2 billion euros a year from 2012.

"We need the financial transaction tax as a contribution of the financial sector to the costs of the crisis," said CDU parliamentary spokesman for finance Klaus-Peter Flosbach.

"The 2 billion euros are set down for the budget. I continue to be confident that we will get the ball rolling for the financial transaction tax on an EU level as well," he added.

Austria has previously said it would support a financial transactions tax on an EU-wide level.

The CDU's junior coalition partner the Free Democrats (FDP) favours the tax only if it is introduced Europe-wide. Volker Wissing, the FDP's financial expert has said a smaller area of adoption would "not raise income and weaken the financial market".

Austrian Finance Ministry officials were not immediately available for comment on the reported plan.

FRENCH PUSH

French President Nicolas Sarkozy said last month that France, this year's president of the G20 group of leading economies, would push again for a financial transactions tax. He admitted many countries would oppose it, however, and said starting off with a small group of states was a possibility.

A transactions tax has often been aired as a way to dampen volatility in cross-border money flows and raise funds, such as for development.

Efforts by France and Germany to persuade their G20 partners to adopt the tax failed last year in the face of U.S. and British opposition, however, and there has been no agreement on subsequent proposals for a euro-zone wide transaction tax.

France's economy minister Christine Lagarde said last month an international transaction tax was feasible but still opposed by the United States and other countries such as Mexico, with European partners like the Netherlands and Sweden also lukewarm.

The fear is that, as when Sweden experimented with such a tax, market participants will simply channel transactions through other countries to avoid it. (Additional reporting by Sylvia Westall in Vienna and Catherine Bremer in Paris) (Reporting by Matthias Sobolewski and Annika Breidthardt, editing by Catherine Evans)

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