Euro zone splinter group seen near deal on transaction tax
* EU's tax commissioner says close to deal on trading tax
* Group of 11 euro zone countries set to pioneer levy
* EU approval will allow group to finalise details
BRUSSELS, Jan 18 (Reuters) - A group of euro zone countries, led by Germany and France, looks set for a green light next week to push ahead with a tax on financial transactions, a step politicians hope will please voters but which critics have warned could backfire.
The levy, based on an idea proposed of U.S. economist James Tobin more than 40 years ago, is symbolically important in showing that politicians, who fumbled their way through Europe's five-year financial crisis, are getting to grips with the banks blamed for causing it.
A go-ahead from EU finance ministers, who meet in Brussels on Tuesday, would allow the group of 11 states within the 17-nation currency bloc - including Italy, Spain, Austria and Belgium - to start preparations for their own trading tax.
Berlin and Paris decided to push ahead in a smaller group under a special arrangement called "enhanced cooperation", which requires the support of a majority of EU countries, after negotiations to impose such a tax across the 27-nation European Union, or even just the euro zone countries, failed.
"Citizens have been calling for an FTT (financial transactions tax) for some time now," said Algirdas Semeta, the European Commissioner in charge of tax policy. "I believe we're very close to delivering on this demand."
EU diplomats said they also expected a go-ahead. "We expect the decision ... will be taken on Tuesday," one said.
If the splinter group can agree on the details of a proposal which will be drafted by the executive European Commission, the tax could be imposed within months.
But its introduction might open another rift in Europe, where the 17 countries using the euro are deepening ties in order to underpin the currency, and there is a growing risk that Britain could even leave by EU.
Some countries are already counting on the new income and there are many proposals how it should be spent. Officials had estimated that a similar scheme proposed for all 27 countries in the EU could have raised 57 billion euros ($76 billion) a year.
But while a welcome windfall for countries where shrinking economies and rising unemployment are sapping other tax income, critics have long argued that the FTT will do little but drive trading elsewhere.
"You cannot put a transaction tax on a financial sector the size of Luxembourg's and expect it to survive," said Jean-Jacques Rommes, Chief Executive Officer of the Luxembourg Bankers' Association. "Business will go elsewhere."
Semeta said the tax, which his officials hope can cut down computer-driven high-frequency trading by imposing a charge on split-second trades, would not burden normal investors.
"Around 85 percent of the transactions that will be taxed take place purely between financial institutions," he said.
"The very low rates we've proposed will help to avoid knock-on effects for the real economy, even if banks do try to pass on the costs," Semeta said.
The tax, championed by Germany's Finance Minister Wolfgang Schaeuble, has irritated many in Frankfurt, the country's financial centre and rival to London.
London, Europe's biggest stock and derivatives trading centre, will not take part in the scheme but deals struck there may be subject to the levy if one of the parties involved is based in a country which applies the tax.
The European Commission has suggested taxing stock and bond trades at the rate of 0.1 percent and derivatives trades at 0.01 percent.