* Group of 11 countries agree to impose transactions levy
* Move to impose tax criticised by industry
* Regulator warns of Europe's diverse regulation
By John O'Donnell
BRUSSELS, Oct 10 A plan by a group of euro zone
countries to introduce a tax on financial transactions threatens
to drive more trading to London from centres such as Frankfurt,
exacerbating divisions in Europe as it struggles to overcome an
On Tuesday, 11 countries agreed to press ahead with a tax
set to fall on the trading of shares, bonds and derivatives,
although it may take up to two years before the necessary
legislation is in place and the scheme starts.
Commonly known as a "Tobin tax" after Nobel-prize winning
U.S. economist James Tobin, who proposed one in 1972 as a way of
reducing financial market volatility, it has become a political
symbol to make banks, hedge funds and high-frequency traders pay
towards cleaning up a debt crisis shaking the continent.
But the move threatens to open yet another rift in Europe,
where countries already diverge in their regulation of finance
and politicians have long argued over how best to control the
banks blamed for triggering financial turmoil in 2007.
Proponents first tried to introduce the tax worldwide in
2008 via the Group of 20 major economies. Faced with U.S., Swiss
and Chinese opposition, they tried to persuade the 27-member
European Union to lead the way, or even the 17-nation euro zone.
But each organisation had its sceptics.
Following an aborted attempt to introduce its own such levy
in the mid-1980s, Sweden has repeatedly warned that introducing
the tax will simply drive trading elsewhere. Britain, home to
the region's biggest financial centre, London, will not join.
Germany, France, Italy and Spain have made it clear,
however, they will be among a group that will impose the charge
that is set to be 0.1 percent on the trading of bonds and shares
and 0.01 percent for derivatives deals.
But the move by the group, which includes Austria, Belgium,
Slovenia, Portugal, Greece, Estonia and Slovakia, has been
greeted with scepticism by analysts and industry, who believe it
fragments Europe's approach to regulating finance at a time when
a separate plan tries to unify euro zone banking supervision.
The pioneers do not agree among themselves where the
proceeds should go -- to national treasuries or EU coffers -- or
how they should be spent.
The tax, championed by Germany's Finance Minister Wolfgang
Schaeuble, has irritated many in Frankfurt, the country's
financial centre and rival to London.
Germany's debt and equity issuers are a key part of Europe's
financial markets. Its issuers, including companies and
government, accounted for more than 16 percent of debt sold in
2011 and more than one fifth of equities.
London, already Europe's biggest stock and derivatives
trading centre, will not take part in the transaction tax.
"This will be a setback for any country that does introduce
the tax because trading will simply move to those centres that
do not have it, such as London," said Franz-Josef Leven, a
director with the German Equity Institute, a group that
The head of Portugal's banking association also expressed
concerns that the tax would put the country's lenders at a
disadvantage to rivals that are not subject to the charge.
As it stands, in a proposal from the European Commission,
the tax would fall due as soon as a link between the parties to
a deal can be established to a country, such as Germany or
France, th a t charges the tax.
The Brussels executive has estimated that if the tax were
implemented EU-wide on shares, bonds and derivatives, it could
raise 57 billion euros a year.
Bankers say it would yield far less in reality because banks
would relocate trading activity to avoid the levy where
possible, moving jobs away from implementing countries.
A trade would trigger the tax although there are exemptions
such as foreign exchange deals or primary issuance.
"For a U.S. firm looking to trade in Europe, they would move
from Frankfurt to London," said Leven.
"For investors in Germany, they would have to pay the tax,
regardless or where (trading) takes place. It means more costs
for pension funds who invest on the stock market or companies
that hedge using derivatives."
Deutsche Boerse, Europe's largest exchange operator, said
only the introduction of the levy across all 27 countries in the
European Union would avoid distorting competition.
"This is a short-sighted tax," said Peter Lenardos, an
analyst with RBC Capital Markets. "When Sweden did it, trading
volumes fell by 97 percent year on year."
For many analysts studying Europe's handling of the crisis,
the move of a splinter group to go it alone with the tax is just
the latest example of the region's fragmented approach to
dealing with its problems.
"Although significant progress has been made with the
establishment of the European Stability Mechanism, there is
still no cohesive approach in Europe," said Paul De Grauwe, an
economist at the London School of Economics.
"With the financial transactions tax, I don't see any trend
to set up something that would be coherent."
The region is also embroiled in a divisive debate about
establishing a banking union, a system that would allow the
European Central Bank supervise lenders and ultimately would see
central funds to support or close problem lenders and protect
Winning broad support for a prompt introduction of the new
supervision framework is important because it should allow the
euro zone's rescue fund, the European Stability Mechanism, to
directly inject much-needed capital into banks, such as those in
However, the plan has sparked concerns among the 10
countries in the European Union which do not use the euro that
they will be indirectly affected by the ECB's new supervisory
powers and put at a competitive disadvantage, whether they join
the scheme or not.
On Wednesday, one of Europe's top regulators warned of the
risks of Europe's "diverse regulatory and supervisory
Speaking to lawmakers in the European Parliament, the head
of the European Banking Authority argued the case for a banking
union to counter a "wide variety of supervisory approaches".
"There is still a fairly wide scope of national discretion,"
said Andrea Enria. "This hampers the objective of a true single
rulebook in key areas of banking regulation."