BERLIN, May 24 (Reuters) - A leading German politician criticised EU draft plans for a financial transaction tax as “rubbish” on Friday, in a sign of growing concern that the tax could do more economic harm than good.
German Social Democrat Nils Schmid, finance minister of the wealthy southern German state of Baden-Wuerttemberg, said the banks might not be able to cope with the additional burdens of the levy should member states approve the European Commission’s current draft version.
The tax, intended to ensure the financial sector shares the cost of the banking crisis, is a central policy of the Social Democrats, who hope to unseat Chancellor Angela Merkel in this September’s general election.
Merkel’s Finance Minister Wolfgang Schaeuble has also fought for the tax, which 11 euro zone countries agreed in January to introduce and which they said could be launched as soon as early 2014, though Schaeuble has signalled it could take longer.
“The current draft of the European Commission is simply rubbish,” Schmid said in a news release. Schmid has sent a letter to Schaeuble - obtained by Reuters on Friday - criticising the current plans for the tax.
While Schmid assured the federal government in the letter that he supported the tax in principle, he said the 0.1 percent levy on the value of trading in stocks, bonds and money market transactions could drive up banks’ own borrowing costs.
“The result would be that banks no longer lend each other money,” he wrote, adding the tax’s repercussions could also hurt companies and individual borrowers and savers.
The letter angered Schmid’s colleagues in the SPD, which is trailing Merkel’s Christian Democrats in the polls. Joachim Poss, deputy leader of the SPD in the Bundestag, said he was “astonished”.