January 12, 2011 / 12:46 PM / 9 years ago

EU exec eyes 50 billion bank tax for crisis fund

BRUSSELS (Reuters) - A one-off 50 billion euro tax on banks could help pay for a new stability scheme to protect euro zone countries in financial trouble, according to an internal report from the EU’s executive for ministers.

In the European Commission document seen by Reuters, which outlines its vision for the European Stability Mechanism (ESM), the EU executive recommends ways of paying for the new fund that will tackle debt crises from 2013.

They also say the fund should be allowed to buy government bonds, which could enable the European Central Bank to step back from the bond-purchase program it began last May.

Flagging the need for a “critical mass of paid-in capital,” officials suggest the financial sector be called on to help build this stockpile because banks will benefit from the fund that replaces the European Financial Stability Facility in two years.

“(A) sovereign crisis can affect very negatively borrowing conditions of the financial sector,” the officials write. “It is in the interest of the financial sector to contribute to the existence of an ultimate safety net, which protects the capacity of public authorities to rescue them.”

“A one-off tax of 0.2 percent on euro area bank assets would allow (about) 50 billion euros to be raised,” they say in the document, which circulated as European finance ministers considered an extension of the existing financial safety net.

But several European banking groups immediately stated their opposition to the proposal, saying they were already carrying a heavy tax burden.

FIRST GLIMPSE

The report, as well as offering the first comprehensive outline of the working of the new ESM financial safety net, is the latest attempt by Brussels to drum up support among the European Union’s 27 member states for taxing banks more. Previous efforts have run aground.

The document, which will be influential in shaping the euro zone’s new financial safety net, also says the fund should be allowed to buy government bonds on the secondary market.

That would allow the European Central Bank to step back from a bond-purchase program it started to shore up hard-hit euro zone debt markets and ease pressure on countries like Ireland and Portugal.

That scheme, which has left the ECB exposed to potential losses, has divided opinion within the bank, with Germany’s Bundesbank chief Axel Weber voicing his opposition publicly.

Should the ESM step in, the ECB would no longer be solely responsible for propping up bond markets.

The report, which was presented to euro zone deputy finance ministers at a preparatory meeting on Monday, ahead of the gathering of finance ministers next Monday, also suggests other forms of financing to make it less reliant on EU countries.

Officials recommend transferring cash left over in the existing EFSF to the new stability fund, a buffer they estimate could be worth at least 4.2 billion euros, or using new fines imposed on member states that flout budget rules.

Banks, who have successfully argued for a delay of new capital rules on the grounds that it could undermine their ability to lend in the fragile European economy, were critical of the plans.

“We shouldn’t put a new tax on banks every day,” said Francois Perol, head of the French Banking Federation. “This would rebound against the European economy.”

Michael Kemmer, head of the Association of German Banks, said a higher-than-expected levy on his country’s banks and other regulations were already taking their toll on the sector.

“The bank sector has already been pushed to the limit,” he said. “The stabilization of these countries is in the interest of the entire economy and cannot fall on the shoulders of the banks alone.”

Additional reporting by Marc Jones and Arno Schuetze in Frankfurt and Lionel Laurent in Paris; Editing by Hugh Lawson and Toby Chopra

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