BRUSSELS (Reuters) - The European Union urged the International Monetary Fund on Friday to pursue a global tax on financial transactions to limit the risk of another economic crisis, despite U.S. opposition.
EU leaders also underlined the need for “sound and effective” financial sector pay at a two-day summit but, with the notable exception of Germany, did not broadly support French and British proposals to tax bankers’ bonuses heavily.
Although the leaders of the 27-nation bloc largely revived existing ideas, they signaled a desire to address voters’ outrage over a return of the big bonus culture in the banking sector so soon after it was bailed out with tax payers’ money.
“The conclusion ... is to propose a global financial transaction levy. It wouldn’t be fair that some impose very heavy burdens and others don’t,” Jose Manuel Barroso, president of the executive European Commission, told a news conference.
“I think it makes sense that a sector that created such a problem for our economies, our taxpayers ... also makes a contribution to the overall economy,” he said after two days of talks in Brussels.
The IMF is already considering how to limit risk in the financial system after the worst economic crisis in generations, but Washington has opposed calls for a so-called Tobin Tax — named after U.S. economist James Tobin — on financial transactions.
British Prime Minister Gordon Brown called for consideration of such a tax at a summit of the Group of 20 developed and emerging nations last month, saying the proceeds could be used to fund future financial bailouts.
But he faced opposition from U.S. Treasury Secretary Timothy Geithner, who said he was against such a tax as a way to dampen risky bank behavior.
Without worldwide support, experts say it would be doomed to failure. Brown acknowledged this, telling reporters in Brussels: “Global taxes will not be introduced unless all global financial centers are able to come behind it. But I believe there’s growing support for that.”
The EU, which represents almost 500 million people, did not specifically refer to the calls by Britain and France to tax bankers’ bonuses heavily.
The British government said on Wednesday banks operating in Britain would be charged a 50 percent tax rate on employees’ bonuses of above 25,000 pounds ($40,610).
French Economy Minister Christine Lagarde said President Nicolas Sarkozy planned to announce a windfall tax on banking bonuses “equivalent” to the 50 percent levy proposed by Britain.
German Chancellor Angela Merkel said the IMF should examine the issue of taxing bankers’ bonuses and expressed sympathy toward the idea of restricting excess bonuses but added that German tax law was complex on the issue.
Despite the lack of overt backing, Sarkozy said he expected others to follow the example of Paris and London.
“I see now there is a string of heads of state who are joining, or have intentions to join, because today it’s clear. It’s done. The times are changing and once again our two countries are at the head of that change,” he said.
Lagarde said the need for close cooperation had also been highlighted by the difficulties facing countries in the group of 16 countries that use the euro. “We’re at a decisive turning point for Europe and the euro zone,” Lagarde told reporters in Paris.
Greece has particularly bad problems. Greek bonds and shares fell sharply after credit rating agency Fitch downgraded Greek debt this week but Prime Minister George Papandreou dismissed suggestions that Athens could leave the euro zone.
“We are cutting the deficit with systemic changes and we are planning to do this within four years. It is a very clear programme and we are absolutely determined to do so,” Papandreou told Reuters in an interview in Brussels.
Luxembourg Prime Minister Jean-Claude Juncker, head of the Eurogroup of euro zone finance ministers, said he was confident the Greek government would rein in public finances.
“I have to say I don’t see the risk of state default in Greece,” he said.
Despite the problems facing the EU, the leaders pledged to provide 2.4 billion euros annually for the next three years to help developing countries tackle global warming before any deal agreed at talks in Copenhagen takes effect.