BRUSSELS (Reuters) - The European Commission threw its support on Tuesday behind a plan by 10 euro zone to use a single rule to tax transactions by financial institutions as a way of contributing to the cost of the sovereign debt crisis.
Support for the harmonized financial transaction tax (FTT)could open another rift in Europe, where countries already diverge in their regulation of finance and where politicians have long argued over how best to control banks.
“I am delighted to see that 10 member states have indicated their willingness to participate in a common FTT along the lines of the Commission’s original proposal,” Jose Manuel Barroso, president of the EU executive, said in a statement.
“This tax can raise billions of euros of much-needed revenue for member states in these difficult times. This is about fairness: we need to ensure the costs of the crisis are shared by the financial sector instead of shouldered by ordinary citizens,” he said.
But the Association for Financial Markets in Europe, which groups the biggest financial institutions, criticized the idea.
“FTT is regrettable and likely to serve as another brake on economic growth. In light of the negative impact that a financial transaction tax would have on jobs and growth in Europe, it is disappointing that the proposal is still being considered,” AFME said in a statement.
“Independent economic analysis demonstrates that financial transaction taxes are bad for growth and bad for jobs, as recognized by the European Commission’s own impact assessment,” the association said.
“The impact of the tax on the real economy - especially manufacturers and exporters - could be severe, as many financial transactions are made on behalf of business that would bear the extra cost. Given the negative impact on growth, it could even reduce overall tax revenues in net terms,” it said.
The 10 countries are France, Germany, Austria, Belgium, Greece, Italy, Portugal, Slovakia, Slovenia and Spain.
They decided to push on with the introduction of the single tax after the idea, which was first floated by the Commission in September 2011, failed to win unanimous support among the EU’s 27 member states in June.
To go ahead without the support of all 27, at least nine countries had to support it, enabling a legal process called enhanced cooperation, which makes it possible for only some member states to implement it.
In September 2011, the Commission estimated that the harmonized tax would deliver 57 billion euros ($74.5 billion) in revenues each year.
It proposed the charge should be imposed at a rate of 0.1 percent on the trading of bonds and shares and 0.01 percent for derivatives deals.
But Bank of Italy’s deputy director general Salvatore Rossi told a parliamentary hearing on Tuesday it would be very easy to dodge the tax by moving trading elsewhere, echoing the concerns of Sweden, which has long warned against such a tax, following an attempt to introduce its own such levy in the mid-1980s, which only drove trade elsewhere.
The plan by the 10 countries will now have to be accepted, via a qualified or enhanced majority vote, by the EU’s members and get the support of European Parliament.
The Commission will prepare a new proposal for the tax, which will be based on last year’s ideas, but adjusted to a membership of just the 10, rather 27 countries.
Widely 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, the levy has become a political symbol as the debt crisis shakes the continent.
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 group had its skeptics.
Britain, home to the region’s biggest financial centre, London, will not join.
Additional reporting by Giuseppe Fonte; Reporting by Jan Strupczewski; editing by Rex Merrifield/Jerey Gaunt