Given Greece’s economic woes, one would perhaps not associate the country with groundbreaking initiatives on taxation, but a Greek member of the European Parliament, Anni Podimata, is at the forefront of a growing campaign to introduce a financial transaction tax (FTT) in Europe.
The idea put forward by Podimata -- who is the rapporteur for the EP position on the issue -- has been adopted as a legislative proposal by the European Commission, and the former journalist and MEP for PASOK spent the last few days suggesting some changes to the tax, which would see traders paying 0.1 percent for transactions involving shares and bonds, and 0.01 percent for derivatives.
Unsurprisingly, the idea of the tax has not gone down well with some of Podimata’s colleagues and financial institutions, and it has been a challenge for the MEP and her colleagues on the European Parliament’s Economic and Monetary Affairs Committee to get this far.
“I’m really delighted that the European Commission, which was opposed to the idea of a financial transaction tax, finally -- under the pressure of the European Parliament and some major European capitals -- changed its mind and proceeded to a legislative proposal,” she told journalists in Brussels this week.
Some financial experts estimate that the tax could raise about 50 billion euros a year, or increase combined European GDP by 0.25 percent. A recent session of Podimata’s committee also heard that the FTT could increase economic stability by curbing financial practises that increase risk, such as high-frequency trading -- or the pursuit of short-term profits -- which accounts for 40 percent of financial transactions in the EU.
“The financial sector is a largely undertaxed sector because it is mostly excluded from VAT,” Podimata told Kathimerini English Edition. The Greek MEP said she sees the introduction of the tax as part of an international effort and points out that the G20 countries had discussed the idea in 2008 after the financial crisis broke out but the proposal lost momentum.
“I strongly believe that someone has to lead the effort for the FTT to be applied on a global level. This is for the European Union to do because it has the strongest financial market in the world,” Podimata said.
The Euro MP also believes that the tax on financial transactions would improve burden-sharing in the economy. She argues that taxpayers are bearing too much of the cost of the crisis through a rise in austerity measures and a lack of growth.
“We haven’t dealt in a socially fair way at the European level with the cost of the crisis. One way or another, the cost of the crisis has been assumed by normal European citizens,” she said.
Podimata added that the revenue raised by the FTT would provide vital funds for the EU and would ease the pressure on the 27 member states in terms of their contributions to the Union’s common budget.
“We desperately need in a period of crisis new financial tools for the EU budget in order to be able to finance EU policies and be credible in dealing with major global policies, such as tackling climate change and meeting development goals,” she said. “We cannot always find new sources of financing via national budgets. We have to be innovative.”
How the money collected from the FTT -- if it is approved -- will be allocated is just one of several issues that are proving obstacles to full agreement on the tax. The European Commission favors an approach that would see the revenues being managed at an EU, rather than national, level. Some countries are skeptical about this approach.
One suggestion that has been made in order to overcome this sticking point is for member states’ contributions to the EU budget to be reduced according to the revenues they raise from the FTT.
“A controversial approach to the management of the resources could further undermine the possibilities of an agreement because there are countries that could discuss the option of an FTT if they don’t have to deal simultaneously with the obligation that their part of the revenues will be allocated to the EU budget,” said Podimata.
There are also concerns that the FTT would be damaging for the financial sector and would actually lead to a drop in GDP as it could force banks to do more business outside the EU.
“The banking sector pays more taxes than its part in the overall GDP,” Guido Ravoet, chief executive of the European Banking Federation, said during a European Journalism Center seminar in Brussels this week. He argued that banks generate 17 percent of overall tax receipts of member states but their part in EU GDP is only 6.5 percent.
“Taxing banks is a fashionable idea for politicians and the public, but it has a cost and this will be felt by companies, Small and Medium-sized Enterprises (SMEs) and households.”
Jurgen Klute, a member of the German leftist party Die Linke, also sits on the Parliament’s economic affairs committee and has backed Podimata’s proposal. He is not convinced by the banks’ argument.
“The banks sometimes say that the real economy should carry the cost but the tax is not so much if you compare it with the fees that the banks charge if you’re buying shares, which are 10 or 20 times higher,” he told Kathimerini English Edition.
Some MEPs argue that the FTT would be particularly damaging for pension funds, which engage in a lot of short-term derivatives trading, but Klute counters that the European Commission has been advocating a change in their investment practises anyway.
“There is an argument that it could reduce high-frequency trades but the commission’s position is that the pension funds should stop investments in derivatives and high-frequency trades and that they should invest in long-term instruments,” he said.
The German MEP adds that the FTT would have the added benefit of giving EU officials a much more accurate idea of the scope of various financial instruments since it would mean all the trades would have to be recorded properly.
Nevertheless, some countries remain firmly opposed to the FTT. The United Kingdom, because of the significant role the City of London plays in its economy, has publicly opposed the idea. The tax would have to be approved by the leaders of all the EU member states in a European Council meeting and there are others who could scupper a potential deal, according to Karel Lannoo, the CEO of the Center for European Policy Studies.
“I don’t think there’s a question that the financial transaction tax will go through because it requires unanimity. We know the UK is against it, so are Luxembourg and Ireland, and probably the Czech Republic and Slovakia,” he said. “We are going through a massive wave of re-regulation of the financial sector and to some extent it may be an overreaction.”
Klute suggested that it might be easier to get the tax approved only in the eurozone to begin with. Podimata is adamant that the EU should display flexibility to ensure that efforts to introduce the tax are not scuppered by objections from a small minority of countries.
“Our preference is clearly in favor of an EU-wide tax in order to renew the effort for the introduction of the tax at the global level,” she said. “At the same time, we will take into consideration the current circumstances and the realities on the ground, which means this preference should not become a point of weakness which can be used by some member states to block the whole process.”
The Greek MEP showed this week that she is in no mood to back down. She suggested some amendments to the Commission’s FTT proposal, which would see the tax imposed on financial institutions outside the EU if they trade securities originally issued within the Union. She also proposed measures to counter tax evasion, which would mean that if the buyer of the security did not pay the FTT, he or she would not be legally certain of owning it.
The economic affairs committee is due to vote on the FTT in April and the European Parliament’s plenary is expected to approve the tax in May. Then, it will be a question of whether the member states and their leaders are willing to adopt the proposal. For Podimata, there is still some distance to travel before her name can be associated with the introduction of the first tax of its kind in Europe.