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Germany wants the Robin Hood tax – and Europe's
voters do too
No argument against a financial transaction tax has stood up to scrutiny, so politicians
must resist lobbying and see sense
Wednesday 30 October 2013 14.10 GMT

Angela Merkel at an EU summit in Brussels Photograph: Isopix/Rex Features

191
Stephany Griffith-Jones

The path to implementing a tax on financial transactions (known as the
FTT) was never going to be smooth. This week's announcement that
the expected coalition between Christian Democrats and the Social
Democrats in Germany will prioritise the tax's implementation, is a
sign that the proposal remains on track. But any measure that taxes or
regulates financial markets and banks will always meet concerted
opposition.
In recent weeks, this has been growing from some quarters. The
latest criticism, from France's central bank governor Christian Noyer,
was splashed on the front page of Monday's Financial Times: "France
central bank chief says Robin Hood tax is 'enormous risk'" ran the
headline. As this extremely small tax is to be implemented by 11
European countries, it is appropriate to ask: an enormous risk for
whom?
Certainly it will impact on trades with short time horizons – highfrequency traders, whose computer algorithms fire off thousands of
trades in microseconds, will undoubtedly have their business
dramatically curtailed. Yet this will significantly reduce rather than
create risk. Many regulators are concerned about the risk of this highfrequency trading, which now accounts for over half of trades on the
London Stock Exchange. As demonstrated by the infamous flash crash
of May 2010, when liquidity drained from the market and the Dow
Jones index dropped 9% in a matter of minutes, it poses a threat to
wider economic stability.
By contrast, the impact on a typical long-term investor is likely to be
negligible. There are already many transaction costs such as trading
commissions, spreads, clearing, settlement, exchange fees and
administration costs. Prof Avinash Persaud, a former JP Morgan
executive, has estimated that the FTT of 0.1% on stocks and bonds,
and 0.01% for derivatives will comprise of only 5% of annual
transaction costs for long-term equity holders, taking levels back to
those experienced 10 years ago. Compared to management fees –
typically about 1% charged by many financial institutions which are
now lining up to oppose the FTT – it is hard to conclude the tax will
have more than a marginal impact on costs for long-term investors, like
corporates and pension funds.
The net result is that an FTT would slow short-term trades, which
are mainly unproductive, helping to reduce the risk of crises that are so
detrimental to growth. Furthermore, the potential €30bn in revenue
the European FTT could raise, could be invested productively, for
example in infrastructure and innovation, encouraging much needed
future growth and employment and making European countries more
competitive.
Noyer and others worry unnecessarily that the tax will lead to an
exodus of bankers from participating countries. But the issuer principle
embedded in the EU proposal means that attempts by banks and their
subsidiaries to duck the tax by migrating to other jurisdictions will not
work, since the FTT would be paid by all those transacting the eleven
countries' bonds and shares, wherever they are based. Thus the tax,
from a transaction in say a French bond taking place between parties in
New York and Singapore, will still be collected by French authorities.
But this need not be a debate about hypotheticals. Major financial
sectors such as the United States, Hong Kong and South Korea already
have FTTs which together raise tens of billions in revenue annually
without causing economic damage. In the UK we have the very
successful stamp duty, an FTT on share transactions that raises more
than £3bn a year, of which 40% is paid by foreign-based investors and
banks. It too rightly taxes all those trading UK shares, wherever they
are based. This is the same principle on which the European FTT will
be based.
Fortunately, the European commission is clearly supportive of the
proposal, as is the European parliament. Eleven European countries,
representing 66% of European GDP, remain committed to
implementing the tax.
It is encouraging that in coalition talks between the German SPD
and CDU, they achieved clear consensus on the FTT. This is not
surprising, as in Germany 82% of citizens, according to Eurobarometer, support a European FTT. In France this figure reaches 72%,
and the EU average is 64%. Let's hope politicians elsewhere will listen
to their voters and fully implement the tax soon.
Tags: Tobin tax, Economics, Banking, Germany, Europe

All Comments (191)
This discussion is closed for comments.
9 people in 56 threads.
Sorted by newest first.

MacRandall
2 Nov 2013

it's pretty clear this author is more focused on stopping HFT, not raising revenue.
Report

ecoecon

2

2 Nov 2013

She's quite right.
HFT (High Frequency Trading), trading by computer algoriths, is a way for investment
banks to make even more money. If they make collosal sums of money this way (and
they certainly can do), you and I lose out as our pension funds make less trading profits
than they otherwise would, unless they use HFT also.
This HFT is a socially useless activity. It also sometimes plays a part in the periodic
complete collapse of the trading exchanges for a period of maybe an hour or more. This
happended to the NASDAQ trading platform in the USA again a few days ago.
The Tax would not affect normal profits signiificantly, as we already pay 0.5 % on each
purchase in the UK or 1% on shares registered in Ireland. [For shares registered in
Guersey however, for some reason we do not pay a transaction tax at all!]
Report

AngloSkeptic

1

2 Nov 2013

The FTT doesn't go far enough.
Nor is criminalizing banking negligence a sufficient remedy.
There needs to be a measure of collective responsibility felt at the personal level but distinct
from personal legal guilt.
For example, all board members and senior shareholders should bear a measure of personal
liability in the event of corporate failure or poor performance.
Limiting the privilege of limited liability for board members and senior shareholders would
encourage the senior officials and rent-seeking nomenklatura to take a more lively interest in
the performance of companies at all levels, or to resign. (Surely no one is abducted and forced
to become a senior banker.)
Furthermore, liability should be retained for a period of years following departure from the
concern, to discourage the crashing of enterprise at high social cost.
Report
Show more comments

More on this story
Wednesday 20 Nov 2013

879

Orthodox economists have failed their own market test
Seumas Milne: Students are demanding alternatives to a freemarket dogma with a disastrous record. That's something we
all need

10 Jun 2013

14

Reports of the death of the Financial Transaction Tax look
exaggerated
The City is lobbying like crazy against the FTT and its
campaign is succeeding, on the face of it …

Thursday 21 Nov 2013

384

Post-crash economics: some common fallacies about austerity
Robert Skidelsky: Propositions in economics are rarely
absolutely true or false – the truth depends on people's
expectations

29 Jul 2013

Banks sense an end to worst of austerity, but it is too early to
rejoice
Could it be that after several false starts, the government's
funding for lending scheme is influencing bank behaviour?

Wednesday 20 Nov 2013

242

The rise of money trading has made our economy all mud and
no brick
Alex Andreou: Trillions of dollars change hands every day in the foreign exchange
markets. Yet this vast industry profits from peaks and troughs
– it has no interest in a stable economy

28 Oct 2013

1163

Mainstream economics is in denial: the world has changed
Thursday 21 Nov 2013

We need economic theories fit for the real world

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Germany wants the robin hood tax – and europe's voters do too | stephany griffith jones

  • 1. You’re viewing an alpha release of the Guardian’s responsive website. Find out more We’d love to hear your feedback Opt-out and return to standard desktop site comment is free Germany wants the Robin Hood tax – and Europe's voters do too No argument against a financial transaction tax has stood up to scrutiny, so politicians must resist lobbying and see sense Wednesday 30 October 2013 14.10 GMT Angela Merkel at an EU summit in Brussels Photograph: Isopix/Rex Features 191
  • 2. Stephany Griffith-Jones The path to implementing a tax on financial transactions (known as the FTT) was never going to be smooth. This week's announcement that the expected coalition between Christian Democrats and the Social Democrats in Germany will prioritise the tax's implementation, is a sign that the proposal remains on track. But any measure that taxes or regulates financial markets and banks will always meet concerted opposition. In recent weeks, this has been growing from some quarters. The latest criticism, from France's central bank governor Christian Noyer, was splashed on the front page of Monday's Financial Times: "France central bank chief says Robin Hood tax is 'enormous risk'" ran the headline. As this extremely small tax is to be implemented by 11 European countries, it is appropriate to ask: an enormous risk for whom? Certainly it will impact on trades with short time horizons – highfrequency traders, whose computer algorithms fire off thousands of trades in microseconds, will undoubtedly have their business dramatically curtailed. Yet this will significantly reduce rather than create risk. Many regulators are concerned about the risk of this highfrequency trading, which now accounts for over half of trades on the London Stock Exchange. As demonstrated by the infamous flash crash of May 2010, when liquidity drained from the market and the Dow Jones index dropped 9% in a matter of minutes, it poses a threat to wider economic stability. By contrast, the impact on a typical long-term investor is likely to be negligible. There are already many transaction costs such as trading commissions, spreads, clearing, settlement, exchange fees and administration costs. Prof Avinash Persaud, a former JP Morgan executive, has estimated that the FTT of 0.1% on stocks and bonds, and 0.01% for derivatives will comprise of only 5% of annual transaction costs for long-term equity holders, taking levels back to those experienced 10 years ago. Compared to management fees – typically about 1% charged by many financial institutions which are now lining up to oppose the FTT – it is hard to conclude the tax will have more than a marginal impact on costs for long-term investors, like corporates and pension funds. The net result is that an FTT would slow short-term trades, which are mainly unproductive, helping to reduce the risk of crises that are so
  • 3. detrimental to growth. Furthermore, the potential €30bn in revenue the European FTT could raise, could be invested productively, for example in infrastructure and innovation, encouraging much needed future growth and employment and making European countries more competitive. Noyer and others worry unnecessarily that the tax will lead to an exodus of bankers from participating countries. But the issuer principle embedded in the EU proposal means that attempts by banks and their subsidiaries to duck the tax by migrating to other jurisdictions will not work, since the FTT would be paid by all those transacting the eleven countries' bonds and shares, wherever they are based. Thus the tax, from a transaction in say a French bond taking place between parties in New York and Singapore, will still be collected by French authorities. But this need not be a debate about hypotheticals. Major financial sectors such as the United States, Hong Kong and South Korea already have FTTs which together raise tens of billions in revenue annually without causing economic damage. In the UK we have the very successful stamp duty, an FTT on share transactions that raises more than £3bn a year, of which 40% is paid by foreign-based investors and banks. It too rightly taxes all those trading UK shares, wherever they are based. This is the same principle on which the European FTT will be based. Fortunately, the European commission is clearly supportive of the proposal, as is the European parliament. Eleven European countries, representing 66% of European GDP, remain committed to implementing the tax. It is encouraging that in coalition talks between the German SPD and CDU, they achieved clear consensus on the FTT. This is not surprising, as in Germany 82% of citizens, according to Eurobarometer, support a European FTT. In France this figure reaches 72%, and the EU average is 64%. Let's hope politicians elsewhere will listen to their voters and fully implement the tax soon. Tags: Tobin tax, Economics, Banking, Germany, Europe All Comments (191) This discussion is closed for comments.
  • 4. 9 people in 56 threads. Sorted by newest first. MacRandall 2 Nov 2013 it's pretty clear this author is more focused on stopping HFT, not raising revenue. Report ecoecon 2 2 Nov 2013 She's quite right. HFT (High Frequency Trading), trading by computer algoriths, is a way for investment banks to make even more money. If they make collosal sums of money this way (and they certainly can do), you and I lose out as our pension funds make less trading profits than they otherwise would, unless they use HFT also. This HFT is a socially useless activity. It also sometimes plays a part in the periodic complete collapse of the trading exchanges for a period of maybe an hour or more. This happended to the NASDAQ trading platform in the USA again a few days ago. The Tax would not affect normal profits signiificantly, as we already pay 0.5 % on each purchase in the UK or 1% on shares registered in Ireland. [For shares registered in Guersey however, for some reason we do not pay a transaction tax at all!] Report AngloSkeptic 1 2 Nov 2013 The FTT doesn't go far enough. Nor is criminalizing banking negligence a sufficient remedy. There needs to be a measure of collective responsibility felt at the personal level but distinct from personal legal guilt. For example, all board members and senior shareholders should bear a measure of personal liability in the event of corporate failure or poor performance. Limiting the privilege of limited liability for board members and senior shareholders would encourage the senior officials and rent-seeking nomenklatura to take a more lively interest in the performance of companies at all levels, or to resign. (Surely no one is abducted and forced to become a senior banker.) Furthermore, liability should be retained for a period of years following departure from the concern, to discourage the crashing of enterprise at high social cost. Report
  • 5. Show more comments More on this story Wednesday 20 Nov 2013 879 Orthodox economists have failed their own market test Seumas Milne: Students are demanding alternatives to a freemarket dogma with a disastrous record. That's something we all need 10 Jun 2013 14 Reports of the death of the Financial Transaction Tax look exaggerated The City is lobbying like crazy against the FTT and its campaign is succeeding, on the face of it … Thursday 21 Nov 2013 384 Post-crash economics: some common fallacies about austerity Robert Skidelsky: Propositions in economics are rarely absolutely true or false – the truth depends on people's expectations 29 Jul 2013 Banks sense an end to worst of austerity, but it is too early to rejoice Could it be that after several false starts, the government's funding for lending scheme is influencing bank behaviour? Wednesday 20 Nov 2013 242 The rise of money trading has made our economy all mud and no brick Alex Andreou: Trillions of dollars change hands every day in the foreign exchange
  • 6. markets. Yet this vast industry profits from peaks and troughs – it has no interest in a stable economy 28 Oct 2013 1163 Mainstream economics is in denial: the world has changed Thursday 21 Nov 2013 We need economic theories fit for the real world Most read Comment is free 1 The Guardian The cutesification of everything makes me want to strangle an elf | Stuart Heritage 2 Using the word 'gay' to mean 'crap' is a form of bullying of gay people | Will Young 3 Let teenagers have their kicks. They are only doing what comes naturally | David Bainbridge 4 How can banking still be a source of scandal so long after the crash? | Andrew Rawnsley 5 Does the narrow and regressive Tory party have a death wish? | Will Hutton 6 Mary, Mary, quite contrary: PL Travers and Mary Poppins | Victoria Coren Mitchell 7 Now the weedy kid is king it's time to reinvent school sports day 8 How to deal with your relatives' holiday harassment | Jill Filipovic 9 Politics is too valuable to be paid for by union barons, fat cats or Methodist ministers. It should be state funded | Steve Richards 10 Qatar's accidental vagina stadium is most gratifying | Holly Baxter
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