France plans to unilaterally impose a 0.1 percent tax on financial transactions starting in August, President Nicolas Sarkozy said, brushing aside opposition from the nation’s banks.
“What we want to do is provoke a shock, to set an example,” Sarkozy said late yesterday on French television from Paris. “There’s no reason why deregulated finance, which brought us to the current situation, can’t participate in the restoration of our accounts.”
A France-only levy is opposed by the country’s financial community and its feasibility has been questioned by the Bank of France. It has become a political challenge for the president, who faces elections in a two-round vote in April and May and wants to make good on a pledge he made to impose such a tax when France last year held the presidency of both the G-8 and G-20 group of countries.
The European Commission in September suggested a tax of 0.1 percent on equity and bond transactions and 0.01 percent on derivatives, which it said could raise 55 billion euros ($71 billion) a year. European Union finance ministers are due to discuss the levy in March.
The financial transactions tax is among measures Sarkozy unveiled to shrink the French budget deficit and spur growth. He’s also increasing sales taxes and levies on financial incomes to fund a 13 billion-euro cut in payroll charges aimed at reducing labor costs and making France more competitive.
The French government, long a proponent of the transaction tax, stepped up its campaign this month, saying it would impose the levy even if others didn’t. Sarkozy said he expects revenue of 1 billion euros from the tax “that will go toward cutting the deficit.”
Shares of France’s three biggest banks tumbled. BNP Paribas SA (BNP) slid as much as 7.3 percent, trading 7.1 percent lower at 32.18 euros as of 3:57 p.m. in Paris. Societe Generale SA fell as much as 7.2 percent to 19.56 euros, while Credit Agricole SA declined as much as 7 percent to 4.59 euros.
Jean-Pierre Jouyet, president of the Autorite des Marches Financiers, France’s financial regulator, said last week that the tax on transactions advocated by Sarkozy would weaken the country’s position in the asset-management industry by pushing professionals and transactions elsewhere.
Sarkozy said yesterday that his government has found a way to keep financial jobs in France and tax transactions related to the country even if they happen elsewhere, pointing to trades in credit default swaps as an example. He didn’t give details.
“CDSs, which are speculative instruments against sovereign debt, will be taxed and online speculative purchases will be taxed,” he said.
The tax will apply to share purchases, including high frequency trading, and CDS transactions. Unlike the European Commission proposal, it will not apply to bond trading.
Ernst & Young, an accounting company, has said in a report that while an EU transaction tax itself may raise as much as 37 billion euros, its net effect could be negative by between 2 billion euros and 116 billion euros by decreasing economic activity and reducing revenue from other taxes.
The U.S. opposes taxes on transactions, preferring bank levies based on the size of their balance sheets.
The U.K., home to Europe’s biggest financial center, has also opposed the tax as it is currently proposed. Prime Minister David Cameron said Jan. 26 that a Europe-wide transaction tax would be “madness,” saying it would cost 500,000 jobs.
Germany is considering a plan for a form of European stamp duty on shares linked to tougher trading rules as an alternative to a financial-transaction tax, in an effort to win over the U.K. to adopting European Union-wide levy.
“We can sense resistance within Europe, and that’s why we want to take the lead,” French Prime Minister Francois Fillon said today at a press conference in Paris. He said emerging nations, including Brazil, support France’s case for such a tax.
Investors buying U.K. shares pay a tax of 0.5 percent on the price. The stamp duty is also levied on options to buy shares and rights arising from shares. Stamp duty on shares raised 3 billion pounds ($4.7 billion) in the year to April 2010, according to the government.
German Chancellor Angela Merkel’s Christian Democrats and their Free Democratic Party allies may be coalescing around an FDP proposal for a Europe-wide tax along the lines of the U.K.’s levy on shares. Such a solution is a “good option” if accompanied by rules that limit “abusive excesses” in automated trading, the Free Democrats have said in a paper drafted by former Economy Minister Rainer Bruederle.
The French financial industry has spoken out against imposing a transaction tax unilaterally in France.
“A tax that’s limited to France would weigh on growth, lead to a loss of competitiveness, and create a heavy handicap for the financing of the French economy,” the French Banking Federation said in a statement Jan. 9.
Sarkozy is trailing Socialist candidate Francois Hollande in the French presidential election polls. Hollande has the support of 31 percent of voters in the first round, 6 points more than Sarkozy, and his second-round lead has risen to 20 points at 60 percent, according to a CSA poll published last week. Hollande, too, has pledged to impose a tax on financial transactions, if he’s elected.