Merkel Signals Readiness to Heed Concerns on EU Tax
Chancellor Angela Merkel said that the German government is listening to investor complaints about the proposed financial transactions tax and will take their views into account when designing the levy at a European level.
Merkel, in an interview in the Chancellery in Berlin today, recommitted her government to the tax, citing the disparity between commercial transactions subject to value-added tax and financial transactions that are “basically free.” At the same time, she signaled she’s sensitive to industry concerns the tax in its current form threatens to backfire, hurting pensions and damaging the wider economy without raising the revenue planned.
“We are aware of the fact because this tax is not introduced globally that it needs to be a tailor-made kind of tax that does not have the effect that you have described,” Merkel said. “That would obviously be a very bad thing to do.”
The chancellor, who is running for a third term in national elections on Sept. 22, says the financial industry must bear part of the cost of the debt crisis and has resisted pressure by other euro-area governments, including France, to allow direct recapitalization of banks from European rescue funds. Her comments today are the first indication that she may respond to criticism of the tax on financial transactions from European officials and fellow leaders from the U.S. to the U.K.
Speaking three days before she’ll attend a Group of Eight summit in Northern Ireland at which the global economy will be on the agenda, Merkel said that Germany will pursue “the right mix” of boosting domestic consumption, spurring economic growth and solid finances, rather than relying on austerity.
With Barack Obama due in Berlin on June 18-19 for his first official visit as president, Merkel, who heads Europe’s biggest economy, said she’d throw her “full political weight behind” a free-trade agreement between the European Union and the U.S.
“We need big projects together that unite us,” she said. “We ought to use this window of opportunity.”
In Europe, the EU has proposed a broad-based tax on stocks, bonds, derivatives and other trades that could be collected worldwide by Germany, France and nine other EU nations that have so far signed up. Critics argue it may cause more harm than good, with ATP, Denmark’s biggest pension fund and a major investor in bunds, saying that a levy may make German debt less appealing.
Merkel’s Christian Democratic Union party backs the proposal for a financial transaction tax, saying in its draft campaign platform that it should be introduced “as quickly as possible,” while “safeguarding the interests” of Germany’s financial industry.
Merkel said that policy makers seeking to devise “a certain code of conduct for the banks” must avoid building “disadvantages” into the financial transaction tax.
“This is why we discuss this among the states in Europe who wish to introduce such a tax -- how it ought to be designed,” Merkel said. “I am also talking to investors. I know their concerns and we have not come to an end of our deliberations.”
For now, the European Commission is resisting calls to exclude government bonds from the proposed levy, saying it wants to limit exceptions to make the tax hard to avoid.
The EU’s proposed financial-transaction tax may not generate any revenue because of the market damage it would cause, European Central Bank Governing Council member Christian Noyer said last month.
“The immediate effect will be either to destroy financial sectors” such as the repurchase agreement market, or to create conditions in which “the cost of borrowing in the real economy will increase for everyone,” Noyer said in Paris on May 28.
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