Tax pax? Changing Their Tune

Despite disagreements between European countries about a financial transactions tax, France and Germany are now drawing closer together.
Wolfgang Schäuble and Michel Sapin.

Until recently, the launch of a first-ever tax on financial transactions seemed destined to fail. The differences among the eleven European Union countries were simply too great and an end-of-year deadline to agree a final deal fell through.

Now the project, a response to the billions in taxpayer bailouts that followed the 2008 financial crisis, is again gaining new momentum, according to sources in Berlin and Brussels.

The new signs of life come after France surprisingly signaled its willingness to compromise on one of the key stumbling blocks that had seemingly doomed the talks – the extent of such a transactions tax.

Paris is now prepared to look at taxing as many financial products as possible and, in doing so, is especially accommodating Germany and its finance minister, Wolfgang Schäuble, a member of Chancellor Angela Merkel’s Christian Democratic party.

At an appearance this week, French President François Hollande said that he had encouraged his finance minister, Michel Sapin, to expedite the project. Governments would have to impose "a low tax rate on all financial products, if possible," he said, adding that the taxable base should be "as broad as possible."

The remarks went unnoticed by the public, but they were carefully noted in Berlin and Brussels. Officials in Berlin, who spoke on condition of anonymity, said they understood his words as a signal.

Mr. Sapin had been very reserved about the project until now. His fears – like those in many European countries that have not joined the endeavor – is that a tax on financial transactions could cause investors to simply shift away from Paris as a financial center. London has already been spared this danger – Britain refused to join the E.U. effort.

Those concerns meant that, in a first step, France was only willing to subject stocks and a small number of derivatives to the tax. But the approach apparently proved to be unworkable, according to one French E.U. diplomat.

France's new and more aggressive position could eliminate a first major hurdle on the road to introducing the financial transaction tax.

The finance ministers of the 11 participating E.U. countries are expected to discuss the tax again at a meeting on January 27. Until then, said insiders, France will be working on specifying exactly which additional financial products should be included in the final proposal.

France's new and more aggressive position could eliminate a first major hurdle on the road to introducing the financial transaction tax.

Political calculations may have something to do with Mr. Hollande's new olive branch, according to observers in Brussels. The French president, who has a popularity rating of only 20 percent, needs to show some successes for the left wing of his Socialist party if he has any hope of gaining their support for a wider overhaul of the federal budget and social reforms.

Leftist Socialists and Greens in France have long called for the taxation of financial transactions. They had recently joined forces with left-leaning lawmakers from other countries – including the Social Democrats, or SPD, in Germany – to increase the pressure on policymakers.

"I'm pleased that our efforts were successful," Carsten Schneider, the deputy chairman of the SPD parliamentary group, told Handelsblatt. "And that's why I feel that the new signals from France are positive."

But there are other points of contention that could yet scupper a deal, including between Italy and France. The 11 nations remain at odds over how the tax would be distributed among them; whether, for example, the tax is levied in the country in which a security is issued or the country where the investors trading in that security are located.

Following the signals from Mr. Hollande, the German government is trying to avoid being pulled onto one side. Paris and Rome should agree on a compromise, which Germany would support, say officials in Berlin.

"Germany must now throw its entire political weight onto the scale, to finally achieve a breakthrough," said Mr. Schneider.


Ruth Berschens is Handelsblatt’s bureau chief in Brussels and Jan Hildebrand is a chief political correspondent for Handelsblatt in Berlin. To contact the authors: [email protected] and [email protected]