1. Take as much collateral as possible and park it at the ECB.
2. Watch as market bifurcates around quality/inferior collateral.
France is determined to press ahead with a financial transaction tax inspired by the UK’s stamp duty and supported by at least eight other eurozone countries, the country’s finance minister has said. François Baroin, French finance minister, said the the tax will be levied at 0.1 per cent, raising €1bn a year on share trades. By contrast, the British stamp duty on shares stands at 0.5 per cent, and raised £2.7bn in the 2010/11 tax year. Mr Baroin told the FT on Monday, hours before parliament was due to kick off a debate on a so-called Tobin tax announced by President Nicolas Sarkozy last month, Mr Baroin said he hoped the initiative would put pressure on the European Commission to accelerate the implementation of a controversial Europe-wide levy which is staunchly opposed by the UK. Asked whether the tax would end up bolstering the position of London’s financial services sector, Mr Baroin said: “We don’t think about it like that. But it is difficult for the UK to criticise this tax as madness, since stamp duty served as its inspiration.”
Mario Monti has defended a tough crackdown on tax evaders in luxury ski and coastal resorts, rejecting angry reactions from leading members of Silvio Berlusconi’s centre-right party whose support in parliament is vital for Italy’s new government of technocrats, reports the FT. Finance ministry tax police followed up a well publicised new year raid on Cortina D’Ampezzo in the Dolomites with unannounced inspections over the weekend in Porto Fino on the Ligurian coast and other exclusive retreats. Mr Monti, who also serves as finance minister, responded forcefully at the weekend, congratulating the tax police for their efforts and taking issue with Mr Berlusconi’s oft repeated slogan that his centre-right coalition, which collapsed in November, had “not put its hands in the pockets of Italians”. The Telegraph reports Mr Monti also told a public broadcaster that Italy’s “banking system is not under threat” and that Rome may support a financial transactions tax, but only as an EU-wide measure.
The founder of one of London’s biggest hedge funds has given qualified support for a European tax on financial transactions, breaking ranks with many of his peers fiercely opposed to such a measure, reports the FT. David Harding, the chief executive of the $26bn Winton Capital, told the newspaper he did not object to moves by EU politicians to levy the tax, provided it was low and was partly used to finance supranational market regulation. With an estimated fortune of more than £500m ($771m), Mr Harding is one of the UK’s wealthiest financiers and a major donor to the Conservative party. The so-called Tobin tax has been dubbed by UK chancellor George Osborne a “bullet aimed at the heart of London”.
German frustration over Britain’s approach to the eurozone crisis erupted on Tuesday after a close ally of Angela Merkel accused the UK of selfishness just days before a meeting between the two countries’ leaders in Berlin, reports the FT. In a speech to members of the German chancellor’s CDU party, Volker Kauder, its parliamentary leader, criticised Britain for opposing a European tax on financial transactions. To applause, he said it was not acceptable that the UK was “only defending its own interests” rather than that of the wider EU. Prime Minister David Cameron is due to meet Merkel later this week so we wait to see if this sours the riesling.
The archbishop of Canterbury has supported calls for a multibillion-pound “Robin Hood tax” on financial transactions as part of measures to reflect “the moral agenda” of the anti-capitalist protesters camped outside St Paul’s Cathedral. Writing in Wednesday’s FT, Rowan Williams says many people see the protest “as the expression of a widespread and deep exasperation with the financial establishment” and that there is a prevailing mood that “business as usual” has returned to the City. The archbishop says the Church has a proper interest in ethics in the financial world and aligns himself with proposals from the Vatican for measures to increase taxation on banks and to reduce the threat they pose to the world economy. Dr Williams’s most controversial call, says the FT, is for a “robust public discussion” on the way financial services are taxed, including the case for a financial transactions tax – sometimes called a Tobin tax or Robin Hood tax – to help bolster the domestic economy and to fund international aid.
Wolfgang Schäuble, Germany’s finance minister, wants the European Union to take the global lead in introducing a financial transaction tax to curb speculative trading, along with tougher regulation of big banks and the “shadow” banking sector, such as hedge funds. If the UK blocked agreement on such a tax in the full EU, he said in an interview with the FT, the eurozone should press ahead on its own. Speaking just days before the G20 summit of global economies in Cannes, Mr Schäuble spelt out his conviction that failure to reach agreement on tougher financial regulation by the full G20 should not stop Europe acting alone. He also called for big steps towards a “fiscal union” in the eurozone, saying there was a need for “stronger institutions to oversee the implementation of a commonly agreed finance policy”. The changes might focus on Article 136, says the FT, setting out how the 17 eurozone members can agree “measures specific” to themselves on budget discipline and economic policy, which might be a way to avoid offending the UK government in particular.
Michael Spencer, the CEO of Icap, told analysts on a call yesterday that his company would move away from London if the proposed financial transactions tax were to go ahead, the FT reports. Icap is the world’s biggest interdealer broker when measured by trade volumes. According to Spencer, if the levy were introduced, “the wholesale financial market will evaporate from Europe.”
A European Union proposal to impose a tax on financial transactions has been attacked by financial and business groups as an assault on the City of London and companies seeking to protect themselves against market uncertainty, the FT says. Unveiling the proposals in Strasbourg on Wednesday as part of his annual State of the Union address, José Manuel Barroso, the European Commission president, said the tax could raise some €55bn ($75bn) a year to replenish government coffers. Under the proposal, trades in bonds and shares would be taxed at 0.1 per cent, while more complex derivatives would face a 0.01 per cent levy. Both parties to a transaction would usually be charged, even for transactions where one was based outside the EU. The thresholds would be minimum levels to be put in place by all EU member states but national authorities could opt to “top up” the tax with domestic charges. Germany and France back the proposal but the British government said a financial transaction tax could only work if it were implemented globally. The UK CBI employers’ group attacked the tax plan as a “crude instrument” that would divert trading activity to New York and Hong Kong.