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Germany calls for FTT

Germany has stepped beyond EU consensus to vigorously combat financial irresponsibility and defend the Euro. Discussion of financial-transaction tax is among the chatter.

Talk of a financial-transaction tax (FTT) has resurfaced yet again. This time, it was Germany’s governing parties calling for one in Europe. Germany is fed up with the EU-PIIGS bailout and financial irresponsibility. Many German leaders blame investment banks for helping PIIGS cheat on their reported budgets and selling short. The governing parties want action against this irresponsibility, but unfortunately, they’re failing to understand that a FTT will worsen their market and it will be detrimental to their banks.

Will it actually see the light of day? That remains to be seen, but there are many factors that could set this into motion. Germany’s frustration with the Greece bailout could propel it to usher in a Euro tax with fiscal federal oversight. German taxpayers are footing the biggest bailout bill and want fiscal austerity, central budget review and compliance. They want this bailout money paid back, and a FTT may be way to ease the frustration, despite its consequences.

True, the EU could benefit from a federal Euro tax, and it could very well move forward with this in the form of a FTT. But the entire G-20 shouldn’t be asked to follow suit. In addition, EU regulators have recently brought another troubling idea to the table: an EU fund passport that would impose rigorous EU rules on non-European fund managers. In my view, this is another bad idea.

I’m not sure the UK can be of assistance in blocking a FTT this time. Well, Gordon Brown’s UK could slow down unbridled German/French financial regulation, but the “new” UK — the one that hasn’t participated in the Greek bailout — probably won’t be able to stop a FTT. I hope Secretary Geithner will stand firm on his opposition to a FTT and combat the EU attack on non EU-hedge funds.

There’s a lot going on in Europe right now. I’m fearful this meltdown is the real deal, but let’s hope the EU bailout succeeds. It worked in the U.S. – will it work in Europe too? We shall see.