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09 November 2013

Senior German lawmaker says FTT unlikely

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Volker Bouffier, a deputy party leader to Angela Merkel, said he does not believe a financial transaction tax will be enacted in Germany, even though coalition negotiators have agreed to push for the tax. Further criticism of the FTT was voiced by Dutch pension fund APG and French Groupe BPCE.

As Reuters reported, Merkel's CDU and the Social Democrats said last Wednesday they agreed to renew a push for an FTT, which would tax banks in 11 EU states about €35 billion a year, partly in return for taxpayers' help over the financial crisis. They face stiff opposition from other EU states, and EU lawyers say the FTT exceeds Member States' jurisdiction for taxation, could damage non-participating EU countries and would obstruct free movement of capital and services in the bloc.

"I don't see us introducing a financial transaction tax", said Hessen's state premier Volker Bouffier, a deputy party leader to Merkel, in an interview with Die Welt newspaper on Saturday. His state includes Germany's financial capital of Frankfurt. "A unilateral move with that would have devastating consequences for the financial centres in the Rhine/Main River regions", he said. "And it's not very likely that there will be an international resolution (for a transaction tax)."

Banks have lobbied furiously against the plan, which may be scaled back by lowering the standard tax rate on transactions from the 0.1 per cent laid out in the original blueprint drafted by Brussels, and by introducing it more gradually.

Criticism of the FTT was also voiced by APG, a Dutch pension fund that manages €337 billion on behalf of 4.5 million Dutch pension scheme members. Angelien Kemna, chief investment officer of APG, feared the tax would cost it billions of euros a year if it were levied on every party involved in a trade, rather than just the end-buyer as in France’s FTT and the UK’s stamp duty. Clifford Chance, a law firm, has calculated that the "cascade effect" feared by Ms Kemna would raise the effective tax rate for buying equities to 0.9 or 1 per cent.

"The liquidity in Europe would dry up completely and companies would have to be listed outside Europe in order to make up the liquidity", said Ms Kemna further. "It’s very costly and unfair to long-term investors who need to hedge. We are talking billions of euros", she said, also raising concerns as to how safe the collateral will be.

John Dizard, writing an opinion piece for the Financial Times (subscription required), was also appalled that German coalition talks had resurrected the "harmful European levy". He writes that the ultimate effect of the FTT would almost certainly include the expansion of corporate financing subsidiaries outside the FTT-11, since intercompany loans are exempt.

Groupe BPCE Chairman Francois Perol said he sees a contradiction between French Finance Minister Pierre Moscovici’s call for support for the Paris stock exchange and Europe’s planned financial transaction tax, reports Bloomberg

Moscovici urged the Paris financial community to defend its collective interest as IntercontinetnalExchange Inc. (ICE) prepares to buy NYSE Euronext (NYX) and spin off its European equity-trading business. "I find it bizarre to be promoting a transaction tax while at the same time extolling the importance of Euronext", Perol said on the sidelines of a press conference today in Paris. "I understand the importance of maintaining Paris as a financial center but the government needs a coherent policy."

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