Wolfgang Schäuble, Germany’s Christian Democratic finance minister, has been charged with a noble mission. When the opportunity arises at Monday’s meeting of the finance and economics ministers of Germany and France, he is to campaign for a European tax on financial transactions. According to one of the talking points, Mr. Schäuble’s staff has prepared a text block for the meeting of four ministers. Its key message: “The introduction of the tax on financial transactions remains an important goal for the German government.”
But the project threatens to become a mission impossible for Mr. Schäuble. A four-page internal document that has been obtained by Handelsblatt, summarizes the status of negotiations. It states that the positions of the 11 nations that advocate the introduction of the financial transaction tax (FTT) are “far apart, to some extent,” and that “this exacerbates, and possibly even jeopardizes the ability to meet the objective of finalizing sustainable solutions at the European Union level by the end of the year.”
It is known that the 11 governments are still arguing over many details, such as the question of which securities would be taxed. But the German Ministry of Finance document shows that the differences are even more fundamental than that. In principle, Schäuble’s coalition of the willing has already agreed to introduce the tax in stages, and to initially limit it to stocks and a few derivatives. Now it is discussing a problem that was supposed to have been resolved by now: How and by whom should the tax be increased?
According to the Ministry of Finance document, France and Italy would support a plan in which only those transactions are taxed in which the security being traded is issued by a company in the territory of the 11 nations. Experts refer to this as the issue principle. With it, the governments in Paris and Rome are trying to distance themselves from a proposal that was considered the basis of the negotiations until now.
France wants to protect its large banks, which is why Paris wants to "exclusively tax stocks." Italy and the small countries, on the other hand, also want to make "derivatives" subject to the FTT.
By contrast, the small countries in the alliance of 11 want to adhere to the issue principle. They support an approach that “is based primarily on the registered office of the financial institution conducting the trade, and makes a significantly larger number of financial instruments subject to taxation,” Schäuble’s experts write.
A distribution battle is behind the contentious points. The revenues are also distributed in accordance with the taxation principle. Smaller countries, with fewer corporate headquarters, “fear that their revenues will be too small if the FTT is based primarily on the issue principle.” France wants to protect its large banks, which is why Paris wants to “exclusively tax stocks.” Italy and the small countries, on the other hand, also want to make “derivatives” subject to the FTT.
Italy, which currently holds the revolving EU presidency, has now proposed a number of models on how the funds could be distributed. Still, the players are a long way from agreement.
Germany is taking “an intermediary position,” according to Schäuble’s staff. This also applies to a proposal by Paris and Rome that the 11 finance ministers meet on Nov. 7 to finally make some headway on the contentious issues. To that end, the document recommends that Schäuble signal “openness.” In light of the possible meeting of all 11 finance ministers, the four ministers from Germany and France have reportedly already decided not to discuss the FTT at length on Monday, apparently because they believe that the muddled situation is not very promising.
Jan Hildebrand covers politics and finance for Handelsblatt in Berlin. To contact the author: firstname.lastname@example.org