German Finance Minister Wolfgang Schäuble and his French counterpart, Pierre Moscovici, have sent a letter to the finance ministers of the other 25 European Union (EU) Member States stating that they have signed and sent a bilateral request to the European Commission for enhanced cooperation to implement a financial transactions tax (FTT) in a subset of countries in Europe.
The letter was sent on Friday, September 28, 2012 one year to the day after the European Commission released its draft proposal for an EU-wide FTT.
This latest Franco-German initiative is a clear indication that the talks on enhanced cooperation for FTT have run into difficulties and little progress has been made since the June 2012 EU summit.
In their letter, France and Germany encourage their colleagues to join them in their request to the Commission. The letter states that Germany and France strongly favour an EU FTT, but remains vague, noting that the proposed FTT should still be "based on the European Commission's proposal for a Council Directive."
Therefore, the design of the FTT is still a moving target and the scope and objectives remain unclear and unspecified. If enhanced cooperation can muster the necessary support from at least nine Member States in the next months, an EU-FTT "lite" version (on a UK-styled stamp duty model) might be introduced. Initially, it would cover a narrow range of instruments (e.g., shares and perhaps bonds) and might subsequently be expanded to derivatives and high frequency trading (HFT) to incorporate the broader scope of the Commission's initial proposal.
Through their letter, France and Germany wanted to convey a sense of urgency. To be able to establish enhanced cooperation by December 2012, as agreed on June 28 and 29, 2012 by EU leaders in their Compact for Growth and Jobs, the enhanced cooperation requests should be submitted to the Commission as soon as possible. This indicates that the momentum seems to be fading and that negotiations on the FTT among the group of possibly interested Member States now face difficulties.
A wider European FTT was openly supported in February 2012, by Germany, France, Austria, Spain, Belgium, Portugal, Greece, Italy and Slovenia. According to sources in Brussels, Italy now holds the key to introducing an FTT under enhanced cooperation.
Mr. Monti's Italian government has continued to express support for a European FTT in recent months, but is now linking progress on FTT to concessions from other Member States on the so-called "Euro-files" (i.e., EU proposals for a banking union, euro rescue plan, banking recapitalization, etc.). France and Germany may use this latest initiative to show their continued official commitment to FTT and put the ball in the court of the "fence-sitters" (Italy and some other Member States) to force further progress. Germany and France may have also felt that the letter is timely and useful for domestic political purposes.
Finland, which used to be in the EU-wide FTT fan club, now appears to be out. The Netherlands, where a new liberal-social-democratic government is in the making, is unlikely to support any wider FTT initiative in Europe without the UK's participation.
Next steps and outlook
Whether at least nine Member States will sign up to enhanced cooperation on FTT by December 2012, remains to be seen. If this fails, the alternative to enhanced cooperation may be a new (potentially uncoordinated) patchwork of unilateral FTTs implemented across Europe to extract some kind of "fair and substantial" contribution from the financial sector.
For more on enhanced cooperation procedure requirements, see our Global FS tax newsflash "The EU financial transactions tax: unprecedented steps" at www.pwc.com/ca/globalfsnews.
Parallel unilateral national actions
With an effective date of August 1, 2012, the French government introduced a national version of the FTT, covering the acquisition of French equities, certain HFT and the acquisition of credit default swaps (CDS) on EU sovereign debt.
In September 2012, the Spanish government discussed a proposal for a national FTT similar to the French version. For further details, see our Global FS tax newsflash "Spanish Financial Transactions Tax proposed" at www.pwc.com/ca/globalfsnews.
Despite the national regulations, France and Spain have announced that they will support an EU FTT solution and adjust national law accordingly.
In addition, the Portuguese Minister of Finance announced that Portugal will introduce the FTT in 2013 "according to an efficient model." This likely means that the Portuguese FTT will take into account aspects of both the French and Spanish versions, with some Portuguese flavour.
Lastly, there are strong signals that Hungary will also adopt some form of Hungarian FTT, but no details are available.
Whether the FTT will get the required support of the EU Council and what its scope would be remain unclear. If no agreement for an EU FTT, (implemented in a subset of Member States) can be reached, other nations may follow the French/Spanish route and introduce national FTTs in the near future.
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