Since the early 20th century, several forms of taxation of financial transactions have been proposed and implemented in Europe. John Maynard Keynes prescribed a tax on transactions in his 1936 The General Theory of Employment Interest and Money. In 1971, James Tobin extended this idea to exchange markets. The proposal consists of taxing a very small proportion of all financial transactions (0.01% on derivatives and 0.1% on shares and bonds). Sweden implemented such a tax in 1984.
Designed by economists, the idea quickly became a political proposal and a campaign tool for citizens' movements around the world, such as the Robin Hood tax campaign in Britain. The aim is to tax financial markets, to make them pay for the part they played in the destruction of the real economy. In Europe, Green politicians like myself have long fought for the introduction of an EU-wide financial transaction tax.
Over the last few days, however, it has become clear that the proposal for the tax, presented by the European commission in February, is being torn apart by governments with close relationships to the financial lobbies. Since they are acting behind closed doors, in ambassadors' meetings, in central bankers' gatherings, beyond public pressure and democratic accountability, they feel free to destroy the commission's ambitious proposals. This is a nasty game they are excelling at, as the previous episodes of banking regulation have demonstrated.
On the other side, citizens' movements and NGOs campaigning for the transaction tax have convinced 11 European governments to sign up to their cause. The tax, if designed along the lines of the current proposal, will hinder excessive speculation and could help finance green projects, innovation and the fight against poverty. Thanks to the issuance principle, whereby financial institutions located outside the EU will have to pay the tax if they trade securities originally issued within the EU, and the residence principle, whereby trading activities of financial institutions located in the EU are taxed (even if they are carried outside the EU), it will prevent any significant flight of capital, industry actors or talent. It will cover all institutions, all markets and all actors.
Against this background, it is legitimate that institutions who will pay the tax want to be heard. But it is outrageous that they are trying to block it, delay its introduction or make it an empty shell, sowing fear and doubt based on groundless arguments among legislators.
Unfortunately, as opponents of the transaction tax are gaining ground, the political momentum is being lost and advocates are increasingly divided. Among the 11 European states that decided to implement this tax in January 2013, Germany has now put its plans on ice until after the election; Belgium and Austria are seeking to exclude pension funds from its scope; and France and Italy are pushing for their own, lighter version, thereby transforming a simple tax into a complex and costly one.
In the meantime the financial industry is lobbying the European parliament and governments, aggressively pushing for exemptions that would deprive the tax of any impact. The lobbying aims to exempt all non-financial companies, for example, as well as the now infamous "market-making" activities, that is proprietary trading. In a shameless effort to protect the vested interests of its wealthiest constituents, the British government decided to sue the European commission over the design of the tax. It was backed by Luxembourg.
This is not only about banks being taxed, it's about democracy. In the decade that led to the global financial crisis and ever since, thanks to the massive deregulation enacted by blind or complicit governments, the financial industry, acting on behalf of the 1%, has imposed the consequences of its actions on the 99%, and on the planet.
Now is the time to reverse that trend. Imposing a cap on bonuses and country-by-country reporting, the recent banking legislation enacted in Europe (Basel III aka CRD4) demonstrated that when political will and popular pressure converge, democracy can regain the upper hand. If we want policymaking to regain credibility, we need to impose a transaction tax as proposed by the EU commission now.