November 18th, 2011
09:36 PM GMT
Talks between David Cameron and Angela Merkel reached a stalemate after the UK prime minister said his country would not wish to adopt a so-called 'Tobin tax' on financial transactions unless such measures were introduced on a global scale.
So, what’s Cameron's beef with the potential levy? And what would his country lose if it were introduced across the European Union?
The measures being mulled include a 0.1 percent charge on stock and bond trades and a 0.01 percent fee for derivatives.
The money raised would have a dual benefit for leaders facing their biggest threat to peace and prosperity in the region since World War II.
On the one hand, a Tobin tax could raise trillions of euros at a time when the bloc is facing a dilemma about how to find the money to prop up struggling members.
On the other hand such charges could also be a way for some EU leaders to punish a financial industry which, they feel, has played a big part in the crisis.
Considering the UK capital is arguably Europe’s financial center, London would have the most to lose.
British lawmakers fear the introduction of such a tax may give the industry another excuse to up sticks and move elsewhere. To places like Hong Kong and New York.
High earners across the UK have already been facing a 50 percent income tax bill for some time now and their patience is wearing thin.
The reality is that banking and other money management is a crucial part of this island's economy and one which, as the recovery falters, politicians can't afford to alienate further.
The Financial Times this week suggested that about a quarter of the projected EU-wide income from a Tobin tax on stocks and bonds would come from Britain. If you factor in the nation's enormous derivatives business that number jumps to above 60 percent.
And the precedent?
Britain has already had its own mixed experience with its stamp duty on purchases of equities.
In Sweden, however the reaction was more pronounced after the country's 1984 introduction of a transaction tax on stock and bond purchases and sales. (Experiment on Tobin Tax in Sweden PDF)
The revenues raised were less than expected and trading volumes fell, and stock prices fell meaning capital gains taxes also dropped.
Supporters of the Tobin tax say it would reduce volatility by dissuading speculators.
Those against the proposals say it will dampen trade and add more layers of red tape.
Whether you're for or against Tobin taxes they'll take time to implement and that's something Europe doesn't have if it wants to get its house in order.
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