The future of the European Commission's controversial financial transaction tax (FTT) is in Denmark’s hands, a senior EU official said at a conference in Copenhagen yesterday.
Algirdas Šemeta, the EU’s tax commissioner, said that Denmark’s performance as EU president in 2002 – in which they ushered through the largest single EU expansion to date – gave him confidence to believe that the country would deliver on the FTT by the end of its current term as President in July.
“With such a track record, I believe the FTT proposal is in good hands,” he said.
Despite Šemeta's vote of confidence, however, Denmark faces a difficuly job in pushing through the FTT – a very small fee on certain financial products such as securities, bonds and derivatives – as the EU has stood divided on the tax ever since it was proposed by the European Commission last September.
Arguing in favour of the FTT yesterday, Šemeta said member states would benefit from paying lower contributions to the EU’s common budget, while the FTT would also discourage high-risk trading in financial markets that is partially responsible for the current economic crisis.
“Citizens as well as policy makers want the financial sector to make a fairer contribution to the cost of the crisis and to public revenues,” Šemeta said.
Nine countries, including France and Germancy publicly stated their support in February when they signed a letter calling on Denmark to ensure the FTT is introduced before the end of its presidency.
Several countries have refused it outright, however, most notably the UK, which worries that the tax would damage its lucrative financial services industry in London.
The pressure on Denmark by European heavy-weights France and Germany is compounded by its own worries over the tax, with the economy minister, Margethe Vestager, stating on numerous occasions that an FTT would risk damaging Europe's fragile economies and be pointless unless implemented globally.
Speaking before a meeting to discuss the tax last week in Brussels, Vestager indicated that she would be listening to alternatives.
“What’s important to discuss is what its purpose is. I hope that becomes clearer today. Before we work toward a compromise, we have to agree on what our goal is,” she told the Ritzau news bureau.
Following the meeting, EU ministers agreed to spend more time examining the details of the tax, and yesterday Šemeta acknowledged that compromises to the commission’s proposal were being considered.
Šemeta made a point of adding that it was important that the FTT is implemented across the whole of the EU, dismissing the possibility of some countries forging ahead and allowing other countries to join at a later date.
“I continue to believe that the FTT applied across the entire EU is the best way of meeting our objectives, ensuring that every EU citizen can benefit from the tax.”
The scope of the FTT is a major sticking point, with several countries warning that the financial services industry will simply move to where it is cheaper to operate.
In his speech yesterday, Šemeta attempted to quell these fears by stating the tax has been designed to target the transactions by institutions established in the EU, regardless of where they are located, in order to mitigate relocation risks and tax avoidance.
“To put it simply, one would have to abandon their entire EU client base to escape the tax. This is not a realistic scenario for a tax levied at such a low rate.”