France and Germany pressure Denmark on finance tax

Nine EU countries urge Denmark to place financial transaction tax on the agenda while sceptical finance minister is accused of being in the pocket of banks

Pressure is mounting on Denmark after nine Eurozone countries demanded that the EU presidency place the drafting of a European financial transaction tax (FTT) on the agenda.

The European Commission proposed the FTT in September last year, and while the  government is concerned about its potential effect on growth, most of EuropeÂ’s major economies support the proposal.

The French finance minister, Francois Baroin, penned the letter to Denmark on Tuesday – on behalf Germany, Italy, Spain, Portugal, Belgium, Austria, Finland and Greece – urging the government to put the FTT on the agenda before the end of their six month term as EU president.

In the statement, Baroin expressed the group’s “strong conviction that a financial transaction tax is necessary at  the EU level both to ensure that the financial sector make a fair contribution to the cost of the financial crisis and to improve financial market regulation”.

With the core EU countries all pushing for the tax, Denmark remains in the company of the UK, Sweden and the Netherlands in opposing the tax on the sale of financial instruments which the European Commission anticipates could raise up to €57 billion a year which could be used to reinvest into the European economy or reduce the contributions of member states.

But the government is wary of the proposal, and the economy minister, Margrethe Vestager, has stated repeatedly that she could not support a tax that might result in a reduction of growth and loss of domestic jobs.

The commission itself admitted this might be the fallout of the FTT, though hastened to add that if reinvested correctly this immediate drop in growth could be cancelled out.

The commission is currently preparing new figures to prove this position, though whether Vestager – leader of the centrist governing coalition member Radikale – chooses to take on board the new figures remains to be seen.

Despite denying that she is ideologically against the tax, her view is that a European FTT would lead to an exodus by the financial services industry to countries where trading is cheaper – the only solution is to introduce a global FTT.

“If you want to regulate the financial sector you have to choose another strategy,” Vestager told Jyllands-Posten newspaper today, adding that greater regulation of banks is already on the agenda of the presidency and that the commission’s revenue estimates are not guaranteed.

Vestager told The Copenhagen Post at a recent press conference that the party was not ideologically opposed to the FTT and that it was only responding pragmatically to the information that had been made available to them.

But Frank Aaen, finance spokesperson for far-left government support party Enhedslisten, argued that Vestager was using the commission’s growth figures as a cover for an ideological position.

“It’s not that often that Enhedslisten praises the European Commission, but they have a constructive approach to the problem, as opposed to the minister who says the tax has to be global,” Aaen said. “You can say that you problem is practical and economical rather than ideological but the result is the same.”

Left-wing youth political youth group Socialistisk Ungdomsfront, with the backing of Enhedslisten, was behind an advertising campaign launched this week targeting the Radikale, suggesting that they were colluding with the banking sector to ensure that the tax did not pass.

The advert with the tag-line “Is Vestager in the banks’ pocket?” was initially conceived together with the youth wings of Social Demokraterne and Socialistisk Folkeparti, both also members of the governing coalition, though they decided to drop the campaign after concerns it may increase fractures in the government.

“The campaign focuses on the fact that Radikale has taken on the same point of view as the banking sector and that their election campaign received support from the financial sector,” Per Clausen from Enhedlisten told Jyllands-Posten.

Despite the backing of core EU states France and Germany, the FTT still requires the support of all 27 EU member states in order to be approved.

With countries such as the UK and Sweden – whose own experiement with an FTT in the 1990s was unsuccessful and ultimately abandoned – against it, there is still some way to go before an FTT becomes a reality, though that does little to reduce the pressure Tuesday’s letter places on Denmark.