>> See the September 2015 ESBG statement
Updated: January 2019
Eight ESBG members support the aim to curb short-term speculation and to encourage the prohibition of undesirable market behaviour. However, they do not support a Financial Transaction Tax at EU-level. The impact on financial activities essential to the functioning of financial markets and to the real economy could be extremely negative. We believe that the following activities will be affected negatively by the proposed tax:
The issuance and secondary markets for sovereign bonds
The use of derivatives contract for hedging purposes
The use of repurchase agreements to provide secured liquidity to the market
The use of intra-group transactions for liquidity management and efficient capital allocation within a group.
ESBG's main concern with the current EU FTT proposal is that – in efficient fixed income markets such as the markets for government and covered bonds, which are characterised by low spreads between bid and offer prices – the tax will be far higher than what can be earned on market-making, especially on instruments with short remaining time to maturity.
The consequence of the tax will be that market-making will almost cease and current liquid markets are likely to be transformed into buy and hold markets. As a result, market liquidity will disappear or be significantly reduced.
A Financial Transaction Tax (FTT) builds on the work of famous Nobel laureate James Tobin. An FTT is in theory applied to a financial transaction in a similar way to how VAT is applied to goods and services but due to the very narrow margins and the international character of finance the FTT, if incorrectly implemented, may have a severe distortive impact on the economy as a whole.
In September 2011 the European Commission proposed a FTT to be implemented in all EU member states but unanimity was not reached within the Council. Nonetheless, in autumn 2012, 11 member states (Belgium, Germany, Estonia, France, Greece, Spain, Italy, Austria, Portugal, Slovenia and Slovakia) requested and were permitted to continue the work on an FTT using the enhanced cooperation mechanism. After talks in December 2015, Estonia withdrew from the group of countries that requested enhanced cooperation, reducing the number of participating countries to 10, raising questions about the viability of the FTT.
September 2011: the European Commission proposed an FTT to be implemented in all Member States.
Autumn 2012: 11 Member States requested enhanced cooperation on the FTT.
February 2013: the Commission set out the details of the FTT to be implemented under enhanced cooperation in Council Directive COM (2013)71.
Spring 2015: French President François Hollande called for the FTT to be based on the largest scope possible with low rates thus aligning the French position with the Austrian and German position. The EU-11 decided at the January 2015 meeting that the political coordination of the work on the FTT will be done by Austria and the technical coordination of the work on the FTT will be done by Portugal.
May 2015: FTT (EU-11) Ministers' discussion.
June 2016 : Member States deciding to set up two task forces responsible for discussing issues regarding the possible effects on public borrowing costs of the proposed FTT and the efficiency of FTT collection.
October 2016: The group of 10 Member States held a new meeting setting out the types of trades that would be covered, on the basis of a proposal put forward by Austria.
March 2017: Based on the latest talks at the finance minister level, the group of Member States is pursuing an overall opt-out for the pension fund industry.
Autumn 2018: The European Commission is preparing a new proposal, helped by the Austrian Presidency. The income from the new FTT is destined for the EU budget. Countries participating in the FTT would get to reduce the tax’s contribution for the EU budget. However, all tax initiatives need unanimity before they can become EU law.