A six-year push to impose a tax on financial transactions in Europe may have run its course, with Germany and France dragging their feet as they prepare for Brexit and a redrawing of the financial map that has already begun.
French Finance Minister Bruno Le Maire said earlier this month that Brexit could bring “thousands of jobs to Paris,” an opportunity that could be lost if the tax were imposed. His German counterpart, Wolfgang Schaeuble, said that “quite a bit speaks in favor of the French argument to look first at how the Brexit negotiations are going.”
With the heavyweight boosters among the 10 countries pursuing the tax getting cold feet, the plan’s future looks bleak.
“Some had said Brexit could prompt further interest” in the financial-transaction tax, said Dan Neidle, a partner at Clifford Chance in London. “In fact it looks like the opposite is the case. Brexit has prompted impressive efforts from the French and others to attract the financial sector — those efforts would be completely undermined by the FTT.”
The European Commission, the EU’s executive arm, proposed the tax in 2011 to make sure the industry made a “fair contribution” after taxpayers bore the costs of the financial crisis. When some member states opposed the levy, a smaller group sought a compromise under “enhanced cooperation” rules. Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain are still at the table.
A decision to impose the tax could benefit Ireland and Luxembourg, which have also actively courted the big banks and are not part of the group pursuing the tax.
Finance ministers of the 10 nations haven’t met in months after they hit a snag over the treatment of pension funds. Other open issues include intra-group transfers, tax rates and collection methods, according to an internal document seen by Bloomberg. The scope of the tax also remains to be worked out, the paper states.
Governments have recently grown increasingly wary of pushing the tax while banks in the U.K. are deciding where to move staff to keep servicing clients inside the single market. President Emmanuel Macron’s new French administration has also changed gear and made luring firms to Paris a priority.
“Sure I want the tax, I just want us to take into account this change that is the U.K. exiting the EU,” Le Maire said. “And I want these decisions to be taken collectively.”
Schaeuble said the pause “doesn’t mean a suspension until the end of the Brexit negotiations, but one should be a bit more generous on the time horizon.” German politicians are already pushing to relax the country’s restrictive labor laws to make it more appealing to foreign banks.
Frankfurt has emerged as the biggest winner in the fight for thousands of London-based jobs that will have to be relocated to the EU after Britain quits the bloc. Standard Chartered Plc, Nomura Holdings Inc. and Daiwa Securities Group Inc. have picked the German city for their EU headquarters. Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley are weighing a similar decision, said people familiar with the matter, asking not to be named because the plans aren’t public. HSBC Holdings Plc is the biggest non-French bank so far to opt for Paris.
National elections after Europe’s summer break are creating even more uncertainty. Germans go to the polls in September, followed by Austria a month later. Both have the possibility of bringing a center-right government to power.
So far, the Social Democratic coalition partners of ministers including Schaeuble and Hans Joerg Schelling, his Austrian counterpart who’s leading the talks, have pushed hardest for the tax. Now some socialists in the European Parliament are pointing the finger at France for giving up on the levy.
“France has made a full U-turn from a key ally in the fight for the introduction of an FTT to a foot-dragger — this is really disappointing,” lawmakers Udo Bullmann and Pervenche Beres said in a joint statement. “The financial transaction tax must not be derailed.”
Neidle of Clifford Chance said the momentum has run out for the tax.
“It seemed like people were just letting the FTT talk itself to death, with fundamental design questions still left unanswered after six years of discussions,” he said. “Absent some extraordinary new political development, I see no real future for the FTT.”