Germany suggests alternative to Tobin tax

Germany has unveiled plans for an alternative to the Tobin tax in the form of European stamp duty on shares.

The country is seeking UK support for a European-wide levy as an alternative to the financial transaction tax, Bloomberg reports.

Chancellor Angela Merkel’s Christian Democrats are backing a Europe-wide tax along the lines of the UK’s levy on shares. Such a solution is a “good option” if accompanied by rules that limit “abusive excesses” in automated trading, the party said in a draft paper.

“What is emerging in the coalition is consensus that maximum demands such as those put forward by the European Commission are just not realistic,” Ralph Brinkhaus, a Christian Democrat who sits on parliament’s finance committee, told Bloomberg.

“We are looking at multiple proposals that can possibly add to the UK’s instrument, that is ‘stamp duty plus X’.”

The German move is an acknowledgement that the transaction tax championed by Merkel and French President Nicholas Sakozy is unlikely to work without the backing of the UK and the City of London, Bloomberg reports.

It is also a potential blow to Sarkozy as he faces re-election in April, after he suggested France would impose the levy even if others did not.

The European Commission, the EU’s executive body, has proposed a bloc-wide tax that it says could raise €57bn ($74.8bn) per year. David Cameron has opposed the tax, saying it would be ineffective unless applied globally.

Earlier this month he said: “Unless the rest of the world all agreed at the same time that we are all going to have some sort of tax then we are not going to go ahead with it.”

Speaking at the World Economic Forum in Davos yesterday, Cameron said it would be “madness” to consider such a tax at a time when economies are floundering, putting the economic cost the tax at €200bn and 500,000 jobs.

The implications of the Tobin tax could have wide-ranging implications for the UK financial sector, commentators have warned.

Money market funds, short duration fixed income funds and government liquidity funds could be most exposed to the damaging impacts of the tax, with experts saying such strategies would be “untenable”. The tax could also prompt a move away from active towards passive strategies which will be less affected by the new regime.

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