Connected Research

Union policy research in the 21st century

Posts Tagged ‘Financial transactions tax

Robin Hood goes to Strasbourg

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The European Parliament yesterday debated a financial transactions tax via an oral question put up by Sharon Bowles, a Liberal Democrat MEP who chairs the Parliament’s Economic and Monetary Affairs Committee, followed by a debate on a formal motion.

The motion was, essentially, a shoo-in (the vote is scheduled for tomorrow), since it is supported by the four largest party groupings in the Parliament, including the Socialists & Democrats; the Greens – European Free Alliance; Liberals and Democrats; and the centre-right European People’s Party (which excludes those parties which are further to the right, including the UK Tories). Between them, these four party groupings control something like 80% of MEPs. Conssequently, such a wide cross-party consensus on the motion for debate adds tremendously to the power of what it calls for.

[Edit 11 March: the resolution was approved with 536 votes in favour – 87% of those voting.]

The motion recalls:

The importance of renewing the economic and social contract between financial institutions and the society they serve,

and seeks to remind G20 leaders of their:

Collective responsibility to mitigate the social impact of the crisis, both in their member states and in developing countries, which have been hard-hit by the indirect effects of the crisis.

The motion identifies the European Parliament behind the EU having its own strategy on a financial transactions tax to take to G20 summit meetings, and for the need to adopt a common position at the G20 on the issue based on:

The options as to how the financial sector should make a fair and substantial contribution towards paying for any burden which it has caused to the real economy or which is associated with government interventions to stabilise the banking system.

(Here, the motion cleverly borrows from the leaders’ declaration from the G20 meeting Pittsburgh last September – see point 16.) In moving towards the definition of such a common position, the motion urges the Commission to elaborate an impact assessment of the potential of a global financial transactions tax both to generate revenues as well as to stabilise markets (here, in particular, the oral question correctly approaches the issue from the perspective of assisting with the development of a much needed long-term orientation to the financial system); of the benefits and drawbacks of such a tax; and of the need for the tax to be sufficiently well designed to mitigate any side-effects.

The motion has been well thought-out and put together, and its powerful language belies the political disparities between the political groupings uniting behind the motion (where the product of establishing such a wide-ranging consensus is frequently anaemic language and commitments). Ultimately, it will provide a further contribution to the body of evidence, on top of that currently being put together by the G20, on what such a tax could look like, and achieve, and is to be welcomed. In this respect, it’s also a good sign of the value of MEPs and the work they do.

Clearly, it does not yet commit the EU to a policy on the tax; it simply asks the EU to investigate the case. Nevertheless, should the impact assessment come out favourably in support of a financial transactions tax, that will give greater power to the elbows of those arguing that the EU should adopt such a tax and would represent a significant, valuable and high profile breakthrough for financial transactions tax campaigners.

Written by Calvin

09/03/2010 at 4:40 pm

Currency speculators: turkeys or Marxists?

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Against a backdrop of:

– today’s currency speculation news focusing on the euro and also, yesterday, on sterling (although today’s announcement of a successful sale of £2bn in 30-year gilts – of the sort called for by the NAPF – is welcome news both as regards financial stability and as regards pension fund security)

– yesterday’s ‘advice’ to shell-shocked Greece from EU Commissioner Olli Rehn that it needs to make deeper cuts than those already envisaged if it is to get its economy back on track

– and the concerns of Lord Turner, chair of the Financial Services Authority, appearing before the Treasury select committee, on credit default swaps,

the dropping into my inbox today of the monthly Newsletter of the European Trade Union Congress, containing a number of features on financial speculation, couldn’t have been better timed.

Highlighting the ‘shameless’ activities of speculators betting on the collapse of countries hardest hit by the crisis, at a time of their vulnerability arising from needing to support economies hit by the failures of financial institutions, John Monks, General Secretary, uses his Editorial to argue for stronger powers for market oversight authorities; the regulation of hedge funds, ratings agencies and private equity; the scrapping of tax havens; and for a tax on financial transactions. Further on, the ‘Dossier’ section looks at whether financial speculators are the real winners out of the crisis and contains links to a number of sites including Regulate Global Finance Now! where there is a useful section of links to documents on a financial transactions tax (though not yet to the Robin Hood site).

There are of course, real and immediate worries as to the results of all this currency speculation as regards economies, jobs and livelihoods. However, it seems to me that one of the potential outcomes is that a financial transactions tax appears sooner rather than later. If that’s the case, then either currency speculators really are turkeys getting ready to vote for Christmas; or else they are laying down some sort of a direct challenge to policy-makers ahead of further consideration of this issue, not least ahead of the next G20 later this year; or else, for one reason or another, they are simply not bothered by whether such a tax exists or not. The timing of this bout of speculation is supremely arrogant – that is, perhaps, not a surprise by itself, but the current behaviour of those involved, against the background of high-level discussion of some sort of co-ordinated activity on a transactions tax, is quite extraordinary.

Alternatively, perhaps they are just playing the role allotted to them in the final downfall of capitalism…

Written by Calvin

02/03/2010 at 6:41 pm

Tobin growing stronger

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Two quotes taken from a piece on Citywire this morning entitled ‘Pound on the brink of collapse’.

The first, from ‘legendary investor’ Jim Rogers (to set the scene and building on his views of a particularly armageddon-type ‘real recession’ which he believes is about to hit the UK economy):

Other currencies aren’t strong and the euro has real problems, with cracks much wider than Greece beginning to show, but it’s the pound that’s most vulnerable. In real terms, it’s already devalued against virtually every currency barring the Zimbabwean dollar and it’s especially exposed over the weeks running up to the UK election. In a basket of currencies, the pound is potentially a basket case. And that will put Britain in an extremely bad position for the shakedown.

And the second from ‘well-known trader’ Vince Stanzioni:

If the billionaires are betting on a second dip, the rest of the investment community should be doing more than looking on from the sidelines.

Remind me, please: the case against a Tobin Tax to deter currency speculation is what, again?

[Almost immediate edit: apparently the Rogers quote didn’t happen, never existed, quite outrageous, etc etc. Think my comment remains accurate, though!]

Written by Calvin

26/02/2010 at 11:19 am

Tobin, updated

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The Tobin Tax was first proposed by Nobel Laureate economist James Tobin in 1972 as a levy designed to deter currency speculation (although he was building on the wider financial transactions tax proposed by Keynes back in 1936). Some sort of financial transactions tax has been back on the political and economic agenda in recent times as a way of dealing with one aspect of the conditions which have led to this last economic crisis (and, frankly, as a means of getting the bankers to pay (back) their share). The wiki entry on the Tobin Tax is good on the background and the recent history.)

An updated Tobin Tax, updated for the modern times and renamed the Robin Hood tax has now been proposed by a coalition of around 50 organisations dealing with poverty, including the TUC, as a way of raising funds from banking activities towards dealing with poverty and climate change, both in the UK and abroad. The campaign features a video produced by Richard Curtis and starring Bill Nighy – and, of course, you can sign up for updates and vote (more than 4:1 in favour, so far, now that stacks of multiple ‘no’ votes have been discounted), too. ToUChstone, the TUC’s blog, has produced several posts on the initiative today as, from a capital markets perspective, has labour and capital.

[Edit 15 February: now a margin of 10:1 in favour – while the multiple ‘no’ votes appeared to have come from two IP addresses, one of which is registered to Goldman Sachs, that Great American bubble machine. Doing God’s work again, Lloyd?]

The Connect Sector of Prospect has a policy of raising awareness of and support for the Tobin Tax dating back to 2001 and this blog supports also the updated initiative: it’s another aspect of a welcome return to Keynesian economic views; in deterring short-termism, it may well have a role to play in improving (long-term) corporate governance; the activities the target of the tax are those which fit well within the definition of being, in Adair Turner’s neat turn of phrase, ‘socially useless’; and the funds it will raise ought clearly to help with the worthwhile central mission of the coalition.

Without going into all the arguments of the naysayers, some of which are less worthy than others, it seems to me that, to be successful, the initiative needs to recognise the following:

1. this is not a cheap way of raising finance to meet long-term UN goals of all countries providing 0.7% of GDP for international assistance – it has to be extra

2. this is not a way of providing bankers with a route back to social acceptability, and neither does it deal with the behaviours which caused the crisis and the need to inject huge amounts of capital to bailing out the banks – both of which are issues which need to be properly tackled. Nevertheless, we do need to understand what role (very) short-term trading plays and why those engaged in it do it, given the tiny margins being quoted; at the same time, the tax needs to target what is demonstrably ‘socially useless’ activity undertaken within the financial services sector – and this itself needs to be cut off. The City needs to recognise this, too, much more than it does.

3. the potential for City creativity needs to be recognised and the issue of accountability to pay the tax properly covered

4. the monies need to be properly ring-fenced and used for specific goals. What can’t be allowed to happen is that money raised and sent overseas then finds its way back to this (or any other western) country in carbon trading schemes.

Overall, however, an initiative well worth supporting.