Europe on Friday urged the IMF to introduce a “social” tax on banks, insurers and markets to repay taxpayers’ support during lean years with a slice of boom-time profits.
Leaders of the European Union backed a fresh call by British Prime Minister Gordon Brown, supported by French President Nicolas Sarkozy, for the International Monetary Fund (IMF) to examine a global so-called ‘Tobin’ tax.
The 27 member states said that an “economic and social contract” needs renewing “between financial institutions and the society they serve…ensuring that the public benefits in good times and is protected from risk.
“The European Council encourages the IMF to consider the full range of options including insurance fees, resolution funds, contingent capital arrangements and a global financial transaction levy in its review.”
While the language of a two-day EU summit’s draft conclusions erred on the side of caution, the inclusion of the idea — which has been kicking about since the 1970s — represents alignment between Europe’s three core powers.
German Chancellor Angela Merkel already sought support from fellow EU leaders in September for such a proposal to be taken to a summit of the Group of 20 countries in Pittsburgh, although they refused to back her then.
But Brown, who trails in polls ahead of a general election next year, sees an “urgent need” for a new deal between banks and society and fleshed out a range of ideas in an article penned with French President Nicolas sarkozy, aimed at American policymakers.
A transactions tax would form part of a long-term global compact that “ensures the benefits of good economic times flow not just to bankers but to the people they serve,” they wrote in the Wall Street Journal on Thursday.
Nobel laureate James Tobin first proposed his levy as a means of reducing speculation in global markets, and British finance secretary Alistair Darling said in November it would allow banks to contribute to world “wellbeing.”
However, the Robin Hood-style idea received no encouragement then from the United States, whose Treasury Secretary Tim Geithner said curtly: “No, that’s not something that we’re prepared to support.”
The G20 has already asked the IMF to study the feasability of such a measure, but the latter’s head, Frenchman Dominique Strauss-Kahn, warns that it would be “very difficult” to implement, “in fact it is impossible.”
Due to give its report next April, the IMF sees a “better” solution — a tax which would “curb risk-taking in the financial sector” and make bankers “take fewer risks because it will cost them more, while at the same time creating a reserve fund which could be used in a crisis.”
