British Prime Minister Gordon Brown surprised G20 finance ministers by urging them to consider a tax on global financial transactions, but the idea got a lukewarm response.
Brown said Saturday such a levy, often called the Tobin Tax after the US economist who devised it, would force financial institutions to be more responsible and was one of a range of measures that could help curb risky behaviour.
It has always been thought that Britain opposed the idea, because of fears it could damage the interests of the City of London, Europe’s foremost financial centre.
But finance minister Alistair Darling said “times change” after 12 months in which G20 governments had been forced to inject billions of dollars to rescue banks from collapse.
A levy, Darling said, was one way that banks could contribute to the “wellbeing of the world” — and, more pertinently, provide funds to use if they needed bailing out again.
But just hours after Brown gave the Tobin Tax idea fresh impetus in the Scottish town of St Andrews, where the two-day G20 finance ministers meeting wrapped up on Saturday, the United States appeared to shoot it down in flames.
US Treasury Secretary Tim Geithner said his country had not changed its long-held opposition to an idea first floated in the 1970s.
“No, that’s not something that we’re prepared to support,” he told Sky News television on Saturday.
Later, Geithner told the end-of-meeting news conference that “it is fair to say that we agree that we have to build a system in which taxpayers are not exposed to risk of loss in the future”.
But while he refused this time to say if Washington would actively oppose a levy on global financial transactions, his assertion that it was “an idea that has been around a long time” spoke volumes.
Dominique Strauss-Kahn, the head of the International Monetary Fund, the very body which the G20 has asked to study the feasibility of such a measure, was blunt in his assessment.
Introducing a Tobin Tax “is very difficult for a range of reasons, in fact it is impossible,” he said.
The IMF, which is due to give its report next April, is working on producing a different, “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.”
Brown said that as financial institutions began to emerge from the chaos of the crisis sparked by investment on risky subprime loans, a new “social contract” with banks was required to make them more responsible to society.
He added: “It cannot be acceptable that the benefits of success in this sector are reaped by the few but the costs of its failure are borne by all of us.”
He said a global levy on transactions was one way of bringing banks to account. Other options put forward by Brown included an insurance scheme.
Although he warned of the danger of imposing “prohibitive costs” on the banking sector, he added: “I do not think these difficulties should prevent us from considering with urgency the legitimate issues.”
Brown stressed Britain would not act alone on such a tax, saying it would also have to be implemented by all the world’s major financial centres.
Unless it was globally applied, it would be ineffective because it would be seen as penalising banks in countries where it was in operation, causing money to flow to nations without such a tax.
Brown at least got support from France, whose finance minister Christine Lagarde said it would be “a very good thing”.
Campaigners also welcomed Brown’s proposal, with Oxfam saying it signalled that “payback time for banks could be just around the corner”.
“A tax on banks would be a major step towards clearing up the mess caused by their greed,” the group’s senior policy advisor Max Lawson said.
