Reply to: Eurozone countries go it alone with new treaty that excludes Britain

[scooterscot]

IMO the main motivation for the financial transaction tax isn't to raise revenue. It's to deter financial transactions seen as "socially undesirable" i.e. those related to highly leveraged speculation and HFT. They will be happy to see that activity move overseas, or remain in London, along with the systemic risk it's perceived as creating (whether it does or not is another matter, IMO), in order to ensure a stable & functional European banking system able to provide useful services to the wider economy.

WHS - and this is what countries strong in manufacturing want. Stability for all.

The problem with this living standards in eurodisney shall continue to rise while those at home go into reverse, not to mention the gap between rich a poor growth rate.

On this day the two horse race was conjured into existence, DC came home riding the pony and he know's it.

[scooterscot]

On the other hand it could all be a plot to entice the Scots into leaving the UK.

Understandable, the Scottish economy is growing faster than the rest of the UK.

[doodab]

Right, now I'm just putting myself in the shoes of the civil servant that has to sell this idea to Ms Merkel.

"Angela, babe, I've got this really good idea; what we'll do is introduce a financial transactions tax for any transactions in the Eurozone. Then what we'll do is give back the money in the form of 'incentives' for companies to stay in the Eurozone, AND that way we can pump fake money around the place in a completely unproductive fashion and keep lots of civil servants in work."

Do you really think Angela Merkel is that stupid?

I don't.

IMO the main motivation for the financial transaction tax isn't to raise revenue. It's to deter financial transactions seen as "socially undesirable" i.e. those related to highly leveraged speculation and HFT. They will be happy to see that activity move overseas, or remain in London, along with the systemic risk it's perceived as creating (whether it does or not is another matter, IMO), in order to ensure a stable & functional European banking system able to provide useful services to the wider economy. The majority of OTC derivatives are interest rate swaps and FX & commodity futures, most of which is legitimate activity due to companies hedging risk. The fact that these companies are based in the eurozone means that activity will stay where it is, they aren't going to relocate because the cost of hedging their cocoa purchases has gone up by a few cents, and only a truly stupid financial institution would stop taking that business, so they will stay here too.

The crucial thing for the UK is to retain the harmonisation of import duties and the free movement of goods and people around the EEA. Otherwise a chunk of the "British" manufacturing sector that currently exports to Europe (Toyota, Nissan, Honda, BMW, Epsom and many other multinationals make up a large part of it) will be off to eastern Europe or the PIIGS which would be quite a blow.

If we do continue to trade with Europe, standards for products and services and other regulations (e.g. distance selling) will need to be followed anyway, so we probably want to have some say in how those are set or we risk them being set by continental competitors with potential adverse impacts for UK companies.

[Mich the Tester]

Well I think it´s clear at the moment they´ll be wanting Eurobonds to be bought so one could imagine that a tax on Eurobonds would be avoidable at least in the short term, or until some point when the financial crisis is over, but I was pointing out how incentives can tip the balance to encourage trading which left Frankfurt and Paris at the end of the 90´s to come back. Apart from Eurobonds I can´t imagine the tax will be avoidable for Eurozone companies, so share dealing and non-Eurobonds is another area where no doubt a tax would be applied and hence the possibility to have an incentive.

Right, now I'm just putting myself in the shoes of the civil servant that has to sell this idea to Ms Merkel.

"Angela, babe, I've got this really good idea; what we'll do is introduce a financial transactions tax for any transactions in the Eurozone. Then what we'll do is give back the money in the form of 'incentives' for companies to stay in the Eurozone, AND that way we can pump fake money around the place in a completely unproductive fashion and keep lots of civil servants in work."

Do you really think Angela Merkel is that stupid?

I don't.

[MrMark]

There is absolutely no doubt that the Germans and French want to get their hands on the city business. Cameron has been forced into a corner. It may well be that we will see financial institutions locating elsewhere - though I doubt it, but what is important he has made a big step in ensuring the UK determines its own future.

On the other hand it could all be a plot to entice the Scots into leaving the UK.

[BlasterBates]

But that's effectively what you're suggesting will happen. One the one hand there might be a 'financial transaction tax' which would encourage traders to move trades out of the Eurozone, on the other hand you say 'Eurozone companies who will undoubtedly have to pay this tax would be given incentives'. The incentives would basically have to match up to the taxes, thus leading effectively to a 'tax that everyone doesn´t pay'.

If there's a tax that actually adds costs in any serious way (as compared to the normal costs of trading), then the first trade will happen in Euroland, and the rest outside, probably in London. I don't see what you're worried about.

Well I think it´s clear at the moment they´ll be wanting Eurobonds to be bought so one could imagine that a tax on Eurobonds would be avoidable at least in the short term, or until some point when the financial crisis is over, but I was pointing out how incentives can tip the balance to encourage trading which left Frankfurt and Paris at the end of the 90´s to come back. Apart from Eurobonds I can´t imagine the tax will be avoidable for Eurozone companies, so share dealing and non-Eurobonds is another area where no doubt a tax would be applied and hence the possibility to have an incentive.

[DodgyAgent]

Well I was thinking of the Eurobond market and Eurozone transactions which are all done in the City. But from what I see it looks to me like the Eurozone and the UK have agreed to disagree, rather than it being a fight. One could imagine a financial transaction tax that is lower if carried out in the Eurozone, rather than outside.

There is absolutely no doubt that the Germans and French want to get their hands on the city business. Cameron has been forced into a corner. It may well be that we will see financial institutions locating elsewhere - though I doubt it, but what is important he has made a big step in ensuring the UK determines its own future.

[Arturo Bassick]

It is now clear there will be a financial transaction tax in the Eurozone. [snip]

Will be interesting to see what happens. If DC was right then all the traders will be fleeing Frankfurt and Paris and setting up shop in London. If Merkosy were right then the UK is going to rapidly disappear astern.

[Mich the Tester]

It is now clear there will be a financial transaction tax in the Eurozone. Now we´ll have to wait what the conditions are. But it is quite possible that Eurozone companies who will undoubtedly have to pay this tax would be given incentives. Who knows what the rules will be; one example might be that Eurozone banks are regulated to buy the bonds in the Eurozone or perhaps they can buy them tax free in the Eurozone´not if they buy them in London. In the same way that regulations encourage home banks to buy bonds in their own countries to satisfy capital requirements, it would be simple to extend these regulations to encourage banks also to buy them in the home country where they are without adversely affecting demand i.e. tax incentive to exempt you from the financial transaction tax if you buy at home. Just pointing out some possibilities.

I find it hard to believe they´ll just introduce a financial transaction tax that everyone doesn´t pay because they trade in the city; but who knows.

Obviously if they offer Eurobonds in a foreign country to foreign companies sovereign funds they´re not going to be taxable.

But that's effectively what you're suggesting will happen. One the one hand there might be a 'financial transaction tax' which would encourage traders to move trades out of the Eurozone, on the other hand you say 'Eurozone companies who will undoubtedly have to pay this tax would be given incentives'. The incentives would basically have to match up to the taxes, thus leading effectively to a 'tax that everyone doesn´t pay'.

If there's a tax that actually adds costs in any serious way (as compared to the normal costs of trading), then the first trade will happen in Euroland, and the rest outside, probably in London. I don't see what you're worried about.

[BlasterBates]

Surely if the Eurozone wants to issue bonds to support the EFSF or the ECB wants to issue bonds, they would want them to be traded all over the world to attract as many potential buyers as possible? Even if they don't, once some bond or other financial vehicle has been launched, you can't stop other countries' markets trading in it; the genie is out of the bottle and you can't get it back in.

It is now clear there will be a financial transaction tax in the Eurozone. Now we´ll have to wait what the conditions are. But it is quite possible that Eurozone companies who will undoubtedly have to pay this tax would be given incentives. Who knows what the rules will be; one example might be that Eurozone banks are regulated to buy the bonds in the Eurozone or perhaps they can buy them tax free in the Eurozone´not if they buy them in London. In the same way that regulations encourage home banks to buy bonds in their own countries to satisfy capital requirements, it would be simple to extend these regulations to encourage banks also to buy them in the home country where they are without adversely affecting demand i.e. tax incentive to exempt you from the financial transaction tax if you buy at home. Just pointing out some possibilities.

I find it hard to believe they´ll just introduce a financial transaction tax that everyone doesn´t pay because they trade in the city; but who knows.

Obviously if they offer Eurobonds in a foreign country to foreign companies sovereign funds they´re not going to be taxable.

[Mich the Tester]

Well I was thinking of the Eurobond market and Eurozone transactions which are all done in the City. But from what I see it looks to me like the Eurozone and the UK have agreed to disagree, rather than it being a fight. One could imagine a financial transaction tax that is lower if carried out in the Eurozone, rather than outside.

Surely if the Eurozone wants to issue bonds to support the EFSF or the ECB wants to issue bonds, they would want them to be traded all over the world to attract as many potential buyers as possible? Even if they don't, once some bond or other financial vehicle has been launched, you can't stop other countries' markets trading in it; the genie is out of the bottle and you can't get it back in.

[BlasterBates]

Why not? Lots of British businesses do their trade in any currency their customers choose.

Well I was thinking of the Eurobond market and Eurozone transactions which are all done in the City. But from what I see it looks to me like the Eurozone and the UK have agreed to disagree, rather than it being a fight. One could imagine a financial transaction tax that is lower if carried out in the Eurozone, rather than outside.

[sasguru]

Why not? Lots of British businesses do their trade in any currency their customers choose.

You're asking BB who doesn't have much of a clue about anything, a bit like his fellow expat Lord Haw Haw aka Comical Ali.

[doodab]

Why not? Lots of British businesses do their trade in any currency their customers choose.

[Mich the Tester]

What is pretty clear is that Euro based transactions won´t be in London anymore.

Why not? Lots of British businesses do their trade in any currency their customers choose.