Brussels, 27/03/2001 (Agence Europe) - The Banking Federation of the European Union (FBE) published a position paper on Tuesday in which it comes out against the Tobin Tax proposal, which it described as a kind of "Loch Ness monster" and is concerned that the issue may be brought up again following recent "volatility in international financial markets". The idea of introducing a 1% tax on international speculation was first mooted in 1978 by the winner of the Nobel Peace Prize, the US economist James Tobin to meet two aims - regulating international financial markets to make them less volatile, and raising revenue for development aid projects such as reconstruction following natural disasters, combating AIDS and providing clean water supplies. The proposed tax is quite relatively insignificant (1%).
Economist George Martin, the author of the FBE's paper, argues that "the Tobin Tax is not the answer" to "volatility in international financial markets" for three reasons. Firstly it is not feasible since it would have to be introduced simultaneously in all countries to avoid diversion of financial activity. Secondly, it would have disruptive and frequently unjustified side effects since it would be passed on to all economic agents and not just speculators, and thirdly, it would be "ineffective" in achieving its original aim since it would not attack the causes of volatility in financial markets in Newly Industrialising Countries because it would introduce a "too rigid and unsustainable exchange rate policy, a weak domestic financial sector and a heavy foreign debt burden". MEP Harlem Désir (PES, France) who chairs the Taxation of Capital, Taxation and Globalisation Intergroup, argues that the debate cannot be avoided and that there was a strong demand for the tax to be introduced, including an international appeal signed by 505 MPs from around the world. Mr Désir wants the Tobin Tax to be applied universally but feels that the "EU can apply it alone to start off with since its financial markets account for more than 50% of international financial transactions". He points out that other schemes already exist on the foreign exchange markets in the form of commission charged by the monitoring authorities but this had not frightened off speculation. "Total freedom for capital does not guarantee that it is allocated in the best way and it is necessary to restrict speculation", added Mr Désir.
The debate over the Tobin Tax has been raging for some time and various parliamentary working groups in favour of its introduction were set up last year in France, Belgium, Italy, Canada and within the European Parliament. Some governments signalled in United Nations debates that they oppose the idea (United States, Switzerland, Japan, and Australia). The issue will be discussed at a United Nations conference on funding development in 2002. The Swedish government will be discussing the tax next week in the context of the Swedish Presidency of the EU. The same approach is being taken in Belgium for the next Presidency. The Internal Market Commissioner Frits Bolkestein opposes the Tobin Tax since it would "hinder the free movement of capital".