Robin Hood tax, a U-turn and a pirouette by the Commission

An important moment for the world and especially for the American people who on 6 November next year will have the choice to re-elect President Barack Obama or to elect a Republican opponent. For some years now the top public servant of the EU, European Commission President José Manuel Barroso, has also given a State of the Union address at the occasion of the opening of the European Parliamentary year. Until now the annual Barroso show was a bleak event and stayed rather unremarked. This year he used the magic words financial transaction tax -already strongly supported by the two biggest EU economies Germany and France - and bingo.

Never before has Barroso received so much applause in the European Parliament. In the last three years he said, member states have granted aid and provided guarantees of 4.6 trillion to the financial sector. It is time for the financial sector to make a contribution back to society . A remarkable moment. Taxes on financial transactions were long relegated to the rallies of anti-globalisation activists and less than a year ago the European Commission declared officially that this kind of taxation would be not very useful. But now the financial transaction tax also known as Tobin* tax and Robin Hood (steal from the rich and give it to the poor) tax has the backing from the Commission and from the two most powerful governments in the EU. The Commission hopes the tax will raise some 57 billion a year in revenues.

The Commission has even put numbers to its plan. The rate will be 0.1 per cent on stocks and bonds, and 0.01 percent on derivatives. Experts can tell you that this kind of tax has never happened because no one has ever found a way to make them work. The reason? Unless all jurisdictions set a unified tax, a financial transaction tax becomes an invitation for financial engineering and a marketing tool for offshore centres. The UK is likely to veto the plan amid fears of the damage it will cause to London s financial district. The British Treasury let it be known that it has no objection to the proposed tax but any financial transaction tax would have to apply globally . Also Sweden and the Netherlands (a member of the Eurozone) are opposed to the tax. They would back the idea only if it is agreed at global level. And that seems unlikely, given the opposition from the United States.

A new institutional set-up for the Eurozone’s economic governance will take centre stage at the next EU summit mid October. The European Commission is against such a ‘economic government’ organised by the Eurozone memberstates. And the Commission is even more against the idea that Herman van Rompuy, President of the European Council, will chair that new ‘government’. But see, not a U-turn but a pirouette this time! The Commission is thinking about to candidate one of their colleagues, Commissioner, Oli Rehn, for the new function. Wasn’t it: if you can’t beat them, join (read: chair) them?

*The Tobin tax is named after the US economist who first proposed it in the seventies.