- Title: BELGIUM: EU pushes for crisis levy on banks
- Date: 27th May 2010
- Summary: BRUSSELS, BELGIUM (MAY 26, 2010) (REUTERS) EXTERIOR EUROPEAN COMMISSION EU FLAGS
- Embargoed: 11th June 2010 13:00
- Keywords:
- Location: Belgium
- Country: Belgium
- Topics: International Relations,Finance
- Reuters ID: LVAAVP4WSAD9G099XJA2LYZSE6EV
- Story Text: The European Commission unveiled a framework on Wednesday (May 26) for a levy on banks to make them pay now for future crises, setting the stage for a showdown on the tax at a meeting of G20 world leaders in June.
Michel Barnier, the European Union commissioner in charge of an overhaul of financial services, promised new European Union-wide rules by 2011 to tax banks' assets, liabilities or profits, raising money for an emergency crisis fund.
But the levy, if agreed, would not be passed until the autumn.
Barnier promised a new European Union-wide framework by 2011 that could impose a levy on a bank's assets, liabilities or profits to pay for crises. He said in a statement before the news conference in Brussels that the principle was the same as the 'polluter pays' where it is the financial sector that pays for any future banking crisis - not the tax payer.
"Prevention is always cheaper than cure and we have to make sure we have the tools for prevention. Tax payers should no longer be on the front line. In particular, they should not be called upon to pay for the mismanagement of some banks," Barnier said.
Barnier said that European governments have spent, or guaranteed, about 13 percent of GDP to support the banking sector in the last crisis.
But there are deep divisions within Europe about the scope of such a tax and what the money collected should be used for. Last April, finance ministers from the 27-country bloc failed to agree at a meeting on even broad support for a bank levy.
While France and Britain would like it to go to the flagging national budget, Germany wants to ringfence the levy. The European Commission wants it set aside to pay for the winding down of struggling banks.
The British Bankers' Association attacked what it called an EU-wide tax.
Barnier admitted it would be complex but insisted it would not be a central EU tax. The funds would be national and coordinated pan-Europe-wide with the levies imposed in a uniform way.
Barnier made clear he was not pushing for a federal levy, a taboo among the bloc's 27 countries, which fiercely guard their right to decide taxes.
"The proposal is not about a single European Fund, or a federal fund. We are talking about national funds. And the funds will have to be financed by a tax on the financial institutions. It is up to the banks to pay for the banks, not for the tax payer," Barnier said.
"We will face extremely complex problems, not just regarding some banking crisis resolutions but of all sorts of areas such as supervision not least because of the trans-border aspect of the European banking system" he added.
Barnier used the example of the Czech Republic where he said more than 80 percent of the national banking system was owned by non-Czech banking groups.
But without it, he said, the EU will fail once again in any future crisis.
"Without such a fund, as we saw with the Lehman case, the un-controlled collapse of a large financial institution can have disastrous secondary effects," Barnier said.
The EU's executive hopes to build momentum for a global levy on banks before the meeting of leaders of the Group of 20 countries in Toronto next month.
As well as divisions within Europe, there is disagreement globally on imposing a special tax on banks.
Canada, whose banks suffered less throughout the crisis, is opposed to such a levy and Washington has also taken a different tack to Europe.
The U.S. wants its fee to recover the costs of the government's Troubled Asset Relief Program put in place to stabilize the banking system at the height of the financial crisis. - Copyright Holder: REUTERS
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