Friday, July 12, 2013

Moscovici Wants to Modify the Financial Transactions Tax

Back in the depths of the financial crisis, it was impossible to say anything too harsh about banks and bankers. The old idea of a "Tobin tax" on financial transactions--long a favorite of the Altermondialistes--was revived, and it seemed that everyone supported it, except of course the bankers. President Sarkozy certainly did. After tough negotiations and a public funk by David Cameron, which resulted in Britain's exclusion from the plan, France agreed with Germany, Italy, Spain, Austria, Portugal, Belgium, Estonia, Greece, Slovakia, and Slovenia on the parameters of the new tax.

But now the minister of finance, Pierre Moscovici, who serves at the pleasure of a president famous for saying "I hate the rich," has expressed concern, echoing the concern of associations of French industrialists, bankers, insurers, and brokers, that the new tax will "destroy a significant part of French financial activity."

I haven't seen the details of the tax, so I will reserve judgment as to the substance. Among other things, the proposal may be amended to exclude transactions involving sovereign bonds, in order not to add to state borrowing costs--not necessarily a bad idea. But does this regulation also cover derivatives based on sovereign debt? After all, one of the purposes of the financial transactions tax (FTT) was to curb the overly creative use of derivatives that seemed to propagate risk invisibly, thus contributing to the financial debacle.

As to the politics, however, Moscovici's approach seems totally wrong-headed. Why wait until the deal is almost done to express concern? Perhaps an FTT is not the best way to enhance the transparency of risk, but if that is Moscovici's worry, he ought to say so. The tax almost certainly will not prevent "sudden stops" in international capital flows, which surely did lead to the collapse of some European banks and widen the crisis. On the other hand, the revenue generated will compensate governments for the support they gave their banks in a moment of dire need.

What is needed from Moscovici is a clear statement of the principles on which a left-wing government intends to base its decision in a matter like this. These principles must be more than merely technical. They must include a statement that the privatization of financial profits is incompatible with the socialization of losses. If we are in this together, then the duties on both sides need to be clearly enunciated in terms other than market efficiency. By appearing to back the private sector's arguments, which are based solely on a refusal to bear the costs of damage done by private banks, Moscovici risks confirming the fears of those who believe that the government he represents is a captive of interests other than the public interest.

For comparison's sake, see Paul Starr's article on the failures of US banking reform efforts.


Mitch Guthman said...

I gather this is all part of the PS's going out of business sale.

Anonymous said...

An hour-long video was recently screened by France 3 for its 100th edition of the series Pieces a conviction. It shows that in France the banking lobby appears to have won the fight to avoid paying the costs for the damage done and Moscovici came out particularly badly with his effort to defend his (non) "reforms".

St. A. said...

Excellent article, right to the point. Moscovici has also failed to propose any clear idea for the reform of the banking system, with a law that is superficial and ill conceived. Even the UK Gvt has clearer view and is less dependent from the banking establishment. All was designed to preempt the proposals the EU commission is supposed to make soon. BTW Moscovici is very likely, I bet, to be sent to the EU commission when there is a "remaniement".

FrédéricLN said...

I approve at large Hervé Nathan's column in Marianne

Mitch Guthman said...


Excellent article. Thanks very much.

FrédéricLN said...

You are welcome — and, disclaimer, Hervé is a friend, so I'm glad to read your appreciation!

Laura Greenwood said...

I've read the law in both the original French and the translated English (essay for Uni, and just want to add a few points about the substance of it.

The idea of the tax is to gain extra income for the French government to help combat debt, this is fine until you take into account that the tax is only actually applied to shares and derivatives from companies whose headquarters resides in France and whose capital exceeds 1 billion euros a year. As long as there are countries in the world without FFTT, there is the possibility of companies relocating their headquarters and so escape the tax, this would even still be the case if the Eurozone attempted to apply it, particularly as some European countries, including the UK and Sweden, vetoed against it and refused to implement it at all.