The economic crisis has exposed weaknesses in the financial system, forcing governments to pump billions of euros of taxpayers' money into ailing banks and other financial institutions to safeguard the stability of their economies. MEPs think that now is the right time to think about how financial institutions could pay back their debt to society. In a March plenary session they called on the European Commission to explore the impact of a financial transaction tax.
The idea of such a tax has been floated by economists and politicians around the world for years. Colloquially called the "Tobin Tax" after the economist who put forward the idea, the economic crisis has given it a new lease of political life.
On Monday 10 March MEPs adopted a Resolution (536 votes in favour to 80 against) calling for the financial sector to contribute fairly towards economic recovery since the costs of the crisis are being borne by taxpayers.
They also called on the Commission to analyse what the impact of implementing the tax would be.
Rationale behind tax discussed
On 25 March Members of Parliament's special "Financial, Economic and Social Crisis Committee" debated the rationale behind a possible financial transaction tax.
Stephan Schulmeister of the Austrian Institute for Economic Research in Vienna said short-term financial transactions can make short-term prices of currencies and other financial products such as derivatives and shares vary wildly. For example buying €5 million on the foreign exchange and selling it 5 minutes later can have a substantial impact on exchange rates and stock prices.
Mr Schulmeister said a tax of just 0.05% would eliminate these short-term transactions, bring greater stability and bringing €300 billion of additional revenues to the EU.
For the International Monetary Fund Bert van Selm said it was more a question of controlling capital flows than a tax on transactions itself.
In a debate on the tax in the Development Committee on 24 March, the rapporteur, Maltese Socialist Edward Scicluna said, "there have been calls, including in the G20 last September, to make the financial sector pay for setting up stability funds and recompense for the damage that they have caused to the real economy".
Debate in House reveals divisions
When MEPs debated a report on the financial transactions tax in the plenary on 9 March, many were divided on the relative merits of a possible tax.
Finnish centre right European People's Party MEP Sirpa Pietikäinen said, "the financial industry is the biggest global sector at the moment. To me it is natural that financial transaction should be the (focus of the) first attempt at global taxation. Someone has to take the lead and it is quite naturally the European Union's place to do so".
British Socialist Catherine Stihler said such a tax was "about those who have contributed to the financial crisis giving something back".
However, British Conservative Kay Swinburne said, "it is nonsensical and naive to think that if the EU were to implement a transaction tax without the support of all key global players that we would not lose out to other countries".
- Further information :
* EP Resolution 10 March
* Financial, Economic and Social Crisis Committee
* Press release
REF. : 20100329STO71433