Jan. 10 (Bloomberg) -- France will lead the way on taxing financial transactions in an effort to spur other countries into joining, President Nicolas Sarkozy said.
“If France waits for others to tax finance, then finance will never be taxed,” Sarkozy said today in a speech in the eastern French city of Mulhouse.
A unilateral levy is opposed by France’s financial community and its feasibility was questioned today by one of Sarkozy’s own ministers. It has become a political challenge for the president, who faces elections in a two-round vote in April and May this year and wants to make good on a pledge he made to impose such a tax when France last year held the presidency of both the G-8 and G-20 group of countries.
“The idea of a financial transaction tax in France, without waiting for European partners to implement the same, seems to be a political move by Sarkozy to show that he remains active even as he prepares for the presidential election,” Stephane Ekolo, chief European strategist at Market Securities in London, said yesterday. “It will be very difficult to implement such a tax in a unilateral fashion.”
Some of Sarkozy’s ministers backed off a little from the plan today.
“This tax only makes sense if it is implemented across Europe because if France goes it alone, obviously it will be eventually reversed,” Budget Minister Valerie Pecresse said in an interview on France 2 television today.
The French government, long a proponent of the tax, stepped up its campaign last week. Prime Minister Francois Fillon said yesterday that France may present a tax bill in February. “Someone has to be the first to jump in the water,” he said.
Still, concern that imposing the tax unilaterally will prompt markets to penalize France is prompting it to get other countries to sign up. Finance Minister Francois Baroin said today that implementing a financial transaction tax at the European level would prevent job losses at banks in France.
“France, Germany and the euro zone will move ahead on this,” Baroin said today on I-tele. “The question is whether we are first or last.” Baroin said he’ll discuss the matter with German Finance Minister Wolfgang Schaeuble in two days.
At a joint press conference in Berlin with Sarkozy yesterday, German Chancellor Angela Merkel threw her weight behind the tax, saying “I’m in favor of thinking about such a tax in the euro zone.” She didn’t, however, say Germany would impose such a levy. U.K. Prime Minister David Cameron has said the tax won’t work unless it’s applied worldwide.
The European Commission in September suggested a tax of 0.1 percent on equity and bond transactions and 0.01 percent on derivatives, which it said could raise 55 billion euros ($71 billion) a year. European Union finance ministers are due to discuss the levy in March.
Ernst & Young, an accounting company, said in a report that while the tax itself may raise as much as 37 billion euros in the EU, its net effect could be negative by between 2 billion euros and 116 billion euros by decreasing economic activity and reducing revenue from other taxes.
The U.S. opposes taxes on transactions, preferring bank levies based on the size of their balance sheets.
The French financial world has spoken out against the tax, especially if it’s only going to be imposed in France.
“A tax that’s limited to France would weigh on growth, lead to a loss of competitiveness, and create a heavy handicap for the financing of the French economy,” the French Banking Federation said in a statement yesterday.
Francois Hollande, the Socialist candidate and frontrunner in the French presidential elections, supports the tax, “but it obviously can’t work if other countries don’t apply it,” his campaign aide Michel Sapin said in an interview today.
--With assistance from Gregory Viscusi in Paris and Helene Fouquet in Berlin. Editors: Vidya Root, Steve Rhinds
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