Fighting Fire with Buckets

The costs of the crisis are enormous. The IMF estimates the expenditures of governments for stimulus programmes to mitigate the consequences on the real economy lie at 3,5% of global GDP (IMF 2009:vii). Together with the rescue packages to save the banks, governments have spent approx. 3,5 trillion USD globally to combat the crisis.

As the financial sector bears the main responsibility for the crisis, the question arises, who will carry the costs. There are strong demands in the public to make the banks pay, in particular as some of those, which have survived the crisis are making big profits again. Under this pressure the G20 summit in Pittsburgh had mandated the IMF to prepare a report on options “as to how the financial sector could make a fair and substantial contribution toward paying for any burdens associated with government interventions to repair the banking system.” (Pittsburgh Summit Leader’s

Box 5. FTT, Bank Levy and FAT The FTT has a double capacity: • a big potential for revenues. A tax rate of just 0,1% would yield globally 734,8 billion USD a year in a scenario where there would be a medium reduction of transaction volumes resulting from the tax. At 0,1%, for Europe the figure would be 321,3 bn. USD. Even with a tax rate of 0,01% the revenues would still be considerable (Schulmeister 2009). • But in addition the FTT would have a regulatory effect. It would reduce speculation, in particular electronic high speed transactions, which today make already 60% of all transactions at the New York Stock Exchange, would become unprofitable. The bank levy instead would have no regulatory impact. Its revenues would range from 1,4 bn. USD in the German concept to 9 bn. USD in the initial US proposal. The Obama administration had to sacrifice its bank levy in order to get a compromise for its law package. The IMF has proposed a third instrument, the Financial Activities Tax – FAT (IMF 2010). The FAT would tax the profits and the remuneration of banks. The IMF favours in his report a combination of Bank Levy and FAT.

Declaration). But the G20 summit in Toronto 2010 rejected the FTT. In particular Canada, the UK and the US, but also India were against the FTT. The bank lobby is fighting the FTT vehemently.

Independently from that, several countries, among them the US, France and Germany had already rather early envisaged a bank levy. At the same time civil society in Europe and North America was mobilising for a Financial Transaction Tax (FTT). In the EU the FTT got support by the governments of Austria, Belgium, France, Germany and Greece. The president of the EU Commission, Barroso was also speaking out in favour of a FTT. On the other hand, the UK, Sweden and the Netherlands are against the FTT. A “non paper” written by the staff of the directory for the Internal Market, is however rather critical towards the FTT, using arguments which had been rebutted by the proponents of the tax several times in the past (Jetin/Denys 2005).

The German government has considered implementing the FTT in the Euro-zone, if it should be impossible to reach a consensus at EU level. But Luxemburg has already announced that they would not accept this. The issue remains on the agenda of the ECOFIN in autumn 2010, but the chances to reach a positive result are minimal. If the EU fails to make the financial sector pay a substantial share of costs for the crisis, which it has triggered, this will not only perpetuate the problem of moral haz- ard, i.e. the conviction of the finance sector that whatever they do, they will be res- cued by the state, but will also reduce the acceptance of the EU among citizens fur ther. The perception, that the entire crisis management had something deeply unjust, will be confirmed. According to the results of Eurobarometer, the regular European opinion poll, from August 2010, only 49% of the European citizens consider the EU membership of their respective country to be positive (Eurobarometer 2010:12).