French President Emmanuel Macron's proposal for a Europe-wide financial transaction tax is unlikely to be supported by European financial centers such as Luxembourg and the financial lobby, according to observers.
While the introduction of a EU financial transaction tax has been considered since 2011, Macron — who previously said a European transaction tax should be a prerequisite for the U.K. having access to EU markets after Brexit — gave the idea new impetus in a speech in late September, when he suggested it could be used to finance a EU development budget. But his proposal has fallen on deaf ears in many countries, with no resounding backing coming from other EU member states.
"I don't think there are a lot of European governments that are in favor of this idea. It was a bit of a flop," Gunther Capelle-Blancard, a professor at Université Paris 1 Panthéon-Sorbonne who specializes in financial regulation and taxation, said in an interview.
An original proposal for a EU-wide financial transaction tax was put forward in September 2011, but EU finance ministers were unable to reach a unanimous decision. A core group of 10 countries still support the tax but have yet to come to an agreement. The aim of the tax was to make the financial sector pay for the billions of euros in state bailouts used to prop up the European banking sector during the financial crisis. Under the plan, transactions in all types of financial instruments would be subject to a minimum 0.1% tax rate, except derivatives, which would be taxed at a minimum of 0.01%.
France has been one of the key drivers of the tax. It introduced its own financial transaction tax in 2012 and raised it in 2016, but recently revoked a plan to extend the tax to intraday transactions. Macron's model for a European financial transaction tax would be similar to that of the U.K.'s stamp duty on equities levied at 0.5%, which he said would not hurt the EU's competitiveness.
"Some fear unfair competition because, indeed, if we put in place a financial transaction tax that is excessive ... and damages our very ability to create economic activity, that is unsustainable," he said in his speech. "But if we decide, collectively, to adopt the British tax, nobody will be able to say that it creates disturbance or distortion of the European Union's competitiveness."
Not the right time
Capelle-Blancard said Macron's objective was for the transaction tax to be as simple as possible on a European and domestic level, so that it would be more palatable to other European countries.
"Macron's objective is to have a tax that represents little burden, so he is pushing in this direction on a European level and on the national level — he does not want an extension on the domestic tax," he said.
But with many European states vying for a slice of the U.K.'s financial services business after the country's decision to leave the EU, Saxo Bank economist Christopher Dembik argued that it is not the right time for this kind of proposal.
"You have a lot of dissension on a European level in countries with a financial sector that is very important, and automatically these countries are going to be more receptive to the banking and financial lobby," he said. "You have countries like Luxembourg, which has not only a lot banks and financial institutions that contribute to its GDP, but it also wants to attract a lot of banks and financial institutions that are leaving the U.K. so it's complicated to … implement a financial transaction tax at the same time."
Lisa Kastner, policy adviser at the Foundation for European Progressive Studies in Brussels, also said convincing all of the currently 28 EU member states to implement such a tax would be extremely challenging.
"There are so many different national interests involved in this, and it has been so problematic to negotiate, I would be extremely cautious in thinking this would be a smooth run to a new attitude for the 28," she said.
Kastner also highlighted that France may lose support from one of the other main backers of the tax, Germany, after the country's parliamentary elections in September. That is because one of the parties that used to be part of Germany's ruling coalition, the SDP, was behind the push for the tax but is now no longer part of the government, so Germany is unlikely to keep up the push for the tax, according to Kastner.