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Macron likely to further delay EU financial transaction tax

Emmanuel Macron's recent election as French president could be the final nail in the coffin for the long-awaited European financial transaction tax.

While Macron says he is in favor of the plan, he wants it to be an integral part of the negotiations to finalize the U.K.'s exit from the EU, which means the tax could be delayed by two years. In addition, his Economy Minister Bruno Le Maire pushed back a meeting with his EU counterparts on the subject, saying May 23 that the impact of Brexit had to be taken into account before a decision on the tax could be made.

Given that the tax has been delayed time and time again, yet another postponement might prove to be the final blow for the plan, observers told S&P Global Market Intelligence.

"The tax has been six years in the making, and I'm afraid that it's not going to go much further than this," said Gunther Capelle-Blancard, a professor at Université Paris 1 Panthéon-Sorbonne who specializes in financial regulation and taxation. "It's a very bad sign."

'Madness' not to tax UK banks

The tax was conceived in the wake of the financial crisis as a way of making Europe's financial sector pay for multibillion-euro state bailouts. The original proposal set out in September 2011 was beset with problems from the start, as EU finance ministers were unable to agree on the tax, and though a core group of 11 countries continued to support it, an agreement has yet to see the light of day.

Under the plan, transactions in all types of financial instruments would be subject to a tax of at least 0.1%, except for derivatives, which would be taxed at a minimum of 0.01%. France, along with Germany, has been a key supporter of the tax, with former President Nicolas Sarkozy backing it at a G20 meeting in 2011. The country introduced its own financial transaction tax the following year, shortly after the election of President François Hollande, then raised it in October 2016 to boost its international development budget.

Macron's comments on the campaign trail showed that he has a more lukewarm approach to a European financial transaction tax than his predecessors. In an interview with Le Parisien published April 12, before his election in early May, he said taxing eurozone countries and not the U.K. would be "madness."

"Either we make it a prerequisite for access to the European financial services market or we ensure that Britain does not have the financial passport and does not have access to our markets [after leaving the EU]," Macron told the newspaper.

Since prolonged negotiations are expected to take place to finalize Brexit, which is anticipated for spring 2019, an agreement on the tax in the near future is unlikely.

"With Brexit, things are going to be delayed further because everyone wants to see the outcome of the negotiations," said Christiana HJI Panayi, professor in tax law at Queen Mary University of London. "Once they start the negotiations, we might see some more movement in this area, but Macron is going to make it difficult for the U.K."

The U.K. may find itself in an ironic position where it is forced to adopt such a tax to stay in the single market, whereas if it had voted to remain in the EU, it may have been able to apply for an opt-out, she added.

Competition concerns

Macron's position reflects his past as a former banker and the fact that France is positioning itself as a top destination for financial institutions wanting to set up shop in the EU once the U.K. leaves the bloc, HJI Panayi said.

While Austrian Finance Minister Hans Jörg Schelling gave an upbeat progress report on the tax May 21, saying two more EU members had signed up for the plan, German Finance Minister Wolfgang Schäuble has said he does not expect an agreement any time soon. Estonia withdrew from the plan in 2016, and Belgium has asked to exclude pension funds from the tax.

"I don't have the feeling that there is a great political will for the tax, even in Brussels," said Philippe Waechter, chief economist at Natixis Asset Management. "We are in a situation where everyone is waiting and seeing, where there is no great desire to do something that would make the eurozone less competitive than the U.K."

He added: "I think it's something that is going to be pushed to the side. The more time goes on, it is becoming no longer necessary to find solutions to the crisis."