November 17, 2024

E.U. States Get Blessing for Financial Trading Tax

European Union finance ministers gave their approval at a meeting in Brussels, allowing the states – Germany and France plus Italy, Spain, Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia – to pursue the contested scheme.

The levy, based on an idea proposed by U.S. economist James Tobin more than 40 years ago but little considered since, is symbolically important in showing that politicians, who have fumbled their way through five years of financial crisis, are getting to grips with the banks often blamed for causing it.

“This is a major milestone in tax history,” Algirdas Semeta, the European commissioner in charge of tax policy, told reporters, saying the levy could be imposed from January next year if governments agree on its design quickly.

Under EU rules, a minimum of nine countries can cooperate on legislation using a process called enhanced cooperation as long as a majority of the EU’s 27 countries give their permission.

Britain, which has its own duty on the trading of shares, registered its protest by abstaining in the vote, along with Luxembourg, the Czech Republic and Malta, EU officials said.

Following Tuesday’s decision, Semeta said the European Commission would likely put forward a blueprint for the tax in February. Other EU countries could still join the scheme.

Even if Britain and others are out, however, they could still be affected, which is a major concern for London, Europe’s biggest financial centre. If either the buyer or seller is based in one of the countries imposing the tax, the levy can be imposed regardless of where the transaction takes place.

Although critics say such a tax cannot work properly unless applied worldwide or at least Europe-wide, some countries are already banking on the extra income from next year, which one EU official said could be as much as 35 billion euros annually.

Economy Minister Vittorio Grilli said Italy expects revenues of 1 billion euros a year at the national level, while French finance ministry official Benoit Hamon said Paris was among those keen to have the levy in place quickly and hoped other countries would eventually join up.

The Netherlands has expressed an interest in joining the 11, German and French officials said, and non-euro zone countries have also registered interest in signing up.

COURSE OF LEECHES?

Germany and France decided to push ahead with a smaller group after efforts to impose a tax across the whole EU and later among just the 17 euro zone states failed.

Sweden, which experimented with and then abandoned its own transactions tax, has repeatedly cautioned that the levy would push trading elsewhere and found some support for its reservations from Denmark, Portugal, Hungary and Romania on Tuesday, although they did not block the process.

Germany has argued that banks, hedge funds and high-frequency traders should pay for a financial crisis that began in mid-2007 and spread across the world, forcing euro zone countries to bail out peers such as Portugal and Greece.

“The financial sector should share the burden of costs of the financial crisis in an appropriate way,” said German Finance Minister Wolfgang Schaeuble, who was attending a celebration in Berlin marking half a century of post-war partnership between France and Germany. “We have come a good way closer to this goal.

But critics say the levy could open another rift in Europe, where the 17 states using the euro are deepening ties in order to underpin the currency, and there is the growing risk that Britain could even leave the European Union.

Powerful lobby group AFME, which represents some of the world’s largest banks, says the tax will undermine economic growth and the jobs market at a time when Europe is struggling with record unemployment.

Nicolas Veron, a financial market expert at Brussels-based think-tank Bruegel, also believes the scheme, which is likely to see stock and bond trades taxed at a rate of 0.1 percent and derivatives trades at 0.01 percent, is misguided.

“Using a tax on financial transactions to tackle the ills of finance such as high-frequency trading could turn out to the equivalent to a 17th-century course of leeches.”

(Additional reporting by Leigh Thomas, Annika Breidthardt and Francesco Guarascio; Editing by Catherine Evans)

Article source: http://www.nytimes.com/reuters/2013/01/22/business/22reuters-eu-transactionstax.html?partner=rss&emc=rss

Greece Struggles Again to Come Up With Funds

Finance Minister Yannis Stournaras said the strategy of buying back debt from bondholders at a discount needed to succeed as a matter of “patriotic duty.”

Mr. Stournaras did not say outright that the buyback was a firm requirement for the release of €34.4 billion, or $44.5 billion, in funding next month, though the International Monetary Fund, one of Greece’s troika of creditors, signaled as much this week. The Greek debt management agency is to disclose details of the buyback program next week.

Mr. Stournaras said that if the program failed to attract sufficient interest from the banks and insurers that hold the government’s debt, officials had drawn up a “Plan B.” He refused to elaborate.

The loans needed to carry out the buyback would come on top of the funding that European officials and the I.M.F. committed to release after marathon talks in Brussels this week.

The troika has calculated that if successful, the debt buyback, together with other means of debt relief, could help Greece reduce its staggering debt to 124 percent of gross domestic product in 2020 from around 175 percent of G.D.P. now.

But a number of hurdles remain that could mean delays in reducing Greece’s debt. For one, Athens will also have to convince bondholders to sell back their debt at a price that is attractive to the government. Bondholders will hold out for as much as they can get.

In addition, some of those bondholders are beleaguered Greek banks. The government bonds they hold count as bank capital and they pay a high rate of interest, reflecting the risk attached to the debt. Writing down the value of the bonds, and forgoing that capital and income, will eventually leave the banks even worse off than they are now. That may require the troika to send even more aid to Greece in the future to recapitalize the banks, analysts say.

As it is, nearly 85 percent of the forthcoming installment of bailout aid has been set aside to shore up Greek banks, which have virtually stopped lending.

Since Greece appealed for foreign support to avoid default in April 2010, the troika — the European Commission, European Central Bank and the I.M.F. — have committed to two loan programs worth a total of €240 billion. In exchange, three increasingly weak governments in Athens have imposed a raft of austerity measures that have crippled Greek households.

European and I.M.F. officials on Tuesday agreed to release a total of €44 billion in aid. Of that, €34.4 billion is to be disbursed by Dec. 13. The remaining €9.3 billion is to be released in the first quarter of next year on the condition that Greece meets the troika’s targets for implementing austerity measures and carry out fiscal and economic reforms.

Mr. Stournaras said the agreement in Brussels “creates the conditions to keep us in the euro zone and the opportunity to emerge from the vicious cycle of recession and indebtedness.” But he said there was no cause for celebration.

“Now the hard part begins,” he said.

Liz Alderman reported from Paris.

Article source: http://www.nytimes.com/2012/11/29/business/global/greece-struggles-again-to-come-up-with-funds.html?partner=rss&emc=rss

Strong Bond Sale in Spain and Russian Support Fail to Lift Euro

The offer came as Spain — one of the euro zone countries considered to be most at risk of needing outside help — held a surprisingly strong debt auction, providing a measure of relief in Madrid days before a new, conservative government is to be sworn in.

Arkady Dvorkovich, an economic aide to the Russian President Dmitri Medvedev, said that the issue was discussed by leaders at a dinner Wednesday night ahead of Thursday’s summit meeting between the European Union and Russia in Brussels.

Speaking in Brussels, Mr. Dvorkovich said that Russia would be ready immediately to allow the I.M.F. to keep $10 billion from its 2009 commitment which, he said, was due to be reimbursed. A separate loan of up to $10 billion was dependent on clearer plans emerging for the financing of a firewall for still-vulnerable euro zone nations like Italy and Spain.

“We are certainly ready to give $10 billion we are going to get back and we are ready to consider up to $10 billion on top of that,” said Mr. Dvorkovich. The additional loan “depends on the structure and size of the overall package.”

Despite the Russian announcement, and wishful talk of billions from China to aid the euro zone, Mario Draghi, the head of the European Central Bank, indicated in a speech Thursday that struggling governments in Europe would in the end have to solve their own problems.

“There is no external savior for a country that doesn’t want to save itself,” he told an audience in Berlin, The Associated Press reported.

That idea was reinforced Wednesday by Ben S. Bernanke, the Federal Reserve chief, who reportedly told senators in Washington that the Fed was not planning to ride to the rescue of the embattled euro.

Mr. Draghi also again ruled out more-aggressive bond purchases by the central bank, saying the euro zone’s “firewall” was the bailout fund set up by European governments, The A.P. reported.

Mr. Draghi spoke after the Bank of Spain announced that the Treasury had sold €6 billion, or $7.8 billion, of bonds, far above the €3.5 billion it had set as the upper limit for the auction.

The sale included €2.2 billion of 10-year bonds, priced to yield 5.24 percent, down from the 5.43 percent it paid to move similar securities on Oct. 20.

Following the auction, the yield on Spain’s 10-year government bonds fell 22 basis points to 5.39 percent.

Another beleaguered country, Italy, saw its yield drop 15 points, to 6.59 percent, even after the government called a confidence vote for Friday on a new austerity package.

“We’ve seen less stress today in the sovereign bond market,” Steven Saywell, head of global currency strategy at BNP Paribas in London, said. He said there was speculation that the European Central Bank’s new medium-term bank financing program, which started Thursday, was helping to buoy euro-zone debt.

The E.C.B. last week said it would begin giving banks loans for three years, compared with a maximum of about one year previously. It also cut its main interest rate target to 1 percent from 1.25 percent.

“But to really turn things around,” Mr. Saywell said, “we’re going to need more aggressive action from the E.C.B. I don’t think this is a turning point.”

The euro ticked back above $1.30, from $1.2980 late Wednesday in New York. European stocks were up as well.

Mr. Saywell predicted the euro would remain weak in the near term, with selling driven both by existential fears for the currency union as well as more prosaic concerns about the economic outlook, with the European economy now widely expected to make a poor showing next year. Further weighing on the euro, he noted, is the E.C.B.’s rate cut, which had the effect of narrowing the advantage money market managers gain by holding euro-based assets and making dollars relatively more attractive.

On Wednesday a European official, who spoke on condition of anonymity due to the sensitivity of the issue, said that Moscow had a direct interest in the stability of the European common currency, as around 40 percent of Russian foreign currency reserves are held in euros.

Mr. Dvorkovich said that Russia was aware that Europe was its closest trading partner, and that negative developments in the euro zone would have an impact on the Russian economy.

Mr. Medvedev — attending his last E.U.-Russia meetings before next year’s presidential elections, in which he is not running was briefed at the dinner on the outcome of discussions among European leaders last week on the euro.

“European leaders seem to be more optimistic than before about reaching a solution,” Mr. Dvorkovich said, though he added that more detail was required on how a firewall to protect countries like Spain and Italy will be constructed.

“What we would like to understand is what is the gap and how they are going to collect the whole amount,” he said. “What we need to do is make markets believe.”

Mr. Medvedev and the Russian Foreign Minister Sergei Lavrov were to hold meetings with the president of the European Council, Herman Van Rompuy, the president of the European Commission, José Manuel Barroso, and the E.U.’s foreign policy chief, Catherine Ashton.

On Monday, Vladimir Chizhov, Russia’s ambassador to the European Union, said that, following the decision by European leaders last Friday to make a new contribution to the International Monetary Fund, the government in Moscow was considering doing the same.

However he did not give any figure or say whether an announcement could be made at the E.U.-Russia summit. Russia has ruled out making any contribution directly to the euro zone’s bailout fund, Mr. Chizhov added.

David Jolly reported from Paris.

Article source: http://feeds.nytimes.com/click.phdo?i=5c7b996a7d9a21867f27eef1a2300e59