The EU financial transactions tax was first debated by the member states in mid-2010 when most governments across the continent, and indeed the world, were still struggling to contain the impact of the global financial crisis on their respective banking sectors. Lehman Brothers had collapsed the previous September, then in May of that year the flash crash on the New York Stock Exchange graphically demonstrated the dangers inherent in automated trading generally and, in particular, its troublesome progeny, high-frequency trading.
This then was the backdrop against which, a month later, the EU sat down to discuss the state of the world. The sub-prime mortgage debacle in the US with its concomitant banking calamities in several European countries, the end of property booms in the UK, Ireland and Spain and the collapse of the house of cards that was the Icelandic Tiger all resulted in considerable, and comprehensible, public ire against banks and the wider financial sector. Legislators felt compelled, and indeed empowered, to come up with a muscular response.
Estimates for the amounts of money poured into the relief actions to prop up the banks during the crisis vary depending on whether you take into account all the state guarantees on their wholesale funding as well as the actual funds released for the most seriously affected, who had required actual bailing out. At the end of last year the European Commission’s state aid scoreboard put the figure for union member countries alone at €1.6bn (£1.3bn) between October 2008 and December 2011. Understandably the taxpayers want some of it back, particularly when the media is full of stories of banks continuing to pay huge bonuses to high-flying employees in the midst of the crisis.
Just as understandably, therefore, the legislators felt it behoved them to act on this desire for payback. On one level there were suggestions that some sort of resolution levy be imposed on banks to form the basis of a fund for any future bailouts. Above and beyond that idea, however, there was the financial transactions tax designed for financial institutions to make more of a contribution to government coffers generally, providing revenue that the authorities could, and would, use for purposes other than bailing out troubled banks, such as maintaining roads or building schools.
