Barnier in call for Europe-wide bank tax and bailout fund

Critics concerned that one country would end up paying for problems in another
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The Independent Online

The European Commission yesterday called for new taxes to be imposed on all of the continent's banks to insure against future failures and prevent a repeat of the financial crisis.

The EU's internal market commissioner, Michel Barnier, said the levies would go towards establishing a set of national funds that could be used to disburse emergency money in case of a repeat of the 2008 crisis that plunged the continent into the worst recession since the Second World War. These funds would be managed by national governments but would create what Mr Barnier said would be a "network of bank resolution funds".

"It's the banks, not the taxpayer, who should pay for the measures that would be needed in case a catastrophe happens. Once a catastrophe happens, they are no longer able to pay," he told journalists in Brussels yesterday, adding that "prevention is far cheaper than responding [to a crisis]".

EU member states were forced to spend billions of euros – up to 13 per cent of their GDP, by some estimates – in 2008 to shore up their banks during the global financial meltdown.

Mr Barnier stressed that that crisis and the current fragility of the world's economy showed the need for setting up a pre-emptive safety net to ensure there can be no repeat.

The proposal will be discussed by heads of state on 17 June during an EU summit, and will feed into global discussions on banking supervision and regulation at a G20 meeting in Toronto later that month.

Although most EU member states support the idea of a tax on banks – a system already successfully introduced in Sweden – there are concerns about plans to merge national revenues to create a kind of pan-European fund from 2014. That could mean that a crisis in one member state would be paid for using funds raised in other countries, an idea that is likely to prove highly controversial in member states such as Germany, which has just spent tens of billions of euros of its taxpayers' money to bail out Greece in the face of much popular opposition.

Britain too, is reluctant to be involved in a fund which could leave UK taxpayers picking up the bill of others' problems. "We would insist that this fund remain in national hands," a British official said. "There is no question of this going towards an EU-wide pot of cash."

Angela Knight, chief executive of the British Bankers' Association, is also strongly opposed. She said: "You could end up having one country having to pay up for problems in another country. As we have seen with the situation in Greece, that just wouldn't work. It is right that the taxpayer should not pay for this, the industry should pay. But it should be the industry in the country where there is a problem."

Mrs Knight also said each country should have in place an authority capable of intervening when banks hit trouble, as is the case with the Bank of England in the UK.

Mr Barnier remained vague on the future use of these 27 individual funds, saying: "The Commission is not proposing a common EU fund. It's a network of national funds that will operate in a European context. This fund should be financed by the banks themselves."

He also refused to indicate what kinds of levies should be introduced, saying it depended on national governments and banks to put forward ideas themselves. The size of the fund would depend on the ambitions of banks and governments. "I can't anticipate the volume that would be generated by such a fund." The European Commission said it would come forward with a full legislative proposal by the start of 2011 after debates with all 27 member states.

In addition to Mrs Knight's scepticism, Mr Barnier's ideas drew a frosty response from the CBI. Richard Lambert, director general, said: "We are concerned by the European Commission's proposals. If they were applied to Europe and not to the rest of the world they would damage the competitiveness of our financial services industry. This is particularly important for the UK, where financial services are a large part of our economy. Furthermore, levies to pay for resolution funds could reduce lending by banks to business, which is critical at this time.

"The Commission needs to be very wary of unintended consequences, and many questions remain unanswered."