EU Finance ministers meeting in Madrid yesterday failed to agree a deal on a new bank tax, as a row over what the proceeds of any levy should be used for intensified.
There is consensus across the 27-member community that banks should face a new charge after a series of state-backed bailouts across the continent cost taxpayers billions of pounds. However, yesterday's gathering in the Spanish capital broke up without a deal and now threatens to derail attempts at this week's International Monetary Fund meeting in Washington to agree a global strategy.
"No decision has been made," said Elena Salgado, Spain's Economy Minister. "We will have to keep talking about types of crisis-resolution instrument." There has been intense pressure from various governments to agree a deal.
Many argue that the banks are responsible for the recession that has blighted the international economy for the last two years, and want a tax to prevent the banks from getting out of control again in the future. The news at the end of last week that US regulators have accused Goldman Sachs of fraudulent activity over debt instruments used in the toxic subprime mortgage market will only intensify the debate.
Officials cannot agree on what form a charge should take. Last week, the EU's markets commissioner, Michel Barnier, called on each EU state to set up an insurance fund with the proceeds of a levy, to be used by governments in the event of another financial crisis.
Both Labour and the Conservatives argue that the creation of such a fund would tempt the banks to return to riskier practices, in the knowledge that they will be bailed out if deals go wrong. Both parties have said the proceeds from any levy should go into general tax revenue, going some way to help to pay off the huge deficit in the public finances. The two parties agree that an international settlement is ideal, and have earmarked the G20 summit in June as the likely stage for a deal. George Osborne, the shadow Chancellor has said he will impose a unilateral tax if no international deal can be agreed.
The Liberal Democrats would impose a 10 per cent levy on all banks' profits, with immediate effect. "Britain is in a unique position," said the party's Treasury spokesman, Vince Cable. "Our banking liabilities and assets are many times the size of the British economy and we need to make the banks safe – something that the Liberal Democrats have long argued for." Like the Liberal Democrats, a number of European countries are eager to impose a tax. They were warned against taking individual stands at the meeting in Madrid, however.
"What is important is a level playing field," said Ewald Nowotny, a member of the European Central Bank's governing council. The ECB's president sent similar signals: "Let's avoid financial nationalism; we are in a single market," Jean-Claude Trichet said.
Lord Myners, the City minister, attended the meeting. Unlike colleagues, he is not fighting a parliamentary seat.Reuse content