The story being briefed out of the year’s first Franco-German Summit is that
President Nicolas Sarkozy won the backing of Chancellor Angela Merkel for a tax on financial transactions, a levy that the British government objects to and that Ernst and Young say would leave a €116bn hole in
Europe’s public finances.
But before the City begins building barricades and the PM puts on his bulldog mask, it is worth taking another look at the news from Berlin. For no sooner had the agreement been announced than the
tax was rejected by Chancellor Merkel’s junior coalition partner, the
pro-business Free Democrats, who say they will only back a Europe-wide tax scheme. They are not alone. The Netherlands and Ireland feel the same. And as an EU-wide tax has no chance of succeeding,
given British and Swedish opposition, the whole story is more a matter of French electoral spin than European fiscal policy.
In fact, the German Chancellor had to say that she was ‘personally’ in favour of the idea but no more.
Finance ministers would be asked to draft proposals on the tax by March, she said – knowing that her finance minister, Wolfgang Schauble, is among those in Europe most keen for it.
But, for the time being, France may have to impose the tax by itself – as its government has threatened. And like Sweden’s experience in the 1980s, that may be the best way to dissuade
anyone from expanding its adoption. After seeing 90 to 99 per cent of its traders in bonds, equities and derivatives move out of Stockholm to London after the introduction of the tax, the Swedish
government now opposes a geographically-limited tax. Who says politicians never learn?