Posts tagged ‘Finance’

New deal on finance tax may bring calm

A compromise may be in sight to defuse the conflict over a proposed EU turnover tax for all financial transactions. It seems that finance ministers are looking at stamp duty on share deals as an alternative way of taxing the financial sector, perhaps marking a calmer phase in the evolution of European financial services legislation.

The argument over a Tobin-type tax has come to exemplify deep-seated antagonisms over the future of financial services within the European Union. For some Brits the proposed levy is seen as a weapon designed by others to undermine the predominance of the City of London; for many continentals, especially the French, it would deliver just desserts to a sector which is blamed for all the troubles of the world – and which could be a rich source of revenue (€57 billion is the Commission’s estimated take for its proposed turnover tax).

The French presidential elections will keep up the heat, and obviously there won’t be any resolution of the argument until well after May 6, when the rhetoric of the hustings should give way to a more pragmatic approach. Ministers plan to come back to the subject in June. The question then will be whether any form of financial tax could be introduced as an EU measure. The British would hate that, but might have to accept it as part of a compromise deal.

It is a testing time in the financial services sector as new rules take effect. The Prudential insurance company is threatening to move its headquarters from London to Hong Kong because of the requirements of the Solvency II  directive, while the Bank of England deputy governor Paul Tucker argues that the directive, which comes into effect in 2014, will swamp national regulators and make it more difficult for them to spot big risks

The European Court has joined the fun. Its recent ruling outlawing gender as an element in fixing car insurance premiums and in calculating benefits such as annuities could be seen as just the sort of legalistic nit-picking which brings European law into disrepute. That’s certainly the view of the insurance industry and of many commentators who see the decision as “bonkers”, although to be fair it was foreshadowed in the 2004 anti-discrimination directive.

I suppose that Test-Achats, the Belgian consumer organisation which brought the case, assumed that if the Court ruled in its favour all premiums would drop to whichever level was lower, so the 22 year old male car driver would pay the same premium as his young sister and the woman in retirement would  get the more generous annuity of her male colleague.

Be careful what you wish for! When the new rules come into effect in December 2012 the judgement is expected to trigger a general increase in insurance costs. Women will have to pay more for their car insurance despite the fact that they are generally safer drivers than men, while males will have to accept smaller annuities despite the fact that men tend to die earlier than women. Of course some premiums will come down,  but not by much, and the overall effect is likely to inflate costs and reduce benefits.


March 14, 2012 at 4:31 pm Leave a comment

Merkel battles for the euro, but her troops are restless

People may have questioned Chancellor Angela Merkel’s commitment to the European Union over recent years, but there is no denying the pivotal role which she is playing in defence of the euro. What a desperate battle she has to fight! The trouble is that her own battalions are deeply sceptical of her campaign.

The misgivings in Germany over any bail-out of Greece, Portugal or Italy already run deep (Ireland is making tangible progress in tackling the crisis), but Friday’s resignation of German ECB board member Juergen Stark has given them greater force. Everyone is saying that his departure stems directly from his objection to the ECB purchase of bonds from the weaker economies in order to safeguard their banks.

Stark couldn’t possibly comment, but his decision has much the same flavour as the resignation of Axel Weber as president of the Bundesbank earlier this year and the subsequent appointment of Italy’s Mario Draghi as head of the ECB from November. What’s more, Stark is a member of Merkel’s own party, the CDU.

The German constitutional court gave Mrs Merkel some comfort early last week, when it pronounced as legal the measures which have so far been taken to support the euro.

More threatening was the Court’s insistence that further measures must be subject to a formal vote in the Bundestag. That could potentially scupper the introduction of yet further measures to support the weaker eurozone member states, in particular the expansion of the European Financial Stability Facility to €440 billion, of which €211 billion would be committed by Germany. It almost certainly rules out the idea of eurozone bonds, a widely canvassed option for resolving the crisis, but one which would imply even greater German burden-sharing.

The future of Germany’s coalition government is now at risk of collapse if Merkel’s own party has too many defections over support for the euro, maybe even in advance of the 2013 elections.

Merkel’s approach is to stress the need for long-term measures, and she is adamant that treaty changes are needed to make the stability and growth pact legally binding and defensible in the European Court of Justice – yet another reminder that it was Germany and France which drove coach and horses through the pact in 2003. The Chancellor blames that failure on the Socialists, as she does the decision to allow Greece to join the euro in 2001before the country was ready. There is no way to avoid modifications to the treaty, she says, if the euro is to survive.

Negotiating proposals for treaty change will be a major preoccupation for eurozone ministers in the coming months, but it will be a difficult process, coming to fruition in 2013 or later, which is hardly the short-term solution that the markets are seeking.

British euro-sceptics, especially Conservative members of parliament, see any treaty revision as the perfect opportunity to argue for a watering-down of the UK’s commitments to Europe. It would be sad irony if the creation of the euro, such a powerful force for integration, should evolve into a weapon of disintegration.


September 14, 2011 at 3:19 pm 1 comment

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