Germany mulls transaction tax to raise funds

Germany’s centre-right coalition government and the main opposition parties have agreed in principle to introduce a finance market transaction tax in the EU to involve financial institutions in sharing the costs of present and future bailouts.

The agreement, which was hammered out at a joint working of the ruling parties as well as the opposition Social Democratic Party [SPD] and the Green party on Thursday, will clear the way for parliament ratifying the EU’s fiscal pact on budgetary discipline and the permanent financial rescue fund the European Stability Mechanism [ESM].

Chancellor Angela Merkel’s coalition government is dependent on the opposition parties to secure a two-third majority to pass legislations on the fiscal pact and the ESM in the Bundestag, the lower house of parliament and to secure the endorsement of the upper house, the Bundesrat, where the opposition holds the majority. The SPD and the Green party made a commitment by the government to work for introducing EU-wide finance market transaction tax a condition to vote for the two bills in both houses of parliament.

Even though Chancellor Angela Merkel’s Christian Democratic Union [CDU] has been in favour of a finance market transaction tax, its junior coalition partner free Democratic Party [FDP] until now opposed it.

Merkal expressed satisfaction over the breakthrough in the negotiations between the ruling and opposition parties and said she hoped a final deal could be reached when the negotiators meet again on next Wednesday.

‘I am very pleased that these talks are held constructively by all sides,’ she told a joint news conference together with visiting British Prime Minister David Cameron. ‘I think it is a good contribution for Europe,’ she said. Cameron reiterated his opposition to a EU-wide finance market transaction tax and said his government holds the view that such a levy might force businesses to relocate to other financial centres. He said he is in favour of introducing a bank tax similar to those levied in Britain. Britain also charges a stamp duty on every transaction of shares, he said.

Chairman of the Green party Sigmar Gabriel hailed the compromise among the German political parties as the first major step towards an agreement to charge a EU-wide levy on the financial markets.

The proposed tax will be levied at a level of between 0.01 per cent and 0.1 per cent and it will be imposed on the broadest possible range of financial products.