Finance ministers from 11 European Union countries agreed at a meeting in Luxembourg on Tuesday to support a tax on financial transactions, hoping to discourage risky trading while simultaneously raising revenue.
Germany and France, the EU's two largest economies, have long supported the idea of the tax, while countries like the Netherlands, Sweden and the United Kingdom remained staunchly opposed out of fears the tax could harm the competitiveness of their financial markets.
Sweden imposed a similar tax in the 1980s, only to lose much of its trading activity to London. Stockholm later repealed the law.
"We still think that the financial transaction tax is a very dangerous tax," Swedish Finance Minister Anders Borg said ahead of the meeting. "It will have a negative impact on growth."
There are still few details on how the tax -- referred to as the "Tobin tax" after the Nobel laureate American economist James Tobin who first proposed it in 1972 -- would work and how its revenue would be used. The European Comission, the EU's executive branch, has proposed taxing trades in bonds and shares at a rate of 0.1 percent per transaction and taxing trades in derivatives at 0.01 percent.
Beef Up the Budget
Some have proposed the revenue be put into a fund that would help struggling banks, while others -- particularly Brussels -- want the money to beef up the EU's budget. Austrian Finance Minister maria Fekter said that a model for how the tax might work would be presented by the end of the year in the hopes that it could be installed by 2014.
Talks on the tax are one element of European Union efforts to create banking rules that could help prevent a repeat of the debt crisis which continues to ravage euro-zone finances. European finance ministers also addressed efforts to create a euro-zone banking union involving centralized oversight of financial institutions. Thus far, however, agreement has not been reached on who would be responsible for such oversight or even which banks would be monitored.
At the Tuesday meeting, Dutch Finance Minister Jan Kees de Jager urged care in designing the oversight architecture. "It's important that we do it step-by-step and that the substance is leading and not the calendar," he said according to the Associated Press. His French counterpart Pierre Moscovici, however, expressed confidence that a deal could still be reached by the end of the year. France is still hoping for any supervisory regime to cover all 6,000 banks in the euro zone while Germany would like to see only larger institutions monitored.
The 11 countries supporting the financial transaction tax were Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain -- all part of the euro zone. The countries still have to put their plans in writing and submit it to Brussels, according to European Tax Commissioner Algirdas Semeta.
Imposing the tax across the entire EU is impossible without the support of more countries, however the EU treaty allows for "enhanced cooperation" in policy matters when at least nine states come together in agreement.
Countries that choose to opt out of such an agreement could also block the action, but the non-participating countries said at the meeting that they would not plan on doing so.