The World from Berlin 'A Tax Would Not Prevent the Next Crash'

The German government has come out in favor of a tax on financial markets in a bid to reduce turmoil on the stock exchanges. German commentators warn that such a levy would cause investors to take their business elsewhere and could hit ordinary people and companies instead of speculators.
The Australian Stock Exchange in Sydney: A tax on the financial markets would not reduce speculation, German commentators warn.

The Australian Stock Exchange in Sydney: A tax on the financial markets would not reduce speculation, German commentators warn.


As the euro continues its seemingly unstoppable fall  against the dollar, European governments have been falling over themselves to come up with new regulations for the financial industry, partly as a bid to reduce turmoil in the markets but also -- so say cynics -- to reduce popular anger at the multi-billion bailout of Greece.

Tuesday saw a series of measures being agreed upon. The so-called Eurogroup of the finance ministers of the 16 euro-zone countries put together a package of new regulations  aimed at reining in the financial markets, including tougher regulation of the hedge fund industry.

In the future, fund managers will be required to register their activities in Europe. Funds from other countries like the US will likewise have to register with regulators. In addition, hedge fund managers would have to divulge their investment strategy.

Also on Tuesday, Germany's governing parties called for the introduction of an Tobin-style international tax on financial markets , but left details open. The tax might take the form of a tax on all financial transactions or a tax on financial activities, which would only be levied on financial institutions' profits and salaries. Chancellor Angela Merkel, who had earlier opposed any such a tax, said she would press the idea with other countries at the G-20 summit in June.

If Merkel does not succeed in getting other G-20 states on board, it is also possible that Europe will unilaterally introduce a financial tax. There was broad support for such a course at the euro-zone finance ministers' meeting, with Luxembourg's Prime Minister Jean-Claude Juncker, the head of the Eurogroup, saying he could imagine Europe going it alone.

Germany's market regulator BaFin also announced Tuesday a ban on naked short selling -- a particularly risky form of betting on a market's downward trend -- of euro-zone government bonds and of shares in 10 of Germany's biggest financial institutions. The ban, which came into effect at midnight on Tuesday, also applied to naked credit default swaps on euro-zone government bonds -- in other words, taking out credit default swaps (a kind of insurance that protects investors against falling bond prices) on bonds that one does not own. The euro dropped to four-year low against the dollar on Wednesday, falling below $1.22, partly in response to the new German ban.

Commentators in the Wednesday editions of Germany's main newspapers take a closer look at the proposal for a tax on the financial markets, with most editorialists warning that such a levy could be counterproductive.

The conservative Die Welt writes:

"Of course, it is understandable that politicians are responding to the public's displeasure about billion-dollar bailouts and the general fear of an even-greater crisis. But the sovereign debt crisis has not been caused by speculators or hedge funds, but by the collective failure of national governments and the European Union. If politicians really want to punish the guilty, they would have to rein themselves in."

"A general financial transactions tax, or the greater regulation of hedge funds, would in any case not prevent capital flight out of bankrupt countries and economies in the future. And, in the absence of international agreement on such a tax, it would not make the global financial system one iota more secure. Europeans should therefore be wary of going it alone on this issue -- they would only be handing business over to other countries."

The center-right Frankfurter Allgemeine Zeitung writes:

"Buzzwords such as 'Tobin tax' are being bandied heartily around by politicians in Berlin. Few, however, understand exactly what they mean. That probably does not matter much to them: The main thing is that the banks should pony up. And who doesn't want to see them bleed?"

"If only it were that easy. Assuming all countries do not act together and introduce such a tax, there is a risk that financial transactions will move elsewhere, where there are fewer controls. If the banks cannot avoid the tax, it could hurt their ability to lend money, something which is needed to keep the economy going. The banks will also likely pass the additional costs on to consumers. That would affect everyone, not least those who are saving for their retirement. Anyone who believes that the tax will only affect financial speculators, probably also thinks that retail stores are the only ones affected by sales tax."

The center-left Süddeutsche Zeitung writes:

"A transaction tax would affect every business. It would also hit private investors who want to buy shares for their retirement, or companies that want to protect their exports against fluctuations in foreign exchange markets. What is more important, however, are concerns that financial transactions would relocate rapidly to other countries or into gray markets. If a Tobin tax does not apply everywhere -- including on Caribbean islands as well as in off-exchange trading -- its effect will fall flat."

"It would, therefore, make more sense to tax the profits and bonus payments of financial institutions. … It is, therefore, correct that both Chancellor Angela Merkel and US President Barack Obama have been focusing on a bank tax rather than a Tobin tax. Such a tax needs to be large enough to have teeth, however. A symbolic payment like the one the German government has so far been proposing, is not enough."

"When the banks pay, more people will regain a sense that justice is being done. But that is only the first step. A tax by itself is not enough to prevent the next crash. Limits need to be set on the markets, covering such areas as speculation on a government default or how hedge funds conduct business. The decisions of the EU governments are therefore only the beginning, if the world is to be prevented from slipping into a new financial debacle."

The Financial Times Deutschland was the exception in speaking out in favor of a transaction tax:

"The risks posed by a tax on financial transactions are manageable. The greatest danger -- and one which is certainly very real -- is that all the hoopla surrounding its introduction will distract politicians from solving the real problems. One thing is clear: Even if the tax succeeds in reducing the volume of purely speculative trades, that is not enough by itself to reduce the likelihood of further financial crises. That would require other instruments to reduce the willingness of banks to take risks. And governments around the world are making little progress in that area."

"In other respects, a low transaction tax would cause little harm: At most, it would make short-term, low-margin trades which have nothing to do with the financing of real transactions less attractive. An economy can easily do without such trades without suffering much pain. It is even conceivable that irrational excesses in the markets would be slowed down a little. And even if the braking effect fails to materialize, the tax would still direct a nice chunk of change into state coffers."

"Because the opportunities arising from the tax outweigh the risks, the German government should pursue such a tax -- if necessary, as a unilateral measure within the European Union. When it comes to financial market regulation, there is no point in waiting for the rest of the world -- that's something that the experiences of last year showed clearly."

-- David Gordon Smith
Die Wiedergabe wurde unterbrochen.
Speichern Sie Ihre Lieblingsartikel in der persönlichen Merkliste, um sie später zu lesen und einfach wiederzufinden.
Jetzt anmelden
Sie haben noch kein SPIEGEL-Konto? Jetzt registrieren