More Financial Repression in Europe: Tobin’s Tax

Well Europe seems to see only taxation as a way out of their problems which are meant at preserving the status quo.

Eleven countries in the EU have proposed to impose a Tobin’s Tax or Financial Transaction Tax

From Reuters.com, 

A plan by a group of euro zone countries to introduce a tax on financial transactions threatens to drive more trading to London from centres such as Frankfurt, exacerbating divisions in Europe as it struggles to overcome an economic crisis. 

On Tuesday, 11 countries agreed to press ahead with a tax set to fall on the trading of shares, bonds and derivatives, although it may take up to two years before the necessary legislation is in place and the scheme starts.

Commonly known as a "Tobin tax" after Nobel-prize winning U.S. economist James Tobin, who proposed one in 1972 as a way of reducing financial market volatility, it has become a political symbol to make banks, hedge funds and high-frequency traders pay towards cleaning up a debt crisis shaking the continent.

But the EU has not been unanimous. To the contrary, such tax may even threaten escalation of political rifts among the member states that could undermine the already fragile relationships. 

More from the same article:

But the move threatens to open yet another rift in Europe, where countries already diverge in their regulation of finance and politicians have long argued over how best to control the banks blamed for triggering financial turmoil in 2007.

Proponents first tried to introduce the tax worldwide in 2008 via the Group of 20 major economies. Faced with U.S., Swiss and Chinese opposition, they tried to persuade the 27-member European Union to lead the way, or even the 17-nation euro zone. But each organisation had its sceptics.

Following an aborted attempt to introduce its own such levy in the mid-1980s, Sweden has repeatedly warned that introducing the tax will simply drive trading elsewhere. Britain, home to the region's biggest financial centre, London, will not join.

The group of Tobin taxers:

Germany, France, Italy and Spain have made it clear, however, they will be among a group that will impose the charge that is set to be 0.1 percent on the trading of bonds and shares and 0.01 percent for derivatives deals.

But the move by the group, which includes Austria, Belgium, Slovenia, Portugal, Greece, Estonia and Slovakia, has been greeted with scepticism by analysts and industry, who believe it fragments Europe's approach to regulating finance at a time when a separate plan tries to unify euro zone banking supervision.

If transaction costs rise enough due to these taxes, compounded by intensifying regulations, particularly capital controls, we should expect to see capital move away from these Europe nations and seek out places where money is treated best or is welcomed.

Asia should take this opportunity to liberalize more her financial markets in order to attract investors looking for capital friendly environments.