Europe plans to scale back transaction tax

European states planning a financial transaction tax are set to drastically scale back the levy, cutting the charge by as much as 90% and delaying its full roll-out for years, in what would be a major victory for banks.

Such sweeping changes would blunt the impact of the tax, pushed for by German chancellor Angela Merkel and popular with voters who blame bankers for the financial crisis.

The revisions have yet to be formally proposed but were revealed to Reuters by officials working on the project.

Banks have lobbied furiously against the tax, due to be levied by Germany, France, and nine other European states. It has also hit legal challenges from Britain, which will not join the tax but fears being forced to collect it on behalf of other EU states, driving business from London’s financial centre.

Under the latest model, the standard rate for trading bonds and shares could drop to just 0.01% of the value of a deal, from 0.1% in an original blueprint drafted by Brussels. That would raise only about €3.5bn, rather than the €35bn initially forecast, an official said.

The tax may now also be introduced more gradually: rather than applying to trades in stocks, bonds and some derivatives from 2014, it may apply next year only to shares.

Bond trades would not be taxed for two years and derivatives even later.

The roll-out could be scrapped altogether if, for example, the tax pushed traders to move deals abroad to avoid paying it.

Proponents of the tax said such changes would render it toothless.

“Today, the question is whether the chancellor’s [Merkel’s] word is worth anything or if the centre- right coalition have bent again to lobbying pressure from the financial sector,” Juergen Trittin, the leading German Green politician, told Reuters.

The financial transaction tax has been symbolically important for politicians to show they are tackling the banks blamed for causing the financial crisis. But implementing it has faced both practical challenges and political hurdles.

“The whole thing will have to be changed quite a lot,” said one official. “It is not going to survive in its current form.”

— Reuters