Swedish and Dutch patience running out over proposed FTT?

EU finance ministers met today, with the financial transaction tax (FTT) once again topping the agenda.

They were presented with a new proposal or brief under which the 11 countries pursuing the FTT under enhanced cooperation could move forward. The plan involved significantly amended terms and (again) suffered from a significant lack of detail:

• The scope will be “limited” to “shares and some derivatives”, according to German Finance Minister Wolfgang Schäuble – suggesting bond markets and probably repo markets will be exempt. The level of the tax on shares could be cut from 0.1% to 0.01%.
• This will form part of a “step by step approach”, suggesting the tax will be expanded in the future.
• Non-participating countries will be fully informed on all future FTT discussions.
• The FTT will not be introduced until January 2016.
• It is unclear whether Slovenia will participate in the FTT anymore, given that it did not sign the recent statement on the issue due to domestic problems and uncertainty around its government.
• Reuters reports that the revenue from the adjusted tax is expected to be about a tenth of the original forecasts – putting it at €3.5bn.

Those outside the proposed FTT zone showed quite significant hostility to the process of enhanced cooperation (as it has been conducted in this case) and continued to warn of legal action. UK Chancellor George Osborne said:

“The FTT that people have talked about is not a tax on bankers, it’s a tax on jobs, investment and people’s pensions.”

“Here we have a situation where 11 member states are working up their proposals largely in secret, I do not know how involved the Commission is in this or not. Then as we start our discussions here we get a piece of paper handed to us all by the 11 member states saying this is what we have agreed.”

“We will wait to see the final text of the proposal, but we will not hesitate to [legally] challenge an FTT which has extraterritorial impacts, that damages other member states, including the UK, or that damages the single market.”

Osborne was notably annoyed by the fact that the one page sheet on the new proposal was presented to the other EU ministers only five minutes before the meeting. His position was strongly backed by Swedish Finance Minister Anders Borg, who said:

“Even if this is a rather narrow proposal, there is a clear risk of a slippery slope toward a broader proposal with much more harmful effects on growth, and particularly on the capital markets.”

“The burden of proof is on the countries that want to enter the enhanced cooperation to prove, beyond a reasonable doubt, that those not participating are not harmed by this measure.”

“We did not support the U.K. when they started this legal case; we are much closer to doing that, because the process has not been satisfactory during these last few months…I’m very disappointed in the process.”

While even Eurogroup Chief and Dutch Finance Minister Jeroen Dijsselbloem warned:

“The impression I get is that, you [meaning the 11 FTT countries] have found a very, very small common ground, which is still very vague on the basis for the tax, when it will actually take place, on what products etc. but you have decided we must come out with something before the elections. That’s fine, but please also respect that we’d like to know a little more.”

“I don’t think that there is any basis at the moment for the Dutch government to consider joining, certainly not on what we have here… I’m a little disappointed in the way the process is going at the moment.”

All in all then, while there is talk of progress on the FTT, its scope has been slashed as expected, while the time line has been pushed into the long(er) grass. The process under enhanced cooperation has taken a public hammering, while it remains clear that those involved are struggling to find any clear agreement.

However, the fact that the Swedes and Dutch have expressed their anger so openly highlights that this will continue to be politically fraught. In addition, that the 11 countries seemingly want to reserve the right to expand the FTT in future, means this still has a way to run and future legal challenges are a genuine possibility.

Germany and banking union: building the chinese wall

Update 14.15: Reuters has seen an internal document drafted by German MPs from Angela Merkel's ruling coalition - setting out their views on plans for a eurozone banking union. The MPs focus on three main aspects:

• ECB oversight should be limited to systemically important and cross-border banks;

• Monetary policy and banking supervision tasks should be clearly separated within the ECB;

• The document also makes clear that deposit guarantees "will not be unified across Europe". They "may be harmonised, but the responsibility must remain national."  

And here is our original post from this morning: 

Yesterday's Die Welt claimed that Germany is pushing a proposal which would see less powers for the ECB's Governing Council under the Eurozone's banking union. Under the Commission's proposal, the ECB's Governing Council would have the final say over both monetary policy and matters of supervision. This could trigger a series of conflicts of interests as the Governing Council would in effect become the judge, jury and executioner - i.e. it would simultaneously make decisions on bond-buying, bank liquidity provisions and whether banks should be recapitalised or closed down (the latter could trigger losses due to the first two). That incentive structure does not feel right, and the 2009 de Laroisière report for the Commission explicitly warned against it.

The Commission's proposal sees supervision responsibilities being outsourced by the ECB Governing Council to a new  Supervisory Board - consisting of representatives from national authorities - but with the Governing Council still having the final say. In addition, the Chairperson and the Vice-Chairperson of the Supervisory Board would be elected from the members of the Governing Council.

According to Die Welt, during last week's meeting of EU finance ministers in Cyprus, Germany put forward a counter-proposal designed to address these concerns. It involves the creation of a completely independent committee within the ECB consisting of national authorities, where voting weights would mirror the size of each member country's financial markets (and therefore their share of the cost). All of this is unconfirmed, but such an arrangement would take care of two issues:

Firstly, a Chinese Wall would be erected between supervision and monetary policy (at least in theory). 

Secondly, unlike the Commission's proposal which fails to spell out whether non-euro countries joining the single supervisory mechanism (SSM) would get voting rights on the new Supervisory Board (an ambiguity which attracted the wrath of Swedish Finance Minister Anders Borg), this arrangement would make joining far more attractive for the likes of Sweden and Poland.

According to Die Welt, the German proposal would give non-euro members a vote on the supervisory board in return for subjecting their banks to the SSM.  There are a huge number of other issues that non-euro countries will still have to consider, such as the constant risk of being outvoted by a eurozone caucus and no discretion on tailored national regulation, i.e. capital requirements (hello Sweden). It is also unclear how this proposal reads legally (the ECB's statute will have to change anyway, but still).

What's clear is that the Commission's proposal still needs a lot of brushing up.

Seven reasons for optimism?

Swedish Finance Minister Anders Borg – top of the pile in Europe according to the FT – today gave the EU committee of the Swedish Riksdag the lowdown ahead of Monday’s meeting of EU finance ministers (in some countries, lo and behold, ministers are actually accountable to their parliaments for what they say and do at EU summits). Amid all the gloom and doom, Borg outlined seven reasons to now be more optimistic about the state of the European economy:

1. The risk posed by Greece to European banks has been substantially reduced

2. The ECB has taken strong actions

3. The talks with private creditors over a Greek debt write-down are about to be concluded

4. The Italian government is pushing ahead with reforms

5. The Spanish government is pushing ahead with reforms

6. A solid recovery in the US

7. The Chinese government believes that its growth will remain relatively strong in 2012

Enough to believe that the worst is behind us? You decide.

Ps. For some Friday 'entertainment', you may wish to check this out - a rather odd sample of Swedish humour....

Harsh

Swedish Finance Minister Anders Borg - whose country is currently grappling with whether to sign up to the euro fiscal pact - is not impressed by Greece's implementation of its EU-led austerity programme.

This is what he reportendly told journalists in Brussels this morning:

“There are pretty obvious things that haven’t been achieved on the structural side and in terms of public finances. This is probably one of the worst programmes we’ve ever seen. There has to be a radical improvements in the implementation before there can be a discussion about additional programmes.”

Harsh.