We have covered the FTT extensively and the court case is an important marker for the UK’s place in the EU.
The UK claims that the use of enhanced cooperation here is fundamentally against the EU treaties as it imposes costs on those outside the FTT-zone. If the ECJ rules against the UK, it could become a wide-ranging precedent with three key effects:
- Allowing for the broader use of enhanced cooperation (even with extraterritorial impacts) including for eurozone integration
- Making it more difficult for the UK to employ a veto over further EU integration it's not part of
- Undermining trust in the ECJ as a fair, impartial arbiter and guardian of the single market
Also, the FTT is likely to be substantially watered down so the actual effect might be far less damaging than the Commission proposal pursued under enhanced cooperation. As a key proponent of a watered down FTT, the UK is already to a large extent a winner. Finally, this is a different sub-set to the eurozone (with Ireland and the Netherlands outside).
Below is a Q&A on the issue - pardon the length of it.
What are the UK’s objections?
As a recap, the UK has called for the decision authorising the use of ‘enhanced cooperation’ for the FTT to be annulled. As such it is not directly challenging the measure itself. The key reasons for the UK’s challenge are (as published by the ECJ):
- The FTT is not compatible with Article 327 of EU Treaties which states that any member states not participating under enhanced cooperation must not feel any impact. The FTT will hit UK firms if there are any transactions with those inside the FTT zone.
- There is no basis in international tax law which justifies imposing taxes on a sovereign state which does not wish to be part of said tax regime. Adopting a law with extraterritorial effects does not fit with the code of international tax law.
- The tax will be distortionary and impact competition across the EU. Rather than improving the single market it could fragment it.
- The FTT is not compatible with Article 332 of the EU treaties which states that any expenditure from enhanced cooperation will come from those directly involved. Given that taxes will be raised from UK and other countries not involved, this has been breached. The UK would also likely be directly responsible for collecting and enforcing this tax due to rules on mutual assistance, producing a further burden.
- The ECJ rules in favour of the UK – seems very unlikely, but not impossible. In this case the Council would be forced to reconsider the FTT. It would need to adjust the details of the FTT to fit with the ECJ’s ruling and then get renewed support for enhanced cooperation.
- The ECJ rules against the UK and dismisses some or all of its claims – possible. This could amount to the ECJ ruling that the FTT does not have any extraterritorial effects nor that it cuts across the single market. This would not only set a worrying precedent for any future challenge against the specific nature of the FTT itself but also for the UK’s position in the EU more generally, weakening its ability to bloc future eurozone integration with a direct or indirect impact on the UK. Combine this with the growing use of intergovernmental agreements and using the single market legal base for eurozone integration and it's clear the net effect is reduced UK leverage in Europe.
- The ECJ deems the challenge premature or unwarranted – likely. Given that the FTT is still a work in progress and the final proposal remains uncertain, the ECJ could throw the complaint out on technical grounds. This would not be too detrimental to the UK, although it would still be a blow as the UK was hoping to stop the FTT as soon as possible. It would also mean that, out of four key legal challenges on financial services at the ECJ (short selling, FTT, bankers bonus cap and ECB location policy) the UK is now at 0/2 - not exactly an encouraging score.
Usually, ECJ cases take a minimum of 16 months to work their way through the process of deciding a case. This has taken around 12 months.Written proceedings and arguments were concluded in January this year, normally the case would then move onto a hearing and an Advocate General would present an opinion before the final ruling. The fact that the ECJ has effectively skipped two steps and moved straight to the ruling. This could suggest that the ECJ considers it a straightforward case, which is unlikely to have been the case if the ECJ ruled against the European Commission (always very controversial).
- In the end, we still think it was the right thing for the UK to do. It seems clear to most that there are numerous negative side-effects from the FTT, many of which seem to break rules enshrined in the EU treaties. The broader point is that the UK is right to establish the boundaries of what the EU can do and what enhanced cooperation can be used for.
- The one caveat in this instance is that, given the large and growing concerns about the FTT, it has floundered and stalled on its own to a large extent, suggesting the legal challenge may not have been necessary. This would especially be true if it ends up going against the UK and setting the precedent described above.
Is this the end of the story?
If the ECJ rules in favour of the UK, the European Commission will need to table a new proposal. If the challenge is either thrown out or goes against the UK, the Government can still challenge the final legislation (as opposed to the decision to authorise enhanced cooperation).
If the ECJ does end up throwing out the challenge for being premature, then the process has taught us little and the final result remains to be seen. It does raise the question though: why was authorisation given for enhanced cooperation before the final make-up of the proposal was known?
Being from the Asian region of which the failed EU knows so little about, this tax is absolutely laughable but very welcome for China just waiting for EU to competitively disadvantage themselves, then bingo, Russia and China both pounce, becoming beneficiaries and taking advantage of a massive capital exodus from Europe. Shanghai, ready and waiting to join Hong Kong as the twin business/finance capitals of the world.
ReplyDeleteThe EU's destruction of Europe's economy continues unabated whilst countries outside of the continent stand to gain.
ReplyDeleteThe cost pressures on the EU's financial services firms (especially those in London) from excessive and politically-driven regulation is enormous.
Skilled and well-paid jobs are being outsourced outside of the continent to India and the Far East.
If the ECJ rules against the UK it will only serve to back up the point being made by UKIP - and all just before the European Elections in May.
We need our country back. Good riddance to the EU, ECJ and the ECHR.
SC
@Anonymus
ReplyDeleteMore likely as 2/3 of the world doesnot like the financial warfare by the US will go for a second or third financial capital outside the AngloSaxon sphere.
Simply see the US creating a lot of mess for other countries and when it goes wrong starts with sanctions. As that is how most EMs will see it at the end of the day (often not in public however).
UK should be very careful here. The US is rubbishing things more but simply has a much larger home market and it could well be that London will effectively be dumped as a consequence thereof. It is now THE market outside Wallstreet. No need if you have another one and one without a special relationship on top of that.
Money will determine where the financial capitals are and most of that is no longer in the West.
Quality the only thing it can compete with will simply move when money moves. London as the next Amsterdam?
And not for Ffurt or even Paris (only complete idiots or other French believe that).
The Moron in Chief of the US starting a similar scenario now with China about a birddungdeposit whre nobody except Abe has ever heard of could really speed up things. The guy is a complete foreign policy disaster, unfortunately not only for his own country. And the UK isnot much better by simply blindly following the idiot in all disasters in the making.
This brings me back to a discussion we had several months ago. How to structure reforms.
ReplyDeleteThis is another example why my ideas have more advantages.
First of all you need an Osborne style reset between EZ and Non-EZ.
However imho you make nearly all the reforms you propose within the EU frame (treaty) work.
Which means that it will be extremely difficult to change them lateron (and not only when there are technical mistakes, but simply in general).
You can end up with this sort of surprises. A court likely deciding on an issue in a way nobody even remotely could constitute a problem when you signed up for it.
When you move legislation back to national that problem is much smaller.
So overall a basis plus chapters you can sign up for. Safeguards can be much simpler. Much more in your own hands and things can be done much faster.
Here it is of course an issue for the people involved. However at the same time will erode support for the EU (and strengthen support for reform) further in the UK (here mainly with an important (if not the most important, certainly lobbywise) businesssector).
Rik
ReplyDeleteMoney is a only a partial determinant of which financial centre will dominate. The prospect of potential returns will also be countered by the prospect of potential losses and what happens when they are experienced.
Transparent, well-thought out regulations and laws, good democratic governments and having a highly skilled workforce are also very important determinants.
For example, in 2008/9, a group on investors sued a major UAE stock exchange because "they had experienced losses" (who didn't over that period?). The judge found in their favour and trading was suspended on that exchange - unbelievable.
Russia just confiscates share holdings at will - just ask BP!
The biggest problems with the Far East as a major financial centre is honesty, transparency, skills, proper laws and loss of face (which they will avoid at all costs).
Who believes China when it announces its growth figures or any other economic statistic? And what did happen to that missing Malaysian airlines flight?
I take your point about London being careful about how it treads. Nobody now trusts the US and their way of doing business. Whether spying, wars for unacceptable reasons, corporate bullying or raping economies by not paying any corporation tax or basing jobs there (i.e. US corporates) is just not acceptable.
London has everything going for it and major financial houses and the regulators must remember that they have to look after their customers and put them first.
SC
Out of the EU, London will be a much more competitive business centre, able to out compete all its rivals.
ReplyDeleteThere is no doubt at all the way this judgment will go and that is in line with ever closer union, ever more control by an unelected elite in Brussels; the rights and wrongs of the issue do not come into it. If the judges do not like the answer that EU and/or International law requires them to give they will just bend or ignore the rules to suit their own agenda; that's one of the many reasons the EUSSR got its name; Putin would be proud of them. If that sounds extreme what about all the bail outs of the Euro that should not have happened to give but one example?
ReplyDeleteThe only good news is that continuing stories like these make it ever clearer where the UK's future should lie and that is definitely not inside the spider's web known as the EU. AS usual, I'm with Rollo; better off out.
@SC
ReplyDeleteHowever HK and SGP for instance donot have that start up problem (re Legal system).
ME will likely remain an unstable disaster and nobody really trusts Arabs to say it blundly. East and SE Asians definitely not and S most neither.
Energy and related would however not surprise me. Basically there is structural shortage (for Gas and Oil at least the stuff they have there and the best stuff). Basically it is a sellers market and will be for the foreseeable future. If the Arabs/Gulfcouncil go for it the main oil market will be there. Nothing you can do about that.
Anyway Asians prefer doing business with Asians. They do business with whites because there is the know how and the infra structure. But this is rapidly changing. And on top of that the reputation of Westerners is rapidly going down itself as well and on many fronts.
And tbo the West simply seems to ignore this as well as most of the other challenges they meet or likely shortly will meet.
Another problem the West is facing is the fact that overall the debtposition is that bad that they cannot longer realistically uphold their financial sector when things collaps. A big problem now for say France. But also for the UK a lot of people will doubt if the UK can take another 50% GDP hit in debt level.
Same for the US btw people are getting very nervous about the situation there (next to the fact that they donot want to be caught with their pants down by some Financial warfare).
Advantages always were that people had the idea that these countries could always print (like what they did now) themselves out of a crisis. Now there is simply alot of doubt about that.
Returns are essential, I fully agree. However first of all these 2 markets play basically on the worldmarket. And you can do that from Timbuktu nowadays.
But more important the home market in the UK and the US theirselves looks simply crap. Which doesnot mean that both will not be used as safehavens btw. They nearly certain will be however with a lot more risk spreading.
And as said the UK/US local markets look now structurally heavily overpriced (I like to call it that way, price is simply too high that is the main issue). Correction will be spread over many years or otherwise you have a new crisis (at least tried).
On top of that you are likely to face a decade or more of financial repression. Bad for business (high taxes). And very low rates (with on top of that a lot of carrytrade to other places, low interest/low growth (so likely longer term weak currencies, ideal for carrytrade similar as Japan has seen and for basically the same reasons plus a weak currency unlike Japan, at least weaker than Japan).
So I agree returns are the main issue. But for a financial capital that is a worldwide play.
You need the infrastructure (but most is there in Asia at least only needs considerable more quality people. Problem will solve itself imho longer term but to kickstart you very likely need to import). Local American and UK markets donot look very attractive for a very long period of time.
Risk will however be more spread and likely alot more. So you need a lot of (extra) growth in the sector.
SC2
ReplyDeleteSame all those wild UK tax plans. They get a very bad press. Better they get a press and the people whom it concerns are not happy with that. (Similar problem with Switserland btw). Hardly any rich Asian (better non-Western) goes fully by the book (individuals and cies) and they simply want to keep it that way. The West has all sort of tax structures that reduce rates the East has traditionally always solved that in other ways. Probably needs decades to change that.
So my guess for London. Outclass both on quality and marketwise the rest of the EU. Nobody with more than 2 braincells like Frenchstyle government interference. Legal system in 3/4 of the EU is likley dubious and rightly so in the eyes of many.
But the EU will be a big but by far the slowest growing market.
For the worldpart there could very well be a new game.
Hard to see that there will not be an Asian 'capital'. What that will mean for the present 2 difficult to say. Overall less business definitely (smaller percentage of worldbusiness) but also one of the present 2 could partly be dumped for all sorts of reasons.
First idea would be the UK as most likely candidate, because of its size. Fortunately for the Brits the US has Obama who is even a bigger disaster than Bush2. Just go over the other regions in the world and nearly everywhere the US has suffered.
The only regions they do well is where there likley will be shooting E Europe, Countries around China (seaside), close to Kim Kill-un (cle). That kind of stuff.
-Latin America slightly down from pretty rubbish already.
-Africa at best no improvenment (while the guy is from Kenia, The Donals says so at least), they donot like their Fair and prefer Chinese brides.
-Arabs complete mishandling vis-a-vis the oilmen of the Arabspring. They are hedging now their bets.
-Russia see today.
-China without reason while in conflict with Russia they opened a possible second front and completely unnecessary. On a question from a newspaper. How stupid can you get. Next to make that a larger danger itself, if China goes the hard way it will do it at the same time as Putin of course.
Creates alliances between other powers.
Rich Chinese donot like their foreign accounts blocked like Russian oligarchs or run the chance.
Etc etc.
So could well be that the NY will have to take most of the Flak.
If the UK does as its population desires, it will ditch the troublesome, stand-over Brussels controlled EU and retrieve its independence and dignity. Clearly, the plan is for Brussels dictators to get their greedy grubby hands on the UK treasury. EU economically illiterate dictators' attempts to force-feed this ridiculous toxic tax onto any member state foolish enough to get itself further under their iron fist will help drive one more nail in their economic coffin. Big mistake UK you should never have given yourselves to Europe, they nearly got you once before and they now think they got you by regulation. Rectify it and do it soon.
ReplyDeleteIf the decision finally goes against the UK, then there is still a retaliatory step before Artivle 50. That is, to take a page out of Russia's book, & hold a referendum on the subject - Parliamentary numbers permitting.
ReplyDeleteIf voters are prepared to back The City, OK - then a referendum on just this subject alone. If perhaps not, then one on hugely restricting immigration either as well, or alternatively tightly linked to the FTT one - probably one vote only for or against, so that a massive anti-immigration vote would carry the FTT one along with it.
That would certainly set the UK cat among the Brussels & Strasbourg pigeons. And what if the EU huffs & puffs too much? Then the UK should slam a signed Article 50 claim form straight down in front of them. No messing!
This is btw another excellent opportunity to inform the (large) part of the businesssector that clearly missed a few memos.
ReplyDeleteJust look at the CityUKreport. And the Clifford thing.
Written from the assumptions that:
-EU is moving into the right direction;
-Doesnot need reform to be competitive on the worldwide market;
-It is a complete government thingy (and not a voter one).
This is one of the many examples where it is clear, that the EU isnot moving in the right direction and needs reform (and urgently).
These reports simply completely seem to miss that.
The other leg. The EU as is is highly divisive (and not only in the UK). Simply in a way that membership under the current conditions is simply in no way sustainable. Trend further down the drain (and no trendbreaking in sight). A 30% EP election likely is a wake up call on this as well. An even better one. But also that opportunity should be used. May be not by Cameron and close circle but it simply should get in the media with the consequences of not acting.
Reports might state that a 10% max incometax is great for business. Will not happen. Same here.
An EU not messing up things and especially having a substantial sustainable platform for membership without reform is not really a realistic view.
Bring the stuff home it is much more likely that you will end up with legislation that is pro UK business. And as important if it doesnot work it can be changed or cancelled.
You have therefor 2 realistic options:
-Cameron way. Reneg and go for a platform creating referendum. The managed solution.
-Hope for the best way. Let basically things develop in their own dynamic. EU going even more burocratic and with that an EU increasingly p!$$!ง off the British electorate. And possibly a hard exit as a consequence of that. The unmanaged way.
Seen the polls on both IP and approval on the rest simply a high risk move.
Clear that this is not fully understood with most of the business sector. EP election might wake them up but still the link between the 2 might be unclear.
Largest parties being Eurosceptic in France and Holland now and 50% change (bookies)
of the same in the UK. Will wake people up that that it is not simply 'same procedure as last year'.
In other words if you like your EU you better reform the thing and asap.
You like your high probability shockresults go on as is.
Cameron should communicate this much better.
To get the own businesssector behind him. Which would be another push pro reform. The more that it is clear it is my way or the highway the more likley the EU will jump in line and reform. At the end of the day they are civil servants who get really nervous if their job and pensions come at stake. There it is basically a same sort of process. Smaller risk with reform or high risk to drive the thing against the wall a bit later.
To show that the plan is realistic. Making more funny noises than sensible ones have not yet restored credibility.
Wake up call for the smart money on the continent basically for the same thing. And create a further platform there.
The above message I havenot seen once from Cameron. I admit I donot read a lot UK stuff but as it is a very important one it should have shown up several times. And it is not something that can wait till election time.
I must say I agree with many of the posters here today.
ReplyDeleteI believe it would be a GOOD thing for the FTT to be introduced.
It proves beyond any doubt that the EU is anti-Democratic.
It will give UKIP and other Libertarian organisations more nails to hammer into the EU coffin.
For a failed state - which is not and never will be a state - the EU is a truly sick joke.