Finance industry blasts proposed tax

Financial sector players wasted no time on Wednesday in slamming a mooted financial transactions tax, saying it would push business to rival global centres and be hard to enforce.

Finance industry blasts proposed tax
Photo: DPA

Deutsche Börse, which operates the Frankfurt stock exchange, said the tax, which German Chancellor Angela Merkel and French President Nicolas Sarkozy endorsed Tuesday, would “be a gift to non-regulated financial markets and products.”

Shares in the market operator itself were by far the biggest losers in afternoon Frankfurt trading, showing a loss of around 5.6 percent.

The federation of German mutual banks (BVR) added meanwhile that “it is to be feared that speculative transactions as well as the income sought from the financial transaction tax would migrate to other financial centres.”

In addition, such a tax “must not be allowed to have a negative impact on normal hedging activities on foreign exchange markets which are needed by companies in the real economy,” the BVR said.

Germany’s main banking federation BdB called the tax proposal a distraction from the causes of the current financial crisis, and several observers said the proposal appeared aimed at domestic audiences in Germany and France.

Deutsche Börse stressed doubts about the regulatory and fiscal impact of a broad-based tax scheme, and warned that it would be difficult to track all transactions.

Christian Muschick, an analyst at Silvia Quandt agreed, saying: “This project is not really new and has in our view only low probability of emergence as it would be very easy to be loop-holed given the global structure of the financial industry.”

Frederic Donnedieu de Vabres, head of the tax advisor firm Taxand, said: “This type of knee-jerk blanket tax is simply too complicated to implement and would require a fundamental overhaul in country-specific tax policy.

“In the current global economy where there is a very real need to focus on recovery, an overhaul of global tax harmonisation appears still to be light years away,” he added.

Claire Demesmay, at the German Council on Foreign Relations (DGAP) said that financial taxes are something typically well received by domestic populations.

And Berenberg Bank senior economist Christian Schulz noted that both Merkel and Sarkozy “are under pressure domestically, which may explain” why the tax was proposed once again.

He noted further that “chances for implementation of the tax are low.”

To avoid speculators taking advantage of global differences in financial

market regulation, “a global forum such as the G20 would be better placed to

agree such a tax, however that it is even more unlikely,” Schulz said.


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German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.


With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.