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Coalition at risk over financial transaction tax

The Local · 10 Jan 2012, 12:48

Published: 10 Jan 2012 12:48 GMT+01:00

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Merkel’s junior coalition partner, the Free Democratic Party (FDP), suggested on Tuesday its coalition agreement with her Christian Democratic Union (CDU) was being put at risk.

The pro-business party fears that financial businesses could move from Frankfurt to London, if a tax on financial transactions was introduced in Germany but not Britain.

“Coalition agreements can only be changed together and not by one side alone,” Hermann Otto Solms, a finance expert at the FDP, told the Handelsblatt on Tuesday.

Otherwise any coalition’s ability to function would be affected at its core, he said. Certain agreements had to be kept, Solms added.

Frank Schäffler, the FDP’s finance expert seemed to threaten Merkel with an mutiny of sorts.

“I clearly warn the chancellor against going further in this direction. She is bound to keep to the relevant agreements, otherwise we as the FDP will no longer have to keep to the arrangements,” he told the Neue Osnabrücker Zeitung newspaper on Tuesday.

“I say it again – such a tax must apply to all EU states, not just for the euro states,” said Philipp Rösler, leader of the FDP and Merkel’s Economy Minister.

Any EU tax would require unanimous support from member states and Britain, given the importance of the City of London to its economy, has said it would block any attempt to introduce it in the bloc. Sweden is also opposed.

Sarkozy, facing an uphill battle for re-election, has said that France should not wait for other European countries to get on board with what has been dubbed a "Robin Hood tax" or "Tobin tax," after Nobel Prize-winning economist James Tobin, and would forge ahead on its own.

Merkel knew the FDP would be opposed when she said on Monday she was “personally” prepared to implement such a tax without Britain, taking a joint position with Sarkozy and her own Finance Minister, Wolfgang Schäuble.

She won praise from the social justice movement Attac which called it a great step in the right direction.

Story continues below…

The FDP would no longer be able to stop the tax being implemented in the eurozone, Attac expert Detlev von Larcher told the Frankfurter Rundschau newspaper.

The tax has long been supported by the opposition Social Democratic Party, which would most likely support any parliamentary vote on the matter – giving Merkel the support she needs, but further undermining the coalition with the FDP.

DAPD/AFP/DPA/The Local/hc

The Local (news@thelocal.de)

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Your comments about this article

16:25 January 10, 2012 by heyheyhey
The financial community created this economic world mess. Let them pay a grand tax now to compensate the world for its financial damage.
19:33 January 10, 2012 by vonSchwerin
"the Free Democratic Party (FDP), suggested on Tuesday its coalition agreement with her Christian Democratic Union (CDU) was being put at risk."

The FDP suggested? If the coalition falls apart and the FDP loses all influence over legislations, that might well be the end of the party. Does the FDP want to commit suicide?
20:05 January 10, 2012 by nemo999
For many financial institutions it is very easy to move, since they do not have any significant investment production assets (Office, phone, desk, computer, chair) they can and do move when it is in their economic best interest (profit).

Countries will do what they have to do, and financial institutions will do what they have to do, even if it is betting against the economics of their host country. They are in business to make money for their shareholder, directors, or partners, nothing more nothing less. If the marginal cost of doing business is lower in country A versus country B, then the business moves to country A.

The only way for this transaction tax to work is that all of the countries where markets exists will have use it. If several countries fail to use it, and their marginal cost are lower, then business will migrate to those markets. On the surface it appears like economics 101. Welcome to Globalization.

As far as the FDP and the future of the FDP is concern I do not really feel that it enter into any of the political calculations, being performed by Chancellor and her advisers.
22:33 January 10, 2012 by neunElf
When will politicians ever learn that business does not pay taxes, it passes them on to its customers.

People pay taxes, businesses do not!

Don't we have enough taxes in Europe already?

Our financial system is in melt down and these clowns call for more taxes, simply shameful ignorance!
22:56 January 10, 2012 by Foreign interest.
The tax is thoroughly discredited by its proponents' own studies. It is in reality a tax on pensions and consumers but the ordinary voter does not generally understand its economy destroying guarantees, and why the rest of the world rejected and will never get involved in it.

Centres like Hong Kong, Singapore, NYC, Chicago, London, Shanghai would be the beneficiaries while Europe would sink further and further into the financial mire. Emerging countries are growing their financial centres, not driving them offshore. What can Mrs Merkel be thinking?

Indeed this is very bad policy, perhaps a bluff to secure uninformed voters, but the beneficiaries would be gleeful foreign competitors.

Not one bank CEO would pay such a ridiculous tax. On this issue alone, Mrs Merkel and her funny little friend Mr Sarkozy, are making themselves into a grandstanding comedy act.

But I agree with neunElf - even worse - shameful ignorance.
23:03 January 10, 2012 by cheeba
With her coalition under such strain, I wonder why Merkel would put such pressure on her partners in the FDP, just in order to help the re-election of Sarkozy? The FDP are obviously right in that banks would move their trading to Hong Kong or New York to avoid this tax, why wouldnt they? Also, just because banks gave easy credit to Greece and Portugal doesn't mean the governments had to take that money, knowing they could never pay it back.
23:40 January 10, 2012 by n23mc
If Merkel goes ahead with this, (A) she'll destroy her coalition (B) She'll further destroy her financial community by encouraging them to get up & leave Germany for England where the tax doesn't exist. Merkel doesn't understand that curtailing financial transactions slows an economy down. If you want to tax a financial institution further, FINE, tax them directly. Slowing down financial transaction & financial activity slows down a country's economy. At this time, does she REALLY want to slow down the economy further in her country as well as the countries in the Eurozone?
23:44 January 10, 2012 by TD20
The banks and trading firms will move taxable transactions away to London, Zurich and New York and take many jobs with them. They will not pay a penny of the transactions tax because they will be gone from Germany. The tax will only be paid by pensioners and regular investors.
23:46 January 10, 2012 by n23mc
PS: Of all the problems in Europe, her fixation on this 1 idea is odd at best. Folks across the world are finally seeing how much of an obsessive personality she has. Move on to other things Angela. It's OK, you can't control the world, despite your apparent aspirations.
19:30 January 12, 2012 by christopheuk25
The Laurel and Hardy of the Euro Zone?,most certainly.The little toxic dwarf will take Merkel down with him when he is dumped in the French elections.France is in so much financial difficulties mainly due to it's banks very serious exposure to European debts,he is praying Merkel will rescue him,ignorant fool.
13:57 January 18, 2012 by luckylongshot
Laurel and Hardy would probably be excited at the prospect of turning this into a comedy. It has all the elements of a farce. The Eurozone explodes largely due to unregulated banks. Then with no sensible plan to fix the Euro a debate breaks out about what should have happened before the horse bolted. Then the public are made to suffer through the chest beating about what should have happened. The problem is the horse has bolted and it really doesn't matter what is done now because it is too late. I can see a great Laurel and Hardy sequel coming from this.
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