As has been noted before, the disaster of the eurozone is, in the eyes of some policymakers, as much an opportunity for further pan-European empire-building as it is an occasion for shame and embarrassment. This week, Angela Merkel, German Chancellor, and Nicolas Sarkozy (remember him? He’s the one who married one of Mick Jagger’s old flames), came up with this barnstormer of an idea, in the form of a European-style “Tobin tax” and a form of increased economic central government. It has the ring of inevitability about it.
The problem for the UK is that said tax, which has been assailed by the likes of Tim Worstall before, would apply not just to the eurozone, but to the UK, which is not in the euro. And given the relative size of London as a financial centre compared to Paris, Frankfurt or Milan, guess which place takes the biggest relative hit? You guessed: London. Never mind, of course, that banks that can do so will put some of their activities outside the EU, or that the costs of the tax will be borne by savers, borrowers and users of financial services generally, in the form of lower rates of savings interest – already negative in real terms – more expensive costs of hedging forex transactions, and the like. This is what is known as tax incidence. Politicians are not, as we know, in the business of understanding the Law of Unintended Consequences. Indeed, we might even define today’s political class as people who defy this law.
Of course, Cameron, Osborne and others (but not their LibDem allies) will protest about such a tax on London’s financial sector, but look how far such protests got us before concerning sovereign debt bailouts by the UK. And such men have shamefully pandered to such anti-capitalist sentiment in the past, so there is a sort of brute justice if they fail to prevent this latest move now. Such men, of course, have enjoyed the fruits of financial wheeler-dealing when the going was good, such as financing of the Tory party by the likes of Michael Spencer, the founder of derivatives powerhouse ICAP. (As an aside, I see that the odious Vincent Cable, Business Secretary, wants to slap capital gains tax on housing transactions of wealthy properties if the Tories decide to ditch the top 50 per cent rate of income tax. Even a land value tax is better than CGT, although not by very much. There is no such thing as a benign tax.)
Alas, banker bashing has reached such heights of hysteria that some might even try and argue that such a tax on the evils of speculation is a jolly good idea. It pained me to see that even that otherwise fine book on the recent market disaster by Kevin Dowd and Martin Hutchinson, floated the idea.
Allister Heath weighs on the latest eurozone wheeze. He’s unimpressed, not surprisingly.
Update: Here is a twist on the issue of tax incidence and taxes on companies. Milton Friedman is magnificent.
Here’s a crazy idea for the EU, why not respond to the recent financial crisis by stopping regulating banks altogether?
By removing barriers to entry and onerous regulatory requirements, the manner in which they are run will become a bank’s primary selling point to its customers.
Of course, such banks would have to be allowed to sink or swim according to its own merits.
I’d like a bank with a 1-1 lending ratio and extremely stringent lending requirements, please.
Without bailouts, I wonder how the current crop of banks with their 1-10 lending ratios and “let’s lend to chavs on benefits” policies would fair?
Another expensive folly that won’t do anything to fix the underlying problems. Instead of rearranging the deck chairs on the Titanic they’re gold-plating them.
I do not think that politicians “defy” the Law of Unintended Consequences so much as disregard it until it comes back to bite them. They appear to learn little from history but think that in repeating it they will get a different result.
“Milton Friedman is magnificent.”
Agreed. Preaching to the unconverted demands a discipline of thought, expression and articulate delivery that many high-profile libertarians and conservatives too often lack. David Starkey is only the most recent example of this.
Yes – for his work in trying to dissuade common people from accepting the “wisdom” of government – Milton Friedman was magnificent.
politicians try to tax the banks, but the banks remind them everytime that were elected thanx to their money
Arguments to stay in the E.U.
The Trade Lie.
The claim that leaving the E.U. means less trade with people living in France and Germany (and so on) as if neither the WTO or other treaties against trade sanctions exist.
And as if the German (and other) governments would cut off the export trade of German companies to Britain – just to limit (the far less) trade of British companies to people living in Germany.
And.
The Security Lie.
The deliberate confusion of the E.U. with NATO – the claim that it is the E.U. that has “kept the peace in Europe”.
Bascially all arguments for staying in the E.U. come down to the Trade Lie and the Security Lie – or some mixture of the two.