Socialists win double victory on financial transactions tax and short selling

The Socialist group has won two big victories in the European Parliament this week, with Parliament’s Economic Committee voting to ban naked short selling, while the full parliament backed the report by Greek Socialist Anni Podimata to establish an EU-wide financial transactions tax (FTT) by a large majority of 529 votes to 127.

Financial-Transaction-TaxOn Monday night the Economic Committee voted to regulate short selling and ban naked short selling. Naked short selling is where a trader sells a financial product without owning or even borrowing it, and is used for speculative purposes.

Many financial observers have long contended that naked short selling is both highly unethical but also played a significant role in the sovereign debt crisis as traders and investment banks used naked credit default swaps to bet against countries.

The proposed directive was adopted by 34 votes to eight, with the centre-right EPP group joining with the Socialists and Greens in support, while the committee chairwoman, Lib Dem MEP Sharon Bowles, joined the Tory MEPs in opposing it.

While the UK government will oppose the directive, the large majority in parliament, allied to the backing of a ban by most EU countries including Germany and France, means it is unlikely to be able to block the directive.

Today the parliament approved the Podimata report on “Innovative Financing”. The main issue of contention both at committee and plenary stage was over the creation of an EU FTT. The Socialist group has long campaigned for an EU FTT levied at 0.05%, arguing it would raise more than £100 billion a year since the EU is the largest financial market in the world.

In the Economic Committee, while the report was adopted with a large majority, the EU FTT proposal was narrowly rejected after a tied vote.

However, in the days before the final vote, German Chancellor Angela Merkel urged her 42 Christian Democrat MEPs to back the proposal, and the German delegation was joined by a small number of other EPP MEPs and 17 Liberals alongside the Socialist, Green and far-left groups.

The amendment demanding an EU FTT was adopted by 360 votes to 299.

Ms Podimata said it was now “time for the European Commission to act”, adding:

“Citizens have been hit hard by the financial crisis and face growing unemployment. At the same time, the financial sector remains largely under-taxed and has this year enjoyed profits and bonuses at pre-crisis levels.”

Of further interest was the way the UK government’s MEPs voted. While the Tory MEPs stuck rigidly to their line of opposition to both an EU FTT and the entire report, the Liberal Democrats managed to split three ways. On the vote specifically on an EU FTT, Lib Dem delegation leader Fiona Hall voted in favour; only one member, former Tory Edward McMillan-Scott, joined her in backing an FTT, while the rest all voted against.

On the vote on the entire report, which was adopted with the support of the EPP, Hall was joined by Chris Davies, Graham Watson and McMillan-Scott in support, with the Economic Committee chairwoman Bowles being joined by Sarah Ludford, Liz Lynne and George Lyon in opposing it. Catherine Bearder, Andrew Duff and Bill Newton-Dunn all abstained.

The Podimata report also calls for the introduction of a range of other new financial instruments aside from an FTT. These include a carbon tax and the introduction of ‘eurobonds’ which would allow EU countries to pool their national debt, eliminating the possibility of financial institutions speculating against an individual country’s debt financing.

Although the Podimata report is non-legislative, its adoption mandates the European Commission to draft a proposal to introduce an FTT. The vote also reinforces Labour’s demand for an FTT. Despite the attempts by the Tory-led government to ridicule Labour’s campaign on the grounds that an FTT had no international support, its support at EU level demonstrates there is clear international support across Europe for such a tax.

Moreover, with Shadow Treasury minister Chris Leslie again stating that “George Osborne should heed Labour’s call to repeat last year’s £3.5 billion bank bonus tax” it is clear that, unlike the Tories and the divided Lib Dems, Labour is the only party calling on financial institutions to pay their share for a crisis they caused.

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  • Kevin leonard

    These include a carbon tax and the introduction of ‘eurobonds’ which would allow EU countries to pool their national debt, eliminating the possibility of financial institutions speculating against an individual country’s debt financing.
    This is the worrying part of the bill which is a further attack on the UKs sovereignty.
    Taxing banks and more regulation are a welcome step but the thought of the UK being embroiled in the EU with a pool of national debt should be fought against by all parties.

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  • Jack Camus

    Thankyou. It’s nice to hear good news once in a while.

  • EliseDB

    “Labour is the only party calling on financial institutions to pay their share for a crisis they caused.”

    Or put another way “Labour is belatedly joining the Greens in calling on financial institutions to pay their share for a crisis they caused”

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  • Chris Clothier

    I agree that there are lots of good reasons to ban naked short selling of equities. But “naked” has a slightly different meaning in the CDS market. It involves buying a CDS – an insurance policy – where you don’t own the underlying bond. There are plenty of reasons why market partcipants might want to do this for very legitimate reasons. I hope the Socialist group makes a distinction between the two.

  • Andrew

    An EU-wide FTT is a terrible idea, as shown by Sweden when they tried it in the 80s ( Some effects of the tax there:

    “revenues from the tax on fixed-income securities were initially expected to amount to 1,500 million Swedish kroner per year. They did not amount to more than 80 million Swedish kroner in any year and the average was closer to 50 million”
    The tax only produced about 3% of the estimated revenue.

    “As taxable trading volumes fell, so did revenues from capital gains taxes, almost entirely offsetting revenues from the equity transactions tax”
    The tax it did produce only went to cover the drop in other related taxes.

    “30% of all Swedish equity trading moved offshore. By 1990, more than 50% of all Swedish trading had moved to London.”
    The trading either stops or moves elsewhere. Such a tax might work if imposed globally but it’s inconceivable that places like Hong Kong and Singapore will implement it. Think of the business they’ll gain simply by doing nothing while their competitor countries cripple their financial industries.

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