Tobin's tax and the parlous state of our European democracy

Did you know that the Greek government managed, through heroic and brilliant bargaining, to extract from the latest Eurozone Summit an agreement that the Tobin tax will, at long last, see the light of day – at least in the eurozone? Well, nor did I. But apparently, this is precisely what happened, if the Greek government’s spokesperson is to be believed. Put differently, and this is the real news in this ‘story’, our political leaders are in disarray, caught in a state of panic, struggling for a ‘good news’ story, ready and willing to make the silliest of public statements in order to divert attention from the paucity of their policies.

It happened last night during a tv debate, in which I was unfortunate to participate. The government spokesperson, Mr Petalotis, was waxing lyrical about the Greek government’s epic success at the recent eurozone summit. The last item in the list of loot that his government brought back to Athens to placate the ruffled multitude, was a crowning glory: “We secured the Tobin tax.” When I reacted by saying that all they had secured was a vague promise to consider a Tobin tax, our otherwise polite spokesperson raised his voice and, effectively, chastised me for being a spoilsport, a moaning-Minnie (to recall Mrs Thatcher’s infamous characterisation of those who doubted her true faith), a detractor of the genuine negotiating successes of the Greek government etc.

Of course, the truth is that the hapless spokesperson had dropped the ball. And when that slip was pointed out, he chose to go on the offense rather than retract. On its own, this mishap would not have merited even a mention here. However, I do believe that it is a sign of the times and of the depth of Europe’s crisis. First, the three financial journalists on the panel did not seem to grasp the enormity of the claim, and of the error involved. They agreed with the Minister that the Tobin tax was almost in the bag. This is worrying. It is one thing for a Minister of Propaganda to go a little too far and make a silly claim. But when the nation’s financial journalists go along with that claim, there is something terribly wrong.

On the one hand, it reveals the uncomfortable truth (which we have always known but were eager to pretend, out of courtesy, that we did not) that financial journalists are economically illiterate. On the other hand, more worryingly even, it also reveals the desperation with which our political commentariat is seeking a good news story by which to gloss over the dearth of serious policies by which to slay the dragon of the crisis. The portends were never good, given our European leaders’ inability even to bring themselves to discuss the true causes of the unfolding crises. Last night was just another reminder of the monumental challenge facing anyone who is eager to infuse a modicum of rationality in the EU’s handling of, and thinking about, the Crisis.

PS. Regarding the Tobin tax, I wish it were true and that it were instituted. What is that tax? Its gist is based on the hypothesis that speculation increases capitalism’s volatility, making the highs taller and the lows more catastrophic. So, to limit the volatility James Tobin suggested that a very small tax is imposed on all financial transactions. The idea was that this small tax would work like a few grains of sand would in the cogs of a machine, slowing them down sufficiently to ensure that the whole edifice will not spin out of control. Keynes once wrote, presciently, that: “Speculators may do no harm as bubbles on a steady stream of enterprise. But the situation is serious when enterprise becomes the bubble on a whirlpool of speculation.” The point of the Tobin tax is to reduce the frequency and size of these bubbles. Cut to today’s EU debates: Our leaders, especially the Greek socialist party in power, see this tax more as an alternative source of funding for bail outs than as Tobin saw it (as a break on speculation). The problem with the Tobin tax, which I would like to see implemented for the reason Tobin gave back in 1971, is that it is hard to convince governments to implement it when the rest of the world wants no part in it. Can you imagine a situation where financial transactions are taxed when they occur in Frankfurt but not when they occur in New York or in London? No, you cannot. Rightly so. Such a partial implementation would lead to a massive exodus of trade from Frankfurt. And given that the Frankfurt exchange will soon own the New York exchange, the chances that the Tobin tax will be implemented in the eurozone but not in the USA, in the UK or in China are not just slim – they are precisely zero.


  • Nice piece. It is a real pleasure to read your articles here and at protagon. Is it possible to make available your talk at the “Debt Conference” in Athens last week?

    Keep up the good work!

  • I’m almost surprised by the fact that you reveal the hypocritical role of our (unfortunately) failed government.

    Some months ago you stated (with facts, indeed) that the Memorandum is economically a failure (however an urgent weapon against bankruptcy). I add to this claim that our government achieved a lose-win situation through that “loan”. It renounced Greece’s sovereignty is case of aberrance from the Memo implementation.

    Given that you write for protagon, which is a PASOK friendly site, as well as you are not a conspiracy-tale lover or a leftish nihilist, I wonder if I have to feel scared for our administration’s intentions.

    By the way, the move to more integration, in line to your Modest Proposal, is claimed from Charlemagne of Economist.

  • As the IMF says, financial transaction taxes (FTTs) “do not automatically drive out financial activity to an unacceptable extent”.
    FTTs can be designed so that they are very difficult to avoid. The best example of this is the UK, where we have a stamp duty of 0.5% on all share transactions. The UK’s major competitors do not have this and there certainly is no global agreement, yet it is a successful FTT that raises around £5 billion pounds each year. It is designed so it can’t be avoided and London remains one of the biggest stock markets in the world.

    • This is true. The stamp duty currently imposed in the City of London has not made a dent in the City’s attractiveness. However, the Tobon tax is different to the City stamp duty in that it targets international transactions. In the case of the City stamp duty, anyone who wants to buy shares traded in the City will have to stomach the stamp duty. However, if one wants to choose a base (eg. London or Frankfurt or NY) from which to buy shares and other securities internationally, a Tobin tax will certainly be a deterrent. It is for this reason that, while stamp duty has been introduced in a number of exhanges, the Tobin tax has had no luck (e.g. it was introduced in Sweden but subsequently removed from the statutes). Make no mistake: I am all for the Tobin tax. But I recognise how difficult it will be to convince the EU to adopt it. I hope they do. But I am not holding my breath. (And this is why I was so angered by the Greek Information Minister who thoughtlessly and arrogantly announced that the Greek government secured the Tobin tax in teh latest eurozone summit.)

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