A brief note on Tobin’s Tax and Merkozy’s naked cynicism

Tobin’s financial transactions’ tax was a simple, down-to-earth, logical proposal for dealing with the ridiculous volatility that became the norm in the era of the Global Minotaur (my metaphor for the way in which the combination of US trade deficits and capital flows into Wall Street kept the global economy going between the early 1970s and 2008). The original idea was to introduce a little sand in the wheels of financialisation for the explicit purpose of slowing down the ebb and flow of the capital tides. To use a tiny tax as a brake that will slow down the rapid, uncontrolled, unsustainable migratory oeuvre of global capital which, unruly as it was, threatened emerging markets with the boom and bust that came every time capital flooded in only to depart just as swiftly soon after (recall the S.E. Asian crises of the 1990s). Tobin had never intended his tax to be a substitute for normal taxes or a means by which to finance governments, or transnational entities like the eurozone, that were unwilling to tax the richer members of their polity so as to provide society with the promised services and public goods.

Unfortunately, in Europe, Tobin’s little gem of an idea was prostituted by our leaders. The Centre Left, bereft of ideas on how to pursue its fading social policy agenda, latched on to the idea of Tobin’s Tax as a potential goose that will lay the tax eggs which the electorate does not want to provide by other means. As for the Right, they managed to overtake the Centre Left in terms of expediency, cynicism and the sort of politicking that expands Europe’s democratic deficit no end. Initially, following their pro-market instincts, they turned down the Tobin Tax utilising the type of arguments that one would expect (e.g. that it would damage the capacity of the financial sector to fund growth, that it would distort prices etc.). For instance, when the socialist administration of Lionel Jospin passed a law in 2001 that introduced the Tobin Tax on the proviso that the rest of the EU adopts it too (a law that was signed by President Chirac), the French Right, and Mr Sarkozy personally, screamed blue murder. Equally, Mrs Merkel, stating similar reasons, repeatedly rejected the idea that was, initially, put forward by the Socialist Group in the European Parliament.

But then something changed. About a year ago, as the Crisis began to migrate from the European periphery to Europe’s core, Merkel and Sarkozy suddenly warmed to Tobin’s excellent idea. More recently, President Sarkozy even turned it into his ‘own’ idea, promising to establish it in France if he wins another presidential term. What had happened? Cynicism had found another glorious opportunity to conquer. Both Mrs Merkel and Mr Sarkozy know full well that Tobin’s tax will never be introduced. Never! For if France and Germany introduce it alone, then the City of London will steal 90% of financial trade from Frankfurt and Paris. (Indeed, if Mr Sarkozy wants to enact a Tobin Tax in France, all he has to do is to amend Jospin’s legislation by removing the proviso that the rest of the EU must adopt the said tax before it is introduced in France. Naturally, the French President has no intention of doing this.) Ergo, since Britain will wait for Hell to freeze over before it consents to a Tobin Tax, the EU will never adopt it and the whole issue is moot.

So, why all the fuzz now? Why is President Sarkozy beating his chest about the Tobin Tax? Because by so doing he is denying his main opponent, F. Hollande, the only campaigning issue that puts some deep blue water between himself and the incumbent. Similarly with Mrs Merkel: By adopting the idea of a Tobin Tax she successfully silences the Socialist Group in the Euro-Parliament courtesy of the sad fact that the Socialist Group have little more to offer, as an alternative to the European Right, regarding the fiscal state of the eurozone. In this sense, Merkozy are bordering on the innocent. The true culprits are the Socialists (*) whose lack of ideas, energy and vision are allowing President Sarkozy and Mrs Merkel to get away with a form of cynicism that diminishes politics at a time when the political sphere is the only one on which a rational solution to our Crisis can be  engineered.

(*) For a particularly sad  example of the socialists’ attitudes on these matters, recall a story I told some time ago here.


  • Chances are you’re right about political short-term motivations and likely outcome — that once again, the financial transaction tax will fall flat.

    However, the current FTT should be seen in the context of a set of proposed rules from Brussels. The most damaging to London, for example, is not an FTT, but rules that require companies trading more than 10% with Euro to be based in Eurozone and thus submit to EU regulations (incl FTT).

    For City, being able to trade in Euromarket without being hit by Brussels is one of the key reasons it’s become a global financial hub (quick links to offshore and tax havens another). Closing London’s loophole — drawing business back to Paris and Frankfurt — appears to be what Brussels has in mind. And Cameron’s walkout from the EU before the holidays certainly did not diminish the possibility of a new intra-EU regime of this kind.

    A lot is still stacked against this, of course — but the proposal today is of a different order than previous versions of the Tobin tax and thus perhaps not as easily dismissed and ridiculed as in the past.

  • From where I stand there are certain issues requiring immediate action (such as the rejection of the Greek PSI) and some others, like the Tobin tax, which are best suited towards a slower, Andante, tempo:

  • Hi Yannis,
    could you comment, Wolfgang Münchau’s article, in DER SPIEGEL:

    I probably have a German speaker in your team, don’t you?
    Münchau says, that the problem with Tobin’s tax is not the migration of financial trade, but the fact, that the banks would always be faster than politics and find out new financial products, that will avoid the event of a transaction. He says “… in the end, nobody knows, what a transaction is…”.
    What do you think of this opinion? Will the bankers be able to simply circumvent it?

    • He may well be right. Especially if the Tobin Tax leaves derivatives out of the loop – which the Merkozy proposal does.

  • Concerning N. Sarkozy, this is just an electoral attitude : to say to the french people that “HE” will put up the tobin tax to “SAVE” france from the crisis by “stopping the bad banksters attitudes”. As he is doing this most of the time in France : pure political tactics, and, yes, you are right, pure cynism. Speaking to the poor, working for the rich..

    I want to note also that despite the fact that N. Sarkozy is using public money in France to advertise himself as he wished to present himself for the next election, he is not officialy yet in the game : he NEVER said “I am candidat”.. Just another way to use public money for his own business.

    N. Sarkozy is knowned to say black on monday, gray on wednesday and white on saturday. Just to change the days with years and you will have a good idea of the how-mr-president-is-changing-his-minds-according-to-each-situation-to-tease-people : this is just political game that is a -shamed- theater. Just to try to take some electors from the left, after having focused on immigrants to take electors from the extrem right during the previous elections.

    As always, talks, talks, talks, and no -good- actions : he said that he will change all the banking system after 2008. We can see now that the situation is worst than ever.

    To finish, N. Sarkozy will try all the tricks to be elected : there are some french judges which will be really interested in asking him some details about scandals concerning big money mouvements for election campaigns and weapons contracts. He knows that out of his presidential position, he is in real danger.

    All of this had become a game. A really sad and mad one.

  • Britain already has a Tobin tax of sorts (0.5% stamp duty on stock trades). They surely wouldn’t object to it being adopted by the entire EU, perhaps Merkozy should have started there as a low hanging fruit. And it’s a good precedent that taxes don’t make everyone run away (lots of companies are listed on the LSE despite stamp duty being unique to London).

    Also some of the trading that would go away would be good riddance, zero sum day or algorithmic trading is just adding noise and possibly systemic risk to your platform (though of course this diminishes the revenue raising aspect of the proposals).

  • When in history did a new tax save a countrx or currency? Maybe all these Eurpean governments should spend less and incurr less debt. Not even Germany ever reduced taxes. The collected tax volume went up each year!

  • Fianlly France will lose its AAA today. Another nail in the coffin of the ill faited Euro!

  • France lost its triple A rating . I assume that Eurobonds are history now . Now what?

    Is France likely to change attitute now? It is more than clear that either France will be submissive to Germany like Italy et all or ?

    This development was mentioned a lot in this blog . It was something to be expected , wasn’t it?
    Do these countries have a plan B now?

    What France is getting from the alliance with Germany now? Are they going to be surrendered to Germany?

    Irrelevant but … French and English naval forces have joined forces and are on their way to Mediterranean sea as well .

  • According to Liana Kanelli , attack in Syria is a serious possibility very shortly in time with the help of Turkey .
    Embassy of Canada in Syria warned its citizens to leave Syria immediately .

    Can anyone solve the equations ?

    • Interestingly enough, there has not been one Syrian diplomatic defection.

  • The Tobin tax may be a good idea. Reducing short term speculative stock trading hopfully can stabilize a bit stock prices. Fluctuating stock prices makes planning by executives in industry beyond the very short term more difficult, and jepordizes the creation of new wealth.

    • Still waiting for suggestion, which tax in history actually solved a problem.

    • PCARX,

      I guess public goods are not for you. You want to pay for services — roads, police, fire departments, etc. — not through taxation but through a pay-as-you-go system. Is that what you are saying?

      So when your house, let’s say, is on fire you will be calling different firemen to for price quotes?

      Will you be constructing your own roads when traveling?

      How can you afford to pay for such services? Bill Gates can pull it off — are you a billionaire?

  • There is another, much more elegant solution; introduce a new law requiring all trades to be to true free market rules. Again, electronic trading does not involve anything changing hands. In the now old fashioned system, you called your stock broker and while that initiated the trade, the trade was not completed until the share certificate was DELIVERED to its new owner. Settlement is also a solid foundation of the old fashioned system. Today settlement is moot.

    What everyone should do is sit down and define rules for a true free market to be applied to all trades. When they do so, they will discover that in financial transactions, there are no rules. I have covered this in great detail in The Road Ahead from a Grass Roots Perspective.

  • Tobin’s Tax fails on two fronts.

    Firstly, it fails to address the fact that transfers of capital are distinct from transfers of risk, whether credit risk or market risk. It was correctly pointed out that the UK’s stamp duty works perfectly adequately as such a Value Transfer Tax.

    Secondly, it is impossible to distinguish whether a transaction is speculative in nature – ie made in pursuit of transaction profit – or a ‘hedge’ aimed at preserving wealth or avoiding loss. I addressed this latter point in the context of the oil market a couple of days ago on the Naked Capitalism site.

    Naked Oil

    I prefer to tax privileged property rights rather than people, and the best known case of this approach – which has been airbrushed from economic history for 100 years by neoclassical economics – is a levy on the rental value of land/location.

    I believe that financial services intermediaries – particularly credit intermediaries aka banks – should be subject to a Limited Liability Levy on their gross income – that is to say after paying depositors but before paying staff, management and shareholders.

    This would be straightforward to collect and is essentially a payment made to remediate the externalisation of costs hard-wired into that entirely sociopathic entity, the joint stock limited liability company (the Corporation) particularly when it its absentee landlord Public Limited Company form.

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