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.