Monti to support EU-wide tax on financial transactions
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Italian Prime Minister Mario Monti expressed his support on Wednesday for a Franco-German proposal to tax financial transactions but said the tax should apply to all 27 members of the European Union rather than just the eurozone.
AP - Italian Prime Minister Mario Monti on Wednesday threw his support behind a new tax on financial transactions, backing a push by Germany and France, but said he would prefer to have it apply across the whole European Union.
German Chancellor Angela Merkel and French President Nicolas Sarkozy have suggested it might suffice to enact such a tax among the 17-nation euro countries. Monti said he would rather have it applied across the full 27-nation EU -- which would be more difficult because of U.K. opposition -- but did not rule out a eurozone-only deal.
“We are open to supporting this initiative at the EU level,” Monti said at a press conference with Merkel during his first visit to Berlin since taking over from Silvio Berlusconi in November.
While the Berlusconi government had rejected a new financial levy outright, Monti has said he was thought it was a good idea, particularly as a means of reducing the tax burden on families.
Sarkozy, who faces an election in April, has said France could even enact the tax unilaterally, but Germany has been more guarded.
Merkel earlier this week, after meeting with Sarkozy in Berlin, said there’s no agreement yet on a Tobin tax inside her own governing coalition. She called for European leaders to clarify their stance on the matter by March.
The European Commission has estimated that the Tobin tax could raise as much as €57 billion ($77 billion) a year in Europe.
The tax would be a tiny percentage of the value of a trade -- the French government proposed 0.1 percent on bonds and shares and 0.01 percent on more complex derivatives. Although some countries already have a minimal duty on share trading, the new proposal would not only increase the scope and size of the tax but also siphon off some revenue to Brussels.
There is no final decision yet, however, on what financial instruments would be taxed and whether currency trades -- which make up a large slice of worldwide transactions -- would be targeted as well.
Monti, who studied at Yale with economist James Tobin, who first proposed the levy, said his one-time mentor likened the tax’s popularity through history to the Loch Ness Monster.
“You see it, it disappears, then reappears, » Monti said. « In this phase I think it has more sense than in others given the velocity of financial transactions, which can cause damage, and not just benefits.”
In Italy, Monti has already instituted painful austerity measures and said he planned to work closely with Merkel and Sarkozy in the coming weeks and months for wider European solutions to the crisis.
He said Italy should not be seen as “a possible source of infection. ... Italy can do its full part, next to Germany and next to France, for stability.”
Merkel and Sarkozy on Monday stressed that they saw boosting economic growth in the 17-nation eurozone as a priority, a recognition that the focus on austerity cuts is unlikely to get Europe out of its debt crisis.
Monti said he and Merkel agreed that they should strive to create real economic growth, not “ephemeral growth that is based on emergency measures, which given room to deficits and inflation.”
“Growth needs to be based on structural measures in individual countries and also within the European framework,” Monti said.
Europe is currently working on a new treaty enshrining tougher fiscal rules, which leaders agreed at a summit in early December. Merkel said negotiations “are progressing well,” but that “there is still work to be done.”
“There are good signs that by Jan. 30 we will have made substantial progress or will have even reached a political accord,” she said.
Italy has become a key focus in the European financial crisis because of its size, huge debt load and need to borrow heavily in the first quarter. The yield on its 10-year bonds is hovering around the 7 percent level that is widely considered to be a danger mark.
Some economists say the European Central Bank should help Italy more by buying its government bonds on the open market in larger quantities. That would lower Italy’s borrowing rates and ease pressure on its finances. But the ECB, along with Germany, resists such a move because it does not want to be seen as propping up specific governments.
Monti said that Italy saw its current borrowing rates as no longer justified.
“We expect from Europe, of which Italy is a part, the development of mechanisms that facilitate the transformation of good politics into more reasonable interest rates,” he said.
The ECB will hold its monthly monetary policy meeting on Thursday, but analysts do not expect it to cut interest rates -- which would help a weak economy like Italy’s -- nor signal a more aggressive stance in its bond purchases.
Monti reiterated that Italy would like to see the ECB cut its refinancing rate even lower than its current 1 percent, but did not say how low or when they should be reduced.
Monti’s meeting with Merkel is the latest in a series of talks between European leaders. Following her talks Monday with Sarkozy, the German leader met in Berlin on Tuesday evening with International Monetary Fund chief Christine Lagarde. Lagarde was in Paris on Wednesday to speak with Sarkozy.
Merkel and Sarkozy also plan to travel to Italy on Jan. 20 before a European summit at the end of the month.