Today sees the introduction of France’s new financial transactions tax. Nicolas Sarkozy laid the groundwork for it and has been a champion of the idea, and new president Francois Hollande has accelerated the proposals through. There have been lots of talks about a Europe-wide FTT. Those talks have failed, usually with Britain putting its foot down. France has now decided to press ahead unilaterally, and it may not be the last Eurozone country to do so.
There are actually three new taxes coming in, all aimed at various aspects of the financial industry.
- The first is the FTT proper, which will apply a 0.2% tax on trading in listed companies valued over a billion euros – just over 100 companies at the moment.
- The second is a tax on high frequency trading. The tax here is rather technical, but so is the trade itself. In a nutshell, high frequency trading relies on super-fast computers that can read patterns in market activity and execute orders in fractions of a second. In theory, it adds liquidity and may make markets more stable. The downside is that only the biggest players can do it and they ride on the trading activity of others, making it inherently unfair. In some markets, there is now more high-frequency trading than conventional trading, and the French will be making a bold move in cutting the practice down to size.
- The third is a 0.01% tax on credit default swaps on sovereign debt. These are the derivatives that allow traders to make quick profits out of a country’s economic collapse. Investors buying sovereign debt to hold long term or for hedging purposes won’t pay the tax – it will only apply to those jumping in when a country is in trouble.
Taken together, these three taxes will form a moral backbone for the French financial industry. It won’t come for free – this will cost French banks and hedge funds money, but it will slow or prevent more predatory aspects of trading. An old fashioned view it may be, but there is such a thing as right and wrong, and the French government has had the nerve to call time on some things that are profitable, but wrong. That’s not something our government has the balls to do here in Britain, where all things bow to the City.
Having said that, we will have to wait and see whether it works or not. I agree with the principles of the Financial Transaction Tax, but it’s easier to create a bad one than a good one. It’s complicated, and if you get it wrong you can wreck your financial sector. That’s not a reason not to do it – but you do have to design it meticulously. I’m not a tax lawyer and could not possibly say whether France’s taxes are written well.
If they are, then this could be a moment of real leadership on standing up to the financial sector and legislating for a more moral capitalism. It would scupper the scare-mongering antics of those out to protect the status quo, and open the door for a Europe-wide FTT. If it turns out to be full of loopholes or the percentages are set so high as to genuinely endanger French banks, then it will play straight into the hands of opponents of reform.
For campaigners and advocates of the FTT, such as myself, today is a good day. But we will have pray the French have designed it well, and watch this space.