French President Nicolas Sarkozy says he's tired of waiting for the European Commission to act, so late last night he said he’d implement the Commission’s proposed transaction tax of 0.1% on equity transactions by August. It’s not clear if he’ll push through the 0.1% on derivatives that the Commission is proposing, but he did say that if the European Commission does implement the tax, France will synchronize it to the pan-European one.
The tax is gaining plenty of support across Europe – with the United Kingdom being the most prominent holdout, which is ironic, because they have been doing something similar for decades.
But support isn’t coming only for the reason Sarkozy mentioned – namely, that the tax will help cut the deficit. That may be the selling point for voters, and it may even be the reason he feels it will resonate with voters in other countries – especially those without major financial centers – but the reasons being kicked around the halls of the European Commission, the IMF and Washington, DC, are a bit more nuanced. The more common argument is that a transaction tax will be used not to reduce the deficit, but to both fund stronger regulation of the financial system, reduce speculation and to act as a sort of down-payment against the next big debacle.
Former JP Morgan Managing Director John Fullerton is one of a handful of finance professionals who have come out in favor of the tax, which he concedes may make the financial system less efficient, but which he says will make it more resilient.
“Efficiency is the ability of a system to grow and expand and process throughput,” he told us in an article to be published later this week. “While resiliency is the ability of a system to recover from a shock.”
It’s an argument he’s made before, and it’s one we will be exploring in an upcoming online Futures exclusive, tentatively slated for publication later this week, and tentatively titled “Is a financial transaction tax the market’s salvation?”