ECB’s Noyer sees European transaction tax generating no revenue

Plan may harm liquidity

The European Union’s proposed financial-transaction tax may not generate any revenue because of the market damage it would cause, European Central Bank Governing Council member Christian Noyer said.

“The analyses we’ve done show that the project, as it has been prepared by the commission, will first of all raise nothing at all, there’ll be no revenue,” Noyer told reporters in Paris today.

“The immediate effect will be either to destroy financial sectors” such as the repurchase agreement market, or to create conditions in which “the cost of borrowing in the real economy will increase for everyone,” Noyer said. He also flagged concerns that the plan would hurt the ECB’s monetary transmission channels, a concern raised by others on the central bank’s governing panel.

The EU has proposed a broad-based tax on stocks, bonds, derivatives and other trades that could be collected worldwide by France, Germany and nine other EU nations, including Belgium, that have so far signed up. The European Commission so far has resisted calls to exclude government bonds from the proposed levy, saying it wants to limit exceptions to make the tax hard to avoid.

Noyer, who leads the Bank of France, said taxing secondary-market bond trades would encourage investors to trade outside the EU or make it “very significantly” more expensive for governments and companies to finance themselves.

Bundesbank board member Andreas Dombret also raised concerns about the proposal today, in a speech posted on the German central bank’s website. He said the plan clashes with global efforts to make sure banks have enough liquidity to survive financial shocks without triggering a crisis.

“Regulation sets new requirements in order to protect the banking system against a shortage of liquid assets,” Dombret said. “At the same time, a financial-transaction tax is envisaged that might have drastic effects on the liquidity on some important markets.”

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