Syed Kamall is Conservative MEP for London and sits on the Economic and Monetary Affairs Committee of the European Parliament.
Three years after the depths of the financial crisis, if a bank went bust tomorrow it would still have to ask for taxpayers’ money to bail it out. For all the noise generated on the issue of banks and bankers, precious little of the new regulations that we have seen from the EU would do anything to prevent a future financial crisis. Instead, what we have seen is a land grab by the European Commission, aided and abetted by Germany and France, to take financial services regulation away from the UK.
Many European politicians do not understand the fundamental causes of the crisis. Bankers judged, correctly, that they could take big risks because governments would bail them out if it all went wrong. Yet the new regulations do not seek to remove moral hazard from the banking sector, to improve international financial reporting standards, to rule out future taxpayer bailout for failing banks or to instil in Directors greater accountability to their shareholders, customers and staff. Instead they either regulate parts of the financial services industry that were not responsible for the crisis, such as venture capital and investment trusts, or they target specific financial products or practices that are symptomatic of economic problems rather than causes of them. The Financial Transaction Tax (FTT) is just one example of how they keep picking the wrong target.
Many European politicians, both left and right, are only too willing to play the populist card rather than take responsibility for their role in causing the crisis. President Sarkozy has spotted that by calling for an FTT, he can tap into the French people’s suspicion of the Anglo-Saxon economic model. He wants to play short term politics and reignite old hostilities at a time when Europe needs leaders who are prepared to make hard headed choices which secure their country’s long term prosperity. For London and for Britain, we will continue to rely heavily on the financial services sector for our continued prosperity as our economy rebalances towards trading with emerging markets. Any new regulatory measure must be judged in that context.
In the UK many of us already pay something resembling an FTT, stamp duty. It is paid by those of us who buy shares and houses – not by the bankers who lend them the money or the brokers or agents who facilitate the transaction. It is ordinary consumers who pay most of these taxes in the end. Just as a stamp duty on house purchases is avoided by people with offshore companies, an FTT will be avoided by richer people with the ability to shift transactions outside of the EU. If it were introduced here, the FTT would cause a flight of talent away from London, as financial services firms relocated to global centres where the tax does not apply.
But the people that the FTT will hit really hard are not the non-dom, globally mobile banking class, but the tens of thousands of workers who commute into the City or Canary Wharf by bus, tube and train. With family and community ties here, most people cannot simply up sticks and move half way across the world to continue pursuing their careers. It is their jobs which are put at risk by weak European Commission officials giving into French pressure. The original impact assessment estimated that European GDP could be reduced by 1.5% as a result of the tax, meaning a loss of around half a million jobs across the EU. The Commission only started revising these figures once they saw how ridiculous it would be to propose legislation that would in fact reduce GDP when many EU countries are on the brink of another recession.
The Commission has now put forward a legislative initiative on the FTT, which is currently being discussed in both the European Council and the European Parliament. The Commissioners know they want it, but they are not even clear about where the money raised by the FTT would go, which is surely one of the most damning critiques of the whole proposal. Is it going to a resolution pot from which failing banks will be bailed out, thereby allowing directors of failing banks to avoid taking responsibility for failure? Is it going to be swallowed up by the EU which has not signed off its accounts for 17 years so that the Commission can throw yet more money at countries that seem incapable of sorting out their own debt problems? Or is it going to the governments of developing countries in the vain hope that it will trickle down to tackle poverty instead of ending up in the pockets of corrupt officials or in Swiss bank accounts? There are strong arguments against putting money in any of these pots, even if you could raise the revenue without causing significant economic damage.
While Conservative MEPs on the Economic and Monetary Affairs Committee of the European Parliament are working hard to explain the economic consequences of the FTT, we know that any final decision will be made in the member states in the Council. The only way we are ultimately going to stop an FTT being imposed on the UK is by the Prime Minister and Chancellor refusing to budge. We have a veto over this proposal and we must use it. If the other countries want to press ahead without us, let them.