"If you are an addict, don’t start by shooting the pusher." This was the salient advice last month to indebted eurozone governments from Thomas Olofsson, head of debt management at the Swedish National Debt Office. Speaking at the International Capital Market Association AGM in Copenhagen, Olofsson expressed bafflement at the continued pursuit of the proposed financial transactions tax by 11 EU member states, given the funding needs many of them face.
Olofsson was preaching to the converted at the Icma meeting – the association has been vociferous in its opposition to the tax, warning that it could force the short-term repo market in Europe to contract by 66%. The wrongheadedness of the proposed regulation dominated the meeting, with the coffee breaks and evening cocktail reception ringing to the sound of angry financiers bemoaning the muddled thinking of European regulators.
That is certainly nothing new, but the intensity and unanimity of the opposition to this tax is quite striking. "Banks are wrong if they complain about capital requirements but they are right if they complain about the financial transactions tax," advised Per Callesen, Denmark’s central bank governor, at the meeting.
The financial services industry risks reaping the rewards of its own behaviour in this regard. Banks have complained long and hard about all financial regulation emanating from Brussels ever since 2007. Some of this regulation has been ill conceived and much of it introduced with little concern for the unintended consequences that might result.
But the bank lobby has been so vocal that the very valid objections to the FTT risk being viewed in Brussels as bankers yet again bleating in pursuit of their own self-interest. But the FTT is a dangerous idea – a tax on liquidity at the very time that Europe is in desperate need of any stimulus for growth. New regulation that might directly trigger a fall in eurozone GDP needs to be resisted at all costs. The banking industry must hope that any goodwill it has left in the corridors of Brussels has not been exhausted.