EU Kicks the Can (again) on the Financial Transaction Tax

Recently, the long and winding saga of the EU FTT (Financial Transaction Tax) took another turn. For the third time the coalition of EU countries seeking to install a tax on financial transactions (0.1% for shares and bonds, and 0.01% for derivatives), announced that they had failed to reach agreement ahead of a self-imposed deadline.   Once again, rather than abandoning the mission, the coalition decided to kick the can down the road until September.

Upon announcing the new deadline, Austrian Finance Minister Hans Joerg Schelling, who has been spearheading the initiative, said the FTT coalition was in “99% agreement” with the latest proposal.  However, he did add that if no agreement is reached by September the group may have to admit defeat and give up the ghost.

All this should probably be taken with a grain of salt since similar statements were made when the group failed to reach agreement by the last deadline in December 2015. Then it was announced, with some fanfare, that the FTT coalition had reached agreement on the “core principles” of the FTT and that a final decision would be made by June 2016.

Despite claims of progress being made, there are still reasons be skeptical about the fate of the FTT.  Since that announcement in December 2015, the project has run into strong headwinds.  In April, Estonia officially dropped out of the FTT coalition; which dropped the number of participating countries to ten.  It has also been widely reported that Belgium and Slovenia have serious reservations about continuing to participate.  If the number of participating countries dips below nine, then the effort will have to be abandoned because the FTT is being pursued under a mechanism known as “enhanced cooperation.”

Another key challenge for the FTT is the shifting priorities of EU policymakers, who are now much more focused on encouraging growth across the region.  For example, the FTT is squarely at odds with the EU Commission’s flagship regulatory project, the CMU (Capital Markets Union).  With the CMU, the EU Commission is seeking to unlock growth in Europe by creating a true harmonized single capital market.   Obviously, as subset of EU member states trying to implement a FTT runs counter to these goals. Should the coalition finally reach an agreement , the FTT will almost certainly face a legal challenge from one, if not more, of the non-FTT countries.

Unfortunately, at this point, there’s not much asset managers can do about the FTT.  For the next three months at least, the FTT’s sword of Damocles will hang over the industry.  Maybe in September we’ll have a conclusion to the FTT saga.  Though, if history is anything to go by, we may just get another deadline.