EU Commission pushes for crisis levy on banks

By John O’Donnell and Julien Toyer

BRUSSELS (BestGrowthStock) – The European Commission unveiled a framework on Wednesday for a levy on banks to make them pay now for future crises, setting the stage for a showdown on the tax at a meeting of G20 world leaders in June.

Michel Barnier, the European Union commissioner in charge of an overhaul of financial services, promised new European Union-wide rules by 2011 to tax banks’ assets, liabilities or profits, raising money for an emergency crisis fund.

The former French foreign minister brushed aside differences between Washington and Brussels on the subject and said Europe was prepared to go it alone.

“On this question, we can go forward by ourselves, on our own,” he said. “It is not up to the United States to pay for the financial stability of Europe.”

There were few indications how an EU levy on banks would look. Barnier signaled earlier this year that investment banks rather than less-risky retail lenders should bear the brunt of such a charge.

He made clear on Wednesday that he was not pushing for a federal levy, a taboo among the bloc’s 27 countries, which fiercely guard their right to decide taxes.

“What we are talking about here is a network of national funds,” Barnier said of the plan, which officials describe as a framework for countries to impose a uniform levy.

Swedish Finance Minister Anders Borg said launching any European fund would be a “much, much longer process.”

“The bankers are to blame and therefore the bankers should pay, that’s the essence of this,” Borg, architect of the Swedish bank levy that inspired Barnier, told Reuters.

“If it were clear that we could vaccinate the public finances against further banking crises by making the bankers pay … that is a very important step toward a much more credible long-term fiscal sustainability,” said Borg.

STEALING A MARCH

In making its announcement, the EU’s executive hopes to build momentum for a global levy on banks before a meeting of leaders of G20 countries in Toronto next month.

The Commission has clout in Europe as the sole body that proposes laws for the region.

But the success of its proposals depends on member states, especially larger ones such as Germany and France. There are also deep divisions about the scope of such a tax and what the money collected should be used for.

EU finance ministers failed at talks in April to agree on even broad support for a bank levy.

France and Britain would prefer it to go to their flagging national budgets, but Germany wants to ring-fence the levy. The executive European Commission wants it set aside to pay for the winding down of struggling banks.

All four have seats at the table of G20 leaders. The ability of Europe’s leaders, from French president Nicolas Sarkozy to European Commission President Jose Manuel Barroso, to speak with one voice in Toronto will help determine Europe’s influence.

As well as divisions in Europe, there is disagreement globally on imposing a special tax on banks.

Canada, whose banks suffered less in the crisis, opposes such a levy and Washington has also taken a different tack to Europe.

The United States wants its fee to recover the costs of the government’s Troubled Asset Relief Program put in place to stabilize the banking system at the height of the financial crisis.

Barnier said he would now listen to industry. But before his official announcement, the British Bankers’ Association had already attacked what it called an EU-wide tax.

“Why should the banks in one country pay for the problems of banks in another?” said its chief executive Angela Knight.

Investment Analysis

(Additional reporting by Simon Johnson in Stockholm; editing by Ron Askew)

EU Commission pushes for crisis levy on banks