UPDATE 1-EU sets up new watchdogs as bank tax row simmers

* Ministers give nod to Europe-wide financial regulators

* Countries argue on bank levies and transaction tax

* UK rejects Berlin appeal for “socially fair” financial tax

(Adds comments from Osborne, Schaeuble, Lagarde, detail)

By John O’Donnell

BRUSSELS, Sept 7 (BestGrowthStock) – European Union finance
ministers agreed on Tuesday to a sweeping overhaul of how the
bloc’s financial industry is policed, but remained locked in
dispute over the taxation of banking and trading.

Three years after the start of a financial and economic
crisis, some have grown frustrated by Europe’s slow pace of
reform in its financial sector, held up by indecision and
disputes among the bloc’s 27 countries.

On Tuesday, they announced a rare breakthrough with a deal
to set up pan-European watchdogs at the start of next year to
oversee banking, insurers and markets despite concerns in London
that the new agencies would undermine its national regulators.

The reform, labelled historic by some experts, establishes
three financial sheriffs who can overrule national agencies like
Britain’s Financial Services Authority. [ID:nLDE6821GU]

But the region’s economic leaders failed to resolve a row
about how to impose levies on banks. Although most European
politicians want to tax banks more, they remain at loggerheads
over what should be done with the money. [ID:nLDE68610X]

The European Union’s executive in Brussels would like
countries to use some money from bank levies to go to emergency
funds that could be used to shore up flagging banks.

On Tuesday, Britain made clear it would not accept any such
order from the European Commission.

“It is up to national governments and parliaments to decide
what should happen to the revenues from those (bank) levies,”
said George Osborne, the British finance minister, adding that
Britain had “plenty of allies” on this issue.
“There is a significant body of opposition at (the meeting
of finance ministers) to a European resolution fund.”

SOCIAL JUSTICE

European leaders are also divided over whether to start
imposing a tax on financial transactions such as the buying and
selling of shares.

German Finance Minister Wolfgang Schaeuble appealed for such
a charge, which he said would be socially fair. “It is a
question of social justice, the acceptance by society of such a
system.”

But Osborne, whose finance ministry would likely stand to
gain most from such a tax because of London’s big financial
centre, threw cold water on the idea.

Osborne said it was difficult to see how such a transaction
tax could be made to operate in a world in which “financial
activity can move very quickly … outside the European Union.”
“Our efforts would be more fruitfully directed at the G20
(Group of 20 major economies) level and the European level to
other pressing issues in the world economy,” he said.

France, which has said it would support such a tax if others
around the globe follow, signalled flagging support for such a
scheme.

“It is technically feasible, practically difficult,
politically desirable and financially uncertain,” said French
Finance Minister Christine Lagarde.

These divisions, coupled with a reluctance internationally
to implement similar measures, are likely to scupper any
agreement.

Sweden, whose own attempt to tax financial deals backfired
when trading moved abroad, warned at the meeting against
repeating that mistake.

“We don’t want to see a new transaction tax,” Finance
Minister Anders Borg said. “The banking levy is more suitable as
it would bring us revenue to deal with future crises.”

To read a Q+A on whether the EU will agree on taxing banks
more after the crisis, double click on [ID:nLDE68610X]

To read how EU watchdogs will change policing of banks,
double click on [ID:nLDE6821GU]

UPDATE 1-EU sets up new watchdogs as bank tax row simmers