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Financial regulation

Cameron criticises European financial tax

financial transaction tax (FTT) David Cameron, UK prime minister, reopened tensions on Thursday with Paris and Berlin, after he said the economic design of the eurozone was seriously flawed and described as “madness” plans for a European tax on financial transactions.

The prime minister also made pointed – if indirect – criticisms of Germany, insisting some countries must allow their trade surpluses to fall, to redress imbalances in the eurozone. He also called on Berlin to contribute more resources and guarantees to help solve the crisis in the currency zone.

Mr Cameron’s comments at the World Economic Forum in Davos are likely to be seen in France and Germany as more unhelpful commentary from the sidelines from a prime minister who admitted to CNN that he was happy to be “out of the room” when single currency issues were discussed.

The British prime minister will attend a European summit in Brussels next Monday, his first encounter with many of his counterparts since the fractious meeting last month which saw Mr Cameron veto changes to the EU treaty to reinforce eurozone fiscal discipline.

Up to 26 other EU members have been forced to create a separate treaty to bypass the British blockade and Mr Cameron’s comments in Davos are unlikely to soothe the tensions caused by his use of the veto.

Mr Cameron said that the UK was a model of a successful currency union – between England and Scotland – because it had a central bank able to stand behind the currency and financial system, flexibility to deal with economic shocks and a system of fiscal transfers and collective debt issuance.

“Currently it’s not that the eurozone doesn’t have all of these – it’s that it doesn’t really have any of these,” Mr Cameron said.

He criticised eurozone leaders for being distracted by other issues, such as the introduction of a financial transaction tax (FTT) – an initiative he described as “quite simply madness”. The tax, which levies a small charge on a range of financial market trades, is a key part of Nicolas Sarkozy’s campaign in this year’s French presidential election.

Mr Cameron’s speech in Davos reflected British officials’ deep frustration with Germany’s leadership of the single currency area. The British prime minister called for a much stronger firewall to prevent contagion within the eurozone, common European sovereign debt, and for powerful countries committing to reduce their trade surpluses as much as the struggling countries seek to minimise their deficits.

But the message that will annoy Berlin the most was that he called on Germany to allow its trade surplus to fall. “Yes, tough fiscal discipline is essential. But this is a problem of trade deficits, not just budget deficits,” Mr Cameron said.

“As Mario Monti has suggested, the flip side of austerity in the deficit countries must be action to put the weight of the surplus countries behind the euro,” he said, referring to the Italian prime minister. “I’m not pretending any of this is easy. These are radical, difficult steps for any country to take.”

The German government has signalled to lawmakers in the Bundestag that it is willing to consider a scaled-back FTT to keep the UK – and some restive German MPs – on board.

A spokesman for the German finance ministry said its “absolute priority” was to pursue an FTT at a European Union level. But according to MPs and legislative aides, a senior finance ministry official told a finance committee meeting on Wednesday that Berlin would consider a suggestion by the Free Democrats, junior partner to the Christian Democrats, to move to a UK-style stamp duty on share transactions.

Ralph Brinkhaus, a backbench finance expert, on Thursday became the first Christian Democrat openly to support the stamp duty initiative. “I and many colleagues think it’s good we’ve got new movement in this debate,” he told the FT. “We have to keep what’s do-able in our sights and we’d welcome any compromise everyone could agree to – something between the maximal demands [of a blanket FTT] and a ‘stamp duty plus X’. We should really aim to keep the UK aboard.”

Source: Financial Times

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