BRUSSELS (Reuters) - The European Union increased pressure on the International Monetary Fund on Friday to consider a global tax on financial transactions to limit the risk of another economic crisis.
Responding to public outrage over bankers’ big bonuses, EU leaders also underlined the need for “sound and effective” financial sector pay in a draft statement at a summit but did not specifically back British calls to tax the bonuses heavily.
“The European Council (of EU leaders) emphasises the importance of renewing the economic and social contract between financial institutions and the society they serve and of ensuring that the public benefits in good times and is protected from risk,” they said in a draft statement obtained by Reuters.
“The European Council encourages the IMF to consider the full range of options including insurance fees, resolution funds, contingent capital arrangements and a global financial transaction levy in its review.
The IMF is considering how to limit risk in the financial system following the worst economic crisis in generations, but the United States has opposed calls for a so-called Tobin Tax on financial transactions.
Prime Minister Gordon Brown called for consideration of such a tax at a summit of the Group of 20 developed and emerging nations last month, saying the proceeds could be used to fund future financial bailouts.
But he faced opposition from U.S. Treasury Secretary Timothy Geithner, who said Washington was against such a tax as a way to dampen risky bank behaviour [ID:nN07223447]
Without worldwide support, experts say it would be doomed to failure.
Brown acknowledged this, telling reporters in Brussels: “Global taxes will not be introduced unless all global financial centres are able to come behind it. But I believe there’s growing support for that.”
The draft EU statement, expected to be approved by leaders later on Friday, did not refer to calls by Britain and France to tax bankers’ bonuses heavily despite public anger that bankers are again making huge sums even though some of their banks have been bailed out with tax payers’ money.
The British government said on Wednesday banks operating in Britain would be charged a 50 percent tax rate on employees’ bonuses of above 25,000 pounds ($40,610).
French Economy Minister Christine Lagarde said President Nicolas Sarkozy planned to announce a windfall tax on banking bonuses “equivalent” to the 50 percent levy proposed by Britain.
There was no indication from other EU governments that they would rush to back such moves but Sarkozy said he expected others to follow the example set by Paris and London.
“I see now there is a string of heads of state who are joining, or have intentions to join, because today it’s clear. It’s done. The times are changing and once again our two countries are at the head of that change,” he said.
Lagarde said the need for close cooperation had been highlighted by the difficulties facing countries in the group of 16 countries that use the euro. “We’re at a decisive turning point for Europe and the euro zone,” Lagarde told reporters in Paris.
Greece has particularly bad problems. Greek bonds and shares fell sharply after credit rating agency Fitch downgraded Greek debt this week but Prime Minister George Papandreou dismissed rumours Athens could leave the euro zone.
“We are cutting the deficit with systemic changes and we are planning to do this within four years. It is a very clear programme and we are absolutely determined to do so,” Papandreou told Reuters in an interview in Brussels.
Despite the economic problems facing the 27-country EU, which represents nearly 500 million people, the leaders were expected to agree on financing for developing countries to tackle global warming in the three years before any deal agreed at international talks in Copenhagen takes effect.
One EU source said member states had pledged a total of 1.8 billion euros (1.6 billion pounds) annually to help the developing countries during the three-year period, and another said that total was likely to reach up to 2.1 billion annually.
Additional reporting by Justyna Pawlak, Jan Strupczewski, Pete Harrison, Julien Toyer, Luke Baker and Ilona Wiessenbach, editing by Mike Peacock