European Commission president Jose Barroso today called for the faster creation of a permanent rescue fund to show Europe's determination to stamp out the debt crisis, and
Due to be set up in mid-2013, the European Stability Mechanism will wield a €500 billion war chest that could be used more flexibly than the current guarantee-based temporary financial backstop.
"We should do everything possible to accelerate the entry into force of the ESM," Mr Barroso told the European Parliament in Strasbourg, France today. He warned that the debt crisis had reached a "serious" stage.
In what is being seen as a strongly worded state-of-the-union address, Mr Barroso also criticised “inter-governmental” approaches to the euro zone crisis, called for the creation of euro bonds and a financial transaction tax and proposed a system of “internships” to give hope to the one in five young EU citizens he said were without jobs.
"We are facing the greatest challenge in the history of our union. The financial, economic and social crisis has resulted in a crisis of confidence and trust not seen in decades. [There is] lack of confidence and trust in governments, in leaders and in Europe, in our ability to change things for the better," he said.
But he said it was both possible and necessary to overcome that challenge.
Addressing the issue of a transaction tax, Mr Barroso said in the last three years, taxpayers in the EU had guaranteed €4.6 trillion to the financial sector. "It is time for the financial sector to make a contribution back to society," he said. A transaction tax would, he said, generate about €55 billion per year.
The plan would set minimum tax rates for financial transactions throughout the 27-nation EU.
Today's proposal would apply a tax of 0.1 per cent on trading of stocks and bonds, with a 0.01 per cent rate for derivatives contracts.
European governments are split over the merits of a transactions tax, with the UK Treasury saying today that such a levy would need to apply globally and "there are a number of practical issues that need to be worked through".
EU tax proposals require unanimous support of the region's 27 members.
In a press briefing in Strasbourg today, EU tax commissioner Algirdas Semeta downplayed the prospect of narrowing the proposal's scope.
"There are clear benefits of the proposal for the United Kingdom," Semeta told reporters in Strasbourg, France. "It will give additional revenues to our member states including the United Kingdom. Many member states need consolidation efforts and these additional revenues would be also beneficial for the UK. At the same time, it would reduce the contribution of the United Kingdom to the EU budget."
The proposed tax is aimed at banks, investment firms, insurance companies, pension funds, stockbrokers and hedge funds, among other types of financial firms, the EU said. Spot foreign-exchange trades would not be covered by the tax, while currency derivative contracts are included.
Transactions with the European Central Bank and other central banks wouldn't be covered by the tax, according to the document. It also includes an exemption for the "primary market", which includes sovereign and corporate bond auctions.
Mr Barroso said a “mix of discipline and integration” as was proposed in economic governance reforms expected to be adopted by parliament today, would give greater control to the commission and stability to the financial markets.
He said it was “an illusion to think that we could have a common currency and a single market with national approaches to economic and budgetary policy”.
But he said it was now important to avoid “another illusion that we can have a common currency with an inter-governmental approach [to responding to the financial markets]”.
Turning to the financial problems in Athens, he affirmed "Greece is, and Greece will remain, a member of the euro area".
But he warned the issues being faced by the country would require long-term structural change. "This is not a sprint but a marathon" he said. "Greece must implement its commitments in full and on time. In turn, the other euro area members have pledged to support Greece and each other.”
He said proposals for euro bonds would be advanced by the Commission within weeks and while “fully fledged” euro bonds would require changes to existing EU treaties, he said there was much that could be done under the existing Lisbon Treaty. The treaty issue “should not be an excuse to delay”, he said.
"Once the euro area is fully equipped with the instruments necessary to ensure both integration and discipline, the issuance of joint debt will be seen as a natural and advantageous step for all," he said.
Mr Barroso also said the creation of a new EU patent would reduce costs to businesses to about 20 per cent of current levels while a single market in e-commerce – particularly in relation to phone roaming charges – would put about €1,500 in the pockets of each EU tax payer.
Speaking of the issue of growth and jobs, Mr Barroso said measures to reform finances and pensions should not eclipse the ethos of the EU which was based on fairness, inclusiveness and a strong social charter.
“We need to give hope to one in five of our young people who can’t find work and he called for the introduction of internship schemes to give young people experience of the jobs market,” he said.
Additional reporting: Bloomberg
