The financial sector has reacted coolly to Franco-German plans to push anew for a Europe-wide tax on financial transactions, saying it would be destabilising, ineffective and costly to the industry.

Markets players said today even if France and Germany could persuade all 27 European Union member states to adopt the tax - overcoming long-standing UK opposition - it would simply drive many transactions offshore to less-regulated financial centres.

Minister for Finance Michael Noonan broadly welcomed proposals by France and Germany to help stabilise the euro zone but said any financial transaction tax introduced would have to apply across the European region, otherwise financial centres such as Dublin would face a competitive disadvantage.

"We can't have a situation where there is a transaction tax in Dublin and there is no transaction tax in London," he said.

"There would be a lot of objections to it from countries with strong financial services industry participation - Luxembourg, Netherlands, even Paris.”

"One of the key things we need to watch is that if some kind of transaction tax comes in that it would apply to the whole 27 rather than the 17 euro zone countries," he said.

Ireland is a major centre for funds administration in Europe and promoting the industry is a top priority for the Government. Banks operating in the European Union dismissed the proposal, saying it would not stabilise markets and could serve to distort them.

Mr Noonan told RTÉ Radio today that Ireland was committed to bringing in legislation this autumn to introduce a limit on Ireland's borrowing for future budgets.

He said the idea had "merit" and would give the public protection against reckless governments. "It would make the administration of annual budgets quite difficult if it was brought in too tightly," he said.

The Association for Financial Markets in Europe (AFME), also focused on the transaction tax for banks, also worried the tax would hurt companies and crimp economic growth.

"Many financial transactions are carried out on behalf of businesses that would bear the cost of the additional tax," the AFME said.

In a joint statement, European Commission president, José Manuel Barroso and commissioner for economic and monetary affairs Olli Rehn said the Franco-German roposals were "a welcome step forward" and "an important political contribution".

"The challenges we are facing have made even clearer that a shared currency implies shared responsibility and demands closer coordination of economic policies," the statement said.

"The principle of balanced budgets is the cornerstone of the Stability and Growth Pact. We have proposed a substantial strengthening of rules and enforcement which should be finalised in September together with the European Parliament. The call to enshrine the principle of a debt brake in national constitutional law is a further strong political commitment to the long-term sustainability of public finances."

France said its finance minister Francois Baroin would meet his German counterpart soon to discuss the plans.

But a pan-European move would need agreement from Britain, the region's biggest financial centre and which is opposed to the EU going it alone. Some market players said they expected the UK would put an end to the effort, as it had in the past.

Nevertheless, talk of the tax hit shares of Germany's Deutsche Boerse, which closed down 5.8 per cent. "The tax provides yet another incentive for transactions to move to jurisdictions where it is not applicable", the Boerse said in a statement.

The London Stock Exchange closed down nearly 3 per cent, a move that followed an 8 per cent slide in NYSE Euronext shares yesterday.

The British Bankers' Association lobby group said: "The UK has taken the position that such a tax would only be viable if implemented on a global scale. Otherwise the consequences would be a distortion in the global markets".

A transaction or Tobin tax - named after economist James Tobin who first proposed one in the 1970s - has been a near 40-year pipe dream for some policymakers

Calls for such a levy have become more frequent since the financial crisis began unfolding four years, forcing taxpayers to bail out banks.

Additional reporting: Reuters