EU LEADERS have called on the IMF to examine the introduction of a globally enforced tax on financial transactions to limit risk in markets.
At the end of a summit in Brussels at which Greek prime minister George Papandreou pledged to his European counterparts that he will take immediate action to tackle the “dire” state of his country’s public finance, EU leaders laid down a very broad scope for an examination of a so-called Tobin tax.
“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 leaders said.
Casting the proposal as an effort to renew the “economic and social contract” between financial institutions and the societies they serve, the leaders said the public should benefit from the good times in the financial sector and be protected from risk.
Although EU leaders called on the European Commission to identify key principles which new global arrangements would need to respect, commission president José Manuel Barroso acknowledged that the plan would only work if enforced globally.
Given US resistance to similar proposals that British prime minister Gordon Brown made to the G20 group not long ago, the possibility that the IMF would be able to pursue a plan capable of winning support from the world’s largest economy is in doubt.
While German chancellor Angela Merkel said the IMF should also examine whether bankers’ bonuses should be taxed, there was little additional support for a measure initiated by Mr Brown’s government this week and supported by French president Nicolas Sarkozy. Taoiseach Brian Cowen cited measures in the State guarantee scheme that disallow bonuses in participating institutions.
With Greece under pressure over its soaring budget deficit, Mr Barroso told reporters that Mr Papandreou’s administration promised a fundamental reform of his state’s administration.
“[Mr] Papandreou recognised that there was a huge problem of corruption throughout the administration, including in public procurement,” Mr Barroso said.
Ahead of a new economic plan on Monday, however, speculation persists in Brussels that a co-ordinated action involving the European Central Bank (ECB), the European Commission, Germany and France may yet be required if Mr Papandreou’s government failed to bring the crisis to heel.
Warnings from the ECB, the commission and other EU governments escalated pressure on Mr Papandreou this week. It was no different yesterday when Luxembourg’s prime minister Jean-Claude Juncker said radical action was “dramatically” necessary.
While EU leaders noted that the general economic situation was showing signs of stabilisation, they said extraordinary policies to support the economy should “remain in place”.
Former Belgian prime minister Herman Van Rompuy, the newly installed president of the European Council, told EU leaders that he will prioritise economic growth during his mandate. A growth rate of 1 per cent would not suffice, he said, adding that a 2 per cent rate of expansion was the minimum necessary to fund Europe’s social system.
