Transaction tax

Agreement between Chancellor Angela Merkel's conservative Christian Democrats (CDU) and her liberal Free Democrat (FDP) partners was reached on Tuesday morning following a meeting of the coalition committee.

The resulting resolution calls on the German government to work towards the establishment of an effective financial market tax, either called a "financial transaction tax" or a "financial activity tax."

In the case of the former, individual transactions would incur a minimal across-the-board tax. The "financial activity tax," however, would mean a special charge on profits, salaries and bonuses.

Speculators to reap what they sow

FDP parliamentary leader Birgit Homburger, who announced the decision together with her CDU counterpart Volker Kauder in Berlin on Tuesday, said the measure would take some of the weight off the man on the street.

"Those who speculate at the expense of taxpayers have to help meet the cost of the crisis," Homburger said, adding that the time had come for a tax on financial markets.

The two parties had long been at odds over the proposed tax, with the FDP strictly opposed to it on the grounds that it would be nearly impossible to secure its implementation on an international level. Angela Merkel had also expressed doubts about the levy for the same reason.

But now the coalition partners are on the same page, the opposition Social Democrats (SPD) have coolly welcomed the plan. Senior parliamentary leader Thomas Oppermann said the government now had to make a clear pledge to push the proposals through at a European level.

Europe on board?

The FDP turnaround and the sudden coalition agreement on the tax came after an announcement early Tuesday from Luxembourg Prime Minister Jean-Claude Juncker. Speaking after talks with his EU colleagues, the eurozone's top finance minister said he was willing to back the tax, even if it were only at a European level.

"We can't always hide behind the Americans," he told reporters in the Belgian capital. "Those who played a role in getting us into the mess we are now in will have to help pay to get us out of it."

While Juncker said none of the 16 euro countries had raised any objections to the concept of a transaction-based tax, German Finance Minister Wolfgang Schaeuble pointed out that EU countries were yet to reach a full agreement over the proposal.

"We do not yet have a complete consensus of opinion," Schaeuble said in Brussels on Tuesday.

He said there could be no agreement on a European tax initiative until it was clear how other non-EU countries felt about a global levy on financial sector transactions. And that, he said, would not become apparent until the next G20 summit in Canada in June.

According to International Monetary Fund experts, if the so-called "Tobin tax" were implemented globally at a rate of 0.01 percent on currency exports or share and derivative transactions, it would mean an annual income of some 160 billion euros ($200 billion).

Critics, however, warn that banks and other financial organizations would pass the transaction fees onto their customers through increased rates of interest on loans and lower returns for investors. There are fears that that would put the brakes on investment, ultimately leading to economic slow-down and job losses.

tkw/dpa/Reuters/AP
Editor: Sam Edmonds