Financial tax splits EU ministers

EU officials were poring over proposals tabled by nine EU member states, including Germany and France, to raise the tax on financial firms.

Calls were made for such a levy after banks and other large private institutions benefited heavily from taxpayer-funded bailouts during the global financial crisis.

Britain has argued, however, that an FTT would drive business away to non-tax regions and weaken a vital part of its own economy. The City of London hosts around 80 percent of Europe's finance industry.

The UK government of Prime Minister David Cameron is joined in opposition to the FTT by the Czech Republic and Sweden. Swedish Finance Minister Anders Borg cites his own country's failed experiment with a similar tax.

Taxation matters must be approved by all 27 EU member states to be taken up across the bloc. Under the Lisbon Treaty, however, one-third of EU states can enact an "enhanced cooperation" deal to push through a more limited version of a tax affecting only themselves.

German Finance Minister Wolfgang Schäuble said at the meeting in Brussels that, if bloc-wide consensus on an FTT failed, it would be necessary to consider "alternatives and compromises."

He also said that since Europe imposes a value-added tax on products and services, "we have to think about whether the exemption for financial products and financial services is justified." He added: "I think it is rather not justified."

However, Sweden's Anders Borg maintained: "We believe a financial transaction tax is difficult to accept. It will increase the lending cost, the cost of capital for companies and the cost for governments. So it is a proposal that is not good for European growth."

Claims of double standards

Meanwhile, EU finance ministers approved a European Commission recommendation to freeze nearly 500 million euros ($654 million) in EU grants to Hungary next year over the country's public spending statistics.

The decision was adopted after tough debate with the EU's mainly Eastern European members, who had thrown their backing behind Budapest and urged the EU to delay action by two months, an official told news agency AFP.

EU officials said they would lift the sanctions if Hungary took "decisive action" on its public spending plans by June 22.

The European Commission was forced earlier Tuesday to reject suggestions it was picking on Hungary a day after it seemingly let fellow EU member-state Spain off the hook, allowing Madrid concessions on its efforts to rein in its public deficit.

No EU budget sinner can claim to be a "victim of the system," a Commission spokesman told reporters in Brussels.

"The level of rigor in applying the rules is the same. There is no room to be seen as a victim of the system when it comes to this," Amadeu Altafaj, a spokesman for the European economy commissioner, Olli Rehn, said.

The Commission recommended last month that the EU freeze 495 million euros in grants to Hungary in 2013 unless Budapest took steps to reduce its deficit. Hungary was given until 2012 to return its annual public deficit to 3.0 of gross domestic product; whereas Spain was allowed an extra year to accomplish that task.

Fitch Ratings on Tuesday upgraded Greece from "restricted default to a "B-" rating with a stable outlook over its bond swap that wiped some 100 billion euros from its debt.

dfm, pfd/rc (AFP, dpa)