France and 10 other EU countries on Tuesday agreed to impose a tax on financial transactions in a bid to curb risky, speculative trades and ensure that failing financial institutions don't have the power to drag down entire countries with them. European Union finance ministers grappled Tuesday with how to support their struggling banks and ensure that failing financial institutions don’t have the power to drag down entire countries with them. A handful of countries agreed at a meeting of European Union finance ministers in Luxembourg to impose a tax on financial transactions in the hopes of curbing risky, speculative trades and perhaps even creating a fund that could be used to help banks in trouble. But the 11 countries that support the tax still have to hammer out exactly how it will work and submit it for approval. France and Germany, which led the charge on the tax, had originally hoped it would be adopted by the whole European Union - but several countries, like the Britain and the Netherlands, expressed concern about its economic impact. The piecemeal agreement on the tax illustrates how difficult it has been for European leaders to forge ahead even though there is a gernal agreement that the solution to the debt crisis crippling the 17 countries that use the euro is to move closer together and adopt uniform rules on everything from budget deficits to banks. The hope is that stricter rules will prevent the crisis from recurring and that closer coordination will give the countries the ability to respond better to future crises. Also at the meeting, ministers were struggling to outline how a so-called banking union - one rulebook for all EU banks and a single supervisor for many of them - would take shape. Europe is in its third year of its financial crisis, brought on in part by overspending and excessive government debt. Recessions in several countries have worsened the problem, and EU leaders have struggled to solve the twin problems of too much debt and too little growth. Banks have played a big role in creating the eurozone’s financial crisis. The government debt the banks had bought up during the boom times of the eurozone is now no longer considered a safe bet and the banks are struggling to unload it - usually at hefty losses. Governments have been forced to step in to prop the banks up in many cases. But rescuing banks is expensive and has added to investors’ concerns that European countries are simply spending too much. The challenge now is to break this vicious cycle. Several countries want Europe’s new permanent bailout fund - the European Stability Mechanism - to have the power to hand money to banks directly, rather than lending it through national governments as it does now. Leaders have agreed that for that to happen, the European Central Bank must be put in charge as the supervisor of the banks. Many countries are pushing for that to happen by the end of the year. But some countries, like Germany and the Netherlands, are dragging their feet and also quibbling over which banks would be eligible. Dutch Finance Minister Jan Kees de Jager said the union was important to breaking the link between the troubles of banks and those of their governments, but that speed was not the most important consideration. “It’s important that we do it step-by-step and that the substance is leading and not the calendar,” he said, adding that the Jan. 1 deadline seemed too ambitious. On Monday night, French Finance Minister Pierre Moscovici said he still thought a banking supervisor could be in place by the end of the year - and insisted that all 6,000 eurozone banks be supervised. That’s another point of contention, with Germany apparently hoping that many of its smaller banks might evade such supervision. Meanwhile, 11 countries agreed to coordinate the implementation of a financial transaction tax: Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain. They still need to work out the details, though the EU Commission has suggested that trades in bonds and shares be taxed at 0.1 percent and trades in derivatives be taxed at 0.01 percent. Other countries could join later if they want to. It’s still unclear exactly how the funds raised would be used, although some supporters of the tax have suggested they could create a security net for banks and help to fund the EU’s budget. Source: http://www.france24.com/en/20121009-luxembourg-eleven-eu-countries-agreement-financial-transactions-tax-eurozone-economic-crisis-struggling-banks
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