The complexity of the European Union has been exacerbated in recent years by a continuing cycle of new policy proposals and debates surrounding the organisation’s future. The global financial crisis of 2008 has morphed into a now independent and increasingly stubborn euro crisis that seems prone to dramatic developments every fortnight. It is understandable, then, that an average EU ‘citizen’ may not have developed a thorough understanding of the proposed European Union Financial Transaction Tax (EU FTT) between attempts to follow the twists and turns of the latest bailout discussions, negotiations over the budget and complicated EU foreign policy, to name a few.
However, for those who live in the United Kingdom, and more importantly, in London, the EU FTT is a major indicator of not only how the Union’s policy will directly impact Britain’s most profitable industry, but also how the EU intends to use its policy influence and control market conditions. France protects its farmers; Germany covets its automotive and manufacturing dominance, so too should the United Kingdom defend its flagship financial services industry. Proclaimed as a tax on bankers and justified with a sneer and emphasis on the pejorative connotations that have come to cling to the title, the proposed policy is an attack on the free market. Nowhere is this more significant than the UK where the impact of the EU FTT would target a section of the economy in Britain that is unrivalled anywhere else in the European Union. To be blunt, to curb the competitiveness of your most successful industry is to shoot yourself in the foot.
Of course, at this stage, the United Kingdom is (unusually) in the majority in its opposition of the new tariff. However, Britain alone faces consequences that cannot be matched in any of the other EU member states. While not required to impose the tax itself, it is likely that the government here will have to collect the tax on behalf of those countries that are participating. Even this poses a significant threat to the City of London and the financial firms based there. Banking and finance is a global business and competition for the best is as fierce as in any industry. As a result, any further regulation in any one country, in comparison to another, is one more reason to relocate to a more advantageous business environment. London continues to maintain its dominance as the most influential financial hub in Europe, however, its coveted market share is not beyond the threat of new global competitors. If regulations handed down by the European Union chipped away at the market freedom that gives the City its competitive edge, then the multinationals that serve as the crucial anchor of this economy will easily realign their investments in headquarters in New York, Hong Kong, Singapore or even Frankfurt.
Taken in the context of a bigger picture, the EU FTT is single data point in a larger and longer trend of legislation and regulation continually siphoning control away from sovereign nations and towards Brussels. Similar to the new cap on banker’s bonuses, the EU FTT curbs the competitiveness of the European Union’s financial services industry. However, on the continent, the public relations benefit of scape-goating banks and bankers far outweighs any limited cost to already second-rate financial services industry. Politicians are all too eager to stand up and denounce bank executives as evil and predatory without acknowledging that the service they provide is essential to the function and maintenance of any modern, developed economy. Thus, yet again, it is the United Kingdom that stands out amongst the twenty-seven member states to be particularly hampered by Brussels.
It is not yet certain if the EU FTT will be implemented, and if it is, what exactly the terms will be. However, with only eleven member nations pledging full support, early reports show that the scope of the policy is being scaled back and the implementation timeline extended. If dialogue and compromise prevail, those in favor of the policy will hopefully recognise the imbalance of the objectives the EU FTT aims to achieve. In any case, it is wise to stand up to any policy designed to hamper the free market, and acknowledge the immense benefits economic liberalism has delivered to all nations in Europe.