French President Nicolas Sarkozy has a knack of vexing his European partners—and he’s demonstrated that talent again with his pledge to unilaterally impose a so-called “Tobin Tax” on financial market transactions in France if the rest of the debt-stricken European Union doesn’t collectively embrace the idea later this month. The mere threat of that move not only motivated British Prime Minister David Cameron to again decry the idea of an E.U.-wide tax as counter-productive and economically damaging — it also ensured Sarkozy’s go-it-alone proposal would cloud his debt crisis meeting Monday with consensus-seeking German Chancellor Angela Merkel. Still, pundits across Europe responded to Sarkozy’s individualist initiative with the same Gallic shrug—or make that Bronx cheer—that French economic daily la Tribune did Monday, with its headline mocking the “’Taxe Tobin’, le grand bluff.”
So much for decisive European leadership showing spooked financial markets that coordinated action can overcome the crisis imperiling the continent.
This newest chapter in Europe’s enduring economic drama began Friday, when Sarkozy reiterated his support of the proposal already before his E.U. peers to create a new tax financial market transactions, which would provide an additional source of revenue for governments battling the debt crisis. But with both the U.K. and Sweden adamantly opposing the measure—and with Sarkozy facing an uphill battle in a re-election bid he’s expected to formally declare soon—the French president decided to demonstrate his faith in the proposal by promising France “won’t wait for the others to agree on it to put it into place.” Unless fellow E.U. and eurozone members move to adopt the tax on finance market transactions later this month, Sarkozy said, his government will press for its rapid passage into French law unilaterally. In doing so, Sarkozy clearly sought to show voters he’s determined to strike a blow for justice all by himself if E.U. partners dally. Sarkozy telegraphed Friday’s announcement in his Dec. 31 New Year’s address to the nation, lamenting the “deregulation of financial markets” he blamed as “largely” responsible for the current crisis, and which must now “repay for the damage they have caused.”
As political moves go, Sarkozy’s initiative seems like a can’t-lose prospect. Who these days would object to the massive sums financial markets process—and in part pocket—everyday being modestly tapped as a new tax source? And who would stick his neck out against the proposed 0.1% levy on stock and bond trades, and tiny .001% on derivative sales, which could raise an estimated $71.5 billion in new annual revenues for E.U. governments? And who would blame Sarkozy for breaking ranks by committing France to the measure—seemingly out of moral principle—should his fellow Europeans decide to waffle?
More people than one might think—and for more reasons than mere irritation at Sarkozy’s grandstanding.
Merkel, Italian Prime Minister Mario Monti, and European Commission president José Manuel Barroso, for example, all resent Sarkozy’s solo advocacy for the same financial market tax they all back. They argue the measure must be adopted collectively, and only after all possible effects of the planned tax have been fully studied. Among the things they want examined are long aired warnings by dissenting economists, analysts, and investors that a new E.U. financial transaction tax risks dampening trading volume, undercutting already failing economic growth, and sending activity in newly-taxed markets (national or regional) to other, untaxed centers. Such concerns aren’t entirely without foundation. Sweden—which opposes the effort to apply an EU-wide Tobin Tax—introduced similar levies on trading in the 1980s, and wound up repealing them when their negative consequences were viewed as having outweighed the benefits.
Not surprisingly, Sweden is joined in opposition to the tax by the U.K. British premier Cameron argues the counter-productive results of that earlier Swedish national experiment would be replicated Europe-wide and leave the E.U. penalizing itself to the advantage of rivals unless a global accord on financial market taxation is agreed upon. “The idea of a transactions tax put in place only in Europe that doesn’t include other jurisdictions…would cost jobs, it would cost us tax revenue, it would be bad for the whole of Europe,” Cameron told the BBC on Sunday. “We would see a whole lot of institutions and activities go to other jurisdictions, to other places.”
Of course, skeptics note the City of London’s status as Europe’s largest financial center—and not far behind Wall Street as the global leader—leaves Cameron with seriously conflicting interests in arguing whether the proposed tax would be beneficial or not for the wider E.U. (rather than just very bad for London-based finance). If so, Cameron wouldn’t be alone in cynicism. Many French political commentators view Sarkozy’s sudden rush to push the tax through in the name of justice and virtue as being fueled by a populist electoral motive as his re-election bid nears. Some also note it also marks Sarkozy’s 180 degree turn-around on the issue. After all, this is the same Sarkozy who in 1999—and on national television—lustily mocked a Communist Party politician urging the adoption of a Tobin Tax in France in the name of fair redistribution financial market profits. In doing so, Sarkozy derided the tax he’s now crusading as “an absurdity,” and warned “if we were to [impose] it in France, we’d pay for it with tens of thousands of more people made jobless.”
Whether he was aware of that earlier Sarkozy position or not, Cameron aired a similar logic on Sunday by challenging his French opposite to introduce the new tax on his lonesome if he thinks the justice, efficiency, and nobility it embodies are just too luring to resist. “If the French themselves want to go ahead with a transactions tax in their own country, then they should be free to do so,” Cameron said. But Cameron added if Paris succeeded in cajoling most E.U. members to embrace the measure later this month, the UK would use its veto to prevent it from being adopted as a Europe-wide law.
That British threat was a given—especially since the tax proposal was the main reason for the U.K.’s rejection in December of the debt crisis pact most E.U. members adopted. Ever since then, Britain-bashing has become a reoccurring theme among Sarkozy government members seeking to shift the blame for the enduring debt crisis in part to the UK in the minds of disgruntled French voters. They also argue the British economy and financial situation are in even worse shape than most euro zone nations. When facing re-election in dire circumstances, the thinking goes, remind the public things are even more dismal elsewhere, and could still be worse at home under new leadership.
Sarkozy may intimidate, badger, or simply shame most of his European peers into backing the fast-track Tobin Tax effort, then claim the coup as proof of his effectiveness as France’s leader. At worst, pundits suggest, the rest of the E.U. may replicate Cameron’s “I dare you do it alone” challenge, at which point Sarkozy will probably find his efforts doomed by opposition from a Socialist-dominated upper house of parliament and a tight timetable for passage before of general elections in late April. And even in defeat, Sarkozy can say he tried to do what was right.
According to most French commentators, all probable scenarios either provide Sarkozy with claims of success, or with inviting scapegoats to explain away his failures—be they opposition French leftists, reticent European partners or even good old perfidious Albion. Indeed, about the only risk involved in Sarkozy’s maneuver is its capacity for deeply annoying his fellow E.U. leaders—and by now, few among those expect anything else from the maddening mercurial Frenchman.