France and Germany put weight behind bank tax

Christine Lagarde
French economy minister ­Christine Lagarde, alongside Germany's Wolfgang Schäuble, has has supported an internationally agreed tax on banks. Photograph: Alessandro Della Bella/EPA

France and Germany threw their weight behind a tax on banks today as Alistair Darling urged the G20 nations to adopt an industry-wide levy that would raise cash for national coffers.

The chancellor wrote to his counterparts around the G20 to try to set the framework for their meeting in Washington in April to agree a tax that would be based on the systemic risk a bank posed to the economy.

Darling used his letter to echo comments in last Wednesday's budget.

"First and foremost, a systemic risk levy or tax should be co-ordinated internationally to minimise competitive distortions and issues of double-taxations and arbitrage risks will need to be resolved," he said in his letter.

The remarks may be seen as a pre-election swipe at the Tories who have pledged to press on alone with a bank tax, even if international agreement cannot be reached. Conservative leader David Cameron likened the approach to the one adopted by Barack Obama who wants to introduce a "Volcker tax" on risky trading activities.

The French and Germans lent their support today to an industry-wide levy that would be based on a bank's assets rather than the more ambitious and greater revenue-raising potential of a charge on transactions such as that proposed by supporters of a Robin Hood tax.

French economy minister Christine Lagarde said at a joint news conference with the German finance minister Wolfgang Schäuble that they were in agreement. "We agree fundamentally on the international nature that this mechanism should have," she said. Germany announced new bank restructuring rules today, including a new levy which would bring in €1.2bn (£1.07bn) a year. However, unlike Darling's proposals, Germany has said it would use the proceeds to fund bailouts in the future.

In a joint statement, France and Germany said the new proposals were a "useful contribution to the international debate on how to mitigate systemic risk", and such national rules needed to be integrated into a European framework.

"The German proposals take into consideration the particularities of our national structures but should also be embedded in a European structure," Schäuble said.

Darling, who has raised £2bn from his tax on bankers' bonuses, does not want to impose a broader tax regime without international agreement for fear of damaging the City. He told his G20 colleagues that "while internationally co-ordinated, the proceeds of any levy should be for national governments to use".

"A systemic level should not be seen as an insurance policy to benefit individual institutions, shareholders or creditors. To minimise moral hazard the proceeds of a levy should go into general taxation rather than a standalone fund," Darling said.

When Gordon Brown sprung the idea of an international tax on City dealings at the G20 in November, a number of options were suggested including using the funds to help the poor tackle climate change. At the time, Brown appeared to back a transaction tax, which could be used to meet the costs of future banking bailouts, and to fund development projects, including helping developing countries to develop greener technology. But in the budget, Darling had refined the arguments away from a levy on transactions and acknowledged that if banks contributed to their own bailout fund they would then demand a handout during times of crisis.

Darling did not spell out exactly how much the tax might raise or precisely how it would be levied. In his plea to the G20, he said it should "take into consideration size, interconnectedness and substitutability, while accepting that a precisely calibrated measure might not be achievable".

Canada stands in the way of any G20 consensus after finance minister Jim Flaherty reiterated today he would oppose any bank tax plan.