Reynders calls for wider debate over Tobin tax

Date: 01/08/01

By David Cronin

A MAJOR EU study should be undertaken into the possible introduction of a tax on foreign exchange transactions to reduce volatility in the world's financial markets, the Belgian presidency has urged.

Finance Minister Didier Reynders is due to ask the European Commission to start assessing the feasibility of the 'Tobin tax' in the autumn. First suggested in the 1970s by US economist James Tobin, the tax is designed to deter the rampant speculation that can trigger economic crises. The tax is due to be discussed by finance ministers in Liège on 22 and 23 September. "Mr Reynders has agreed to put the Tobin tax on the agenda in a neutral way, without necessarily criticising or defending it," said spokesman Tom Delforge. "He wishes to enlarge the debate...towards examining what measures can be considered to avoid monetary speculation."

Campaign group War on Want has estimated that about €285 billion could be raised globally if a tax worth 0.25 of each foreign exchange transaction was levied. The revenue could be used to fight poverty. "The Tobin tax has always been an idealistic idea but it is becoming more realistic through what the Belgians are doing," said Rob Cartridge, a spokesman for the charity. War on Want believes that if the tax were introduced then the threat of crises such as the sharp downturn now being felt in Argentina could be averted.

Any move to introduce the tax is likely to face strong opposition from the banking sector. It was also rejected by finance ministers from the Group of Seven (G7) leading industrialised nations in Rome earlier this month.

Within Belgium, Socialist and Green members of the state's ruling coalition have been the main advocates of the tax. The Liberal parties, to which both Reynders and Prime Minister Guy Verhofstadt belong, have been far more wary of the idea.

A major EU study should be undertaken into the possible introduction of a tax on foreign exchange transactions to reduce volatility in the world's financial markets, the Belgian presidency has urged.