Tom Clougherty is executive director of the Adam Smith Institute, whose latestreport ‘Hanging London out to dry: The impact of an EU Financial Transaction Tax’is published today.
Legend has it that Nero played the fiddle while Rome burned. It’s rather less poetic, I know, but G20 politicians are doing much the same thing by discussing a Financial Transaction Tax while the eurozone teeters on the edge of collapse.
Yes, Greece is racing towards a disorderly default. Yes, Italy, home to the world’s eighth-largest economy, might be next. And yes, this could all add up to the greatest economic crash since 1929. But no, let’s not do anything sensible about that; let’s just see if we can squeeze a bit more cash out of bankers. This, effectively, is the mindset of Europe’s political leaders.
But even if there weren’t more important things to be thinking about, the Financial Transaction Tax would still be a harebrained idea. Its rationale is as follows: you put a small, proportional tax on share, bond and derivatives trades, and in so doing you discourage short-term transactions in favour of longer-term ones. This reduces speculation and volatility, advocates argue, and raises significant revenue to boot. If only things were so simple.