France backs idea of international tax on financial transactions

By Reuters Staff
November 9, 2009

France's Economy Minister Christine Lagarde is seen during an interview with Reuters at the Economy Ministry in Paris September 1, 2009.  REUTERS/Charles Platiau  (FRANCE POLITICS BUSINESS) BRUSSELS, Nov 9 (Reuters) – French Economy Minister Christine Lagarde on Monday backed the idea of a tax on financial transactions proposed by British Prime Minister Gordon Brown.

“I persist in thinking we should explore this idea and examine how realistic and how feasible it is and do this on an international basis,” she told reporters after a meeting with finance ministers from other euro-zone countries.

Brown proposed levying a tax on financial transactions to fund future bank bailouts at a meeting of finance ministers from the Group of 20 nations at the weekend but the idea was rejected by other countries including the United States.

Lagarde said Brown’s suggestion should not be dismissed out of hand although she left open the form that such a tax might take.

She said it could be incorporated into related proposals being examined by the International Monetary Fund which include the option of making banks pay insurance fees to fund any future rescues.

“There are a certain number of ideas that Gordon Brown raised. Will his proposals be combined with the proposals that were commissioned from the International Monetary Fund and which the European Commission began looking at recently? We’ll see.”

“But good ideas always have to travel some way before they become reality. I think that’s exactly the process we’re in now,” she said.

The IMF is expected to present concrete proposals for the tax next April to finance ministers from the G20, for review before submitting to G20 leaders in June.

(Reporting by James Mackenzie and Paul Carrel; editing by Timothy Heritage) ((Reuters Messaging james.mackenzie.reuters.com@reuters.net, Paris Newsroom +33 1 4949 5339; james.mackenzie@reuters.com))

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This proposed tax should be levied on derivatives transactions.

In the US we have a small fee on securities transactions which is collected by exchanges and self regulating organizations. This fee (Section 31 fees) funds the operations of the SEC to oversee the markets:

http://www.sec.gov/answers/sec31.htm

A tax on derivatives could be used to pre-fund an insurance pool for firms who trade derivatives and who pose risk to the broader financial system.

It’s likely that a separation between depository banking and investment banking would be necessary.

To learn more about a “Tobin tax” see Riski >> http://freerisk.org/wiki/index.php/Tobin _tax