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National Perspective Considered by France in Imposition of Financial Transaction Tax

AUTHOR(S): Turlough Galvin
DATE: 02.02.2012

The focus of attention concerning the possible introduction of a financial transaction tax (FTT) has turned again to Nicolas Sarkozy following the French President’s insistence that he would seek to introduce the tax on unilateral national basis.  This latest development has come to pass following a mixed response to discussions (largely initiated by Mr Sarkozy) for a Europe-wide tax on financial transactions.  Despite the strong opposition against the tax, on both a European and a Eurozone basis, the French President has been staunch in recent days in indicating his intentions to impose an FTT in France later this year.
Crucially, the current French proposal is to impose the tax on credit default swaps over sovereign debt, high frequency equity trades and shares purchased on French quoted stocks.  This excludes sovereign and private sector bonds and other derivatives.  The more limited range of transactions to be affected by the FTT is at odds with M Sarkozy’s rhetoric that he wanted to provide a “shock” to other countries to push them into adopting an FTT.

Mr Sarkozy’s comments have come in the midst of pre-election campaigning in advance of the French presidential elections, the first rounds of which takes place in April 2012.  Given the timescale of these elections and Mr Sarkozy’s promises it is unclear whether the current president will still be in office and able implement any sort of FTT.  French financial institutions still have plenty cause for concern however since Mr Sarkozy’s main opponent in the presidential race, M Francois Hollande, has also pledged to introduce an FTT.

Eurozone states may seek to learn from France’s example in order to gain a better understanding of the true financial impact of an FTT.  Commentators are already pointing to the difficulty of computing and collecting the tax, and to the dangers of pushing financial transactions to more hospitable destinations.

On the other hand, the current French proposal really resembles a souped-up stamp duty, something which, the French have no doubt noticed, is already in force on transactions in equities in the UK and Ireland.  One thing that is certain in the midst of these discussions is that the financial sector in Europe is edgy about plans for reform which would disrupt the status quo.  Indeed, the three largest French banks (BNP Parisbas SA, Societe Generale and Credit Agricole) were already trading more than 6 per cent lower on the day following Mr Sarkozy’s announcement – a sure fire warning for anyone in support of the tax of the volatility of the sector and the scope for a negative reaction by the market.



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