The only way Europe will resolve its debt crisis is by growing its economy; yet, it pursues measures that subtract from economic growth. The latest example of a growth-sapping idea was just passed by France, Germany, Italy, Spain, Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia in the form of a financial transactions tax of 0.1% on securities and .01% on derivatives.
The purported reasoning behind the tax is to raise money for eurocrisis fighting efforts. German Finance Minister Wolfgang Schaeuble even says so, but the projected revenue from the tax, €35bn, won’t even bail out little Portugal. The actual revenue it raises after business flees to cheaper jurisdictions won’t begin to pay for the mess in Cyprus.
The problem with this tax is that it is not being applied throughout the eurozone. As such, people will move these transactions to non-taxed jurisdictions. Europe supposedly is attempting to become closer with a banking union and even a fiscal union, but it continues to pursue policies that divide the countries. There is effectively a dual-zone banking system composed of the core countries in the North and periphery countries in the South. This new tax will create two securities markets in Europe.
Sweden actually tried imposing this tax several years ago. It reduced business dramatically as transactions fled to other jurisdictions. The Swedes discontinued it and have been warning the Eurozone about its experiment throughout the politicking, but their words have fallen on deaf ears.
The tax is slated to be levied starting in the beginning of next year. I predict a rise in business before the tax is implemented followed by a mad rush to the freer markets of the U.K. and the other non-signatories.