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Issue 30 - July 2015
This newsletter is published by SOMO and WEED.

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Summaries of the Articles
Out of control: EU incapable of finding a reasonable solution to the Greek crisis
By Peter Wahl, WEED

The EU is going through a dramatic crisis with far-reaching consequences. Although the end of the tragedy is not yet in sight, the damage is already huge. The brutal power play of the EU against Greece throws instructive light on the democratic deficit in the EU. The crisis shows how strong centrifugal tendencies have become in the EU. In this situation, a deepening of integration will only accelerate them. Therefore, the illusion of a political union has to be given up and the final goal of the process must be redefined towards more internal flexibility and more openness towards the outside.

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Weak Commission action plan on corporate taxation
By Markus Henn, WEED

In its struggle to better tax multinational corporations, the European Commission (EC) has presented a new action plan. The plan revives a former law proposal for a European corporate tax system, though this has been stalled in the Council over the past few years. In terms of transparency of tax payments by corporations, the EC only starts a  consultation. A proposed blacklist of tax havens is dishonest, as it excludes the EU’s own havens. Meanwhile, the European Parliament has an investigative committee on tax avoidance up and running while the G20/OECD “base erosion and profit shifting” project is also trying to deal with the issue. However, both are at risk of failure.

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Brief Updates

Brief update: FTT negotiations in decision phase – but will take time

There are still contradictory media reports on the state of the negotiations on a Financial Transaction Tax (FTT) in the EU (for background, see February 2015 Newsletter). Often, there is pure speculation or sometimes attempts to root for vested interests of the finance lobby, declaring the FTT to be dead. Such rumours are groundless.
Here is some information based on reliable sources from inside the negotiations:
  • Negotiations are in the decision phase. After Austria has taken over, the political coordination of the group and Portugal are providing technical input and there is now a structured list of the main issues to be discussed.
  • Although there is now consensus to go for a broad-based FTT including derivatives, there are still some controversial points, such as whether the residence principle, the issuing principle or a combination of both should be applied. In addition, France does not want to tax intra-day trade and only levy the tax at the point of settlement. Furthermore, exceptions for derivatives and market-making activities are being discussed.
  • The balance of power is characterised by two blocks: Austria and Germany stand for a strong FTT, France and to a certain extent Italy and Spain advocate a weaker tax. The smaller countries are mainly interested in substantial revenues, though these are only possible if there is a strong tax.
This configuration is leading to complex and protracted negotiations and the need for compromise on many details. Therefore, neither the ambitious draft directive of the Commission nor the French idea of a mini tax will come through in the end, but rather something in between. This also means that the negotiations will need more time than initially expected. A final decision might therefore only be possible by summer 2016.

Brief update: Systemic risks of banks that are too big not yet tackled

In a rare event, a small majority of MEPs in the ECON committee rejected on 26 May 2015 the draft report and compromise amendments of an EU Regulation (not a Directive) to restructure too-big-to-fail banks. This was a vote against a weak draft regulation that would do little to avert financial risks from banks that are too large (see March 2015 Newsletter). After another attempt to find new compromises, presumably including somewhat stricter rules, the ECON committee will vote again (no date yet) on a report that will constitute the basis for negotiating a final Regulation text with the Council.

Unexpectedly, after months of disagreement, the Council of EU Finance Ministers agreed on their position. Key elements are that global banks or financial institutions that are systemically important, or have total assets of at least €30 billion and trading activities of at least €70 billion, will be covered. Such institutions will have to separate their activities by which they speculate at own risks and cost, from their other financial activities. Only when these institutions’ trading activities exceed € 100 billion will they be subject to stricter risk assessments. Only when their trading is excessively risky, will supervisory authorities have the power to require an increase of the capital buffers or to separate these trading activities from the other financial activities. These provisions will not apply in countries with a law that has stricter requirements for separating, or “ringfencing”, lending and saving activities from other bank activities, as is the case in the UK. This Council text will apply to around 30 banks and the stricter assessment of risky trading to 14 banks. This will be much weaker than the original EC proposal and none of the legal proposals directly reduces the size of big banks. It is higly questionable is whether this will reduce systemic risks of banks that are too big to fail, too big to save, too interconnected, and too complex to manage, supervise and resolve.

Calendar
For background to the official agenda of European institutions, see the following websites: The links below give the website with updates and overviews of documents and dates related to the EU decision making process

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