by Chibli Mallat & Jason Gelbort
Though the global financial crisis reached an identifiable peak in the United States in September of 2008, events unfolded more slowly in the European theater. Banking crises in Cyprus, Greece, Iceland, and Ireland were punctuated by the failures of large financial institutions in Germany, the United Kingdom, and the Benelux countries. Similarly, while the United States reached a significant landmark along its path of financial reform with the passage in July 2010 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Europe’s progress has been piecemeal, moving with fits and starts at the national, supranational, and international levels.
Despite some modest progress, significant threats to financial stability in Europe remain unaddressed, and the work of shoring up the European financial system continues. In February 2013, as part of this ongoing programme, the European Commission (“Commission”) proposed that some Member States levy a uniform tax on financial transactions beginning in 2014. This tax, known as the European Union Financial Transactions Tax (“EU FTT”), would apply to financial transactions between or with residents of participating Member States, and to transactions involving securities issued in participating Member States or derivatives of such securities.
This Essay argues that the EU FTT as proposed is flawed policy. Part I discusses how the European Union’s responses to the problem of financial stability are constrained by provisions in the EU’s foundational treaties. Parts II and III discuss the proposal’s wisdom as a matter of policy, and conclude not only that the EU FTT does little to solve the problems of financial instability in Europe, but also that the EU FTT threatens to undermine concurrent regulatory efforts to improve financial stability.
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