Death by a Thousand Cuts? Financial Political Power and the Case of the European Financial Transaction Tax

ABSTRACT

Since the global financial crisis, a variety of explanations have been advanced to account for the weak response by policy-makers to the issue of financial regulation. This paper focuses upon the strategic political mobilisation of financial actors in order to provide a better understanding of their influence within regulatory battles in the post crisis era. It does so through a case study investigation of the European Union Financial Transaction Tax. Despite garnering support from leading member states, the European Commission and Parliament, and a majority of the European population, the policy has failed to materialise as a result of several postponements and unresolved negotiations at the Council of the European Union. Policy-makers have also gradually backed away from the aggressive proposal designed by the Commission, committing to a range of exemptions that threaten to render the policy ineffective at raising significant revenue and at preventing industry avoidance of the charge. The case provides evidence of a cohesive political strategy conducted primarily by transnational financial associations and demonstrates the unique capacity of financial actors to secure favourable regulatory outcomes. Specifically, this influence is exercised through the recruitment of non-financial sector allies and by exploiting the structural dependency fears of policy-makers.

KEYWORDS:

• Financial Transaction Tax
• financial regulation
• financial political power
• financialisation
• EU policy-making

Disclosure statement

No potential conflict of interest was reported by the author.

Notes on contributor

Manolis Kalaitzake is a Postdoctoral Fellow at the Equality Studies Centre, University College Dublin. He is currently working on the Horizon 2020 project SOLIDUS: Solidarity in European Societies: Empowerment, Social Justice and Citizenship.

Notes

1 For official reports on continuing financial fragility, see Bank for International Settlements (2014) and International Monetary Fund (2014a).

2 I refer to financialisation here in the broadest sense, namely, the growing influence of financial activities over aspects of economic and social life.

3 In the past, FTT exemptions have been exploited by traders, proving destructive to the successful operation of national level FTT's (PricewaterhouseCoopers 2013: 33–41).

4 Spread internalisation refers to the practice of intermediaries trading on their own behalf in order to profit from the difference between the buying and selling price of securities.

5 See the vote on ‘implementing enhanced cooperation’, 3 July 2013 at http://parltrack.euwiki.org/dossier/2013/0045(CNS).

6 For a more comprehensive listing of the vast array of financial sector associations combatting the charge, see PwC (2013a) as well as EC (2011b).

7 This ‘cascade’ refers to the sum of taxation charges that would apply to a chain of multiple intermediate trades conducted by brokers and dealers in order to facilitate a single end user transaction.

8 At the time, Christian Noyer served as Director of Europlace: an association responsible for the promotion of the French financial marketplace and an energetic player in mobilising French business opposition to the FTT.

9 Belgium officially remains committed to pursuing the FTT charge due to the fact that the majority of partners in a four-party coalition government remain in favour of the charge.

Additional information

Funding

The author wishes to acknowledge the financial support from the UCD College of Human Sciences Research Fund, which assisted in promoting this research.