Sarkozy Wins Merkel Backing for Financial Transaction Tax

French President Nicolas Sarkozy won the backing of German Chancellor Angela Merkel for a tax on financial transactions, a levy that Britain maintains won’t work unless it’s applied worldwide.

The French government, long a proponent of the tax, stepped up its campaign last week, going so far as to suggest that France would impose the levy even if others didn’t. At a joint press conference in Berlin with Sarkozy today, Merkel threw her weight behind the tax.

“Personally, I’m in favor of thinking about such a tax in the euro zone,” Merkel said. “Germany and France both equally view the financial transaction tax as a correct response.”

The European Commission in September suggested a tax of 0.1 percent on equity and bond transactions, and 0.01 percent on derivatives, which it said could raise 55 billion euros ($71 billion) a year. European Union finance ministers are due to discuss the levy in March.

French Prime Minister Francois Fillon said today in Paris that France may present a bill on such a tax in February, hoping that other countries follow.

“Someone has to be the first to jump in the water,” he said.

Sarkozy, who faces elections in a two-round vote in April and May this year, had pushed for such a tax, as well as greater international regulation of financial industries, when France last year held the presidency of both the G-8 and G-20 group of countries. Instead, the year was dominated by the euro zone’s debt crisis.

British Opposition

U.K. Prime Minister David Cameron said yesterday he would block any attempt by the European Union to impose a financial transaction tax in Britain, even if he’s not against a worldwide tax. London is Europe’s largest financial center.

“The idea of a new European tax, when you are not going to have that tax put in place in other places, I don’t think is sensible,” he told the BBC. “So I will block it unless the rest of the world all agreed at the same time that we were all going to have some sort of tax.”

Ernst & Young, an accounting company, said in a report that while the tax itself may raise as much as 37 billion euros in the EU, its net effect could be negative by between 2 billion and 116 billion by decreasing economic activity and reducing revenue from other taxes.

The U.S. opposes taxes on transactions, preferring bank levies based on the size of their balance sheets.

Political Move

The French financial world has spoken out against the tax, especially if it’s only going to be imposed in France.

“A tax that’s limited to France would weigh on growth, lead to a loss of competitiveness, and create a heavy handicap for the financing of the French economy,” the French Banking Federation said in a statement today.

Paris Europlace, which promotes Paris as a financial center, said in a Jan. 6 statement that the tax would be inefficient because it would make no distinction between investment and speculation.

“The idea of a financial transaction tax in France, without waiting for European partners to implement the same, seems to be a political move by Sarkozy to show that he remains active even as he prepares for the presidential election,” said Stephane Ekolo, chief European strategist at Market Securities in London. “It will be very difficult to implement such a tax in a unilateral fashion.”