Sarkozy and Merkel plot £13bn tax raid on the UK to save euro

• Plan will see all EU members help bail out the euro
• MPs urge George Osborne to veto the move

By Tim Shipman
Updated: 07:15 EST, 18 August 2011

France and Germany yesterday demanded a £13billion-a-year tax raid on Britain to bail out the euro.

But a leading think-tank branded the plans ‘economic suicide’ for the UK.

German Chancellor Angela Merkel and French President Nicolas Sarkozy said they wanted to slap a financial transactions tax on all 27 countries in the European Union – in order to prop up the 17 nations in the single currency.

Plot: Angela Merkel and Nicolas Sarkozy have proposed a tax for all 27 EU countries that would help bail out the euro members, but the City of London would be disproportionately hit

The ‘Tobin tax’ would disproportionately hit the City of London, which accounts for about 70 per cent of the financial services industry in Europe.

Last night Tory MPs, MEPs and economists urged George Osborne to veto the plans to prevent a new economic whirlwind that would derail the recovery.

France and Germany agreed plans for a transactions tax on Tuesday as part of a deal to set up a new ‘true European economic government’ for the eurozone.

But yesterday Mrs Merkel and Mr Sarkozy went a step further, demanding that the tax raid hit the entire EU.

FTSE SLUMPS 2% BEHIND FRANCO-GERMAN AXIS

The FTSE 100 plunged more than 2 per cent today as fears over global economic growth and the eurozone debt crisis continued to trouble traders.

The index slumped 120 points at one stage, while commodity prices also suffered with Brent crude oil in London down more than 1 per cent to 109.2 U.S. dollars a barrel.

Analysts said the fall-out from recent economic developments in Europe - such as weak GDP data in France, Germany - and problems in the U.S. were continuing to damage confidence.

Retail sales volumes in the UK grew by a lacklustre 0.2 per cent in July, compared with 0.8 per cent growth in June, which came after yesterday's bleak sales outlook from computer maker Dell.

Economists at investment bank Morgan Stanley downgraded their forecast for global economic growth, though the UK forecast for 2011 was held at 1.2 per cent.

Morgan Stanley analyst Joachim Fels said growth in emerging markets, which drive global growth, is not expected to be as aggressive as previously thought.

He said: .The main reasons for our growth downgrade, apart from disappointing incoming data, are recent policy errors in the U.S. and Europe plus the prospect of further fiscal tightening there in 2012.

'This is eroding business and consumer confidence and has weighed down on financial markets.'

Germany saw shockingly low growth of 0.1 per cent in the second quarter while France's GDP output was flat in the period.

A transactions tax – also known as a Robin Hood tax because it targets rich traders – would see a small percentage taken from foreign exchange and share transactions.

But experts say the same tax would have to be imposed at the same time in all the world’s major markets or banks and dealers would simply leave London and base themselves in New York, Tokyo or Hong Kong instead.

The two leaders outlined the plans in a letter to Herman Van Rompuy, president of the European Council.

Global stocks fell yesterday as markets reacted negatively to the plans. The FTSE 100 fell by 26 points to 5,331. Britain has been calling for Germany to agree to fund ‘eurobonds’, in which Europe’s biggest economy would underwrite the debts of countries such as Greece, Spain, Italy and Portugal.

But instead Germany and France took aim at Britain.

Tory former Cabinet minister John Redwood urged the Chancellor to veto the move.

‘It really does take the biscuit that France and Germany get together to discuss how to raise money for the poor parts of the eurozone and come up with a tax that hits Britain hardest,’ he said. ‘It is a very unfriendly gesture.’ The British Bankers’ Association said the cost to London would be ‘particularly high’.

The conservative think-tank the Adam Smith Institute dismissed the plans as an ill-judged raid that would mean Britain’s annual contribution to the EU soaring threefold from around £7billion to around £20 billion.

The think-tank said that when the tax was tried in Sweden it raised only a fraction of the figure expected and drove companies out of the country.

The think-tank’s report said: ‘London is currently the world’s leading centre for foreign exchange, with twice as many U.S. dollars being traded on the UK foreign exchange market than in the U.S. itself.

‘Its enviable status as a financial centre would be devastated if a politically-motivated but economically-flawed Tobin tax was introduced. The tax would be economic suicide.’

Sam Bowman, head of research, said: ‘The tax is as vague as it is economically illiterate, and would cripple Britain’s financial sector.’

The Treasury has emphasised that any such tax would need to be truly international so as not to disadvantage participating countries.

A spokesman said: ‘There is no proposal on the table but we would not do anything that would harm British interests.’

Comments (557)

Share what you think

• Newest
• Oldest
• Best rated
• Worst rated

 View all

The comments below have not been moderated.

 View all

The views expressed in the contents above are those of our users and do not necessarily reflect the views of MailOnline.

We are no longer accepting comments on this article.

Who is this week's top commenter? Find out now