EU Considers New Bank Levy             09/07 05:13

   BRUSSELS (AP) -- European Union countries will discuss a possible levy on 
banks and a tax on financial transactions to better control market forces and 
protect public finances from the costs of bailouts, as they gather Tuesday in 
an atmosphere more benign than when they last met in July.

   Worries about the European economy and its ability to deal with large 
amounts of government debt have been eased by a run of better than expected 
data, progress by Greece in strengthening its bailed-out finances and the 
results of stress tests on 91 of the EU's banks.

   The most apocalyptic scenarios openly discussed a few months ago, such as 
the collapse of the euro currency, have been put on the back burner.

   But policymakers remain wary that the government debt crisis could flare up 
again, particularly as the 16 governments that use the euro are set to issue 
more debt this month than they did in August. Eurozone governments have bond 
repayments of (euro)80 billion ($103 billion) in September, with around 
(euro)30 billion due from Italy alone --- the results of the debt sales will 
reveal what bond investors think of government finances.

   Olli Rehn, European Commissioner for Economic and Monetary Affairs, said the 
EU has to continue to show strong solidarity if the recent economic 
stabilization is to continue.

   "We are certainly not out of the woods yet," he said ahead of Tuesday's 
meeting.

   A report in the Wall Street Journal claims the stress tests in July 
understated some lenders' holdings of potentially risky debt, reigniting fears 
about the banking system. Meanwhile, the Financial Times says Germany's top ten 
banks will have to raise as much as (euro)105 billion to meet new capital 
requirements.

   Given that backdrop, the EU's finance ministers will be loathe to show any 
signs of disunity or discord. A renewed market sell-off could drive borrowing 
costs higher again, exacerbating governments' financial troubles.

   Top of the agenda will be the first discussions among finance ministers from 
all 27 EU member countries on a possible bank levy and a separate tax on 
financial transactions, seen as protection against another banking crisis.

   The leaders of the EU agreed at their June summit that bank levies should be 
introduced but technical issues, such as how the tax will be imposed and what 
the proceeds will be used for, need to be ironed out.

   The leaders did not issue any guidelines on the transactions tax, which is 
often called the Tobin tax after the Nobel Prize laureate James Tobin who first 
made the proposal in the 1970s.

   Proponents of the measures argue that they will curb excessive risk-taking 
and place the financial burden of any rescue package on financial institutions 
themselves instead of the taxpayer. During the financial crisis, governments 
across the EU provided financial institutions public support worth an 
astonishing 16.5 percent of the union's total worth.

   A grouping of non-governmental organizations, trade unions and politicians 
supporting the transaction tax called on the finance ministers to recognize the 
merits of the tax, especially at a time when the austerity measures around 
Europe begin to bite.

   "A tax on financial transactions would make the banks foot the bill for the 
misery they have caused," said Elise Ford, Head of Oxfam's EU Office.

   In the inaugural State of the Union address, EU Commission President Jose 
Manuel Barroso said he would propose taxes on financial activities in the next 
month or two and field new proposals to tackle market speculation, which many 
have blamed for making the financial crisis worse, by the end of the month.

   The ministers are also set to approve a financial oversight structure that 
should anticipate financial crises and contain the excessive risks that have 
been blamed for the global financial crisis of the past two years.

   The EU member nations and the European parliament have already agreed to the 
outlines of such a system but it needs the formal backing of the member states 
on Tuesday before it goes to the European legislature for further approval.

   The finance ministers are then slated to approve a second installment of 
emergency loans --- worth (euro)9 billion --- for Greece after the European 
Commission and the International Monetary Fund praised the country for the 
efforts it has made since the massive (euro)110 billion bailout plan was agreed 
in May.

   Germany, the eurozone's economic powerhouse, is expected to be at the 
forefront of calls to enforce stricter sanctions on profligate members of the 
single currency zone to make sure that another Greek-style debt crisis doesn't 
explode in the future.

   Though suggestions to curb voting rights and access to EU funds are unlikely 
to get approval anytime soon, Germany's finance minister Wolfgang Schaeuble 
said Monday he will continue bringing the issue up with his peers. The current 
regime, which is supposed to limit a country's budget deficit to 3 percent of 
GDP and overall debt to 60 percent, has failed.

   "For way too long we hid behind platitudes," said Jean-Claude Juncker, head 
of the eurozone finance ministers' group, which meets Tuesday afternoon after 
the Ecofin meeting. "If we do not agree on sharper measures we will add 
pressure in the eurogroup."


(KA)