Taxing financial trades has been touted as a panacea for all kinds of global ills, a cash source to fight poverty and global warming. But the latest European attempt to introduce a worldwide standard 40 years after it was conceived is facing stiff opposition from the United States and Britain.
Jose Manuel Barroso, president of the EU's executive arm, on Wednesday threw his weight behind the tax that his office estimated could raise $77 billion a year in Europe to help combat a debt crisis that is threatening the euro currency.
"In the last three years, member states have granted aid and provided guarantees of [$6.2 trillion] to the financial sector," Barroso said. "It is time for the financial sector to make a contribution back to society."
The tax would be a tiny percentage of the value of a trade in assets such as stocks and bonds. Although some countries already have a minimal duty on share trading, the new proposal would not only increase the scope and size of the tax, but siphon off some revenue to Brussels.
The European Commission has formally backed the tax to take effect beginning in January 2014.
As a result of the financial crisis in 2008 and the ensuing recession, debt levels across Europe -- and not just in the bailed out countries of Greece, Ireland and Portugal -- have risen sharply. Across the 27-nation EU, debt as a percentage of national income has spiked from below 60 percent in 2007 to 80 percent this year.
Though the tax could dent growth and employment, it has won a fair degree of support across the 17-country eurozone, including France and Germany, the EU's two biggest economies.
Britain, however, has been adamantly against it unless it is used on a global basis. Its opinion carries weight in the debate because London is the continent's biggest financial center.
The argument made by the likes of George Osborne, Britain's finance chief, and echoed last week by his counterpart in the United States, Treasury Secretary Timothy F. Geithner, is that the tax just won't work if it's not introduced globally. If it's not, investors can move money quickly to where the tax doesn't need to be paid, saving themselves potentially large sums of money in trades.
Howard Wheeldon, a senior strategist at BGC Partners, said it's a bad idea to have a trades tax now, especially since many banks are still trying to meet new requirements to beef up capital buffers.
Even if Britain and the United States decide to opt out, it is possible that the eurozone countries, or at least some of them, may go it alone.
"I think the eurozone or a number of member states would go ahead and do it, and would start it at a low enough level to answer political objections," said Sony Kapoor, managing director of Re-Define, an economic think tank.
Some activists campaigning for the tax worry that the money may be used solely to fix the world's financial difficulties. They say a large chunk of the revenues should be used for other important issues, such as reducing poverty or fighting global warming.