When I read that Hedge funds raise bets against euro or the benefits of naked Credit Default Swaps are, to say the least, unsubstantiated as the world worked just fine before CDS creation, I wonder why a financial transaction tax is not yet imposed to make speculators pay or make bankers in general to pay for their negative externalities (or polluters pay principle in financial markets). Although the idea now in circulation is sometimes called a Tobin Tax, my idea goes beyond the levy on currency transactions that American economist James Tobin proposed in the 1970s.
A tax on currency transactions and derivatives could be implemented immediately and painlessly, and would raise easily at EU level 100-200 billions euros. In the EU the U.K. raises more than $30 billion a year on a tax that applies only to stocks.
In the case of EU the "tax" I have in mind is more like an EU budget own resource, to provide an additional resource to fund the EU budget and/or a fund (why not a European Monetary Fund) that will help rescue countries and financial institutions that get into trouble, so helping prevent the sort of sovereign debt crisis we have seen in the past few years. Thus revenues from a financial transaction tax could cover a number of purposes of which I would consider a priority the issuance of EU bonds. The latter is an effective solution to the present EU sovereign debt crisis and refinance gradually all the maturing debt of the PIGS. This would not only significantly reduce the cost of financing of PIGS debt, while creating a EU bond market, but it would replace any International Monetary Fund role and/or conditional loans.
The question is not only whether the financial transaction tax is better than cutting public services (reducing deficits) or raising other taxes (on income, production or consumption) but whether the finance industry must to pay more than is doing at present and pay for its big contribution to the crisis (including sovereign debt one) and recession. Considering progressivity of taxation and redistribution of scarce resources, my answer is make the finance industry to pay.
PS: Please do not argue that financial innovation is good and finance industry is contributing to growth, liquidity and efficiency in the markets or that a financial transaction tax would be passed on to consumers. So far finance industry has destroyed quite some wealth of the nations and such a destruction is being passed on immediately to taxpayers (who would like some of their money back with interests).
Update: worth euro 4.8 billion. Without questioning the merit of these measures as a matter of economic policy choice, I just note that that amount could be doubled or tripled either with savings on interest rate on bonds issued at EU level (the spread between German and Greek bonds would lower with some kind of cross-guaranteed EU bonds) or with a financial transaction tax at EU level to be apportioned for Greece.
announced painful new austerity measures