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Silhouettes of Merkel and Westerwelle
Merkel's coalition partners generally oppose new taxesImage: dpa

Transaction tax

May 22, 2010

Days after the German center-right coalition government presented a unified front on a new tax on the financial sector, parliamentary and cabinet leaders have made skeptical statements over its feasibility.


Disagreements in the German government over a financial transaction tax resurfaced as the finance minister made statements saying that a global tax would likely be rejected by the United States.

"I am afraid the Americans don't want any financial transaction tax," Finance Minister Wolfgang Schaeuble told the Frankfurter Allgemeine Sonntagszeitung newspaper on Saturday. He said the feasibility of such a tax must be clarified at the G-20 conference of global economic powers in June, and that if it lacks support, "the German government will fight for a European solution."

What must absolutely be avoided, he said, is "that we talk for three years and get nothing out of it." He added that new taxes on banks and a ban on short selling in financial markets also need serious multilateral negotiation.

Frankfurt stock exchange
The tax discussions come at a time of volatile financial marketsImage: AP

Coalition rift

While Chancellor Angela Merkel supports the transaction tax and her coalition government officially presented a unified stance last Tuesday, divisions have appeared over the form of the tax between Merkel's Christian Democrats (CDU) and her junior coalition partners, the business-friendly Free Democrats (FDP).

The split is on whether the government should levy a minimal, across-the-board "financial transaction tax" or a "financial activity tax" on profits, salaries and bonuses.

Birgit Homburger, parliamentary leader of the FDP, rejected the idea of a transaction tax, saying it would be passed down to ordinary savers. She added that the activity tax was more likely to receive support from other global powers.

"I ask that we consider what has a chance internationally," she told the Berliner Zeitung newspaper.

Frank-Walter Steinmeier in the Bundestag
SPD chief Steinmeier said the transaction tax was essentialImage: AP

Opposition dissent

Perhaps the strongest support for the transaction tax has come from the opposition center-left Social Democrats (SPD), who abstained from a vote on a eurozone bailout fund on Friday largely because Merkel's government has not sufficiently supported the tax.

Party chief Frank-Walter Steinmeier said the tax was essential, and that it would bring more money into state funds than the activity tax the government favors.

"We need this revenue to invest in the future and to secure our social welfare state," he told the Sueddeutsche Zeitung on Saturday.

Editor: Ben Knight

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