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Germany agrees on finance tax

June 7, 2012

The German government and the main opposition parties have agreed on the principles of a tax on financial market transactions. The deal is essential for German parliamentary approval of the EU fiscal compact.

frankfurt stock exchange
Image: Reuters

The accord has been thrashed out in a joint working group made up of the conservative-led centre-right government and the opposition Social Democratic Party (SPD) as well as the Green Party.

According to SPD chairman Sigmar Gabriel, the compromise was based on an EU Commission proposal for a financial transaction tax, and marked a complete "180 degrees" U-turn in the position of the government.

"The agreement is a first big step towards overcoming the eurozone debt crisis," Gabriel told reporters in Berlin on Thursday.

Although the details of the accord were yet to be "finalized," a key principle provided for the tax to be imposed on the "broadest possible spectrum" of financial products.

However, it should be kept low - possibly at between 0.01 and 0.1 percent - in order not to excessively burden single transactions.

Highlighting the need for consensus across the European Union, Gabriel said that he was "confident of finding nine partners," which he believed were necessary for the financial transaction tax to go through in the EU.

In a reference to opposition from Great Britain and Sweden, Gabriel noted that the tax could also be introduced through "bilateral accords" between EU member states - a model already being used with regard to the EU fiscal pact.

Political horse-trading

Germany's opposition Social Democrat and Green parties have made the introduction of a financial market tax a condition of their approval of the EU fiscal pact in the German parliament.

The agreement with the opposition means that the fiscal pact could now get the two-thirds majority it needs in both houses of the German parliament.

But while Chancellor Angela Merkel has been backing a financial market tax for some time, her junior coalition partner, the pro-business Free Democratic Party, has until now vehemently rejected it.

For this reason, the Green Party parliamentary leader Renate Künast warned that the agreement was merely a common basis for future discussions on the tax.

uhe/mll (dpa, AFP, Reuters)