This article was written by Sebastian Hell, CEO and owner of BaFin regulated QTrade GmbH in Munich.
German Finance Minister Wolfgang Schäuble disclosed at a meeting in Luxemburg that a financial transaction tax was closer than ever.
A phalanx of 10 European countries, with Germany at its forefront, is planning to introduce the tax once all details have been sorted out. According to German newspapers the negotiations might be more productive than thought, with the group voting as early as December on the final legislation paper.
We remember, back in July 2016, that Schäuble told journalists in China that a financial transaction tax only made sense if it was implemented on a global scale, encompassing not only Europe but the US and several other important financial hubs too.
For most observers, myself included, this was thought to be a sign of a slow withdrawal from the original plan. Frankly, I thought the whole legislation would be buried in a Brussels bureaucrat’s lower drawer and would never see the light of day again.
So why is Schäuble coming back now with new plans? And how could he find an agreement with the other 10 countries on the details that they haven’t agreed on since 2012?
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In my opinion, Schäuble’s move is driven by domestic policy, to show the German public that he is still fighting against ‘greedy speculators’. This reasoning holds even more weight when we consider that Deutsche could collapse and ultimately have to be rescued by the German government. He is probably paving the way for a rescue package that in the end will be paid for by German taxpayers.
Although the media is euphoric about a financial transaction tax, I´m not very frightened that the tax will really be put to the vote in December. We have had numerous reports about this tax in the German media since 2012 and no progress has been made yet (which is good).
The biggest problem is that almost none of the 10 countries that want to introduce the tax are financial hubs, and therefore the tax will not reach its goals. Furthermore, countries like the UK and US won´t implement a financial transaction tax, so most traders can easily switch from EUREX in Frankfurt to LSE in London. I´m sure they will cross-list most products. There are even rumors about listing famous German futures such as Bund and FDAX in Singapore. For most banks, hedge funds and other institutions, a financial transaction tax introduced by only 10 European countries is a solvable problem.
In the end, retail traders will pay the price, by not being able to switch their trading to other countries and by not being able to circumvent the tax through non-taxed products like CFDs.
In this context, the talk about banning CFDs in Germany makes sense. It is not about protecting the consumer but about preventing him from moving to non-taxed trading products. We can draw the parallel with France where a financial transaction tax was implemented in 2012. There it is applied on buying and selling the biggest French companies with a market cap of over one billion euros. As a result, volume in these stocks dropped since then and the tax proceeds are 60 per cent lower than projected. So is it a coincidence that politicians talk about prohibiting the marketing of CFDs?
For the moment, all we can do is to wait until December if the 10 countries can really reach an agreement. If not, that´s a good sign. If yes, we will have to wait again to see what the tax will look like. I will keep you updated as soon as I know more.