On September 28, the European Commission presented a proposal for a financial transaction tax that could come into effect from January 1, 2014. The tax rate would be 0.1 percent on trading of stocks and bonds, and 0.01 percent for derivatives contracts.
This tax proposal is made with two objectives in mind: On one hand, discouraging speculative trading operations and on the other, raising up to €57 billion every year, proceeds that could eventually be used to fund the European Union budget.
The thought of taxing financial transactions is not new. Introduced in 1972 by James Tobin, a Nobel Laureate in Economic Sciences, the idea has been put forward by several economists––among whom Joseph E. Stiglitz and Lawrence Summers––and by politicians. In fact, the former presidents L.I. Lula of Brazil and J. Chirac of France had proposed a tax to be levied on arms sales or on international airfares to finance the economic development of Southern nations.
But until now, taxing financial transactions had met with too many misgivings to implement it. As it requires the full traceability of financial transactions, various experts indicated that activating such a system would require significant administrative difficulties. In addition, due to its negative impact for countries that would adopt it alone, such a tax should be implemented at the global or continental level, which seems to be problematic considering the strong reluctance to be overcome. Yet, this is precisely what the European Commission wants to do in connection with the measures considered to resolve the European debt crises.
At a time when the lack of political will tends to paralyze the Union, such decision deserves to be supported, especially regarding agricultural transactions in futures markets that do not generate any physical settlement. Such tax would act as a deterrent and allow curbing unadulterated speculation in increasingly financialized agricultural markets. Its effectiveness would, of course, partly hinge on the implementation of greater transparency on the OTC markets, which are highly unregulated and represent over 80 percent of all agricultural transactions. This is indeed a challenge to be addressed.