European governments and economic experts have spent the last two months trying to reassure the rest of the world that Greece and the Eurozone would not become the Global Financial Crisis-Part Deux. One Trillion dollars or Euros, however it is counted, has not been the silver bullet that would kill the fears of economic troubles in the Eurozone, and most economies are waiting nervously an hoping against another crippling market crash that might end any positive recovery for the global market.
Last year in the midst of the economic crisis, many policy options were proposed to put the US and European economies back on the level. In addition, policies to make sure that a repeat of the economic crisis could not occur again in the future were studied through the IMF and other international financial institutions. The upcoming G8 and G20 meeting will be the first test forum for some these solutions, and the run up to the meeting in Canada at the end of this month has already produced some policy discussions. The question of a global Bank Tax in the G20 Finance Ministers meeting in South Korea this past week was presented as a strong issue, urging those countries that did not suffer bank failures to push for their more passive economic responses and position in the global economy.
Prime Minister of Canada, Stephen Harper has taken to Canada’s role as the host of the G8 and G20 meetings, and also as an informal representative of those countries that did not suffer bank failures who are against an international Bank Tax. The Bank Tax was an idea that grew out of the economic issues last year as a reserve fund that would be legally mandated by all governments against banks so that there would be a reserve of cash created by banks, for banks to access in the event that they might become insolvent. While administering this international reserve among all nations and private banks would certainly be an enormous and complicated tax, the need for the Bank Tax may hurt those healthier economies post-Global Financial Crisis more than it would help. Despite the negative effects on banks in well regulated economies, for those in the US, Europe and other economies where the financial systems approached collapse, a Bank Tax might be a worthwhile investment.
The Canadian Prime Minister took to London and Paris this past weekend to promote his point of view that is shared by Mexico, and larger and healthier economies such as India and China that the Bank Tax is a bad idea, solidifying a position before the G8 and G20 meetings this month. Mr. Harper sought to convince leaders in the UK and France that the Bank Tax would hurt healthy economies more than help. Those countries that oppose it note three main criticisms against the Bank Tax. Firstly, the Bank Tax would have to achieve funds in a manner that would be hard to account for and to organise. The issues of what would be taxed, who would control the reserve and who would take an account of the funds is a complex one indeed. As well, whether the banks or governments or combination of the two would put this tax and the revenue funds in concert with the administrative mechanism is a burden for all involved. It is not that it is not possible, it just might take years of fine tuning and involve a great deal of money and political appeasement to become effective.
The second main concern raised by Bank Tax critics is that success in those countries that did not have bank failures last year were achieved by strict regulations. If a Bank Tax would produce a reserve of cash that can be accessed when banks make bad decisions, it might encourage those banks to take additional un-reasonable risks, which put the global economy in the red last year and is creating troubles in the Eurozone currently. A third concern is that banks, as private entities, would simply push the added costs onto consumers. While EU competition law is robust enough to enforce consumer protections in its financial industry, in many countries such as Canada and those with healthy financial systems, banks costs to consumers could increase exponentially without the appropriate competition regulations. Canada has some of the highest bank fees globally, and concerns by Mr. Harper are not unfounded. In the end, UK Conservative leader and new PM Mr.Cameron and French President Mr. Sarkozy took a decision at the last moments of Harper’s trip to have an exemption for those healthy economies from becoming part of the Bank Tax, but did reinforce that fact that European economies needed such a tax in order to put their financial houses in good standing. The meeting with Canadian officials are good practise for the G8 and G20 meetings, as while Canada does have its own concerns, they will be supported by many other G20 members in the upcoming meetings in a few weeks. It will not be the last we hear of this issue, but it does put a clearer perspective for all concerned before the G8 and G20 Meetings.