In the days before the channel tunnel and Ryanair, most travel in and out of the United Kingdom was by ferry. So fogs in the English Channel seriously disrupted communications between Britain and the rest of Europe. One pea-souper gave rise to the probably apocryphal London headline: ‘Fog Isolates Continent’.
Prime Minister Cameron has just done the same thing.
Chucking his toys out of the pram at 4 in the morning after the EU negotiations over (yet another) solution to the European sovereign debt crisis, Cameron said that what was on offer was ‘not in Britain’s interests’. So he vetoed it.
Now what was on offer is a bit much for any self-respecting sovereign nation to swallow. How Thailand would react to the idea of its ‘friends in ASEAN’ poring over its national budget before it could be approved? I doubt it would be a positive response.
(And I am dead certain of the military’s reaction to foreign scrutiny of its substantial share of that budget. For heaven’s sake, they don’t even let the Thai parliament see the best part of it.)
Mandatory balanced budgets written into constitutions and penalties for deficits are also something you’d think should be democratic decisions by national electorates to be changed as conditions change. Not holy edicts set in stone after some unseemly all-night horse-trading over the crisis of the day.
But this, it seems, is not what stuck in Mr Cameron’s craw. What really offends ‘Britain’s interests’ was the proposal for an EU-wide financial transactions tax. Cameron was ready to go along with the rest of it as long as he got an opt-out for the financial transactions that happen to go on in the City of London.
Now the City is a miniscule bit of the real London and is run by a Lord Mayor, councilmen, aldermen and sheriffs who are for the most part elected not by the normal one-person-one-vote democracy of the rest of the country, but by the capitalist’s wet dream of votes to corporations in proportion to the number of workers they employ (and no, Virginia, it’s not the workers who decides how to vote, it’s the bosses) (and the biggest employer is that true-blue patriotic British institution called the Deutsche Bank).
And this City is the source of a fair chunk of all the financial transactions in the EU. Exclude the City of London and you’ll get a mad rush out of Frankfurt, Paris and all points European to join the exemption, a stratospheric rise in square mile rents and a virtually useless Eurotax.
And what is so bad about a financial transaction tax that makes it against Britain’s interests?
Ah, that is hard to say, since one opinion poll reports that 65% of Britons support the idea. Obviously a perverse majority intent on undermining their own prosperity.
So let’s re-frame the question. What makes a financial transaction tax so unpalatable to the minority who think like Mr Cameron?
To answer that you need to know the problem which the tax is intended to fix. For which we can blame Nixon. From World War II to the 1970’s, the world economy enjoyed levels of growth (and increasing equity) that most governments today would die for. This was achieved under an international financial architecture of more-or-less fixed exchange rates and government regulation of foreign currency transactions.
This is anathema to the current received wisdom. Government regulation is axiomatically a Bad Thing, stifling the creativity in accounting and business practice that gave us Enron, toxic subprime loans and the current crisis without end.
Back then you knew what the exchange rate would almost certainly be when you made your widgets and sold them overseas and received the cheque. This low currency risk helped manufacturing, but how could the clever lads in the forex trading rooms of the big banks leverage a profit from the spectacularly unproductive activity of buying and selling money?
Nixon took the dollar off the gold peg, and exchange rates floated. Reagan and Thatcher then removed much of the remaining regulation of financial markets, giving rise to today’s world where the Prime Ministers of Greece and Italy are elected by the markets, not the voters, and where the business media breathlessly report the reaction of ‘investors’ (aka capitalists or people with more money than they need who want still more) which can instantly nullify the decisions of sovereign democratically-elected governments.
Buying and selling money, with margins to the 4th decimal place, became a way to make a fast fortune (and with the right kind of rogue trader, to lose one). The fraction of foreign currency exchange transactions that is used for actually buying and selling something (other than money) is now down to about 1%. The rest, trillions of dollars worth a day, is bubble and froth, allowing volatility and the massive shifts of currency round the globe (like the one that drowned the Thai economy in 1997).
The financial transactions tax (or Tobin tax or Spahn tax or sterling stamp duty or whatever) is designed to throw sand into the wheels of this crazy casino. Now whether it will dampen down market volatility and earn a worthwhile income for the governments who impose it is a matter of debate, centring partly on exactly how the tax is structured and policed. But most proposals talk of a tax of a fraction of 1%. Unlike, say, VAT, which everyone pays at the same rate, and which in Europe generally runs at about 20-25%.
Downing Street fears that this tax will so piss off the capitalists currently doing business in London that they will move elsewhere. And ‘Britain’s best interests’ will no longer benefit from the employment of disgustingly overpaid bankers and fund managers who do bugger all for the real economy or the taxes that banks and finance houses routinely avoid paying.