The UK will not be able to resist European calls for a financial transaction tax (FTT) levied on trading, according to a key ally of German Chancellor Angela Merkel.
Speaking at a party congress on Tuesday, Volker Kauder, parliamentary leader of Angela Merkel's Christian Democratic Union (CDU), acknowledged that the UK's economy is heavily weighted towards financial services and banking and hence would be heavily affected by the proposals, but said: "Britain also carries responsibility for making Europe a success. Only being after their own benefit and refusing to contribute is not the message we’re letting the British get away with.”
The resistance to a so-called "Robin Hood" tax, which would take a small levy on every transaction in the financial markets, has caused a rift between the UK and its major European partners, who believe that the FTT would reduce volatility by creating disincentives for trading, as well as raising money for social purposes. Industry bodies, including the Confederation of British Industries, have warned that introducing a levy would risk the City of London's position as an international financial centre.
The UK's official position has been that it would only consider the proposals, which are supported by French President Nicolas Sarkozy, if they are implemented globally, including the US and Asian financial centres, although many in the City believe that even then, an FTT would be unworkable.
Development bodies, including major non-government organisations and the billionaire philanthropist Bill Gates have also called for the implementation of a Robin Hood tax.
Kauder told his colleagues that European leaders were coming around to the German view on the response to the eurozone crisis, and were beginning to accept the country's economic orthodoxies.
“Now all of a sudden, Europe is speaking German,” Kauder said. “Not as a language, but in its acceptance of the instruments for which Angela Merkel has fought so hard.”
German primacy in the eurozone has become more pronounced since the crisis began, as the continent's largest economy becomes its main source of finance. Fiscal discipline has been a feature of German economic management, and the country has successfully managed to balance growth with keeping its public spending in check. Even France, the eurozone's second largest economy, has been dragged towards the sovereign debt concerns on the periphery, leaving Merkel as the sole credible voice at the upper echelons of European politics. The markets keenly watch announcements from German policymakers.
The failure of fiscal discipline in the eurozone periphery was in clear focus during Tuesday's trading, as yields on Spanish and French debt came under pressure. For the first time since Silvio Berlusconi left office, yields on Italian 10-year bonds passed the 7% mark, widely seen as a threshold level indicating an unsustainable cost of borrowing.
Kauder's speech has already served to bait the UK's euro sceptics, with the right wing Daily Mail newspaper running his comments on its front page on Wednesday and speculating what a British cabinet "picked by Brussels" would look like.
The difference in the British and German visions on the future of Europe is becoming increasingly obvious. In a foreign policy speech on Monday, David Cameron said that the eurozone crisis was an opportunity to recast the EU as a looser grouping of states.
On the same day, Merkel made a speech calling for almost the diametric opposite. “It is time for a breakthrough to a new Europe. The task of our generation is to complete economic and monetary union, and build political union in Europe, step by step," she said. "That does not mean less Europe, it means more Europe.”
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