Thursday 27 May 2010

Osborne is Right, EC Wrong on Use of Bank Levy

We don't expect always to agree with young George around here, but he's got this one right. If there is to be a Europe-wide special levy on banks, its application should be to general funds at the national level - by way of repayment for the bailout, if one likes to see it that way - rather than as a communal rescue fund for future bailouts. Even the Grauniad agrees on this one.

A year ago, the Turner Review mused on the idea that fully 'socializing' the ultimate risks of bank collapse might be "the optimal and only defence against system failure".

It isn't, and it couldn't be. As we said at the time:

Conventional risk management can do much better than this without recourse to ‘state insurance’ ... What ‘society’ should demand is not the dubious privilege of socializing ultimate risk, but the proper implementation of conventional risk management between the consenting adults involved"

This is basic conservative philosophy. If you absolve anyone of taking care of their own business, they will at very least tend to be more casual about their affairs. We require property owners to confront the risks of fire personally, to arrange their own fire prevention, on pain of burning to death. The fire brigade (funded from general funds) is primarily there to stop fire spreading. Likewise, we must require banks, and their stake- holders, to confront their own capital adequacy - and the cost thereof - on their own. That is how risk will be driven out.

Michel Barnier, the EC commissioner responsible, is using the wrong analogy. "I believe in 'the polluter pays' principle", says he - and thinks that the payment should be into a government-held reserve. He should remember how this works in the realm of environmental pollution: unless firms are forced to curb their emissions specifically, they evaluate whether the fine is cheaper than the clean-up, and often opt to pay the fine.

You will not be surprised to learn that in the long run M. Barnier, statist froggie that he is, wants the reserve funds to be held by the EU itself. There is nothing more important for Osborne to resist than EU-wide (or even worse, UN-wide) tax-gathering, for banking, environmental, or any other purpose.

Hang tough, George, and you'll win C@W round yet.



roym said...

Can the govt ring fence our share?

Nick Drew said...

The current proposal is that it should be handled at national level (so yes)

but the froggie has said that in the fullness of time he'd like it to be a euro-pot

hopefully this is not subject to majority voting ... - does anyone know ?

Ratbag said...

I believe that any supranational tax has to be enshrined in a new treaty. Best way for Europe to progress would be to reopen the Lisbon Treaty, toughen up the budget deficit restrictions (Merkel's wish), add the banking tax, then put it to the vote.

Finally, we'd get a chance to say "Non".

Old BE said...

Ahh, but if the treaties are reopened now then the French will want a "fiscal government" and the Germans won't go for that at all. So we might not even get a chance to say no.

Jonathan said...

I'm positive about Osborne and Laws, even policies guided by bad Conservative principles are better than the best Labour ones.

However the financial and social mess this country is in and the medium term reality of a uneducated and ageing population make it unlikely that even the best Tory chancellor will be able to do much to turn things round.

Budgie said...

ND - "... hopefully this is not subject to majority voting ... - does anyone know?"

The TFEU, Part Three, Title V11, Chapter 1, Article 122, para 2; has been misused to prop up the Euro due to the Greek (& PIIGS) crisis, and is now therefore the forerunner of EU fiscal governance.

Don't worry ND, the colleagues will find some way of doing EU controlled bank levies within the existing treaties. Just like that.

Nick Drew said...

thanks for the inputs, chaps, it's going to be very interesting - the federasts obviously hoped they wouldn't be needing any treaties / primary eu-legislation / veto-attracting votes any time soon

but - events, dear boy - there's always something ...

I'm hoping Dave & the cunning George will know how to seize the opportunities that will come into their sights