The world has woken up to an urgent fiscal challenge. Budget cuts will soon start to bite at home in Europe, while funding for international development and tackling climate change has already been cut. Meanwhile, the financial system that got us into this fiscal mess remains largely unreformed, with proposed changes largely neglecting the issue of systemic risks posed by financial markets in favour of ‘quick fix’ changes to the banking system. Even less has been done to align finance with the real economy.
Implementing a series of Financial Instrument Taxes (FITs) offers a highly flexible toolkit to help achieve progress on all three fronts. These are similar to, but broader than, the widely-discussed financial transaction taxes (FTTs), and can be tailored to the idiosyncrasies of particular markets. For example, more liquid markets in stocks, futures and certain derivatives will be taxed on a per transaction basis, whereas illiquid securitized products, mortgages and OTC derivatives would be taxed on issuance.
Ex-Lehman banker says EU should crack down on big banks
Instead of addressing fundamental issues like the role of finance, politicians seem stuck in assuaging public anger, argues Sony Kapoor, manager of the international think-tank Re-Define, in an interview with EurActiv.
Kapoor, who has testified on financial regulation at the European Parliament, says world leaders have so far shown a lack of vision in reshaping the post-crisis financial system, arguing that it will be up to the EU's competition authorities to clean up.Outside Brussels, national leaders are missing the bigger picture, says Kapoor, though some have come up with "politically palatable" proposals.