Taking on the Speculators

What Would a European Tobin Tax Really Mean?
The European Commission, the EU's executive, has proposed implementing a tax starting in 2014 on all transactions involving stocks, bonds and derivatives that are conducted between financial institutions. It would apply to banks, insurance companies, investment funds, stockbrokers and hedge funds, among other financial firms.

The taxes would be paid by both partners in the transaction, the seller and the buyer. For stocks, a tax of 0.1 percent has been proposed. For derivatives, such as, for example, futures or credit default swaps (CDS), the tax would be 0.01 percent.

So, if a bank were to sell stocks worth €100,000 to a hedge fund, each would have to pay €100 in tax on the transaction. If, on the other hand, a manufacturer of heavy equipment were to buy a currency futures contract worth €100,000 to protect itself against fluctuations in the euro-dollar exchange rate, it would have to pay €10, as would the bank that was its party in the contract.

Britain itself still has a tax on trading of shares -- the so-called Stamp Duty Reserve Tax of 0.5 percent of the sale price. It currently generates revenues of around €5 billion per year. With the introduction of a Europe-wide transaction tax, the charge would also be applied to other securities and to foreign exchange markets. Indeed, that is precisely what the British government wants to prevent.

Spiegel: Taking on the Speculators --What Would a European Tobin Tax Really Mean?