The tax may also be introduced more gradually: Rather than applying to trades in stocks, bonds and some derivatives from 2014, it may apply only to shares next year. Bond trades would not be taxed for two years, and derivatives even later.
The implementation could be scrapped altogether if, for example, the tax pushed traders to move deals abroad to avoid paying it.
Proponents of the FTT said such changes would render it toothless.
"The question is whether the chancellor's [Merkel's] word is worth anything or if the center-right coalition have bent again to lobbying pressure from the financial sector," Juergen Trittin, the leading German Green politician, told Reuters.
The FTT, which resurrects an idea conceived by U.S. economist James Tobin more than 40 years ago, has been important to politicians who want to show they are tackling the banks blamed for Europe's financial woes.
But implementing it has faced both practical challenges and political hurdles.
"The whole thing will have to be changed quite a lot," said an official who has closely followed negotiations over the FTT, which was agreed to in October and drafted by the European Commission. "It is not going to survive in its current form."
"You can introduce it on a staggered basis," said a second official. "We start with the lowest rate of tax [0.01 percent[ and increase it bit by bit."
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Any final decision is up to the participating countries and remains months away. Germany, for example, is unlikely to support any weakening of the FTT in public before elections in September, because Merkel's coalition has committed to it.
A spokeswoman for Algirdas Semeta, the European commissioner in charge of tax policy, said the proposal still needed a lot of technical work.
"Depending on the speed of progress from here, it is still feasible that the common FTT could be implemented in 2014, although January 2014 is looking less likely," she said.
Seven months ago, Germany, France and nine other countries—Italy, Spain, Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia—agreed to press ahead, having failed to persuade all 27 EU member states. Some cash-strapped nations have already begun counting on the income, a windfall when shrinking economies and rising unemployment are sapping tax revenues.
But in a world where billions of euros can be moved at the stroke of a finger, even some of the tax's backers are getting cold feet. One euro zone ambassador involved in discussions on the proposal said early enthusiasm was waning as governments became aware of the potential pitfalls.
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"If one thing is clear, it's that the financial transactions tax is not going to fly as far as originally hoped," he said.
Those sentiments are echoed by Daniel Gros, the head of the Centre for European Policy Studies. "As it is designed right now, it doesn't make sense," he said, advocating a more straightforward sales tax on banks.
The hurdles include how the FTT should be collected and whether it should be imposed according to the location of the buyer or seller, or where the traded security is issued. In the current design, if either the buyer or seller is based in one of the participating countries, the levy can be imposed even if the transaction takes place elsewhere.
It also remains unclear how the tax could be levied on the trading of complex derivatives—a market that is valued in the trillions of euros—or how to prevent an exodus of activity to regions that do not impose any such tax.
"The risk is that if you have some countries not participating, you have some shift of business from the countries in the tax to the countries without the tax," said one official, familiar with French government thinking. "This step-by-step approach can make sense."
Antoine Kremer of the Association of the Luxembourg Fund Industry said scaling back the FTT would not address industry concerns.
"A reduced tax rate and scope will lessen the impact but not solve the underlying problem," he said. "An FTT will hit investors, retirees and the competitiveness of European financial products globally."