Proposals for a tax on financial transactions, which caused UK Prime Minister David Cameron to refuse to vote for proposed changes to the European Union treaty to create a closer fiscal compact for the euro zone, will become reality, Wolfgang Schaueble, Germany’s finance minister, told CNBC at the World Economic Forum in Davos Friday.
Bank executives including Josef Ackermann, chief executive of Deutsche Bank, have warned that a financial transactions tax could damage the European Union’s economy and send business to exchanges in Hong Kong or Singapore.
“You wouldn’t expect a goose to say he likes Christmas,” Schaueble said. “We have (value-added tax) in most European countries, but no financial transactions tax – why?”
He acknowledged that the tax would work better if countries outside Europe introduced similar measures, but maintained that the proposed tax is a key part of policymakers’ attempts to solve the economic crisis.
“There were two major reasons for the crisis: too high deficits in a lot of states – not only in Europe; and too little regulation for financial markets. A slowdown in high-frequency trading, for example, would make financial markets more responsible for the real economy,” he added.
As negotiators tried to get a deal between Greece and its private sector creditors to stop the troubled Mediterranean country defaulting on its debt repayments, Schaueble maintained that he is “convinced” negotiations would be successful.
“We are prepared for other scenarios but we are working on no Greek default. That would be a major disaster,” he said.
Schaueble maintained that all the other euro zone members could “fix the problems in their own country.” After Greece’s problems grew more acute last year, fears grew that other heavily indebted euro zone countries could be seriously affected by a Greek default, and even default themselves.
Germany, which has performed well during the crisis because of its relatively high saving levels and exports, would be hurt if a euro zone country defaulted on its debt repayments.
Former US Treasury Secretary Larry Summers told CNBC Friday that Germany should allow itself to get into more debt to help stimulate growth elsewhere in the euro zone.
“We have to reduce the deficit but we also have to strengthen growth. We are doing it by structural reforms,” Schaueble said.