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At first sight, the ECB's involvement might appear constructive. Speaking at a European Parliament hearing on the 8th of July, President of the European Central Bank Mario Draghi claimed his institution shares the objectives of the Financial Transaction Tax "in principle". However, his stress that it has "many undesirable implications for our monetary policy" and the ECB is working with the Commission to "repair these aspects of the FTT" sounds a warning alarm.
Bringing in the leadership of the Bank as "repair" men is hardly a dream scenario for those who have campaigned for years to have the tax adopted in Europe. First, because Draghi's vague commitment to the tax obscures the fact that what he and his institution wants is to reduce the scope and possibly the size of the tax considerably. Secondly, because ECB involvement in the design of the tax may be or may become a Trojan horse manoeuvre by the financial lobby which has a forceful presence in ECB advisory groups. The financial lobby is using all means available to defeat the tax; having the ECB act on their behalf could turn out to be their most effective weapon at this point…
At this delicate moment, central bankers are placing themselves into the centre of the debate, and their agenda is certainly not to strengthen the proposal. Central bankers (and members of the ECB governing council) spearheaded by Governor of the Bank of France Christian Noyer and Jens Weidman of the Bundesbank, and members of the ECB Executive Board Peter Praet, Yves Mersch and Benoît Cœuré, have all voiced criticism of the FTT in public.
Their weighing in on the debate confirms what Sir Mervyn King, until recently Governor of the Bank of England, stated at a press conference in May: "Within Europe, I can't find anyone in the central banking community who thinks it's a good idea".
In that light, Draghi's stated support for the "principles of the transaction tax" begins to sound unlikely. Could it be that Sir Mervyn King is not aware of Draghi's position? Hardly. Both of them have been members for many years of the Group of Thirty, an exclusive club of central bankers and CEOs from Wall Street banks – a group that includes King's replacement, Mark Carney.
So rather than taking Draghi's statement at face value, it would be a more plausible explanation that his alleged support is a siren song by the ECB to lure people into a false sense of security, as all the while his staff make their way into the real negotiations on the tax in order to scuttle or sink it.
In his words to the European Parliament, Draghi was careful to stress the ECB would approach the FTT on issues strictly within the Bank's mandate: monetary policy. This could mean the ECB will focus on exempting bond purchases and 'repos' (repurchasing agreements which enables a trader to sell e.g. a bond with an agreement to buy it back shortly after) from the scope of the tax. This in itself would be a substantial change as repos make up a considerable part of financial transactions – with a total value of contracts at €5.6 trillion in December 2012, for instance. These are all topics in the remit of financial regulation, and as such are not necessarily within the ECB’s mandate. But the question is whether the ECB will stop there, or if it will continue to go for more exemptions.