How can the financial sector be made to contribute to the cost of the crisis it helped to create? Greek socialist Anni Podimata argues in her report that introducing a financial transaction tax would go a long way towards stamping out banks' risky behaviour while at the same time replenishing government coffers with much needed funds.
The Parliament will debate and vote on Ms Podimata's report in plenary on Wednesday 23 May.
Governments have not hesitated to use taxpayers' money to bail out the financial system, yet many are hesitant about taxing financial transactions to get some of that money back.
The facts are undisputable. The financial sector caused the current crisis, which will cost governments €4.5 trillion in bail-outs, while it remains largely under-taxed compared to the real economy. The European Parliament launched the idea of a financial transaction tax back in the public debate with its 2010 report on innovative means of financing, creating a fresh momentum in favour of the financial transaction tax. The arguments of the financial sector against the financial transaction tax collapsed when the European Commission, under pressure from the European Parliament, undertook an impact assessment, which pointed out that introducing the financial transaction tax at EU level is not only feasible, but will also generate significant revenue without harming the European economy's competitiveness.
What are the two most important reasons for introducing the financial transaction tax and what impact will the tax have on the European economy and the internal market?
The tax will not only help curb speculation and bring the financial sector back to its primary function - the financing of the real economy - but also generate significant new resources at a time of strict fiscal consolidation. A more responsible financial sector will be more responsive to the long term needs of our economy - this is why primary markets are outside the scope of the financial transaction tax. I expect investments to shift from speculation and high-frequency trading to more productive activities. The revenue of the tax can also be used to stimulate growth.
Opponents of the financial transaction tax argue that it would trigger a liquidity squeeze and push financial firms to relocate to more business-friendly jurisdictions. What is your view on this?
Liquidity will not be affected where it is mostly needed. The proposed structure of the financial transaction tax ensures that the risk of relocation is minimised. Our proposal to make the payment of the financial transaction tax a certificate of the legal enforceability of a transaction will have a very positive effect on the enforcement of the tax.
Do you think proceeds from the financial transaction tax could be used to reduce member state contributions to the EU budget?
The potential of the tax as en EU own resource is impressive. The Commission has calculated that should two thirds of the financial transaction tax revenue be managed at EU level, the national contributions based on gross national income could be reduced by up to 50%.