UK opts out as Europe backs Tobin tax plan

Eleven eurozone countries have agreed to press ahead with a controversial tax on financial transactions, designed to reduce market volatility.

The initiative, pushed hard by France and Germany but strongly opposed by the UK, Sweden and other free-marketeers, gained critical mass at a European Union finance ministers’ meeting in Luxembourg, when more than the required nine states agreed to use a treaty provision to launch the so-called Tobin tax.

First proposed by Nobel-prize winning economist James Tobin in the 1970s as a way of reducing financial market volatility, the tax has become a political symbol of a widespread desire to make banks, hedge funds and high-frequency traders pay for the financial crisis.

However, critics said it could distort the market by giving banks and other traders incentives to shift their trading activities to European financial centres where the tax is not levied, or away from Europe altogether.

London is Europe’s leading financial centre and the UK will not be joining the scheme.

Meanwhile, European Central Bank president Mario Draghi warned that the eurozone economy faces a long road to recovery, just hours after the International Monetary Fund slashed its 2013 growth forecasts for the region.

In testimony to the European Parliament yesterday, Draghi said: “The crisis of confidence that has taken over the euro area in the last few months has improved but it’s still there.”