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Launching FTT 'contradicts' goal of capital markets union

The French government has been advised that the proposed financial transaction tax (FTT) could distort competition across the European single market and risks undermining the launch of the capital markets union (CMU).

In a report commissioned for the French Economy and Finance Ministry, Fabrice Demarigny, a partner at Mazars, warned that establishing the CMU required members to “carefully reconsider” some current initiatives, including the controversial tax backed by 11 member states, including France.

Demarigny, a former secretary general of the Committee of European Securities Regulators (replaced by the European Securities and Markets Authority in 2011) told minister of finance Michel Sapin the attempt by the minority of member states to launch an FTT directly contradicted the goal of greater integration through the CMU.

“It will significantly distort competition within the European financial system and disrupt proper allocation of capital,” he said.

“Flow of investment will not reach the most productive place, and transaction will not necessarily occur where the best service is provided.”

Demarigny’s comments came in a report detailing 25 steps towards greater integration of capital markets.

The report recommended that Solvency II capital requirements be re-drafted to favour greater exposure to illiquid asset classes directly impacting economic growth.

He warned against the FTT resulting in the “artificial” fragmentation of capital markets.

“Unless members states are able to create a financial transaction tax that would not delocalise investments and transactions, one can only echo the preference for a tax applicable in the 28 member states,” he said. 

The report was published by the Finance Ministry days after a number of industry associations warned that the FTT could hinder the CMU’s launch.

The FTT is unlikely to be adopted by all member states in the near future, as the UK government has challenged the legitimacy of the enhanced cooperation procedure that has allowed the 11 member states to work on a joint proposal.

The UK lost its court case but remains opposed to any tax.

At the time, Sajid Javid, a junior Treasury minister when the challenge was mounted, argued that an FTT would be “detrimental to growth throughout Europe”.

Javid was recently promoted to secretary of state in charge of the Department for Business, Innovation and Skills. 

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