New Tax Could Resolve Greek Crisis

July 19, 2011 International Tax CooperationTaxation in EUTaxation in Greece

Jean Leonetti Confirms Tax DiscussionEurozone leaders will meet this week to discuss the feasibility and benefits of instating a new tax on banks in order to raise funds for further bailout payments to the debt-stricken Greece.

Early on July 18th German media sources reveled that Eurozone leaders would discuss a new bank tax at a summit scheduled for July 21st. Later on in the same day the European Affairs Minister of France Jean Leonetti confirmed that the bank tax is a topic that would be discussed at the meeting. The new levy is being investigated as a means to easily raise funds for a second round of bailout payments to the debt-stricken Greek government.

The Minister explained that a bank levy was being considered by policymakers, as such a system would not significantly interfere with the operations of banks across the EU, and would have a relatively low chance of triggering a debt default in Greece. When questioned on the likelihood of the tax being instated in the short term, the Minister said that the idea deserved to be studied. As an alternative to the tax, investors who hold Greek government bonds may be asked to “roll over” on their investments. However, it is feared that this option will increase the chance of mass debt defaults, and exasperate the economic woes of other financially troubled EU-member states, such as Spain and Italy.

If the bank tax is instated, it will be levied across all banks in the Eurozone, regardless of whether the financial institution has any investments or dealings with Greece. However, the exact rate and nature of a potential tax is still undecided. It is also unclear exactly how the raised funds will be used, but the Minister indicated that a government bond buyback initiative is likely.

Photo by francediplomatie