Italy will on Monday become the first country to introduce a tax on high-frequency trading in a move that has become a test case for potential further crackdowns on the controversial practice.
The country will introduce levies against high-speed trading and equity derivatives in the final part of a two-stage process established this year to tax equity-related transactions.
However banks and brokers – many of whom were scrambling on Friday for clarification of key details – have warned the new taxes could further damage liquidity in the Italian market. Volumes have fallen sharply since the introduction of a tax on equities in March.
Policymakers in Europe are considering levies on financial transactions as a way to stabilise markets, curb so-called speculative and high-speed trading and plug gaps in government budget deficits. A European Commission proposal has the backing of 11 eurozone countries while France mandated a watered-down tax similar to UK stamp duty a year ago. Similar proposals have also been floated by lawmakers in the US and Australia.
The Italian version explicitly focuses on high-frequency trading and derivatives, which are often used by corporations and banks to hedge against risk. The tax will also apply regardless of where the transaction is executed, or the country of residence of the counterparty.
For high-frequency traders, order changes and cancellations will be taxed at 0.02 per cent when they occur within a timeframe shorter than half a second, once above a threshold.>> Read More
Germans are feeling much better than expected about their economy, with the just-released ZEW sentiment index giving a reading of 42, up from 36.3 in July.
The Zew Institute’s Current Conditions Index rose even more – to 18.3 from 10.6 in July.
Analysts expected readings of 40 and 12 respectively for the two indices and sentiment is at its highest since March.
The institute comments that the “first signs of an end to the recession in important Eurozone countries may have contributed to the indicator’s rise…. furthermore, the economic optimism is supported by the robust domestic demand in Germany”.
There has also been a strong increase in economic expectations for the Eurozone, the index climbing 11.2 points to 44.
Eurozone industrial production numbers for June are also out. They show an increase of 0.7 per cent, compared to economist expectations of 0.8 per cent and a decline of 0.3 per cent in May.
One of the factors underpinning renewed confidence in the UK economy is the belief that the crisis in Europe is now essentially over. The immediate threat of banking and fiscal meltdown in the southern periphery has receded, and after one of the longest recessions on record – six successive quarters of economic contraction – there are even tentative signs of recovery.
Among eurozone policymakers, the relief is palpable. Mario Draghi, president of the European Central Bank, has waved his magic wand and apparently succeeded in calming the economic maelstrom. This is small thanks to the German core, which fought his actions tooth and nail but now seems more than happy to take credit. In any case, with the fear of financial Armageddon removed, European economies can begin the long march back to health. For Britain too, a key uncertainty for the banking and business sectors has been answered.
Or has it? For though it is true that some form of equilibrium seems slowly to be re-establishing itself in the European economy, it is at such a deeply impaired level that it can scarcely be regarded as cause for celebration. Unemployment, already at intolerable levels in some eurozone countries, is still rising and money growth remains exceptionally depressed (see charts).>> Read More
“European citizens do not trust the troika, and they are right,” says Viviane Reding, the Vice-President of the European Commission. In an interview with Kathimerini, the Luxembourg politician directs strong-worded criticism at the current decision-making process in the eurozone countries that have been bailed out. “Fundamental decisions, for example on whether to fire tens of thousands of public employees, should not be taken behind closed doors,” she argues. Greece is set to receive the next tranche from the EU-IMF backed bailout mechanism after it agreed to a troika demand to put several thousand public servants into a “mobility scheme” that will eventually result in thousands of dismissals. Reding, who many in Brussels believe is a candidate for a top EU post in 2014, sets a three year timeframe for the phasing out of the troika regime, underlining, nonetheless, the need for Greece to “to stick to the path of reform.” You recently suggested that the troika structure should be phased out. Why do you think that? After all, it was Europe that asked IMF participation in the adjustment programs…
When the crisis struck Europe, we had to act very quickly. We decided to call in the International Monetary Fund (IMF) because it has the experience and expertise to deal with difficult situations like the one Greece is facing. And we are grateful for the IMF’s contribution to the various stabilization programmes in Europe. But this set-up has now run its course. This is no longer an emergency. By now, the EU has the right tools to cope with its own problems. That is why I say: The time for the troika is over.>> Read More
“End of recession in Europe,” proclaims the Berliner Zeitung. The German daily bases its optimistic pronouncement on the latest purchasing managers’ index, a survey of 3,000 companies in Germany, France, Italy, Spain, Austria, Ireland, Greece and the Netherlands, which is used to forecast economic trends.>> Read More
Eurozone finance ministers agreed to give their €500bn bailout fund the power to pump cash directly into teetering banks on Thursday night, but only after national governments share the burden by first making their own capital investment.
The power to “directly recapitalise” banks through the fund, the European Stability Mechanism, was hailed by leaders as a key achievement to help eurozone countries avoid the fate of Ireland, Spain and Cyprus, where national governments were put at risk of a cut-off from financial markets when they were unable to deal with massive bank bailouts on their own.
“This instrument will help preserve the stability of the euro area and help remove the risk of contagion from the financial sector,” said Jeroen Dijsselbloem, chair of the group of eurozone finance ministers who brokered the agreement in Luxembourg.
Klaus Regling, head of the ESM, said he hoped the powers will be ready to use by the second half of 2014, after the European Central Bank and European Banking Authority conduct a series of asset checks and stress tests to determine whether eurozone banks are returning to health.>> Read More
Henri de Castries, chairman and chief executive of Axa, the world’s largest insurer by premium income, said in an interview with The Sunday Telegraph that the government of the French president, François Hollande, must learn the lessons of Britain’s experience.
“The UK was not in great shape in the early 1970s,” he said. “Mr Hollande has to decide if he wants to be Harold Wilson or Tony Blair.
“So far he has been ambiguous. I hope he is going to go for Blair. I am not asking him to become Margaret Thatcher.
“It could get worse but I am convinced that at one stage or another, reason will prevail.”>> Read More
I am sure it is a question that has been repeated in many investment conversations since my previous column a fortnight ago.
Many who ask that question automatically assume, or want to assume, that the impact will be negative. They base this assumption on the persistent mood of doom and gloom that has prevailed since the darkest days of 2008-2009.
It is, of course, a very important question, because long-term bond yields are presumably lower than they would be in a “normal” world and, at some point, if the Western world ever returns to normality, they will rise. Needless to say, we have plenty of evidence from some countries inside the eurozone that they can also rise when things are not so normal.>> Read More
The European Central Bank has offered to help the EU redesign its financial transactions tax to avoid any ‘negative impact’ on market stability, highlighting official fears about the implementation of the levy.
Proposals by 11 eurozone countries for a “Robin Hood tax” on trading in bonds, shares and derivatives have run into strong opposition from the financial industry, which has warned they could dry up markets, increase costs substantially for investors and erode bank profits.
Publicly, the ECB has refused to take sides, pointing out it has no mandate in the field. But its offer to “engage constructively” in the design of the tax suggests that, privately, it has deep reservations about its impact on financial markets and the real economy.
Benoît Cœuré, ECB executive board member, told the Financial Times: “We’re willing to engage constructively with governments and the European Commission to ensure that the tax has no negative impact on financial stability.”>> Read More