Monday, July 25, 2011

Sarkozy drops proposal for bank tax -- and the rich get away yet again

Yields on peripheral European government debt rallied sharply on news that French president Nicolas Sarkozy had agreed to drop a plan to help fund a €115bn Greek bail-out with a €50bn ($71bn) bank tax. The move marks a significant victory for Angela Merkel, the German chancellor, who extracted the concession at a late night meeting in Berlin on Wednesday ahead of an emergency summit of eurozone leaders.

The tax plan, which would have raised €10bn a year for five years through a 0.0025 per cent levy on all assets held by eurozone banks, was strongly resisted by Berlin, which saw the plan as taking too long to implement and raise funds which would have been used for a massive Greek bond repurchase programme.

The deal paves the way for a German-backed initiative for more direct measures to get private holders of Greek bonds to help pay for the bail-out. According to a version of the plan circulated by the European Commission on Wednesday evening, all owners of Greek bonds that come due in the next eight years will be urged to swap their holdings for new bonds that do not mature for another 30 years. Other plans, however, including a French-backed bond rollover plan, are believed to still be on the table. (more)