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Monday, June 07, 2010

G20 Rejects Bank Tax & Removes Fiscal Stimulus

Canada was successful with its effort to block a uniform bank tax on all members of the G20. This is a tax favored by the United States, the United Kingdom, Germany and France as a way to create a fund to dip into for emergencies without returning to tax payers for the funds.

Finance ministers that met in Busan, South Korea, on Saturday said in a communique that each country will be free to choose its own way of dealing with the issue.

Canada argued that banks in countries that acted responsibly and did not need their taxpayers to bail them out should not be punished for the sins of the others who did. Those in favor of the tax, especially Tim Geithner of the US, want all countries taxed equally so banks in the responsible countries that didn't need taxpayers to bail them out won't get a competitive advantage.

From Canada sways G20 to rethink bank tax
Canada has been lobbying world leaders for months that countries that didn't need to bail out their financial institutions during the recent crisis shouldn't have to punish their banks for what others did.

"It was apparent that most G20 members do not support the concept of a universal levy," said Finance Minister Jim Flaherty at the conclusion of the meeting.

"What there is agreement about is the following principle -- to the extent that a financial institution contributes to a financial crisis, then the financial institution should bear the cost of that contribution and not taxpayers.

"At the end of the day, different countries will choose different ways of reaching the goals ... but there is no agreement to proceed with an ex-ante tax."

Excerpts from G-20 and US: Going Separate Ways Highlights Prisoner’s Dilemma
Unlike last year when the U.S. swapped all sorts of favors for a coordinated global fiscal stimulus, this year the U.S. represented by Treasury Secretary Tim Geithner is receiving the cold shoulder. Finance ministers from around the world are happy to ‘go their own way’ in pursuit of what they believe to be their national interests.

Finance ministers of the world’s leading economies have been so spooked by the sovereign debt crisis that they have decided they can no longer wait until economies are growing strongly before they remove fiscal stimulus.
and
In a letter to the rest of the G20, Tim Geithner, US Treasury secretary, argued: “Concerns about growth as Europe makes needed policy adjustments threaten to undercut the momentum of the recovery”.

In private, G20 officials said that the US had been the country most concerned about the new austerity drive and feared for the momentum for global growth. In the meetings it had been frank in the meeting in calling for China to revalue the renminbi and for Germany to boost domestic demand, officials said.

Mr Geithner, himself, was open about his fears in his letter to the G20. “Concerns about growth as Europe makes needed policy adjustments threaten to undercut the momentum of the recovery,” he wrote, adding that fiscal tightening won’t “succeed unless we are able to strengthen confidence in the global recovery.”
You have to stand up and TAKE NOTE when other countries, especially some in Europe, say the US is taxing and spending too much and they won't play along

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