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Monday, 31 October 2011

Schauble: (verb) To open ones mouth without engaging brain

Fresh from his announcement of an immediate inquiry to discover why German accountants didn't offset assets and liabilities as they should (prediction: because they didn't realise they could be offset), German Finance Minister Schauble says the EU should take the lead in setting up a Robin Hood tax to curb speculation, and if the UK won't join in, then the EU should go it alone.

This is just so wrong he should count himself lucky if he still has a job tonight.  First off, there is no such thing as a Robin Hood tax.  Robin Hood never paid a penny to the Sherriff of Nottingham.  It is just a tax. 

More seriously, the EU has never had the power to impose any taxes, nor to collect them.  If the UK wants such a tax then it can impose it.  The EU and other nations would like the tax because it would be imposed mostly on businesses operating in the UK and employing mostly UK nationals. The EU of course have suggested that this tax should be paid into their coffers.

But realistically, it won't work.  If I want to speculate on an asset I dont have to buy it any more than I have to buy a race horse if I want to back it in the 3:30 at Kempton Park.  I can get a payoff without buying the underlying, and the trouble is I can manufacture whatever payoff I want through derivatives,  If I want the same payoff as an interest rate swap on £100m notional, I can write a swap for 100,000,000 times the fixed and floating interest rates on £1m notional and the tax becomes disappearingly small. The only way to reliably capture the value of a any speculation is to tax the profiut.  We already do that.

But most importantly, the easiest way to avoid any tax is to do the trade offshore, or if necessary move the trading entire business offshore.  There will always be offshore banking centres willing to take on any business that the EU wants to tax.  All we have to do is throw it away.

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