A proposed pan-European financial transaction tax (FTT) could cost European savers hundreds of billions of euros, with Italy and Germany likely to be worst hit, according to research from consultancy London Economics.
Its report, commission by the City of London Corporate and released a day before French and German politicians meet to discuss the FTT and other issues on Wednesday, suggests that the value of shares will be negatively impacted by the introduction of the FTT, reducing savings and ultimately impacting domestic consumption.
London Economics estimates that introducing a 0.1% tax on equity transactions and 0.01% tax on derivatives contracts would reduce the value of savings by €204.9 billion in Italy and €150.6 billion in Germany.
Even in non-participating countries, the cross-border nature of the tax means savers there would also be affected, though to a much lesser extent, and UK investors could take a €4.4 billion hit.
The level of impact is also highly dependent on household savings and debt levels, with Slovakia, one of the countries participating in the pan-European FTT seeing a reduction in savings of just €100 million.
Loss of savings in many states would equate to multiples of annual savings rates, with Spanish savers needing to save for an additional year to recoup their losses, while Italians would need to save for 18 months, according to London Economics.
As a result of this, recovering from the initial impact of the FTT would lead to reduced levels of household consumption in the order of approximately 1.4% in Germany, 1.2% in Italy and 1.6% in Spain. In non-participating countries such as the UK and Luxembourg this drops to just 0.02% and 0.1% respectively.
As household spending makes up a significant portion of GDP in these countries, the tax could also hit overall economic growth.
The pan-European FTT was originally due to be implemented in January this year but has been stalled due to opposition from other EU member states and the US. However, Germany and France are expected to push for the tax to be introduced later in 2014 during a summit being held in Paris this week.
Germany’s finance minister, Wolfgang Schaeuble, has said he hopes the issue will be moved forward at the summit but admitted it might have be completed “step-by-step” indicating a phased introduction.
Both France and Italy have already introduce their own national FTTs, with France levying a tax of 0.2% on equity transactions and Italy taxing bond and equity trades at between 0.12% and 0.22%.