Germany said on Wednesday that it wants a financial transaction tax outlined by Chancellor Angela Merkel and French President Nicolas Sarkozy to apply to the whole European Union, not just the 17 euro zone states.
With euro zone banks and exchanges worried about being put at a disadvantage to EU financial centers outside the currency zone, notably London, Merkel's spokesman made clear that the intention was to make the tax apply to all 27 EU members.
"When you look at the measures the Chancellor and Sarkozy presented yesterday, many of them affect all 27 and that is the intention with the financial transactions tax," her spokesman, Steffen Seibert, told a regular news conference.
Merkel and Sarkozy's failure to clarify this at their talks in Paris on Tuesday drew a sharp response from lobby groups.
The Association for Financial Markets in Europe, grouping top banks, said a tax would bump up costs for a large section of European industry and hit growth.
Germany's BVR Cooperative Bank Association said it could push trading to centers outside the euro zone, while shares in stock exchange operators suffered. Vienna's bourse said it could exacerbate a trend for deals to take place outside the exchange.
"If an EU-wide financial transaction tax is introduced then we ask that it does not cover only securities but all financial transactions, especially those which happen off-bourse," said the Austrian bourse.
LOSING OUT TO LONDON
Merkel's own coalition also appeared to need convincing, too. Her conservative bloc's budget expert Norbert Barthle said it could be "difficult to implement" and would "make no sense on a national level, so it must happen on a European level."
The Free Democrats (FDP), junior coalition partners, were keen for it to affect all 27 EU states "to ensure Germany is not put at risk as a financial center compared to somewhere like London." Although FDP Foreign Minister Guido Westerwelle said Merkel and Sarkozy were now tackling the roots of the euro crisis -- too much debt and a lack of competitiveness.
But some in the FDP have warned the coalition could break up if Merkel's conservatives changed their stance and embraced common euro zone bonds, which some bankers and investors see as a potential solution to the debt crisis.
For the moment, most of the coalition shares the view that euro zone bonds would push up German borrowing costs and reduce incentives for weaker euro zone states like Greece to reform. The Munich-based Ifo economic think tank estimates that euro bonds could cost German taxpayers 47 billion euros a year.
Financial markets on Wednesday reflected disappointment that the issue of euro zone bonds had not been on the agenda at Merkel and Sarkozy's meeting on Tuesday.
The FDP and Barthle welcomed the fact that euro bonds were off the table at least for now. "At this point in time, it would point the way to a community of shared liability and signal to indebted countries they could simply continue as per usual," Barthle said.
However, the opposition Social Democrats attacked Merkel and Sarkozy for their line on euro zone bonds and accused them of failing to offer an adequate solution to the crisis.