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September 27, 2011


Europe Readies Plan for Tax on Financial Transactions

The European Commission is expected to unveil a detailed plan on Wednesday to create a financial transaction tax, despite the opposition of several member countries and a formal acknowledgement that it could have a significant negative impact on the European Union’s gross domestic product.

The plan, which has the strong support of France and Germany, will be discussed in a speech before the European Parliament in Strasbourg, France, by José Manuel Barroso, the president of the commission, the executive arm of the European Union.

The measure will probably include taxes on the purchase of stocks and bonds; derivatives are likely be taxed at a lower rate. Transactions on the currency markets are not likely to be included.

Critics are expected to highlight a formal study regarding the proposal’s economic effects.

‘‘With a tax rate of 0.1% the model shows a drop in G.D.P. (-1.76 percent) in the long run,’’ according to a draft of the plan.

One European Union official, who asked not to be identified because the proposal had yet not been published, said the actual effect would be less significant, because the assumptions used in the final proposal differed from those in an impact study.

He also suggested that the tax rate proposed on at least some transactions might be lower than 0.1 percent, and that the proposal would exempt the purchase of stocks and bonds when they are first issued. The impact study had assumed the tax applied to all transactions, he said.

Nevertheless, the proposal is highly divisive. France and Germany see it as a method of requiring the financial sector to provide compensation for some of the damage sustained in the economic crisis. They also think the tax can help deter more speculative transactions, which may provide little benefit to the real economy.

‘‘The basic idea is that taxes could improve financial sector stability and the functioning of the market,’’ the draft proposal says.

But Sweden and Britain are among those in opposition, saying that unless the levy can be implemented globally, the measure would simply drive financial institutions away from the European Union.

‘‘Introducing a financial transaction tax in Europe only will force financial institutions out: it’s like squeezing sand in your hand,’’ said one European diplomat who asked not to be identified because of the sensitivity of the issue.

Prospects of a global deal were quashed earlier this month when the United States Treasury secretary, Timothy F. Geithner, told European finance ministers he would not agree to such a tax in the United States.

After Mr. Geithner’s comments, Belgium’s finance minister, Didier Reynders, called for Europeans to press ahead with their own proposal, perhaps including only the 17 nations that use the euro, if all 27 members of the European Union could not agree.

If a euro zone agreement is impossible, a smaller group of countries could go ahead with their own low-level tax.

The Swedish finance minister, Anders Borg, explained this month the opposition of his country, which does not use the euro.

‘‘We have substantial experience in Sweden,’’ he said. ‘‘Basically, most of our derivative and bond trading went to London during the years we had a financial transaction tax, so if you don’t get a solution that is universal, it is very likely to be detrimental for European financial markets.’’

The European Union official declined to say what tax rate would be proposed. In the past, the European Commission has suggested a rate of 0.1 percent for trading stocks and bonds and 0.01 percent for derivatives.