Luxembourg finance minister pledges support to UK’s challenge to FTT

The finance minister of Luxembourg has pledged to extend support to UK's legal challenge to Europe's plans for a financial transactions tax.

According to Luc Frieden, who is also on the board of governors of the World Bank, Luxembourg was "very sympathetic" to the objections of the UK to the controversial tax.

He told City Week forum in London that Luxembourg would certainly bring arguments supporting the case being brought by the UK government.

He added, global standard setting was required on the issue, not regional standard setting.

On Friday UK said it had launched legal proceedings against the €35 billion tax on financial transactions agreed by 11 EU members earlier this year (See: Osborne issues legal challenge to transactions tax) http://domain-b.com/economy/worldeconomy/20130420_transactions.html

According to Frieden, the FTT would have a "negative impact" on global growth as also Luxembourg's crucial financial services industry.

He added Luxembourg was "not opposed philosophically" to the FTT but warned "growth must be maintained" and policies "must be looked at on a global level not by 17 countries."

He added, though that Luxembourg would not stand in the way of Brussels' plans to cap bonuses for bankers and fund managers. He said he had agreed to the proposals because [banker pay] was not the most important issue at the moment.

As Europe's largest financial centre, London would lose most if finance firms moved their trading operations to parts of the world free from such taxes.

In case the tax is successfully challenged it would hamper its application outside those countries that have approved the FTT, significantly cutting the amount of revenue it could generate.

As the biggest trading centre in the EU, much of the tax would probably be collected by the UK even though it would not be applying it.

According to Germany, banks, hedge funds and high-frequency traders needed to pay for a financial crisis that started in mid-2007 and exposed sovereign debt problems that forced euro zone countries to bail out peers including Portugal and Greece.

The finance minister told Reuters shortly after he made the comments that Luxembourg would now explore whether to formally add its signature to the UK's challenge, rather than just voice support.

He said this was something that he had to examine.

Thomas Donohue, head of the US Chamber of Commerce, also stressing his country's objections to the plans, at the same conference said, "European leaders are moving forward with proposals that are non-starters for the United States, for example the financial transaction tax and cap on bonuses for US employees."