If you are starting to tire of the debate over a global bank tax bank tax, blame Barack Obama.
While Finance Minister Jim Flaherty wastes no opportunity to pronounce his opposition to a levy, the reason this discussion persists is because the U.S. president upended an equilibrium in the Group of Seven financial powers that left Canada and its approach to economic policy isolated.
The continental European powers have long sought to restrict finance. In the years before the financial crisis, the enemy was hedge funds and private equity firms. A tax on financial transactions was always held out as something governments should consider to raise money for development or the environment. But George W. Bush’s administration would have none of it. As a result, French or German proposals to curb the global financial industry at various global meetings were dead on arrival.
Mr. Obama’s decision to tax banks to recoup the costs of the U.S.’s bailout of the financial industry ended the ritualistic standoff. Even though the Obama administration favours taxing banks after a failure (while most European countries would tax financial institutions in anticipation of future rescues), the fact that the U.S. backed a levy of any kind was a tacit endorsement of the continental European approach to financial regulation. Wanting no part of a bank tax, Mr. Flaherty was forced to stitch together a band of allies that includes Brazil and Mexico to stand against its former allies.
The debate over the bank tax most likely will end in a pledge by the Group of 20 to ensure that taxpayers will never again pay to rescue a failed financial institution, leaving it to individual countries to decide how they shift that cost to the banks and insurance companies. But it’s legacy will the recasting of U.S. power. Colin Bradford, a senior fellow at the Centre for International Governance Innovation and the Brookings Institution, argues that the U.S. still considers itself a leader in global affairs, but will attempt to direct outcomes in subtler ways than it did under the Bush administration.
This approach to leadership is on display heading into this weekend’s meeting of G20 finance ministers and central bankers in Busan, South Korea.
“I don’t think we’re on the verge of a global consensus on bank levy yet,” U.S. Treasury Secretary Timothy Geithner said Thursday in Seoul, according to Reuters. Mr. Geithner acknowledged that there was support for a tax in Europe and the U.S., “but there’s not universal support for that across the G20, at least at this stage. And I don’t think that’s going to change in Korea.”
That’s the U.S. saying it’s time to move on. Mr. Geithner clearly wants the G20 to focus its energy on other concerns, removing his tacit backing of the European push for a tax - “at least at this stage.”