Financial Interest in a Corporatist Political Economy the Case of the Financial Transaction Tax Amber Klompmaker
Total Page:16
File Type:pdf, Size:1020Kb
Financial interest in a corporatist political economy The case of the Financial Transaction Tax Amber Klompmaker Name: Amber Klompmaker Student number: s1360949 Date: 12/08/2018 Supervisor: Natascha van der Zwan 2nd reader: Alexandre Afonso Public Administration: Economics & Governance – Faculty of Governance and Global Affairs, Leiden University Table of Contents 1. Introduction .......................................................................................... 3 1.1 The Financial Transaction Tax ........................................................................................................... 3 1.2 Political context ................................................................................................................................. 3 1.3 Theoretical insights ........................................................................................................................... 4 1.4 Research question ............................................................................................................................. 5 2. Theoretical framework ........................................................................... 7 2.1 Introduction ...................................................................................................................................... 7 2.2 Structural and instrumental power theory ........................................................................................ 7 2.3 Noisy and quiet politics ................................................................................................................... 10 2.4 Combination of both theories ......................................................................................................... 11 2.4.1 Limitations of the theories ....................................................................................................... 12 2.4.2 Dutch corporatism and structural power ................................................................................. 13 2.4.3 Alternative model ..................................................................................................................... 14 3. Methodology ........................................................................................ 16 3.1 Introduction .................................................................................................................................... 16 3.2 Case selection ................................................................................................................................. 17 3.3 Data analysis ................................................................................................................................... 18 3.4 Data collection ................................................................................................................................ 19 3.5 Validity and Reliability ..................................................................................................................... 22 4. Case description ................................................................................. 23 4.1 Introduction .................................................................................................................................... 23 4.2 The crisis and its effects on financial sector regulation .................................................................. 23 4.2.1 The global financial crisis ......................................................................................................... 23 4.2.2 The Greek crisis ........................................................................................................................ 24 4.2.3 The idea of a European Financial Transaction Tax ................................................................... 25 4.3 Interaction business and politics ................................................................................................. 26 4.4 Opposing the FTT and the enhanced cooperation ...................................................................... 30 4.4.1 Enhanced cooperation .............................................................................................................. 31 4.4.2 Compromising on the FTT ........................................................................................................ 31 4.5 Chronological table ......................................................................................................................... 33 5. Analysis ............................................................................................... 35 5.1 Introduction .................................................................................................................................... 35 5.2 Salience ........................................................................................................................................... 35 5.3 Politics vs. Business ......................................................................................................................... 37 5.4 An alternative explanation .............................................................................................................. 38 6. Conclusion ........................................................................................... 40 7. Bibliography ......................................................................................... 42 2 1. Introduction 1.1 The Financial Transaction Tax The European Financial Transaction Tax (FTT) is a proposed tax on financial transactions between financial institutions. The tax is levied on trades in stocks, bonds and other financial instruments like derivatives. The FTT is not the same as the tax on banking activities that has been introduced in the Netherlands in 2012 (Wet Bankenbelasting). The rationale for the European FTT is that the financial sector should pay back the EU member states for the state aid that has been provided after the 2008 financial crisis. The second goal of the proposed FTT is to harmonise the existing taxes on financial institutions of EU member states and thereby strengthening the single market of the European Union. The tax that would be levied consists of a 0.1% tax on the transactions of shares and bonds and a 0.01% tax on the exchange of derivative contracts (European Commission, 2011). 1.2 Political context On October 23, 2011, the Dutch Parliament debated the possibility for a Financial Transaction Tax Directive to be implemented in the European Union. Ronald Plasterk, member of the House of Representatives from the social democratic party PvdA, asked the Prime Minister Mark Rutte, from the liberal party VVD, what the cabinet’s position was regarding the Financial Transaction Tax. Rutte responded that the cabinet supports a Financial Transaction Tax providing that all member states implement the tax (Rutte, 2011). Shortly after this debate, the Dutch minister of Finance from the Christian-democratic party CDA, Jan-Kees de Jager, joined a meeting of the Eurogroup and Ecofin Council. The Ecofin Council is short for the Economic and Financial Affairs Council. The Ecofin Council is responsible for European Union policy in the areas of taxation, economic policy and regulation of financial services (European Commission, 2018). At the meeting, the minister was neutral regarding the implementation of the FTT (De Jager, 2011, p. 4). When the EU negotiations about the FTT progressed, however, the Dutch cabinet withdrew its support for the implementation of a European FTT. Elections took place in the meantime and a new cabinet was formed. The new cabinet consisted of a coalition between VVD and PvdA. The Dutch government described its hesitant position towards the implementation of a European FTT in its coalition agreement in 2012. In the agreement the coalition stressed the importance of a healthy financial sector and a close European cooperation. However, the coalition parties stipulated the following conditions for adopting the FTT (VVD & PvdA, 2012, p. 11): 1. Dutch pension funds would have to be exempted from the FTT; 2. There is no disproportionate overlap with the current bank tax, and; 3. The revenue of the FTT will flow back to the European member states. 3 The Dutch government was not the only government opposing the FTT, as proposed by the European Commission. The United Kingdom only supports a global implementation of the FTT, and therefore opposed the European Commission’s proposal for a FTT in the European Union (BBC, 2011). Also Sweden, a country that shortly had a FTT in 1984, opposed the FTT (Tweede Kamer, 2011b). Countries that did support the FTT were, amongst others, Germany and France (Rutte, 2011). After negotiations on the first FTT proposal failed, the European Commission approved requests for enhanced cooperation on a FTT by eleven member states that wished to implement a tax on financial transactions (European Commission, 2012). The Dutch government decided not to join the enhanced cooperation as long as the conditions stated above were not met. The quick change of opinion of the Dutch government begs the question: why did the Dutch government decide to opt out of FTT negotiations? 1.3 Theoretical insights This research will investigate the role of the financial industry, often supported by financial industry groups, in influencing the policy outcome of the FTT in the Netherlands. Social scientists have often pointed at the power of the financial industry to explain policy outcomes. A seminal theoretical