europhobia

[Picciotto, Sol]

The piece under Blair's name in the WSJ seems to be part of a charm offensive
belatedly launched from London when Brit ruling circles as usual realised too
late that the perfidious continentals are aiming to use the Euro and their
greater unity within the EU to attack London's dominance as the main global
centre for 'offshore' finance. The laser shows and general jollifications in
Frankfurt for the Euro-launch made London seem peripheral, so we had Eddie
George, Bank of England Governor, on the radio to reassure people that London
will still be Europe's financial capital.

Although the location of the ECB in Frankfurt is not enough to damage London
too much, the City is more concerned about the tax harmonisation proposals
which are being pushed as an important element of EMU. These include a proposal
for a minimum withholding tax of 20% on interest payments, which Germany has
been trying to get through Brussels for years, because of widespread tax
avoidance by Germans using Luxembourg banks. The UK government has taken the
line that though it would not accept a uniform tax, it could live with the
proposal if an alternative could be to impose an obligation on banks to notify
the authorities in the residence countries of beneficiaries of interest
payments. a letter in today's FT points out that this is not just a threat to
the Eurobond market, as other correspondents had previously indicated, but
perhaps mainly to London's position as the interbank centre for
foreign-exchange and related derivatives dealings. it claims that the
administrative burdens of notification would be too great, and bank deposits
might move to centres such as New York or Hong Kong.

The City is certainly running scared since Frankfurt won back domination of
dealing on German Bund futures due to LIFFE's reluctance to abandon
open-outcry. However, it's hard to say whether the arguments against the
withholding tax proposals are justified or just hype - any views from the other
side of the pond? 

cheers

sol