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Merkozy open to eurozone FTT

Monday 9 January 2012 - by

Angela Merkel and Nicolas Sarkozy - photo by European Commission
Germany and France have shown the first signs they may be willing to introduce a eurozone-only financial transaction tax if they cannot secure the backing of all 27 EU countries.

French Prime Minister Nicolas Sarkozy and German Chancellor Angela Merkel, who together have battled vigorously for an FTT to be applied to all 27 member states, told a press conference on Monday that they continued to support the levy's introduction.

However, Merkel admitted that the pair would keep their options open if they were unable to convince their European neighbours to implement the levy.

"I will personally support it," she told a press conference following a two-hour meeting with Sarkozy. "If we don't succeed in convincing the 27, which would be better anyway...then we have to think about what we can do."

"Germany and France both believe the financial transaction tax is the right answer."

British Prime Minister David Cameron has been the fiercest opponent of the FTT, which he has labelled a tax on the city of London. Speaking on Sunday, Cameron reiterated that he would block an EU-wide FTT if it was proposed during a European summit at the end of January.

The European Council requires unanimity in order for the tax to be implemented across the whole of the EU.

Sarkozy told the press conference that he remains "fully committed to the principle of a tax". Over the weekend French press have speculated that the country might take the unprecedented step of implementing the tax before their European counterparts, with Sarkozy admitting "if we don't set a good example, it won't happen".

"We believe that this [implementing the tax] will set in motion a dynamic within the eurozone which will give all member states an opportunity to implement this tax," he added.

Merkel added that a private sector rollover of Greek debt must be put in place "quickly" to ensure that the embattled country receives its next debt tranche.

Investors had agreed in principle to rollover 50 per cent of their Greek debt holdings in an effort to reduce Greece's debt-to-GDP ratio to around 120 per cent from the current 160 per cent.

There have recently been suggestions that this figure may still prove too small to prove effective.

Richard Driver, an analyst at foreign exchange company Caxton FX, warned that negotiations over the rollover were likely to drag on despite Merkel's call for urgency.

"The chances are this Greek tragedy will go right down to the wire and it will be a case of who blinks first," he said.

"A Greek default beckons if the next tranche of aid under the first Greek bailout isn't released, so the pressure is really going to intensify in the next few weeks."

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