MNI EXCLUSIVE: EU Transaction Tax Push Wins Southern Support

--Some Southern EU States Back Franco-German Transaction Tax Push

--Convergence Fund Could Be Boosted To E25 Billion

By David Thomas

     BRUSSELS (MNI) - France and Germany will have the support of some southern

euro states in their push for a European-Union-wide Financial Transaction Tax to

help finance a proposed E22bn competitiveness and convergence fund for the

single currency area when Eurogroup finance ministers meet in Brussels on May

16, officials told MNI.

     The existing French levy could serve as a model for an FTT, an idea which

only eventually received the backing of 10 EU countries after it was first

proposed in 2011, in what look like the most difficult discussions to date on

strengthening the governance of the euro zone, sources said.

     But the Hanseatic Group - led by states like The Netherlands, Finland and

Estonia - want to pay for the competitiveness and convergence fund from the

existing EU budget. A third group, centred around Central and Eastern European

states, is mainly concerned by the potential diversion of EU payments which

might otherwise go to them via the EU's cohesion and regional funds.

     Paris and Berlin had been split on the scope and role of the proposed new

fund initially, with French President Emmanuel Macron pushing for a

crisis-fighting policy instrument capable of macroeconomic stabilisation in the

wake of another financial crisis. German Chancellor Angela Merkel managed

expectations down to a fund worth around E22 billion focused on convergence and

competitiveness.

     One EU source familiar with the Eurogroup discussions mooted the

possibility that the fund might yet get "tuned up" to around E25 billion" but

made clear that ideas of a macro-level crisis-fighting fund can now be safely

dismissed.

     Talks were likely to be difficult, the source said: "Previous discussions

covered expenditure and governance - i.e. the role of the European Semester,

Commission, Eurogroup and EU Summit - who guides the decisions and who allots

the money."

     "This time it's about where we get the money from," the source said.

     "Do we get the money from the MFF (Multiannual Financial Framework/EU

Budget) or other external sources?"

     Officials agree that Brexit has further sharpened the arguments between

member states on this topic.

     "Brexit is a big complication in this process," another source said.

     "We're adding a big new policy instrument but with one less big

contributor."

     Officials believe that the issues are so fraught that the next Eurogroup

meeting will be able to do little more than "map out the problems" and that

ultimately it will be up to EU leaders at the June EU summit to find a political

way forward.

     The Euro Working Group continues two days of discussions today to prepare

the agenda for the May 16 Eurogroup meeting.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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