GBP EUR Exchange Rate Threatened as Ten EU States Announce Tobin Tax & UK Appears Increasingly Isolated

Modified: Wednesday, 24 October 2012 09:07 BST - Written by James Fuller

STORY LINK GBP EUR Exchange Rate Threatened as Ten EU States Announce Tobin Tax & UK Appears Increasingly Isolated

The UK is increasingly looking like the eurozone’s poor relation following yesterday afternoon’s announcement that ten of Europe’s leading economies are to set in motion plans for an ad valorem tax on financial transactions. The group of ten includes the region’s economic powerhouses of Germany and France, as well as debt-burdened Spain and Italy. The so-called Tobin Tax will be introduced in spite of vehement protests from several EU member states including the UK, which feared the damaging effects which the tax might have on the City of London’s financial services sector. The rationale behind the tax lies in the eurozone’s desire to stabilise the economies of debt addled states including Greece, Portugal, Ireland, Italy and Spain. The billions of euros worth of revenue which the tax raises will help to bolster the region’s sizeable bailout fund. Following UK Prime Minister David Cameron’s recent threats to veto the eurozone’s next budget due to his government’s concerns over the size of annual payments which Britain will be obliged to send to Brussels, yesterday’s development further reinforces the impression that the UK is considering a fully-blown political split from mainland Europe.

Meanwhile, there was further disappointing news for Britain yesterday, with the release of Office of National Statistics data which revealed that, in real terms, the average level of UK household income has tumbled by a startling 13% since the advent of the global credit crisis. The contraction of world credit markets appears to have hit the UK particularly hard, partly thanks to Britain’s heavy reliance on a buoyant housing sector in order to promote economic growth. The Conservative / Liberal Democratic government’s stringent austerity measures, which were instigated almost immediately after they formed the UK’s current government in 2010, have also served to diminish living standards for the average Briton. The Pound has suffered pronounced selling pressure against the majority of the majors in recent weeks and is badly in need of a fillip in the form of an encouraging set of Q3 GDP growth figures tomorrow morning.

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