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THE decision to hold a G-20 finance ministers meeting on the Scottish coast in the middle of winter was an "interesting idea". When we arrived at St Andrews, there was all the November weather we could want; rain and wind aplenty.
The prospect of spending the next couple of days stuck in a tent (all right, a marquee) overlooking the North Sea was grim. Even members of the local Fife police on security duty wondered what on earth we were thinking of. I was already writing clever script lines about windy economic weather and force gales blowing stock markets.
By morning, I was warming to my task, and the weather was playing along nicely. The sun had come out and so had my metaphors. Suddenly the G-20 was seeing sunny patches of economic growth with clouds on the horizon. Oh yes. There was plenty of room to allow this one to breathe.
But like the Scottish weather, what should have been a rather predictable G-20 meeting suddenly took a sharp, odd turn. A thunderstorm opened overhead - all because British Prime Minister Gordon Brown chose to mention the "transaction tax". The idea is simple: tax financial institutions like banks and investment houses on their activities.
The tax would prevent them from running unrealistic risks. The money raised would be used to pay for any future financial crises. It is getting the banks to pay for their own bailouts. Buying an umbrella before it rains, if you will.
The idea is often called "the Tobin tax" after the American economist who won the Nobel Memorial Prize in economic scieces and who first suggested taxing foreign exchange transactions in the 1970s. "Tobin taxes" have been proposed in various forms ever since. By raising it again, Brown set off a large storm on the G-20 horizon that threatens to blow a hole in any idea of unity.
Fiendishly difficult to implement
French Finance Minister Christine Lagarde liked the idea of "getting the banking system to provide for itself". Telling me that it is "quite appropriate" as a means of exploring a new project, Lagarde seemed most enthusiastic about the idea.
But the United States didn't agree. Fearing it would be a tax on Wall Street and harm the US financial sector, US Treasury Secretary Tim Geithner said a day-to-day tax was not something he would support. Instead, he said, the US "is looking at other ways... to put out a financial fire... where the financial system bears the cost".
If you are wondering why such a magnificent umbrella hasn't been introduced before, it's because the whole thing is fiendishly difficult in practice. According to Martin Redrado, the governor of Argentina's central bank, "it's a very nice idea that we economists in universities have studied in the last decade. And very difficult to implement."
He left me in no doubt. "When we get into the implementation and operational way, it is going to get into trouble." No one, it seems, can make it work.
So, is the transaction tax going to be like the Scottish early morning mist, destined to vanish as soon as the sun rises? Not just yet. The International Monetary Fund is now looking into how this might work. A report will be produced in time for next year's 2010 leaders' summit. The idea is destined to live on a bit longer because it has a wonderful natural justice aspect that appeals to politicians.
Getting the bad boys to pay for future mistakes has a delicious quality of retribution in advance. Like the thrifty Scots, it has an air of making the banks put aside something for a rainy day. After all, November rain in Scotland and costly misdeeds in the financial world are two things you can bank on. Where is my umbrella?
- Fin24.com
Tune in to Richard Quest's Quest Means Business each weekday on CNN at 21:00.
