'Tobin' tax may help Sarkozy, but not Europe

Nicolas Sarkozy's plan for a Tobin tax may help him politically, but it would do more harm than good for France, and for Europe.

Nicolas Sarkozy, the French president, has been talking up the old idea of a tax on financial transactions. This is a version of the so-called "Tobin tax", named for the Yale University economist who promoted the idea in the 1970s.

As a way of controlling the rapacity of currency speculators and the volatility of some markets, the Tobin tax was a bad idea back then and it remains a bad idea today. Both within and outside of France, many suspect that Mr Sarkozy has deployed the idea for another purpose altogether, namely to revive his re-election prospects, which have seemed poor as the April 22 first-round voting approaches.

French voters, like peoples around the world, are eager to get their hands into the pockets of the financial industry, an entirely comprehensible impulse in an era when speculation in fast-moving markets has in some cases spectacularly enriched the few at the expense of the many.

So it is no coincidence that as Mr Sarkozy talked up the Tobin tax before Monday's meeting with his German counterpart, Chancellor Angela Merkel, his polling numbers climbed, bringing him within striking distance of the front-running Socialist hopeful François Holland.

Mr Sarkozy wants the whole EU to apply a Tobin tax, but says France will go it alone if others are unwilling. And unwilling they are: The UK has already flatly rejected the idea, and others have come close.

Here's why: unless it is applied even-handedly worldwide, such a tax would simply push transactions to jurisdictions without the tax, damaging Europe's stock markets and financial houses while bolstering foreign ones. Such a tax would also push some transactions to the ill-regulated over-the-counter market, raise the cost of capital, reduce liquidity and otherwise clog up the arteries which deliver the world economy's lifeblood.

Meanwhile the tax would do nothing to solve the euro's basic problem: one currency and many fiscal policies. Nor would it help solve the immediate European crisis of sovereign debt - that problem demands spending discipline and growth, not still-higher taxes.

Even in France, the Tobin tax's prospects are slight: the business newspaper La Tribune, noting that there is no prospect of legislative approval of such a tax before the election, refers to Mr Sarkozy's proposal as "le grand bluff".

That's fine. This is an idea whose time has not yet come, and likely never will.