Brussels, 6 April 2010
Commission services issue an analysis of the main innovative financing options
The European Commission services published today a staff working document assessing the main sources of innovative financing under discussion. The analysis shows that for some of the instruments a "double dividend" of both raising revenues and improving market efficiency and stability could be reaped, in particular by putting a price on risk-taking in the financial sector and on carbon emissions. It also emphasises that global coordination will be essential for a successful implementation of most instruments of innovative financing. It shows, however, that actions at the EU level alone should not be discarded.
Olli Rehn, EU Commissioner for Economic and Monetary Affairs, said: "Fiscal consolidation is necessary for sustainable growth and job creation. Therefore, the revenue potential of innovative financing needs also to be explored."
Michel Barnier, EU Commissioner for Internal Market and Services, said: “The financial sector needs to contribute to the costs of financial stability. This should be one of the building blocks in our effort to set up a crisis management framework in Europe"."
Algirdas Semeta, EU Commissioner for Taxation and Customs Union, said: “The considered innovative financing mechanisms provide a choice of modern tools which can serve multiple purposes such as improving the efficiency of markets, ensuring stability in the financial sector as well as fight against climate change."
The Staff Working Document assesses the potential of innovative financing at a global level related to the financial sector, climate change and development in order to help identify the most promising options. At its meeting of October 2009, the European Council had invited the Commission to examine innovative financing at a global level. The European Parliament also asked the Commission in March 2010 to assess the impact of a global financial transactions tax, also in comparison to other potential sources of revenues. Furthermore, the G-20 Leaders asked the IMF to prepare a report on how the financial sector could make a fair and substantial contribution toward paying for any burdens associated with government interventions to repair the banking system.
The global economic and financial crisis has created important needs for fiscal consolidation in EU countries and around the world. In addition, resources must be found to meet key global challenges with significant budgetary implications in the areas of financial stability, climate change and development.
While reductions in expenditure and improvements in existing tax systems should be the main response to these fiscal and global challenges, new non-traditional ways of raising public finance – 'innovative finance' - can make a significant contribution.
Global coordination will be essential for a successful implementation of most instruments of innovative financing, which underlines the importance of participation by other relevant key players, many of them members of the G-20. Actions by the EU alone would be less effective but could be considered, particularly if there are good reasons to expect that an EU role of global leadership would be followed by other key countries. For many of the innovative financing instruments uncoordinated action by individual countries could create considerable problems.
The assessment shows that there are some instruments where a significant "double dividend" of both raising revenues and improving market efficiency and stability could be reaped. There is also further scope for the pricing of carbon emissions, in addition to the Emission Trading Scheme (ETS), through a better coordination at EU level of the application of carbon tax components in existing energy taxes. Regarding innovative financing related to development, the proposed and existing instruments have some potential for further implementation and scaling up.
The document is available at: