Europe’s faltering bid to introduce a financial transaction tax has suffered a further blow as officials acknowledged little headway had been made in the past six months despite finance ministers in December setting a June deadline for a deal.

Work on the tax, known as an FTT, has been teetering on the brink since Estonia late last year pulled out of the club of 11 countries – which do not include Ireland – that had committed to apply it.

Estonia's withdrawal has taken the group perilously close to the threshold of nine governments required for talks to continue. Belgium and Slovenia have also wobbled in their commitment to the initiative, which is being heavily pushed by France.

Reservations

According to a June 2nd report prepared by officials in the EU Council of Ministers, nations still have key “reservations” about the structure of the tax, which the

European Commission

proposed in 2013 as a way to bolster national coffers and “temper irresponsible trading”. Ireland has not joined the group planning to introduce the charge, citing fears about the impact on jobs in the financial sector.

The original idea was that the tax would be set at a low rate and cover a wide range of trading in shares and derivatives, although that blueprint has shrunk as fears that the tax could damage market liquidity led nations to seek a variety of carve-outs.

Key differences

The report highlights that key differences remain on how to craft exemptions from the tax, including the problem of how to shield transactions in other non-participating EU countries such as Britain and Ireland. Other splits concern how to protect market-making activities by banks, and also what carve-outs should apply to derivatives used by traders to hedge risk when they buy sovereign debt.

“Further work at the Council and its preparatory bodies, both at technical and political level with all member states will be required,” the report concludes.

The exemption for non-participating countries is a crucial issue for UK chancellor George Osborne, who has repeatedly warned that Britain will sue in the European Court of Justice if the tax has any implications for the City of London.

– Copyright The Financial Times Limited 2016