BANKS operating in the European Union yesterday blasted French-German plans to push anew for a Europe-wide tax on financial transactions, saying the tax would be destabilizing, ineffective and costly to industry.

    Financial markets players said even if France and Germany could persuade all 27 European Union member states to adopt the tax — overcoming long-standing U.K. opposition — it would simply drive many transactions offshore to less-regulated financial centers.

    The Association for Financial Markets in Europe (AFME), which represents top banks, also worried the tax would hurt companies and crimp economic growth.

    “Many financial transactions are carried out on behalf of businesses that would bear the cost of the additional tax,” the AFME said.

    Shares in stock exchange operators took a hit after French President Nicolas Sarkozy and German Chancellor Angela Merkel unveiled the plan to tax financial trades.

    The pair, under pressure to restore confidence in the euro zone after a dramatic market slump, did not detail how such a tax would work. That did not stop Austria, Italy, Spain and the European Commission signalling they would support the idea.

    France and Germany were entering a period where they must win over other governments to their ideas, the German Government said, adding the tax would have to apply to all EU countries and not just those of the 17-member euro zone.

    France said its Finance Minister Francois Baroin would meet his German counterpart soon to discuss the plans.

    But a pan-European move would need agreement from Britain, the region’s biggest financial center and which is opposed to the EU going it alone. Some market players said they expected Britain would put an end to the effort, as it had in the past.

    “A pan-European transaction tax is not going to happen. This is just noise,” said a trader at an investment bank in London.

    Nevertheless, talk of the tax hit shares of Germany’s Deutsche Boerse, which closed down 5.8 percent. “The tax provides yet another incentive for transactions to move to jurisdictions where it is not applicable,” Deutsche Boerse said in a statement.

    Rival London Stock Exchange closed down nearly 3 percent, a move that followed an 8 percent slide in NYSE Euronext shares Wednesday.

    The British Bankers’ Association lobby group said: “The U.K. has taken the position that such a tax would only be viable if implemented on a global scale. Otherwise the consequences would be a distortion in the global markets.”(SD-Agencies)