Sony Kapoor, Director of Re-Define & Peter Bofinger, Member of the German Council of Economic Experts
Dated the 30th of January 2012
THE CONTRACTING PARTIES………….
CONSCIOUS of the need to tackle the unprecedented social, political, economic, employment and institutional challenges confronting the Union, and
RECOGNIZING that promoting growth is the best possible way of rising up to these challenges, thus
DESIRING to kick-start growth in short-term and construct structures and implement policies that put the Union on a path of higher growth in the long-term, especially as only growth will create the economic and political space to enact the serious structural reforms the Union needs, and
The EU, in common with other major economies of the world, loses a significant amount of potential tax revenue every year to tax evasion and tax avoidance. Some EU-wide estimates are as high as 500 billion – 1,000 billion Euros annually.
This tax loss takes two major forms 1) domestic and international. Domestic tax losses come about when the taxable funds are not shipped overseas but stay within the country. This form of tax loss is on the decline as the increasingly electronic nature of financial transactions and an economy that is less and less cash oriented make domestic avoidance harder.
At the same time, tax flight, the loss of tax revenues related to cross border flows of funds, has been rising rapidly.
While the US has embarked on a significant overhaul of its financial system and China has been growing at a blistering pace, the EU is lagging behind both on financial reform and on kick-starting growth. We have been too busy fighting fires partly of our own making.
Meanwhile our new-found enthusiasm for austerity measures is sure to stoke even more fires and has already sparked widespread social unrest across the Union.
The EU's citizens are mature enough to understand the need for some belt-tightening, but they resent the fact that the financial sector that is responsible for our misery is getting away scot-free.
The world has woken up to an urgent fiscal challenge. Budget cuts will soon start to bite at home in Europe, while funding for international development and tackling climate change has already been cut. Meanwhile, the financial system that got us into this fiscal mess remains largely unreformed, with proposed changes largely neglecting the issue of systemic risks posed by financial markets in favour of ‘quick fix’ changes to the banking system. Even less has been done to align finance with the real economy.
Implementing a series of Financial Instrument Taxes (FITs) offers a highly flexible toolkit to help achieve progress on all three fronts. These are similar to, but broader than, the widely-discussed financial transaction taxes (FTTs), and can be tailored to the idiosyncrasies of particular markets. For example, more liquid markets in stocks, futures and certain derivatives will be taxed on a per transaction basis, whereas illiquid securitized products, mortgages and OTC derivatives would be taxed on issuance.
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The EU, in common with other major economies of the world, loses a significant amount of potential tax revenue every year to tax evasion and tax avoidance. Some EU-wide estimates are as high as 500 billion – 1,000 billion Euros annually. 
''Dear Ms. Merkel and Mr. Sarkozy,