Financial-transaction taxes: Skimming the froth TAXING finance is easier for European politicians than taking responsibility for it. This week saw fraught all-night talks among EU finance ministers on a common euro-zone bank supervisor - and overwhelming support in the European Parliament for plans by 11 EU states to pioneer a harmonised financial-transactions tax (FTT), starting in 2014. The aim of the FTT is to generate revenue and to reduce systemic risk by dampening excessive trading. Hungary, and perhaps Spain and Italy, may impose their own FTT earlier, in January 2013. France is already partly there. In August it slapped a 0.2% tax on the purchase of shares in French firms with a market capitalisation of over €1 billion ($1.3 billion), among other things. The French government has projected revenues from its FTT at €170m this year and €500m next. November 9th was the first tax-collection date. The EU countries planning their own FTT are keen to know how the French are doing. But so far there has been a deathly hush from the French Treasury and from Euroclear France, the central securities depositary which is acting as tax collector. But analysts are beginning to draw some tentative conclusions. French equity trading has not fallen off a cliff: volumes dipped in August, then recovered somewhat in September. But trading activity in French equities across Europe fell by 16% in the three months after the tax was applied compared with levels in May to July, notes Equiduct, an electronic-trading platform. That is a notably bigger drop than was seen for other European stocks. The fall was deeper in lower-capitalised stocks subject to the FTT; trading in stocks not subject to the tax actually rose by 19%. This suggests that the tax has changed investment patterns to the detriment of mid-sized firms. Research by Credit Suisse shows a similar pattern (see chart). That could act as a warning for countries contemplating an FTT that also want a healthy market for smaller stocks. In Austria, where all the political parties support an FTT, the Vienna Stock Exchange sees the proposed tax as a threat to dwindling liquidity in Vienna - and even more so to its clutch of affiliated exchanges in Prague, Budapest and Ljubljana. "We would like an FTT to concentrate on over-the-counter products rather than exchange-traded ones," says a spokesman. There are differences between the French tax and the proposed EU one, which aims to tax financial institutions a minimum of 0.1% on purchases of shares, bonds and other securities, and a minimum of 0.01% on the notional amount of derivatives traded either on- or off-exchange. But the early evidence will reinforce the scepticism of countries like Sweden and Britain, which opposes a new FTT unless it is part of a wider global effort. They see too many potential loopholes. Investors may already be getting around the French FTT via futures and other derivatives, ploys long used to circumvent Britain's share-purchase tax. They also point to unhappy previous experiences with FTTs. A recent Bank of Canada report went through a litany of cases, including a tax imposed by New York state from 1905 to 1981 and a Swedish tax imposed in 1984, and found that all seem to have raised volatility and reduced liquidity. Then again is liquidity really so sacrosanct? Statistics from the Federation of European Stock Exchanges show that, on an average day in 2011, there were 6.3m equity trades, of which only 142,000 resulted in stock being delivered to a beneficial owner.