France pulls punch on financial tax The financial transaction tax announced by President Nicolas Sarkozy and due to be introduced in France in August falls well short of the scope of a Europe-wide levy proposed by the European Commission and vigorously backed by Paris. Mr Sarkozy insisted on Sunday that by taking the lead on introducing an FTT, France would provide a "shock" to push other European countries into signing up to a full-blown tax covering the gamut of financial transactions, which the president wants to see adopted at least by all 17 members of the eurozone. "[This tax] will allow us to show to those that are reticent that an FTT is feasible, does not have perverse effects and responds to two issues: the excesses of finance and the financing of development," François Fillon, the prime minister, said on Monday. Mr Fillon said the proposal would cover "naked" sovereign credit default swaps - instruments that offer insurance on sovereign debt without holding the underlying asset - and high frequency equity trades. He called them "the most speculative activities in the financial markets." But it will otherwise be limited to the purchase of shares in companies quoted on the Paris bourse and will be levied at 0.1 per cent, well below the 0.5 per cent "stamp duty" tax in place in Britain - the strongest opponent of an FTT. The French tax will raise just €1bn a year, much less than the British measure. Excluded by the government were trading in sovereign and private sector bonds and derivatives, which are included in the European Commission proposals. The commission has estimated that a full FTT, levied at 0.1 per cent on share and bond trades and 0.01 per cent on derivatives, would raise €54bn across the 27 members of the European Union, of which €7bn would be raised by France. One tax expert said it was not clear how the measures would be applied, including how the tax would be applied to purchases of French shares by a non-French actor in a non-French location. It was also unclear how the levy on French equity purchases would be applied in high frequency trading, where the vast majority of activity in Europe was in London. Despite Mr Sarkozy's determination to pioneer the FTT, he clearly recognised that going beyond a limited scope unilaterally, a move strongly opposed by the French financial sector, would risk driving financial business activity out of France. The new proposals allow him at least to claim that he is fulfilling a long-made promise ahead of the presidential election in April. But doubts remain over the introduction even of the limited tax, which is not due to take effect until well after the election. There was a muted reaction on Monday from French financial institutions. Arnaud de Bresson, head of Paris Europlace, which represents Paris as a financial centre, said discussions were going on with the government about implementation. "We want a level playing field," he said.