Brown and Sarkozy move to fund climate aid with global banking tax

An EU summit in Brussels sought to boost the chances of a deal further by also pledging €2.4bn a year from January
Ian Traynor in Brussels
guardian.co.uk, Friday 11 December 2009 16.58 GMT
An international campaign to force the financial sector to pay for saving the planet from global warming was boosted yesterday when France joined Britain in championing a new global regime of so-called Tobin taxes on financial market transactions. The billions in potential proceeds would be earmarked for long-term measures to tackle global warming.
Days before the Copenhagen climate change conference reaches its finale with the arrival of Barack Obama and more than 100 other world leaders, an EU summit in Brussels sought to boost the chances of a deal further by also pledging €2.4bn a year from January in "fast-track" funds to help the world's poor countries cope with rising seas, floods and famines.
The figure agreed saw Gordon Brown almost double Britain's pledge from £800m to £1.5bn, apparently making the UK Europe's single most generous donor.
The figure was higher than expected and part of a broader package from the industrialised countries around the world tipped to total €7bn a year for the next three years.
Financial transfers from rich to poor are a make-or-break issue in Copenhagen and the EU move was described as "hugely encouraging: by the UN climate chief Yvo de Boer. "One of the things that has been holding this process back is lack of clarity on how short-term financial support is going to be provided to developing countries," he said.
European leaders fear that beyond the short-term funding, there could be gridlock over the scores of billions needed for transfers to the poor countries in the longer-term, condemning Copenhagen to failure, triggering unrest in the developing world and an international crisis.
Amid such fears, the Brussels summit for the first time combined action on climate change with moves to fashion a more stable global financial regime as the response to recession sparked by meltdown in the markets.
The prime minister, Gordon Brown, and French president, Nicolas Sarkozy, jointly spearheaded the campaign after weeks of scrapping between the pair over the allocation of top EU jobs. In a joint statement, they said London and Paris would collaborate on proposals for a new global levy on financial transactions: "To ensure predictable and additional finance to 2020 and beyond, we should make use of innovative financing mechanisms, such as the use of revenues from a global financial transactions tax."
"Nicolas Sarkozy is one of my best friends. We work closely together on all the major issues," said Brown standing alongside the French president. "Don't tell us about the need to get on together," responded Sarkozy. "It's years since we've seen such entente."
On Thursday Paris announced it was emulating Chancellor Alistair Darling's announcement 24 hours earlier of a windfall tax of 50% on bankers' bonuses of more than £25,000.
Sarkozy stressed yesterday that no country could act alone in imposing such penalties and called on others to join in. "We can only tax them if we tax them both sides of the Channel," said Sarkozy
The banker-bashing is seen as a popular move to punish those most identified with the financial crash, and who benefited from colossal taxpayer bail-outs. But a bonus tax will not produce fiscal returns that match its political impact.
A global levy on financial transactions, however, would generate vast sums. Chancellor Angela Merkel of Germany supports the levy and the EU summit of 27 government leaders also voiced tentative support for the policy. In language inserted at the last minute, they "encouraged" the International Monetary Fund to examine the feasibility of the levy.
Brown claimed the credit for initiating the idea and rejected objections it was a non-starter because of opposition from the US Treasury. In order to work, the financial transactions levy would need to be global. Brown, Sarkozy and other European leaders are pushing for the policy to be discussed and refined at international financial meetings in the spring in South Korea.
"People are saying we need a better relationship between the banks and the societies they serve," said the prime minister. "There has been a growth in support for this idea."
Jose Manuel Barroso, the president of the European commission, said that the scale of the sums involved in paying for climate change is so huge that it is well beyond the scope of traditional national budgets. "You need to look at innovative financing. This is an issue of global governance."
Brown and Sarkozy reiterated estimates that climate change policies will cost €100bn a year from 2020 in transfers from the rich to the poor worlds. But Obama has told European leaders that he cannot accept the €100bn figure as he would never get it passed in the US Congress.
The EU also emphasised its willingness to cut greenhouse gases by 30% by 2020, compared to 1990 levels, if the rest of the world signs up to a sufficiently ambitious package in Copenhagen. The EU is currently committed to 20% cuts by 2020 but Brown told the Guardian this week he favoured the higher target.
While the fast-track fund agreed yesterday was bigger than anticipated, it was unclear where all the money was coming from and whether existing aid budgets would be raided and recycled into climate change money.
Tim Gore, Oxfam's EU climate change policy adviser, said: "EU leaders only offered small sums of short-term cash. Worst of all, this money is not even new — it's made up of a recycling of past promises, and payments that have already been made."
Brown appeared to concede that some of the short-term funding would be diverted from aid and development budgets, but added that in the medium-term "we don't want this to be at the expense of our international development goals."