Britain and U.S. Clash at G-20 on Tax to Insure Against Crises

ST. ANDREWS, Scotland — The United States and Britain voiced disagreement Saturday over a proposal that would impose a new tax on financial transactions to support future bank rescues.
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Times Topics: Group of 20

Prime Minister Gordon Brown of Britain, leading a meeting here of finance ministers from the Group of 20 rich and developing countries, said such a tax on banks should be considered as a way to take the burden off taxpayers during periods of financial crisis. His comments pre-empted the International Monetary Fund, which is set to present a range of options next spring to ensure financial stability.

But the proposal was met with little enthusiasm by the United States Treasury secretary, Timothy F. Geithner, who told Sky News in an interview that he would not support a tax on everyday financial transactions. Later he seemed to soften his position, saying it would be up to the I.M.F. to present a range of possible measures.

“We want to make sure that we don’t put the taxpayer in a position of having to absorb the costs of a crisis in the future,” Mr. Geithner said after the Sky News interview. “I’m sure the I.M.F. will come up with some proposals.”

The Russian finance minister, Alexei Kudrin, also said he was skeptical of such a tax. Similar fees had been proposed by Germany and France but rejected by Mr. Brown’s government in the past as too difficult to manage. But Mr. Brown is now suggesting “an insurance fee to reflect systemic risk or a resolution fund or contingent capital arrangements or a global financial transaction levy.”

Supporters of a tax had argued that it would reduce the volatility of markets; opponents said it would be too complex to enact across borders and could create huge imbalances. Mr. Brown said any such tax would have to be applied universally.

“It cannot be acceptable that the benefits of success in this sector are reaped by the few but the costs of its failure are borne by all of us,” Mr. Brown said at the summit. “There must be a better economic and social contract between financial institutions and the public based on trust and a just distribution of risks and rewards.”

At the meeting at the Scottish golf resort, the last to be hosted by Britain during its turn leading the group, the ministers agreed on a detailed timetable to achieve balanced economic growth and reiterated a pledge not to withdraw any economic stimulus until a recovery was certain.

They also committed to enact limits on bonuses and force banks to hold more cash reserves. But they failed to reach an agreement on how to finance a new climate change deal ahead of a crucial meeting in Copenhagen next month.

The finance ministers agreed that economic and financial conditions had improved but that the recovery was “uneven and remains dependent on policy support,” according to a statement released by the group. The weak condition of the economy was illustrated Friday by new data showing the unemployment rate in the United States rising to 10.2 percent in October, the highest level in 26 years.

The finance ministers also acknowledged that withdrawing stimulus packages required a balancing act to avoid stifling the economic recovery that has just begun.

“If we put the brakes on too quickly, we will weaken the economy and the financial system, unemployment will rise, more businesses will fail, budget deficits will rise, and the ultimate cost of the crisis will be greater,” Mr. Geithner said. “It is too early to start to lean against recovery.”

As part of the group’s global recovery plan, the United States would aim to increase its savings rate and reduce its trade deficit while countries like China and Germany would reduce their dependence on exports. Economic imbalances were widely faulted as helping to bring about the global economic downturn.

Mr. Geithner acknowledged on Saturday that the changes would take time but that “what we are seeing so far has been encouraging.”