Financial interest in a corporatist political economy: The case of the Financial Transaction Tax

Financial interest in a corporatist

political economy

The case of the Financial Transaction Tax

Amber Klompmaker

Name:

Amber Klompmaker

Student number: s1360949

Date:

12/08/2018

Supervisor: Natascha van der Zwan

2nd reader: Alexandre Afonso

Public Administration: Economics & Governance – Faculty of Governance and

Global Affairs, Leiden University

Table of Contents

1. Introduction ... 3

1.1 The Financial Transaction Tax ... 3

1.2 Political context ... 3

1.3 Theoretical insights ... 4

1.4 Research question ... 5

2. Theoretical framework ... 7

2.1 Introduction ... 7

2.2 Structural and instrumental power theory ... 7

2.3 Noisy and quiet politics ... 10

2.4 Combination of both theories ... 11

2.4.1 Limitations of the theories ... 12

2.4.2 Dutch corporatism and structural power ... 13

2.4.3 Alternative model ... 14

3. Methodology ... 16

3.1 Introduction ... 16

3.2 Case selection ... 17

3.3 Data analysis ... 18

3.4 Data collection ... 19

3.5 Validity and Reliability ... 22

4.

Case description ... 23

4.1 Introduction ... 23

4.2 The crisis and its effects on financial sector regulation ... 23

4.2.1 The global financial crisis ... 23

4.2.2 The Greek crisis ... 24

4.2.3 The idea of a European Financial Transaction Tax ... 25

4.3

Interaction business and politics ... 26

4.4

Opposing the FTT and the enhanced cooperation ... 30

4.4.1 Enhanced cooperation ... 31

4.4.2 Compromising on the FTT ... 31

4.5 Chronological table ... 33

5. Analysis ... 35

5.1 Introduction ... 35

5.2 Salience ... 35

5.3 Politics vs. Business ... 37

5.4 An alternative explanation ... 38

6. Conclusion ... 40

7. Bibliography ... 42

1. Introduction

1.1 The Financial Transaction Tax

The European Financial Transaction Tax (FTT) is a proposed tax on financial transactions between financial institutions. The tax is levied on trades in stocks, bonds and other financial instruments like derivatives. The FTT is not the same as the tax on banking activities that has been introduced in the Netherlands in 2012 (Wet Bankenbelasting). The rationale for the European FTT is that the financial sector should pay back the EU member states for the state aid that has been provided after the 2008 financial crisis. The second goal of the proposed FTT is to harmonise the existing taxes on financial institutions of EU member states and thereby strengthening the single market of the European Union. The tax that would be levied consists of a 0.1% tax on the transactions of shares and bonds and a 0.01% tax on the exchange of derivative contracts (European Commission, 2011).

1.2 Political context

On October 23, 2011, the Dutch Parliament debated the possibility for a Financial Transaction Tax Directive to be implemented in the European Union. Ronald Plasterk, member of the House of Representatives from the social democratic party PvdA, asked the Prime Minister Mark Rutte, from the liberal party VVD, what the cabinet’s position was regarding the Financial Transaction Tax. Rutte responded that the cabinet supports a Financial Transaction Tax providing that all member states implement the tax (Rutte, 2011). Shortly after this debate, the Dutch minister of Finance from the Christian-democratic party CDA, Jan-Kees de Jager, joined a meeting of the Eurogroup and Ecofin Council. The Ecofin Council is short for the Economic and Financial Affairs Council. The Ecofin Council is responsible for European Union policy in the areas of taxation, economic policy and regulation of financial services (European Commission, 2018). At the meeting, the minister was neutral regarding the implementation of the FTT (De Jager, 2011, p. 4).

When the EU negotiations about the FTT progressed, however, the Dutch cabinet withdrew its support for the implementation of a European FTT. Elections took place in the meantime and a new cabinet was formed. The new cabinet consisted of a coalition between VVD and PvdA. The Dutch government described its hesitant position towards the implementation of a European FTT in its coalition agreement in 2012. In the agreement the coalition stressed the importance of a healthy financial sector and a close European cooperation. However, the coalition parties stipulated the following conditions for adopting the FTT (VVD & PvdA, 2012, p. 11):

1. Dutch pension funds would have to be exempted from the FTT; 2. There is no disproportionate overlap with the current bank tax, and; 3. The revenue of the FTT will flow back to the European member states.

The Dutch government was not the only government opposing the FTT, as proposed by the European Commission. The United Kingdom only supports a global implementation of the FTT, and therefore opposed the European Commission’s proposal for a FTT in the European Union (BBC, 2011). Also Sweden, a country that shortly had a FTT in 1984, opposed the FTT (Tweede Kamer, 2011b). Countries that did support the FTT were, amongst others, Germany and France (Rutte, 2011).

After negotiations on the first FTT proposal failed, the European Commission approved requests for enhanced cooperation on a FTT by eleven member states that wished to implement a tax on financial transactions (European Commission, 2012). The Dutch government decided not to join the enhanced cooperation as long as the conditions stated above were not met.

The quick change of opinion of the Dutch government begs the question: why did the Dutch government decide to opt out of FTT negotiations?

1.3 Theoretical insights

This research will investigate the role of the financial industry, often supported by financial industry groups, in influencing the policy outcome of the FTT in the Netherlands. Social scientists have often pointed at the power of the financial industry to explain policy outcomes. A seminal theoretical contribution in the field of social science suggests that in the policy process of financial regulation, the financial industry holds an important position. Charles Lindblom (1977) suggests that the financial industry holds structural power over policymakers due to the fact that they are the key holders of capital and instrumental power because of their capacity to make donations to political campaigns and their access to policymakers. Because capital is assumed to be mobile, financial institutions can threaten the government with exiting the market. This is known as capital flight. Pepper Culpepper (2010) points out exogenous factors that influence the power that the financial industry holds. He argues that if politics is quiet, policymakers are more likely to serve the interest of the financial industry. However, when politics is noisy, for instance during a financial crisis, financial institutions are less successful in advocating their interests.

The theoretical insights will be applied on the Dutch case of the European FTT. The case of the Dutch negotiations on the FTT provides for an interesting case because the institutional elements in Dutch public policy challenges the theoretical claims described above. First, due to the structure of the Dutch finance the possibility to exit the jurisdiction is not always given. The Netherlands is known for its extensive welfare state, in which laws and regulations exist that prevents funds from exiting the market. The mandatory participation of employers in sectoral pension funds is an example of the Dutch welfare state (Wet verplichte deelneming in een bedrijfstakpensioenfonds 2000). This decreases the structural power that the financial industry holds over politics. Second, the

Netherlands has a strongly anchored corporatist system, which provides employees and employers organisations with a strong position in the creation of public policy (Keune, 2016, p. 9). This institutional feature enhances the instrumental power that business organisations and labour unions hold over politics. These institutional features change the power dynamics in Dutch policy processes. The Dutch government does not intend to implement the FTT in the Netherlands as long as the conditions stated in the previous paragraph are not met. This political decision is therefore in favour of the Dutch financial industry and the organisations that serve their interests. This study will research to what extend financial industry lobby activities influenced the political decision making process.

1.4 Research question

The case described above shows the decisions made by the Dutch government. The influence that the financial industry had on this decision is less visible. Assessing the influence of business in policy processes is important, especially in democratic political economies. The meaning we attribute to democracy is that policy and politics reflects the will of the voters. When business exercises substantial power over politics, this might not hold. Determining the power that business holds over politics might lead to insights on the desirability of that influence. This leads up to the research question of this thesis:

How do financial interest groups influence financial policy-making?

The analysis of the relation between politics and business in the case of the FTT negotiations focuses on the causal factors that led to the outcome. It is important to assume that context, like the institutional factors mentioned, matter for the outcome of the case and that an outcome in policy can be the result of more than one cause. A method of analysis that allows for investigating these assumptions is process-tracing. Process-tracing allows us to understand mechanisms that connect causes to an outcome based on theoretical implications and empirical evidence. Fundamental for the creation of the causal mechanism is the search for necessary and sufficient conditions that link the different causes to an outcome (Blatter & Haverland, 2012, p. 80). For this thesis, a causal mechanism is created that shows the necessary and sufficient conditions that resulted in the outcome of the Dutch case of the FTT.

The main findings of this thesis suggest that the way representatives of financial organisations influence politics depends on the possibility for them to exit the market. If the capital of financial organisations is mobile they will exercise their structural power. In the political decision making process, the Dutch banking sector did not actively lobby against the FTT. When minister De Jager

announced that the Netherlands would not participate in the European FTT he did however mention the capital mobility of Dutch banks as a reason not to support the European FTT (De Jager, 2012). When financial organisations do not have the possibility to exit the jurisdiction, they will resort to instrumental power. The extensive lobby activity from pension funds showcases this instrumental power.

This thesis uses a document analysis to study the influence of the financial industry on political decision-making. The primary sources used are government documents, parliamentary documents and financial interest group position papers and publications. These sources provide for a ‘comprehensive storyline’ of the political decision-making process of the European FTT. Moreover, the primary sources reveal actors’ motivations. In addition to the primary sources also newspaper sources are used for the ‘comprehensive storyline’ and triangulation of the primary sources.

Chapter two of this thesis will elaborate on the theory of noisy and quiet politics and the theory on structural and instrumental power. The chapter concludes with an intervention in the two theories, resulting in a visualised mechanism. This is followed by the methodological chapter that elaborates on the research design. After the methodological chapter the case of the European FTT will be described. The chapter starts with the event that led to the introduction of the European FTT proposal, the financial crisis of 2008, and describes important events in the decade following the financial crisis. After the case description, chapter five analyses the case of the European FTT and tests the results against the theoretical mechanism. The final chapter contains the results of the thesis and concluding remarks.

2. Theoretical framework

2.1 Introduction

The relationship between business and politics has been widely studied in the field of political and policy sciences. Almost five decades ago, the study of structural and instrumental power gained popularity through research by Charles Lindblom who described the privileged position of the financial industry due to the fact that it holds private capital that states depend on to a great extend (Lindblom, 1977). This source of power is called structural power. Lindblom distinguishes structural power from instrumental power, which describes the power that business holds due to the close relations they maintain with policymakers or the financial resources they contribute to political campaigns. Although the structural power theory faced a lot of criticism due to its somewhat functionalist character, recent studies have revived the theory in order to explain contemporary social phenomena (Culpepper and Reinke, 2014, Hindmoor and McGeechan, 2013).

A different view on the influence that business has over states and their politicians focuses on the surrounding determinants. Culpepper focuses on surrounding determinants like the salience in political dynamics. This theory on noisy and quiet politics indicates that financial interest group success is unlikely if media coverage and public attention is high. By focusing on the agenda-setting stage of policymaking, the theory on noisy and quiet politics explains why certain issues are placed on the political agenda and others are not (Culpepper, 2011). While Culpepper (2011) points out political salience as the determining factor in the agenda-setting stage of public policy, John W. Kingdon applies a broader approach. His research indicates that problem recognition, solution development and the presence of policy entrepreneurs are determinants of the agenda-setting stage (1995, p. 165).

These two theories are based on different variables, but this does not mean that they are irreconcilable. In this theoretical framework I will first explain structural and instrumental power theory and the development of the theory throughout the years. After that, I will describe the theory on noisy and quiet politics. The third paragraph will contain an attempt to combine the two arguments into one coherent model. The reason for the intervention in the existing literature is the fact that the theories predominantly focus on Anglo-American features. I argue that these mechanisms work differently in a corporatist system like the Netherlands.

2.2

Structural

and

instrumental power

theory

The study of structural power gained popularity through its introduction by Charles Lindblom in 1977. Lindblom described the relationship between representatives of corporate enterprises and government officials. He argued that in market-oriented systems important economic factors as jobs,

economic growth and production lie in the hands of business and not in the hands of the government, even though these factors are of great public importance. Governments wish to stimulate the economic factors in order to provide for a certain standard of living and economic growth. Government officials are not able to command that businesses perform. However, they are able to induce business performance for instance by providing enticing tax rates to make investments attractive for corporates. Lindblom defines this relationship characterised by mutual dependency as the duality of leadership (1977, p. 174).

Lindblom formulated structural power as the power that firms hold over the advanced industrialised states they operate in due to the fact that they are the holders of capital. Lindblom argues that those states are dependent on that capital for economic growth. Firms can exercise their power by simply sitting on their money instead on investing it. Their power is derived from the threat they can pose against the state i.e. the possibility to exit. The automatic nature of structural power lies in the expectation that policymakers anticipate that financial reform restricts investment opportunities and they therefore do not initiate certain policy options in the first place. Thus structural power does not entail active intervening of the financial industry itself. In this theory, structural power is distinguished from instrumental power. Instrumental power of the financial industry was traditionally defined as the capacity to make donations for political campaigns and have lobbying organisations that have access to influential policymakers (Culpepper and Reinke, 2014). Instrumental power is therefore a more active form of power that business holds. Lindblom does not argue that business always wins due to the structural power that business holds (1977, p. 192). However, he does not provide clear conditions that make the failing of business more likely. Over the years, the theory on structural power lost in popularity among scholars of social sciences. Numerous scholars criticised Lindblom’s research because the theory lacked in providing explanations for why financial interest groups sometimes win and sometimes lose (Vogel, 1987, Smith, 2000). Vogel argued that financial interest groups are not substantially different from other interest groups (1987) and that the structural power of all those interest groups is shaped by the economic cycle (Vogel, 1989). Hacker and Pierson (2002) suggested that the structural power is shaped by institutional changes. Both Vogel and Hacker and Pierson do not agree with Lindblom that structural power is an independent force that financial interest groups hold regardless of economic, institutional and political variables. Finally, Culpepper (2015) claimed that defining structural power as an automatic force, although compelling, is empirically very difficult to falsify. Since the financial crisis of 2008, the concept of structural power has attained renewed attention in the field of social sciences. Structural and instrumental power has been re-conceptualised in order to

explain events that took place during or after the financial crisis. Changing relations between the financial industry and political sphere provided for empirical data to test certain theories regarding the relation between regulators and financial institutions in political economies. A study by Culpepper and Reinke (2014) differentiated capitalistic structures based on the internationalisation of their markets. Culpepper and Reinke (2014) define structural power as the possibility for capitalists to influence politics by their ability to allocate capital to different jurisdictions. This angle of structural power provides explanation for the different outcomes in bank bailouts for the United Kingdom and United States in the bailouts of banks during the financial crisis in 2008. Culpepper and Reinke (2014) state that United States banks were less successful in influencing the bail outs because the banks relied more heavily on domestic markets and were not able to threaten policymakers with the possibility to reallocate their capital. British banks differ from American banks because their profit making abilities rely on the international market more than on their internal market. This means that British banks had greater possibilities to allocate their capital abroad, providing for a better bargaining position. Moreover, Culpepper and Reinke (2014) argued that instrumental explanations for policy outcomes have not played an important role during the bank bail-outs. If instrumental power had been an independent explanatory factor, American banks would have had bailouts that are more favourable to the financial industry because of the generous donations the financial industry made to political campaigns in the past.

Culpepper and Reinke (2014) thus move away from the strictly automatic function of structural power. The authors claim that capital itself is not always a source of power. The way capital is invested is of great importance for the power that financial institutions hold over governments. This power is greater when financial organisations depend less on domestic return and is weaker when the industry predominantly depends on domestic return. The study claims that differences in the capitalist make up of countries reflect in different degrees of structural power (Culpepper & Reinke, 2014, p. 447). Hindmoor and McGeechan (2013) view the relationship between structural and instrumental power differently. The authors state that American and British banks being ‘too big to fail’ was in fact an important source of their structural power, because not bailing out banks would potentially have led to great public losses. However, the authors argue that the structural power position held by banks was derived from the instrumental power that the financial industry attained prior to the crisis, using successful lobbying strategies such as donations to political campaigns (Hindmoor and McGeechan, 2013, p. 844). Therefore, structural power does not exist without instrumental power as its basis (Hindmoor and McGeechan, 2013, p. 847).

Scholars have also studied variation in structural and instrumental power in relation to economic circumstances. Scholars disagree on the effect of a crisis on the power that business has over politics. Smith (2000) argues that structural power is the strongest during economic downturns. When a political economy faces an economic crisis, politicians will need to take action in order to stimulate economic growth. Politicians will be more dependent on business and cannot afford policies that will lead to a decrease in investment (Smith, 2000, p. 148-149). Other social scientists have demonstrated that structural power of business is weak during a financial crisis (Vogel, 1987, Hacker and Pierson, 2002, p. 297). Vogel (1987) refers to the weakened ability of business to influence politicians during the Great Depression. During that crisis unemployment rates were already high and threats of businesses to decrease employment even further due to stricter regulation was not taken seriously (Vogel, 1987). Vogel point out that the reason for this weak position can be found in the fact that business was blamed for the Great Depression (1987, p. 394).

In addition to the constraints mentioned above the traditional argument of structural power does not account for institutional and ideational changes that might affect structural power. Many social scientists have sought for explanations for the variation in political outcomes without completely abolishing the theory of structural power (Vogel, 1989, Woll, 2014, Culpepper and Reinke, 2014). Bell and Hindmoor’s (2017) contribution on the ideational factors that shape structural power is related to the question how is structural power shaped? Bell and Hindmoor (2017) write about ‘a revised ideational context’ that occurred after the financial crisis of 2008 (2017, p. 113). This revised context shows how structural power can change due to intervening institutional variables. In this study, Bell and Hindmoor argue that an increase in political controversy can shape structural power. This is the first carefully stated notion that the shift from quiet to noisy politics, which will be discussed below, has significant effect on the structural power of business (2017, p. 106). In short, since Lindblom (1977) studied the power position between policymakers and the financial industry, he identified a new area for research. The 2008 financial crisis made scholars rethink the position of the financial industry in policymaking. The developments in the academic field show that scholars no longer assume that structural power is an indisputable fact. The degree of structural power business holds over politics is defined by the existing conditions in a given country. In addition, environmental factors like economic circumstances or ideational changes are mentioned that further influences business power.

2.3 Noisy and quiet politics

When assessing the influence that business has over politics, it is important to consider the surrounding elements that play a role in a policy process. Culpepper (2011) studied the effects that

salience has on the outcome of a political process. However, before an issue becomes salient, several policy processes have taken place already. Kingdon (1995, p. 95) argued that a prominent event like a crisis could attribute to a problem being recognised as such. Kingdon calls this a ‘focusing event’ (1995, p. 94). When politicians facing the problem are able to propose policies that might tackle these problems, the issue is placed on the political agenda. Several constraints can prevent a policy from being executed. It is possible that politicians are preoccupied with other issues, preventing the policy proposal being pursued. Also, alternative policy proposals might be considered to be more favourable (Kingdon, 1995, p. 104).

Kingdon’s seminal work on agenda setting and policy processes shows that many elements can influence policymaking. Culpepper’s (2011) research also focuses on several stages of policymaking. He is specifically interested in the influence that business has on policy makers and points out exogenous factors that affect that influence. Culpepper (2011) describes the difference of quiet and noisy politics in political dynamics. Culpepper states that in general financial interest groups are more likely to influence political processes in quiet politics. Quiet politics is a situation in where an issue holds low political salience (Culpepper, 2011, p. 15). Culpepper argues that financial interest groups are more likely to obtain policy goals when public interest, thus political salience, is low rather than when financial interest groups face a lot of public attention and media coverage. Media coverage is important in this context because politicians often use media attention as a way to increase salience (Culpepper, 2011, p. 5).

Young uses the argument on media attention to argue that the global financial crisis resulted in a spike in issue salience regarding financial regulation and therefore changed environment for financial interest groups. The issue salience of financial regulation was high between 2008 and mid 2011 (Young, 2013). Research shows that the relationship between regulators and the financial industry became more formal and resulted in decreased credibility of the financial interest group (Young, 2013, p. 464). Based on these arguments, Culpepper predicts that the post-crisis position of financial interest groups will be weak, resulting in an increase in financial regulation (2011, p. 197). Kastner (2017) argued that this argument does not always hold. Her study on the European policy process following the European Commission’s proposal to implement a European FTT shows that the effects of the financial crisis are not lasting. As soon as political salience decreases and media coverage on the issue at hand decreased, financial interest groups gain territory again (Kastner, 2017, p. 8).

2.4 Combination of both theories

2.4.1 Limitations of the theories

Both the theory on quiet and noisy politics and the theory on structural power have limitations. First, there seems to be a problem with the agenda-setting capabilities of financial interest groups in the structural power model. Vogel (1987) highlighted this problem by noting that financial advocates have not been very successful in keeping certain items of the political agenda. The determinants of structural power fail to provide an explanation for this aberration. The structural power argument holds that the political agenda will be in favour of business because politicians will anticipate the risk of capital flight by the financial industry and therefore will not put certain issues on the political agenda. This theory did not hold during the financial crisis in 2008 as stricter regulation on financial markets was proposed in many advanced political economies. However the theory on political salience suggests additional explanatory factors. Culpepper (2011) argues that financial interest groups fail to influence the agenda-setting stage of the policy cycle when politics is noisy, for instance during a financial crisis. A financial crisis reveals problems. Willing policymakers might step in in order to regulate the financial sectors and propose new legislation. Kingdon defines this moment as the opening of a policy window. If a policy window is opened, a policy proposal can achieve great agenda priority (Kingdon, 1995).

The second limitation concerns the theory on quiet and noisy politics. In the study mentioned above, Kastner (2017) explained how financial industry lobbyists were able to oppose the European Commission’s FTT proposal successfully when the salience of the discussion on financial regulation decreased1_{. However, when the European Commission accepted the request from eleven European} Member States for ‘enhanced cooperation’ to implement a FTT, a new policy process started. The theory on quiet and noisy politics states that if political salience is low, financial industry advocates are more likely to succeed in influencing the agenda-setting stage (Kastner, 2017). If the request for ‘enhanced cooperation’ is regarded as the starting point of a policy process, the theory does not hold. The fact that the request for ‘enhanced cooperation’ succeeded shows that the financial industry failed to influence politics on the long term, even though salience is low. Another way in which the two theories complement each other concerns the study on the ‘revised ideational context’. The argument presented by Bell and Hindmoor (2017) can explain how political salience can influence business as well as politics through changes in the ideational context. These changes subsequently change the structural relationship between business and politics. The change can be favourable for business as well as for politics, depending on the circumstances. 1

_{Kastner bases her claims on anonymous interviews with industry lobbyists. She does not give} information on the specific financial organisations that the interviewees represent (Kastner, 2017, p. 16).

If a revised ideational context can reshape structural power, is it also possible that this new context serves the interests of the business rather than the interest of the government? While Bell and Hindmoor (2017) did not consider this possibility, it is useful to assess the possibilities. Most financial organisations provide products and services for consumers. This can be a payment- or savings account, an investment opportunity or a pension scheme. During the crisis failing banks were injected with state capital in order to survive and to prevent further deterioration of the real economy. These bailouts meant that privately provoked debts were socialised, which resulted in the public paying the price in order to prevent the bank’s bankruptcy. Governments agreed that these bailouts have to be prevented in the future. In the European Union, this led to the Basel III Accord (CRR and CRD IV) and the Banking Recovery and Resolution Directive (BRRD) (European Commission, 2013a). The overall European sentiment is that the public should not have to pay for failures of the financial markets.

However, stricter regulation can result in an increase of prices of financial products or services. Financial institutions will pass on these costs to the consumer. The revised ideational context described above provides financial institutions with a potentially strong argument to oppose stricter regulations. The public will also potentially oppose these stricter regulations because they do not want to pay a higher price for a product due to a failing financial sector. Their resistance will depend on their possibility to exit, just as businesses will consider allocating their capital when regulation is undesirable in one jurisdiction compared to the other (Hirschmann, 1970, p. 21). The possibility to exit will vary between different kinds of financial products and services. It may be relatively easy to transfer a savings account to a different country. However, for a citizen to allocate his occupational pension savings to a different country is a lot more complex. The difficulty to exit could potentially increase resistance of the consumer and subsequently provide the financial industry with a strong argument to oppose stricter regulation. This in turn might convince politicians to not push for regulation that hurts both consumers/voters and the financial industry. This begs the question if financial interest groups did indeed use the salient financial crisis to their advantage when advocating against the European FTT by pointing out increasing costs for consumers.

2.4.2 Dutch corporatism and structural power

Another open question is if the power position of the financial industry is the same in different political economies. The theories that form the base of the framework focus primarily on the Anglo-Saxon tradition in the UK and the US. However, the institutional determinants in continental European political economies, such as the Netherlands, differ from those in the UK and US. The Netherlands is characterized by its corporatist system, in Dutch the ‘poldermodel’. In this model, associations that serve the interests of employers and employees negotiate on collective labour

agreements and social economic policies. The organisations involved in the negotiations are often responsible for the execution of the policies they agreed upon (Keune, 2016, p. 9). The Dutch ‘poldermodel’ has been integrated in Dutch laws and regulations. In order to maintain the corporatist system, laws and regulations exist that, in the case of the Dutch pension system, prevents pension funds from exiting the market. The mandatory participation of employers in sectoral pension funds is an example of the Dutch welfare state (Wet verplichte deelneming in een bedrijfstakpensioenfonds 2000).

Several studies have been conducted pointing out corporatism as an important factor for the position of finance in a political economy. Karen Anderson (2011) argued that collective agreements by employers and trade unions to a great extent influenced pension fund reform in the Netherlands. Additionally, Michael McCarthy (2014) studied the lack of labour union influence on American pension fund finance. He argued that in the absence of strong labour unions, pension fund finance is predominantly corporate controlled. These studies show that variation between political economies matter for policy outcomes.

In the business power literature described above the authors assume mobility of capital. The consequence of mobility of capital is that the holders of capital can choose to exit a certain market if regulation is not attractive. Depending on the institutional context, mobility of capital may not always be possible. For instance, Dutch citizens cannot choose to allocate their working place pension to a different pension fund or a different jurisdiction. The consequences that this has for the theoretical model in this thesis can be best described by using Hirschman’s theory on exit and voice (1970). Hirschman describes that if the quality of a service that an organisation provides is decreasing, members of the organisation have two alternatives; exit and voice. When a member chooses the option of exit, he or she will opt for an alternative supplier of the service. When members opt for voice, they will actively express their discontent with the conduct of the organisation. In both ways, management will learn about the dissatisfaction of the members and will be motivated to search for the causes and solutions for the problem (Hirschman, 1970, p. 4). However, the option to exit is not always present. Hirschman notes that in the absence of an option to exit, it is important for the effectiveness of a mechanism to develop the option of voice. In doing that, members have the possibility to express their opinion on the conduct of management and in some cases hold the power to demand change (1970, p. 55). In the Dutch system the mechanism of 'voice' is performed in the form of the 'polder model' (Keune, 2016, p. 9). 2.4.3 Alternative model Applying Hirschman’s distinction between exit and voice to the theories on business and politics, I

will now suggest an adjustment of the theories discussed in paragraph two and three. The theory on structural power is based on the mobility of capital. Although mobility of capital is a possibility for many activities that banks and insurers carry out, it is not always possible. Dutch pension funds are a case in point. The absence of the possibility to exit diminishes the structural power that business holds over political actors. Pension funds cannot threat policymakers with the possibility of leaving the country. This leads to two possible outcomes: 1) financial institutions without structural power do not influence policy outcomes. Or 2) financial institutions without structural power will resort to instrumental power. Figure 1: causal mechanism based on Blatter and Haverland (2012, p. 80) The model in figure 1 shows the decision making process of the European FTT in the Netherlands in three phases as a causal mechanism. The first phase is the input on the macro level. In this phase I focus on the agenda setting of the European FTT. The second phase concerns the lobbying activities of the financial interest groups and the reaction to these activities of policymakers on the micro level. The third phase revolves around the outcome of the decision making process, again on the macro level. The empirical implications derived from the theory are that in phase two, financial institutions that do not have the possibility to exit the market, will have no power or will resort to instrumental power. In the next chapter, I will outline the methodology that is used to answer the research question. I will also explain in more detail how the model in figure 1 is construed and illustrate the different forms of empirical prove that are necessary and sufficient to analyse the case. Polilcs Outcome: NL not parlcipalng in FTT Business Input: Crisis - EC's FTT proposal (polilcal salience) Exit: structural power No exit: instrumental power/no influence

3. Methodology

3.1 Introduction

The goal of this thesis is to analyse the relationship between business and politics and to examine the influence that the former has on the latter. The research question is: How do financial interest groups influence financial policy-making? To test the hypothesized causal mechanism, the case of the Dutch cabinet support for the European Financial Transaction Tax has been selected. In this thesis, the dependent variable is known. That is to say, it is known that the Dutch government dropped out of FTT negotiations. Process-tracing is a method suitable for y-oriented research (Blatter & Haverland, 2012, p. 80). The ambition of process-tracing is to explain why the particular outcome in a case occurred by using a causal mechanism derived from theory.

Blatter and Haverland (2012, p. 95) define causal mechanisms as ‘causal configurations that link generic social mechanisms in a multilevel model of causation’. The causal mechanism used in this thesis is derived from the model used by Blatter and Haverland to explain the workings of the causal mechanism and is visualised in figure 2. The model that Blatter and Haverland suggest to research causal mechanisms is derived from James Coleman’s diagram. Coleman first introduced this causal mechanism in 1987 (Coleman 1987). Figure 2: Methodological description of the causal mechanism Polilcs Outcome: NL not parlcipalng in FTT Business Input: Crisis - EC's FTT proposal (polilcal salience) Level 1: macro; initial event and result Level 2: micro; Theoretical foundations 1 2 3 2

The causal mechanism describes a process at two levels of analysis, the macro and the micro level. Furthermore, the causal mechanism is divided into four sections. Section one takes place on the macro level of analysis and functions as the input for the mechanism. In this case the focusing event is the financial crisis. In the case of the European FTT this is the European Commission’s proposal for the FTT. This initial event triggers the causal factor on the micro level, visualised in section two in the figure above. Section two forms the theoretical foundation of this thesis and functions as the throughput in the model. It shows the interactions between politics and business regarding the FTT based on theory on noisy and quiet politics and structural power theory. This policy process leads to the outcome in section three which takes place on the macro level. The three sections described are on their own necessary conditions for the outcome of the case. The combination of the three sections is sufficient for the outcome of the case (Blatter & Haverland, 2012, p. 97).

3.2 Case selection

The case of the FTT is interesting to study because the main theories on the relation between business and politics are not able to explain the outcome of this case. The Netherlands constitutes a least likely case in the light of these theories. According to the theory on structural power by Charles Lindblom (1970) the success of business lobby could be explained by the power that business hold because they are the holders of capital and have the possibility to exit. However, in the Netherlands, some of the most important financial institutions – pension funds - do not have the possibility to exit. Dutch pension funds manage 1200 billion euros in total, which makes the sector an important holder of capital (Pensioenfederatie, 2016, p. 2). The minister of Social Affairs and Employment can decide that a certain group of persons working in a sector are obliged to participate in a sectoral pension fund (Wet verplichte deelneming in een bedrijfstakpensioenfonds 2000). Also employers are obliged to offer their employees a pension scheme if that is arranged in the collective labour agreement. For individual employees there is no possibility not to participate in the pension fund because it is part of the collective labour agreement. Strictly, it is possible for Dutch pension funds to exit the Dutch market. Since the implementation of the IORP directive Dutch employers can choose to execute their pension scheme in other member states. However, several terms and conditions make it difficult to do so. First, Dutch social and labour related legislation remains applicable for the pension schemes. Second, to exit the Dutch market and move to another member state consent of the works council or stakeholder body of the pension fund is required. Third, the pension fund remains under supervision of the Dutch Central Bank when it comes to complying with Dutch social and labour laws (Klijnsma, 2016).

The outcome in the Netherlands in the FTT negotiations is also not likely according to the theory on noisy and quiet politics as argued by Culpepper (2010). Culpepper argued that highly salient politics in an unfavourable condition for business success. When the European Commission proposed the FTT, politics was undoubtedly salient due the fact that the proposal was a reaction of the financial crisis. Young (2013) noted that after the financial crisis, policymakers were less inclined to interact with business representatives resulting in less success for business advocates.

Yet, when it comes to Hirschman’s theory, the Netherlands is a most likely case. In the absence of exit options, voice becomes more important. In the case of Dutch pension funds voice is well developed. A number of institutional factors show that voice is well developed in the Dutch pension system and in the pension funds. In the Netherlands labour unions bargain for collective labour agreements. The pension scheme is part of this agreement and is legally binding. The labour unions are responsible for the execution of the pension agreement and appoint a pension fund to carry out the agreement (Art. 102a Pensioenwet). On the level of the pension funds, employers, employees and pension beneficiaries are represented in a stakeholder body (Pensioenfederatie, 2013, p. 40-44). The stakeholder body has the right to advice the board on important matters concerning the organisation of operations, policies on remunerations and agreements with social actors (Art. 115a and art. 115c Pensioenwet). Furthermore, corporatist features are visible in the Social and Economic Council (SER) that is the main adviser of the government on social and economic policy. The committees advising on pension policies consist of representatives of employees, employers and the ministry, independent members and specialists on pension policy brought forward by the Federation of Dutch Pension funds. These specialists are often board members of Dutch pension funds (SER, 2017). It is likely that instrumental power is higher, because the possibility for voice is well developed in the Dutch financial system. Financial institutions participate in government consultations and as an advisor in the SER representatives of the pension sector are involved in the agenda-setting stage of pension policy.

3.3 Data analysis

In order to showcase the causal mechanism described above it is vital to collect trustworthy empirical evidence. In this thesis three kinds of empirical evidence will be used. In figure 3 a simplified version of the causal mechanism in figure 2 is used to show what empirical evidence is necessary in different sections studied this thesis. In process-tracing the researcher wants to provide a ‘comprehensive storyline’. The ‘comprehensive storyline’ contains the important structural factors that play a role throughout the whole causal mechanism. (Blatter & Haverland, 2012, p. 111). In this thesis the structural conditions consist of the institutional conditions that are important in the Netherlands. Because these institutional factors do not vary over the time frame studied in this

thesis, the empirical observations are not highly time related and are described before the four sections are.

Meanwhile, the process studied does take place in a certain timeframe. As discussed in the paragraph above, this timeline consists of three sections. To prove that the process took place in the way that was theorised, it is important to provide empirical evidence that show the interactions between the sections. In this thesis that means that the arguments is strengthened if empirical evidence shows that the FTT proposal led to interaction between politics and business in section two. Empirical evidence that shows this interaction is called ‘smoking gun’ observations (Blatter & Haverland, 2012, p. 111). In figure 3 it becomes clear that the ‘smoking gun’ observations connects the macro and micro level of analysis. To analyse the micro level, sections two and three, different empirical evidence is useful. To showcase the interaction between politics and business and to gain deeper insight into the motivations and perceptions of the actors involved empirical evidence called ‘confessions’ are collected. ‘Confessions’ reveal motives, which strengthen the ‘smoking gun’ evidence (Blatter & Haverland, 2012, p. 117).

Figure 3: Specification of empirical evidence

3.4 Data collection

Now that we have established the nature of evidence that is needed to support the causal mechanism, I will now describe the specifics of the chosen empirical data in this study. In order to do that, it is important to identify the major actors involved. The Dutch government is an important

Throughput: 2

Outcome: 4

Throughput: 2

Input: 1

‘Smoking gun’ è ç ‘Confessions’ ‘Comprehensive storyline’ ç ‘Confessions’ í ‘Smoking gun’ î

actor because it decides on European directives. Important actors in the private sector are logically companies that invest capital and carry out financial transactions to do so. This can be a variety of companies like pension funds, banks, insurers, asset managers and investment institutions. These financial institutions are represented in several interest groups. Financial institutions rarely published information on their position regarding the FTT individually and when they did they referred to a position paper written by their lobby organisation2_{. The following (financial) interest groups are of} interest: - The Dutch fund and asset management association (Dufas) - The interest group representing institutional investors’ interests (Eumedion) - The Confederation of Netherlands Industry and Employers (VNO-NCW) - Federation of Dutch Pension funds (Pensioenfederatie) - Association of Insurers (Verbond van Verzekeraars) - Dutch Banking Association (Nederlandse Vereniging van Banken) - European Banking Federation (EBF) Besides financial interest groups also labour unions and the Social and Economic Council might be a source for useful information due to the corporatist features discussed in paragraph 2. Important labour unions in the Netherlands are the National Federation of Christian Trade Unions in the Netherlands (CNV) and The Netherland Trade Union Confederation (FNV). On the European level, these two Dutch labour unions are represented in The European Trade Union Confederation (ETUC). It is important for this thesis to reveal the motivation and interests of the actors involved in the case (Blatter & Haverland, 2012, p. 106). It is a possibility to reveal actors’ motivation by conducting interviews. However, since the events studied took place in late 2011, interviewees might not be able to reflect on their motivations that played a role at that time. Furthermore, by conducting interviews measurement errors could occur. Interviewees representing the financial sector might give socially desirable answers due to the political sensitivity of the FTT (Blatter & Haverland, 2012, p. 68). For these reasons evidence is not gathered by conducting interviews, but by carrying out a document analysis. The document analysis will mostly consist of primary sources like government debates, public speeches, press conferences, consultations and position papers. Also secondary sources like newspaper publications will be used. 2 _{Pension administrator PGGM referred to the position paper written by the Federation of Dutch} Pension funds on their webpage on the FTT ( https://www.pggm.nl/wat-vinden-we/Paginas/Position-Paper-Explanatory-note-FTT.aspx)

I collected primary sources in different ways. First, I consulted the websites of the organisations that are important actors in the case, the interest groups of financial institutions, labour unions and the Social and Economic Council. To collect additional information from lobby organisation I contacted several organisations directly, which led to useful documents handed over by the Dutch Banking Association and the Federation of Dutch Pension Funds.

Secondly, to provide trustworthy information on the decisions and motivation of the government regarding the FTT I consulted two government databases. The first database I consulted was the database on Overheid.nl. This database holds all official parliamentary documents of the government. The search terms ‘Financiële Transactie Tax’ and ‘Financial Transaction Tax’ with the selected date from the beginning of 2011 until now resulted in 829 hits. To narrow down the number of hits to a manageable amount I selected only the documents that had the subject ‘tax’ assigned to them. Altogether, the search criteria led to 136 hits. The second government database I used is the website archive of the state (https://www.rijksoverheid.nl/archief). This archive collects everything that has been published on the website of the government. Therefore, it is possible that some documents were retrieved twice, in the web archive and the government database. The archive is not very sophisticated and only allows you to search one term and shows the URL’s that consists of (part of) the search term. It does provide a hit percentage and shows the highest percentage first. The search terms ‘Financiële Transactie Tax’ and ‘Financial Transaction Tax’ led to 297 hits.

In the realisation of European legislation, the Dutch Senate has the same role as the House of Representatives, exercise control over the creation of European law and regulation in the Netherlands. In this capacity the Senate kept an online file on the FTT (Eerste Kamer, 2010, p. 7). This dossier provides a comprehensive overview of the parliamentary documents that are important for this thesis. Al these documents will be in the databases that are used. However, using the dossier kept by the Senate minimises the chance that important documents are overlooked.

In general, the accuracy of secondary sources like newspaper articles can be difficult to assess. However, newspaper articles can be used as evidence because it can show a pattern and provide for a ‘comprehensive storyline’ (Beach & Pedersen, 2012, p. 143). To compliment the primary sources discussed above, newspaper sources will be used for the ‘comprehensive storyline’ and triangulation of the primary sources. The search terms ‘Financial Transaction Tax’, ‘Financiëletransactietaks’, ‘Financiële transactie taks’, ‘FTT’ and ‘transactietaks’ are used for all major news and business sources in the Netherlands between January 2010 and June 2018 using LexisNexis. This search identified 818 articles on the topic. To narrow down the search only the most widely read news sources are selected, including Het Financieele Dagblad, the joint press agency ANP, De Telegraaf,

NRC Handelsblad, De Volkskrant, Trouw, Het Parool and Algemeen Dablad. This resulted in 454 articles.

3.5 Validity and Reliability

The paragraphs above provided a step-by-step guideline of the execution of this thesis by explaining the causal mechanism and the different types of evidence that are necessary to prove the causal mechanism in the selected case. Furthermore, the description of the empirical date makes it possible to verify the empirical claims derived from the data. This contributes to the internal validity of this thesis. Regarding external validity it is important to note that generalising beyond the case of the FTT in the Netherlands is not the primary goal of this thesis or in process-tracing in general (Blatter & Haverland, 2012, p. 135). The possibility of generalisation depends on the empirical evidence that is found. This thesis is least likely with respect to dominant theories on political salience and structural power. The research is most likely with respect to the alternative theoretical model that is visualised in figure 1. When empirical data supports dominant theories there are broad possibilities for generalisation. When the empirical data supports the alternative theory, the possibility for generalisation is weak. This could however induce more research on the possibilities to confirm the relevance of the alternative theory in other cases. When a study is highly theory-oriented like this thesis, it is likely that conclusions drawn from the case studied can have consequences for the theoretical narrative. For this reason the conclusion of this thesis contains explicit explanation for the consequences that the analysis has beyond the case studied.

4.

Case description

4.1 Introduction

In this chapter the political process of the Financial Transaction Tax will be described. The political process consists of three phases outlined in the paragraphs below, each explaining an important level of analysis. The description starts with the financial crisis in 2008 and the effects that the crisis had on political decision-making process on European Union level. In the second paragraph the policy process on the implementation of the FTT will be discussed. Emphasis will be on the role that the financial industry played in the decision of the Dutch cabinet to oppose the FTT. The third paragraph elaborates on the decision made by the Dutch government and the decision of eleven member states to continue negotiations on implementing the FTT. The events are mostly described in chronological order. However, readability does not always allow for this. For this reason a chronological table of events is placed at the end of this chapter.

4.2 The crisis and its effects on financial sector regulation

4.2.1 The global financial crisis

To provide a comprehensive storyline on the policy process of the Financial Transaction Tax, it is important to sketch the critical events that influenced the political agenda during the negotiations on the FTT. A focusing event was the financial crisis in 2008.

The crisis of 2008 made apparent that Dutch banks had invested significantly in the U.S. market for mortgages. American banks had provided subprime mortgages in economically prosperous times when housing prices increased and interest rates were low. When the interest rates increased many homeowners were unable to pay their mortgages and were forced to sell their property, which led to the American mortgages going into default (Elsinga et al., 2011). Dutch banks were significantly exposed to these financial problems. The globally disrupted markets and the problems regarding the assets of Dutch banks resulted in a deteriorating lending position for Dutch banks on the international capital market. The banks did not have strong financial buffers to absorb the financial losses (Stellinga, 2015, p. 53).

The financial problems of the banks Fortis and ABN AMRO were most severe. Fortis had acquired several business units of ABN AMRO in October 2007. Severely affected by the financial crisis, Fortis had no choice but to sell its stake in ABN AMRO in September 2008. Unable to find a buyer and affected by an acute liquidity problem, Fortis and ABN AMRO were facing bankruptcy. The Dutch government considered the banks to be ‘too big to fail’, meaning that the banks were so interconnected with the financial system that bankruptcy would lead to disastrous consequences for

the real economy. In October 2008 the Dutch government nationalised Fortis and its ABN AMRO business units. In total it cost the Dutch government almost 17 billion euros to prevent bankruptcy. The Dutch government provided other Dutch banks with extensive financial support (Commissie De Wit, 2010, p. 88, Stellinga, 2015, p. 53).

4.2.2 The Greek crisis

In the aftermath of the financial crisis, problems concerning the high sovereign debt in Greece emerged. The Greek government announced in October 2009 that budget deficit for 2009 was 12,7% of GDP, more than four times the maximum budget deficit that is allowed according to the Maastricht Treaty. This announcement was followed by a decrease in the overall trust in the euro, resulting in a fall in the currency. Also, participants in the global financial market started paying closer attention to other European countries that might be weaker than anticipated, resulting in a decease in liquidity in Spanish, Portuguese and Irish markets (Katsimi & Moutos, 2010)

It soon became clear that Greece needed financial support from other European member states and IMF in order to prevent the bankruptcy of the Greek government and potentially other weak European member states. The first emergency package of loans in May 2010 consisted of 73,6 billion euros. The Netherlands contributed 3,2 billion euros. In the beginning of 2012 the European ministers of Finance concluded that the first package of loans was not enough to ensure that the Greek crisis would not affect other European countries. The European member states and the IMF issued a second package of loans of 153,9 billion euros in December of 2012. The Netherlands contributed 13,25 billion euros. A third package of almost 88 billion euros was inevitable in August of 2015. The Dutch contribution was 2,5 billion euros (Rijksoverheid, 2018).

As a reaction on the bank bailouts that occurred during the financial crisis, many European member states desired stricter regulation of the financial sector. Within the European Union several measures were taken. The first priority in the field of supervision was to strengthen the supranational supervisory powers. The Financial Stability Board (FSB) coordinated the implementation of the post-crisis agenda. In June of 2012 the European Council decided to establish the European Banking Union. The Banking Union consists of three pillars; European supervision on significant banks executed by the European Central Bank, a European approach to facilitate banks in need and a European deposit insurance. The measures introduced a new approach of the supervision of financial organisations that focuses on the stability of the financial sector as a whole. This perspective is also called the macro-prudential approach (Stellinga, 2015, p. 56). In addition to the measures mentioned above, the influential EU member states France and Germany stressed that the financial institutions

would have to pay back the European Union for the financial support that they received during the crisis in the form of the Financial Transaction Tax.

4.2.3 The idea of a European Financial Transaction Tax

The FTT is not a new idea: James Tobin already introduced it in 1978 (Tobin, 1978). The first time the FTT was seriously discussed by major political economies however, was in 1984 when Sweden introduced a tax on transactions of equity security. The tax was levied on equity securities and financial derivatives. Due to falling share prices and disappointing revenues, Sweden abolished the tax in 1991 (Umlauf, 1993). In May 2010 the Ecofin Council published that it was exploring the possibilities for a global Financial Transaction Tax. The FTT would be part of a package of measures to preserve the financial stability in Europe. The package of measures was deemed necessary after the crisis in Greece showed that financial instability in one European country could have negative consequences for the financial stability in other European countries (Ecofin Council, 2010). Besides the support of European member states for the European FTT, the International Monetary Fund (IMF) also stated support for the tax. In the time leading up the G-20 summit in 2010 the IMF conducted a study on the different ways financial taxation could contribute to recover the costs of the financial crisis. Although the IMF mentioned some constraints that needed to be addressed, it was generally supporting financial taxation as a means to discipline financial institutions (Claessens et all., 2010). On request of the G-20 leaders, an interim version of the report was presented during the G-20 summing in July 2010.

Although a potential financial transaction tax had been discussed prior to the summit, the G-20 summit can be seen as the starting point of the legislative process of the European Financial Transaction Tax. During the G-20 summit on the 26th _{and 27}th _{on July 2010, president of the} European Commission José Manuel Barosso stressed the importance of a tax on financial transactions in order to regulate the financial sector. During this meeting Chancellor of Germany Angela Merkel underlined the need for a financial transaction tax (Tweede Kamer, 2010). Following the G-20 summit in July of 2010, the European Commission explored the idea of a FTT as well as the alternative Financial Activities Tax (FAT). The FAT is a tax that is levied on the total wages and profit of a corporation. The IMF report preferred the FAT over the FTT (Claessens, 2010, p. 3). Yet, the European Commission concluded that the FTT is the most suitable tax for worldwide implementation. However, the European Commission believed that implementation of a FAT is more feasible politically (European Commission, 2010).

In September 2011 the European Commission formally proposed the Financial Transaction Tax Directive. In this directive, the European Commission pointed to the financial crisis as a reason for

the proposed directive. According to the European Commission, ‘the financial sector played a role in the origins of the economic crisis. Governments and European citizens at large have borne the cost of massive taxpayer-funded bailouts to support the financial sector’. The FTT is a means to make sure that the financial sector contributes to the costs of the financial crisis. Furthermore, the European Commission wished to obtain two other goals. First, the FTT should coordinate the several measures that member take to tax the financial sector. This enhances a level playing field. Second, the FTT should decrease the number of transaction made by financial institutions that do not contribute to the efficiency of the market. The European Commission wished to curb short-term speculative trading, also known as ‘high frequency trading’ (European Commission, 2011).

The proposed FTT taxes all financial transactions that are carried out by financial institutions in Europe. Transactions that are related to derivatives agreements are taxed at a rate of 0.01%. All other financial transactions are taxed at a rate of 0.1% (European Commission, 2011, p. 20). The revenues of the European FTT are estimated at 57 billion euros annually. The European Commission proposed to use part of this revenue as a resource for the European Union. The other part of the revenue will be used to replace the contribution of the European member states (European Commission, 2011, p. 11). The proposed directive was a focusing event in this case and initiated the policy process on the national level.

4.3 Interaction business and politics

In the months leading up to the European Commission’s proposal, the FTT was discussed in Dutch parliament several times. Noticeable in the discussion was the fact that the Dutch government did not have a clear position regarding the FTT. In January 2011 the minister of Finance Jan-Kees de Jager stressed his position towards the FTT on the request of the left-oriented parties GroenLinks and PvdA. De Jager mentioned that the cabinet supports a FTT if the tax would be implemented worldwide. Unfortunately, he added, the G-20 summits have not led to a worldwide FTT proposal. Regarding a European FTT, De Jager added that he remains neutral until the Netherlands Bureau for Economic Policy Analysis (CPB), publishes its analysis on the consequences of the FTT. De Jager mentioned that the recommendations of the CPB would be of great importance for the choice for the Netherlands to participate in the European FTT.

Later in 2011 De Jager attended an Ecofin meeting where the FTT was discussed. In this meeting De Jager addressed the need for the banking sector to pay back its fair share. In his opinion the FTT is an instrument that does just that (Tweede Kamer, 2011b). However, Prime Minister Mark Rutte mentioned in a debate held on November 22th in 2011 that the ‘Dutch government supports a [financial transaction] tax’. Furthermore he said: ‘I discussed the tax extensively with the French

president when […] and we both are proponents of the tax’. However, Rutte did comment that he would take into consideration the effects of the tax for the Dutch financial sector, especially the banking sector (Rutte, 2011). In December of 2011 CPB published its analysis of the consequences on the FTT at the request of minister of Finance De Jager. CPB is not convinced that the FTT is the best instrument available that contributes to a more stable financial sector. The tax does not address the perverse incentives within the financial sector and increase the costs for risk insurance, according to CPB. Also, CPB doubts that the FTT is the best way to tax the financial sector, because of the possibility that financial institutions find ways to evade taxation. The research organisation argues that Financial Activities Tax (FAT) or a tax on banking activities would be less disruptive. Conclusions drawn by CPB are mostly based on the fact that consequences of the FTT are uncertain, making it extremely difficult to measure the effects of implementation (CPB, 2011). Besides the analysis carried out by CPB, financial sector supervisors AFM and DNB sent a letter to the minister of Finance expressing their opinion on the FTT in January of 2012. AFM bases its analysis mostly on the CPB publication mentioned above, providing for similar conclusions (AFM, 2012). In their publication of February 2012, DNB focuses on the consequences of the FTT for the financial sector. Their calculations predict an annual contribution of 2 billion euros for the banking sector, 1,7 billion euros for pension funds and 0,3 billion euros for insurers. Furthermore, DNB argued that the financial transactions that pension funds carry out are mostly aimed at reducing risks. The decrease of financial transactions that the European Commission wished to achieve does not induce risks related to financial stability according to DNB (DNB, 2012).

Financial interest groups in the Netherlands were also united in their campaign against the implementation of a European FTT, ever since the European Commission proposed the directive in September 2011. The Confederation of Netherlands Industry and Employers (VNO-NCW) addressed their concerns with the Commission on Finance of the Dutch parliament. VNO-NCW stated that the FTT would harm the Dutch economy and does not contribute to economic growth and financial stability (Wientjes & Biesheuvel, 2011). Although never made public, member of the parliament of social-liberal political party D66 Wouter Koolmees mentioned that he just ‘received a communication from ABP that mentions that the tax can cost the average pensioner up to 500 euros per year’. ABP or Wouter Koolmees did not publish a communication of this sort (Tweede Kamer, 2011b). In March of 2012 members of the parliament from the nationalist and right-winged political party PVV Tony