EU chief calls for eurobonds and financial tax

European Commission president Jose Manuel Barroso on Wednesday called for a financial transactions tax and the creation of eurobonds to fix an economic crisis he termed the EU's biggest challenge ever. "We are today faced with the greatest challenge our Union has known in all its history," Barroso said, while adding it was both "possible" and "necessary" to overcome the crisis. Calling on Europe to stand united in crisis, he rejected a Franco-German call for the creation of a eurozone economic government spearheaded by the states, insisting instead that such duties remain in the hands of his commission, the European Union's executive arm. "The Commission is the economic government of the Union. For this, we certainly don't need more institutions," Barroso said in a speech at the European parliament in Strasbourg. In his annual "state of the union" address to the European Parliament, Barroso came out clearly in favour of the controversial eurobonds, which would enable the pooling of debt between the 17 nations sharing the euro. "Once the Euro area is fully equipped with the instruments necessary to ensure both (economic policy) integration and discipline, the issuance of joint debt will be seen as a natural and advantageous step for all," he said. But with taxpayers in some European Union states increasingly loathe to pay out for chronic debt offenders such as Greece, Barroso said such bonds would be not be a free ride for anyone. The 'Stability Bonds' will be "designed in a way that rewards those who play by the rules and deters those who don't," he said, adding that the Commission would issue proposals in the coming weeks. The 17-nation single currency area is sharply divided over eurobonds. Belgium and Luxembourg, as well as states in financial trouble, such as Greece, favour their creation as the most effective and durable way to resolve the eurozone debt crisis. But Germany, which enjoys the eurozone's lowest funding rates, opposes them, saying they would take the pressure off profligate governments to get their finances in order by providing cheaper cash than they could raise on their own. Barroso also proposed a financial transactions tax to force the financial services sector to make a contribution to society, a controversial idea opposed by the United States as well as some within the EU, notably Britain which is home to some of the world's most important financial markets. "Today the Commission adopted a proposal for the Financial Transaction Tax. Today I am putting before you a very important legislative text," he said. Over the last three years members of the 27-nation bloc had granted aid and provided guarantees of 4.6 trillion euros to the financial sector in the aftermath of the 2008 global financial crisis. "It is time for the financial sector to make a contribution back to society," he said. On the commission's drawing-board for more than a year, the idea was given fresh impetus last month when given the nod by Europe's power couple, French President Nicolas Sarkozy and German Chancellor Angela Merkel. If adopted -- not before 2014 -- the tax could ring in between 30 billion and 50 billion euros a year. Britain, at the heart of the financial industry, reiterated demands for any such tax to be applied globally, so as to ensure a level playing field. "Otherwise the transactions covered would simply relocate," a Treasury spokesperson said. A source close to experts drafting the proposals told AFP that research on the issue was reassuring, with the negative impact deemed "negligible" when compared with Europe's overall attraction as a major financial market.