Nicolas Sarkozy's new tax won't make him Robin Hood

The French president's plan for a financial transaction tax is a cheap political ploy and will damage those it purports to benefit
Nicolas Sarkozy at the EU Summit in Brussels, Belgium
Nicolas Sarkozy is planning to introduce a financial transaction tax on French banks. Photograph: KeystoneUSA-ZUMA/Rex Features KeystoneUSA-ZUMA / Rex Features/KeystoneUSA-ZUMA / Rex Features

Nicolas Sarkozy's plan to impose a financial transaction tax on French banks is a disastrous move. It's little more than populist posturing. If the president wants to present himself as a modern-day Robin Hood then he'll fail. His vague and unworkable scheme will have a negative impact on not just the banks, but on those it's designed to benefit as well.

As Sarkozy was warned in the runup to his announcement on Monday that the tremors felt in the French banking sector will rumble all the way down to the man on the street. Banks will simply pass on the cost of the 0.1% charge on equity and CDS trades to their customers – and, in the current economic climate, who can blame them?

Banks are already applying their own austerity measures across the board – despite the misleading headlines telling the public otherwise. Wave after wave of layoffs are hitting the financial sector, with bosses swinging the axe in any area deemed too risky and expensive to maintain. Prop dealers, energy trading desks, commodities divisions – none are safe now that the boom years are over. And the outlook appears darker than ever before.

Loading more costs onto banks will do nothing to boost confidence in the sector, nor will it lure investors or lenders to the already struggling institutions. Kicking the banks when they're down just to score political points is bound to backfire, as was witnessed by the wave of doomsday predictions both before and after Sarkozy set out his plans.

Without across-the-board action, any country making conditions difficult for banks runs the risk of them simply decamping. There is also the possibility that trading wizards will conjure up new and complex instruments that perform the same function but are out of Sarkozy's reach. Just as CFDs put equity trades in the UK beyond the scope of stamp duty, so too is there the likelihood that similar mutations will occur in the French market.

Sarkozy knows all of this, which is why he pulled his punches and said he wouldn't apply the letter of his new law to all financial transactions taking place in France, preferring to focus on betes noires such as high-frequency trading and "naked" sovereign credit default swaps. But by doing so, he has both acknowledged his own uncertainty and revealed the true reason for taking the crowd-pleasing position.

This kind of kneejerk move has been made before, most notably during the mad short-selling bans at the height of the credit crunch (that were eventually, and inevitably overturned, given how counterproductive they turned out to be). Then, as now, the measures were just a case of politicians pandering to the electorate without understanding, or admitting to, the cost to the markets and the wider economy.

Much of the media is to blame, too, for constantly vilifying the banking sector and creating a culture of fear and loathing, which politicians exploit to further their own parties' agendas. Level-headed analysis of the banking sector is of the utmost importance if there is to be a way out of the economic abyss, yet pundits and politicians alike prefer frenzies of condemnation.

Sarkozy's folly is destined to fail. If he didn't have an election to worry about, the president might have taken a calmer and more collected look at the situation, and not led his people even further up the garden path.

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