THE European Union yesterday backed an EU-wide tax on bank profits and pay packages, but competing proposals suggest that a pan-European tax on financial firms is still some way off.

The European Commission, the EU’s executive arm, also said a separate tax on financial transactions such as the purchase of stocks, bonds and foreign currency would only work if applied on a global level, because it is too easy for financial firms to move their transactions elsewhere.

The commission previously considered introducing such a financial transaction tax in the EU — a move that was supported by France and Germany, but strongly opposed by the UK, the EU’s biggest financial centre.

Both proposals arose in response to the global financial crisis that began in 2007 and has forced governments in Europe and the United States to pour billions of taxpayer money into troubled banks. The taxes would be aimed at making good taxpayers’ losses, although exactly how has not been defined.

The commission and EU member states are currently working on several bank-tax initiatives and there are deep divisions on what kind of tax to introduce and what any money raised should be used for.

The UK, France and Germany are working on their own legislations for levies on banks’ balance sheets, which would be different from a tax on profits and pay packages. France and the UK want to use the money to plug holes in their general budgets. Germany, meanwhile, says revenues from its bank tax should go into a special fund that would finance future bailouts — an idea that was also initially backed by the commission.

EU tax commissioner Algirdas Semeta on Thursday remained fuzzy on the use of the the tax funds.

“At this stage it is too early to decide for which purpose the revenue will be used,” he told journalists.

With the most recent proposal, the commission appears to be back-pedalling from the “polluter pays principle” it had backed previously, said Karel Lannoo, head of the Centre for European Policy Studies in Brussels.

The different proposals on bank taxes floating around at the commission, and the divisions among European governments show that “there is no courage to find a common European-wide approach”, Lannoo said. EU member states will likely move ahead with their own proposals rather than wait for the introduction of a pan-European tax, he added.

EU finance ministers will discuss the commission’s proposal during their next meeting on October 19 in Luxembourg. It will then need to be adopted by member states’ governments. The commission aims to have a detailed policy initiative by next summer.

Similar proposals are also being discussed in the US and will be on the agenda at a summit of the Group of 20 rich and developing nations in Soul, South Korea, next month. However, chances for a consensus on the financial transaction tax look dim, since the US government has opposed it.