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The European Union was set up with high ideals. Scarred by two wars in thirty years, the French and Germans were determined never to take up arms again.

However, war takes many guises and, for us, the guns are pointing at our financial services.

There are two particular missiles aimed our way – the financial transaction tax (FTT) and the central counterparty proposal (CCP) - that strike at our economic heart.

The idea of the FTT is to charge a small amount on share transactions in an apparent attempt to prevent volatility in the market place.

Now, first things first, it won’t. Countless derivative traders and their vendors have all told me the same thing – the extra cost will be priced in. In other words, customers’ bank accounts will face higher fees or worse mortgage rates and pension funds will have to pay more for trying to grow your money, leaving you between 2.73 percent and 5.46 percent worse off according to TheCityUk’s research. 

That’s right, it won’t be the traders that will get hit, it will be you and me. It may actually increase volatility. Why? Well even taking into account the passing off of costs, to hit the same yields as before, there will be even more trades to pick up on the shortfall a new tax would introduce. Trading will get larger, faster and bigger.

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The other assumption is that it won’t affect trading. Well if traders don’t game the system as above, of course they will leave. Why pay when you don’t have to. In a global world, you can nip off to Singapore or New York.

Despite EU tax commissioner Algirdas Semeta’s sleight of hand attempt to sell the FTT as harmless, the Commission itself assumes that 90 percent of derivatives could disappear – and this helps the EU how exactly?

In addition, there is a small fundamental to deal with. The tax, estimated to be around €56bn (£46.5bn) will go straight into EU coffers. A massive tax without representation – the United States came about for lesser money than that.

The other missile is slightly more complicated. The European Central Bank wants CCPs who clear more than five percent of euro-denominated financial products to be in the euro zone, essentially decapitating the City by forcing CCPs to Frankfurt.

Such is the UK’s anger that it has taken the ECB to court for a second time to protect, ironically, the principles of the single market and has managed to get these principles into the derivatives agreement currently being negotiated.

Why should this matter? After all, finance houses are evil aren’t they? Deserve everything that they get?

Well think about the impact to our economy.

The UK has the largest derivative market in the world at 45.8 percent of global trades and deals with a daily turnover of around $1.4trn (£0.89trn).

More than £3.2trn of your assets are managed by fund managers and £445bn was raised by businesses since 2005 through UK financial markets.

In addition, financial services operated a £40bn trade surplus in 2010, 3 percent of GDP in its own right, while it actually contributes 14 percent to the national GDP while paying £63bn a year in taxation, some 12 percent of total UK tax receipts in 2010/11 and 1.9m jobs.

How many jobs will be lost? How much money will be lost for the government? How many more cuts or increased taxes will happen as a result? Would you be able to budget for a drop in your pension?

These are the questions that you should be asking. It is not about spoilt bankers, or greedy undeserving fund managers. It is not about bonuses. It is about a war on the ability of a country to fund itself.

Rightly or wrongly, financial services are a massive part of our society. It is something that we are world leaders in and it is something that should be protected, if only so we can protect ourselves from an institution whose own accountants refuse to sign off its budget.

Simon Miller is the Editor of Financial Risks Today. He tweets at @simontm71

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