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Lawyers to the rescue!

Published in Automated Trader Magazine Issue 31 Q4 2013

What's the difference between a lawyer and a mosquito? One's a blood-sucking parasite, the other is an insect.
What's the difference between a lawyer and a liar? Pronunciation.

Lawyers to the rescue!

Almost everyone loves lawyer jokes. In recent years, as regulators got busy and markets got nervous, a common view was that the only people sure to make money from rule changes were lawyers. All of which makes it all the more ironic to see legal figures become market heroes. And in this case, we're talking about lawyers representing politicians in Europe.

When the Council of Europe's legal advisors portrayed plans for a European transaction tax (FTT) as an abomination, it was the nearest thing possible to a death blow to the feared levy.

Advisors used strident words to describe what they saw as fundamental flaws (no doubt delighting Britain and Sweden, which had said similar things all along). But because this little-heard-from legal group became so public and used such language, eyebrows shot up.

One view is the opinion was welcomed - possibly encouraged - by leading European countries, since it provided them with political cover.

"It's a very august, very technically-minded body," said a financial legal expert who spends a lot of time in Brussels.

He said such emotionally charged advice from the service was probably without precedent. The document, he added, almost looked to have been written with a wider audience in mind, going well beyond the dry, technical language the advisors normally used.

"In blunt language, it's giving the Council of Member States a bollocking. Now, why would the Council Legal Service use that kind of language?" Another oddity: the document miraculously seemed to end up with numerous private sector firms around the same time.

Under said conspiracy theory, it's interesting to contemplate which European countries could have been egging the advisors on. France and Italy are likely candidates. They had already introduced their own FTTs and there were signs they disliked the way the European tax might cast a wider net. Another potential objector: Germany, where technocrats thought the tax problematic and where the constitution might not have allowed it anyway. Vulnerable borrowers Portugal, Italy, Ireland, Greece and Spain (who together spawned an unfortunate acronym) also had good reason to fear an FTT which had the potential to send debt costs higher.

But the question remains: is the tax dead or just in a zombie-like state, still capable of striking fear in the market?

"It does seem like this is a zombie, and the reason is this not the first time there has been an attempt to kill the FTT," the legal expert said. He saw a chance that the mooted FTT could morph into something like a stamp duty, which would be more palatable to various players.

While it is hard to say how much political capital European leaders are willing to keep spending on this idea, one group of professionals (beginning with the letter L) probably hope they don't give up entirely. Now, who might that be?