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France Introduces Financial Transaction Tax

France becomes the first country in the European Union to bring in a tax on financial transactions today.

It was first proposed by the former French President Nicolas Sarkozy who suggested a 0.1% levy on all share purchases involving France's biggest companies.

The country's new leader, Francois Hollande, has been sharply critical of the financial services industry and decided to double the tax to 0.2%, while applying it to all publicly traded businesses with a market value over 1bn euros.

That means anyone buying shares, including credit default swaps, in 109 companies will have to shell out the extra euros to the French Treasury.

In a speech in June, President Hollande said the money raised will be partly used to fund AIDS research and is expected to generate 170m euros in 2012 and 500m euros next year.

But this tax is more than just income generation. It has also been designed to curb market speculation and was initially suggested as a pan-European measure - a concept which drew criticism from the UK.

London is home to Europe (Chicago Options: ^REURUSD - news) 's largest financial sector, contributing an estimated 10% to Britain's economic output.

Prime Minister David Cameron told other European leaders in May: "[Such a tax] will put up the cost of people's insurance, put up the cost of peoples' pensions - it will cost many, many jobs.

"It will make Europe less competitive and I will fight it all the way."

Sweden also opposes the idea, after a disastrous experience with a similar tax on financial transactions was introduced and then abandoned in the 1980s by the government in Stockholm.

The country set a 0.5% levy on all purchases and sales of equity securities in 1984, and then doubled the amount two years later after disappointing revenues.

The policy was abandoned after analysts revealed it had led to an exodus of traders.

Anders Borg, the Swedish finance minister, estimates that "between 90-99%" abandoned Stockholm and took their business to London.

Mr Cameron argues that if any EU countries wanted to set up the tax unilaterally, or in partnership with other countries, they should feel free to do so - as it could drive more business to the UK.

Germany, Italy and Spain have all indicated they would like to set up a similar levy but have yet to do so.