Source: The Canadian Press

Federal finance minister Jim Flaherty scored a decisive victory on a global stage on Friday, convincing some fellow world financial leaders that a multilateral bank tax to ward off another economic meltdown was not the route to take.

Not only was there no agreement among Group of 20 finance ministers and central bank governors about the International Monetary Fund’s appeal for such a levy, Flaherty said, but he’d brought some of his colleagues onside during the daylong discussions.

“I won’t give you a count, that wouldn’t be fair; let’s just say there’s a significant number,” a smiling Flaherty said following a news conference alongside his South Korean counterpart.

“The logic of it doesn’t make sense for countries that didn’t have to bail out their banks to now impose a capital tax on their banks … it’s not a realistic scenario.”

In a communique released at the end of the day’s meetings, the G20 said reform of the global financial sector “is multi-faceted, but at its core must be stronger capital standards, complemented by clear incentives to mitigate excessive risk-taking practices.”

But the joint statement failed to endorse the controversial levy.

U.S. Treasury Secretary Tim Geithner cracked wise at a later news conference when asked whether Flaherty had won his battle against the tax.

“All things are swinging Canada’s way,” he joked. “They won the medal in the Olympics, the hockey medal. That is a good sign for Canada.”

But he added he understood the Canadian perspective since Canada didn’t have to bail out its banks amid the global economic meltdown in the autumn of 2008. He also said he believed there was a broad consensus among G20 countries on overhauling the financial sector, although Flaherty has said previously that many American proposals on that front have long been in place in Canada.

The Obama administration, Geithner said, hoped to set an example for the world by securing congressional support for a strong overhaul of financial regulations in the United States. The U.S. Senate is slated to start debating the measure next week.

Flaherty has been the staunchest opponent of the IMF’s recommendation that countries unilaterally tax banks and financial institutions in order to ward off future economic crises and protect taxpayers from having to bail out failing banks.

The U.S., Britain, Germany and France support the IMF proposal, while Canada, Australia and Brazil are among those against it.

Guido Mantega, Brazil’s finance minister, has said he doesn’t understand why Brazilian banks should be asked to pay the tax when they didn’t fail or produce huge losses during the recession.

Flaherty, however, has emerged as the loudest voice opposing the tax, and he arrived in Washington defiant in the face of the IMF’s appeal.

“We’re a sovereign country; we can regulate our banks and our other financial institutions as we see fit,” Flaherty said Thursday.

Flaherty, in fact, loomed large in a city with the biggest political celebrities on the planet hogging the spotlight. While visits from Canadian cabinet ministers usually attract attention from only the Canadian media in the city, reporters from international news organizations have been trailing Flaherty during his time in D.C. this week, peppering him with questions about his anti-bank tax crusade.

The IMF proposal could cost the financial sector as much as US$2 trillion. It’s aimed at creating funds by taxing banks on their profits, compensation and borrowing.

The banks would then use those funds to ward off collapse in the event of another financial crisis.

Flaherty says such a move would increase instability by reducing the capital of banks. Instead, he said, the G20 should focus on rules to bolster capital requirements and cap leverage of financial institutions.

After receiving input from finance ministers, the IMF is expected to make its final proposal on the bank levy when the G20 leaders meet in Toronto in June.

Also on the agenda on Friday was the request from Greece for a massive bailout as it teeters on the brink of defaulting on its debts.

The country appealed Friday to its partners in the European Union and the IMF for US$60.5 billion in emergency loans. Such a bailout could potentially be the biggest ever for any country.

“We are prepared to move expeditiously on this request,” said the head of the IMF, Dominique Strauss-Kahn.

But the IMF’s chief economist, Olivier Blanchard, signalled his opposition to such a bailout earlier this week when he discouraged lending money to Greece at high interest rates. He said the country should get itself out of its own financial mess.