National Windfall Taxes on EU Banks: Legal Aspects and Interplay with Monetary Policy

During periods of sharp and significant interest rate increases implemented by the central bank, financial institutions have recorded substantial profits. These profits have prompted certain EU Member States to introduce windfall taxes on banks. Nevertheless, such taxes raise a number of legal concerns, as their compatibility with international law, EU law and constitutional principles remains subject to debate. Despite these legal complexities, windfall taxes are often presented as appropriate fiscal instruments in times when the redistributive function of taxation is particularly pressing. However, when considering windfall taxes specifically targeting banks, one may observe that beyond their redistributive objective, they may also serve a regulatory function. In this light, windfall taxes on banks could be conceived as fiscal policy tools complementary to monetary policy measures capable of enhancing the effectiveness of contractionary monetary decisions. The implementation of a windfall tax on banks with the explicit aim of complementing monetary policy decisions would, however, require legislative action at the EU level, which entails significant institutional and political challenges.