Banks operating in the eurozone have dismissed a Franco-German proposal to tax financial transations, saying that it would not stabilise the markets and could distort them.

The Association for Financial Markets in Europe (AFME), which represents top banks, also said on Wednesday that a tax would increase costs for European industry and affect growth.

The proposal was announced on Tuesday, following talks in Paris between French President Nicholas Sarkozy and German Chancellor Angela Merkel. Included in the proposal was a call on 17 eurozone countries to commit to balancing their finances and write that goal into their constitutional law by summer 2012.

While neither Sarkozy nor Merkel elaborated on how such a tax would work, Austria, Italy and Spain signaled that they would support the measure.