Osborne fights alone against EU bank bonus cap
Chancellor of the Exchequer George Osborne was isolated among his EU counterparts yesterday as he lobbied to water down a European cap on bankers’ bonuses, measures popular with an angry public that blames banks’ excesses for the financial crisis.
European Union diplomats and the bloc’s Parliament agreed new rules last week that would prevent bankers from receiving bonuses bigger than their base salaries from next year, though shareholders can agree to double that cap.
Osborne told afinance ministers meeting in Brussels that a bonus cap would have a ‘perverse’ effect.
“It will push salaries up, it will make it more difficult to claw back bankers’ bonuses when things go wrong. It will make it more difficult to ensure that the banks and the bankers pay when there are mistakes, rather than the taxpayer,” said Osborne in a part of the meeting that was broadcast.
“We would like these concerns addressed,” he said, adding that he could not support the rules, which are part of a wider bank capital regime, as they stand.
No other country at the gathering of 27 country representatives spoke in his support.
Britain’s powerful financial sector fears the rules will put London at a disadvantage and provoke an exodus of major banks and staff to rival financial centres, although HSBC, one of Britain’s largest banks, has said it does not have any plans at this stage to move its headquarters.
An inability to fend off the reform, the first of its kind globally, underscores Britain’s waning influence in the EU while playing to a growing eurosceptic complaint that Brussels has too much say on domestic British policy.
London has no veto as the measures only require a weighted majority of member states to become law.
German Finance Minister Wolfgang Schaeuble, however, indicated that he would be uncomfortable with any country being outvoted on the new legislation.
Opening up the possibility of some change, Michael Noonan, the Finance Minister of Ireland, which negotiated the deal with the European Parliament because it holds the EU’s six-month rotating presidency, said officials would now examine technical issues surrounding the rules.
Britain could try to push to change the scope of the rules, which will apply to all EU bank staff globally, regardless of where they are based, or propose extra flexibility on how bonuses are calculated.
But any changes are likely to be limited. “There is very little further we can do for them because we pushed the negotiations to quite a degree, and we got the best possible compromise with the Parliament,” Noonan told reporters before the meeting began. “There isn’t any more room left”.
Michel Barnier, the European commissioner in charge of financial regulation, underscored the depth of emotion on the issue when he spoke to EU finance ministers.
“Some bankers took ever greater risks because they were being paid from an unlimited bonus pool,” he said, referring to the global financial crisis that started in 2008.
“When the risks created a crisis, indeed a disaster, it was the taxpayer that had to carry the can. Enough is enough, we have to put a stop to that.”
While the finance ministers agreed not to finalise the deal yesterday, partly out of courtesy to Osborne, there is little appetite to change the deal. “These rules have very wide backing,” Austrian Finance Minister Maria Fekter told reporters. “As far as I know, only the British are against.”
Some in the British Government believe banks could take legal action on the grounds that the EU is going beyond its remit in legislating on remuneration, an official familiar with British thinking said.
Analysts estimate the law will initially affect around 300 to 500 people in each large bank, or around 5,000 people in London.