Europe Divided on Banker Bonus Caps
EU support is swelling for Franco-German plans to limit bonuses paid to bankers in the aftermath of the financial crisis, but the UK continues to cast doubt on the scheme.
The finance ministers of EU presidency country Sweden, the Netherlands, Belgium and Luxembourg at an EU finance ministers' meeting in Brussels on Wednesday (2 September) all backed the austerity measures.
Swedish minister Anders Borg gave the catchphrase of the day, saying that "bankers are acting like it's 1999 but it's actually 2009."
The EU anti-bonus group is gathering momentum ahead of a G20 summit in Pittsburgh, US, on 24 September, where French President Nicolas Sarkozy aims to shape a global bank regulation deal.
The French model includes caps and taxes on bonuses, as well as staggering payments over three yeas and canceling rewards if investments fail.
German Chancellor Angel Merkel recently said that existing bank culture "drives people up the wall." The European Commission earlier this year also recommended linking bonuses to long-term company performance.
The new policies come in the context of popular outrage that individual bank chiefs have become millionaires while using public money to bail out their failed firms.
In Belgium, Jean-Paul Votron left his job as CEO at the bankrupt Fortis (FOR.BR) bank with €6.3 million in his back pocket. In the UK, Fred Goodwin walked away as CEO of the Royal Bank of Scotland (RBS) with an €800,000 a year pension shortly before the bank posted disastrous losses.
The UK, home to one of the EU's major financial hubs in the City of London, could prove a stumbling block for France, however.
UK leader Gordon Brown in an interview in the Financial Times out on Tuesday voiced disapproval of imposing a mandatory cap. "I think that is very difficult in an international environment," he said.
London mayor Boris Johnson is at the same time leading a City of London campaign to get the EU to back off on regulating hedge funds.
"It's always open to people to construe it as a naked attempt by Paris and Berlin to attack the competitiveness of the City of London," he told the BBC on Wednesday.
Some independent analysts have also portrayed French plans as a knee-jerk political reaction to please the public.
"Talents are just going to leave the industry and do their business elsewhere, so I don't think it's a workable avenue," Otto Waser, an analyst at the Swiss-based R&A Research & Asset Management told Bloomberg.