EU finance ministers reach basic pact to cap bankers’ bonus

The Finance Ministers of the European Union have reached a basic agreement to rein in bankers’ bonus, leaving Britain isolated as the only member-nation refusing to sign up.

The Ministers, who held a one-day meeting in Brussels on Tuesday, endorsed a deal struck last week between representatives of the European Parliament, the European Commission and the EU council of ministers to cap bonuses to a banker’s annual basic salary and to double that amount if a majority of the bank’s shareholders approve.

However, they postponed a final decision to clear some “technical questions” with the British Government in the coming weeks so that the UK too can be taken on board, German Finance Minister Wolfgang Schaeuble said after the meeting.

Further discussions are needed to decide whether the new regulations can take effect on January 1, 2014, and to what extent exceptions to the envisaged bonus cap can be allowed, he said.

The proposals to curb bankers’ bonuses are part of a new package of measures designed to prevent another financial crisis by strengthening the European banks and by reducing risks, according to Irish Finance Minister Michael Noonan, who currently holds the rotating presidency of the EU council of ministers.

“These new rules will make sure that our banks can better withstand the crisis in the future,” he told a news conference.

The proposals about bonuses are also about reducing risks. “The aim is to make sure that bankers are taking decisions in the interest of the long-term stability of banks and this is taken into account in the remuneration packages,” Noonan said.

Political support to curb executive salaries and bonuses rose sharply across Europe after the Swiss voters in a referendum last Sunday overwhelmingly supported proposals to impose strict controls over executive salaries, bonuses and severance pay known as “golden handshake”.

Public outrage over bonuses has been growing after a number of bailout of banks in the wake of the financial crisis in 2008. Many political leaders and economists argued that excessive bonuses encouraged enormous risk-taking by bankers.

The new rules can come into force even with Britain’s objections as only a two-third majority is needed to pass the legislation.

However, Schaeuble and some other finance ministers underlined the need to reach a consensus with Britain.

Under the agreement between the European Parliament and the council of ministers, shareholders will have the prerogative to approve bonuses up to double the annual salary of a banker and even to slightly exceed that limit if there is a close link between bonus payment and long—term performance of the bank.

Discussions in the coming weeks will also explore whether Britain could be persuaded to join by accommodating its concerns and by giving the banks more room for manoeuvre.

The British government strongly resisted the plans to cap bankers’ bonuses expressing fears it could damage London’s financial centre.

Britain’s Finance Minister George Osborne said the proposals to cap bonuses will drive up bankers’ salaries and will make it more difficult to restrain bonus payments.

Noonan said the deal reached with the European parliament was the best possible compromise.

The space for further negotiations is quite narrow and it depends obviously on the goodwill of the commission and Parliament, he said.

COMMENT NOW