Banner

Newsnet Main Articles

  By Bob Duncan
 
The UK has found itself isolated in Europe again after Chancellor George Osborne refused to back a plan to limit banker's bonuses despite it having been agreed by the finance ministers of every other EU member state.
 
The EU proposes to limit bonuses to 100% of bankers' annual salary, or to 200% with explicit shareholder approval. Further talks will take place, but all countries have already accepted the plan with the exception of the UK.

A formal vote will follow in a few weeks, and will be passed with a qualified majority of 2/3 of members. This means that, while the UK may try to gain concessions during negotiations, it has no veto on the result.

Following the meeting, chancellor George Osborne argued that the UK already had Europe's toughest regime for banker's pay and that a cap could “have a perverse effect”.

German Finance Minister Wolfgang Schaeuble said at Tuesday's meeting that “it would be better” to reach a consensus with the UK, but EU officials say that there is little scope for the UK to alter the agreement significantly.

It is almost unprecedented for the UK, which has several major financial centres including the city of London, not to back EU financial legislation.

Simon Lewis, chief executive of the lobby group the Association for Financial Markets in Europe, said the proposed measures were not just a threat to the City of London, but to Europe's competitive position in financial services.

He told the BBC: "If this goes ahead, you will see the law of unintended consequences. Salaries will go up, there will be less flexibility, and the banks will be less competitive."

London Mayor Boris Johnson agreed with Lewis, dismissing the bonus cap as "self-defeating", saying it would at best provide "a boost for Zurich and Singapore and New York at the expense of a struggling EU.

"This is possibly the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman Empire," claimed Mr Johnson, adding that the decision was likely to further strain the relationship between the UK and Brussels.

According to the BBC, there has been speculation that the UK may try to block a bonus cap by invoking the little-used "Luxembourg Compromise", a defence which allows a member state to block a majority decision being taken if an issue is deemed to seriously affect "a very important national interest".

There are also reports that some banks are taking legal advice to see if they can have the proposed cap ruled unlawful, but the European Commission has said that it is confident the proposals are legally watertight.

The bonus proposals form part of a basket of measures requiring banks to strengthen their capital buffers, which the EU has adopted  in the hope of avoiding another financial crisis.

Many voters and political leaders on the Continent - as well as many economists in the UK - blame excessive bonuses in the financial sector for encouraging the risky behaviour that led to the 2008 financial crisis.

Michel Barnier, the EU commissioner for the single market, claimed  high bonuses were the reason for excessive risk-taking by bankers. He said: "Enough is enough. We've got to put a stop to that."

Shadow chancellor Ed Balls said it was "no wonder" that George Osborne found himself outvoted 26-to-1. "He failed to engage with these sensible proposals to limit bonuses... until the very last minute.

"It shouldn't take the European Union to rein in excessive bonuses, but George Osborne has dragged his feet and refused to act in Britain."

Arlene McCarthy, British MEP for the Labour Party and Vice President of the Economic and Monetary affairs Committee said:

"These rules are designed to make banks safer, more accountable, and to ensure they focus on lending to the real economy.

"It will put an end to an unsustainable banking model, where bailed-out banks with £5.2bn losses, £1.1bn fines for mis-selling, £390m fines for Libor-fixing, were still in 2012 paying over £600m in bonuses.

"This is neither ethnical nor sustainable. The industry has had two years to sort this out, and their failure to tackle the culture has resulted in these tough rules.

"It's a shame that the UK government has sought to defend this broken bonus culture by acting as the trade union for a minority of highly paid traders."

Comments  

 
# willie boy 2013-03-06 07:28
Britain being out of step with all of the rest of Europe really comes as no surprise and one has to wonder what the Europeans make of the belligerent and aggressive UK on their shores.

Indeed,closer to home one has to wonder what individual non British EU nationals resident in the UK feel as an increasingly hostile UKIP and Tory party scream about European residents in the UK stealing UK jobs and taking benefits to the extent of bringing the system UK system to breaking point.

This is the rhetoric of 1930's Germany against Jews and yet today a Tory cabinet minister actually declared that Europeans were bringing the UK benefits system to breaking point.

With comments like these and the declared intention to remove the ECHR, one can now imagine exactly how the Jews in Germany felt back then, and how modern day Europeans resident here will now be starting to feel.

We are witnessing the rise of the right and it is vicious and unpleasant.
 
 
# Ben Power 2013-03-06 09:20
Exactly, and there are unforeseen backlashs that UKIP type Brits have not looked at.
All those fellow British residents in Europe!!!!
They will the first to feel it if Britain upsets European countries.
There are distinct local property values and ownership and health system advantages in Europe to pushing retired Brits out of their homes there and back to UK, more than their value to the economy.
Then there is the problem that all those returning expats and local authorities would have re-establishing them back in UK. Not to mention that most will have lost entitlement to NHS services.
The list of repercussions will be longer.

Little England types or Little Eu types never look at the longer term effects of their simplistic wish lists.
We may be an island but only geographically.
EU and UK are inextricably bound, always have been and its economically and culturally nuts to attempt to be a cheery picking isolationist.
 
 
# robbo 2013-03-06 10:30
Quoting willie boy:
This is the rhetoric of 1930's Germany against Jews and yet today a Tory cabinet minister actually declared that Europeans were bringing the UK benefits system to breaking point.

With comments like these and the declared intention to remove the ECHR, one can now imagine exactly how the Jews in Germany felt back then, and how modern day Europeans resident here will now be starting to feel.


That is an absolutely disgusting comparison. Offending both victims of the holocaust and Eurosceptics like myself.

Consider this, if we leave the UK and stay in the EU, English people will have access to our free education via EU laws and there will be a flood.

It policies like this which puts me off the EU.

Leaving the EU doesn't means stopping immigration altogether or stopping cross border trade or isolationism. It means reserving the rights to control these things.
 
 
# chicmac 2013-03-06 12:17
Good article Bob, but "It is almost unprecedented for the UK, which has several major financial centres including the city of London, not to back EU financial legislation." hardly 'unprecedented' though.

Remember the meeting Cameron was banned from in late 2011 after vetoing the financial regulations changes to the treaty? He had to ask the Irish delegates if Britain was still in Europe.

And Van Rompuy made a speech just last week in the lion's den in London where he said in no uncertain terms, to paraphrase "There's the door, we will not be bothered if you leave."

OK I didn't see it in the Brit press but it was widely reported in Europe.
 
 
# fynesider 2013-03-06 12:36
"chancellor George Osborne argued that the UK already had Europe's toughest regime for banker's pay and that a cap could “have a perverse effect”."

The perverse effect being, presumably, that some of the fat-cat bankers might up sticks and leave this sunny clime?
 
 
# josepy wallace 2013-03-06 13:02
No supprises with the uk throwing thier toys out the pram it has been a long time coming reigning in the banks and the uk government dont have the balls as most of them got rich of the back of the humble taxpayer its not rocket sience
 
 
# robbo 2013-03-06 14:24
The cap is stupid. It's treating the symptoms and not the cause. For as long as there is a central banks handing out cheap money to commercial banks then there's going to be an abnormal amount of wealth in the financial services industry.

Bonuses will likely be in the 40%+ tax bracket anyway.

Best treat the causes and not the symptoms. Banks will easily find ways around this cap.
 

You must be logged-in in order to post a comment.

Banner

Donate to Newsnet Scotland

Banner
Banner

Latest Comments