EU Pushes Ahead With Bonus Cap Despite UK Concerns
Britain stood isolated against a broad majority of European Union countries Tuesday in refusing to back legislation that would strictly limit bankers’ bonuses.
Treasury Chief George Osborne said at a meeting of the bloc’s 27 finance ministers in Brussels that Britain, home to one of the world’s largest financial industries, can’t support the current proposal to limit bonuses. The UK fears the cap would drive banks to set up outside Europe in the U.S. or Asia.
But Irish Finance Minister Michael Noonan, who chaired the ministers’ meeting because his country hold the rotating EU presidency, concluded there is a "broad majority" in favor of the legislation. This gives the necessary green light for finalizing technical details toward a formal vote on the package by the ministers next month.
The bonus cap is part of a sweeping 1,000-page package of financial laws that will require banks starting next year to hold more capital and liquidity reserves to shield taxpayers from having to pay for any more expensive bailouts. Those rules will implement the internationally agreed Basel III rules on banks’ capital buffers and will also lay the groundwork for a single banking supervisor for the group of 17 European Union countries that use the euro.
"It’s about protecting taxpayers in the future by building stronger European banks," Noonan said. "These new rules will make sure that our banks can better withstand future crises."
The bonus cap would be set at one year’s base salary or double that if a large majority of the bank’s shareholders agree. Not only does the measure affect all of Europe’s banks but it will also be mandatory for European units of foreign banks and the employees of EU banks working overseas, for example in New York.
European officials are trying to avoid forcing the legislation through without Britain’s consent. This would be a politically toxic move given the already significant level of euro-skepticism in the U.K.
German Finance Minister Wolfgang Schaeuble Tuesday insisted "it would be better" to reach consensus. He expressed hope that changes in the legislation’s fine print this month might yet convince Britain to support the measure.
British Prime Minister David Cameron sees Brussels as meddling too much with the member states’ own business. Cameron has vowed to renegotiate his country’s ties with the EU and hold a referendum on Britain’s membership in a few years.
Britain has said it fears the bonus cap will drive up base salaries and harm the financial sector in London, one of the world’s largest, and hamper growth. Proponents of the cap say the high payments encouraged bankers to take massive risks at the expense of the long-term future of their businesses, and helped to destabilize the financial system in 2008.