BRUSSELS — The British finance minister, George Osborne, is expected Tuesday to urge his European Union counterparts to water down proposed rules restricting the size of bankers’ bonuses.
The proposal is a sore point for Britain, which is home to Europe’s main financial hub, and where many in government and the financial industry worry that mandated limit to bonuses could make it harder for London to compete in international banking circles.
A failure by Mr. Osborne to win concessions during a monthly meeting here on Tuesday of the European Union’s 27 finance ministers could fuel disenchantment with the Union among restive members of Britain’s ruling Conservative party. Prime Minister David Cameron has already called for a referendum on Britain’s membership in the Union.
Yet if Mr. Osborne pushes too hard against the bonus cap, his government risks criticism at home for succoring bankers. They are unpopular with large swaths of the British electorate for earning lavish salaries even as a prolonged economic downturn forces many households to scrimp. Many voters also resent the banking industry for receiving a series of giant bailouts paid for by taxpayers.
The meeting Tuesday will follow a Monday evening session by 17 of the same finance ministers, representatives of the euro currency union, who discussed but deferred action on a bailout request by Cyprus. That country is seeking about €17 billion, $22 billion, to shore up government finances and its banks, which were badly exposed to a debt write-down in Greece.
But for Britain, which is not a member of the euro zone, the banker bonus proposal is the main issue. The Cameron government considers the bonus cap “misguided and fear it could impact negatively on London without even combating the excessive risk-taking it was meant to address,” said Simon Tilford, chief economist at the Center for European Reform, a research organization based in London.
“But London is caught between a rock and a hard place, as there’s much popular antipathy toward the bankers,” Mr. Tilford said. The issue of banker remuneration “is pretty toxic stuff Britain,” he added.
Further undermining Britain’s position ahead of the meeting is the result of a referendum over the weekend in Switzerland, also known for its business-friendly climate but where voters approved tighter restrictions on executive compensation. That vote will give shareholders of companies listed in Switzerland a binding say on the overall pay packages for executives and directors.
The bonus cap legislation that concerns the British leadership cleared an important hurdle last week when representatives of E.U. governments and the European Parliament agreed that the coveted bonuses many bankers receive would be capped at no more than their annual salaries, starting next year. Only if a bank’s shareholders approved could a bonus be higher — and even then it would be limited to no more than double the salary.
The rules are drafted so that a banker working in New York for a British bank like Barclays would be subject to the rules, as would a banker in London working for a U.S. bank like Citigroup.
Another reason Mr. Osborne may be hesitant to oppose the bonus rules too vociferously is that they are part of a legislative package that includes something his government favors: tougher rules about how much capital European banks most hold in reserve to protect against losses.
Britain and Mr. Osborne have strongly backed the higher capital requirements as essential for preventing another financial crisis.
In any event, European Union diplomats said ministers were unlikely to formally approve the rules on Tuesday because details still needed to be nailed down. That could still give Britain weeks, or even months, to press for concessions.
There are also questions among some European countries about how strictly to apply parts of the legislation requiring banks to publish detailed information on profits, taxes and subsidies on a country-by-country basis across the globe.
In the case of the separate Cyprus bailout discussions Monday evening, euro zone finance ministers were taking up talks that stalled with the country’s previous, Communist-led government. That government was replaced late last month by a center-right administration, a change that has been welcomed in other European capitals.
Article source: http://www.nytimes.com/2013/03/05/business/global/05iht-euro05.html?partner=rss&emc=rss
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