Perhaps I place too much emphasis on turn of phrase. However, the fact that the EU officialdom is starting to use feral imagery in describing the posture they intend to take relative to the financial services industry says they have a keen appreciation of what they are up against. The battle lines are being drawn on pay, with EU members increasingly saying that more than enough is too much. But it’s not that hard for most of them to sign up for this program, since few are as finance-centric as the US and UK have become.
What is even more remarkable is G20 members are claiming they are largely in alignment on this issue. I cannot believe Turbo Timmy is on board (it is one thing to take the photo op, quite another to deliver on nice-sounding statements of philosophy), but I would be delighted to be proved wrong. However, the US experience confirms that there is much to be gained by talking a good game without following through.
From Bloomberg:
European Union finance ministers agreed to push for tighter rules on bank bonuses…Authorities need “stronger muscles and sharper teeth,” Swedish Finance Minister Anders Borg, whose nation currently holds the rotating EU presidency…“The bonus culture must come to an end.”…
French Finance Minister Christine Lagarde said she is optimistic that all 27 EU governments will support proposals she brought to yesterday’s meeting to curb bonus pay at banks. She said the options included an outright cap on bonuses, limiting them as a percentage of total pay, and taxing them.
“In the hours and days to come, all the finance ministers will understand the suitability of the French position and will rally to it, and in a very formal way that may surprise you,” Lagarde said…
“The British were more positive than could be deducted from news reports in the past week,” Dutch Finance Minister Wouter Bos said. Earlier, in response to a question about the U.K.’s efforts to curb bonuses, Bos said he sees “some major countries moving in the right direction but not every country is moving yet as quickly as they possibly could.”
A U.K. official said the government in London “is committed to ending the short-term bonus culture and pay practices that could threaten the stability of the financial system. We need to see measures that are global in scope,” said the official, who spoke on condition of anonymity.
German Deputy Finance Minister Joerg Asmussen said the U.K. endorsed the French proposals “in principle.” The EU wants “a clear relationship between bonus and performance.”….
“Now we have to find a common G-20 position in London,” Asmussen said. “It won’t be enough for Europe to take a position.”…
This will be a very difficult thing to get agreement on and implemented across a wide range of countries,” said Jonathan Loynes, chief European economist at Capital Economics Ltd. in London. “Experience shows it needs to be sorted out on a country-by-country basis.”
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Yves,
The French Government is pitching bonus regulation as a political platform from which further regulatory initiatives will be launched in the coming months and years. By effectively first forcing new bonus rules upon French banks this summer, Paris is now exporting its stance to the EU and, also, to G20.
Even if the initiative fails at G 20, France will be able to claim the moral high ground on the issue. The political capital thusly created by Sarkozy will be used not unlikely to pitch Christine Lagarde as new EC Commissioner for banking and financial services.
The City’s defenses against anything and everything that comes from Paris and Brussels is meanwhile being undermined by the views and proposals from the new enemies within, like Lord Turner. A bit of new FT video with Lord Turner outlining the FSA’s recommended bitter medicine for banks: http://www.ft.com/cms/s/0/d67f2976-9805-11de-8d3d-00144feabdc0.html
Yes a lot of the stance in Europe seems to be about saving political face and curbing pay has populist support even in the UK. I think the EU has a card up its sleeve in the form of imposing hedge fund regulations which would limit the ability of banks to act as hedge funds. Given a choice I think the US would rather tackle pay than effectively bankrupt the large banks in the US by making it difficult to act as hedge funds. Its not exactly Glass-Steagall in that investment banking is not split off but does suggest risky parts of banks will be encouraged to shrink.
Although this seems like a good idea I cannot help wondering whether this is just a sop to the public in that other needed regulation reforms will fall by the wayside as a result. Consumer protection, capital levels, risk modelling reforms will all end up a non starter as politicians chase the financially less aware’s vote.
Most of this is moot because I expect the US to veto all suggestions at the G20, or at least adopt a watered down version of any suggestions which will not impact US financial institutions. It does depend on how much the Chinese are prepared to lean on the US of course, but I expect the US and Chinese are too intertwined to expect much on that front. The only option would then probably be for Europe to go it alone and impose some sort of sanctions against US banks. My take would be that it will eventually happen in Europe, as I see general public perception and discussion at a more advanced stage than in the US.
I don’t know. I get the feeling it’s another situation where the banks will just restructure their pay so total compensation essentially stays the same, they just won’t use “bonuses” for top execs. Will this really accomplish anything? The focus should be on compensation period.
Bloomberg reports yesterday that CEO compensation ROSE 37%
at companies bailed out.
Its too late to reign in the pay …they missed the chance.
The coffers were emptied into bankers pockets!
Hello?
YES!!!!! IT WORKS!!! THE RETURN FROM EXILE!!! DID ANYONE ELSE NOTICE THE OLD FORMAT SUCKED OR WAS IT JUST ME?
EU ministers as “alpha males”? Right!… They’re more like castrated, impotent, corrupt alpha males.
This whole EU has become such a pathetic joke. I just returned to Chicago from Crete (Greece). What a Third World joke that proud EU member is. The whole island has been turned into a garbage dump. It sure says a lot about the Greek-speaking Turks that live there, doesn’t it?
It’s nice to be back in the US, where people don’t urinate on every bush and don’t dispose of their household trash on the very street where they live. Also, I appreciate the fact that in Chicago I don’t have to worry about rabid stray dogs biting me, as is the risk in Greece, Spain, Italy, France, and other long-time EU member nations.
The EU, especially the Western part of it, has become completely irrelevant.
Vinny G.
I have the following question.
In the end, no matter the degree of populist anger toward the financial industry, the world still needs a financial system. As such, which country’s financial industry do you prefer to see dominate globally?
FYI, I vote US. I also think EU and UK will do their best to make sure US does dominate! Above news are clear evidence!
Vinny G.,
if you hate us and you hate our way of life, just don’t come for a visit.
Could there be any significance in the fact that the British official spoke anonymously, whereas the European government officials, who were all quite senior, gave their names?
Heads of state are responding to the widespread public outcry over the perception of excessive compensation in the banking industry. However COP 15 is now only 3 months away, and while political rhetoric scores points with a disgruntled public, it siphons energy away from the tremendous efforts required to find consensus on climate change.
Bank Bonuses and Climate Change
http://thegreenmarket.blogspot.com/2009/09/politics-of-curbing-bankers-bonuses-in.html
Vinnie G. –
Honestly I’d prefer urine soaked bushes and stray dogs to a government peopled with “stray” prosecutors and an out of control prison state. At the same time it is completely unable to regulate its financial industry – diverting FBI resources that were meant to fight massive mortgage fraud to a theatrical fight against terrorism.