George Osborne earlier this month challenged proposed EU rules concerning bankers’ bonuses. With limits ratified by a majority of EU nations, Mr. Osborne tried to oppose the motion, citing the detrimental effect it would have in the City of London.
The motion was passed, but there is room for it to be fine tuned prior to a formal vote next month. The Chancellor’s failure to stand up for British banking interests was seen to show just how weak Britain is in the EU, and gained him and Prime Minister David Cameron criticisms for their relationship with Europe. UKIP spokesman Godfrey Bloom commented that “this outcome on bankers’ bonuses perfectly illustrates how weak and ineffective the British government is in defending the interests of one of our largest industries.”
The motion debated at the meeting of ministers the other week ended up with draft regulations setting out that bankers’ bonuses would be capped at a year’s salary- or, if the shareholders agree, double that. If ratified by the EU lawmakers, this would come into effect next year, and would help to stabilise EU banks against future economic crises. Before the talks, Switzerland had backed the idea of curbing bankers’ lucrative pay packages.
While there was great consensus across the EU in support, George Osborne, representing the UK and the City of London, strongly dissented, stating firstly that such a cap on bonuses was never part of the Capital Requirements Directive under negotiation.
The UK negotiating team had warned EU ministers that the cap could have “perverse effects”, such as increasing bankers’ basic salary levels. Such a cap would be bad for business across the European banking sector, and might potentially drive both banks and bankers out of Europe, Mr. Osborne warned. In support, Mr. Cameron’s spokesman added that there should be measures in place to “ensure that there are the right long-term incentives linking remuneration to long-term performance” in the financial services industry. Underlining his opposition, the Chancellor told EU finance ministers that he could not support “the proposal currently on the table” in Brussels.
Such strong opposition was not enough to counter the motion. Agreed by a majority of EU nations, the motion moves forward to the next stage in becoming legislation. EU ministers fear that at the next set of meetings on this matter, the UK might attempt to use a “national interest” motion to block the agreement.
Under the Luxembourg Compromise, although rarely used, a member state can block a majority decision if there is sufficient evidence that such a decision would have a detrimental effect a matter of great domestic national interest.
Although criticised for not opposing the motion strongly enough, many in the City of London feel glad that Mr. Osborne is doing the right thing in standing up for Britain’s banking interests, and in championing the British financial industry, one of the UK’s biggest industries, in Europe.