This could make bank lending a crisis for british business if it weren't bad already!George Osborne is defeated 26 to 1 on EU bonus caps
Britain was today defeated after being outnumbered 26 to one over controversial European Union proposals to impose caps on bonuses paid to bankers.
The EU finance ministers' meeting is George Osborne's first chance to challenge plans for the cap that is seen as popular with voters. Photo: Reuters
4:30PM GMT 05 Mar 2013
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EU finance ministers overruled British opposition to the banking remuneration caps and "technical negotiations" over the detail of regulations to begin next week ahead of a final decision next month.
Michel Barnier, the European Commissioner for financial services, hailed a "crystal clear" deal allowing the EU to impose a bonus limit of 100 pc of salary, or a maximum 200pc after agreement with shareholders, from January 2014.
"The caps are fixed," he said. "These caps will be the basis of our work from now on. All the main points have been approved and will not change."
The caps will also apply to all European bankers working in New York, Hong Kong, Singapore or other overseas branches, again overriding British concerns.
Mr Barnier insisted that the EU was confident that the caps would survive the threat of legal challenges by banks because the legislation specified bonus ratios to existing salaries rather than setting precise ceiling figures for payments.
"I wish them good luck," he said. "We examined the treaty closely. I suggest they look into it clearly and the implications for their reputation."
George Osborne warned Tuesday's meeting of EU finance ministers that plans to set curbs on bonuses could push up salaries in the banking sector and make it more difficult to link pay for bankers to performance.
The Chancellor has effectively been defeated faces over the EU rules and is left pushing for minor technical arrangements that will discount up to 25pc of payments on bonuses agreed by shareholders if they are tied to a bankļ¾s longer term performance.
"Our concern is that it may have a perverse effect, it may undermine responsibility in the banking system rather than promote it," he said.
"We all want to see what more we can do to increase the incentives for long-term bonus packages."
Mr Osborne expressed British concern that the banker remuneration proposals had not yet been discussed in detail by finance ministers after being added to regulations on bank capital requirements by the European Parliament but was outnumbered 26 to one by other EU countries.
EU officials will now draft a legal text over the course of March, before a vote by MEPs in April and Britain is hoping that, with German support, they can present the limited linkage of bonuses to performance as evidence of a compromise.
"I can't support the proposal currently on the table but I hope that if we make progress over the next couple of weeks that we can have a package that we can all support, that the finance minister of the largest financial sector in Europe can support wholeheartedly," he said.
British officials have moved away from threats to use the 'Luxembourg Compromise', a convention that allows a country to block legislation in order to preserve "vital national interests" because it would sink a whole package of EU legislation on capital requirements for banks.
"We will have to see what happens. As the proposal currently stands the UK cannot support it. We are in the middle of the legislative process, we will see how it concludes," said an official.
Germany is backing the proposals for caps that are opposed by Britain but offered some limited relief to Mr Osborne by backing the limited linkage to long-term performance.
"It's in Europe's interest that Great Britain stays on board," said Wolfgang Schaeuble, the German finance minister.
Mr Barnier argued that the EU's banking remuneration proposal was "compatible with sound risk management" in the banking sector.
"We want to discourage excessive risk taking. This financial crisis started in the US and spread to Europe and there are examples in Europe in particular that some bankers took ever greater risks because they were being paid through an unlimited bonus pool," he said.
"When the risk became a crisis or indeed a disaster it was the taxpayers had to carry the can. Enough is enough. We have to put a stop to that.
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