European leaders call for rules to rein in bank bonuses

THE LEADERS of Europe’s three largest nations, Britain, France and Germany, yesterday issued a joint call for “binding rules” to rein in bankers’ bonuses as the finance ministers of the G20 group of nations prepared to meet in London this weekend.

The joint letter from British prime minister Gordon Brown, German chancellor Angela Merkel and French president Nicolas Sarkozy signals that Europe is uniting behind specific proposals to link the size of bonuses to fixed pay and to bank performance over long periods. The three leaders also came out in favour of deferring awards and clawbacks in case of negative outcomes.

The move comes at a time when anti-banker sentiment is running high and is designed to put pressure on the US and other big nations to come up with workable proposals. “Even the English understand that you have to regulate, you have to impose limits and that there are unacceptable scandals,” Mr Sarkozy said.

France and the UK already have bonus rules in place but UK chancellor of the exchequer Alistair Darling said last night that “international co-operation is needed to prevent banks playing off one country against another”.

In spite of the unity letter, it is clear significant differences remain. French and German officials have proposed taxing or placing legal caps on bonuses, something the UK and US have opposed. The communique includes only a nod to the idea of an overall limit, saying the three countries want to “explore ways to limit total variable remuneration in a bank either to a certain proportion of total compensation or the bank’s revenues and/or profits”.

But it is silent on the subject of targeted taxes or absolute caps.

In what may be a warning shot to nations considering setting themselves up as a kind of off-shore haven for bankers, the letter suggests that financial institutions that do not comply with agreed G20 guidance on risky business activities should not be given mandates to operate in G20 member states.

Above all, the leaders said, action was needed to reassure the public. “Our citizens are deeply shocked at the revival of reprehensible practices, despite taxpayers’ money having been mobilised to support the financial sector,” the letter said.