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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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