Bankers are now hoist on their own austerity petard. The fact that ordinary citizen all across the Eurozone are seeing lower incomes, lower levels of social services, and can expect only more of the same seems to have led to a sudden outburst of resolve to make sure that bankers take the pain along with everyone else. The Financial Times gives the overview:
Bankers’ bonuses in Europe would be capped at two times fixed salary under a tentative EU agreement that would mark the most severe crackdown on pay since the 2008 financial crisis.
The European parliament and negotiators for member states drafted a deal in Strasbourg on Thursday that would impose a 1:1 bonus to salary ratio, which can be increased to 2:1 with the backing of a supermajority of shareholders.
The draft terms, which would apply to all banks operating in the EU, will come as a shock to the industry, which was bracing itself for a fixed cap of some kind but was relying on the UK and Germany putting pressure on to relax the limit.
Now this is quite a way from getting done, particularly since at the beginning of the year, Cyprus will no longer be managing the negotiations and Ireland will step into its place. In addition, the idea of setting a cap on bonuses without restricting salaries is just asking for banks to increase salaries, which they also did the last time bonus caps were mooted, right after the crisis. It would be much better to impose a maximum wage, say of 25 times the pay of the lowest paid worker, including contractors who work more than a specified number of weeks a year (with pay of part-timers grossed up to full time equivalent).
But what is striking is the strength of the sentiment:
Britain will lead calls for the bonus cap to be scrapped or raised significantly. But its strong stand is relatively isolated in the European Council, especially because ministers are reluctant to suffer political fallout from defending the rights of highly paid bankers. A final decision can be taken by majority vote…
One senior eurozone diplomat involved in the talks said many countries had taken the decision to broadly accept whatever compromise was reached in the negotiations with the parliament. “We don’t care about the number, there is no way we are standing up for excess pay,” he said.
Bankers are wily and politicians are easily distracted. But the public might not be. While I don’t give this particular measure much hope, the desire to clip the wings of financiers is likely only to intensify, and that will lead to some intriguing political theater.