Europe's financial ministers are expected to approve new rules today that would cap bankers' bonuses at two years' salary – a move unthinkable in the years before the Lehman collapse.
When European finance ministers meet today in Brussels, they will discuss a limit on bonus payments for bankers. And here is the surprise: They might actually agree on such a cap.
Europe is undergoing a shift on executive pay that seemed unthinkable in the years before the Lehman collapse and the eurozone debt crisis, and the so-called Ecofin meeting in Brussels is another important step in that development.
Last week the European Parliament and the European Union Commission agreed on rules which would see bankers’ bonuses capped at a year’s salary, only with explicit approval from shareholders this amount can rise to two years’ pay. It is this deal the finance ministers now have to vote on.
In a separate development, Switzerland, which is not part of the EU, held a referendum on March 3 which brought a resounding approval for limiting executive pay and banning payouts to new and departing managers.
There was praise for both decisions, but particularly for the Swiss vote, across the continent.
And in Germany, Julia Kloeckner, the deputy chairwoman of the conservative CDU party, said, “I am very surprised about the Swiss result and well done, hats off! I think it is a strong step, because Switzerland has set different priorities in other finance political issues compared to Germany.”
In France, President François Hollande, a Socialist, has been trying for some time now to introduce a 75 percent tax on annual incomes of more than one million euros, so far without success. And in Germany, which has general elections in the fall, parties across the political spectrum are looking favorably at a campaign that aims to narrow the income gap.
There is one notable exception to the chorus of praise: Britain. The City of London is one of the world’s leading centers of finance, and London’s mayor, the Conservative Boris Johnson, vehemently defended its independence from political regulation.
"This is possibly the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman Empire,” Mr. Johnson told reporters after last week’s decision to cap bankers’ bonuses. Such interventions were likely to benefit Europe’s competitors, he added. "The most this measure can hope to achieve is a boost for Zurich and Singapore and New York at the expense of a struggling EU."
However, British Finance Minister George Osborne will have little support among his European colleagues. Since decisions at the Ecofin level are taken by qualified majority voting, it is widely assumed that the ministers will approve the deal by European Parliament and EU Commission, which also includes higher capital requirements for banks to protect them against a repeat of the financial crash of 2008.
If approved, the new regulations will come into force at the beginning of 2014.