A decision reached last week by the EU’s current chair Ireland and the European Parliament, would see bankers’ bonuses capped under the new law.
Proponents say this will prevent a repeat of a global financial crisis like the 2008 mortgage meltdown that triggered eurozone debt chaos, recession and mass unemployment across the continent.
But Britain and France, as is so often the case, appear at loggerheads going into the morning talks in Brussels on how to implement Basel III, an internationally-agreed set of regulations which tighten capital requirements.
Diplomats say the United Kingdom will not flinch from invoking the ‘Luxembourg Compromise,’ an archaic arrangement originally cooked up by French wartime giant Charles De Gaulle and that one diplomat described as a veto by another name — “an unofficial emergency brake.”
Despite a push by eurozone giants to secure a deal among Britain’s 26 EU partners, the EU remains “many months away in terms of a majority of member states taking a (final) stand,” according to this official.
The concern in Britain is the competitiveness of the City of London — home to the lion’s share of all EU financial business — vis-a-vis New York and Hong Kong.
However, that view is fiercely resisted in Paris and elsewhere.
French Finance Minister Pierre Moscovici told reporters after eurozone talks on Monday night that City bankers could not escape the curbs.
Moscovici spoke of the need of a “moral crusade also applied to the City,” and cited resolute German backing.
Ministers are to examine the proposed text, as modified following the talks with the European Parliament, with only a weighted majority vote required to pass it on to the next stage in the legislative process.
Parliament had wanted to limit any bonus to not more than a banker’s fixed annual salary but agreed it could be twice that size, on the condition that shareholders formally approve such a payment.
Britain has fiercely resisted such limits for years, fearing it will gift US and other international banks and finance centres a golden opportunity to lure the industry’s brightest talent and so weaken Europe’s competitive position.
Basel III was supposed to have been implemented from January this year but the timetable slipped steadily as the banks and some EU member states, notably Britain, baulked at the new rules.
Basel III notably requires the banks to build up their capital buffers and reserves but in doing so, they argue, they have less money left to lend to businesses now struggling in a deep economic slump.
In November, the United States said it too would not make the original January 2013 target date.
British Prime Minister David Cameron said last week that he would “look carefully” at the deal, insisting his own plans for bank reform were in some respects tougher than those in the EU.
European Parliament head Martin Schulz, speaking after last week’s negotiations, said: “The cap on bonuses is a ground-breaking measure that in my view will make the economic system fairer and safer. Exuberant bonuses often provided a wrong incentive for financial markets, encouraging risky behaviour and short-term, purely speculative investment.”