Europe ups G20 ante with bonus ‘clawback’ deal

A bid to jolt United States President Barack Obama into agreeing a future “clawback” of excessive bankers’ bonuses at next week’s G20 summit gathered momentum on Friday after European leaders upped the ante.

Days from pivotal talks on bonus curbs, exit strategies and financing the fight against global warming, details emerged of a US Federal Reserve plan to plough government regulators into the heart of decision-making on bankers’ pay.

At a summit which ended late on Thursday, European Union heads of state stopped short of agreeing to push for fixed caps at a meeting of the world’s 20 most powerful countries in Pittsburgh, Pennsylvania, on September 24 and 25.

But they still broke the mould with their drive for sanctions on fast and loose financial institutions.

“The bonus bubble bursts tonight,” said Swedish Prime Minister and current head of the EU Fredrik Reinfeldt after a summit declaration said bonuses should be “cancelled” where banks’ earnings are deemed not to justify pay outlays.

Reinfeldt said anything less would be “a provocation” to the tens of millions of workers expected to be out of a job by next year under the lagging effects of the world’s deepest post-war downturn.

The 27 EU members also agreed to pursue ideas that could enforce “an absolute limit on bonuses, in other words a cap”, according to senior European finance minister and Luxembourg premier Jean-Claude Juncker.

“The British have problems with that, like the Americans … [but] we are going to study the question,” he added, having earlier claimed Europe should act “whether the Americans are with us or not”.

A top US presidential aide has ruled out fixed caps despite Obama lashing out at top Wall Street executives this week.

The US Federal Reserve would be required to approve salaries for tens of thousands of US bank workers as part of a plan to curb risk-taking at financial institutions, the Wall Street Journal reported.

“Bureaucrats wouldn’t set the pay of individuals, but would review and, if necessary, amend each bank’s salary and bonus policies to make sure they don’t create harmful incentives,” the report said.

The move requires only a vote by the Fed board, and not a Congressional green light.

Three US banks that were massive recipients of bailout funding, Goldman Sachs, Morgan Stanley and JP Morgan, each paid out billions of dollars more than they even earned in 2008 bonuses, according to a report from the New York attorney general’s office.

A breakthrough on unwinding unprecedented economic pump-priming, though, remains elusive amid arguments over when to start hacking back at mushrooming national deficits in some cases running to 200% of national output.

British Prime Minister Gordon Brown said governments worldwide should pump out another $2,5-trillion of state support over the coming year, stressing that the fight against unemployment was now “uppermost in our minds”.

But Reinfeldt argued that “the foundation for the financial crisis was highly indebted people”, and warned: “The solution cannot be highly indebted countries.”

On the fight against global warming, Brussels wants the US and other rich nations to provide at least €5-billion of “fast-start” money next year to help poor nations tackle climate change.

The European Commission estimates that €5-billion to €7-billion annually will be needed in the 2010-2012 period until a more long-term “financial architecture” is put in place, hopefully, at a UN climate conference in Copenhagen in December. — AFP

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