The chancellor is having to tread a fine line these days between being seen to make the City squirm, and defending its right to pay out billions in bonuses for its staff. Today it’s the latter, as Osborne is in Brussels trying to negotiate some flexibility for London’s major banks in the face of new plans to cap bankers’ bonuses at 100% of their salary.
It’s not going to be an easy ride: EU finance ministers in the Economic and Financial Affairs Council (Ecofin) are said to be pretty keen on ratifying the proposals and getting them on the statute book. There is some leeway involved in the plans – if shareholders are in explicit agreement then the bonus can be 200% of the salary, but that’s about as far as it goes.
Needless to say, banks are very unhappy about it. The major ones in London are reportedly planning to sue the EU over the proposals after discovering from their lawyers that such a regulation could be struck down in court if the fight gets that far.
The law firm dispensing this advice, Shearman & Sterling, said: ‘We believe, on balance, that a mandatory provision fixing the maximum salary-bonus ratio payable in the banking sector not only contravenes European law because the EU lacks the requisite competence to legislate on issues relating to pay, but may also violate the constitutions of member states, such as Austria, Germany and Poland.’ (Not that we’ve seen many masters of the universe in Warsaw).
But what if the legislation goes through regardless of the views of a London-based law firm? Well, there is one last tool at Osborne’s disposal. It is known as the ‘Luxembourg compromise’, an agreement from back in 1966 that says states will not be overridden on issues deemed to be of vital importance to their national interest.
It’s fair to say, given that it is Europe’s largest financial centre, the City is pretty vital to the UK economy. Still, it was apparently only a ‘gentlemen’s agreement’, and would amount to no more than a defence before the European Parliament, rather than a statutory veto.
So what are the odds? The vehemence of European leaders who want to see this legislation passed is going to be a high wall for Osborne to climb. The French finance minister, Pierre Moscovici, said: ‘Everyone must live with what is on the table. I told George Osborne, when I was in London, these moral rules apply to everyone, even the City.’
If you hadn’t already noticed that the French have been relishing the recent spate of City-of-London-bashing, it’s worth deconstructing his view here. First, ‘everyone has to live with’ suggests blatant disregard for democratic process, and second, since when did ‘moral rules’ take precedence over actual law?
Well, those questions are not for us to answer, but they are the kind of brazen autocracy that Osborne is up against. We don’t hold out much hope for the one-man-band in Brussels…
Meanwhile, Standard Chartered today reported its tenth consecutive year of profit growth, with pre-tax earnings rising 1% to an all-time high of £4.57bn. Bonuses all round, no doubt.