London: European finance chiefs called on Friday for an end to bankers’ bonus culture, highlighting a split with the US at Group of Twenty (G-20) talks, which will also debate winding down emergency support for the world economy.
Won’t relent: US treasury secretary Tim Geithner. The US and Britain will likely oppose strong proposals such as capping and taxing bonuses. Jay Mallin / Bloomberg
Finance ministers from the world’s richest countries and top emerging powers will use the two-day meeting in the city to lay foundations for a G-20 leaders’ summit in Pittsburgh, US on 24-25 September.
A year after the worst financial crisis since the 1930s erupted and with countries such as Japan, France and Germany now out of recession, the G-20 has shifted from firefighting to ensuring recovery is sustained and deep-rooted.
But politicians warn the situation is still fragile and there is no room for complacency amid debate on when to withdraw emergency fiscal stimulus packages which buoyed economies through the worst of the crisis.
Bankers are again in the crosshairs of leaders who argue their lucrative compensation schemes fuelled a short-term pursuit of profit that helped destabilize the financial system.
“The bonus culture must come to an end and it must end at the G-20 meeting in Pittsburgh,” finance ministers from seven European countries including France and Germany wrote in a letter to the Financial Times (FT) newspaper on Friday. “We must be very clear: these practices are not only dangerous, they are improper, cynical and unacceptable.”
The strongly worded letter —which described banks returning to “business as usual” post-crisis as “a provocation” and raised capping and taxing bonuses—showed some G-20 powers want to go further than others on the issue.
Britain and the US, keen to protect major financial centres in the City of London and Wall Street, will likely oppose such strong proposals.
The US sees bonuses as a “non-subject”, according to a European official who spoke anonymously.
Sweden, which holds the rotating European Union presidency, announced on Friday an extraordinary summit of EU leaders on 17 September ahead of the Pittsburgh summit which will seek a common position on curbing bonuses.
G-20 finance ministers will also look at when and how to reverse the massive fiscal stimulus which states pumped into their economies after the credit crunch.
US treasury secretary Tim Geithner, while downplaying hopes for concrete results from the London meet, has reportedly said exit strategies are “very important to confidence” on the financial markets.
Managing director of the International Monetary Fund, Dominique Strauss-Kahn, urged caution on Friday, saying there was “a real danger” of pulling back prematurely.
Britain’s finance minister Alistair Darling, host of the London meeting and whose country is still in recession, is also wary. “One of the biggest risks I think is for people to think that the job is done,” he told BBC radio on Friday.
Recent statistics suggest that while leading economies are getting stronger, the road to recovery may be rocky.
The Organisation for Economic Cooperation and Development said on Thursday the US and eurozone should rise out of recession in the third quarter but warned of a possible “bumpy” recovery.
Also at the meeting, the US will press for stronger capital and liquidity standards for banks so they can absorb any future losses without needing state help. “(The) regulatory framework failed last year,” Geithner wrote in Friday’s FT. “Strengthening capital requirements is an essential part of a broader effort to modernise our regulatory framework so that the financial system is strong enough to withstand the failure of large, complex institutions.”
Finance ministers and central bankers from G-20 countries Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey and the US will attend the London meet. The Netherlands and Spain will also be represented.