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European nations want G-20 to tackle bonuses

European countries made a concerted push to put the thorny issue of bankers' pay and bonuses at the top of the agenda for a meeting of finance officials from the Group of 20 nations.
U.S. Treasury Secretary Timothy Geithner played down expectations for major announcements from the G20 meeting. "This is a stock-taking meeting, not a new-initiatives meeting," he said.Charles Dharapak / AP
/ Source: The Associated Press

European countries made a concerted push on Friday to put the thorny issue of bankers’ pay and bonuses at the top of the agenda for a meeting of finance officials from the Group of 20 nations.

Developing countries, meanwhile, are using the gathering to press for a reform of global financial governance to give them a greater voice in institutions like the International Monetary Fund.

Finance ministers and central bank officials from rich and developing countries representing 80 percent of world economic output are convening here amid mounting signs of an economic recovery. Japan, Germany, France and Australia all recorded growth in the second quarter while Britain is widely expected to do so in the third quarter.

They are expected to agree on an ongoing commitment to boosting the economy amid concerns that retracting stimulus measures could lead to a so-called double-dip recession, but will also start looking at a plan for coordinated action to withdraw trillions of dollars of support when the time is right.

Momentum was growing over the bonus issue ahead of the start of formal talks on Friday, with the finance ministers of Sweden, France, Spain, Germany, Italy, Luxembourg and the Netherlands calling for the excessive payouts that have been blamed for fueling the risk-taking that led to the current crisis.

Sweden, which holds the rotating EU presidency, also announced that European leaders would hold an extra meeting to bolster their plans on Sept. 17, ahead of the Sept. 24-25 leaders summit in Pittsburgh.

G-20 leaders promised at their London meeting in April to pass “tough new principles on pay and compensation,” but little progress has yet been made.

The seven European countries called excessive payouts not only “dangerous” but also “indecent, cynical and unacceptable” in a joint opinion piece published in Swedish daily Dagens Nyheter published on Friday.

They want a ban on bonuses guaranteed for more than a year, arguing that bonuses should instead be paid out over a number of years and should “mirror the individual’s and the bank’s actual performance over time.”

But the European push on bonuses has received a lukewarm response elsewhere within the G-20.

U.S. Treasury Secretary Timothy Geithner has not raised the bonus issue, preferring instead to focus on U.S. attempts to start talks on a new international accord to increase banks’ capital reserves.

Geithner wants to start talks on a new international capital accord that he says would put in place “a more conservative framework of constraints on leverage in the financial sector across the major globally active financial institutions.”

The Obama administration’s proposal would establish stronger international standards for the reserves banks are required to hold to cover potential loan losses.

The U.S. wants to reach agreement on an accord by the end of 2010, with countries agreeing to implement the plan by the end of 2012.

British Treasury chief and meeting host Alistair Darling said that both bonuses and boosting capital were international issues that needed to be addressed as the banking sector was key to any economic recovery.

“Nowadays, no one large bank can simply operate in a vacuum, they operate right across the world, so this truly is an international problem,” Darling told BBC radio on Friday.

But Britain has stopped short of some of the more stringent rules proposed by France and Germany on curtailing bonuses.

Geithner has a series of bilateral talks on Friday to push his point — he is scheduled to meet with Darling, Russian Finance Minister Alexei Kudrin, China’s central bank governor Zhou Xiaochuan and Financial Stability Board Mario Draghi. Geithner also plans to attend a meeting of the Brazilian, Russian, Indian and Chinese finance ministers, the so-called BRIC quartet, before he joins all G-20 members for the start of formal talks at dinner.

The big emerging economies like China, India and Brazil have their own agenda at the London meeting, most clearly faster action on changes to give them a greater say in governance of financial markets.

The G-20 countries have agreed to review the leadership of institutions like the World Bank and IMF, which has received pledges of more money to help struggling countries. The IMF is customarily headed by a European and the World Bank by an American.

Kudrin said that Russia wanted to strengthen the role of developing nations “in setting policies to ensure we don’t accumulate risks in the way we did before the crisis started.”

South Africa also said it wants to “advance” discussions on IMF and World Bank reform.

“South Africa believes that a post-crisis world should be characterised by greater policy coordination and a more effective financial system,” the country’s National Treasury said in a briefing note.

Kudrin also confirmed that discussions of the unwinding of the extraordinary government spending and monetary stimulus measures, like low interest rates, of recent months was on the agenda.

The timing of a so-called exit strategy is a point of contention, with Britain and the United States saying it is too early to consider. Germany and France have warned that spending measures will need to be reduced to cut mounting government debts.

The G-20 includes 19 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, Britain and the United States. The European Union, represented by its rotating presidency and the European Central Bank, is the 20th member.