By Elizabeth Pond
About those new European caps on bankers' bonuses.
There are four things worth noting:
1. Britain is unhappy.
2. The European Parliament has flexed muscle no one knew it had.
3. Even Zurich bankers could go to jail if they "rip off" obscene sums.
4. The United States—were it not totally absorbed in sequestration—would be aghast.
First, to London, home of the "City," Europe's biggest financial center. Flamboyant mayor Boris Johnson calls the idea of a legislated ceiling on bonuses by private business "moronic." The Sunday Independent sniffs, "It is not the job of central government to set remuneration policy in a commercial industry." Stunned City bankers are threatening to move to Singapore, where bonuses can still exceed one-year’s salary.
The United Kingdom has been sidelined from European Union decision-making and will be isolated at this week's meeting of EU finance ministers. Chancellor of the Exchequer George Osborne will do his best to soften the European Parliament restrictions, but they already reflect a broad EU consensus. The UK is no longer able to prevent pan-European policies that hurt its perceived interests.
Back in the 1980s, the redoubtable Margaret Thatcher annulled the ransom French President Charles De Gaulle had exacted in the 1970s as Britain's price for joining the European Community. Until her coup, efficient British agriculture, which got no benefit from the program, had been obliged to help pay for the Common Agricultural Policy that originally soaked up 70 percent of the Community budget to subsidize, above all, inefficient French farming. Thatcher got a "rebate" on British dues that evened things out. The UK stayed in the club then—and British diplomats skillfully "punched above their weight" in European Community inner policymaking councils time and again to slow down moves toward the "ever closer union" that the European Union charter prescribes and London dreads.
Today's British Prime Minister David Cameron, by contrast, has forfeited Britain's punching above its weight in Europe. Early on, he pulled the Tories out of the conservative party umbrella grouping in the European Parliament. Most recently, under pressure from the euphemistically named Euroskeptics in his party, he announced an in-or-out referendum on British EU membership in 2017—a move that has only strengthened the Tories' anti-Europe wing. And Cameron's just-say-no abstention from intra-EU politicking leaves him with no allies, not even the Germans who often sided with him in the past on financial issues and helped to bridge cross-Channel differences.
Nowhere has British isolation been more evident than in the European Parliament, which is keen to exercise the new powers granted to it in the latest EU treaty, as agreed on in Lisbon in 2010. A year ago a Belgian Green member of the parliament, [to avoid ambiguity] Philippe Lamberts, introduced a typically Green resolution calling for cutting astronomical bonuses for financial traders down to size by making them proportional to base salaries.
By last week—amid growing popular anger at senior bankers who took huge risks before the financial meltdown of 2008 and pocketed huge profits, leaving taxpayers to bail out and recapitalize ailing banks—a cross-party parliamentary majority voted to limit executive bonuses in the entire EU, including Britain, to a single-year salary.
If member states ratify the European Parliament legislation this year—as the large majority intends to do—it will become EU law next January. It would then cap a year's bonus at the equivalent of an annual salary—or a two-year salary if there is explicit approval by a company's shareholders (and not just its board).
Most surprisingly, perhaps, three days after the European Parliament's move, more than two-thirds of the famously bank-friendly Swiss—including those in the country's financial capital of Zurich—approved in national plebiscite an initiative against Abzockerei (variously translated as "rip-off" or "fat cat-ism"). The initiative calls for even more stringent ceilings on Swiss bonuses than the European Parliament places on EU remuneration. It prohibits golden handshakes and parachutes. It gives shareholders a binding role in setting executive pay. It penalizes corporation board members who violate these guidelines with heavy fines and three-year jail sentences. The substance of the initiative is now scheduled to be written into law by the Swiss parliament within the next year.
In their votes in the referendum, some Swiss citizens seemed to be endorsing a curb on bankers' excessive risk-taking by banning such short-term temptations to irresponsible rent-taking as common bonuses worth 10 years of base salary.
Others interviewed by European media seemed to be reacting to what they described as greed by financiers. Examples cited by voters and activists included Daniel Vasella, the outgoing president of the Swiss drugs giant Novartis, who was paid 15 million Swiss francs ($16 million) in 2011 and would have been paid an additional 72 million ($78 million) over the following six years but for a public outcry—and this at a time when Novartis was cutting costs by firing thousands of workers.
As for America, despite all the noisy Occupy Wall Street rallies, a similar cap on bankers' bonuses would never fly in the land of the free.
Or, wait a minute. Wasn't that what conventional wisdom still said about the European Union and bankers' paradise Switzerland at the beginning of last week?
Elizabeth Pond is is a Berlin-based journalist and the author of The Rebirth of Europe.
[Photo courtesy of Shutterstock.]