G20 eyes bankers’ pay amid warnings over recovery
London — G20 finance ministers meet here Friday to chart the next steps out of the global economic crisis, with calls to curb bankers’ bonuses as part of beefed-up financial market rules topping the agenda.
But on the eve of the meeting their British host Alistair Darling warned against complacency due to emerging signs of recovery from the world’s worst global slowdown in generations.
"The biggest single risk to recovery is that people think the job is done. There is a real risk that either governments or people generally think ‘We have done that, we are on the path to recovery’," he told The Independent newspaper.
The ministers are facing European calls to crack down on bonuses, which many blame for encouraging excessive risk-taking, as they prepare for a full summit of Group of 20 leaders in Pittsburgh on September 24-25.
With Japan, France and Germany officially out of recession, minds are also turning to coordinating the withdrawal of stimulus packages and government bailouts for banks — although with caution.
British Prime Minister Gordon Brown warned this week that while the Group of 20 largest world economies must show willingness to work together on the removal of state economic aid, it was too early to embark on exit strategies.
Brown told the Financial Times newspaper that although he was "cautiously optimistic" that the world was pulling out of recession, it would be premature to abandon fiscal stimulus packages in the United States, Britain and Europe.
The issue of bonuses has been championed vociferously by French President Nicolas Sarkozy and the idea for a mandatory cap won wider support at a meeting of European finance ministers in Brussels on Wednesday, although not from Britain.
Swedish Finance Minister Anders Borg, whose country currently chairs the 27-nation European Union, said a "strong common European position" had been agreed in Brussels amid signs of "excessive risk-taking" returning to markets.
Following a meeting with German Chancellor Angela Merkel in Berlin on Monday, Sarkozy said: "All over the world people are sickened by the bonus system. We want to bring to an end the scandal of bonuses. We want it to stop.”
But Britain, keen to protect the status of London as Europe’s financial capital, and the United States, with similar concerns for Wall Street, are unlikely to back France’s proposals for a series of mandatory caps.
A British official said Wednesday the government would set out alternative proposals for reforming bankers’ pay at this weekend’s meeting.
The rules would include having bonuses paid over five years, with some of the money to be clawed back if the traders’ long-term performance weakens, according to the Dow Jones newswire.
Britain will also seek rules to ensure that banks cannot guarantee bonuses to their staff and that a "significant proportion" of bankers’ remuneration comes in the form of non-cash payment such as stocks.
Analysts argue that large bonuses — particularly in Europe and the United States — rewarded short-term profit and therefore damaged the ability of bank executives to take well-judged decisions in the run-up to the crisis.
The other major regulatory issue is encouraging banks to build up better capital reserves as a buffer against failure to prevent any repeat of the collapse of US bank Lehman Brothers which sent markets tumbling a year ago.
Germany is also calling for the G20 to take measures to prevent banks from becoming so large that governments are held to ransom in future financial crises.
"No bank should be allowed to become so big that it can blackmail governments," Merkel said Monday.
The United States, meanwhile, is keen to discuss reform of the International Monetary Fund.
Washington wants to see emerging countries given stronger voting rights within the body, but the Europeans fear this will be done at their expense.