Banks: Where's the profit in a bonus clampdown?
4 September 2009
Paris, Berlin and London have agreed to defend a plan to regulate bankers' pay at the next G20 summit. However, the European press takes the view that, although there is widespread popular support for the measure, the bonus clampdown will have little impact on the economy.
With two weeks to run before the G20 summit in Pittsburgh, Pennsylvania, on 24 and 25 September, European leaders are leading the charge against excessive bonuses with a common position on the regulation of bankers' pay. On 3 September, German Chancellor Angela Merkel, French President Nicolas Sarkozy and British Prime Minister Gordon Brown published a letter demanding "binding rules" in all the countries of the G20. At the same time, seven European Finance Ministers called for the adoption of common rules within the EU.
Leading with the headline "Europe unites against US on bonus issue," Le Figaro welcomes "the announcement of British support for the hard line proposed by Paris and Berlin." The French daily now believes that a commitment from the United States could mark the beginning of a new era of moral financial capitalism, which Europe is hoping to encourage. In conclusion, it remarks that the latest letter may be enough to force Obama to follow suit.
"The wind of change has reached gale force," observes Cotidianul. The Bucharest daily notes that when change first emerged in the United States with Barack Obama's overhaul of banking regulations, many people thought that it was just a flash in the pan, but the movement has gained in momentum with "the devastating defeat of the ruling Liberal Democratic Party in Japan" at the end of August. "If the trend for change has already had a major impact on the world's two leading economies, the likelihood is that it will continue."
G20 credibility put to the test
However, Le Soir takes the view that the European consensus may be extremely fragile. Expressing doubt on Gordon Brown's will to impose restrictive international rules and the EU's capacity to convince the United States, the Brussels daily points out that "sustained opposition from just one of the world's financial markets will cause the initiative to collapse." However, even if the Europeans win the day at the G20, Le Temps notes that regulating pay may prove to be irrelevant: "While we may deplore them as excessive," we should bear in mind that bonuses "are a symptom of a dysfunctional system, but not the true cause of the problem." For the Genevan daily, "the real test "of world governance will be played out in a confrontation with the banks, which "will oppose all major reforms now that their return to profitability has made them powerful again."
On the eve of a meeting of G20 finance ministers and central bankers in London, Handelsblatt argues the priority should be to tackle "the dark heart of the financial crisis": the issue of banks that are "too big to fail." Large numbers of banks have grown to a size where their collapse would endanger the stability of the entire financial system. For the G20, it is therefore crucial "that the problem of oversized banks be managed by special market compliance mechanisms" recommends Handelsblatt. "It appears that the European members of the G20 aim to establish a special immortality tax." In that case "banks that are too big to be allowed to die would be required to maintain significantly higher levels of equity capital to safeguard their business, and the guarantee of state aid in the event of another crisis would only be granted on the basis of the existence of such a financial cushion."
Insisting that "the revival of the financial sector is central to the revival of the wider economy," the Daily Telegraph takes the view that "the urge to strangle bank profits perhaps comes from a subliminal and understandable urge to strangle errant bankers, but it has to be tempered with a desire to see them return to business as usual. Extra regulatory and tax costs will be passed on to corporate borrowers, making it tougher for companies to finance themselves as the recovery advances."
Is the bonus clampdown a political manoevre?
As Rzeczpospolita notes, the idea of attacking bonuses "has been well received." But, for the Warsaw daily, the hard line adopted by political leaders may be a tactic to distract attention from their own mistakes. "The idea that bankers, who already unpopular, are responsible for the crisis and should be forced to pay for it will certainly prove to be a vote winner. Whereas the notion that tax payers will have to pay for the trillions of dollars, which were injected – in some cases impulsively, into the economy, most definitely is not."