The City prepares for a crusade against Brussels. According to reports from the Financial Times today, the major British banks could decide to sue the European Union. The reason? The new rules on banker bonuses contained in the Basel 3 package.
The British institutes have already requested various legal advice and are ready to challenge the law claiming that it violates European law, in particular the treaty which prohibits the regulation of wages in the Member States (in reality the European agreement does not set limits on remuneration in absolute value, but on the ratio between the fixed and variable part). Furthermore, according to the Shearman & Sterling law firm, the stop to bonuses could violate the constitutions of some member states, such as Austria, Germany and Poland.
At the end of February the European Parliament, the EU Commission and the European Council reached an agreement on this point: bankers' bonuses will no longer be able to exceed the amount of a year's salary. A general principle that admits, however, an exception: if the majority of the shareholders give their assent (with two thirds of the votes or with 75% if less than half of the capital is seated at the meeting), the benefits can go up to double the salary annual.
The goal is to limit managers' appetite for risk and therefore the danger of new speculative bubbles. In the current absence of regulation, investment managers have an incentive to bet on the markets to obtain the maximum profit in the shortest possible time and thus collect the corresponding huge bonus. Last year City banks handed out €5,1bn in cash prizes, up from €13,4bn in 2008.
Today the finance ministers of the European Union reached an agreement in principle on Basel 3, but precisely to meet the requests of the British minister George Osborne (and avoid an immediate and total break with London) it was decided to prolong the negotiations and continue to discuss the controversial bonus legislation.
