George Osborne, the Chancellor of the Exchequer, has decided to withdraw from the case at the European Court of Justice over the limitations upon how much can be paid in bonuses to bankers. On the very logical grounds that we've just had the preliminary opinion and that offers very little hope of prevailing. So why continue with a case, costing the taxpayers money, when it's most unlikely to succeed?
The basic background is that the European Union has decided that it was the chase for bonuses that led to the fragility of the financial system and thus the crash (it wasn't, they've misdiagnosed the problem). Such bonuses are now limited to 100% of fixed pay, 200% if the shareholders approve. This really isn't a good idea as it sets bank costs in stone: it's a lot more difficult to reduce fixed pay in thin times than it is simply not to pay someone a bonus. But, you know, the EU means that the City of London is now ruled by those who have no clue about finance nor how it works so that's what we end up with.
The government decided that they were going to contest these rules and we've just had that preliminary judgement on their case:
George Osborne was forced to concede defeat over his objections to new European rules on bankers’ pay, after the European Court of Justice rejected the UK government’s challenge to rules being imposed to cap variable remuneration.
Advocate general Niilo Jääskinen considered that the European Union legislation limiting the ratio of bankers bonuses compared to their basic salary is valid and suggested that all six UK government pleas should be rejected.
To the usual British eye this is a little strange. We tend to think that it's judges who decide whether a law is legal or not, not appointees of the courts as here. And there's also a certain anger at the manner in which these bonus caps have been imposed. Some 80% of the European Union's wholesale financial trade happens in London: it's one of the major world centres of the business. That politicians from other EU countries don't really understand that business or its culture we tend to take as standard background knowledge. And the manner in which this is applied to any ultimately EU domiciled firm is another bone of contention. So, a British (or German, whatever) bank operating in New York has to obey the EU's rules on pay and bonuses, not fit in with the rest of the culture in New York. Where, for example, Goldman Sachs pays rather low (by the standards of the industry) salaries but makes up for that with very generous bonuses in the good times.
The general thought in the financial world is that these are bad rules awfully applied:
The Treasury said: “The detail of the opinion demolishes the case for a fixed ratio by pointing out that it doesn’t equate to a cap on bankers pay because there is no limit on basic salaries.
“This is precisely the reason why we, the
Prudential Regulation Authority and the Bank of England have been opposed to this policy.”
It's not even a good ruling on the subject.
However, here's the bit that really boggles British minds. Our general attitude towards the law is that sure, certain things are the province of the law and of regulation. But equally so some other things are not. And how and in what manner a company decides to pay its staff is generally something that we consider not to be something for the law or regulation. Sure, tax law must be obeyed, we do have a minimum wage, but other than that we're pretty laissez faire about it. Which is why it strikes so many as so odd that there should be these detailed regulations about how bankers get paid. On the other side, those from the more continental countries are equally bemused by that British attitude. For their modus operandi is that anything and everything is a suitable subject for the law and regulation. So why shouldn't bankers' pay be regulated?
That's the real problem at the heart of this. We've got a nation with an entirely different worldview being shoehorned into a system that it's just not right for. This isn't just about banks and pay, but a general point about the entire edifice of the European Union. The general consensus about what are suitable subjects for public policy and what are entirely private matters are simply so different that I'm sure that we just shouldn't be members.
