It is true that any change to the broad political agreement (including the level of the ratio limiting bonuses) would probably need to be secured today – a move which looks unlikely. However, as we note in today's press summary, the technical discussions over the specifics will continue for some months, presenting the opportunity to water down the proposal behind the scenes. Numerous issues remain unresolved such as: whether the cap will apply to all staff or just the highest paid, whether it will apply to all banks or only larger ones and, most importantly, whether the EU will stick with the plans to apply it to subsidiaries (both EU ones located elsewhere and foreign ones located in the EU).
So there could yet be room for some improvements to the proposal. There are also two other issues which have cropped up in this discussion: the possibility of the UK invoking the Luxembourg compromise and potential legal challenges against the proposal.
What is the Luxembourg compromise?
See below for a box from p.31 of our ‘Continental Shift’ report (really a worth a read by the way to understand the context of this and related debates) which explains the premise (click to enlarge):
It has been muted that Osborne could trigger this at today’s meeting. This is a last resort and seems unlikely – besides it is not clear how effective it would be in this case, as it is only a gentleman's agreement.
Is the proposal open to legal challenges?
According to the FT, banks have been receiving legal advice and believe they may have a case based on Article 153.5 of the Lisbon Treaty, which says:
“The provisions of this Article shall not apply to pay, the right of association, the right to strike or the right to impose lock-outs.”Article 153 is in the social policy chapter of the treaties. Currently, the legal base for the rule is as part of CRD IV, i.e. under financial regulation and looking to address financial risk taking.
The Commission and MEPs have also dismissed claims of illegality, on the grounds that the rules do not limit total pay, but simply set a ratio on variable pay in an attempt to reduce risk taking, and it is not therefore social policy.
It looks likely that there will be some legal challenges, although from the private sector rather than the UK Government.
The idea is a waste of time and resources, if I didn't know better then I'd believe that the entire point was to waste time and resources. What is happening with the problematic banks that are too big? Are all resources tied up dealing with the non-issue of bonuses?
ReplyDeleteThe problem isn't about rewarding success in banking, the problem is about dealing with failure in banking.
Par 5 refers clearly to THIS ARTICLE and not to the treaty as a whole.
ReplyDeleteSo you can make a case of it that that is otherwise, like with anything legal, but that would be an extremely weak one.
Bring it up as a negotiation point might be a good idea, but from a legal perspective the case looks even weaker than Salmon's (hope I got the name right,the haggis eater that is) case for direct Scottish membership. Well roughly as weak.
"The Commission and MEPs have also dismissed claims of illegality, on the grounds that the rules do not limit total pay, but simply set a ratio on variable pay in an attempt to reduce risk taking, and it is not therefore social policy."
ReplyDeleteThat looks like a complete red herring to me. The goals enumerated in sections 1.a) - 1.g) nowhere empower the Commission to "set a ratio on variable pay". In fact they don't mention pay at all, and instead talk about working conditions, etc.
Of course, I don't suppose that will deter the Commission. I guess we haven't forgotten the way they screwed the UK back in the 90's by first granting an opt-out on working hours, and then got the EU to redefine working hours as a Health and Safety issue.
There are some similarities between bankers and eurocrats:
ReplyDeleteBoth claim to have huge responsibilities. Both claim that to handle the big responsibilities it is necessary to pay high wages to get skilled people. Both take credit when things go well. Neither accepts any responsibility when things go wrong. I.e. they are responsible for an outcome, if and only if, the outcome is positive.
A recent case regarding how well eurocrats manage their responsibilities:
http://www.europeanlawmonitor.org/latest-eu-news/older-workers-member-states-and-commission-cannot-assess-if-programmes-actually-help-say-eu-auditors.html
Quote from the auditors:
"The ESF is a key financial instrument at the disposal of the European Union to assist Member States in the field of employment. From 2007 to the end of 2013, ESF spending will amount to over € 75 billion, representing around 8 % of the total EU budget.
The Court found shortcomings concerning the design of the operational programmes, as well as the monitoring and evaluation systems. Furthermore, it observed that the Commission did not have consistent data at EU level on operational goals, outcome indicators and allocated funds. As a result, despite the fact that increasing the employment rate of older workers is part of the EU’s strategic goals, neither the Member States nor the Commission are in a position to establish how many older workers have gained new qualifications, or found or kept a job after having benefited from an action funded by the ESF. Furthermore, the amounts spent on this kind of action are also unknown."
Responsibility means being responsible if things go wrong.
Apparently eurocrats have no responsibilities and therefore should get paid as per their responsibilities: minimum wage.
As if they would let a simple law stop them doing just as they want !
ReplyDeleteWhatever is proposed should be decided in referendums everywhere in EU countries - just like has just happened in non-EU member Switzerland.
ReplyDeleteI would vote for the following proposal:
1) bonuses unrestricted (as long as this was approved annually by the shareholders of each company concerned) up to 1 x actual salary.
2) bonuses above that would have to be approved by shareholders each time & for each individual concerned. Shareholders would be able to vote for bonuses above 1 x salary at the rate of single amounts of 10%, so bonuses of eg 1.1, 1.5, 2.3, 3.2 etc x salary ad infinitum could be possible. The actual figure would be the average amount of whatever the total number number of shareholders voting individually produced. Taxes on these bonuses would be at around 48 - 50%.
With this method, while large bonuses could be possible, all of them (whatever their size) would have overall shareholder acceptance. This would sort out the casino-capitalism of some bankers' behaviour, while satisfying public concern for fairness in financial employment rewards.
Sentimnet in the city may be veering towars the UKIP, which can only be a good thing: let's get out!
ReplyDeleteI have raised THREE times here the question of how can the EU proceed with this when Article 153.5 of the Lisbon Treaty specifically prohibits the EU from legislating on PAY.
ReplyDeleteCan either Open Europe OR any reader explain trhuis please?
Sorry all! I had inadvertently skipped trhe very paragraph from Open Europe wherte I get a confirmation of my assertion that the whole thing is ultra-vires.
ReplyDeleteHope our lawyers are better than their highly biassed judges.