EU leaders at G20 to seek bonus curbs, retained stimulus

September 18, 2009

Romania's President Traian Basescu (L) is welcomed by Sweden 's Prime Minister Fredrik Reinfeldt  at an informal summit of European Union heads of state and government in Brussels September 17, 2009. EU leaders met to coordinate the EU's position ahead of the G20 Summit in Pittsburgh.   REUTERS/Yves Herman By Darren Ennis and Jan Strupczewski
BRUSSELS, Sept 17 (Reuters) – European Union leaders agreed on Thursday to seek curbs on bankers’ bonuses at next week’s G20 summit and said they wanted evidence the recession is over before they stop spending to prop up their economies.

They warned against complacency over the fragile recovery, and some called for the Group of 20 developed and emerging economies to work on a new framework for rebalancing the global economy when they meet in Pittsburgh on Sept. 24-25.

The 27 heads of state and government also agreed rich nations should give the developing world up to 7 billion euros ($10.3 billion) a year to fight climate change, and underlined the importance of tackling excessive bonuses at financial firms.

“We need to deliver on this — it’s time to say enough is enough,” Swedish Prime Minister Fredrik Reinfeldt, whose country holds the EU presidency, told reporters in Brussels. “I hope tonight we can say the bonus bubble has burst.”

The Pittsburgh G20 summit, the third since the demise of Lehman Brothers a year ago raised fears of another Great Depression, is set to focus on tougher financial regulation and what comes next, now that there are tentative signs of recovery.

Despite this, the International Monetary Fund said growth in advanced economies would probably not be enough to stem a rise in unemployment soon and urged the G20 to bolster cooperation on tackling financial regulatory reform.

World leaders are especially sensitive to the fact that many voters believe big bonuses led to excessive risk-taking in the banking sector and helped trigger the crisis.

The EU leaders agreed bonuses should link the amount of cash paid to long-term performance and the curb should be backed in each G20 country with the threat of sanctions.

They also agreed that the board of a financial institution should have oversight on the amount paid and the risk involved, and bonuses should be limited either in relation to a certain proportion of total pay or the bank’s revenues or profits.

If a bank’s performance deteriorated, the bonus could be reclaimed.

Agreement was reached after France softened calls for a strict cap on bonuses. French President Nicolas Sarkozy said such a limit was a sticking point for U.S. President Barack Obama.

Regulators and central bankers are working on other reforms to make financial markets safer and root out excessive risk-taking by banks.

The Basel Committee on Banking Supervision, a forum of regulators, said one priority was to have credible plans to unwind troubled banks and limit spillover to the rest of the banking sector at such moments.

Echoing comments by an aide to Obama underlining the importance of seeking more balanced global economic growth, German Chancellor Angela Merkel demanded a “charter for a sustainable economy” and British Prime Minister Gordon Brown called for a “new system of managing our global economy”.

Private economists say that an imbalance between fast-growing countries such as China that have high savings rates and the United States, with its high level of borrowing and consumption, helped to set the stage for the crisis.

Officials from several G20 countries said now was not the time to withdraw the trillions of taxpayers’ dollars pumped into economies to counter recession.

“I think the leaders will confirm, as did the finance ministers, that it is premature to drop these measures, but that it is necessary to think about formulating exit strategies,” Kremlin adviser Arkady Dvorkovich said in Moscow.

Brown said: “Until the recovery is established, all countries must implement … stimulus packages that have been announced, not just this year, but throughout 2010.”
The crisis began when the U.S. housing and sub-prime credit booms went bust, triggering a crisis in global financial markets in 2007 that gradually tipped the wider economy into recession.

Trade unions have urged the G20 leaders to help the 59 million people they say will lose their jobs in the crisis.
IMF First Deputy Managing Director John Lipsky told CNBC television: “Growth is probably not going to be sufficient to stop the rise of unemployment for several quarters to come.”

Sweden’s Reinfeldt said it was also time to give world leaders a “wake-up call” on global warming, before international climate talks in Copenhagen in December.

The EU leaders agreed to call on the G20 to find up to 7 billion euros ($10.3 billion) annually for the developing world as an advance payment towards reaching a climate deal.

The money would help poor countries cut emissions, adapt
to possible crop failures and secure new water sources.
IMF chief Dominique Strauss-Kahn said the G20 should increase resources for the poorest countries.
“A further scaling up of aid … is needed urgently,” he
said, estimating low-income countries needed another $55 billion in financing for this year and next to cope with the crisis.

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