ANALYSIS:The pact on bankers' pay that was struck in the early hours of yesterday morning has threatened to undermine the UK's already fractious relations with the European Union.
The Irish-brokered deal paves the way for strict limits on banking pay and bonuses. This is something to which Britain, home to one of the world’s largest financial centres, is strongly opposed.
There is widespread belief in Brussels thatBritain was caught off-guard on the issue. The clause on bankers’ pay – while not quite introduced at the 11th hour – did not form part of the original directive proposed by the European Commission in 2011 and was slipped in by the European Parliament last year.
Having mistakenly assumed that its views would be supported by some member states, including Germany, the UK found itself on the back foot.
Frantic diplomacy has been taking place in Brussels over the last few weeks as Britain tried to wring concessions on the deal. That the last-minute British proposal to lift the bonus-to-salary ratio to 3:1 failed to make the final cut is an added affront. To this extent, the adoption of the proposal has been a major victory for the European Parliament.
Ireland also found itself at the centre of the issue through its presidency of the European Council, representing member states in the final stages of the negotiations. Securing an agreement was a major accomplishment for the Irish team, which was led by some of our most experienced diplomats, and a team of 10 senior officials from the Department of Finance and Central Bank. Ireland was widely applauded for representing the overall interests of member states, and successfully brokering new rules to protect European banks and discourage excessive risk-taking. But Anglo-Irish relations are likely to have taken something of a bruising in recent days, as Britain pressed Irish negotiators for further compromise.
While the agreed document is ostensibly about financial matters, ramifications from the deal may well be political. The issue has the potential to inflame the debate on Britain’s membership of the EU. To Eurosceptics, the prospect that Brussels will now dictate the pay of British bankers adds to the doubts articulated by British prime minister David Cameron earlier this year.
More flexibility
London’s Conservative mayor Boris Johnson condemned the agreement, specifically referencing the European debate.
“People will wonder why we stay in the EU if it persists in such transparently self-defeating policies,” he said. David Cameron also expressed concerns, though more diplomatically, calling for more flexibility.
All eyes will now be on Tuesday’s meeting in Brussels, where finance ministers will be asked to adopt the proposal. Sources say member states have little power to alter the proposal, as the law can be passed by qualified majority voting. Britain, it seems, may have to live with it. And banking experts say there will be ways around the laws.
