EU banker bonus cap leaves the City of London in the cold

London city Gherkin

Britain fears that the new rules will hurt London and restrict growth in financial sector

LAST UPDATED AT 08:43 ON Thu 28 Feb 2013

BANKERS' bonuses are set to be capped at a year's salary by the EU in a move that has angered the UK government, which fears the new rules will badly affect the City of London and restrict growth.

The deal was reached during what the BBC describes as "intense" negotiations in Brussels between members of the European parliament, the European Commission and representatives of the EU's 27 governments.

The move will now have to be approved by a majority of the EU states. Despite Britain's opposition, the vote is expected to be a formality with most countries believing it will be popular with taxpayers angered by what they see as bankers’ greed.

Under the new agreement, bonuses will be limited to one year's salary, but can rise to two if a majority of a bank's shareholders approve.

"Such limits to bankers' pay... will be popular on a continent struggling to emerge from the ruins of a 2008 financial crisis," says the Daily Telegraph. "But it represents a setback for the British government, which had long argued against such absolute limits."

The decision is described by The Guardian as a "withering blow" for the UK financial sector. "[It] is certain to have a strong impact on the 'fat cat' culture of the City of London, the EU's financial centre.”

The Financial Times says it is "a sign of London's relative isolation on some financial services issues".

The deal paves the way for the implementation of the so-called Basel III rules governing the way banks are run and designed to prevent another crisis.

Britain had hoped to head off the move claims The Times, but a "change of position" by Germany proved crucial. The effects will not just be felt in Europe, the paper adds. "The cap would also apply to bankers employed by an EU institution but based elsewhere globally, in a centre such as New York."

One city expert has told the BBC that the move will backfire. Joe Rundle of ETX Capital says: "It will drive up fixed salaries to compensate. Businesses that do not need to be inside the European Union will leave. And when banks invest in future divisions, it will be outside the EU."

The Independent explains that who oppose extravagant bonuses believe that the "payments encouraged bankers to take massive risks at the expense of the long-term future of their businesses, which helped to destabilise the financial system."

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