* UK fails to overturn plans to cap bankers' bonuses
* Finance minister Osborne warns of "perverse effects" from
* Ireland's Noonan says little room to change deal for
By John O'Donnell and Robin Emmott
BRUSSELS, March 5 Britain was left isolated in
Europe on Tuesday after it failed to secure backing to water
down new EU rules limiting bankers' bonuses, a measure that
could threaten London's dominance as a financial centre.
The rules, which would limit bankers' bonuses to the
equivalent of their salary, or two times their salary if
shareholders agree, are set to be introduced next year and would
represent the toughest bonus regime anywhere in the world.
They threaten Britain's financial industry the most, raising
the risk that some banks and their top bankers could relocate to
other financial centres outside the European Union.
Britain's finance minister, George Osborne, appealed to EU
ministers to change the rules at a meeting in Brussels, arguing
that the proposed cap would have a "perverse" effect.
"It will push salaries up, it will make it more difficult to
claw back bankers' bonuses when things go wrong, it will make it
more difficult to ensure that the banks and the bankers pay when
there are mistakes, rather than the taxpayer," said Osborne in a
part of the meeting that was broadcast.
But none of the other 26 EU member states was willing to
stand with him, and it looks very unlikely that any significant
changes to the rules will be made. Since the rules do not
require unanimous backing, Britain has no veto over the
"The space for further negotiation is quite narrow," said
Michael Noonan, the finance minister of Ireland, which as the
current holder of the EU's rotating six-month presidency
negotiated the deal with the European Parliament.
Osborne's inability to fend off the reform, the first of its
kind globally, underscores Britain's waning influence in the EU
and is also likely to fuel deepening euroscepticism in Britain.
"Britain has done a lot to isolate itself from the rest of
the European Union," said Philip Whyte of the Centre for
European Reform, a thinktank. "It isn't exercising very much
influence in European debates, pretty much across the board."
Officials indicated that the best Britain could hope for in
further negotiations over the rules in the coming weeks was
perhaps an increase in the amount of bonus that can be deferred
and therefore discounted when calculating the total payout.
But Michel Barnier, the European commissioner for financial
regulation and an author of the proposals, said the broad
parameters would not change. Asked about the possibility of any
legal challenge to the bonus cap, he replied: "Good luck."
Britain's powerful financial sector fears the rules will put
London at a disadvantage and provoke an exodus of major banks
and staff to rival financial centres, although HSBC,
one of Britain's largest banks, has said it does not have any
plans at this stage to move its headquarters.
'ENOUGH IS ENOUGH'
German Finance Minister Wolfgang Schaeuble indicated that he
would be uncomfortable with any country being outvoted on the
new legislation, opening up the possibility of some change.
EU officials indicated that any alterations are likely to
have only a slight impact on the total amount of bonus that can
"There is very little further we can do for them because we
pushed the negotiations to quite a degree, and we got the best
possible compromise with the parliament," Noonan told reporters
before the meeting began. "There isn't any more room left."
Schaeuble told ministers he would back a greater flexibility
in how a banker's bonus is calculated, which could allow banks
to pay more over the long term, said one official who attended
Britain could also try to push to change the scope of the
rules, which will apply to all EU bank staff globally,
regardless of where they are based.
But any changes will also require the approval of the
European Parliament. Othmar Karas, the Austrian lawmaker who
drove the negotiations in parliament, said he did not see any
reason to re-open the deal clinched last week.
While the finance ministers agreed not to finalise the deal
on Tuesday, partly out of courtesy to Osborne, there is little
appetite to change it. Officials indicated it would be approved
later in March or possibly in April. The aim is to put the
legislation in place from Jan. 1, 2014.
Some in the British government believe banks could take
legal action on the grounds that the European Union is going
beyond its remit in legislating on remuneration, an official
familiar with British thinking told Reuters.
AFME, the bank lobby group, stoked speculation, saying "it
would not be surprising" if the industry were gathering "legal
opinions". But the European Commission, which writes EU law,
said it would be "absurd" to challenge the legality of the cap.
The new rules will not affect most bank staff, who on
average earn bonuses of up to 30 percent of salary, but target
senior management and so-called "risk takers", such as traders,
whose bonuses can be many times their base salary.
Analysts estimate the law will initially affect around 300
to 500 people in each large bank, or around 5,000 people in
London all told.