The G20 promised historic results after a build-up of summits in London and Brussels showed broad agreement among European leaders on curbing bankers' bonuses, introducing a tax on financial transactions, increasing banks' capital requirements and a coordinated strategy to wean economies off their expansionary stimulus packages (EurActiv 18/09/09).
'Restrain' bonuses, but no caps
Leaders were last night closing in on a statement calling for new restraints on bankers' pay, but would not endorse specific monetary caps, a deal-breaker for the United States.
The guidelines from the Financial Stability Board, a policy coordinating arm of the G20, were also expected to cover disclosure of pay levels, deferral and vesting periods on share-related pay, independent oversight, and clawing back unfairly earned pay.
But the compromise on bankers' pay will serve to disappoint some European leaders who had been pushing for caps on bonuses as a panacea to the generous remuneration schemes widely perceived as a factor that encouraged excessive risk-taking.
"Europeans are horrified by banks, some reliant on taxpayers' money, once again paying exorbitant bonuses," said European Commission President José Manuel Barroso in a statement preceding the G20, stressing that leaders would call for coordinated action to lower the gap between pay and performance.
London and Brussels on a different track
EU summits leading up to Pittsburgh were early warning signs of Britain's desire to block tighter regulation of financial services, of which it has the greatest European share, and to align its policy closely with Obama administration's, Brussels-based economists warned.
European leaders have produced the most virulent criticism of the financial services sector. French President Nicolas Sarkozy and German Chancellor Angela Merkel agreed that bankers' bonuses required caps and regulations in the sector would cover leverage caps, mandatory disclosure and more transparency.
With a sizeable proportion of Europe's financial services industry in London (12% compared to France's 6%), and not to mention powerful lobby groups, Gordon Brown appeared to agree on coordinating exit strategies but did not agree on bonus caps or a proposed financial transactions tax.
A few hours before the Pittsburgh summit, Merkel appeared determined to crack down on banks in an interview with German radio. She told Bayerischer Rundfunk that banks should not be allowed to grow to a size where they can effectively bankrupt governments. "We need rules, and we need them for each product, each location where trade is done, and for each institute," Merkel told BR.
Bigger China IMF vote approved
The only certainty to emerge from last night's summit was a shift in the International Monetary Fund's voting power. The new quotas could see China's quota overtake established European powers France and Britain.
US Treasury Secretary Timothy Geithner said last night European countries recognised the need to overhaul voting power in the IMF and are trying to narrow differences between themselves.
"What we're trying to do is bridge this difference between a number of nations in Europe that are going of course to have to adjust over time," Geithner told a news conference in Pittsburgh.
"And I think the Europeans actually recognise that shift is going to happen. It is the right thing to do, and it is going to happen," he added.
Group of 20 nations have agreed on a five percentage point shift in International Monetary Fund voting power from controlling developed countries to underrepresented countries, G20 sources said on Thursday.
Newly-assertive emerging economies have countered the offer with a proposed seven percentage point shift, saying that any change needs to properly reflect their increased contribution to the world economy.
Europe, which together with the United States has long dominated the international financial institution, has strongly resisted a dilution in its economic clout in the IMF because they stand to lose the most.
The move is part of efforts to give emerging economic powers more say in the IMF to recognise their growing influence in the world economy.
European Commission President José Manuel Barroso and EU Economic Affairs Commissioner Joaquin Almunia both confirmed the deal, which would give emerging economic powers more say in the global financial institution.
Expectations higher at EU summit
European heads of state and government met in Brussels on 17 September to agree on a position for the Pittsburgh talks. The summit's final statement spoke of unity on strategies for exiting the crisis once the recovery had taken hold.
Swedish Prime Minister Fredrik Reinfeldt, whose country currently holds the rotating EU presidency, said "explaining a coordinating exit strategy will be a main topic at the Pittsburgh summit".
Reinfeldt also said the G20 talks would include urgent action on worrying unemployment levels forecast to reach 11% in 2010, a post-war record. "Each and every unemployed person is a lost opportunity for further growth and prosperity. We need to take action and turn around this development," he said.
US President Barack Obama, French President Nicolas Sarkozy and UK Prime Minister Gordon Brown will make a statement at 8:30 a.m (13.30 CET). The US president is scheduled to hold a full news conference later in the day at 4:40 p.m. (2140 GMT) at the close of the two-day summit in Pittsburgh.
(EurActiv with Reuters.)