France and Germany have signed on to a controversial one-time 50% tax on all banking industry bonuses.
The momentum building up in Europe behind the clampdown on bonuses followed conversations between Treasury officials and those in G7 countries on Wednesday after the pre-budget report outlined the 50% tax on bankers’ bonuses of more than £25,000.
President Nicolas Sarkozy of France decided to follow the UK in imposing the one-off penalties on bonuses over €27,000 after weeks of feuding between London and Paris over the regulation of European markets.
He had met Brown in Brussels today on the fringes of an EU summit to bury the hatchet after co-authoring an article calling for a global deal on the way banks behave.
Chancellor Angela Merkel of Germany also sounded sympathetic to the British initiative. She said it was a “charming idea” and showed how others could “learn from the City of London”.
Already in response, Goldman Sachs’ top 30 executives will not receive cash bonuses this year, affecting at least six of their employees in London. Instead, they will receive stock that must be held for a minimum of five years. Of course, this only impacts the top 30 executives and not the thousands of traders at Goldman.
However, the United States is not expected to follow suit with a large one-time bonus tax. The only executive pay constraints in the US are for firms which took money in the TARP bailout. This is why banks like Bank of America and Citi are scrambling to raise capital and repay TARP, fending off the executive pay limitations. Though the levies from other countries could have a spillover effect in how companies pay their executives in the US, the government will not receive any revenue from that, and the spillover would probably be limited. Bonus payouts on Wall Street are expected to rise 40% this year, during a time of double-digit unemployment.
This is not the only split between the US and other G8 members on the financial industry – Britain and Germany want to impose a “Tobin tax” on all international financial transactions, but the Obama Administration has been wary of the move.
One thing the House of Representatives has done is to pass a “say on pay” vote for shareholders on executive compensation, something Goldman Sachs also implemented in their statement yesterday. The House’s financial reform package is expected to get a vote today.
Could the White House’s reticence to endorse the British bonus tax be a consequence of Obama’s cozy relationship with Wall Street? Matt Taibbi would surely think so.
What’s taken place in the year since Obama won the presidency has turned out to be one of the most dramatic political about-faces in our history. Elected in the midst of a crushing economic crisis brought on by a decade of orgiastic deregulation and unchecked greed, Obama had a clear mandate to rein in Wall Street and remake the entire structure of the American economy. What he did instead was ship even his most marginally progressive campaign advisers off to various bureaucratic Siberias, while packing the key economic positions in his White House with the very people who caused the crisis in the first place. This new team of bubble-fattened ex-bankers and laissez-faire intellectuals then proceeded to sell us all out, instituting a massive, trickle-up bailout and systematically gutting regulatory reform from the inside.