British Chancellor of the Exchequer George Osborne has told European Union finance ministers that he cannot back plans to cap bankers' bonuses.
E.U. officials want to cap bonuses at 100 percent of salary, or at 200 percent if shareholders agree.
Financial services in the U.K. contribute a huge amount in tax revenue, and unsurprisingly some in the City of London are concerned that the cap will turn away talent.
Those working in the financial services industry in the U.K have already had to deal with the bank levy in a political climate where the "bankers caused the crisis" rhetoric is used across the political spectrum.
Unfortunately for those in the financial sector banking and capitalism will continue to serve as the whipping boys for governments all across the world as they are blamed for a crisis that was largely the creation of governments, not greedy bankers. Of course in a free market without bailouts and other protective government mechanisms those who behave badly get punished, not rewarded.
The E.U. proposal does not only highlight bad economics, it also highlights the absurd way that legislation is implemented within the E.U. Regardless of George Osborne's protests the E.U. could still impose a cap on bankers' bonuses. The BBC is reporting that the British government could invoke the "Luxembourg Compromise" under which a member of the E.U. can block a majority decision if a national interest is at risk.
The bankers' bonuses cap is only the latest ill-advised piece of reform to be backed by the E.U. In January the E.U. finance ministers approved a financial transaction tax for 11 eurozone member states. It seems that many in Europe believe that capping income and taxing financial transactions will help restore economic stability and growth. What could possibly go wrong?
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