Page last updated at 08:10 GMT, Saturday, 5 September 2009 09:10 UK

Bonus row opens up G20 divisions

London's Canary Wharf
Banks and the recovery will dominate the finance ministers' agenda

Deepening divisions have appeared among international finance ministers, meeting in London, about how to curb excessive bank bonuses.

French Finance Minister Christine Lagarde has promised to launch an "onslaught" against large payouts.

The UK has dismissed the idea, while other countries remain concerned about how best to recover from the recession.

The issues are set to dominate a meeting of the G20 group of leading developed and emerging economies.

At their meeting - a preparatory session for the next full G20 summit - G20 finance ministers will consider whether recent signs of economic improvement should be followed by a reverse of some of the emergency measures implemented to stimulate the global economy.

France, Germany and Japan have all shown positive growth in recent months.

At the opening of the meeting on Saturday, British Prime Minister Gordon Brown warned that withdrawing government support too early could undermine economic recovery.

"The IMF argue and Mr Strauss-Kahn (head of the IMF) is here to say this, fiscal policies should continue to support economic activity until economic recovery has taken hold.

"It is clear in my view that too early a withdrawal of vital support could undermine the tentative signs of recovery we are now seeing and lead to a further downward lurch in business and consumer confidence, reducing growth and employment and actually worsening governments' debt positions over the longer term."

'Rules' on bonuses

Mr Brown also called for consistent rules on bankers' pay and bonuses.

"We cannot accept a return to the past ways of governance. Specifically, pay and bonuses cannot reward failure or encourage unacceptable risk taking," he said.

Outlining her opposition to the bonus culture, Mrs Lagarde earlier told the BBC that bonuses had contributed to the global financial crisis and needed to be capped.

French Finance Minister Christine Lagarde
Lagarde said the world was still suffering from events a year ago

"What happened 12 months ago was just horrible for our societies, it was horrible for our economies, and we are still suffering as a result," she said.

France is proposing a series of mandatory caps on bonuses - which the head of the Eurogroup of eurozone finance ministers, Luxembourg's Jean-Claude Juncker, said he "totally supported".

But Britain's Chancellor Alistair Darling has described the idea of a cap as "unworkable", instead favouring rules linking bankers' pay to long-term performance.

The BBC understands that Chancellor Alastair Darling will propose that bonus payments be paid out over five years and only in the form of stock options.

The plan envisages that the bulk of the bonus be paid in the final two years of that five year period and includes claw-back clauses.

The suggestion by Mr Darling goes some way to meet the concerns of many other EU governments who had suggested an outright cap on bonuses, says the BBC's Joe Lynham.

US Treasury Secretary Tim Geithner is also understood to be opposed to a cap on bonuses.

He is pressing for new measures to prevent a repeat of the banking crisis, says BBC economics correspondent Andew Walker.

Mr Geithner wants banks to hold more capital to protect themselves against losses.

Emerging economies warn

Holding a mini-summit away from the G20 meeting, ministers from emerging economies Brazil, Russia, India and China (Bric) called for caution, warning it was "too early" to talk of an end to the crisis.

The global economy still faces great uncertainty, and significant risks remain to economic and financial stability
Bric statement

The huge cash injections pumped into businesses by governments around the world could not be withdrawn in a hurry without causing new problems, they said.

Brazilian Finance Minister Guido Mantega added that "the exit should be gradual" as withdrawing state aid to economies too quickly "would not send a good signal to the markets".

"The global economy still faces great uncertainty, and significant risks remain to economic and financial stability," the four countries, known as the Bric quartet, said after their mini-summit.

Of European nations, Germany wants the G20 countries to start discussing when and how to withdraw stimulus measures, but fellow European Union members have been reluctant.

Ms Lagarde said the timing of any withdrawal was something that "God only knows".


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