Bankers: beware the clammy hand of George Osborne
Once in a while, a nice man in a nice car pulls up and asks you to come along and see his puppies. Don't go. Similarly, don't grasp George Osborne's hand when he pops it out and asks you to come along to the European Court of Justice to complain about the European Union's bonus cap. Unlike the puppy people, George is genuinely trying to be nice, but he's a bit wrong-headed. Like Lennie Small in Of Mice and Men, he may squash you with his enthusiasm.
The trouble is, that by proclaiming that the EU bonus cap is effectively illegal in terms of the EU treaties, George has made people angry.
He has made Philippe Lamberts angry. The Green MEP who was the main proponent for the bonus cap, has reportedly said the cap has got nothing to do with the European Court of Justice and George can just back off.
He has made Ed Miliband superficially angry, but secretly happy. The head of the U.K. Labour party can now point angrily to George's livid demeanour and suggest that he is indeed sucking blood from the British populace in order to give sustenance to people with yachts. Secretly, however, Ed will like George's move to alienate himself from the country at large.
Worst of all though, George has done all this stuff without much chance of success. The EU's bonus cap is certainly pushing the boundaries of the EU treaty, which as law firm Shearman & Sterling pointed out earlier this year prohibits the EU from fiddling with pay. The EU's bonus cap is also poorly conceived, it will drive salaries higher, and it could leave banks less stable and with higher fixed costs. The EU's bonus cap is also unfairly targeted at the City of London.
But, as one major law firm told us this morning, none of this matters. The EU bonus cap isn't about law and it isn't about sensible policy and it isn't about fairness. It's about politics. And politics dictate that bonuses must be reduced no matter what. Politically, the UK is already isolated within the EU, especially when it comes to banking. By choosing a full frontal fight against the bonus cap now, consultants like PwC are warning that George will simply provoke a harder line from EU finance regulators in future. Bankers, hold George's hand at your peril! It's likely to be a little clammy and he may simply lead both you and him deeper into the regulatory abyss.