Author: By Andrew Grice in Pittsburgh
The G20 nations agreed that between a half and two-thirds of bonuses would be deferred for three years so they could be clawed back by national regulators such as Britain’s Financial Services Authority if the performance of bankers meant they were not justified.
Britain claimed victory after a compromise was struck. Demands by France for a cap on individual bonuses were seen off after the US and Britain dismissed them as unworkable. The Prime Minister said the measures to rein in bankers’ remuneration were tougher than expected and would ensure there was “no return to the bad old days”. Bonuses that encouraged excessive risk-taking were one of the causes of the global financial crisis.
Mr Brown hailed the outcome of the Pittsburgh summit as the start of a new era of global economic co-operation. The meeting backed a report by him that will make permanent the co-ordination forced on the leaders by the global recession. In effect, the G20 will eclipse the G8 as the major economic forum. Diplomats said the G8 would continue to function but would focus on non-economic issues.
Until the crisis erupted last year, the G20 met only at the level of finance ministers but Mr Brown believes that presidents and prime ministers must remain permanently involved in a much wider group that includes China, India and Brazil. “It’s a reflection of the world today. It’s basically pulling international co-operation into the 21st century,” one official said.
Although countries will remain sovereign, they will subject their economic policies to “peer review” through the G20. China and Germany had previously expressed doubts about that but eventually agreed to play ball.
The aim is for the world to reduce its reliance on US consumers, with China boosting its domestic demand, the US trimming its borrowing from overseas, and the European Union encouraging investment. However, there was no commitment last night to enforcement mechanisms such as sanctions or other penalties.
The Pittsburgh summit agreed that the $1.1 trillion boost to the global economy agreed at the last G20 meeting in London in April had prevented the recession turning into a depression. “It worked,” said the leaders’ communiqué.
Mr Brown seized on that as a justification of his domestic economic policies. He said the G20 had agreed it would be “premature” to start withdrawing the higher public spending and lower interest rates next year. “The recession is not over. It is not automatic that we are going to recover. We have got to ensure that that recovery happens,” he said. “The path to recovery is still very fragile ? fragile in the banking system and fragile in the way that different economies are finding different difficulties as they move forward.”
Ministers claimed the G20 verdict showed that the Tories, who want public spending cut from next year, are totally isolated. Alistair Darling, the Chancellor, said: “I know of no one outside the British Conservative Party arguing for that particular course of action.”
The G20 summit also agreed in principle to back US calls for developing nations to be given greater clout on bodies like the International Monetary Fund and World Bank. Currently, the split in voting power is 57 per cent for industrialised countries and 43 per cent for developing countries. According to the draft communiqué, the changes would make the split nearly 50-50.
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