G-20 Ministers Back Stimulus, but Pay Limits Are Elusive

LONDON — Finance ministers of the largest industrial countries vowed on Saturday to keep their multitrillion-dollar stimulus efforts in place, but at a meeting here they failed to agree on any firm limits on bankers’ bonuses, a sign of the deep rifts that remain between American and European leaders.
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Finance ministers from the Group of 20 nations met in London on Saturday before a summit meeting this month in Pittsburgh.
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Times Topics: Group of 20

The ministers did agree on a blueprint to raise capital requirements at banks to strengthen the world financial system as the recovery takes hold, a major goal of the United States Treasury secretary, Timothy F. Geithner.

Regarding the higher capital requirements, Mr. Geithner said here that his goal was to reach a final agreement on the new standards by the end of next year.

Mr. Geithner added that while concerted action by central banks and governments had “pulled the global economy back from the edge of abyss,” he added that “conditions for a sustained recovery led by private demand are not yet established.”

The ministers agreed on broad principles to reform bankers’ compensation, including an emphasis on rewarding long-term performance, but asked the Financial Stability Board, an international regulatory body, to come up with specific recommendations on bonuses to be presented at a Group of 20 summit meeting to be held in three weeks in Pittsburgh.

In its final communiqué, the G-20 ministers called for “global standards on pay structure,” emphasizing long-term results in awarding pay and urging provisions to take back bonuses if bank profits tumble, known as “clawbacks.” They also suggested limits on guaranteed bonuses.

That was a setback for French and German ministers who had been pushing hard in recent weeks for a more concrete plan to address bonuses, amid rising public anger that just months after they were rescued, major financial institutions are returning to old habits and rewarding executives who take excessive risks.

In Europe, where Germany’s chancellor, Angela Merkel, is running for re-election later this month and the British prime minister, Gordon Brown, faces a general election within the next year, bonuses have been met with controversy.

While bonuses are still a contentious issue in the United States, they have been overtaken recently by the debate over health care reform. Negotiations between the American and European delegations over bonuses grew tense Friday night, according to one official who insisted on anonymity because he was not authorized to speak publicly.

He said the European negotiators felt their American counterparts were seeking to sidestep the bonus issue out of fear the White House could be accused of yielding too easily to European pressure, which might endanger progress on health care reform.

Mr. Geithner has been cool to proposals to restrict bonuses, instead emphasizing the need for higher capital requirements at banks and other broader regulatory measures to prevent a repeat of the financial crisis that began almost exactly a year ago with the collapse of Lehman Brothers.

The French finance minister, Christine Lagarde, tried to put the best face on the limited recommendations. “We argued very hard and very convincingly,” she said. “We’ve agreed that the F.S.B. will come back to Pittsburgh with proposals on remuneration.”

She added: “Bonuses are quite outrageous, and we can’t let that continue.”

The tone of the meeting, a precursor to the meeting in Pittsburgh, suggested that although the worst of the global financial panic had passed, politicians and economists remained deeply concerned about still-rising unemployment.

“The classic errors of economic policy during crises are that governments tend to act too late with insufficient force and then put the brakes on too early,” Mr. Geithner said. “We are not going to repeat those mistakes.”

With economic growth resuming in France and Germany last quarter, there has been increasing talk in Europe about a so-called exit strategy — how to unwind the trillions of dollars in central bank lending and increased government spending without sending the global economy back into free fall.

But even German officials, who have been wary of the risk of inflation posed by widening deficits on both sides of the Atlantic, agreed in London that it was still too early to withdraw government support of the financial system.

“Everyone is convinced that we have to support the financial markets by all measures and stimulus packages which are necessary,” said the German finance minister, Peer Steinbrück.

Other top financial officials echoed the view that it was still too early to celebrate about signs of growth.

“I was afraid a few weeks ago when we began to have good figures that it might induce an attitude that the crisis is over,” said Dominique Strauss-Kahn, the managing director of the International Monetary Fund. “It’s not the time to implement exit strategies.”

Britain’s chancellor of the Exchequer, Alistair Darling, said members of the G-20 “have to make sure that we finish the job we started.” He added: “There is still a lot of risk, a lot of uncertainty and a lot of obstacles to negotiate.”