Daily Archives: February 28, 2013

Monti casts his vote in this week’s Italian parliamentary elections.

Just 48 hours after receiving a drubbing at the polls, outgoing Italian prime minister Mario Monti came to Brussels and delivered his first major address since the election, in which he issued a dire warning to other leaders attempting to reform their countries in the midst of a deepening recession: what just happened to me can happen to you.

Monti’s remarks, which appeared off the cuff, came at the end of a detailed review of Italian and EU competition policy as part of a conference Thursday hosted by Joaquin Almunia, one of Monti’s successors as EU competition commissioner.

Monti warned that because economies take a long time to grow after implementing tough austerity and economic reform measures, public opinion quickly turns against the policies and the result is “the coming up of political forces that, of course, oppose the right policies” – a not-so-veiled reference to the Five Star Movement of Italian populist Beppe Grillo, which well outpolled Monti’s coalition in this week’s vote.

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  • Bankers’ bonuses are to be capped at two times salary and banks will be subject to a strict transparency regime.
  • Switzerland will hold a referendum on a package of strict curbs on executive pay put forward by entrepreneur Thomas Minder, who spoke to the FT about his proposals.
  • The Turkish government is negotiating with jailed Kurdish leader Abdullah Ocalan in an effort to end a conflict that has claimed 35,000 lives in the past three decades, but doubts linger about whether a historic deal is within reach.
  • If you’ve been using your iPad as a babysitter only to find that your child has managed to rack up a steep bill for a children’s games and apps, never fear – Apple is offering a refund.
  • The Obama administration is shifting policy on Syrian rebels. It will help with training and “nonlethal assistance” – vehicles, communications equipment and night vision gear.
  • China’s defence ministry claims that rather than being the perpetrator of hacking incidents, China is the victim: “According to the IP addresses, the Defence Ministry and China Military Online websites were, in 2012, hacked on average from overseas 144,000 times a month, of which attacks from the U.S. accounted for 62.9 percent.”
  • China’s burgeoning tomato-growing industry is troubling traditional tomato-growing countries like Italy.

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Politicians the world over have huffed and puffed about excessive pay at banks since 2008. While remuneration curbs were put in place, nothing fundamentally challenged bank operations, or their ultimate flexibility to reward staff. The European Parliament has bucked that trend with the mother of all bonus clampdowns. Here are five key questions on the cap: how it works, how you can avoid it, whether it will really pass and what it means for Britain and the City.

1. How is the cap calculated and applied?

The bonus text runs to just half a side of A4. The core measure is a mandatory 1:1 ratio on fixed/variable pay is applied to all EU banks and subsidiaries around the world, as well as non-EU banks operating in Europe. This ratio can rise to 2:1 with a 66 per cent shareholder vote, with a quorum of more than 50 per cent. If turnout is lower, the majority must be 75 per cent. Up to a quarter of the variable pay can be paid in long term instruments (deferred for more than five years), which track the health of a bank and can be clawed back. The value is discounted at a rate set by the European Banking Authority, which must take account of inflation and risk. Some details still need to be fleshed out. But MEPs predicted that even with the discount the maximum ratio would be closer to 2:1 than 3:1.

2. Are there any loopholes?

There are always loopholes. The question is whether it would make a material difference and allow banks to operate relatively unscathed. The obvious one is just raising fixed pay, but it has obvious shortcomings. The incentives for long term pay within the cap will likely be aggressively used. But even with the most banker-friendly discount rate calculation the ratio will not move much above 3:1. Other points of vulnerability could be the definition of fixed pay: could some of that effectively be a bonus? How the rules apply outside the EU and to non-EU institutions will also be important in determining whether bankers can be shuffled around the world to avoid the restrictions. Finally there is talk of some banks taking legal action against the provisions, but there will surely be a public relations downside to that.

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Gideon Rachman

I am flying back from the US tonight. And I must say that I’m rather grateful that I am travelling before Friday. That is the day when sequestration – automatic cuts to US government spending – kicks in. One of the areas that is likely to be hit first is air travel – with predictions that there will be cut-backs in staff on air-traffic control, security lines and customs and immigration. To be fair, it is unlikely that those cuts will be felt as soon as this weekend. But nobody is quite sure – so it’s probably best to be getting out of the country, before the lines get too long. Read more >>