Brussels - European Union leaders plan to urge the world's largest economies on Thursday to threaten sanctions on banks that pay excessive bonuses to executives and traders as part of a promised overhaul of the global financial system.
One year after banks across the world faced the worst financial crisis in 70 years, EU nations are eager to impose curbs on banking pay they say can trigger reckless risk-taking.
They also want to step up pressure on the United States and China to tackle global warming and commit to cuts in global greenhouse gas emissions at climate change talks later this year in Copenhagen.
In a draft statement expected to be approved at Thursday's EU summit in Brussels, leaders of the 27 countries said the Group of 20 meeting of developing and rich nations in Pittsburgh, Pennsylvania, on Sept. 24-25 should set binding rules for how banks reward employees. They want to curb a bonus culture that encouraged banks to take the excessive risks that triggered the financial crisis.
The statement, obtained by The Associated Press, also indicates the EU will urge the United States and other countries to keep up stimulus programs that are propping up economic growth and the financial industry. They want to talk about exit strategies now to coordinate how governments should pay back massive public debt when their economies recover.
The US doesn't share Europe's zeal to regulate bonuses or to talk about exit strategies, asking instead for tougher global rules that require banks to hold more capital against potential losses. Europeans also want that - but say decisions should be made after the economic crisis has calmed down.
French President Nicolas Sarkozy has threatened to walk out of the G-20 talks, if other nations don't strike a deal on bonuses.
Swedish Prime Minister Fredrik Reinfeldt, whose country currently holds the EU presidency, said Wednesday that governments need to legislate because banks are going back to business as usual as economies shows signs of recovery.
"We have some suggestions on how to get a better balance, so that we don't encourage excessive risk taking. We think that was one of the major sources of creating this financial crisis," he said.
Huge payoffs to bankers have become a hot-button issue on both sides of the Atlantic as governments stepped in with massive bailouts to prevent banks from collapsing late last year.
For instance, New York-based Citigroup, which is now one-third owned by the US government as a result of its bailout, gave 738 of its employees bonuses of at least $1m each, even after it lost $18.7bn during the year.
EU nations say they want to make sure that bankers' pay is linked to the company's long-term performance and can be clawed back if the business does badly. Pay and bonuses should be "set at an appropriate level" and made dependent on how the bank performs.
This aims to end so-called "guaranteed bonuses," where a banker is paid a set amount that isn't linked to the level of risk in the deals taken on, or how well those investments perform over time.
Stock options
The EU leaders also want to stop stock options being exercised or sold for a certain amount of time, and are calling for far more transparency to require banks to publish more details on pay structures.
Bankers worry that the pay rules would put them at a competitive disadvantage in retaining talented employees. France also is concerned about this, demanding a global level playing field that would see other nations follow its moves to curb pay among major banks.
The French government this month brought in rules that will withhold at least half of a bonus, to be paid out over three years depending on performance. The government also will refuse to do business with banks that don't toe the line.
In Europe, only Britain, France, Germany and Italy are official members of the G-20, but Spain, the Netherlands and EU officials will sit in on the talks. Most of the EU's 27 nations are too small to be invited to the world's new exclusive G-20 economic club.
-AP