The G-20 Bonus Madness

Win McNamee / Getty Images France will huff and puff at the G-20 sessions today. Germany will dig in its heels. But in the end, the U.S. and U.K. rule the global banking system—and they’ve pre-cooked a deal.

Farewell G-7 (or G-8 if you include Russia). Hail the G-20, the new and expanded group of summiteers that is taking over responsibility for the global economy. The G-20 will assume the role of a permanent council on global economic co-operation, a role previously held by the much smaller group.

It’s been going that way for a couple of years now. But the Pittsburgh summit, which began Thursday night and continues today, will go down in history as the one in which the old G-7 of advanced economies (America, Britain, Germany, Japan, France, Italy and Canada) finally gave way to a much larger cast of characters, which includes the new emerging economies—such as China, India, Mexico, Indonesia and Brazil—of the 21st century.

Click Image To View Our Gallery

It’s not yet clear if the Pittsburgh summit will be remembered for anything else. Certainly not the street demonstrations, which are small beer compared with Seattle or Genoa and which have been easily controlled by the tear gas and ear-splitting sirens of the local robocops, who seem to have the whole city in lockdown. And certainly not for anything dramatic on bankers’ bonuses, despite all the rhetoric in the lead up to Pittsburgh.

Allistair Darling, Britain’s chancellor (or treasury secretary), was making stark warnings about bonuses in the run-up to Pittsburgh: “The party has got to be over,” he told the BBC. But Darling agrees with the Obama administration that governments should not intervene directly on the size of bonuses, but rather merely lay down some general ground rules.

London has had a Labour government for 12 years, and Washington has a new Democratic regime which some Republicans like to depict as “socialist”. But neither wants to cap bankers’ bonuses, even after last year’s financial meltdown.

President Sarkozy of France would go much further: he has already threatened to walk out if a “substantial, significant and detailed” deal on cutting bankers’ bonuses is not reached. He wants to cap bankers’ pay and bonuses at a certain percentage of their banks’ assets or revenue. His Finance Minister, the chic and articulate Christine Lagarde, agrees: it would be “absolutely outrageous and extraordinary if leaders of other countries did not understand the necessity to change the system and not go back to business as usual.”

• More Daily Beast G-20 coverageBut Little Sarko is always threatening to throw his toys out the pram if he doesn’t get his way—and when he doesn’t, he settles for sulking instead. He won’t walk out today, even though the Americans and British will stop him getting anything like as much as he wants. When it comes to banking, the Anglo-American special relationship is still very much alive: the French aren’t players in the global bank system; the U.S. and the UK are; and that’s what Sarkozy is out to undermine. Or that’s the view in Washington and London, anyway.

Most Europeans are closer to the French than the British, however. "Europeans are horrified by banks, some reliant on taxpayers' money, once again paying exorbitant bonuses," said European Commission President Jose Manuel Durao Barroso in a statement preceding the official opening of the G-20 summit. Germany’s powerful Chancellor, Angela Merkel, agrees.

She rarely sees eye to eye on anything with the French president. But on bankers’ bonuses they are as one. But then again, Ms. Merkel faces an election on Sunday and there is as much disgust about bankers' remuneration in Germany as there is anywhere else, even though German bankers were far from being the greediest (and, unlike France, Germany does really have a huge global banking presence).