Call for EU and G20 to get tough on bank bonuses

France's Nicolas Sarkozy and Germany's Angela Merkel have jointly urged the world to limit bonuses paid to bankers following a mini-pow-wow between the two in Berlin on Monday (31 August) and have warned that despite the wreckage wrought by the crisis, some banks are already back up to the same old tricks.

The president of France and the German chancellor also backed limiting the size of financial institutions and raising capital requirements for banks.

The two leaders also urged the European Union to achieve a united position that could be taken to the upcoming G20 meeting in Pittsburgh, in the US at the end of September.

Mr Sarkozy has made bank bonuses a key plank of his counter-crisis strategy, last week twisting the arm of domestic banks into reducing the monies paid out over a three-year period and turning a third of the pay-outs into shares in the institutions.

If a bank does not go along with his request, the government will no longer work with them.

Ms Merkel, a fellow conservative but equally whiplashed by the scale of the crisis, backs her French counterpart's prescription of restraint for bankers.

"Bonus payments are the thing that quite rightly drives a lot of people up the wall," she told reporters after the meeting.

The German leader is also keen that financial institutions not get so large that governments again are forced to spend trillions bailing them out.

"No bank may become so big that it could get into a position where it could blackmail governments," she said.

The two also warned that now that the worst of the crisis seemed to be passing, banks must not return to their freewheeling ways from before the crash.

"We want to see things changed in Pittsburgh," said Mr Sarkozy. "These excesses cannot be allowed to be repeated as if nothing ever happened."

Ms Merkel was even more reproachful.

"To the surprise of many, we're noting in several financial centers of the world that the banks that got back on their feet again are behaving just like they did before the financial crisis. This mustn't repeat itself," she said.

The two were also concerned that G20 leaders continue to move forward with commitments made at the last G20 meeting in London, and hope to see Europe take a lead in pushing other powers to do so at the Pittsburgh session.

German and France also signalled that now was the time to begin crafting co-ordinated strategies for exiting the current period of looser fiscal and monetary policies.

Ms Merkel in particular warned of the pitfalls of letting such policies continue indefinitely.

"We must take care that, on the one hand, we act correctly with regard to the recession and the economic crisis, but on the other hand, we mustn't make the same mistakes again that led to this crisis," she said. "After 9/11, the loose monetary policy in America was not withdrawn and this bubble was able to arise."

However, there is far from any consensus as to the latter position, with a number of economists, notably Nobel laureate Paul Krugman, warning that in the 1930s, policymakers turned away from a Keynesian approach once economic indicators began to turn around, only to see their economies extend the stagnation and decline.