G20 ministers to continue with economic recovery plans

Monday 7th September 2009

Finance ministers from the G20 have pledged to maintain emergency measures to combat the global economic recession in a bid to encourage long-term growth.

A dispute over excessive bank bonuses was thought likely to dominate the meeting of G20 finance ministers in London on Saturday but it is believed a majority of delegates favoured the introduction of controls to limit salaries and bonuses payments for bankers.

While France and Germany are in favour of capping large bonus payments, the UK, Canada and the US are opposed to the idea, and have asked the Financial Stability Board to examine the proposals.

At the London meeting - a preparatory event for the full G20 being held in Pittsburgh later this month - finance ministers considered whether nations could begin to repeal some of the emergency economic measures taken to tackle the global recession, but have agreed to keep anti-recession controls in place.

"We will continue to implement decisively our necessary financial support measures and expansionary monetary and fiscal policies... until recovery is secured," the group said in a communiqué.

The ministers also called for "global standards on pay structure... to ensure compensation practices are aligned with long-term value creation and financial stability".

Though France, Germany and Japan have shown signs of positive growth recently, Britain and the US were expected to counsel for caution.

British prime minister Gordon Brown told delegates on Saturday that withdrawing government backing could undermine the process of economic renewal.

"The IMF argue and Mr Strauss-Kahn [head of the IMF is here to say this, fiscal policies should continue to support economic activity until economic recovery has taken hold," he added.

"It is clear in my view that too early a withdrawal of vital support could undermine the tentative signs of recovery we are now seeing and lead to a further downward lurch in business and consumer confidence, reducing growth and employment and actually worsening governments' debt positions over the longer term."

Mr Brown also commented on the contentious issues of bank bonuses, saying: "We cannot accept a return to the past ways of governance. Specifically, pay and bonuses cannot reward failure or encourage unacceptable risk taking."

French finance minister Christine Lagarde had pledged an "onslaught" against substantial payouts and proposed a series of mandatory caps on bonuses, with the endorsement of Luxembourg's Jean-Claude Juncker, the head of the Eurogroup of eurozone finance ministers.

However, British chancellor Alistair Darling argued the plans would be difficult to enforce as bankers would attempt to find alternative systems of reward.

"We have got enough experience from countries around the world of what happens with pay policies, especially with people at the top," he told Sky News.

"They are very good at finding a way round it."

However, the G20 ministers agreed to introduce plans to reward long-term success, rather than short-term risk-taking and spoke of the "effective clawback" of bonus payments.

Tim Geithner, the US Treasury Secretary, said there had been broad agreement among the group on the need for change within the global banking system.

"Changing compensation practices fundamentally will be fundamental to future reform, and we're going to move forward and do that," he told BBC News.

IMF chief Dominique Strauss-Kahn added that government action was imperative.

"The problem is we need to go beyond agreement. We need to have concrete measures."

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