EU to cap bankers" bonuses in line with salaries Britain has been defeated in the latest round of talks to cap bankers" bonuses across Europe. Unless reversed by EU government ministers, a new accord is due in force at the start of next year as part of a series of new financial regulations in response to the economic crisis. Overnight talks in Brussels, involving MEPs, the European Commission, and EU ambassadors, agreed that bonuses should be limited to, at most, twice bankers" salaries, and that banks should be forced to set aside more money to give extra help to small business. The UK has been battling to stop the so-called "Basel 111" accord on capital requirements, fearing the impact on the City of London as the EU's leading financial capital. The only hope now of stopping a deal is a vote of EU finance ministers to endorse the provisional agreement. Austrian MEP Othmar Karas, leading negotiations on behalf of the European Parliament, said: "For the first time in the history of EU financial market regulation, we will cap bankers" bonuses. But this is not the most important part of the new rules. The essence is that from 2014, European banks will have to set aside more money to be more stable and concentrate on their core business, namely financing the real economy, that of small and medium-sized enterprises and jobs. Challenge The Federation of European Employers (FedEE) immediately claimed that the agreement to curb bankers" pay exceeded EU powers. FedEE secretary-general Robin Chater, a former adviser to the European Commission, said: "What EU negotiators have failed to appreciate is that such an action is beyond the powers vested in the European Union under the EU Treaty. Article 153 (5) of the treaty clearly states that EU legislative powers shall "not apply to pay." Furthermore, even if the council's powers were not challenged in this matter, financial institutions would remain free to increase base salaries to reward and retain key staff. He went on: "What politicians and bureaucrats have always ignored is that high remuneration levels in the financial sector - and especially substantial variable payments - serve to minimise fraud levels, retain talent, drive high performance and encourage continuity of employment. That is why corruption is so rife in many states where senior banking staff are badly paid. Many EU states have long coveted the City of London's success as an international financial centre and regarded high bonus payments as its Achilles heel. This measure is therefore no more than an attempt to exploit the current vulnerability of the City by riding on the back of the collective jealousy of bankers" pay in public opinion and the recent downgrading of the UK's international credit rating." But Mr Karas said it was a bigger deal than just bank bonuses, including key measures long demanded to make loans to SMEs easier: "The new banking law is not only a piece of banking regulation, but a real economy financing act."