EU finance ministers said Tuesday there was very little room for manoeuvre on plans to cap banker bonuses, leaving Britain's George Osborne looking isolated at talks on key new regulations for the banking industry.
A decision reached last week by the EU's current chair Ireland and the European Parliament would see bankers' bonuses strictly limited in order to prevent the excessive risk-taking many blame for the 2008 global financial crisis.
But Britain, as has been the case on other big European Union initiatives, appeared isolated going into the talks in Brussels on how to implement Basel III, an internationally-agreed set of regulations which tighten bank capital requirements.
Irish Finance Minister Michael Noonan said that there "isn't any room left really" for compromise, adding that he had done his best to accomodate the British point of view in last week's accord.
"The banking sector needs to be (in synch with) the real economy," said his Dutch counterpart Jeroen Dijsselbloem, who chairs the work of the 17 eurozone finance ministers.
"I hear George Osborne is worried about it but we will see how we go," Dijsselbloem said.
Chancellor of the Exchequer Osborne did not speak on his way in but diplomats warned on Monday that the United Kingdom could invoke what is known as the 'Luxembourg Compromise,' a procedure that originated with France's Charles De Gaulle and which was described as a veto by another name -- "an unofficial emergency brake" for issues concerning a national priority.
Despite the accord reached last week, the EU as a whole remains "many months away in terms of a majority of member states taking a (final) stand" on the new rules and the bonus cap, said one official familiar with the British position.
Britain's long-held concern is that London, home to one of the world's largest and most important financial markets, will suffer if the new rules are adopted because they will drive business to other centres such as New York and Hong Kong.
France, among others, rejects such suggestions, saying the new rules are a good in themselves and should be applied to all without fear or favour.
French Finance Minister Pierre Moscovici said Monday that the bankers of the City of London could not and should not escape the curbs.
Moscovici described the move as a "moral crusade" which also applied to the City, and cited resolute German backing for the cause.
"It's not about prohibiting renumeration but to put it in a certain framework -- and I think this framework is reasonable," said Luxembourg Finance Minister Luc Frieden.
"The banks can still decide themselves how high the fixed salary is."
"It's about minimising risk," said Austria's Maria Fekter. "In the past there was too much risk taken because of the" bonus structure.
The accord being discussed requires approval by qualified majority only, meaning that in theory Britain will not be able to block it but much will depend on subsequent negotiations leading up to a full European Parliament vote in April.
The Irish presidency and Parliament proposal limits a banker's bonus to the amount of the fixed annual salary but they agreed it could be twice that size if shareholders formally approve such a payment.
Britain has fiercely resisted such limits for years, fearing it will offer rival finance centres a golden opportunity to lure the industry's brightest talent and weaken London's competitive position.
Basel III was supposed to have been implemented from January this year but the timetable has slipped steadily as the banks and some EU member states, especially Britain, baulked at the new rules.
Basel III notably requires the banks to build up their capital buffers and reserves but in doing so, the lenders argue, they have less money left to lend to businesses now struggling in a deep economic slump.
European Parliament head Martin Schulz, speaking after last week's negotiations, said: "The cap on bonuses is a ground-breaking measure that in my view will make the economic system fairer and safer. Exuberant bonuses often provided a wrong incentive for financial markets, encouraging risky behaviour and short-term, purely speculative investment."