Leaders are due to meet at a special summit meeting in Brussels on Thursday to finalize their joint position before the G-20 meeting in the United States next week. According to a draft communique seen by news agency AFP ahead of the summit, EU leaders will press their G-20 partners to back the idea of penalizing offending banks.

"The G-20 should commit to agreeing to binding rules for financial institutions on variable remunerations backed up by the threat of sanctions at the national level," the document said.

Setting limits

EU leaders will also call on the Group of 20, the world's major developed or emerging economies, to "explore ways to limit variable remuneration in a bank either to a certain proportion of total compensation or the bank's revenues and/or profits."

The draft communique calls for an end to guaranteed bonuses with financial police given powers to cut payments when investments have failed to deliver and instruments to control high-risk speculations.

French President Nicolas Sarkozy has been the most vociferous proponent of clamping down on bankers' bonuses. His chief of staff Claude Gueant warned on Monday that the French leader was ready to walk out of the Pittsburgh summit if no progress was made in this area.

Fewer incentives to gamble

On Wednesday, German Chancellor Angela Merkel affirmed her support for limiting such financial rewards to dampen share traders willingness to take risks.

"Upper limits are one possible way to restrict bonus payments," Merkel said in an interview with the daily Hamburger Abendblatt.

But she said this type of remuneration should be linked to the sustainable and real success of a business - and not to short-term profits.

"What no one can understand is why those managers should be rewarded who work badly and then often call on the state to step in to save them."

Going Dutch?

Dutch banks unilaterally imposed limits on bonuses and pay last week in what the Netherlands' finance minister said could be a model for the G-20 countries to follow.

In its new banking code, bonuses will no longer be allowed to top annual salaries as of January and salaries themselves will have to be under a median figure for comparable jobs.

jg/AP/AFP

Editor: Sean Sinico