BRUSSELS -- Britain stood isolated against a broad majority of European Union countries Tuesday in refusing to back legislation that would strictly limit bankers' bonuses.
Treasury Chief George Osborne said at a meeting of the bloc's 27 finance ministers in Brussels that Britain, home to one of the world's largest financial industries, can't support the current proposal to limit bonuses. The UK fears the cap would drive banks to set up outside Europe in the U.S. or Asia.
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But Irish Finance Minister Michael Noonan, who chaired the ministers' meeting because his country hold the rotating EU presidency, concluded there is a "broad majority" in favor of the legislation. This gives the necessary green light for finalizing technical details toward a formal vote on the package by the ministers next month.
The bonus cap is part of a sweeping 1,000-page package of financial laws that will require banks to hold more capital and liquidity reserves from next year. This is designed to shield taxpayers from having to pay for any more expensive bailouts. Those rules will implement the internationally agreed Basel III rules on banks' capital buffers and will also lay the groundwork for a single banking supervisor for the group of 17 European Union countries that use the euro.
"It's about protecting taxpayers in the future by building stronger European banks," Noonan said. "These new rules will make sure that our banks can better withstand future crises."
The bonus cap would be set at one year's base salary or double that if a large majority of the bank's shareholders agree. Not only does the measure affect all of Europe's banks but it will also be mandatory for European units of foreign banks and the employees of EU banks working overseas, for example in New York.
European officials are trying to avoid forcing the legislation through without Britain's consent. This would be a politically toxic move given the already significant level of euro-skepticism in the U.K.
German Finance Minister Wolfgang Schaeuble Tuesday insisted "it would be better" to reach consensus. He expressed hope that changes in the legislation's fine print this month might yet convince Britain to support the measure.
British Prime Minister David Cameron sees Brussels as meddling too much with the member states' own business. Cameron has vowed to renegotiate his country's ties with the EU and hold a referendum on Britain's membership in a few years.
Schaeuble, representing Europe's biggest economy, insisted that the EU should not isolate Britain on the legislation because that would only strengthen euroskeptic forces there.
"It's in Europe's interest that Great Britain stays on board and because this is a critical phase at the moment, we have to make an effort that we don't strengthen" those forces, he said.
Britain has said it fears the bonus cap will drive up base salaries and harm the financial sector in London, one of the world's largest, and hamper growth. Proponents of the cap say the high payments encouraged bankers to take massive risks at the expense of the long-term future of their businesses, and helped to destabilize the financial system in 2008.
Osborne told the meeting that Britain understands the public's sentiment that bankers must be made more accountable. The U.K. has already introduced rules on bonuses, shifting them more toward long-term incentives and including legal possibilities to claw back bonuses.
Britain, among other things, is proposing that a greater part of the bankers' bonuses to be deferred over up to five years, making them more of a long-term incentive rather than rewarding risky bets that might backfire over time.
"I can't support the proposal currently on the table," he said, urging Ireland to improve the proposed legislation in continuing negotiations with the European Parliament.
In London, Cameron's spokesman Jean-Christophe Gray said "the competitiveness of the City of London, the UK as a whole and UK-based firms is a very important consideration."
"We want a strong, successful and also stable, well-regulated, financial sector here in the UK, which can continue to be successful globally," he added.
But Noonan made it clear that the time for major changes was up after the current compromise with the European Parliament was reached last week after arduous months of negotiations. The European Parliament had threatened to hold up approval of the entire package -- a delay that the bloc, shaken by a three-year-old debt crisis, was keen to avoid.
"We firmly believe further negotiations with Parliament will not help very much," said Noonan, noting the lawmakers' insistence on the bonus cap.
One area where the ministers did find common ground was on the subject of Ireland and Portugal.
The meeting agreed in principle to grant relief to Ireland and Portugal, which have received bailouts, by giving them more time to pay back their debt. The ministers have asked the "troika" of bailout creditors -- the European Commission, the European Central Bank and the International Monetary Fund -- to propose a technical solution for extending the maturities, according to a joint statement.
Ireland hopes for an extension of up to 15 years, although Noonan has conceded that such a significant delay might be hard to obtain. Giving Dublin and Lisbon more time to repay their debt would give them more leeway in managing their finances as they emerge from their bailout programs, respectively this and next year.