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Thursday, September 26, 2013

Britain Contests E.U. Banker-Bonus Caps: A Surprising Implication

Not long after the passage of an E.U. law limiting bonuses for bankers in the E.U., one state government (the usual suspect) filed a lawsuit in federal court (the ECJ) to contest the new law before it even went into effect. Perhaps it could have been said that 'banker-bonus caps is to Britain as "Obamacare" is to Texas.' Although federal overreach was an element in both complaints, we can still ask what was the true basis of Britain's suit.
 
It would make sense that Britain might point to a trend of lower compensation since a peak in 2007. In plain words, Britain's attorney could justifiably have argued the new law was no longer necessary as the excessive bonuses had already been tapering off from a peak.
 
 
Providing its “bare bones” legal basis, Britain claims in the filing that the law is unconstitutional because it would push “bankers’ fix pay up rather than down, which will make banks themselves riskier rather than safer.”[1] The law “is not fit for purpose,” according to a state official, which is to say that the results of the legislation could already be anticipated to contravene rather than advance the law’s own purpose.

The European principle of proportionality means that federal law must be in keeping with the aim pursued. The purpose of this principle is to restrict the power of the federal level. Together with the subsidiarity principle
, the intention is to protect state governments from excessive federal encroachment. The U.S. has a comparable feature in the Tenth Amendment. As of 2013, it was still an open question whether the principles of proportionality and subsidiarity would eventually be jurisprudentially sidelined as the Tenth Amendment had been in the U.S. since 1865. The state of Britain would have had good reason to contest any federal overreach in order to keep the E.U. from sailing through a federal balance on the way to consolidation.

Lest it be concluded that the concerns in the British government pertained mostly to protecting the system of federalism, “many [people] in London’s financial district . . . harshly criticized the bonus cap, arguing that it would harm the competitiveness of the city and [the E.U.] as a whole.”[2] It is feasible that “the city” was in the driver’s seat, with the government happily going along as a sort of front hiding the raw, self-serving greed of a private interest.

To be sure, the “states’ rights” agenda was undoubtedly in the mix—Britain being the South Carolina of the E.U. However, whereas the South Carolina legislature had passed a law nullifying any federal law not in South Carolina’s interest, the Britain legislature decided it would “impose the cap because it was obliged to do so under [E.U.] law.”[3] 

One implication is particularly important. That the House of Commons recognized that even a contested federal law is nonetheless binding on Britain and its legislature is also a recognition, even if tacit, that the atom of governmental sovereignty had indeed been split; rather than being a confederal alliance such as the U.S.’s Articles of Confederation (1781-1789), the E.U. was even by 2013 a federal government—the most salient attribute of modern federalism being dual sovereignty.[4]

The point being typically missed, it bears repeating. In acknowledging that the British government, as a state government (formerly “host kingdom” in the British Empire), is bound by E.U. laws even if they run contrary to Britain’s interests (e.g., undercutting London’s competitiveness), that government cannot then turn around and argue that the E.U. is one of the networks to which Britain just happens to belong. Nor could Britain claim that the E.U. is a mere confederation, wherein sovereignty remains with the members. In other words, by the definitions and a bit of logic, the implication is that Britain was at the time not a member of, but, rather, a state in the E.U. That's quite a bonus.




[1] Julia Werdigier, “Britain Sues to Stop Cap on Bonuses for Bankers,” The New York Times, September 25, 2013.
[2] Ibid.
[3] Ibid.
[4] Kenneth C. Wheare, Federal Government (Oxford: Oxford University Press, 1970).