• English Site
• > World
• > Economic and Financial Crisis

The World from Berlin

'The Bonus Debate Is a Convenient Distraction'

The US debate over corporate bonuses is quickly growing into a first-rate scandal for the administration of President Barack Obama. German commentators, though, think it is little more than a populist distraction.

The scandal in Washington over millions of dollars in corporate bonuses paid last week on Wall Street refuses to go away. President Barack Obama's recent show of anger over bonuses paid at insurance company AIG was undermined over the weekend by a revelation that his own treasury secretary was ultimately responsible for the mysterious disappearance of a clause that would have limited corporate bonuses.

Obama nevertheless supported Timothy Geithner in a TV interview on Sunday, saying his work wasn't done yet and that he had no reason to heed growing calls for his resignation. "If he were to come to me, I'd say, 'Sorry, buddy. You've still got the job,'" Obama said in the interview with TV newsmagazine 60 Minutes. "He's got a lot of stuff on his plate. And he is doing a terrific job."

The new administration, of course, is only 63 days into solving a crisis that started under former President George W. Bush. And Geithner still has a number of initiatives to roll out -- including a plan to soak up the so-called "toxic assets" that started the crisis in the first place and continue to block the flow of credit. And the bonus scandal is double-edged for any government: Not only does it upset voters, but denying bonuses to Wall Street managers would mean forcing some corporations to default on perfectly legal contracts.

German papers on Monday are pulling a variety of lessons out of the scandal. Financial papers defend the bonuses as legal and call the scandal a distraction. Other commentators say paying the bonuses will harm the foundations of the free market by denying one of its principles -- accountability.

The Financial Times Deutschland writes:

"It's not unusual for a incumbent politician to think of a tax hike as an 'interesting activity' -- but it is unusual for her to say so in public. German Chancellor Angela Merkel reacted with those words to a resolution by the US House of Representatives that could tax bonus payments for corporate managers, in certain circumstances, at a rate of 90 percent."

"With that, an idea may now be introduced to German politics that will cause obvious legal problems and shake one bulwark of freedom in our economic system: the reliability of private contracts. Even if bonuses paid to managers of companies heavily supported by government funds might anger the population, they are still a part of legal contracts."

"The bonus debate is a convenient distraction. It dominates public attention and hides other questions over what the new US government has actually achieved in the banking crisis."

The conservative daily Die Welt writes:

"The AIG riddle was solved on Sunday evening. After a period of stonewalling, Treasury Secretary Geithner admitted that his department removed the bonus-limitation clause. Denying it would have been more expensive than paying out the bonuses, he argued. Now there are new questions: Did Geithner know the exact size of the bonuses from the start? Did he nevertheless torpedo the clause? And was Barack Obama informed about any of this?"

"A close ally of Hillary Clinton's, (Senator Evan Bayh), has joined with 14 other fiscally conservative Democrats in the Senate ... in a working group that makes the new secretary of state a potential force within Congress. Eight of its members supported her candidacy for president."

"Barack Obama has given his word that he would not keep people in the dark about such an controversial topic. If he is refuted while emotions are still at a boil, the mistrustful far left will turn away, Republicans inclined to support (Obama) would feel pressure and pretenders to the throne under the Democratic tent would gain support. And Hillary Clinton's new little circle of friends in the Senate would make sure that the president will listen to the new secretary of state."

The center-right Frankfurter Allgemeine Zeitung writes:

"America's new government has charged itself with hunting a new specter on Wall Street, the corporate bonus for financial jugglers in banks and insurance companies, which has alternately been described as a 'success,' 'retention,' or 'loyalty' bonus -- but always winds up being paid. At the same time a German labor minister is arguing for government intervention to save Opel. The two stories sound different, but they have a common theme, which rests on a basic principle of a market economy: accountability."

"Free-market thinkers like Walter Eucken argued that accountability was as important in a market economy as the precedence of private over public ownership. Price pressures from supply and demand function only when they lead to financial reward and punishment for the players involved. Private property and personal accountability must both exist for profit and loss to work properly. This principle has been damaged by falsely constructed compensation systems in many banks and insurance companies."

"The case of Opel is also a matter of accountability.... A company that produces too many products for the market should be held liable and may, in the end, be eliminated from competition. But politicians determined to (rescue Opel) don't want to hear this logic."

"The financial world has gone to pieces because it has disregarded the law of accountability. A government should not try to save the economy by repeating this mistake."

-- Michael Scott Moore; 12:30 p.m. CET