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Europe

Debate Over Executive Pay Heats Up in Europe

Euro-zone finance ministers criticized corporate bonuses and questioned Europe's agriculture policies in face of inflation and slowing growth.

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Big bonuses often come with the job

Euro-zone finance ministers said it's inappropriate for top managers to rake in big bonuses at a time when ordinary Europeans are struggling to make ends meet

"It is no longer acceptable to have situations whereby certain top managers have excessive salaries and also benefit from golden parachutes, payments which have no relationship to their performance," said Luxembourg's Prime Minister Jean-Claude Juncker, who chaired the ministerial meeting of the 15 countries sharing the euro currency on Tuesday, May 13.

Juncker said ministers were considering hiking taxes to limit what he dubbed a "scandal" and "social scourge."

Any move aimed at curbing salaries or bonuses granted to captains of industry is likely to be met with strong resistance by EU member states such as Britain, which fears that it might pose a threat to the City of London by pushing businesses to relocate.

British diplomats said that they believed there was "zero appetite" within the EU for such initiatives.

Euro-zone finance ministers will be joined by their European Union counterparts who are not part of the common currency on Wednesday. Talks will focus on how to tighten rules against tax dodgers who use tax havens.

Continued inflation poses threat

EU ministers also vowed Tuesday to look at ways of fighting inflation, which along with slow growth has emerged as the biggest threat to their economies.

Ministers suggested structural reforms, avoiding public-sector wage hikes that do not reflect improvements in productivity, and a possible review of the European Union's Common Agricultural Policy (CAP).

Inflation in the euro zone reached a peak of 3.6 percent in March before falling slightly to 3.3 percent in April. Rising food and fuel prices are blamed for the increase.

Official forecasts show Europe's economy slowing from its 2.6 percent growth rate in 2007 to 1.7 percent this year and 1.5 percent in 2009.

France's deficit concerns EU

Euro-zone finance ministers need to keep a close reign on their budgets in the face of weakening economic growth, Juncker said Tuesday. After progress last year, Juncker said he "sees risks" that public deficits will be allowed to increase above the allowed 3 percent of total economic output.

France, Italy and Portugal are seen as particularly at risk for breaching the deficit limit.

France, which is due to assume the six-month rotating presidency of the EU on July 1, is in the most delicate situation because Brussels has said it would send an early warning to Paris about its finances.

According to April EU forecasts, France could see its public deficit rise to 2.9 percent this year and then hit 3.0 percent in 2009. France seems all but certain to miss the 2010 euro-zone target for balancing its budget. And doubts remain as to whether it will make a 2012 target.

As for Italy and Portugal, the EU is also concerned that their deficits could get out of control, although it recommended last week lifting disciplinary action against them for their past troubles in meeting the EU limit.

Calls for agricultural reform

One of the weapons against fighting inflation has been agricultural reform. Joaquin Almunia, the EU's economic and monetary affairs commissioner, called for improving the functioning of the bloc's Common Agricultural Policy.

In a shared statement, ministers did not make any explicit reference to the CAP but referred to the need to increase supply "in the relevant sectors."

The CAP, a complex and expensive system of subsidies designed to protect farmers' incomes, has often been blamed for keeping European food prices artificially high.

Any proposals to reform CAP will face resistance from big beneficiary countries such as France. Addressing reporters after the meeting, French Finance Minister Christine Lagarde said scrapping the CAP was "not the right approach."

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