European Union (EU) leaders are due to hold a special meeting on Thursday, aiming to hammer out common positions at the upcoming summit of the Group of 20 (G20) major economies.

As the world economy is emerging from the recession, the EU is expected to make a new push in the reform of the global financial architecture, seek a coordinated strategy to phase out the stimulus measures and decide on its contribution to the global fight against climate change.

Sanctions against excessive bonuses

The EU has been a driving force behind the international financial reform since the outbreak of the financial crisis at the end of 2007. Ahead of the G20 summit, which is to be held in the US city of Pittsburgh one week later, there has been an increasing call within the EU for global curbs on bankers' bonuses.

EU leaders are likely to press their G20 partners to apply sanctions against those banks which perform badly but continue to hand out excessive bonuses to their top managers.

"The G20 should commit to agreeing to binding rules for financial institutions on variable remunerations backed up by the threat of sanctions at the national level," a draft to be discussed by EU leaders said.

Bankers' bonuses have come under strong criticism in the wake of the financial crisis since the current bonus culture was blamed for bank managers' reckless and excessive risk-taking, which fueled the financial crisis.

It stirred uproar when bank executives received huge amount of severance pay even if the financial institutions they managed had run into trouble.

EU leaders will say bankers' bonuses should be tied to "long-term performance" of the banks and stock options could be exercised only after a certain period of time.

They also want the G20 summit to "explore ways to limit" bonuses to a certain proportion of either total pay or the bank's revenues or profits.

In preparation for the Pittsburgh summit, finance ministers from G20 countries agreed to work on global standards on pay structure to ensure compensation practices are aligned with long-term value creation and financial stability, but they failed to adopt any specific limits on bonuses due to the reservation of the United States and Britain, which feared heavy regulation would undermine the competitiveness of their financial sectors.

Exit strategies to be designed

One year after the outbreak of the financial crisis, the world major economies are now showing positive signs of recovery thanks to stimulus measures adopted by the governments.

The European Commission forecast on Monday that the EU economy is set to get out of recession in the third quarter of this year, but warned uncertainty is rife.

EU leaders are likely to agree on a common line that the stimulus measures should be maintained at the present stage, while world governments must now draft exit strategies to withdraw them in a coordinated way.

"The G20 should reaffirm its determination to continue implementing coordinated policy measures in order to develop the basis for sustainable growth and to avoid a repetition of the present financial crisis," the draft said, stressing "Efforts must be maintained until recovery is secured."

"Exit strategies need to be designed now and implemented in a coordinated manner as soon as the recovery takes hold," it added.

European Commissioner for Economic and Monetary Affairs Joaquin Almunia said on Wednesday that it is still too early for the governments to withdraw fiscal stimulus.

"We are not yet able to ensure that economic activity can standalone without recourse to such stimuli," he told the European Parliament in Strasbourg, France.

Analysts said when to phase out stimulus measures is essential since removing them too soon would be detrimental to the momentum of economic recovery, while slow withdrawal would increase the risk of inflation and create more burden on public finances.

Pressing others on climate financing

Besides financial reform and economic recovery, EU leaders are also expected to discuss the global fight against climate change.

World governments are scheduled to conclude a deal in Copenhagen, Denmark, in December to create a new framework for further international action on climate change, to follow up on the Kyoto Protocol's first commitment period which ends in 2012.

But with less than three months left, the negotiations are currently deadlocked due to divisions between rich nations and developing countries. The upcoming G20 summit would be a chance for world leaders to break the impasse.

One of the sticky issues now is how much developed countries can pay to help poor nations combat global warming.

It was estimated by the EU that by 2020 developing countries are likely to face annual costs of around 100 billion euros (US$147 billion) to mitigate their greenhouse gas emissions and adapt to the impact of climate change.

The European Commission proposed last week that the EU could contribute some 2 billion to 15 billion euros (US$2.9 billion to US$22 billion) a year by 2020 to help poor nations, but the amount was criticized by environmental groups as being too low.

EU leaders will try to find a deal on their contribution, but they are expected to press other countries, including emerging economies, also to pay.

"All countries, except the least developed, should contribute to financing the fight against climate change in developing countries," the draft said.

(Xinhua News Agency September 17, 2009)