George Osborne in Brussels defeat after EU Court adviser backs cap on bonuses

EU legislation limits bankers' bonuses at one year's base salary - or twice the amount if shareholders agree

Osborne speaking last night (EPA)

A key adviser to the European Union's highest court is siding against Britain and wants the EU cap on bankers' bonuses to be maintained.

Advocate General of the European Court of Justice Niilo Jaaskinen recommended Thursday that British attempts to derail the EU financial law "should be rejected," advising the court to dismiss the action.

EU legislation limits bankers' bonuses at one year's base salary and double that if a large majority of shareholders agree. The advice of the advocate general is confirmed in a majority of cases when the court itself makes a ruling, which is expected within months.

Britain says the rules will lead to an increase in bankers' fixed pay, drive away talent and weaken Europe's financial industry, the heart of which is in London's City.

The government of Prime Minister David Cameron wanted to keep such decisions as a national prerogative and the outcome is particularly embarrassing for Chancellor George Osborne, who had challenged the cap.

The issue of whether the EU should make decisions against the wishes of London goes to the heart of the debate whether Britain should stay within the 28-country bloc.

Jaaskinen said in his assessment that he "finds no legitimate grounds for the UK's claim" that the EU should stay out of such issues.

Backers of the cap say huge bonuses pushed bankers to seek short-term personal gain through massive long-term risks that threatened the overall health of theirs banks — and ultimately needed bailouts funded by taxpayers.

They say such incentives to risk-taking helped destabilize the financial system and trigger the 2008-2009 financial crisis.

Additional reporting AP