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Ministers move to regulate hedge fund industry
European finance ministers moved towards standardising hedge fund regulation within the EU 27 on Tuesday, in an attempt to counter "speculators'" attacks on the common currency. British finance minister George Osborne opposed the proposed measures.
AFP - Europe agreed "strict" new curbs on the trillion-dollar hedge fund industry on Tuesday, despite stiff resistance from fledgling British finance minister George Osborne.
On a totemic issue for euro governments tired of what they call "speculators'" attacks on their currency, ministers "agreed a mandate for negotiations with the European parliament" to standardise hedge fund regulation across the 27-nation bloc, the European Union said.
A statement said that the new alternative investment fund law, which also affects huge private equity and real estate funds, would introduce harmonised EU-wide rules based on "compliance with strict requirements."
German finance minister Wolfgang Schaeuble said that "we are closing a loophole in the regulations," adding he thought that the bill would soon be placed before lawmakers.
Britain, home to 80 percent of Europe's hedge fund industry, has fought for months to ensure that funds based in Commonwealth outposts in the Caribbean, for example, but managed in the City of London, are able to sell to all of Europe's half-a-billion population on the strength of British regulations alone.
That is the current state of the game, but in a slight nod to London's concerns, ministers "took note of remaining concerns expressed by delegations, for instance with regard to third-country rules."
No vote was required.
That stance allows the EU's current Spanish chairing of the meetings to open negotiations with the parliament on May 31 on a new legislative text expected to make it much tougher for non-EU funds, used to easy British access, to reach the full single market.
A European diplomat said that the so-called "passport" issue had yet to be fully worked through, underlining that "the door is still open on this one, it means the UK's concerns are in play."
That followed one-on-one talks between Osborne and Spain's Elena Salgado, chairing the talks, France's Christine Lagarde and Germany's Wolfgang Schaeuble, the source said.
European parliament lawmakers also voted late on Monday to echo Britain's concerns in its negotiating position, although Osborne has no guarantee that his core demand will be included in the final bill.
United States Treasury Secretary Timothy Geithner had warned in March that the legislation would amount to a protectionist onslaught, helping Osborne's predecessor to win a pre-election reprieve on the issue.
Managers argue that the need to obtain regulatory approval in each of the other 26 EU countries will cost millions of pounds in fees and could lead to an industry exodus to Switzerland and the Middle East.
European partners had warned Osborne beforehand that he would have to accept the majority will on an industry in which top earners can pockets billions each year.
"That's how it is in Europe," Schaeuble had said. "We are a union, and there are decisions that go against individual countries, but that can happen to any one country.
"A clear majority want this law to go through and consider it necessary," Schaeuble underlined.
Hedge funds lost some of their lustre during the economic downturn, but still handled between 1.2 trillion and 1.3 trillion dollars worldwide in 2009.
The ministers were also to address controversial plans for Brussels to vet budgets in all 27 EU countries from next year before they are put to national parliaments.
Eurozone finance chief, Luxembourg Prime Minister Jean-Claude Juncker, firmly backed the bid on Monday, saying: "The commission is not going to become the school headmistress for member states' budgetary policies."
But a European diplomat warned that Osborne would mount strong British opposition, both on Tuesday and again when EU president Herman Van Rompuy gathers a special task force to look at the question on Friday.
He pointed to a new official position from the European Commission saying the vetting would be run "in full respect of the prerogatives of national parliaments."
Under a power-sharing agreement between Osborne's Conservatives and the Liberal Democrats, any further transfer of powers from Britain to Europe has to be approved by a referendum.
The EU has said Britain will have Europe's biggest deficit in 2011.