Osborne's EU initiation

A statement released after a meeting of European Union finance ministers in Brussels on Tuesday said the EU had "agreed a mandate for negotiations with the European parliament" to harmonize hedge fund regulation across the 27-nation bloc.

"We have reached agreement on this general approach," Spanish Finance Minister Elena Salgado told reporters, adding that leaders would now have to thrash out a compromise with the parliament.

Spain, which currently holds the rotating EU presidency, will begin those negotiations on May 31.

The ministers' statement said member nations wanted hedge funds operating within the European Union to require authorization from national regulators - a move Austrian Finance Minister Josef Proell said ought to "put fund managers on a leash".

Trouble-making funds

Hedge funds have been widely criticized for exacerbating the economic crisis and European politicians hope the new rules will prevent any repeat situation.

Under the proposed regulation, funds in the EU would be free to trade with other member states while funds from outside the bloc would have to apply for permission to trade in each individual country. Funds that fulfill tough rules on transparency, management and capital levels would be granted an "EU passport".

Britain, which is home to more than 80 percent of hedge funds in Europe, opposes the measure, arguing that funds based in Commonwealth outposts but managed in the City of London ought to be able to continue using the UK as an access route to serve the EU's 500 million residents.

Although ministers officially "took note of remaining concerns expressed by delegations, for instance with regard to third-country rules" the new British finance minister George Osborne has not walked away with any guarantees.

The way the cookie crumbles

In an effort to reinforce London's position on the issue, Osborne met for one-to-one talks with Salgado and his French and German counterparts, Christine Lagarde and Wolfgang Schaeuble.

Speaking about Osborne's concerns about the new legislation, the German minister said there would always be winners and losers.

"That's how it is in the EU," Schaeuble said. "We are a union, and there are decisions that go against individual countries, but that can happen to any one country."

He added that a clear majority of member states considered the law necessary and wanted to see it passed.

Industry doubts

The proposed legislation has also met with resistance from managers, who say the need to secure approval in individual states will lead to millions of euros in extra costs and could push the industry out of the EU and into Switzerland and the Middle East.

United States Treasury chief Tim Geithner also voiced his skepticism of the draft rules, saying he is concerned that they will keep American funds out of Europe.

The EU's commissioner for market regulation, Michel Barnier, said he hopes to see the European Parliament and member states reach a deal in June ahead of the next summit of the Group of 20 leading economies.

tkw/AFP/dpa/AP
Editor: Sam Edmonds