New MEPs to first focus on financial market reform 

The most sensitive dossier is a proposed directive on alternative investment funds, including hedge funds and private equity. Crucially, the legislative future of the new set of rules will depend on the outcome of this weekend's European Parliament elections.

Socialists have singled out hedge funds and private equity as their number one targets in the wake of the financial crisis. Hedge funds are seen as posing systemic problems for financial markets, although the current crisis is not directly linked to them. As for private equity, leveraged buy-outs are seen as a threat to workers.

Despite its reluctance to intervene on alternative investment funds, the European Commission partly surrendered to pressure and proposed a last-minute directive introducing a number of legal obligations for hedge funds and, to a lesser extent, for private equity.

Socialists, Greens and the Far Left complained about the light approach adopted by Internal Market Commissioner Charlie McCreevy. Nevertheless, the industry warned of "unnecessary" risks for investment and jobs posed by the draft directive. 

Success for a Socialist-led coalition in the elections will likely tighten draft laws for industry. In turn, confirmation of the current conservative majority in the EU assembly, or a major success for the Liberals, is expected to result in a better deal for the industry (EurActiv 30/04/09).

Reform of financial supervision is also a key dossier that must be addressed at the first sitting of the new Parliament. The initial Commission proposal  mirrors a report prepared by former managing director of the International Monetary Fund Jacques de Larosière.

Although the EU executive's plan rules out many of de Larosière's most ambitious ideas, like establishing a single EU supervisor or a means of solving the controversial issue of burden sharing in the event of the failure of cross-border financial institutions, most political parties nevertheless welcomed the overhaul. 

The Greens, who harshly criticised the proposal, are the exception. In any case, the battle will centre on detailed measures to implement the new supervisory architecture, which Brussels is expected to deliver by the autumn (EurActiv 28/05/09).

Moreover, the Commission will present in mid-June revised legislation on capital requirements for financial institutions, in order to take into account the risks of securitisation and high managers' fees (EurActiv 29/04/08).

The Parliament is expected to streamline the debate on these proposals as they are directly related to the origins of the current crisis, primarily the chaos surrounding securitised assets.