Barnier speaks out on hedge funds, EU budget reform

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Reaching an agreement on the regulation of hedge funds is vital for the health of Europe's financial sector, says EU Internal Market Commissioner Michel Barnier. In an exclusive interview with euractiv.fr, he also backs "new ideas" like eurobonds to finance EU growth policies.

The European Parliament and EU member states have been locked in a stalemate over a number of contentious issues surrounding the draft regulation, and in particular a UK-backed proposal for an EU-wide 'passport' to allow foreign hedge funds to operate within the bloc – a plan opposed by France.

Barnier has backed the passport proposal, stating that he would prefer to give hedge funds based outside the EU this option rather than force them to register in each of the Union's 27 member states (EURACTIV 19/07/10).

Despite the current stand-off, Barnier is confident that a compromise can be reached following the latest round of talks between the Commission, the Parliament and the Council last week.

''We had a trialogue meeting that went well. Jean-Paul Gauzès, the European Parliament rapporteur [European People's Party; France], is doing a very good job and I think we have the ingredients to come to an agreement. I have confidence,'' he told euractiv.fr.

The commissioner, who described his relationship with the UK's financial centre as extremely constructive, affirmed: ''It is in the interests of the City and the British financial industry – just like the European financial industry – to grow and develop on a solid base.''

EU growth 'needs new ideas'

Barnier also outlined his views on how the EU can fund the success of its 'Europe 2020' strategy – the Lisbon Strategy's successor aimed at achieving smart and sustainable growth over the next ten years.

''We will manage with the European budget, which remains modest and will be reviewed again," Barnier said, dismissing any significant changes to the EU's finances for the moment.

"We must also pool more national policies – as we have done with agriculture successfully and efficiently. I am particularly thinking about research, transport and space policies, which are at the moment juxtaposed."

But he also backed more ambitious means of financing European pro-growth policies. "The idea of eurobonds must be considered, as well as developing lending opportunities for large, structural long-term projects,'' Barnier said.

The commissioner also put forward the idea of setting up European savings accounts, at a time when banks are reluctant to lend and governments are making cutbacks. ''Why not mobilise Europeans to raise savings from citizens, guaranteeing them and using them for areas like SMEs and innovation?'' he suggested.

''It is time not only for political courage but also new ideas,'' he added.

EU patent dispute

Barnier reiterated his hope that agreement can be reached on the creation of a single EU patent in three languages – English, French and German – as he himself proposed in July.

Seven EU member states and the European Parliament recently told the European Court of Justice that they will block the Commission's proposal, as they believe it is at odds with EU law (EURACTIV 01/09/10).

Yet Barnier hopes that the opposition to the proposition can be resolved, as it is based on the European Patent Convention of 1973. ''As well as legal value, it [a trilingual EU patent] will have information value too,'' he affirmed.

''It will finally give us that element of competitiveness that is currently missing. A patent in Europe costs ten times as much as it does in the United States,'' he added.

To read the interview in full on the EURACTIV France website, please click here (French only).

In April 2009, the European Commission proposed a new set of rules for hedge funds and private equity firms, requiring mandatory registration and disclosure of their activities to regulators, while at the same time easing their access to European markets in the long term (EURACTIV 30/04/09). 

The main regulatory component of the proposed legislation is an obligation for EU-based managers of so-called 'alternative investment funds' to register and disclose their activities, in order to improve supervision and avoid systemic risks. 

The obligations are not applied to the funds themselves, but only to their managers, who are considered responsible for key decisions. However, critics said that exempting funds from the proposed new regulation would leave hedge funds and private equity free to develop their investment policies, despite the fact that their risk-prone attitudes were strongly criticised during the financial crisis.

Representatives from the Commission, the Council and European Parliament are still trying to agree on a text for the regulation of hedge funds, ahead of a vote in the Parliament. The vote, which was scheduled for July and then September, has now been postponed until the plenary session on 6-7 October.

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