Schäuble warns Britain over hedge fund rules

Germany and its European partners warned Britain's new finance minister on Tuesday that if he wants to make his way in Brussels he will have to accept greater hedge fund regulation.

Schäuble warns Britain over hedge fund rules
The UK Chancellor of the Exchequer George Osborne. Photo: DPA

“I think that Britain will understand,” said German Finance Minister Wolfgang Schäuble ahead of an expected defeat for Chancellor of the Exchequer George Osborne on new European curbs for the trillion-dollar hedge fund industry, 80 percent of which in the EU is based in the City of London.

“That’s how it is in Europe. We are a union, and there are decisions that go against individual countries, but that can happen to any one country,” Schäuble said. “However, if we want Europe – and we do want Europe – then we also have to be able to take decisions. A clear majority want this law to go through and consider it necessary.”

Osborne’s entourage admitted that the new British government disagrees with key parts of the directive which would scrap the ability of funds based in the Caribbean, for example, but managed in London, to sell across Europe on the strength of British regulation alone.

However, they also say that the process is too far advanced to be stopped entirely – although diplomats noted that Osborne met Spanish finance minister and the talks’ chairwoman Elena Salgado early on Tuesday, after a vote in the European Parliament moved slightly towards Britain’s stance on giving funds a so-called “passport” to sell products across the EU.

“Probably we will have today this mandate to negotiate with parliament,” Salgado said on her arrival.

Hedge funds, highly speculative investment tools, are widely blamed for having at least contributed to the global financial crisis.

British hedge fund managers argue that the new directive will cost millions of pounds in new regulation fees and could lead to an exodus from London to Switzerland and the Middle East.

The proposed EU directive has also caused concern in the United States, with US Treasury Secretary Tim Geithner warning in March that it could trigger a major dispute by unfairly locking US funds out of European markets.

Luxembourg’s Luc Frieden said that EU counterparts “have to listen to our new British colleague and come closer” but also insisted that “we have said for months we want to regulate all financial products.”

The directive was due to be passed in March, but Osborne’s Labour predecessor Alistair Darling succeeded in putting the issue back so as to avoid a painful defeat in the run-up to the general election.

Hedge funds have seen their scope reduced since the global financial crisis, but still handled between $1.2 trillion and $1.3 trillion worldwide in 2009, compared to two trillion dollars before the crisis emerged in 2008.

The 25 chief executives of global financial heavyweights pocketed a total of $25.33 billion (€18.6 billion), doubling their earnings from 2008, according to a ranking by industry magazine AR Absolute Return+Alpha.

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The Euro celebrates its 20th anniversary

The euro on Saturday marked 20 years since people began to use the single European currency, overcoming initial doubts, price concerns and a debt crisis to spread across the region.

The Euro celebrates its 20th anniversary
The Euro is projected onto the walls of the European Central Bank in Brussels. Photo: Daniel Rolund/AFP

European Commission chief Ursula von der Leyen called the euro “a true symbol for the strength of Europe” while European Central Bank President Christine Lagarde described it as “a beacon of stability and solidity around the world”.

Euro banknotes and coins came into circulation in 12 countries on January 1, 2002, greeted by a mix of enthusiasm and scepticism from citizens who had to trade in their Deutsche marks, French francs, pesetas and liras.

The euro is now used by 340 million people in 19 nations, from Ireland to Germany to Slovakia. Bulgaria, Croatia and Romania are next in line to join the eurozone — though people are divided over the benefits of abandoning their national currencies.

European Council President Charles Michel argued it was necessary to leverage the euro to back up the EU’s goals of fighting climate change and leading on digital innovation. He added that it was “vital” work on a banking union and a capital markets
union be completed.

The idea of creating the euro first emerged in the 1970s as a way to deepen European integration, make trade simpler between member nations and give the continent a currency to compete with the mighty US dollar.

Officials credit the euro with helping Europe avoid economic catastrophe during the coronavirus pandemic.

“Clearly, Europe and the euro have become inseparable,” Lagarde wrote in a blog post. “For young Europeans… it must be almost impossible to imagine Europe without it.”

In the euro’s initial days, consumers were concerned it caused prices to rise as countries converted to the new currency. Though some products — such as coffee at cafes — slightly increased as businesses rounded up their conversions, official statistics have shown that the euro has brought more stable inflation.

Dearer goods have not increased in price, and even dropped in some cases. Nevertheless, the belief that the euro has made everything more expensive persists.

New look

The red, blue and orange banknotes were designed to look the same everywhere, with illustrations of generic Gothic, Romanesque and Renaissance architecture to ensure no country was represented over the others.

In December, the ECB said the bills were ready for a makeover, announcing a design and consultation process with help from the public. A decision is expected in 2024.

“After 20 years, it’s time to review the look of our banknotes to make them more relatable to Europeans of all ages and backgrounds,” Lagarde said.

Euro banknotes are “here to stay”, she said, although the ECB is also considering creating a digital euro in step with other central banks around the globe.

While the dollar still reigns supreme across the globe, the euro is now the world’s second most-used currency, accounting for 20 percent of global foreign exchange reserves compared to 60 percent for the US greenback.

Von der Leyen, in a video statement, said: “We are the biggest player in the world trade and nearly half of this trade takes place in euros.”

‘Valuable lessons’

The eurozone faced an existential threat a decade ago when it was rocked by a debt crisis that began in Greece and spread to other countries. Greece, Ireland, Portugal, Spain and Cyprus were saved through bailouts in return for austerity measures, and the euro stepped back from the brink.

Members of the Eurogroup of finance ministers said in a joint article they learned “valuable lessons” from that experience that enabled their euro-using nations to swiftly respond to fall-out from the coronavirus pandemic.

As the Covid crisis savaged economies, EU countries rolled out huge stimulus programmes while the ECB deployed a huge bond-buying scheme to keep borrowing costs low.

Yanis Varoufakis, now leader of the DiEM 25 party who resigned as Greek finance minister during the debt crisis, remains a sharp critic of the euro. Varoufakis told the Democracy in Europe Movement 25 website that the euro may seem to make sense in calm periods because borrowing costs are lower and there are no exchange rates.

But retaining a nation’s currency is like “automobile assurance,” he said, as people do not know its value until there is a road accident. In fact, he charged, the euro increases the risk of having an accident.