Global Economics

EC: No Plans for More Hedge Funds Rules


Commissioner McCreevy urged European Parliament not to blame private equity for recent market turmoil and said new regulations aren't needed

Hedge funds and private equity should be watched closely, but no new regulation in the field is needed, EU internal market commissioner Charlie McCreevy told MEPs who called for legislation to make the way such funds work more transparent.

"I don't believe it is necessary at this stage to tar hedge funds and private equity with the same brush as we use for the regulated sector. The issues relating to the current turmoil are different," Mr McCreevy told parliamentarians gathered for a plenary session in Brussels on Monday (22 September).

He underlined that "several recent market initiatives indicate" that the need to remain vigilant is "understood" by the sector.

"Our role should be to monitor closely these and other developments in the market and be ready to respond if and when necessary," he said.

The commissioner acknowledged the need to take measures in the face of the current crisis, which he said would eventually transform the financial sector.

"No one is out of the woods yet. There are difficult trading conditions ahead. The downturn in economies will have its effects," he said.

However, he insisted that the investment funds should not be blamed for the turmoil and that one should rather focus on better monitoring of international banks.

"It has turned out that it was the regulated sector that had been allowed to run amok with little understood securitisation vehicles," the commissioner stressed, referring to the banking sector.

Criticism from the left

Mr McCreevy went further, pointing out "the positive effects that their [hedge funds'] activities have."

"Let me be clear: The EU economy is going to need massive investment in the time ahead. Without sovereign wealth funds; private equity and the like, Europe's recovery from today's turmoil will be all the slower," he stressed.

But his opinions were far from receiving universal backing from the parliamentarians, with some Socialist MEPs strongly criticising his stance.

"It's like hearing there is hurricane and tsunami coming and he's telling us we have to reflect on the positive things," Dutch Socialist Ieke van den Burg said, calling the commissioner's position "ridiculous."

"It's leaving the mouse in charge of the cheese. Voluntary codes of conduct are useless," added her Spanish colleague Manuel Medina Ortega.

MEPs are later this week set to adopt a report by Poul Nyrup Rasmussen, president of the European Socialists, calling for the commission to prepare legislative proposals strengthening the control over "all relevant financial market participants, including hedge funds and private equity."

Backing the US initiative

Meanwhile, the European Commission, as well as the Group of Seven industrialised nations – G7, welcomed the most recent measures taken by the US to counter the credit crisis, including a $700-billion rescue plan aiming to buy back bad debt from US banks and financial institutions.

"The announcement of the initiative was very positive but we need to know the details," EU economic and monetary affairs commissioner Joaquin Almunia told reporters during a visit to Bratislava, AFP reports.

"It is up to [EU] governments to consider if they can follow this initiative. The situation is not the same in Europe," he added.

Additionally, the finance ministers and central bank governors of the United States, Japan, Canada, Britain, France, Germany and Italy—or the G7, stated: "We strongly welcome the extraordinary actions taken by the United States to enhance the stability of financial markets and address credit concerns."

"We are ready to take whatever actions may be necessary, individually and collectively, to ensure the stability of the international financial system," they added, AFP reports.

But some national leaders, such as German Chancellor Angela Merkel, have shown some reserve towards the need to copy the US.

"From the German government's point of view, a measure such as the one that the US has drawn up is not necessary at the moment," because the situation is not the same, a spokesperson for the chancellor was quoted as saying by the Associated Press.

Ms Merkel would also like the 15 October EU summit in Brussels to tackle global finance issues in the wake of the crisis, Polish news agency PAP reports.

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