EUOBSERVER / BRUSSELS - A meeting between French President Nicolas Sarkozy and UK Prime Minister Gordon Brown on Friday (12 March) has failed to clinch a breakthrough on hedge fund and private equity regulation, as EU talks approach their endgame.
Both sides said they were confident a deal could be struck in the coming days however, with the Spanish EU presidency keen to secure a common member-state position when finance ministers meet in Brussels next Monday and Tuesday.
"We've had good talks on this and I'm pretty confident that we can get a very satisfactory outcome in our discussions over the next few days," said Mr Brown in a joint press conference with the French leader after their meeting in London.
At the heart of the current debate are so-called 'third country' measures: If the latest Spanish text is agreed by qualified majority on Tuesday, non-EU domiciled funds will need individual member-state permission before they can market their products to investors in that country.
The UK and US are in favour of a European hedge fund 'passport' however, an idea contained in the original legislative proposals put forward by the European Commission last April, but subsequently removed.
Under the a 'Schengen-type' concept, permission from one national regulator, for example the Financial Services Authority in London, would be sufficient to give a foreign-domiciled fund access to Europe's 500 million citizens, without the need to apply in each separate EU capital.
London is home to roughly 70 percent of the EU's hedge fund and 80 percent of private equity industry. However, a majority of the UK firms are actually domiciled overseas, in particular in the Cayman Islands.
"But what happens if a Cayman fund fails," said one French diplomat on Friday, indicating his country's objections to the passport idea. "Its Cayman rules that apply, and Cayman judges."
Spanish diplomats say the UK has failed to muster a blocking majority for Tuesday's finance minister discussion, and while their "objective is to find the largest consensus possible," they would not rule out the possibility of a sealing a deal against UK wishes.
A member state common position - known as a 'general approach' in Brussels legalese - is necessary before negotiations can begin with the European Parliament, a co-legislator in the area.
Also high up on the finance minsters' agenda is the question of Greece. Following fresh austerity measures announced by Athens last week, a commission report is expected to say enough has been done to bring the country's deficit down by the promised four percent this year, with implementation now the key.
Whether there will be a further announcement on the financial support plan being prepared for Greece, in case Athens runs into debt refinancing difficulties in the coming months, is a topic of much discussion in economic circles.
One senior Greek source told EUobserver this week that "there could be a clear message" that would go beyond the 'solidarity' pledge given by EU leaders in February.
Bloomberg was reporting on Friday that ministers would discuss whether a Greek bailout should be funded by EU bonds guaranteed by euro region governments.