Postcard from Brussels

Michel Barnier appeared before the European Parliament last week and demonstrated high political skills. Barniers position, when confirmed, as EU Commissioner for the Internal Market makes him the most powerful figure in European financial services. Barnier is a lifelong politician he was first elected to the French parliament aged 27 and is an expert on navigating the complex byways of Brussels. At his grilling by MEPs he managed to please almost everybody. Reconciling the diverse constituencies he needs to deal with, is no small achievement the views of the hedge fund industry are very far removed from the average MEP*. The two subjects most of us Brussels watchers wanted to hear him talk about, were derivatives and hedge funds. The AIFM directive aimed at Hedge Funds and Venture Capital, gives Barnier an opportunity to demonstrate pragmatism and earn some early plaudits, especially in London. The author (rapporteur in Brussels speak) for the AIFM directive in the European Parliament ECON committee is Jean-Paul Gauzes MEP also French and from President Sarkozys party. The AIFM directive is clearly harsh and overly political but its not going to be withdrawn. It has to be scaled back but also satisfy the socialist group in the European Parliament. This is a perfect opportunity for Mr Barnier to demonstrate his deal-making skills. The way forward on derivatives is less clear but it is apparent this is the area of most focus. The legislative process is well underway but not yet public. The European Commission is drafting a directive and initial consultation will be with national governments - market participants are not yet involved in the discussions. Formal legislative proposals are not due until May or June 2010 but to meet this deadline more deal-making is required. The first issue to resolve is getting agreement with the UK. The FSA/Treasury consultation issued in December makes very persuasive arguments against forcing OTC products on to exchanges. The policy advocated by Brussels (and in the US) is directly opposed to the view of the London market home of the OTC business. The word politician is sometimes used pejoratively in Brussels. Right now however, what Brussels needs most is political skill. The next six months are going to be very interesting. *Barnier is from the same party as President Sarkozy nominally a centre-right group with similar views to the UK Conservative party. However, the right-left delineation of French politics is often confusing especially to an American audience which assumes right means an adherence to free market ideologies. In French politics being from the right doesnt preclude heavy regulation and state intervention.

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