EU: "American Hedge and Private Funds in Europe are a swarm of locusts", says German politician

U.S. Treasury Secretary Timothy Geithner recently wrote to French finance minister Christine Lagarde warning her against curbing foreign hedge funds in Europe as the battle with Washington over new EU financial controls escalates. The correspondence, sent late on Tuesday and seen by Reuters, is felt in Europe as increased pressure on Paris and the EU to make concessions on planned new controls for private equity and hedge funds.

Officials familiar with the U.S. mindset said France's position had antagonized Washington, which is worried that American hedge funds will be blocked from operating in Europe. The officials said the EU challenge could undermine relations with Washington as Sarkozy takes over the chairmanship of the G20 from November.

Diplomats said last week that Germany had sided with French finance minister Lagarde, strengthening her position, but putting Berlin also in Washington's line of fire.   Geithner consequently sent a separate letter Germany outlining his concerns to finance minister Wolfgang Schaeuble on Tuesday.  Diplomats said Germany had offered its support to Lagarde on the understanding that Paris would side with it in negotiations about controlling country spending in the EU, a sweeping reform that on paper certainly overshadows hedge fund rules.

Brussels' attempts to change the rules for hedge funds, chiefly by putting them under the watch of a new pan-European supervisor, has taken on what one financial expert called a "totemic significance".  It  also put France and Germany directly opposed against Britain, which has always sided with the US in this respect  and defended an industry London sees as important for Britain's status as Europe's financial capital.

Not everyone agrees.  "I consider American hedge and private funds which occupy London's financial center and operate around Europe as a "swarms of locusts",  said a German politician

A European parliamentarian in Bruxelles who commented on the Geithner letters said: "this smells of  the US mingling in EU sovereignty over its financial affairs, which is unacceptable. It also raises the question why the US is so overly protective of those financial entities which have caused so much economic grief around the world".

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