Lord Myners, the ex-Treasury minister, hit back yesterday at fears that if proposed new EU hedge fund laws go through unchanged in Brussels this week they will damage London.
The former minister said: "There isn't anything left in this directive which will threaten the viability of the UK hedge fund industry or the long-term position of London as the centre of that activity. I'm not just about defending the previous Government's legacy, but we worked hard to stop the worst excesses of this directive."
Lord Myner's comments come as the new Chancellor, George Osborne, prepares for his first Ecofin meetings in Brussels tomorrow when the Alternative Investment Management Directive is due to be debated and passed by ministers before it goes to the European Parliament in the autumn.
Privately, Treasury officials agree that most of the proposals have been watered down under the previous government, but Mr Osborne is still under immense pressure from leading hedge fund trade associations to reject some of the regulations which they claim will hurt London, and undermine Europe's competitiveness.
Both the previous and new Treasury teams have been negotiating to stop the "passport" part of the directive which requires all hedge funds to register in all the countries where they operate. As more than 80 per of the hedge fund industry is in the UK, the passport will affect London-based funds the most and will add to costs.
In a letter to all MEPs, the trade bodies were still lobbying last week for last-minute changes. They are urging leniency in particular on the "third party" proposals that would place controls on non-EU funds.
But, said a source, Mr Osborne and his Treasury team are not optimistic they will get the necessary majority to make the changes. "It's a question of mood. We want to make the general point that in a single-market the principle of passporting between countries should be allowed. But the mood in Europe – particularly in Germany and France where public anger is still being directed at hedge funds – is not going to allow this to go through."
The UK expects the backing of only the Czech Republic out of the 27 EU member states.
The crucial vote was postponed until this week to avoid the UK election and any further political horse-trading over the directive which has divided opinion among EU members.
French and German politicians have been the most determined to drive through the changes, claiming that hedge funds and private equity activities worsened the financial crisis.
The proposals also concern the US Secretary of State, Tim Geithner, who has already warned that they could lead to a continental rift as they will lock US funds out of Europe.