France's Moscovici defends shielding hedge funds from loan curbs

Tue Feb 5, 2013 7:05am EST

* Hedge funds' financing to stay intact, banks face curbs

* Marks shift from traditional French anti-finance rhetoric

* "Tactical" attempt to rebuild relations - fund manager

PARIS, Feb 5 (Reuters) - France's finance minister Pierre Moscovici defended on Tuesday a government plan to ringfence banks' proprietary trading and leave hedge-fund financing intact, saying that hedge funds play a vital role in the French economy.

France's proposed bank reforms, due to be debated in parliament later this month, would force banks to make proprietary trading a separate self-funded entity and ban them from owning or operating hedge funds.

Secured hedge-fund financing would be left intact.

Moscovici's stance is at odds with French politicians' traditional anti-free market rhetoric on both left and right. Socialist President Francois Hollande's 2012 campaign speech blasted "speculative funds" as "vectors of instability", while his predecessor Nicolas Sarkozy called them "predators" in 2007.

"While some of these funds have strategies that should be criticised, today the vast majority are necessary and essential players when it comes to financing the economy - whether we like it or not," Moscovici wrote on his official website.

He cited the convertible bond market as an example. "Hedge funds can represent 60 to 80 percent of demand on this market and so are essential for placing the securities in the best possible conditions for the companies," he said.

France's proposed bank reforms have been panned as too soft by critics including Brussels-based Finance Watch, especially compared with recommendations by the EU's Liikanen Commission for a broader separation of all trading including market-making.

A Paris-based hedge-fund manager said that the government was changing its rhetoric to drum up support for the reforms and also to build confidence at a time of economic stagnation and bad blood among voters over stubbornly high unemployment.

"For ten months the government has spent so much time bashing entrepreneurs and the business world that it must be thinking it's time to mend relations," he said. "It's tactical."

Meanwhile, the head of French bank Credit Agricole , Jean-Paul Chifflet, warned that a stricter reform law would hurt banks' ability to lend. "Going beyond the current plan, with a stricter separation of banks' operations, would be serious for our country," he told Les Echos newspaper. (Reporting by Lionel Laurent; Editing by Louise Ireland)