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* Tensions high after UK's Brown delays EU hedge fund rules
* Barnier visits Sarkozy adviser to urge softer French line
* Parliamentarian Gauzes puts forward compromise
By John O'Donnell and Julien Toyer
BRUSSELS, April 13 (Reuters) - EU financial services chief Michel Barnier has intervened in a stand-off between Britain and France over regulating hedge funds by asking Paris to soften its stance, a source close to Barnier said on Tuesday.
Tensions rose between Paris and London after British Prime Minister Gordon Brown last month forced the delay of delicate negotiations on European Union rules for hedge funds and private equity.
France favours tougher regulation of the industry but Britain, home to most European hedge funds, wants to protect it.
Barnier, EU commissioner in charge of an overhaul of financial regulation and a former french foreign minister, has now stepped in by visiting Xavier Musca, one of French President Nicolas Sarkozy's top economic advisors, to ask Paris to compromise on the new rules.
"Barnier is in contact with the Elysee (the French President's Office) about this," the source told Reuters. "He has visited Xavier Musca." Barnier wants Paris to accept that foreign funds can obtain a passport or Europe-wide license to do business on condition they abide by new EU rules spanning borrowing by funds to managers' pay.
But it is unclear whether he will be successful, as the French government strongly opposes lax rules for a secretive industry that many politicians have grown suspicious of. Germany is also in favour of harsher regulation.
One of European Parliament's top lawmakers, Jean-Paul Gauzes, made proposals on Tuesday which he hopes will lead to a compromise to secure the creation of new hedge fund rules this year.
Like Barnier, Gauzes wants to hand out a license or passport to do business in Europe, for example to a New York-based fund, if it meets EU standards and stays under the watch of financial watchdogs in Europe and America.
France, on the other hand, wants hedge funds to negotiate with each of the EU's 27 countries to attract investors there.
"Barnier believes that a passport for foreign funds that meet high standards is the right way forward. He has expressed his views on this to all parties, including France," a spokeswoman for Barnier said. (Editing by David Holmes)