* Dispute is latest setback for Brussels' regulation drive
* Row over giving foreign funds licence to operate in EU
* Stand-off comes as European leaders prepare for G20 talks
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By John O'Donnell
BRUSSELS, June 23 Controversial EU rules for
hedge funds hung in the balance on Wednesday with European
lawmakers and diplomats in a stand-off that some warned could
spoil Brussels' attempts to overhaul the regulation of finance.
It is the latest in a series of rows between the bloc's 27
countries and the European Parliament, which have an equal say
in writing European law. Talks to set up watchdogs for policing
banks, insurers and markets are also deadlocked. [ID:nLDE65L1JB]
The stand-off is taking place shortly before EU leaders
including German Chancellor Angela Merkel and French President
Nicolas Sarkozy travel to Toronto for a meeting of the Group of
20 major economies.
They want to champion Europe as a model for ambitious
regulation but an impasse over hedge funds and watchdogs means
the EU is struggling to write laws while U.S. President Barack
Obama is to sign off on rules within weeks to control finance.
"We need statesmanship, not brinkmanship," said one European
Union diplomat. "The stakes are too high. By parliament reaching
for the impossible, we could all end up with nothing."
At the heart of the row is a passport scheme or licence to
do business throughout Europe for foreign hedge funds. Lawmakers
want to block the entry of foreign funds that fail to qualify
for a licence because they do not meet EU standards.
But countries such as Britain, home to nearly all European
hedge funds, want to give funds that fail the EU passport test a
second chance by letting them apply for a licence to operate in
ALL OR NOTHING
Parliament, which is keen to flex its muscles having last
year won extra powers to change or veto almost all European laws
from banking regulation to agriculture and immigration, is
reluctant to give ground.
"The parliament is not budging," a source at the assembly
said. "It is passport or nothing. If you don't meet the criteria
that are laid out you won't be able to market in the EU."
Michel Barnier, the European commissioner in charge of an
overhaul of banking regulation, and his officials have been
shuttling between meetings, attempting to defuse the row.
The former French foreign minister fears that should
diplomats and lawmakers not agree next week, they could miss an
early summer deadline to finalise the laws.
Such a delay would put a question mark over Europe's efforts
to control the financial sector.
Diplomats and lawmakers would return to the negotiating
table as late as September after the parliament and the
executive European Commission return from their summer holidays.
"If you look at the EU legislative response to the crisis,
it has produced surprisingly little," said Nicolas Veron, a
financial policy expert with think tank Bruegel.
"On many points, it has not even got started while America
is preparing to sign in its financial bill. Disputes like this
highlight the shortcomings in EU policy elaboration."
For a factbox on how European rules would curb hedge funds,
double click on [ID:nLDE65M0YF]
(Additional reporting by Julien Toyer and Ilona Wissenbach,
editing by Dale Hudson)