Timothy Geithner and Christine Lagarde, his counterpart in France, have been feuding for months now over hedge fund regulations in the EU.
But after a number of letters back and forth, just in the past few days, it seems they have finally worked it out.
It looks like the peace offering is entirely thanks to a final letter Geithner wrote Lagarde, which has us thinking – what’d he write in it? And what else might he have done to get Lagarde to succumb to his wishes?
Sadly, we only get to peek inside the letter Lagarde wrote him last week, but that’s still pretty cool because she seemed pretty stubborn about the new hedge fund rules and yet somehow, Geithner has finally won her over. *Our imaginations run wild.*
In case you haven’t been paying attention, Geithner has been concerned back that a new law could prevent US hedge funds from doing business in the EU.
U.S. Treasury Secretary Timothy Geithner wrote to EU officials last week [in March], warning them that the draft rules could also block American funds from selling to European investors.
The US supported a new law (presumably because it would not prevent the US from selling to European investors) but then France said it was about to block it and throw a wrench in Geithner’s plan.
Lagarde knew she’d have to answer to Geithner, so she wrote him a letter last week, on October 8th.
The letter explained why France would block a rule (that was supported by the US) that would allow hedge funds outside of the EU a “passport” to do business across all 27 EU states.She wrote that she thinks the rules invite regulation exploitation in countries without a strong financial regulatory system (like Portugal, for example, and some worry that the US might also be considered one of these countries).
From the letter, obtained by Reuters:
“We believe that awarding a passport to offshore funds is not satisfactory as they would not be subject to the same regulatory provisions as EU funds on many issues ranging from the governing law and competent court, the capacity to obtain enforcement or a judgment, the professional requirements and financial liability of auditors to valuation rules.”
Lagarde wanted one body to regulate all 27 EU states before such a passport is issued.
“If however a passport for offshore funds was to be adopted, France believes that such a passport should be truly European, [and require funds to register with and be supervised by a European body.]”
“This would also parallel the approach adopted under the Dodd-Frank act which requires funds advisers to be registered by the SEC (U.S. watchdog).”
So Geithner wrote her back, because he hates this idea. He wants to ensure that the US hedge fund industry remains able to attract European investors.
U.S. Treasury Secretary Timothy Geithner wrote to French Economy Minister Christine Lagarde this week warning her against curbing foreign hedge funds.
And amazingly, it looks like it’s finally worked. *Somehow.*
We know this because a senior EU diplomat who is familiar with France’s thinking told Reuters:
“There are real signs of both sides coming closer together.”
So this threesome, an EU diplomat (involved in EU financial regulation), Geithner (US regulation), and Lagarde (French regulation), may have come to an agreement. Whew.
Anyone got a cig?