EU plans to crack down on hedge funds are hanging in the balance, with talks stalled after Britain dug in its heels to head off new rules that could damage its financial centre.
The draft law had been intended to curb pay and borrowing at hedge funds and usher in an era of transparency for a secretive industry that many politicians said exacerbated borrowing difficulties in Greece by betting on its debt.
EU says Greece won't need rescue plan
But the finance ministers were unable at talks to resolve a dispute between Britain - which wants lighter regulation of an industry important for London's financial centre - and Germany and France, which want a heavier clampdown.
'We want to convince everyone and we believe we can convince everyone,' said Spanish Economy Minister Elena Salgado, announcing the failure of negotiations that she chaired.
The draft rules would require hedge funds, private equity groups and others to register and disclose trading information to supervisors.
Germany voiced disappointment, saying it had been ready to agree to a draft law, while France's Michel Barnier, the EU's financial markets chief, signalled concern about further delays in introducing stricter rules.
British Chancellor Alistair Darling emerged upbeat from negotiations and warned against rules that would put Europe and 'its only global financial centre, London' at a competitive disadvantage.
London is home to 80% of the EU's hedge fund industry and the sector's lobby group AIMA said it was important not to risk botching the new rules by rushing them.
The UK's refusal to sign up to the draft rules casts uncertainty over their future. British elections expected in May could put the Eurosceptic Conservatives in power.
The proposed rules, which need the backing of the European Parliament to become law, have already driven a rift between the EU and US. US Treasury Secretary Timothy Geithner has complained that the controls could discriminate against US firms.
Mr Barnier signalled willingness to license foreign funds with a base in London, for example, to do business across Europe. The absence of such a licence is the main US objection to the rules.
European diplomats and ministers will gather again for talks in the coming months to resolve the stalemate, a time-consuming distraction for the EU's planned shake-up of financial services.
