European Trade Unions Urge Brussels To Control Hedge Funds

by Ulrika Lomas, for LawAndTax-News.com, Brussels

21 August 2007

The European Trade Union Confederation (ETUC) is blaming the activities of hedge funds for exacerbating the recent turmoil in the world's financial markets brought about by the US subprime mortgage crisis, and is calling on the European Commission to "act decisively" to bring more transparency to the derivative markets.

In a statement, ETUC claimed to have been warning about the risks of hedge fund operations in the derivative markets for over a year, and accused European Union Internal Market Commissioner Charlie McCreevy of "monumental complacency" for ignoring the potential threats posed by the growth of hedge funds.

"It has taken a crisis to awaken policy makers to the dangers involved in the recent stupendous growth of hedge funds and derivative markets. Trade unions have been warning about the risks of hedge fund operations and how no-one can be sure about who is responsible for what, or what the true liabilities are in today’s casino economy," ETUC argued.

The ETUC praised the swift response of the European Central Bank in trying to prevent the crisis unfolding further, but urged the European Commission to take more seriously proposals by the German Government to investigate the role played by credit rating agencies and bank involvement in hedge funds and credit markets. It also wants increased transparency and more regulation in the derivative markets.

“Europe – and the world – has been caught out by the speculators," commented John Monks, General Secretary of the ETUC.

"We have allowed them to exercise a huge influence on the world economy. Financial markets today are a crucial part of the real economy, responsible for providing mortgages, pensions and for providing credit for investment in innovation, R+D, and new equipment. But they have become more interested in gambling on shaky deals. How many more risks like the sub-prime mortgages are undervalued? What is the real extent of liabilities of hedge funds and of the banks? The European Commission and other institutions need to find out quickly, if confidence is to return swiftly and long-term damage averted," Monks added.

McCreevy's office has reportedly revealed that an inquiry will be launched into the slow response to the crisis by credit rating agencies, but a spokesman for the Commissioner has indicated that he will not be changing his stance on the issue of hedge funds.

McCreevy disagrees with proposals by some governments and multilateral agencies such as the Financial Stability Forum (FSF) that hedge funds must report more detailed information to regulators on a more regular basis, and is of the view that hedge funds provide liquidity in the financial markets and strengthen corporate governance. He is on record as opposing an FSF proposal to compel hedge fund managers to provide detailed and frequent information to allow investors and the banking institutions to assess strategies and risks.

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