Tim Geithner, US Treasury secretary, has delivered a blunt warning to the European Commission that its plans to regulate the hedge fund and private equity industries could cause a transatlantic rift by discriminating against US groups.
A letter sent by Mr Geithner this month to Michel Barnier, Europe's internal market commissioner, makes clear that the European Union is heading for a clash with Washington if it pushes ahead with what the US – and Britain – fear could be a protectionist law.
The debate over the shape of financial regulation has reached a critical point in Brussels. Diplomats were last night moving closer to a compromise on an overhaul that has angered the industry and worried big investors. The draft EU directive would impose tighter restrictions on hedge funds, private equity and other alternative investment funds.