EU socialists demand private equity division

The European Parliament’s leading socialist members have given the European Commission until mid-March to draft regulation for the private equity sector.

The assembly’s socialist bloc has already extracted a commitment from the European Commission president, Jose Manuel Barroso, to come forward with draft regulations on hedge funds.

“But what is proposed for private equity,” parliamentarians Poul Nyrup Rasmussen, Martin Schulz and Pervenche Beres said in a letter sent to Barroso on January 13 and released to the media the following day.

The Commission has the sole right to propose European Union (EU) legislation, which then must be approved by EU states and parliament to become law. It has launched a public consultation on possible steps.

Public debate on private equity has become heated amid accusations by labour unions and some politicians that the sector swooped on vulnerable companies, stripped them of assets and laid off workers. The sector has repeatedly denied such strategies and the debate has gone off the boil as M&A activity languishes in a credit crunch.

EU Internal Market Commissioner Charlie McCreevy said in December that a voluntary industry code would be sufficient as private equity posed no significant risk to financial stability.

“The events of recent months have proved beyond doubt that self-regulation in the international financial markets does not work,” the parliamentarians’’ letter said.

“We therefore kindly ask you to clarify how the Commission proposes to proceed with its commitment to ensure appropriate regulation for private equity,’ it added.

Rasmussen, president of the socialist bloc, Schulz, its floor leader and Beres, who chairs parliament’s economic affairs committee, said they expected legislative proposals in time for the next summit of EU leaders on March 19-20 so the assembly could start deliberating before its elections in June.

Parliament adopted a report last year that called for all institutions such as private equity companies and hedge funds to be forced to set aside capital to cover risk on their books in the same way as banks and insurers.