“We want regulation of hedge funds,” Nicolas Sarkozy

At the summit of German, French, Italian, Spanish, Dutch and British leaders held in Berlin German Chancellor Angela Merkel stated that the sort of rampant speculation and misuse of leverage that occurred in the credit bubble would not be tolerated. European leaders that were gathered there agreed to apply strict measures so as to regulate hedge funds which is viewed by some observers as crucial for London. Hedge funds are considered to play a major role in the City’s financial growth.

"We have today underscored our conviction that all financial markets, products and participants must be subject to appropriate oversight or regulation, without exception and regardless of their country of domicile. This is especially true for those private pools of capital, including hedge funds, that may present a systemic risk," Merkel said.

The meeting of the European leaders was aimed at devising and endorsing the single EU policy before the summit of G20 to be conducted in London in April when world leaders aim to set the foundations of a new financial order for the 21st century. At the moment the full text of the agreement is not available until all the states across the EU area review it.

Among other things punitive actions were also cited as necessary tools to oppose tax havens. In this regard French president Nicolas Sarkozy said Europe would not accept a "cheap fix" on financial regulation.

"We want regulation of hedge funds, and we're not going to put up any longer with the bonus reward system of traders and bankers. Sanctions are key. Without sanctions, new regulations are meaningless," he said.

Currently London commands 21% of global hedge fund business and four-fifths of Europe's total. The regulation if adopted is expected by some to have an adverse impact on the sector and British capital.