Britain and France are squaring up for a fight over a draft directive on alternative investment fund managers. The Spanish presidency, caught in the middle of the two, is keen to sign off on a general approach on the draft, which it needs to get talking to Parliament, when finance ministers meet on 15 and 16 March, but a showdown is likely over a controversial clause on non-EU funds and managers (articles 34 and 35).

The row centres on whether to allow foreign funds and managers the same privileges available to those registered inside the bloc. Spain has been trying to placate the warring factions, but sources close to the talks indicate the positions are more divergent than ever, and have even said negotiations are almost back where they were when the directive was first proposed by the Commission last April (COM(2009)207).

The Commission’s draft set out to regulate hedge funds, private equity and other “alternative investments” by forcing their managers to register in their home member state. Those managers would then have free rein (a passport) to market their funds to any of the 26 other EU countries without having to re-register there. The Commission had suggested foreign funds and managers be given the passport after three years, as long as equivalent supervision was in place in their home countries.

The current draft – supported by a majority of member states, with some reservations – now allows foreign managers and funds access to national markets, without the benefit of a passport, but with the obligation to “comply with all the requirements in this directive”.

The UK – where 70% of EU’s hedge funds are based – says the directive is protectionist and creates a dual system of legislation. But France, adamant that calls to regulate the financial sector made by the G20 last April should be heeded, says the current compromise is the only one possible without opening up a thorny debate on how to prove that foreign countries have equivalent supervisory regimes in place.

A Spanish government source said the objective was to find the “largest consensus possible” and said he expected to get it at the meeting on Tuesday. Officials say Britain is becoming increasingly isolated in its position, and has no blocking minority against the might of France, Germany and Italy on the issue. A general approach could be negotiated without British consent – it is “conceivable” said one source – but Spain is reluctant to leave the EU’s primary financial centre out in the cold.

GREECE

Aside from hedge funds, ministers will also have to tackle Greek public finances, as the Commission and the Greek government are due to present reports on how the embattled Mediterranean state is faring in slashing its huge budget deficit. On 3 February the Commission told Greece it would have until 16 March to prove that it could meet the promised 4% of GDP in budget cuts needed to get its deficit – worth 12.7% of GDP in 2009 – below the EU’s 3% limit by a 2012 deadline. On 3 March the Greek government announced a third package of austerity measures designed to reassure EU leaders, who on 11 February pledged to take “determined and coordinated action” should the country fall into difficulty.

While talks on an IMF-style European monetary fund are not on the EcoFin agenda, it is unlikely that the Eurogroup ministers meeting (informally, as usual) on 15 March will be able to escape the subject. Talks on how the EU could legally bail out Greece and any country that falls into debt in future are hotting up after German Finance Minister Wolfgang Schäuble last week outlined his plan for a rescue fund to stabilise the single currency.

It is possible a general approach could be agreed on changes to the VAT Directive (2006/112/EC) to make it possible to introduce e-invoicing across the bloc. The item may be removed from the agenda if several technical details, including how to prevent forgeries, are not ironed out before then.

Ministers will also put together conclusions on the Europe 2020 plan, crisis exit strategies, climate change financing and the 2011 budget (see separate article).