(Reuters) – French Economy Minister Christine Lagarde attempted to smooth tensions between France and Britain on Thursday over regulation of Europe’s financial system but said London’s “soft” system had to change.
“I highly value the City of London for what it brings to finance,” she told Channel 4 News.
“We need London, we need the City, but we need a City that plays by different rules,” she said.
Tensions were raised after French President Nicolas Sarkozy boasted about the appointment of Michel Barnier, a former French agriculture minister, as the EU’s internal market chief.
He described it as a “victory” for France and the European economic model, and a loss for free-market Britain.
Lagarde said: “In terms of regulation, in terms of systems within which banks, insurance companies and markets operate, I do believe that we have to do a better job, we have to work hard together to change the system that was in place in the past.
“And clearly the old system of sort of soft and light regulation and self-regulation did not prove particularly helpful.”
She said proper regulation was needed over bankers’ bonuses, describing the stalemate at the Royal Bank of Scotland (RBS.L) as one in which “old habits die hard.”
Lagarde said British Finance Minister Alistair Darling had her full support in trying to control bonuses at RBS in return for insuring its bad debts despite the threat of a mass walk out by the bank’s board.
“It’s a tough call because when you have to get bankers into a room and tell them it’s got to be different, bonuses are not going to be the same, and the rules have to change, who likes it? They don’t. But I know Alistair has the conviction that things have to be different going forward.”
If continental Europe can offer proposals on bank bonuses “then certainly we should consider them,” she added. (Editing by James Dalgleish) ((firstname.lastname@example.org; Tel: +44-207-542-1816; Reuters Messaging: email@example.com))