“I think that Britain will understand,” said German Finance Minister Wolfgang Schäuble ahead of an expected defeat for Chancellor of the Exchequer George Osborne on new European curbs for the trillion-dollar hedge fund industry, 80 percent of which in the EU is based in the City of London.

“That’s how it is in Europe. We are a union, and there are decisions that go against individual countries, but that can happen to any one country,” Schäuble said. “However, if we want Europe – and we do want Europe – then we also have to be able to take decisions. A clear majority want this law to go through and consider it necessary.”

Osborne’s entourage admitted that the new British government disagrees with key parts of the directive which would scrap the ability of funds based in the Caribbean, for example, but managed in London, to sell across Europe on the strength of British regulation alone.

However, they also say that the process is too far advanced to be stopped entirely – although diplomats noted that Osborne met Spanish finance minister and the talks’ chairwoman Elena Salgado early on Tuesday, after a vote in the European Parliament moved slightly towards Britain’s stance on giving funds a so-called “passport” to sell products across the EU.

“Probably we will have today this mandate to negotiate with parliament,” Salgado said on her arrival.

Hedge funds, highly speculative investment tools, are widely blamed for having at least contributed to the global financial crisis.

British hedge fund managers argue that the new directive will cost millions of pounds in new regulation fees and could lead to an exodus from London to Switzerland and the Middle East.

The proposed EU directive has also caused concern in the United States, with US Treasury Secretary Tim Geithner warning in March that it could trigger a major dispute by unfairly locking US funds out of European markets.

Luxembourg’s Luc Frieden said that EU counterparts “have to listen to our new British colleague and come closer” but also insisted that “we have said for months we want to regulate all financial products.”

The directive was due to be passed in March, but Osborne’s Labour predecessor Alistair Darling succeeded in putting the issue back so as to avoid a painful defeat in the run-up to the general election.

Hedge funds have seen their scope reduced since the global financial crisis, but still handled between $1.2 trillion and $1.3 trillion worldwide in 2009, compared to two trillion dollars before the crisis emerged in 2008.

The 25 chief executives of global financial heavyweights pocketed a total of $25.33 billion (€18.6 billion), doubling their earnings from 2008, according to a ranking by industry magazine AR Absolute Return+Alpha.