Germany's trades union leader urged on Sunday new taxes and controls on hedge funds as the ruling Social Democrats (SPD) prepared to set out their thoughts on how to preserve the country's "social-market" economic model. Michael Sommer, head of the DGB trades union federation, said government liberalisation of the financial sector was to blame for a rise in a class of investors that SPD leader Franz Muentefering has likened to "locusts", and called for a rethink.
"Unfortunately the party that is leading this 'locust' debate is the one that's responsible for the fact these funds are now doing the rounds here," Sommer told Bild am Sonntag newspaper in an interview.
"We need tougher rules for financial markets in Germany and Europe. For the next government that means, in concrete, higher taxes on speculative investments, controls on hedge funds and scrapping much of the financial promotion act," he added.
Sommer is due to speak on Monday at an SPD conference into the future of the "social-market" economy, the name given to Germany's brand of "Rhineland" capitalism, characterised by the high involvement of banks and workers, developed after World War Two.
Chancellor Gerhard Schroeder is expected to use a speech at the start of the conference to set out his economic platform ahead of a planned September general election.
The SPD launched an attack on hedge funds in April ahead of an important regional poll in North Rhine-Westphalia state, which it lost. Political analysts saw it as an attempt to mobilise core left-wing supporters disillusioned by Schroeder's reforms.
The attack coincided with a number of high-profile disputes between managers of German firms and foreign investors, including at Deutsche Boerse AG and machine tool maker IWKA AG, prompting Schroeder to ask for a study for Monday's conference into whether new controls on funds were needed or possible.
The study, a copy of which was obtained by Reuters, concluded both private equity and hedge funds can have a useful role to play in capital markets but pose risks when they pursue "extremely short-term profit strategies" at the cost of companies or employees.
To limit speculation, it suggested the German government could consider lowering the threshold, currently set at 5 percent, above which a company or fund has to publicly notify its interest in another company.
It also proposed that investors receive a bonus if they turn up to vote at annual general meetings, noting low shareholder participation at AGMs allowed active funds to pass resolutions against managements with relatively small stakes.
Germany should also rethink rules on short selling in line with US and British regulators' practice, it suggested.
It rejected calls from some Social Democrat backbenchers for shares to be given extra voting rights if held for a certain period of time, saying that could break EU law and also would have little impact on private equity funds' activities.