EDITOR'S TAKE: None of this looks at all good in the context of proposed pan-European financial services regulation

Forget this week's European hedge fund directive: the EU's curbing of UK hedge funds could prove a mere drop in the regulatory ocean if a ferocious pan-European banking regulator is successfully conceived.

The Financial Times noted yesterday that the debate on the pan-European regulation will heat up next month, with the next meeting of EU finance ministers on the subject.

In the circumstances, it's likely to prove an emotive affair. Following this week's unilateral ban on naked short selling by Germany, finance minister Wolfgang Schäuble has taken to the FT today, claiming that, "markets are out of control."

Schäuble goes on to say, "We must regulate over-the-counter transactions, and we must also focus on the ratio of financial transactions to the real exchange of goods and services...forgive my saying so, minimum profits of 25 per cent are simply unimaginable in the real economy. It isn't healthy."

The European regulatory ghost has been out of action for a while. Last time we gave any real thought to the subject was back in March 2009, following Adair Turner's edict that, the proposed European financial services regulator should not have, 'powers over national supervisors to change individual regulatory decisions, nor to prescribe detailed supervisory practice.'

Since then, the temperature on the Continent has ratched up a few new notches and anti-banking sentiment has increased exponentially. The danger is that any changes to the current system of national regulation will be passed on a majority vote - George Osborne noted this week that he had "close to no allies" on hedge fund regulation

"The proposals suggest we're heading much more towards a European system of regulation in which Europe will more effectively dictate policy and its interpretation," says Richard Everett, a regulatory partner at law firm Lawrence Graham. "The FSA could be left as little more than the local office of the European banking and securities regulator."

If so, the City could also be coshed - and jobs with it.