Closer checks on hedge funds will be discussed by G7 finance ministers at the weekend but Germany seems to have little if any support for a regulatory clampdown.
Germany, president of the G7 club of industrialised economic powers, wants the G7 to explore potential systemic risks to the global financial system from a flourishing $1.7-trillion industry which some fear is less than transparent.
The matter will be discussed at meeting in Essen over Friday dinner and Saturday along with the state of the world's economy - not bad basically - and exchange rates, where the yen's slide to record lows recently has sparked complaints from Europe.
Germany has made hedge funds a core issue of its turn at the helm, including at the weekend talks in Essen.
"More transparency is the missing link," Bundesbank board member Edgar Meister told Reuters. "It's a considerable success that this has made it to the G7 agenda and that it will be worked on further."
Judging by briefings from other officials outside Germany, the debate in Essen is more about the scale of any potential risk to financial stability than what to do about it.
On a descending scale, Germany was in favour of regulation, followed with considerable less conviction by France, Italy and Japan, with the U.S. position unclear though presumed not too much in favour, and Britain opposed, one official said.
Hedge funds, which are loosely regulated and can use trading techniques such as short-selling that are off-limits to others, are attracting attention from politicians as they build closer links with banks, mainstays of the financial system.
Financial regulators say lack of information about their investments means it is difficult to know where the risks lie.
Meister, who heads the European Union central banks' banking supervision committee, said hedge funds helped financial stability through spreading risk and increasing market liquidity and efficiency.
"But they can also be a source of increased systemic risk. and that's why it's being brought up at the G7 level," he said.
Ministers will also assess the global economy. But officials have given mixed signals as to how far this will include foreign exchange rates.
Euro zone officials want to address the value of Japan's yen, but this push has won no support from the other G7 nations - Japan, the United States, Britain and Canada.
German Finance Minister Peer Steinbrueck said last week that the yen's fall would be discussed in Essen and another European official said on Tuesday the exchange rates of the Japanese yen and Chinese yuan were putting undue pressure on the euro and the euro zone.
"The euro's taking a disproportionate part of the adjustment burden," said the official, speaking on condition of anonymity.
Washington has responded frostily.
Last week, U.S. Treasury Secretary Henry Paulson said he was satisfied the value of the Japanese currency was set in competitive markets as it should be.
On Monday, a senior Canadian official said a discussion of the yen or the yuan would not be a focus at the G7 meeting.
Germany has invited China and other big emerging market economies to the meeting along with its G7 peers.
EU Economic and Monetary Affairs Commissioner Joaquin Almunia said on Tuesday he could not tell whether finance ministers from the Group of Seven nations would make a statement on currencies at their meeting later this week.
"I cannot anticipate whether there will be a common statement on foreign exchange. I don't exclude it because there usually has been one in the past," said Almunia, who is due to attend the Essen meetings.
Europe also sought to address the yen's value at the last G7 meeting of finance ministers and central bankers in Singapore in September 2006, with little result.