The upshot of the government's mishandling of the discussions about the distribution of key EC portfolios is that the UK is in the weakest position in the EU since it joined in 1973.

It all started with the misguided promotion of Tony Blair as a candidate for the new post of permanent president of the commission. A survey of the European press will show all too clearly that the only people who took this seriously were 10 Downing Street and the Daily Mail - it was a non-starter as far as the rest of Europe was concerned. Having woken up late in the day to the fact that the Blair campaign was doomed to failure, Gordon Brown then focussed on the other new post covering foreign affairs. There was a false start with the attempt to put forward David Milliband as a candidate but he had the sense to see that this was potentially a political backwater and refused to have anything to do with it. But the UK government had convinced itself that this was a deserved consolation prize for not getting the presidency and was being encouraged in this thinking by France and Germany. So, step forward Lady Ashton whose best qualification for the job seems to be that she has taken a few foreign holidays.

Having sold the UK a pup, the French and Germans then had the field to themselves in carving up the key economic portfolios and so Frenchman Michel Barnier ended up in the internal market and financial services beat with a clear mandate to focus on the City of London. The Germans wanted, and got, energy.

Lining up alongside Barnier in the other economic portfolios will be two liberals - Finland's Olli Rhen (trade) and Karel de Gucht of Belgium (economic and financial affairs) - neither of whom can be expected to be slow in supporting tougher regulation of financial markets. To complete this gloomy picture is the appointment of a Spanish socialist - Joaquin Almunia - as competition commissioner.

It looks as if the UK's financial services sector will have to look outside the Commission for support and is likely to find itself increasingly reliant on the European Parliament to get its voice heard which will make the role of UK Liberal Democrat MEP Sharon Bowles even more important to the City than it was before. She chairs the parliament's economic and monetary affairs committee which has to approve any Commission proposals on financial regulation before they can be passed into EU law. In her few months in the post she has proved a safe and sensible pair of hands when it comes to the rushed attempts to force through new regulations on hedge funds. I imagine quite a few public affairs departments in the City will be looking her up this week.

Fortunately, some wiser voices are being heard in this debate.

As expected the Swedish presidency of the EU is taking a rather more measured and co-ordinated approach to the complex issues arising out of the global financial crisis. The pre-G20 summit meeting of EU leaders is part of that more thoughtful approach. The Swedes have realised that crudely attacking London will damage the whole EU and that the AIFMD as it currently stands would effectively prevent any EU citizen, pension fund or investor getting access to a very wide range of offshore funds (and offshore is where they would go under these proposals). Consequently, last week the Swedes told members states that they would prepare a modified version of the directive for discussion at the EU meeting on 22 September, prior to the G20 summit two days later in Pittsburgh.

A similarly conciliatory view is being taken by the new chair of the important European Parliament Economic and Monetary Affairs Committee, Sharon Bowles, a UK Liberal Democrat. She criticised EU regulators for their "impatience and need to be seen to be doing something", adding that many of the issues that have caused problems in the past are already being addressed by national regulators such as the UK Financial Services Authority.

This does not mean that hedge fund managers can sit back and think nothing will change. There will be new rules, and it is unclear still whether these will be dictated by national regulators, Europe or through the sort of co-ordinated global action that is likely to emerge from the G20 summit. They are likely to be quite tough rules too. However, they will not now be framed in such a way as to "punish" London and New York.