Has German Finance Minister Peer Steinbrueck finally said what many world leaders think but are afraid to say? That the British government won’t sign up to meaningful reform of financial markets because it is too worried about what it would mean for the country’s most famous cash cow, the City of London.

The City, which accounts for around 35 percent of global foreign exchange turnover, has been a popular target for critics of capitalism for years. But it has rarely been singled out so bluntly as a problem by one of Britain’s close allies.

Even for a man not known for holding his tongue, Steinbrueck’s remark on Wednesday that Downing Street was impeding reform because it had “practically aligned” its interests with the City, was unusually undiplomatic. Just days before global leaders meet at a Group of Eight summit in Italy, Steinbrueck suggested the British government was plotting a “restoration” of the pre-crisis order to protect its own interests. The United States, by contrast, was now open to reform, he said.

Rather than attempting to smooth ruffled feathers when she addressed parliament on Thursday, Chancellor Angela Merkel picked up the thread, saying she would not tolerate efforts to stall reform at the G8 summit, though she did not name Britain.

Steinbrueck’s comments generated a strong response on German websites. Though he belongs to the centre-left Social Democrats, many readers of conservative daily Die Welt wrote in to praise him. “Finally the truth”, “genius” and “backbone” were some of the remarks his stance provoked. Across the channel, the most popular reader’s comment posted online in an article by Eurosceptic British newspaper the Daily Mail also backed the 62-year-old. “I’m with the German finance minister,” it begins.

Whether one agrees with his approach or not, Steinbrueck knows he is not talking into a vacuum. Large swathes of the commentariat believe not enough has been done to stabilise financial markets over the long term. Martin Wolf, chief economics commentator of the Financial Times, wrote on Wednesday that without radical changes, another banking crisis is inevitable.

PHOTO: German Finance Minister Peer Steinbrueck addresses a news conference in Berlin, May 13, 2009. Steinbrueck said on Wednesday Germany’s interbank lending sector was still suffering from weak confidence. REUTERS/Fabrizio Bensch

German Chancellor Angela Merkel sent a clear “I told you so!” to the United States and Britain at the weekend, criticising them in unusually frank terms for resisting measures that might have contained the current financial crisis. The conservative leader of Europe’s largest economy reminded her partners that she had pushed for steps to boost the transparency of hedge funds during Germany’s presidency of the Group of Eight last year. ”We got things moving, but we didn’t get enough support, especially in the United States and Britain,” she told the Muenchner Merkur newspaper. Merkel expanded on her point in a speech in Austria, suggesting that both Washington and London were only now coming around to her view.

“It was said for a long time ‘Let the markets take care of themselves’ and that there is ‘no need for more transparency’…Today we are a step further because even America and Britain are saying ‘Yes, we need more transparency, we need better standards for the ratings agencies’.

Germany had made greater transparency a key theme of its rotating presidency of the G8, which includes the United States, Japan, Germany, Britain, France, Italy, Canada and Russia. Berlin had expressed fears that hedge funds could threaten the stability of the financial system through their heavy reliance on borrowing to finance risky trading strategies. But it ran into resistance from the United States and Britain, achieving little.

Whether Merkel’s G8 initiative could have averted or limited the current financial market crisis if it had been successful is certainly debatable. But reminding voters that she had sought to address the problem as early as last year could help Merkel score points on the domestic front ahead of a general election next year. Merkel’s Christian Democrats (CDU) rule in an uneasy grand coalition with the Social Democrats (SPD), and both sides have been trying to play up their own role as crisis manager in the current financial market turmoil.

Both Merkel and her SPD finance minister, Peer Steinbrueck, have tried to take credit for Germany’s efforts last year to agree better transparency rules for financial markets. SPD budget expert Carsten Schneider praised Steinbrueck’s efforts during Germany’s G8 presidency in a newspaper interview on Monday, adding: “At the time, the United States and Britain demonised every effort to agree more transparency and rules.”

As Germany’s election approaches, the “I told you so!” Berlin seemed to send to Washington and London on the weekend could turn into an “I told you so first!”-competition between Merkel’s CDU and her SPD rivals.