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

If you lived on an archipelago that defined paradise with palm-fringed white sand beaches and emerald green waters, you would expect a relaxed, lazy pace of life.

Lazy would be a generous description of the Seychellois soldier’s wave at the entrance to State House as I arrived with my local colleague George Thande - who is admittedly a regular visitor here.

The Seychelles were ruled by the French before the British and State House in the capital Victoria is every bit the luxurious colonial mansion: a lush garden exploding with tropical colours; an oil painting of Britain's Queen Victoria hangs in the wood-panelled reception room close to a portrait of Castor, a runaway slave from the 19th century with a fearsome reputation; a Daimler and Rolls Royce are parked on the forecourt.

But President James Alix Michel, cannot afford to be relaxed. This is an exotic destination at the sharp end of the global financial crisis.

The Indian Ocean archipelago may lie thousands of miles from the financial hubs of the world, but the bankers on Wall Street and in the City of London, not to mention the celebrity visitors, help keep the Seychelles’ tourism-dependent economy afloat.

On Friday, however, Michel told Reuters he thought visitor numbers might drop by as much as 25 percent, a painful blow for a heavily indebted economy --  its $800 million debt is somewhat more than 2007 gross domestic product according to World Bank figures. The country, with only 85,000 people, is in desperate need of foreign currency to replenish severely depleted reserves.

When the Seychelles failed to service an interest payment on a $230 million bond late last year, it called in the International Monetary Fund, which pledged a 2-year $26 million rescue package. Now negotiations are underway with creditors over how to re-structure the debts.

On Friday, Michel called on creditors to forgive fifty percent of the country’s debts.

But should they be forgiven or was the previous government reckless in the way it borrowed heavily to invest in social projects such as free education, free healthcare and housing over more than two decades?

Or does the fault lie with the creditors who issued loans they perhaps knew were ultimately unsustainable? The government might well argue that while it had borrowed irresponsibly - if it felt for good reason - but there had been no shortage of people willing to stump up the cash.

President Michel is holding out for an oil strike under the Seychelles’ offshore plateau. Seismic surveys suggested there could be reserves of oil and gas amounting to billions of barrels. But that’s not for years to come.

The Seychelles can’t wait that long.

(Picture 1: Miss New Zealand, Lauralee Martinovich, poses for photographs after taking the 2nd Princess title in the 1997 Miss World Pageant in the Seychelles. Reuters/Mike Hutchings)

(Picture 2: Seychelles' President James Michel poses for a photograph during an interview with Reuters in Victoria. Reuters/Richard Lough)