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

People packing their bags and flying out to St Petersburg, Warsaw, and Prague this summer may not just be seeking an exotic vacation spot.

International property investors are inching back to emerging Europe, lured by prospects of higher returns in markets such as Poland, whose economy has held up relatively well in a global downturn, and Russia, which is bolstered by rising crude oil prices.

After posting strong growth for over 5 years, commercial real estate investments in emerging Europe had been a washout after Lehman Brothers’ collapse in Sept ‘08, with first quarter sales hitting a record low.

As our Moscow-based property reporter Yuliya Komleva and I wrote , major property fund managers such as Germany’s DekaBank, UK’s Aberdeen, and Hines from the United States have again looking for big buys in the region, although Hungary, Ukraine and the Baltics remain largely no-go zones.

Aberdeen Property Investors’ managing director for Russia, Charles Voss, even compared Russian cities favourably against London, where the once-booming UK financial services industry has been weakened by the global financial crisis.

"They don't anticipate all those jobs to come back immediately so the demand for office space will be weak (in the UK). Even though they are starting to get to the bottom, the growth curve in terms of additional value can be less than what can be in found Russia," says Voss, who sits in Russia’s cultural and historical capital of St Petersburg.

With property prices diving and driving up yields in London however, investors are looking to squeeze higher returns in emerging Europe, says Jones Lang LaSalle (JLL) head of CEE Capital Markets & Investment Tomasz Trzoslo.

(This JLL graphic illustrates European office yield movement in the past year)

“If you can buy in London for 6-7 percent, why buy in Central Europe? Central Europe needs to trade at a yield premium—my guess about 150-200 basis points,” Warsaw-based Trzoslo argues.

As investors in London’s junior AIM market know only too well, high risk does not always mean high return. Now, more than ever, the Alternative Investment Market of the London Stock Exchange needs to prove that it can offer investors high-quality companies.

The FTSE Small Cap index of smaller companies listed on the main London market has outperformed the AIM 100 index on the way down, and on the way back up. The FTSE Small Cap has gained almost 30 percent over the last couple of months, while the AIM 100 has risen 20 percent.

And that’s after the AIM 100 saw falls of over 50 percent in the past year, much more than the 27 percent posted by the FTSE Small Cap index.

While liquid companies like Advanced Medical Solutions and Cape typify the benefits of AIM, there are too many that have cut back so much that they are reduced to a CEO operating alone out of his spare bedroom.

AIM officials said on Friday that they thought the market has had its best month for a year, raising around 500 million pounds for companies, but this includes 220 million pounds raised by one company alone, Max Properties.

Fund managers say that they like some AIM companies that are making profits, or close to that point. However high-risk beta stocks that expect investors to hang around for five years or more should be happy that the winter weather has cleared, because they’re likely to spend most of their time with their caps in their hands.

If AIM wants to see its companies grow fruitfully as cash returns to the market, it will have to start out by sifting the chaff from the wheat.

London is cheaper and warmer, at least compared with Davos, says London Mayor Boris Johnson.

"The fall in the pound is of huge value to London's exports and all sterling-denominated assets. We're seeing a very impressive effect here. We take advantage of the upside and the upside is that the pound is competitive," Johnson told Reuters.

"And everybody in Davos, once they finish this massive negotiation of egos, this complete vanity, should come to London. It's considerably cheaper and considerably warmer."