European Union finance ministers sought to nail down an agreement Wednesday on new financial oversight agencies but faced resistance from Britain, which is worried these may overrule national regulators.
Swedish Finance Minister Anders Borg, whose country now holds the EU presidency, said Europe must by Dec. 31 approve new EU banking, insurance and financial market supervisory agencies as well as a European Systemic Risk Board to watch out for major potential threats to the economy.
That would replace the current messy patchwork of regulation, where it is unclear how several countries should rescue a bank that operates across Europe or where EU financial rules are not applied in the same way across the 27-nation bloc.
Britain's treasury chief Alistair Darling pleaded with other European nations not to adopt rules that could hurt the City of London, Europe's biggest financial center, saying allowing it to "flourish" was "also in the interests of Frankfurt and Paris."
He wrote in the Times on Wednesday that national supervisors "must remain responsible for supervising individual companies" and asking a firm to answer to "more than one authority is a recipe for confusion."
Diplomats said Britain was fiercely opposed to any system where a government would be ordered to bail out a troubled financial institution — either by another country or by an EU agency. They spoke under condition of anonymity because talks are ongoing.
"Decisions taken by the new European supervisory authorities should not impact on national budgets," Darling wrote. "Living wills are now the agreed tool for ensuring that banks, not taxpayers, meet the cost of any future failures," he said, referring to rules requiring banks to hold extra capital.
Tuesday, the 16 nations that use the euro set deadlines for most of them to reduce budget deficits that are well above the EU budget rules that underpin their currency.
It is the first major step most of the eurozone countries are making toward paying off the massive debt built up by spending billions of euros (dollars) rescuing banks and paying welfare to the growing number of the unemployed during the economic downturn.
The move would also come just days after Dubai's announcement that it is having trouble handling its debt shook financial markets and raised concerns about other heavily indebted economies, such as Greece.
EU officials tried to cool worries over Greece's ballooning debt and deficit. Luxembourg Prime Minister Jean-Claude Juncker said Greece "is not and will not be in a state of bankruptcy."
But euro-zone nations are clearly worried, telling Greece on Tuesday that it needs to do far more to reduce a deficit that is expected to hit 12.5 percent of gross domestic product this year — well above the EU maximum of 3 percent.
EU Economy Commissioner Joaquin Almunia said the government needs to spell out new tax reforms, spending cuts and changes to the pension system. He said it was essential to keep up the pressure on Athens "because problems in Greece are problems of the euro area."
The EU's executive commission is predicting that the euro economy will start to recover slowly next year, allowing countries to start withdrawing government stimulus programs by 2011.
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