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UK wants safeguards if euro zone forges bank union

LONDON - Britain will demand safeguards to protect its financial sector if the euro zone forms a banking union, its finance minister said on Thursday, placing another obstacle in front of the European Central Bank’s efforts to fix a deepening debt crisis.

In an interview with BBC Radio 4, Britain’s finance minister George Osborne also urged the single currency bloc to use its bailout fund to recapitalise Spain’s troubled banks.

The ECB and its head Mario Draghi are pushing hard for the euro zone - and preferably the whole European Union - to set up a three-pillared ‘banking union’ consisting of central monitoring of banks, a fund to wind up big lenders and a pan-European deposit guarantee.

But Britain and the rest of the European Union have clashed repeatedly over banking issues. Speaking just hours before Prime Minister David Cameron was due to discuss the euro zone crisis with German Chancellor Angela Merkel in Berlin, Osborne left little doubt about the country’s position.

“There is no way that Britain is going to be part of any euro zone banking union,” Osborne said. “I think Britain will require certain safeguards if there is a full-blown banking union.”

Britain is determined to protect the interests of the City of London, its financial hub that provides a significant share of the government’s tax revenues.

Osborne said any significant steps towards common bank depositor insurance in the euro zone would require a treaty change, which in turn would need British consent.

Greater union

The banking union plan will be at the heart of the European Central Bank’s proposals to be included in a European roadmap out of the crisis before the end of the month, and is something it believes is essential if the region is to break the cycle of bailouts of troubled banks infecting and nations’ finances.

There are many hurdles to achieving Draghi’s banking union as well as to introducing a scheme by Michel Barnier, the EU’s financial services chief, to wind up failed banks.

Britain fiercely resists any attempt by Brussels to impose EU controls over financial services, which account for almost a tenth of its economy. Germany has balked at a single European scheme that could see it bear the costs of a bank collapse in another country.

Top policymakers from the Czech Republic, which like Britain has no plans to join the euro zone in the foreseeable future, also came out against strengthening pan-European banking supervision on Thursday.

Osborne has long been calling for further integration of the euro zone as the “remorseless logic” of a currency union.

But in December, Britain refused to agree to changes to the EU’s fundamental law, the Lisbon treaty, to push tougher budget rules in the euro zone after it was unable to win a veto to protect its financial services industry against laws from Brussels.

Britain and its European neighbours have also locked horns over new capital rules for banks, with Britain wanting autonomy to set tougher standards for its banks.

Britain is in an awkward diplomatic spot in its dealings with its fellow European Union members.

London’s advice on how to tackle the crisis is not always welcome as Britain is not a member of the euro zone, but the fate of the British economy is closely linked to what goes on in the single currency bloc.

“What’s clear is ... Spain need to restructure their banking system, they need resources to do that,” said Osborne. “How exactly that is done ... must be a matter for the Spanish government and the euro zone.”