PM under fire for EU banks deal

Brown and Sarkozy split over City independence

Anglo-french tensions spilled over yesterday as Gordon Brown clashed with the French President Nicolas Sarkozy over the independence of the City of London.

After European Union leaders agreed to give the EU new powers to handle future financial crises, the Prime Minister insisted that he had preserved the independence of the City and seen off the threat that British taxpayers could have to bail out European banks against the Government's wishes.

But President Sarkozy undermined Mr Brown's victory claims by declaring that the EU had taken a decisive step towards greater EU control over financial regulation.

Speaking after a two-day summit in Brussels, M. Sarkozy said: "Nine months ago, if I had said we would agree on a system of pan-EU supervision with binding powers not one of you would have believed me." He accused the Prime Minister of a U-turn and added: "Mr Brown has assumed his responsibilities. It is a complete sea-change in the Anglo-Saxon strategy." The French President said the closer co-operation agreed by EU leaders was only a starting point and would "evolve" in future. "My conviction is that its scope will increase," he said.

Mr Brown insisted he had not surrendered legal control to Brussels. "I have ensured that British taxpayers will be fully protected on this," he said.

The summit approved guarantees to the Irish government that the Treaty of Lisbon, which streamlines EU decision-making, would not affect Ireland's laws on tax and abortion or its military neutrality. A second referendum on the treaty will be held in Ireland this autumn. Mr Brown insisted the special measures for Ireland did not change the treaty and so would not be voted on in Parliament until a Bill is introduced to allow Croatia to join the EU. That will not happen for at least a year – after the general election.

EU leaders agreed to give Jose Manuel Barroso a second five-year term as European Commission president. The fast-track appointment was condemned as a "political, legal and institutional outrage" by the Socialist group in the European Parliament, which includes Labour MEPs.

Mr Brown, the first EU leader to endorse a second term for Mr Barroso, stood by his decision despite opposition from Labour MEPs.