Gordon Brown was accused yesterday of failing to protect the British national interest by handing the French a powerful European post which could allow them to shackle the City of London.
The Tories claimed the Prime Minister made a secret deal with Nicolas Sarkozy in which the French President backed the Labour peer Baroness (Cathy) Ashton as Europe's "foreign minister" on Thursday, in return for being able to put his man in as the commissioner in charge of financial services and the internal market.
That important post is expected to go to Michel Barnier, a former French foreign minister, when the new Commission team is named in the next few weeks. He would be the first Frenchman to take charge of the single market, and would also become a Commission vice-president, the same rank as Lady Ashton.
The Tories say the French government has the City in its sights and that Mr Barnier's appointment would help Paris's cause. William Hague, the shadow Foreign Secretary, said: "If Gordon Brown has done a deal that would mean a French commissioner being in charge of the economic issues that affect Britain the most then that could be a serious concern. Our French partners have a different view on market issues that touch on Britain's vital economic interests. I look forward to the Government taking this opportunity to be completely open about what has been agreed."
In a letter to the Foreign Secretary, David Miliband, Mr Hague said: "The financial services sector is an area of extreme sensitivity for the British national interest. It is of crucial importance to the future of a pro-growth EU that there is no retreat from the principle of a free market within the EU."
Downing Street dismissed the Tory claim as "absurd". A spokesman for Mr Brown said: "Under the Tories, the UK wouldn't have had the High Representative [foreign minister's] job. We would be totally sidelined."
Many in the City have long entertained the theory that the French government secretly covets London's position as the world's second-largest centre for hedge fund activity, after New York.
The proposed European directive on "alternative investment funds" already threatens closer oversight of the sector across Europe, and is thought by some to be an attempt to erode London's competitive edge. Many hedge funds are based in Mayfair, and some are already said to be considering moves abroad to escape higher taxation and tougher regulation.
Longer term, the new French Commissioner will also have a powerful influence on the choice of chief for the new European Systemic Risk Council, a body that will oversee financial stability across the Union, and who must be the head of a European central bank.
Given that the UK remains outside the eurozone and the mixed record of the British regulators in preventing the financial crisis, some believe that the chairmanship of that body will go to another Frenchman – Jean-Claude Trichet, currently head of the ECB.
The Governor of the Bank of England, Mervyn King, would be a strong contender for the deputy role, given London's existing pre-eminence in financial services. But the preponderance of Frenchmen in key economic positions might tip the balance back in Mr King's favour.
A number of other European financial regulatory bodies are also planned, roughly along the lines of the UK's Financial Services Authority. How much power they will be given vis-a-vis national bodies is being hotly debated in Brussels, and again Mr Barnier will have powerful a say in that. The Treasury has made no secret of its hostility to the European "supervisory authorities" being granted the authority to override national regulators.
Michel Barnier: The silver fox
9 January 1951
French foreign minister, French agriculture minister, French EU affairs minister, European Commissioner for regional policy
*Other strings to his bow
Co-organised 1992 Winter Olympics in Albertville and was awarded the Chevalier de la Légion d'honneur
"My line is to look ahead. I am someone who is very practical"
"France is not great when it is arrogant. France is not strong if it is alone"
"In the end, the most inaccurate cliches are obscuring the most obvious truths"