Gordon Brown last night fought off a plan to allow the European Union to overrule the Financial Services Authority during a future banking crisis.
At a two-day summit of EU leaders in Brussels, the Prime Minister backed closer European co-operation in regulating the banking, insurance and securities industries, but blocked a proposal that would have allowed EU supervisors to outvote the FSA.
Mr Brown feared that the City of London could be jeopardised by the European Commission plan, which was backed by France and Germany. In a dispute over a bank operating in more than one country, the new EU-wide body could have imposed a settlement – and ordered a national government to bail out an ailing bank. According to Britain, that would have removed the veto member states gave on fiscal powers through the back door.
But last night EU leaders approved a concession to Mr Brown. They agreed that the new European supervisory body's decisions "should not impinge in any way on the fiscal responsibilities of the member states". This means that the body will be able to recommend but not impose decisions.
Mr Brown told a press conference in Brussels that the new measures must be "practical and effective" but rulings that could have an impact on taxpayers should remain under the control of national governments.
The Chancellor, Alistair Darling, had appeared to have seen off the threat at a meeting of EU finance ministers last week. But concessions he had won to protect taxpayers from such a burden were absent from a draft communiqué circulated to the 27 leaders at the start of the summit. It was reinstated during talks last night.
The Prime Minister supported proposals for a European Systemic Risk Council, made up of central bankers and officials charged with ensuring financial stability across the EU. Britain has opposed plans to allow the European Central Bank to run the council indefinitely but Mr Brown said: "I think the principles matter more than the individuals."
Join our new commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies