* Countries divided as Britain, Sweden demand autonomy
* Britain's Osborne attacks compromise deal on capital rules
* EU's Barnier accuses Osborne of demanding opt-out
By John O'Donnell and Robin Emmott
BRUSSELS, May 3 Britain's George Osborne accused
fellow EU finance ministers of trying to water down Europe's
bank capital rules and said this would make him "look like an
idiot", as talks about a law to stop another financial crisis
unravelled in Brussels.
In remarks at the negotiating table, Osborne, who says he
wants much tougher controls to avoid a repeat of the current
crisis, fumed that regulation being discussed could dent the
credibility of Europe and harm London, its top financial centre.
"I am not prepared to go out there and say something that is
going to make me look like an idiot five minutes later," Osborne
said, referring to potential loopholes allowing some banks to
sidestep new capital standards agreed by global regulators.
His remarks were relayed on television to watching
Even after 15 hours of talks, European Union ministers were
unable to agree in the early hours of Thursday, although
Denmark's Economy Minister Margrethe Vestager said she hoped
there would be a deal at the next meeting in Brussels on May 15.
Five months after British Prime Minister David Cameron
angered EU partners by vetoing an EU fiscal treaty, a visibly
agitated Osborne told the ministers' meeting: "I am not asking
for some UK carve out ... I will not be painted as somehow
anti-European, demanding something especially for London."
Michel Barnier, the EU commissioner in charge of financial
regulation, accused Osborne of seeking an opt-out with a
proposal that would let Britain impose higher capital ratios on
its banks than elsewhere in Europe - something France and others
fear could disadvantage continental institutions.
"London is a very important centre but... there are other
centres alongside London which also merit consideration," said
Barnier, a former French government minister.
Osborne, however, was adamant. "People will listen to what I
say ... I represent the largest financial centre in Europe.
"You've got to allow me to sit down and go through the
issues. You have not done that," he said, adding he had resorted
to checking news on his mobile phone as he waited to be involved
in discussions that had by that time gone on for 10 hours.
He accused other ministers of trying to water down the EU's
version of rules laid down by global regulators on the Basel
committee which are designed to guard against future financial
crises, and said he could not support them.
At the heart of the dispute is the freedom states have to
enforce stricter capital rules than those agreed for the
Britain and Sweden, which have two of the largest banking
sectors in Europe relative to their economies, want the freedom
to take extra steps to make banks safer.
German Finance Minister Wolfgang Schaeuble made light of the
row as he left the meeting, saying the May 19 UEFA Champions
League soccer final between Germany's Bayern Munich and
Britain's Chelsea would be a chance to get even with Osborne.
"We will see Chelsea in Munich," Schaeuble told reporters,
saying he hoped to "get a bit of revenge for it having taken so
Ministers face pressure to break the deadlock, which comes
as many of Europe's 8,300 banks struggle with billions of euros
of unpaid loans ahead of a self-imposed June deadline to
finalise new capital rules.
London remained reluctant to compromise despite earlier
calls from Spain, whose banks have suffered huge losses
inflicted by a property crash, that rules were vital.
"At this time of financial crisis, we need to clear up all
doubts about the quality of European banks," Spain's Economy
Minister Luis de Guindos said.
Standard & Poor's cut the credit rating this week of 11
banks in Spain, which has sunk into its second recession in just
over two years.
Denmark, holder of the six-month EU rotating presidency, has
been seeking to translate the higher capital standards set by
the Basel Committee regulators into EU law and make this a
reality by the start of next year by reaching a consensus and an
accord with the European Parliament by the end of June.
It redoubled its efforts to reach a deal by calling
Wednesday's exceptional meeting, but the bid crumbled in the
face of resistance to its pan-European formula.
As much as the technicalities of bank balance sheets, the
dispute is the result of a struggle for influence and power in a
bloc shaken by the worst financial crisis in a generation.
Britain has been fighting to maintain its authority over the
City of London, Europe's financial capital, as other EU members
move to centralise supervision of banking and finance.
Europe's capital regime, when decided, will be closely
studied in the United States and may influence how policymakers
there interpret the Basel standards, while investors are eager
to see the EU repair its vulnerable banking sector.
"Not having a European banking union ... on common capital
requirements ... makes it very difficult for the euro project to
work," said Eric Stein, a portfolio manager at Eaton Vance in
Boston that invests in European assets.
"If nothing happens, it will be a continued area for stress
in Europe and send a very negative sign."
Britain and Sweden argue that they need to protect the
interests of taxpayers who could be called on to bail banks out
if they face collapse. France wants capital standards to be more
uniform across the EU.
One compromise ministers have discussed is to allow a margin
of flexibility so countries that want to can require their banks
to increase their capital buffers up to a certain limit, perhaps
as much as 10 or 12 percent of risky assets for up to two years.
This compares with Basel's minimum of 7 percent.