Government delays deal on EU watchdog

LUXEMBOURG (Reuters) - A European Union plan to set up watchdogs for banks and to spot threats to the economy suffered a delay on Tuesday when Britain blocked an agreement, fearing the new bodies could bully London into spending.

A giant European Union flag hangs from La Pedrera, designed by architect Antoni Gaudi, to celebrate European Union Day in central Barcelona May 9, 2008. REUTERS/Albert Gea

Sweden, which holds the EU presidency until the end of the year, tried at a meeting of the 27-country bloc’s finance ministers in Luxembourg to secure agreement to set up the new super-watchdogs as soon as next year.

But Britain is worried the supervisors -- who can overrule regulators including the Financial Services Authority or national governments -- could ultimately order taxpayers to spend money, such as for beefing up a bank’s capital cushion.

The Treasury said a deal had been postponed.

“There are a number of proposals which we can’t accept,” said Chancellor Alistair Darling. “This is work in progress. There are still a couple of difficult issues. If we can, we want to get it resolved by the end of the year.”

“The bottom line for us is that we couldn’t have a situation where a European supervisor could make an order to an institution in our country which could have fiscal consequences.”

The executive European Commission unveiled its blueprint last month for an overhaul of the way banks and financial markets are policed. The plan is a central pillar for new rules designed to prevent a repeat of the economic crisis.

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The Commission plans to create a banking super-watchdog, with power to overrule member states, and a pan-European supervisor that would warn of early signs of crisis.

The government, which part-owns some of the country’s biggest banks after saving them from collapse, is concerned the new watchdogs could order it, for example, to inject more money to improve lenders’ balance sheets to European standards.

There is widespread scepticism in London about the new financial rules, which some British critics see as a Franco-German attempt to undermine Europe’s financial capital.

The new laws will give more say to European institutions. A risk board, for example, which would be staffed by the European Central Bank and based in Frankfurt, is likely to have wide-ranging powers.

On Tuesday, a parliamentary committee launched a probe into the powers of the new European watchdogs.

Editing by Stephen Nisbet and Dale Hudson