Backing for EU finance watchdog in London

EU finance ministers meeting in Brussels endorsed his demand that one of three supervisory bodies being set up to head off future economic crises should come to the City and not Frankfurt as Euro-MPs have insisted.

Afterwards Mr Osborne insisted that the work of the "European Banking Authority" – wherever it is sited –would not threaten UK fiscal sovereignty and would only act in disputes on "points of law" about the implementation of EU economic rules.

The two other bodies will supervise the insurance and financial markets, as part of reinforced measures due in place next year as a more effective early warning system of any future problems threatening EU economic stability.

Mr Osborne said afterwards: "It is in UK interests, as the home of a great deal of European finance, that there are effective supervisory arrangements".

He went on: "But the fiscal sovereignty of member states is fully respected and not impinged upon – the powers of these European agencies will be focused on areas where there are disputes on points of law, rather than second-guessing national regulators or getting involved in the day-to-day running (of banks)."

He said the UK had insisted all along that the EU role should be in the area of crisis intervention and mediation: "We have restricted this to areas where a national authority is not within European law, so then there is power for the European authority to investigate."

Mr Osborne said there was nothing radical in the idea - the European Court of Justice had such a role already, but under the new system, resolving financial problems relating to EU rules would be much quicker. But he added: "We do not want the European supervisory authorities being able to question the discretion of the national authorities."

The Chancellor said it was clear the banking supervisory body should be London, and today's mandate for negotiation with the European Parliament "makes explicitly clear that the financial authority should be in London".

Yesterday the Chancellor repeated once again his insistence that, under other financial control measures being drawn up, "the UK will retain the right for the Chancellor to present his budget to Parliament before it is presented to the European Commission or anyone else".

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