Britain won’t be taking part in EU banking union says Cameron

In Berlin for bilateral talks with Angela Merkel, the Prime Minister said he had “no doubt” the 17 nations of the eurozone would move towards closer fiscal union within the next weeks and months.

But he made clear Britain would not be involved in any such arrangement, which could involve the creation of eurobonds to spread the risk of borrowing across the whole single currency area.

He spoke as hopes that Spain will be given a cash injection to stabilise its wobbling banking sector helped world markets rally.

Spain has denied reports it has asked for a bail-out but traders remain optimistic it will be allowed to tap the eurozone rescue fund as it struggles to pay for the 19 billion euro (£15.4 billion) rescue of Bankia, its fourth biggest lender.

“I can understand why eurozone countries may want to look at elements of banking union,” Mr Cameron said. “Because we are not in the single currency, we won’t take part in the profound elements of that banking union.

“I wouldn’t ask British taxpayers to stand behind the Greek or Spanish deposits. It is not our currency, so that would be inappropriate to do.

“I will make sure that Britain’s interests, particularly in the single market and the openness and fairness of the single market are protected.

“We want the eurozone to succeed. We want the euro to solve the problems it faces, so that all European economies including ours can get back to healthy growth.”

Mr Cameron said the talks were “good and positive” although there was no announcement to make of any breakthrough in the battle to save the euro.

But with re-run Greek elections due on June 17, the meeting was never expected to do anything more than pave the way for summits of the G20 in Mexico and European Council in Brussels.

With calls from many quarters for the creation of eurobonds, Ms Merkel has made clear such a move would have to come as part of closer banking and fiscal union between single currency states.

But she insisted this did not mean the creation of a two-tier EU, pointing out Britain and other countries have held back from previous measures of integration while remaining full members.

“We are not trying to isolate ourselves from those who have not joined in,” she said.

Mr Cameron was asked whether a move towards closer integration within the eurozone of the kind which Ms Merkel has advocated would trigger a referendum in the UK. “The British people have this guarantee – and it is now written into law by this Government – which is that if power is transferred from Westminster to Brussels then we hold a referendum,” he said.

The ongoing instability in Spain continued to concern the markets yesterday, although reports of another cash injection offered some hope.

Spain has raised 2.1 billion euros (£1.7 billion) from the bond markets – but at higher interest rates as investors remained concerned the country might still need external help to shore up its banking sector.

Antonio Barroso, an analyst with Eurasia Group political risk consultants, said the sale was positive because it showed Spain can still fund itself, but the higher interest rate showed “markets still have a problem of confidence in the long term”.

“There is talk on the start of different solutions, but there’s still nothing concrete. And I think that’s why markets are still a little bit hesitant,” he added.