(MENAFN - AFP) EU finance ministers engaged Tuesday in arduous talks aimed at setting up a new system for cross-border supervision of thousands of banks as sharp differences emerged between Berlin, London and Paris.
"A deal is possible, and desirable," said French Finance Minister Pierre Moscovici, while admitting the negotiations would be "difficult" as he went into a second day of Brussels talks, after eurozone-only ministers took stock Monday of Greek, Cypriot and Spanish banking bailout efforts.
But his Swedish counterpart Anders Borg, one of 10 non-euro countries involved in the effort to create a "banking union", did not hide his view that an agreement was unlikely on Tuesday.
He said extra meetings could still be called "at any time" in the run-up to Christmas.
A big bone of contention is how the European Central Bank, which is to be at the apex of a proposed supervisory system for some 6,000 eurozone banks, works with the London-based European Banking Authority, set up last year to fix flaws in oversight right across the 27-member European Union.
The so-called Single Supervisory Mechanism is meant to be the first stage in a "banking union" that EU leaders agreed to set up to try to fix flaws exposed the three-year-old debt crisis and the 2008 global financial crisis.
EU leaders agreed on setting up tightened regional supervision as a condition for the bloc's bailout fund to directly step-in and recapitalise banks instead of passing funds through governments and adding to sovereign debt concerns.
It is due to be phased in progressively over the course of 2013, but there are big difficulties over how decisions will be taken and disputes settled between the 17 nations which share the euro and the other 10 countries.
Britain, whose City of London is home to massive eurozone banking interests, fears that unless special arrangements are decided to redress this, the ECB will effectively dominate decisions affecting territories that don't use the euro.
"We were right to be paranoid," said one EU diplomat ahead of the talks.
Finance Minister of Denmark, the other EU state with a formal euro opt-out alongside Britain said: "I think it will be an enormous strength if non-eurozone countries can participate on an equal footing because is will be another element in keeping the 27 more together."
There are also disagreements over the scope of the ECB's active role.
Germany, for instance, wants the ECB's ability to intervene contained to big banks where problems found in cross-border asset bases could threaten the stability of the wider financial system.
Non-euro powers, however, identify smaller, regional savings banks around Germany as a problem comparable with the broken finances of Spain's banks -- where the bursting of a credit and property bubble has already required a near-40-billion-euro bailout that was approved on Monday.
France, meanwhile, wants "a system which applies to all banks and in which the ECB is ultimate arbiter," said Moscovici.
And it is determined to ensure that the battle over how to weight voting clout does not result in a de facto veto for Britain where it considers banks under its national regulator to have come under attack from vested eurozone interests.
Recent comments from French Central Bank governor Christian Noyer have inflamed passions in London.
Noyer said that bulk of euro clearing operations, much of which is currently conducted in the City, should be moved to the eurozone itself.
The reaction in London was scathing, with the suggestion being that Paris is resorting to unfair competitive practices having failed to win that business on the open market.
This is already the subject of legal sabre-rattling, with a British insistence that treaty rights must guarantee fair competition right across EU territory.
Borg said it is vital to ensure strict separation of ECB powers in this regard.
EU Markets Commissioner Michel Barnier insisted that the legislative proposals being debated provide for "adequate guarantees" here.