City safeguards set Britain at odds with EU Britain is once again set on a collision course with the EU about crisis-fighting reforms, as it resurrects its demands for City of London safeguards as the price to wave through a eurozone banking union. Speaking in Berlin, David Cameron added that he "wouldn't ask British taxpayers to stand behind the Greek or Spanish deposits." "It is not our currency, so that would be inappropriate," the prime minister said. George Osborne, the UK chancellor, said that while it is "necessary" for the euro area fully to integrate its bank rules and deposit guarantees, Britain will stand apart and would require legal protection to approve the use of EU institutions. "There is no way that Britain is going to be part of any eurozone banking union," he said. His demand comes after weeks of difficult internal debate in Whitehall about an issue with far-reaching implications, not only for London's standing as Europe's financial centre but also for Britain's long-term EU membership. It sets the stage for a rerun of the diplomatic brinksmanship in December, which saw David Cameron vetoing an EU fiscal discipline treaty after his six demands were rejected. Almost all the financial services protection that the prime minister sought relates to issues surrounding a banking union. "Britain is at a cross-roads," said one European diplomat. Will it be the centre for finance in Europe, for Europe, which is what it is now? Or does it go off-shore? Some people have the illusion that it could be a greater Guernsey. That is not a good way to go. The banking union concept is fast gaining traction among EU leaders as a grand fix to help cauterise the financial crisis, share banking risks and put the eurozone on a stronger footing. Deep disputes remain about how and when to move forward. But work is under way on long-term reforms to establish a single supervisor, deposit guarantee scheme and resolution system for European banks, with or without Britain. Mr Osborne now accepts this integration is vital, an essential step in the "remorseless logic" of a single currency. But given Britain will not join, it involves exactly the type of independent financial co-ordination on the Continent that London most fears. In internal debates, British officials have clashed over the damage this would do to the EU single market and whether there are realistic safeguards that allow London to co-exist with a Continental banking union. As Mr Osborne noted, treaty change or a unanimous vote would be necessary to establish a single deposit guarantee scheme. But elements of a banking union could be driven through over UK objections with a majority vote under EU law. While Britain has never been outvoted on rules for its main national industry and is unlikely to be forced to join a closer union, patience in Brussels is wearing out. Proposals requiring a majority are already in the Brussels legislative pipeline, including a plan to force national deposit guarantee schemes to lend to each other and European parliament amendments to give existing pan-EU agencies more clout. More worrying still for some in London is the emergence of a banking union, outside EU law. Rather than only the 17 euro members, European officials expect such an intergovernmental pact is likely to involve up to 25 states. That would give it a majority to impose pre-agreed technical standards or financial rules on Britain. "In demanding safeguards that are impossible or unrealistic, Britain would force their partners down the route of the [intergovernmental] fiscal pact," said Charles Grant of the Centre for European Reform think tank. Britain would then have less influence on what its partners discussed, it would lose good will and, worst of all, the European Commission - the protector of the single market - could be weakened and sidelined. The single market for European banking would be divided. There is lively debate about what Britain should demand. Some advocate a general provision to protect the single market, some are pushing for an "emergency brake," while others are reviving Mr Cameron's December wishlist. An alternative is to back a proposal to give the European Central Bank supervision powers, which does not require a treaty and would keep the union to the single currency club. Sharon Bowles, the British MEP and chair of the European parliament committee overseeing financial regulation, says the "rat sandwich" of demands in December missed an opportunity. "Now we are much more vulnerable and there are scenarios where the single market in financials services ceases to exist completely if the banking union happens as some suggest," she said. To cleave the European market for Britain's biggest industry would profoundly affect debate about EU membership. More hawkish Treasury officials often point out that banking and related professional services are Britain's only substantial net export to the EU. European officials are by turns dismayed and angered by London's obsession with defending its sovereignty at all cost and fondness for criticising from the sidelines . "I've been told that solidarity is not an English word," said one in reference to Mr Osborne's comments. Today I realised that is true.