LONDON (Reuters) - Britain and other European countries have deep concerns about a banking union in the euro zone, although there are signs of a compromise to limit the powers of the European Central Bank in countries outside the euro, a UK minister told Reuters.
Financial services minister Greg Clark said in an interview on Tuesday that efforts to help the 17-nation euro zone and its banks recover from economic crisis must not come at the expense of the wider European Union market, which includes countries like Britain and Sweden that do not use the euro.
The blunt warning from Britain's EU negotiator comes ahead of Thursday's summit of the 27-nation EU's leaders, when they will seek to make progress on the disputed plan which would make the ECB supervisor for all euro zone lenders.
Asked what Britain saw as the main stumbling block, Clark said: "In terms of the current proposals the possibility of the euro zone, through the ECB, to in effect dominate the arrangements is something that gives us very deep concern, and not just us but other countries as well."
Britain has already had talks with other non euro zone EU member countries about introducing safeguards to stop the single currency area imposing rules on all of Europe.
"The indications are that these concerns are listened to and are being taken seriously," Clark said.
The clash comes at a time when Conservative Prime Minister David Cameron, who will attend Thursday's summit, is under pressure from an influential anti-EU wing of his own party to dilute the influence of Brussels.
Cameron has promised to negotiate a new settlement with the EU and put it to British voters in a referendum.
Clark, a Cambridge-educated economist with a doctorate from the London School of Economics, denied Britain was becoming isolated by adopting a more confrontational stance in the EU after the government said on Monday it would opt out of the bloc's justice rules.
"There is no difficulty there. It does not constitute a battle," the 45-year-old minister said. "I don't see it in head to head terms."
But any compromise on the banking union will have to respect the 20-year old single market which allows firms from any member country to do business across Europe unhindered, he said.
Clark told a Thomson Reuters newsmaker event that Britain's new Financial Conduct Authority watchdog, which will be formally in place early in 2013, should urgently encourage more banks to enter Britain's market where just four lenders have 80 percent of consumer accounts.
Last week, hopes for more competition were dashed when Spain's Santander (SAN.MC) abruptly ended a deal to buy over 300 branches from Royal Bank of Scotland (RBS.L), which was bailed out by taxpayers at the height of the financial crisis.
As part of its bailout terms, RBS is required by the European Commission to sell the branches by the end of 2013.
Clark told Reuters it was too early to say whether Britain would have to ask Brussels for more time.
"Certainly they (RBS.L) have not approached us yet, to my knowledge, for us to approach the Commission for any extension," he said.
RBS is also expected to be fined for its part in market manipulation of an interest rate benchmark known as Libor, a scandal which has already led to a record fine for rival Barclays (BARC.L).
Clark said the decision on when to settle had to be left to individual banks but the government would say later this week how the law will be changed to reform how Libor is governed and set.
"There is an urgent imperative and we will do everything that we can to change what needs to be changed as quickly as can possibly be done," he said.
Reporting by Huw Jones and Matt Falloon; Editing by Guy Faulconbridge and Mark Potter