LONDON (Reuters) - Britain will want to ensure safeguards are in place to protect its financial sector if the euro zone moves towards establishing a banking union, chancellor George Osborne said on Thursday.
In an interview with BBC Radio 4, Osborne also urged the single currency bloc to use its bailout fund to recapitalise Spain’s troubled banks.
“There is no way that Britain is going to be part of any euro zone banking union,” Osborne said. “I think Britain will require certain safeguards if there is a full-blown banking union.”
Britain is determined to protect the interests of the City of London, its financial hub that provides a significant share of the government’s tax revenues.
Osborne said any significant steps towards common bank depositor insurance in the euro zone would require a treaty change, which in turn would need British consent.
He was speaking hours before Prime Minister David Cameron was due to discuss the euro zone crisis with German Chancellor Angela Merkel in Berlin.
Britain is in an awkward diplomatic spot in its dealings with its fellow European Union members. London’s advice on how to tackle the crisis is not always welcome as Britain is not a member of the euro zone, but the fate of the British economy is closely linked to what goes on in the single currency bloc.
“What’s clear is ... Spain need to restructure their banking system, they need resources to do that. How exactly that is done ... must be a matter for the Spanish government and the euro zone,” said Osborne.
“When they created the rather clumsily titled EFSF, this euro zone bailout fund, one of the things it was able to do and its successor, the equally clumsily called ESM, what these funds are able to do is support euro zone banking systems.
“So we need to make sure that the mechanisms already put in place can be activated.”
“The banks have been one of the weak links in all of this and the euro zone have tolerated weak, undercapitalised banks for too long.”
Reporting by Estelle Shirbon and Fiona Shaikh Editing by Maria Golovnina